THE CAPE BRANDY SYNDICATE
(Lord Salvesen.)
enable him to purchase the premises solely occupied for business
purposes and on the occupation of which his profits must be
presumed to have largely depended. I am quite unable to see
how such expenditure is in the nature of capital expenditure,
looking to the identity of the ownership of the premises and of
the business. In my opinion, therefore, the determination of the
Commissioners was wrong.
W ith reference to your Lordships’ observations, it is by no
means certain that this is not to be a recurrent yearly
expenditure. That depends entirely on the attitude the bondholders may take up. No doubt, if he could secure money on
the footing that the bond was not to be called up for a given time,
he would avoid this expenditure duringthat period. But it does not
in the least follow that he would be able to make arrangements
of such a permanent or quasi permanent nature, and, there being
several bondholders here, the same thing might happen to them
that has happened in the case of the one who has died and whose
executors have therefore been compelled to call up the bond.
That, however, is only by the way because I think there are
many charges connected with a business which might only occur
at intervals of time and yet are proper deductions from the profits
of the business.
On the whole matter I am of opinion that the determination
of the Commissioners is wrong.
No. 27*.— H i g h C o u r t o f J u s t i c e (K i n g ’s B e n c h D i v i s i o n ) .—
13t h a n d 14t h O c t o b e r , 1920.
C o u r t o f A p p e a l .— 10t h a n d 11t h F e b r u a r y , 1921.
T h e C a p e B r a n d y S y n d i c a t e v . T h e C o m m i s s io n e r s o f
I n l a n d R e v e n u e ^ 1)
Excess Profits Duty— Trade or business— Isolated transaction
—Liability of business commenced after beginning of the
war— Construction of Taxing Act— Finance (No. 2) Act, 1915
(5 & 6 Geo. V, c. 89), Sections 38, 39, and 40, and Fourth
Schedule, Part I I — Finance Act, 1916 (6 & 7 Geo. V, c. 24),
Sections 45 (2) and 69—Finance Act, 1917 (7 & 8 Geo. V, c. 31),
Section 20 (1)—Finance Act, 1918 (8 & 9 Geo. V, c. 15), Section
34—Finance Act, 1920 (10 & 11 Geo. V, c. 18), Sections 44 (3)
and 45.
f1) R ep o rted K .B .D ., [1921] 1 K .B . 64, an d C.A ., [1921] 2 K .B . 403.
P art V.] The Commissioners of I nla n d R e v e n u e. 359
In March, 1916, the Appellants, three members of certain firms
engaged in the wine trade, entered into an oral agreement to
form a syndicate, independent of their respective firms, with a
view to acquiring as a speculation a quantity of brandy from the
Cape Government for subsequent sale on their joint account. The
brandy wait: bought in three instalments through an agent in
Cape Colony, the Appellants being unaware in the first instance
of the total quantity available.
A small quantity of the brandy was sold by the said agent
on commission and the balance was shipped to the United Kingdom, blended by the members’ firm§ with French brandy
purchased by the syndicate, and re-casked and sold in numerous
lots, over a period ending September, 1917, by those firms on
behalf of the syndicate. The proceeds of the sales, less the
usual charge’s for commission and other expenses, were paid by
the members’ firms to the syndicate. None of the Appellants
had previously or since been engaged in a similar transaction.
The Appellants contended that they carried out an isolated
transaction of a speculative nature, which was not a trade or
business within the meaning of Section 39 of the Finance (No. 2)
Act, 1915; and, alternatively, that if they carried on a trade
or business, the profits arising from a business commencing
after 4th August, 1914, were not chargeable to Excess Profits
Duty.
The Special Commissioners, on appeal, held that the profits
in question arose from a trade or business carried on by the
Appellants, and that Excess Profits Duty was chargeable in
respect thereof.
Held, (1) that the question whether the Appellants carried
on a trade icas one of fact, and that there was evidence on which
the Special Commissioners could arrive at their conclusion; and
(2) that, on a true construction of the Finance (No. 2) Act, 191-5,
and subsequent Acts, a trade or business commenced since the
beginning of the war was liable to assessment to Excess Profits
Duty.
