9911796707
TMI Blog1967 (3) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... ke deductions in respect of payments made by it to Wood Brothers (Glossop) Ltd., of which company the appellant was a subsidiary. The payments made by the appellant, commonly known as " subvention " payments, were in respect of deficits of Wood Brothers (Glossop) Ltd., and it was common ground that the appellant was not entitled to make such deductions unless it was authorised to do so by section 20 of the Finance Act, 1953. Accordingly, the question turned on the construction of that section, and its application to the facts of the case, including, in particular, the fact that at the dates when the payments were made Wood Brothers (Glossop) Ltd. had ceased to carry on its trade. The case stated by the special commissioners was in the following terms : At a meeting of the special commissioners held on October 16, 17 and 31 and on November 1, 1963, Davies Jenkins & Co. Ltd., hereafter called the company, appealed against assessments to income tax made upon it under Case I of Schedule D for the years 1959-60 and 1960-61 in the sums of £ 5,000 and £ 20,000 respectively. The sole question for the decision of the special commissioners was whether certain payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of the whole of section 20; that the company had therefore made subvention payments to an associated company within the meaning of subsection (1) of section 20; and that the subvention payments should therefore be treated as trading expenses of the company. It was contended on behalf of the Crown that subsection (1) of section 20 of the Finance Act, 1953, dealt with the position where a company received a subvention payment from an associated company; that subsection (10) set out the conditions which, for the purposes of the whole of section 20, must be satisfied before a company making a subvention payment to another could be treated as the other's associated company, namely, " if, but only if, at all times between the beginning of the payee company's accounting period in respect of which the payment is made and the making of the payment one of them is the subsidiary of the other . . . . . . " that subsection (9), however, provides that for the purposes of the whole of section 20 " references to a company shall be taken to apply only to a company resident in the United Kingdom and carrying on a trade wholly or partly in the United Kingdom, &q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of subsection (10). On this view the company was an associated company of ' Wood Brothers Glossop, ' and the payments in question should be allowed as deductions under subsection (1) as if they were trading expenses of the company. But the Crown seeks to import the description of ' company ' in subsection (9) into subsection (10), contending that since 'Wood Brothers Glossop' was not trading when the payments were received it was not a company 'at all times . . . ' within the meaning of subsection (10). We reject this contention. We have already said that in our view it is subsection (10) which governs the question of association for the purposes of subsection (1), and we think we are supported in this view by a consideration of paragraphs 1 and 3 of the Fourth Schedule to the Finance Act, 1954, and section 18 of that Act. It seems to us implicit in this legislation that a subvention payment made to a payee company after cessation qualified under sub- section (1) of section 20 of the Finance Act, 1953. In particular, paragraph 3 of the above-mentioned Schedule would seem to have little, if any, content if this is not so. We do not think this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting period but this is impossible in many cases. Suppose there is a hotel group consisting of a parent company and twelve subsidiary companies each of which runs a hotel. One of the hotels is gutted by fire. How, it may be asked, is it possible for such a contingency to be taken into account for the purposes of section 20 ? The Crown's argument involves the admission that Parliament has failed to provide the machinery to effect its intentions. 3. It is an irresistible inference that Parliament in 1953 intended that a subvention payment should be available and effective for a final accounting period. The function of the courts in relation to a statutory provision is to ascertain and implement the intention of the legislature. Normally that intention is ascertainable by a strict construction of the language of the statute and where this is done and it leads to anomalies nevertheless the intention so arrived at ought to prevail but it is wrong to attribute literal inerrancy to every word and every phrase of the provisions of a statute and where a statutory provision read in its entirety clearly manifests a general intention that general intention should not be overruled by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief is paid. If the definition of company in subsection (9) is imported into sub- section (10) the Crown is bound to defeat any claim for relief in circumstances where one subsidiary makes a subvention payment to another subsidiary and before such payment the parent company ceases to carry on trade. This would seem to create an extraordinary anomaly on the Crown's construction of the section. (3) Reliance is placed on the conclusion of the special