London & Thames Haven Oil Wharves Ltd v Attwooll (Inspector of Taxes)
[1967] Ch. 772[1967] 2 W.L.R. 743
[1967] 2 All E.R. 124
[1967] 1 Lloyd's Rep. 204
43 T.C. 491
(1966) 45 A.T.C. 489
[1966] T.R. 411
(1966) 110 S.J. 979 Times, December 17, 1966
(Judgment by: HARMAN L.J.)
London & Thames Haven Oil Wharves Ltd
versus; Attwooll (Inspector of Taxes)
Judges:
Willmer
HarmanDiplock
Buckley L.JJ
Judgment date: 27 April 1967
Judgment by:
HARMAN L.J.
Questions relating to capital and income are among points that in my experience arise no less in the region of fiscal law, in which we are here involved, than in that of inheritance, where they are as thick as autumn leaves; and it is tempting to try to classify them and to decide whether they fall on one side of the line or the other.
The judge in the court below seems at one time to have been tempted to farm out the authorities in this way. But, as he rightly reminds himself in his judgment :
"Judges have from time to time been careful to say that no clear and comprehensive rule can be formulated and no clear line of demarcation can be drawn by reference to which it can be determined in every case whether the sum received should be regarded as a capital receipt or as a revenue receipt to be taken into account in arriving at the profits or gains of the recipient's trade. Each case must be considered on its own facts."
As my lord says, this is in the end a question of fact. How then do the facts stand? There is no doubt that the £21,000-odd, which is the subject of the controversy here, was arrived at between the parties by a highly arbitrary process based on the estimated loss of profit during the time in which the jetty was out of use. But that does not carry one much further, for as Lord Buckmaster said in the course of his judgment in the Glenboig case : "There is no relation between the measure that is used for the purpose of calculating a particular result and the quality of the figure that is arrived at by means of the application of that test." He then goes on to say that he is unable to regard the sum of money recovered in that case as anything but capital money, and that it was erroneously entered in the balancesheet of the company concerned as a profit. So that so far one is not advanced any further forward by finding out how the sum has been arrived at, or in relation to what.
The taxpayer company's case here, as I have understood it, is that the total sum recovered is damages for the tanker-owners' negligence - one cause of action, one answer in damages - which, though measured in two ways, is nonetheless one sum. They argue further that this is compensation, and not profit from carrying on a trade; and this, they say, is the very antithesis of the annual profits and gains of the trade within which it must fall in order to bear tax under Case I of Schedule D, which is the claim that was made.
Buckley J. in the end (by a process which I must confess that I do not altogether follow) accepted that view. I find myself unable to agree with him. It does seem to me that there is at least one valid test, namely, has there been the destruction of some capital asset of the company.
That is well illustrated by the Glenboig case, with which my lord has dealt in his judgment. In that case the pillar of fireclay left to support the railway, under the railway company's statutory rights, was permanently lost to the mining company. That was a capital asset which had been destroyed, and, therefore, compensation for it was a capital receipt. Similarly, damages which they had received for maintaining the mine during the period of interdict, which turned out to be useless, was a sum of money employed in preserving what would have been (or what was at the time) a capital asset, and, therefore, partook of the nature of a capital receipt. Accordingly, Glenboig seems to me to be a clear enough case.
The other cases, or very many of them, are either instances of the disposal of stock-in-trade, or money recovered under a contract, for instance, on an insurance policy made in the course of trade with a view for providing against the very event which had happened.
The last one, Inland Revenue Commissioners v. Newcastle Breweries Ltd., dealt with goods requisitioned by the Government, and the Ensign Shipping case was concerned with what would have been compensation received by shipowners for compulsory detention of ships by the Government. In that case there was no destruction of the ships, which were capital assets; they were merely put out of commission.
The Burmah case related to a sum paid for delay in delivery, and that fell under the head of income as being a mere trading receipt; see the observations of Lord Morison. In the British Columbia Fir and Cedar Lumber Co. case, in the Privy Council, the receipts were receipts under a fire insurance policy; and, as was pointed out, in so far as they were receipts for destruction of assets by fire, they were, of course, capital receipts, but in so far as they were related to loss of profit for those assets if they had not been burned, they were revenue receipts.
Crabb v. Blue Star Line related to an insurance against late delivery of ships, and this was similar to diminution in the price of a capital asset. Lastly, there is Short Bros. Ltd. v. Inland Revenue Commissioners, where the sum received was compensation for the cancellation of a contract to build a ship, and that was held to be an ordinary trading receipt of the company's business.
On the whole, therefore, such attention as I have been able to give to the cases seems to me to show them holding a fairly consistent result when looked at in the light of the particular circumstances of each case when those are borne in mind individually. In my opinion Buckley J. mistook the effect of them and was wrong.
I agree that his decision should be reversed, and this appeal allowed.