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Issues Involved:
1. Whether value payments received under the War Damage Acts should be treated as trading receipts for income tax purposes. 2. The interpretation and application of specific provisions of the War Damage Acts, particularly sections 66 of the 1943 Act and 28 of the 1949 Act, in relation to tax assessments. Detailed Analysis: 1. Whether value payments received under the War Damage Acts should be treated as trading receipts for income tax purposes: The appellant company, London Investment and Mortgage Co. Ltd., contended that value payments received under the War Damage Acts should not be treated as trading receipts for income tax purposes. The respondents argued that these payments should be included in the company's trading receipts. The commissioners initially held that such payments should prima facie be treated as trading receipts since the properties were part of the company's stock-in-trade and compensation for their loss should be considered a trading receipt. However, they also noted that if the property was repaired or rebuilt, the payments should be deducted from the rebuilding costs. The Court of Appeal ruled that the value payments were trading receipts, a decision upheld by the House of Lords. The judgment emphasized that the company's business involved dealing with its stock-in-trade, and receiving cash equivalents or compensation for the loss of such stock was part of its trading activities. The House of Lords agreed with the Court of Appeal, stating that the payments were indeed trading receipts as they were received in the course of the company's business. 2. Interpretation and application of specific provisions of the War Damage Acts: The appellant company relied on sections 66 of the War Damage Act, 1943, and 28 of the War Damage Act, 1949, to argue that the payments should be treated as capital and not as trading receipts. Section 66 of the 1943 Act stated that contributions and indemnities under the Act should be treated as outgoings of a capital nature. The argument was that since contributions were capital outgoings, payments received should also be treated as capital. However, the House of Lords found that this argument was weakened by section 80 of the same Act, which allowed the Treasury to adjust contributions based on net receipts and payments, indicating that the contributions should not reduce the Exchequer's net receipts by being treated as income payments. Section 28 of the 1949 Act, which replaced section 113 of the 1943 Act, dealt with the non-deductibility of certain expenditures for tax purposes. The section specified that no sum should be deducted in computing profits or gains if it related to repairing war damage covered by a war damage payment. The appellant argued that it implied that such payments should not be treated as trading receipts. However, the House of Lords held that section 28 did not explicitly address the treatment of receipts but rather focused on deductions. The court found no provision, express or implied, that allowed the exclusion of such payments from the computation of profits. Viscount Simonds and other Lords emphasized that the payments should be treated as trading receipts unless the statute explicitly stated otherwise. They noted that the application or destination of the funds did not affect their taxability. The judgment also referenced previous cases like J. Gliksten & Son Ltd. v. Green and Newcastle Breweries Ltd. v. Inland Revenue Commissioners, which supported the view that compensation for lost stock-in-trade should be treated as trading receipts. Lord Reid acknowledged the complexity of the case, particularly regarding section 28(4) of the 1949 Act. He noted that while the section applied to all war damage payments, it was not designed with traders in land in mind, leading to unjust results if applied literally. He suggested that both cost of works payments and value payments should be treated as trading receipts for traders in land, as excluding one type while including the other would be inconsistent. Ultimately, the House of Lords concluded that the value payments received by the appellant company were trading receipts and should be included in the computation of profits for tax purposes. The appeal was dismissed with costs.
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