commissioners in the case stated Ante, p. 449 that it is sub-section (10) which governs the question of association for the purposes of subsection (1), and that this is supported, inter alia, by section 18 of the Finance Act, 1954. As to when guidance can be sought on a question of statutory construction from the provisions of a subsequent enactment : see Kirkness v. John Hudson & Co. Ltd., [1955] A. C. 696, 710-713; [1955] 2 W. L. R. 1135; [1955] 2 All E. R. 345; 36 T. C. 28, H. L. per Viscount Simonds, where the authorities are reviewed. The court is entitled to look at a subsequent Act on the same subject in construing an earlier Act which contains a provision open to divers meanings in order to help resolve such ambiguity. Sir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as if they were a trading expense incurred by it. Moreover, subsection (10) must be construed after the definition contained in subsection (9) has been applied to it, and so construed it is plain on the facts here that, at the dates of the payments made by the appellant to Wood Brothers (Glossop) Ltd., that company was not a company as defined in subsection (9) (for it had ceased to trade) and accordingly the appellant could not have been an associated company of it. J. Raymond Philips following. As to the construction of section 20(1) of the Finance Act, 1953, it is essential that it should be construed grammatically. The two vital words of the subsection are " where . . . then. " A company does not become designated and identified until it has satisfied all the conditions specified between the words " where . . . then. " It is to be noted that the subject of " receives " is a company as described in subsection (9). The fallacy in the appellant's argument can be shown by the fact that if the definition of " company " in subsection (9) had been that it meant " a private company " and this definition had been read into sub- se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement providing for the paying company to bear or share in losses or a particular loss of the payee company, and is not a payment which (apart from [the] section) would be taken into account in computing profits or gains or losses of either company or on which (apart from [the] section and from any relief from tax) the payee company would be liable to bear tax by deduction or otherwise..." The payments made by the appellant company were made pursuant to such an agreement and were not payments which apart from the section would be taken into account in computing profits or losses or on which the payee company would be liable to bear tax by deduction or otherwise. Sub-section (1) of section 20 reads as follows: Subject to the provisions of this section, where a company has a deficit for tax purposes during any accounting period of the company, and receives a subvention payment in respect of that period from an associated company having a surplus for tax purposes in the corresponding period, then in computing for the purposes of income tax the profits or gains or losses of those companies the payment shall be treated as a trading receipt receivable by the one company on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was still the subsidiary of the other or that both were of a third company, nothing appears to turn on the actual date of payment. But the revenue contend that the section only applies if at the actual date of payment the company which receives it is carrying on a trade. There appears to be no good reason for so restricting the application of the section. There revenue was not able to suggest one, but they contended that, on its true construction, the section had that effect. They concede that Parliament, when section 18 of and paragraphs 1 and 3 of the Fourth Schedule to the Finance Act, 1954, were enacted, proceeded upon the basis that the provisions of section 20 did not cease to apply if the company which received the payment had at the time of receipt ceased to trade, but they rightly say that the content of subsequent legislation affords no reliable guide to the interpretation of an earlier statute as Parliament may have proceeded upon an erroneous view on the law: see Kirkness v. John Hudson & Co. Ltd [1955] A.C. 696; [1955] 2 W.L.R. 1135; [1955] 2 All E.R. 345; 36 T.C. 28 H.L. It is, however, inconceivable that the Government of the day would have introduced a Finance B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That is secured by sub-section (10). There are obvious reasons for defining, if the section is not to apply to all companies, the class of companies to which it is to apply. That is done by sub-section (9). But there is no reason why companies which qualify for the benefits given by the section should be deprived of them if the company receiving the payment has at the time of its receipt ceased to trade. Each of the sub-sections (9) and (10) begin with the words "For the purposes of this section" and the revenue therefore contends that sub- section (9) must be applied to sub-section (10). That contention appears to me to depend on the fact that the contents of the two sub-sections were not included in one sub-section or indeed in a separate section of the Act. If, for instance, instead of there being two sub-sections there bad been one commencing with the words "For the purposes of the section" containing two paragraphs, (a) and (b), and (a) contained what is now in sub-section (9) and (b) what is in sub-section (10), it would not be right as a matter of construction to interpret the contents of (b) in the light of the contents of (a) and it would, in my opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (9) requires this to be done or that it has this meaning. As I have said, there is no valid reason for imposing such a requirement. If company A has a deficit for tax purposes at a time when it is carrying on a trade, then one has to look to see whether company A has received a subvention payment from an associated trading company. One is not, in my opinion, required to consider whether company A was carrying on a trade when it received the payment. If it had been intended that this should be done, then one would have expected that to have been made clear, either by the insertion of the words "the company" before "receives" or in some other way. In my opinion Harman L.J. was right in rejecting the revenue's contentions and the section should be held to have the meaning the revenue originally thought it had and which Parliament attached to it when the Finance Act, 1954, was passed. I would therefore allow the appeal. LORD MACDERMOTT. My Lords, I have had the advantage of reading the opinions prepared by my noble and learned friends Lord Morris of Borth-y-Gest and Lord Upjohn. I agree with their conclusion that this appeal should be allowed and wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een brought over the threshold of sub-section (1) by complying with its first condition, and that the trading qualification need not, therefore, continue to exist until the time when the subvention payment is eventually made. My Lords, of these contentions, that of the Crown seems to me to place more weight on sub-section (9) that it was intended to bear. It is a form of definition that must be applied with caution, for it involves characteristics of qualifications which may not be constant, and it relates to a situation which, however sub-section (1) may be read, is bound to develop over, and can only be completed after, the lapse of an appreciable period of time. But, in my opinion, two things at least are reasonably clear. In the first place, if section 20 is read as a whole it is evident that sub-section (9) cannot be interpreted as requiring that, in every instance where the word "company" is used or referred to, the reference must be to a resident trading company. The proviso to sub-section (9) furnishes one example of this, as Stamp J [1966] 1 W.L.R. 446, 455; [1966] 1 All E.R. 716. has already observed; and another may, I think, be found in that part of sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this section..." Those words may mean much or little in different contexts, but with them present here it would be strange indeed if a court of construction could not ask, with relevance to the issue now before your Lordships, what the purposes of the section were. My Lords, these considerations lead me to the view that the proper construction is that for which the appellant company has argued. To my mind, it is the view to be preferred on the terms of the statute and, beyond that, it is the view best calculated to give effect to the policy of section 20. That policy has been described by Harman L.J. in the Court of Appeal and by my noble and learned friends in the opinions to which I have already referred and I need not describe it again. It is not in dispute and is readily conveyed to the informed mind by the terms of the section. Suffice it to say that the appellant company's contention accords entirely with the intendment of the section, whereas that of the Crown would mean, in effect, that relief thereunder could not be granted in respect of a deficit incurred in a company's last accounting period-an anomalous result for which no explanation was forthcoming. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a subvention agreement which was dated March 17, 1955, and was an agreement which satisfied the requirements of sub-section (2) of section 20. The question which has arisen is whether the special commissioners were right in holding that the subvention payments should be treated as trading expenses of the appellants under the provisions of sub-section (1) of section 20. In ordinary circumstances a subvention payment will be made after the end of the accounting period of the receiving company. It will be made to such company after it is ascertained that it has a deficit for tax purposes. This will only be ascertained after the end of the accounting period. A payment will be made by the paying company after it is ascertained that it has a surplus for tax purposes. In computing for the purposes of income tax the profits or gains or losses of the respective companies a payment is "treated" as a trading receipt receivable by the receiving company "on the last day of the accounting period during which it has the deficit" and is to be "allowed as a deduction to the other company as if it were a trading expense incurred on that day" (see subs. (1)). It wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t;but references to a company shall be taken to apply only to a company resident in the United Kingdom and carrying on a trade wholly or partly in the United Kingdom." In regard to the meaning of an associated company it is necessary to have