Re Duty on the Estate of the Incorporated Council of Law Reporting for England and Wales

(1888) 22 Q.B.D. 279

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(Decision by: Manisty J)

Re: Duty on the Estate of the Incorporated Council of Law Reporting for England and Wales

Court:

Judges: Lord Coleridge CJ

Manisty J

Subject References:
REVENUE
Associations established for Trade or Business
Duty
Exemptions
Liability to render an Account

Legislative References:
Customs and Inland Revenue Act, 1885 (48 & 49 Vict. c. 51) - ss. 11, 15

Judgment date: 11 December 1888

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Decision by:
Manisty J

I am clearly of opinion that the distinction taken by Mr. Rigby between the case of the New University Club ^[F6] and this is a sound and substantial distinction. In that case the club had property of various kinds, some, it might be, acquired out of funds voluntarily contributed, and some not. The Court held that an account must be rendered in order that it might be seen what part of the property was so acquired. In the present case the point is this: By s. 15 "every body corporate or unincorporate chargeable with the duty hereby imposed shall deliver a full and true account of all property in respect whereof any such duty shall be payable"; and it is said that this institution, having property belonging to them, are bound to deliver an account. It is true that they have property, but it is property which belongs to them as a body corporate established for a trade or business.

That being so, have they any "property in respect whereof any such duty is payable?" By sub-s. 5 of s. 11 "property belonging to a body corporate or unincorporate established for any trade or business" is not chargeable with the duty imposed by the Act, and therefore is not "property in respect whereof any such duty is payable" of which an account must be delivered under s. 15. I found my judgment upon this - as the plain result of reading the sections together - that property belonging to a body corporate established for any trade or business is not property chargeable under the Act. The words in s. 11, "subject to exemption from such duty," have the same effect as if the legislature had said that the various properties specified in the sub-sections were excluded from the operation of the statute. Sect. 15 only directs an account to be delivered of property in respect whereof duty is payable. If, therefore, the property belonging to this institution is not within the operation of s. 11, it is property in respect of which no duty is payable, and it follows that the direction to render an account in s. 15 does not apply.

It is said that the words in s. 15 directing that a return should also be made "of all deductions claimed in respect thereof, whether by relation to any of the before-mentioned exemptions from such duty or as necessary outgoings," shew the intention of the legislature that, where exemption is claimed under any of the sub-sections, a return must be made of the property of the body claiming exemption. Now, if the Incorporated Council of Law Reporting were to make a return to this effect: "We have no property chargeable with duty, because we are a body established for a trade or business," could it be said that they would be liable to the penalty for making an untrue return which is imposed by the Act? It seems to me a very strong proposition that any liability to make a return is cast upon a body where there is nothing chargeable, and nothing that could be chargeable.

I am clearly of opinion that this case is distinguishable from that of the New University Club, ^[F7] and that our decision ought to be that no return is necessary.

The question was then argued whether the Council were entitled to exemption as being a body "established for any trade or business," within the meaning of s. 11, sub-s. 5.

Sir E. Clarke, S.G., for the Crown. It is submitted that the Council were not established for any trade or business. They obtained a licence from the Board of Trade, under s. 23 of the Companies Act, 1867 (30 & 31 Vict. c. 131), to be registered as a company with limited liability without the addition of the word "limited." That section is headed, "Associations not for Profit," and applies to associations formed for the purpose of promoting "commerce, art, science, religion, charity, or any other useful object," and where "it is the intention of such association to apply the profits, if any, or other income of the association in promoting its objects, and to prohibit the payment of any dividend to the members of the association."

That section was clearly not intended to apply to trading companies, and the fact, therefore, that this society have obtained such a licence shews that they are not a corporation established for a trade or business. The fund which the Council have invested is exactly the sort of property that the Customs and Inland Revenue Act intended to tax. It is property vested in an association upon such permanent trusts that the same is not liable to pay legacy or succession duty. The Council clearly is not established for any trade or business, in the ordinary sense of those words; it does not buy and sell again with a view of making a profit. By the conditions of its constitution it is prohibited from dealing with its income as if it carried on an ordinary trade or business.

If the society claim to come within sub-s. 3 of s. 11 of the Act on the ground that their property is appropriated and applied for the promotion of education, literature, or science, they are bound to render a return shewing the property to have been so applied.

Tyrell Paine, for the Council. The society does carry on a business; it has, as a fact, made a profit, though it is not necessary that a "business" should be carried on so as to make a profit, or with that intention: Paddington Burial Board v. Inland Revenue; ^[F8] Bramwell v. Lacy; ^[F9] Rolls v. Miller. ^[F10] The fact that a licence was obtained under s. 23 of the Companies Act, 1867, does not shew that the association was not established for any trade or business, because a trade or business can be carried on for the purpose of promoting the objects specified in that section.

The society is also entitled to the exemption given by sub-s. 3 of s. 11, inasmuch as its property is appropriated and applied to the promotion of legal education and of legal science.

Sir E. Clarke, S.G., in reply. The case of the Paddington Burial Board v. Inland Revenue ^[F8] was decided upon the words of 5 & 6 Vict. c. 35, s. 100, Sched. D., which are much more comprehensive than the words of this Act. The other two cases of Bramwell v. Lacy ^[F9] and Rolls v. Miller ^[F10] were only decisions upon the very large terms of certain covenants made between the parties, and simply decide what was the agreement between those parties. The words of this Act are strictly limited to "any trade or business."

Lord Coleridge, C.J. The point we have now to decide is entirely distinct from the first point, on which we have already given our decision. The question is simply whether the Council of the Law Reports are established for carrying on a trade or business. If they are, it follows that they are exempted in respect of their property, howsoever and from whomsoever acquired, from the duty imposed by s. 11. If they are brought within the words of sub-s. 5, they are outside the operation of s. 11. That section, after stating in the preamble a certain mischief which it was intended to prevent, enacts that certain bodies shall pay a duty, in the nature, perhaps, of probate, legacy, or succession duty.