C a s e
Stated under the Finance (No. 2) Act, 1915, Section 45 (5), and
the Taxes Management Act 1880, Section 59, by the Commissioners for the Special Purposes of the Income Tax Acts,
for the opinion of the King’s Bench Division of the High
Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes
of the Income Tax Acts held on 15th October, 1919, for the
purpose of hearing appeals, Messrs. O. T. Norris, C. H . White,
and R. C. Browning, hereinafter called the Appellants, appealed
against assessments to Excess Profits Duty in the sums of
£5,281 16s. 0d. for the accounting period commencing 11th
March, 1916, and ending 31st December, 1916, and £4,532 for the
360 T h e Cape B r a n d y S y n d ic a te v . [V o l. XII.
accounting period commencing 1st January, 1917, and ending
17th September, 1917, made upon them in the name of “ The
Cape Brandy Syndicate ” by the Commissioners of Inland
Revenue under the provisions of the Finance (No. 2) Act, 1915,
Part III, and subsequent enactments.
2. No significance attaches to the name “ The Cape Brandy
Syndicate ” which was not at any time used by the Appellants
but was adopted merely for purposes of convenience in connection
with the assessments under appeal, and was accepted by the
Appellants in order that the appeal might be confined to points
of substance.
3. Of the three Appellants, Mr. Norris was a member of the
firm of Portal, Dingwall and Norris, Wine and Spirit Merchants,
Mr. White was a member of the firm of E. H . Keeling and Son,
Wine and Spirit Brokers, and Mr. Browning was a member of
the firm of Twiss and Browning, Wine and Spirit Merchants, but
it was agreed that the assessments were intended to be made in
respect of profits arising to them from the undermentioned transactions undertaken by them on their joint account and not on
behalf of their said respective firms.
4. Early in the year 1916, Mr. Norris chanced to hear from
a friend that the Cape Government had a quantity of brandy of
which it could not readily dispose and which it was prepared to
sell at a low price. He came to the conclusion that a profit
might be made out of the purchase and sale of this brandy,
but the transaction was of a speculative nature and not suitable
to be undertaken by his firm, while it required too much capital
for him to undertake it alone. He accordingly approached Messrs.
White and Browning, who entered into an oral agreement to
join him in purchasing the brandy) on their joint account. The
Appellants did not consult the other members of their respective
firms, but treated the transaction as a private one apart from the
businesses of those firms.
5. On 11th March, 1916, the Appellants cabled to Messrs.
Chiappini Brothers and Company, of Cape Town, a provisional
order for the purchase of 100 casks of the brandy on their account,
at the same time enquiring how much more there was available.
Messrs. Chiappini Brothers and Company executed this order,
and subsequently purchased 1,500 casks of brandy on 24th March,
1916, and a further 1,500 casks on 4th April, 1916, as agents
for the Appellants. This quantity of 3,100 casks in all was the
whole amount of the brandy which the Cape Government had to
offer, and it was the Appellants’ intention throughout
to purchase the whole amount available, but the purchase was
made in three instalments as stated above because the Appellants
were not aware, in the first instance how much there was for sale.
Messrs. Chiappini Brothers and Company sold a small quantity
of the brandy as agents for the Appellants on commission for
shipment to the East. The remainder was shipped to London
P art V.] The Commissioners of I nland R e v e n u e. 361
from time to time as ships could be found to carry it. On arrival
in London the brandy was blended by the three firms in bond
with French brandy purchased by the Appellants for the purpose
in two or three lots. The brandy so blended was all sold on
behalf of the Appellants by the three firms to which the
Appellants respectively belonged. There were about 100 transactions of sale in all, the first taking place on or about 1st July,
1916, and the last on 17th September, 1917. These firms
charged the Appellants the usual trade commissions for selling
the brandy on their behalf and these commissions have been
included in the trade receipts of the firms and taken into account
in computing the profits of the firms for purposes of taxation.
The firms supplied the necessary casks and paid dock charges
and other expenses incidental to the storage and sale of the
brandy and charged the cost of the casks and all other expenses
incurred by them to the Appellants. The freight and insurance
connected with the conveyance of the brandy from Cape Town
to London were paid by or on behalf of the Appellants. Invoices
for the brandy sold were sent to the purchasers by the selling
firms and not by the Appellants. The selling firms collected
the purchase price of the brandy and handed over to the
Appellants the net receipts after deduction of their selling commissions and the expenses incurred on the Appellants’ behalf,
and the sums thus handed over have not entered into the taxable
profits of the firms or otherwise been treated as appertaining to
their trade or business.
