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TMI Blog1948 (7) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... rust ), has at all material times carried on the trade of a dealer in stocks and shares and an exploiter of and dealer in goldmining concessions in the Gold Coast Colony. Its practice has been to acquire concessions for land considered to have gold bearing possibilities. Concessions so acquired were exploited by the Trust to the extent necessary for the ascertaining of their potentialities. If a concession was proved to be gold bearing, and if it appeared to the Trust that further development might result in the profitable production of gold, the Trust transferred such concession to a company, the business of which was to work the concessions and market the gold produced. The transferee company was in every case a public company, its directors were drawn from the directorate of the appellant company; and the consideration for the transfer of the concession was in each case satisfied by an issue of fully paid-up shares in the transferee company. The shares so issued (hereinafter called vendor shares ) were of a par value equal to the price named in the agreement for the sale of the concessions as the sale price. Permission to deal in the shares of the transferee companies was, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some additional shares in the market, and later bought 545,939 shares at 6s. under its option. The question is whether fully paid shares acquired under the agreement of July 28 by the Trust should, for income tax purposes, be valued at any and what figure in money and thus enter into the computation of the profits and gains of the Trust for the year ending April 5, 1935, so as to justify a corresponding assessment to income tax for the year ending April 5, 1936. A similar question arises, with a difference in figures and amounts, in the other two cases. The books of the Trust entered the cost to the Trust of the concessions sold to Marlu, viz., ? 107,875, as the purchase price for the 3,200,000 fully paid shares allotted under the sale agreement. It seems obvious that when the concession has been proved to be auriferous, its value cannot be limited to this. Then, year by year, as shares were sold, the profit on such sales was brought to account. The Commissioners found: 1. That when the Marlu, Main Reef and Bremang shares were allotted to the Trust there was a realisation of the assets sold to those companies. 2. That at the date of the allotment the value of the shares r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they reached the conclusion that this was the right figure. We are left, therefore, with two issues, and I must express my opinion on both. One is what is the proper way of treating an asset not immediately realisable. The other is whether the Commissioners have proceeded on the correct principle. It seems to me that it is not correct to say that an asset, such as this block of shares, cannot be valued in money for income tax purposes in the year of its receipt because it cannot, in a commercial sense, be immediately realised. That is no reason for saying that it is incapable of being valued, though, if its realisation cannot take place promptly, that may be a reason why the money figure set against it at the earlier date should be reduced in order to allow for an appropriate interval. Supposing, for example, the contract conferring the asset on the taxpayer included a stipulation that the asset should not be realised by the transferee for five years, and that if an attempt was made to realise it before that time, the property in it should revert to the transferor. This might seriously reduce the value of the asset when received, but it is no reason for saying that when received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the market, and its own statements to its shareholders about their value, showed that the asset should rightly bear. By artificial value in this passage the Lord Justice meant the figure of ? 107,875 which was the amount the Trust had spent in acquiring the site and proving the concession before they could ascertain that it was auriferous. Counsel for the appellant called the attention of the House to a number of reported cases in which the valuing of an asset was simplified because the asset was readily realisable, but this circumstance, though dwelt upon when deciding that the unrealised asset must none the less be given a money value, is nowhere declared to be the ground of the decision. Thus, in Californian Copper Syndicate v. Harris [1904] 5 Tax Cas. 159, where the syndicate was engaged in acquiring and reselling mining property, and it was held that the difference between the purchase price of such property and the value of the shares for which the property was exchanged, is a profit assessable to income-tax, Lord Trayner dealt with the contention that there was no realised profit, since the shares had not been sold. He said (5 Tax Cas. at p. 167): A profit is real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lisability is nowhere declared to be the essential point of the case. There is, indeed, authority to the contrary effect contained in, or at any rate implied by, the decisions of this House in Cronk's case [1936] 106 L.J.K.B. 70; [1937] A.C. 185 (above referred to) and in Absalom v. Talbot [1944] 113 L.J.K.B. 369; [1944] A.C. 204. In my view the principle to be applied is the following: In cases such as this, when a trader in the course of his trade receives a new and valuable asset, not being money, as the result of sale or exchange, that asset, for the purpose of computing the annual profits or gains arising or accruing to him from his trade, should be valued as at the end of the accounting period in which it was received, even though it is neither realised nor realisable till later. The fact that it cannot be realised at once may reduce its present value, but that is no reason for treating it, for the purposes of income tax, as though it had no value until it could be realised. If the asset takes the form of fully paid shares, the valuation will take into account not only the terms of the agreement but a number of other factors, such as prospective yield, marketability, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermines the question of the second appeal. I therefore move that the appeals be allowed, but only to the extent that the matter be referred back to the Commissioners to reconsider and fix the proper figure in the light of these directions. There will be no costs awarded in respect of the appeals to this House. The late Lord Thankerton, who took part in the hearing of these appeals, expressed to me before his death his agreement with this conclusion. LORD UTHWATT.-I have had the advantage of reading in print and considering the opinion which has just been delivered by the noble Lord on the Woolsack. I find myself in complete agreement with his conclusions and with his reasonings, and I am content to express my adherence to his opinion. My noble and learned friend Lord du Parcq, who is unable to be present, desires me to say that he also agrees with the opinion which has just been expressed by the noble and learned Lord on the Woolsack. LORD OAKSEY.--In my opinion the appeal should be allowed and the case remitted to the Commissioners on the ground that they appear to have thought that they were bound as matter of law to assume that the shares in question were worth the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es must have estimated the value of their shares both at the time and in the future at a higher figure. But the fact that the appellant company parted with the concessions does not mean that they realised or could realise at the time the money value of the concessions, for they did not receive cash but still retained in the shares their interest in the concessions. The appellant company will, of course, ultimately realise the value of the concessions to the company by selling their shares or holding them and receiving dividends on them. But all that the Commissioners have to do in this case is to assess the profit on the transactions in the years in question and for that purpose, to bring into the appellant company's accounts the money value of the shares in the years of computation. The only true test of the money value of an article at a certain time is what can be got for it in money at that time : if it cannot be sold at that time or exchanged for something which can be sold at that time, no one can make a profit out of it which can be stated in terms of money at that time. If a picture dealer exchanges a picture for another picture and it is proved that the picture take ..... X X X X Extracts X X X X X X X X Extracts X X X X
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