Van den Berghs Ltd v Clark (Inspector of Taxes)
[1935] A.C. 431(Judgment by: Lord Atkin (including background))
Between: Van den Berghs Ltd - Appellant
And: Clark (Inspector of Taxes) - Respondent
Judges:
Lord AtkinLord Tomlin
Lord Russell of Killowen
Lord MacMillan
Lord Wright
Subject References:
REVENUE
INCOME TAX
Agreement between Trade Rivals
Sum paid to terminate
Capital or Profits of Trade
Legislative References:
Income Tax Act, 1918 (8 & 9 Geo. 5, c. 40) - Sch. D, Case 1
Judgment date: 8 April 1935
Judgment by:
Lord Atkin (including background)
An English company with an issued share capital of 3,575,000l., carried on a very extensive business as manufacturers of margarine and other substitutes for butter. Their articles of association empowered them to act in many subsidiary capacities such as those of importers, dealers, cattle breeders, crushers and merchants of seeds, shipowners, warehousemen and others; and also to enter into trading arrangements with persons engaged in any enterprises which the company was authorized to carry on. Their principal trade rivals in the manufacture of margarine were a Dutch company.
In February, 1908, these two companies entered into an agreement to share profits and losses in the proportion which, on an average of five years, the profits of the rival tradings in margarine bore to each other. In July, 1913, the former agreement was extended so as to include profits and losses in connection with the acquisition and exercise of certain patent rights granted for a process of hardening oils and, with this extension, was prolonged until the end of 1940. Each company carried on its business independently and acted on the two agreements until the end of 1913. During the War the agreements could not be observed on either side. In October, 1920, a third agreement was entered into by which the former agreements were amended and it was agreed that, as amended, they should continue in force until the end of 1940.
In particular it was agreed that the results of trading in the year 1914 and later years should be ascertained by accountants on each side, and that any dispute arising under the agreements should be settled by arbitration. Disputes arose and became the subject of an arbitration of such complexity and duration that the companies came to terms by which the agreements were rescinded and the Dutch company paid the English company a sum of 450,000l. "as damages"; but the parties did not specify the cause of action in respect of which the damages were paid:-
Held, that this sum was in the nature of a capital asset and not an income receipt to be included in computing the profits of trade of the English company under Sch. D, Case 1, of the Income Tax Act, 1918.
Order of the Court of Appeal reversed.
Appeal from an order of the Court of Appeal dated June 28, 1934, allowing an appeal by the Inspector of Taxes from an order of Finlay J. in the King's Bench Division made upon a case stated by the Commissioners for the Special Purposes of the Income Tax Acts.
The question at issue in this appeal was whether a sum of 450,000l. received by the appellants from Anton Jurgens Vereenigde Fabrieken of Holland (hereinafter called "the Dutch Company") was an income receipt to be included in the computation of the profits of the appellant's trade, or whether it was a capital receipt to be excluded from the operation of the Income Tax Act.
The Special Commissioners held that the said sum must be brought into account in arriving at the balance of the profits and gains of the appellants for the year in question.
At the instance of the appellants a special case was stated under s. 149 of the Income Tax Act, 1918. On the hearing of the special case Finlay J. reversed the determination of the Special Commissioners. The Inspector of Taxes appealed. The Court of Appeal (Lord Hanworth M.R., and Slesser and Romer L.JJ.) allowed the appeal and restored the determination of the Special Commissioners.
Hence this appeal.
The facts, which were very voluminous, are summarized in sufficient detail in the speech of Lord Macmillan and are briefly indicated in the headnote.
March 4. Sir William Jowitt K.C., A. M. Latter K.C., and Cyril L. King for the appellants.
March 5. Sir Thomas Inskip A.-G., Sir Donald Somervell S.-G. and R. P. Hills for the respondent.
March 8. A. M. Latter K.C. replied.
The House took time for consideration.
April 8. Lord Atkin - My Lords, I have had an opportunity of reading the opinion which is about to be delivered by my noble and learned friend Lord Macmillan. I agree with it, and have nothing to add.