6. It was admitted that the intention of the Appellants in
purchasing the brandy in question was to sell the whole of it at
a profit, and this intention was successfully carried out in the
manner above described. None of the Appellants had previously
or since been engaged in a similar transaction.
7. It was contended on behalf of the Appellants :—
(a) That the profits in respect of which the assessments
were made were capital profits on the realisation of
a speculative investment, and were not profits arising
from any trade or business carried on by the
Appellants.
(b) That an isolated and exceptional transaction does not
amount to the carrying on of a trade or business.
(c) Alternatively, that if the profits arose from a trade or
business, such trade or business did not commence
until the year 1916, and any profits arising from a
business commencing after 4th August, 1914, were
not chargeable to Excess Profits D uty;
(d) That in either case Excess Profits Duty was not payable
in respect of the profits in question and the assessments ought to be discharged.
362 T h e Cape B r a n d y S y n d ic a te v . [V o l. X II.
8. It was contended on behalf of the Crown that the profits in
question arose from a trade or business carried on by the
Appellants during the accounting periods for which the assessments were made and were chargeable to the Excess Profits
Duty imposed for those periods.
9. No question arises as to the amount of the assessments,
there being no dispute in regard to figures.
10. We, the Commissioners who heard the appeal, were of
opinion that the profits in question arose from a trade or business set up_ by the Appellants and carried on by them during the
accounting periods for which the assessments were made and that
Excess Profits Duty was chargeable in respect thereof, and we
accordingly confirmed the assessment.
11. The Appellants immediately upon the determination of
the appeal declared to us their dissatisfaction therewith as being
erroneous in point of law, and in due course required us to state
a Case for the opinion of the High Court pursuant to the Finance
(No. 2) Act, 1915, Section 45 (5), and the Taxes Management
Act 1880, Section 59, which Case we have stated and do sign
accordingly.
P. W i l l i a m s o n , \ Commissioners for the Special
G. F. H o w e , j Purposes of the Income Tax Acts.
York House,
23, King sway,
London, W .C.2.
25th May, 1920.
The case came before Eowlatt, J., in the King’s Bench
Division on the 13th and 14th October, 1920, and on the latter
day judgment was given in favour of the Crown with costs.
The Hon Sir William Finlay, K.C., and Mr. A. M. Bremner
appeared as Counsel for the Appellants, and the Solicitor-General
(Sir Ernest Pollock, K.C.) and Mr. E. P. Hills for the Crown.
J u d g m e n t .
Rowlatt, J.—In this case the subject appeals against an
assessment to Excess Profits Duty. It appears that three gentlemen, who were members of three firms engaged in the wine trade,
entered into a speculation independently of their firms, forming
together a little syndicate consisting of their three selves for
that purpose, and their speculation was this. They bought a
large quantity of Cape brandy in South Africa from the Government there. They did not buy it all at once because they did
not know originally how much there was for sale, but they
bought ultimately all that there was. I do not think that the
circumstance that they bought it piecemeal in that way makes
very much difference in the case.
P abt V.] T he Commissioners of In la n d R e v e n u e. 363
(Rowlatt, J.)
Having done so, they succeeded in selling some of. it at a
profit, as it was, for export to the East, and the remainder they
brought home to this country, I think “ as ships offered ” is the
wording of the statement in the Case, and when they had got it
here, they caused it to be blended with a certain amount of
French brandy. For that purpose they employed their three
respective firms and paid them. They then re-casked it, of
course, and re-casked it in more casks or receptacles than it had
originally been in, and they then proceeded to dispose of it
piecemeal through their three firms, and they disposed of it, I
think, in about 100 transactions which lasted fourteen months.
Now under those circumstances it is said that they are not
carrying on any trade or business, that this is a single isolated
speculation, just as a man might buy property, real or personal,
which he thought was going cheap, with a view to selling it,
and sell it, and there would be the beginning and the end of it,
and that would not be a trade. Well, it is very easy to put clear
cases on one side like that, and it is very easy to put clear cases
on the other side. But there is a large number of cases in
between, in which it is very difficult to say whether there is a
trade or business carried on or not.
Now in the case of the Hudson’s Bay Company v. Stevensi1),
where the Hudson’s Bay sold the lands which were almost the
ancestral possessions of that company—or rather, I think, if my
memory is right, speaking more accurately they had been given
them in liquidation of sovereign rights, or something very like
sovereign rights, which they had enjoyed from the time of the
Charter of Charles II—where they sold those lands it was held
by the Commissioners that they did not carry on a trade.