That duty is imposed for the first time by the Act, and the liability in respect of it is, of course, limited by the terms of the Act. Now the mischief which it was sought to prevent is very clearly described in s. 11; and if Parliament had intended to treat a body like this as being - which it perhaps is, to some extent - within that mischief, and to apply the remedy provided by the Act to it, that could have been done in equally clear terms. But Parliament distinctly did not so intend, and has therefore enacted the taxing portion of the section, "subject to exemption from such duty in favour of property of the descriptions following." Then the exemptions in sub-ss. 4 and 5 are in respect of friendly societies and savings banks, and property "belonging to or constituting the capital of a body ... established for any trade or business." I may ask, as I asked during the course of the argument, what is it that the Incorporated Council of the Law Reports do if they do not carry on a business? They do something; they carry on something; they are very actively engaged in something. I confess I should have thought it capable of strong argument that they carried on a trade, because it is not essential to the carrying on of a trade that the persons engaged in it should make, or desire to make, a profit by it.

Though it may be true that in the great majority of cases the carrying-on of a trade does, in fact, include the idea of profit, yet the definition of the mere word "trade" does not necessarily mean something by which a profit is made. But putting aside the question whether they carry on a trade, how can it be denied that the Council carry on a business? They are incorporated; they have a secretary; they employ editors, reporters, and printers; they print books; they sell those books; they do all that is ordinarily done in carrying on the business of a bookseller. It is said that though they make a profit, they cannot, by the terms of their memorandum of association, put that profit into their own pockets.

Be it so; they are carrying on a business in which, by the terms of its constitution, they are prevented from making a profit to their own benefit. One can suppose the case of co-operative stores founded upon the principle that no profit shall be made by the members. They buy and sell, and if any profit is made, their articles of association compel them to dispose of it in this or that way, but prevent the members putting any money into their own pockets. They also would probably employ secretaries, and other persons engaged in their warehouses and in buying and selling goods all over the country. Could it possibly be denied that such an association of persons were not carrying on a business? Though their objects might be more extended and numerous, I cannot see that in principle such an association could be distinguished from that in question in the present case.

As I have before pointed out, the words of the 4th and 5th sub-sections differ from the words of the 6th, 7th and other sub-sections of s. 11. Under the 4th and 5th sub-sections it matters not how the property is acquired, or in what way it is disposed of: the association is wholly exempted from the duty in respect of it, if it is property belonging to or constituting their capital. It is clear that the property described in the secretary's affidavit, and in the annual reports and financial statements which we have had before us, is property belonging to or constituting the capital of the Council, and that they have no other property. They are possessed of it as a body established for carrying on a business, and therefore they are, by the express terms of the statute, wholly exempt from duty in respect of it.

I am of opinion that the case for the Crown fails, and that our judgment should be for the Council of the Law Reports.

Manisty, J. The Council of the Law Reports are, no doubt, in some respects a somewhat peculiar body. In 1870 they were incorporated, and obtained a licence under s. 23 of the Companies Act, 1867, but before their incorporation they were individuals carrying on what I may term the same business as they have since carried on as a corporate body. Sect. 23 enables the Board of Trade to grant licences to associations of persons to be registered as companies with limited liability but without the addition of the word "limited." In order to come within the provisions of that section an association must prove to the Board of Trade

"that it is formed for the purpose of promoting commerce, arts, science, religion, charity, or any other useful object, and that it is the intention of such association to apply the profits, if any, or other income ... in promoting its objects, and to prohibit the payment of any dividend to the members of the association."

The key-note of the section is the prohibition against payment of dividends to the members. That is one of the conditions upon which the licence can be obtained. To my mind it is immaterial, except for the purpose of obtaining the licence, whether in fact the payment of dividends was prohibited. It is only material that the payment of dividends should be prohibited in order to enable the association to obtain the licence. In all other respects they are a limited liability company, with all the rights and privileges of such companies.

It is important to bear in mind that the duty imposed by the Customs and Inland Revenue Act, 1855, is a new duty entirely distinct from the income tax. It appears that in some years the Incorporated Council did make a profit, and in respect of that profit they were liable to pay, and have paid, income tax. No question, therefore, of liability to be taxed in respect of making profits or paying dividends arises in this case. The Customs and Inland Revenue Act, 1885, was intended to cover the case of certain companies in the city of London and elsewhere, whose property, because they were corporations, has never been subject to what are called the death duties; and the object of the legislature was to impose a new duty upon certain companies - not by any means upon all, because I think the number affected by the Act would be comparatively limited - who were not liable to the death duties. But to my mind the legislature never intended to cripple the business of companies by the imposition of the new tax.

The Crown get the income tax from companies who carry on a business; and if the Council in the present case make a profit, they are liable to pay income tax upon it. But the question is, are they liable to the new duty imposed by the Act of 1885 as a compensation to the revenue for the loss of death duties? I think they are not. The effect of the proviso in s. 11, "subject to exemption, & c.," is to take out of the general enactment all that is included in the subsections, and therefore if the Council of the Law Reports are brought within the words of sub-s. 5 they are wholly exempt from the duty. I am of opinion that they do come within the words of sub-s. 5 as being a body established for carrying on a business. I may ask, as my Lord has done, what is it, if it is not a business? I am clearly of opinion that it is a business, and therefore that they are exempt from the duty.

I decline to discuss the question raised under sub-s. 3 of s. 11, because I am clearly of opinion that the society are exempt under sub-s. 5.

Judgment for the Council of the Law Reports.