regard to sub-section (10). Applying the provisions of sub-section (9) to sub-section (10) and applying both to sub-section (1) the consequence is, that if a company resident in the United Kingdom and carrying on a trade wholly or partly in the United Kingdom has a deficit for tax purposes during an accounting period and receives a subvention payment in respect of that period from a company resident in the United Kingdom and carrying on a trade wholly or partly in the United Kingdom and if at all times between the beginning of the payee company's accounting period in respect of which the payment is made and the making of the payment, one of them is a subsidiary (within the meaning of section 42 of the Finance Act, 1938) of the other, then the payment is to be treated as a trading receipt receivable by the one company on the last day of the accounting period during which it has the deficit and is to be allowed as a deduction to the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting period and the making of the payment. That additional requirement was satisfied. The fact that the payee company ceased to trade did not affect the "subsidiary" relationship. It seems to me that the purpose of sub-section (10) was to provide that both the paying and the receiving company should continue to be so to speak, members of the family down to the time of payment. There is force, therefore, in the contention that sub-section (9) and sub-section (10) should be read as imposing separate independent qualifications and that sub-section (9) should not be infused into sub-section (10). If, however, sub-section (9) is to be applied to sub-section (10), then I think that in that event what is being provided for as between the two companies is as follows. One of them that was resident in and carrying on trade in the United Kingdom during an accounting period will have had a deficit for tax purposes during the accounting period. The other that also was resident in and carrying on trade in the United Kingdom during the corresponding period will have had a surplus for tax purposes in the corresponding period. There having been a subvention agreement between them, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act, 1954, it must have proceeded on the basis that it was not necessary for the purposes of section 20 of the Finance Act, 1953, that the recipient company should be trading at the time of receipt of a subvention payment. This, in my view, neither relieves the courts from giving free and untrammelled consideration to the interpretation of section 20 nor does it furnish material for their guidance in so giving it. It is well accepted that the beliefs and assumptions of those who frame Acts of Parliament cannot make the law. For the reasons which I have set out, and agreeing as I do with the approach of Harman L.J., I would allow the appeal. LORD GUEST. My Lords, I have the misfortune to differ from the rest of your Lordships, and, although I regard this case as a difficult one of statutory construction, I can express my views quite shortly. The short question, by no means easy of answer, is: Whether in order to obtain the benefit of what has been described as the subvention procedure available to associated companies under section 20 of the Finance Act, 1953, it is necessary that the company receiving the subvention payment should be resident and trading in the United Kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment one of them is the subsidiary of the other, or both are subsidiaries of a third company, and for this purpose 'subsidiary' has the meaning assigned to it for certain purposes of the profits tax by section 42 of the Finance Act, 1938..." Sub-section (1) prescribes the conditions necessary before a subvention payment can be allowed as a deduction for income tax purposes. First, the company must have a deficit for tax purposes; secondly, the company must be what has been compendiously described as a "resident and trading company" within the meaning of sub-section (9); thirdly, the company must receive a subvention payment from an associated company within the meaning of sub-section (10). If these conditions are satisfied, "then," and only then, do the results follow. The Crown contend that in interpreting sub-section (1) to give effect to the importation of the definition of "company" in sub-section (9), the grammatical construction of sub-section (1) requires that, in order to qualify, the company must be resident and trading not only during the accounting period, but that it must also be resident and trading when the subvention pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But the intention of Parliament can only be deduced from the words used. These words are, in my view, quite clear. It is also said that this interpretation may result in the anomaly that the subvention procedure can never be available during the terminal period of the company's trading life. I recognise this anomaly but, if it is an anomaly, it is for the legislature to correct it, not the courts. Although it may not matter that the company in question has ceased trading at the date of payment, it may be of importance, the Revenue said, if the company has ceased to be resident and trading in the United Kingdom at that date. Residence and trading are inseparably linked together. However this may be, I cannot see that there is any ambiguity in