Mr. Justice Channell held that as a matter of law they did carry
on a trade and the Court of Appeal held that they did not
carry on a trade, that they were merely selling lands, as the
Master of the Bolls says, as a landowner might sell the lands
which had come down to him from his ancestors.
Then there was the case of Californian Copper Syndicate
(Limited and Reduced) v. Harrisi2), where apparently a company
bought property for the purpose of selling it, and it was held
that in that respect they carried on that trade. Apparently they
had other business and this trade was not to be dissevered from
that business.
Then there was the case of Tehran (Johore) Rubber Syndicate,
Ltd. (in liquidation) v. Farmer(3), where a company having an
estate simply sold it and went into liquidation, and the! Court
held that that was not carrying on a trade. And there may be
(x) 5 T.C . 424. (*) 5 T.C. 159. (8) 5 T.C . 658.
364 T h e Cape B r a n d y S y n d ic a te v . [V o l. XII.
(Rowlatt, J.)
other cases. But this case presents some curious features. It is
quite clear that these gentlemen did far more than simply buy an
article which they thought was going cheap, and re-sell it. They
bought it with a view to transport it, with a view to modify its
character by skilful manipulation, by blending, with a view to
alter, not only the amounts by which it could be sold as a man
might split up an estate, but by altering the character in the way
it was done up so that it could be sold in smaller quantities.
They employed experts—and were experts themselves—to dispose
of it over a long period of time. When I say over a long period
of time I mean by sales which began at once but which extended
over some period of time. They did not buy it and put it away,
they never intended to buy it and put it away and keep it.
They bought it to turn over at once obviously and to turn over
advantageously by means of the operations which I have
indicated. Now under those circumstances the Commissioners
have held that they did carry on a trade, and I think it is a
question of fact, and I do not think, by telling me all the
evidence, that the Commissioners can make me, or indeed give
me authority—because they cannot give me authority if I do not
possess it by law—to determine the question of fact. I think
it is a question of fact, and a question of degree which generally
is a question of fact. I need not say any more than that. I am
not prepared to say that there was no evidence before the Commissioners. I think it is just one of those cases where there was
evidence. I can conceive people deciding the other way. I do
not say which way I should decide myself. But I certainly
think that there were materials upon which they could find as
they did. Therefore I think that point, to my great regret, fails
because it brings me to the consideration of another point which
I think is an extremely troublesome one. It is said that this
business was commenced after the 4th August, 1914, and it is
argued that the Excess Profits Duty has no relation to that state
of affairs at all. If you have not got a business which was
carried on before the 4th August, that is to say a pre-war
business, the Excess Profits Duty’has nothing to say to it.
Now the Excess Profits Duty was imposed by the Finance
(No. 2) Act, 1915, and the Section which is, I think, the charging
Section, is Section 38 which imposes a duty on the amount “ by
which the profits arising from any trade or business to which this
“ Part of this Act applies, in any accounting period which ended
• “ after the 4th August, 1914, and before 1st July, 1915,
“ exceeded by more than £200, the pre-war standard of profits.”
The duty in this Act is referred to as Excess Profits Duty.
Therefore the charge is on the amount by which profits after the
war exceeded what is called the pre-war standard of profits.
Then Section 39, which is very much relied upon by the SolicitorGeneral, says that the trades and businesses to which the Act
applies are all trades or businesses carried on or owned or carried
P art V.] The Commissioners of I n la n d R e v e n u e. 365
(Rowlatt, J.)
on by any person residing in the United Kingdom. It does not
say “ carried on or to be carried on,” and not saying that, I do
not think this Section carries it any further at all because it only
defines the trades or businesses, as Sir William Finlay pointed
out, to which this Part of the Act applies. Therefore, so far,
you have got all trades and businesses taxed on the difference
between their profits in the accounting period after the war began
and the pre-war standard of profits. W hat is the pre-war
standard of profits? Section 40, Sub-section (2) says that “ the
“ pre-war standard of profits . . . shall, subject to the pro-
“ visions of this Act, be taken to be the amount of the profits
“ arising from the trade or business on the average of any two
“ of the three last pre-war trade years.” That “ pre-war ” is
an adjective coined in the circumstances of the last few years
but here it quite clearly means the three trade years which
preceded the outbreak of the war which began on the 4th August,
1914. Then lower down in the same Sub-section it says : “ The
“ provisions contained in the second Part of the Fourth Schedule
“ to this Act shall have effect with respect to the computation of
“ the profits of a pre-war trade year.” So that we are still
seeking for the standard of profits of what is called a pre-war
trade year.