the words of section 20 or that if they are interpreted according to their natural and grammatical meaning they can lead to any other result than that for which the Revenue contends. There is no room, in my view, for what would amount, in my view, to judicial legislation. I find the judgment of Stamp J. entirely satisfactory and I would dismiss the appeal. LORD UPJOHN. My Lords, this appeal is concerned with a very short point of constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purposes of income tax by the appellant company under section 20, apart from the fact that Glossop ceased to trade on December 21, 1959. I should mention here that the Crown and the appellant company have expressly disclaimed any reliance on the fact that in respect of the second accounting period Glossop ceased to trade before the end of that period. The sole question, therefore, is whether the appellant company is unable to claim the benefit of section 20 by reason only of the fact that Glossop ceased to trade before the dates of payment of the sums payable under the subvention agreement. I must now set out the relevant terms of section 20 upon which alone this question is to be determined. While it is a long and involved section with many sub-sections, it is agreed that, as Stamp J. said, sub-section (1) is the enacting part of the section. This sub-section, however, must be construed in the light of the all-important sub-sections (9) and (10). So I need set out little more than these sub-sections: "20.-(1) Subject to the provisions of this section, where a company has a deficit for tax purposes during any accounting period of the company, and receives a subvention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance in respect of their payments to Glossop as at the moment of payment Glossop was not trading and, therefore, was not qualified as payee by sub-section (9); nor was it qualified as an associated company at that moment of time (as he held that it must be) by sub- section (10). On appeal Diplock and Winn L.JJ. in very brief judgments agreed with Stamp J. and with his reasons without adding any of their own. Harman L.J. dissented and would have allowed the appeal. The argument of the Crown before your Lordship followed closely and relied upon the reasons given by Stamp J. in his judgment, though for my part I think that Stamp J., while agreeing with those arguments in principle, reached the same conclusion by a slightly different route, which I shall examine later. The Crown's argument is that you must fasten upon the definition of "company" in sub-section (9) and so that in the enacting sub-section (1) where the word "company" first occurs you must read it as a company "resident in the United Kingdom and carrying on a trade wholly or partly in the United Kingdom," which qualification for brevity in argument was referred to as a resident t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But the actual moment of payment is utterly irrelevant to any matter mentioned in sub-section (1). It is relevant only to the proviso to sub-section (2), i.e., the payment must be made within two years, and to sub-section (10), where it must be established that at the moment of payment the companies must be associated. So I approach the enacting sub-section (1) with this in mind, that the moment of payment does not seem to be of any importance provided it has been made. Had Parliament thought that the moment of payment was vital to claim the benefit of the section in the sense that the company must then be a resident trading company, I note that Parliament knew how to do that in sub-section (10) and it has signally failed to do so in sub- section (9); I would suppose because it thought that consideration to be irrelevant when construing sub-section (1), as indeed it does to me. So I fail to understand why Stamp J. placed such emphasis on the time of payment. But apart from this consideration, it seems to me that, assuming sub- section (9) to be in truth a definition section, a matter to which I shall return, it is quite a wrong method of construction slavishly to read in the defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company which receives the payment to have the qualification required by sub-section (9)?' I would...conclude that it was at the time of the payment, that it was payment at that moment of time which brings sub-section (1) into operation. My Lords, while as a matter of substance or grammar I cannot exalt the time of payment to the significance given to it by the learned judge I think he posed to himself the right question which I shall answer later. But this leads me to a closer examination of sub-sections (9) and (10). Sub- section (9) has been referred to as a definition section and so, in a sense, it is but as it applies in the same sub-clause to an investment trust company as though it was a resident trading company, as a matter of construction it is loose and, in my view, it was intended as no more than a "qualification" section. It merely defines those companies who are qualified to obtain the benefits of sub-section (1). This consideration is an additional or, indeed, independent ground for disposing of the Crown's claim, in their main argument. To my mind, also, sub-sections (9) and 10 are quite independent of each other and cannot be read as a whole so a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