♦
Then when you go to Part II of the Schedule which is
referred to, the first paragraph says that the profits of any prewar trade year shall be computed on the same principles as the
accounting period. Then Paragraph 2 does not matter, and I
do not think Paragraph 3 matters. It merely provides for the
case of the three last pre-war trade years not being fair samples;
and then Paragraph 4 deals with the case where there have not
been three pre-war trade years. “ Where owing to the recent
‘ ‘ commencement of a trade or business there have not been three
‘ ‘ pre-war trade years but there have been two ’ ’, the standard of
profits shall be taken in a certain way. “ Where there have not
“ been two pre-war trade years, but there has been one pre-war
“ trade year,” it is to be taken in another way. And now comes
the sentence upon which everything turns. “ And where there
“ has not been one pre-war trade year, the pre-war standard of
“ profits shall be taken to be the statutory percentage on the
“ average amount of capital employed in the trade or business
“ during the accounting period.”
Now as to the words “ where there has not been one pre-war
trade year,” of course, in the case of a company which has never
begun business at all there has not been one pre-war trade year,
but that is not the way you describe such a company. Where a
company has commenced business after the war there has not
been one pre-war trade year, of course. But these words in the
collocation in which they are found seem to me quite clearly to
mean “ where there has been less than one pre-war trade year.”
360 T h e Cape B r a n d y S y n d ic a te v . [V o l. X II.
(Rowlatt, J.)
In the Act of Parliament hitherto the Legislature has been
speaking of nothing else but cases where there is something prewar and something post-war. It has spoken of nothing else, it
is referring to nothing else, and when those words occur in that
collocation, I feel bound to say that what is meant is, where
there has not been, in the sense where there has been less than,
one pre-war trade year. The other construction means that I
am to take the statutory percentage of the average amount of
capital as being the pre-war standard of profits, although there is
nothing pre-war about the trade or business at all. We are here
dealing in my judgment with something that quantifies a thing
that there is, but which it is difficult to quantify. Here you are
importing on this construction an entirely new thing, while you
are saying you are quantifying the pre-war standard of profits.
That is to say, you say a certain figure is to be taken to be, not
the sum which is to be substituted in the particular case for the
pre-war standard of profits, but it is to be taken to be the prewar standard of profits, reducing the whole thing to the most
artificial construction of an Act of Parliament that is to be found
even in an age when artificial constructions by reference in this
sort of way are, with increasing frequency, imposed upon us,
bringing in by an artificial definition into the words “ pre-war
“ standard ” something which has nothing whatever to do with
anything in connection with which the word “ pre-war ” can be
properly employed.
Now of course it is said and urged by Sir William Finlay that
in a taxing Act clear words are necessary to tax the subject.
But it is often endeavoured to give to that maxim a wide and
fanciful construction. It does not mean that words are to be
unduly restricted against the Crown or that there is to be any
discrimination against the Crown in such Acts. It means this,
I think; it means that in taxation you have to look simply at
what is clearly said. There is no room for any intendm ent;
there is no equity about a tax : there is no presumption as to a
ta x ; you read nothing in ; you imply nothing, but you look fairly
at what is said and at what is said clearly and that is the tax.
Applying those principles I am bound to say it is quite
impossible for me to hold, and I cannot believe that any Court
would hold, that a tax had been imposed by this Act upon the
subject who had no pre-war business at all.
But the matter does not rest there, because I am now sent to
what is a still more difficult question. By the next Act, the
Act of 1916, Excess Profits Duty was imposed for the following
year, and that Act is to be read with the Finance (No. 2) Act,
1915, which I have just been examining, and it says this in
Section 45 (2) : “ In the case of trades or businesses commencing
“ after the 4th day of August, 1914, the rate shall be 60 per
“ cent.” and so on. Now Parliament there most certainly
P a st V.] The Commissioners of I nland R e v e n u e. 367
(Rowlatt, J.)
legislated upon the footing that these businesses were already
charged by the previous Act, and it has been urged before me
that that concludes the matter in favour of the Crown 1 Now
the Solicitor-General cited several cases and cited also from
Maxwell, and in particular he cited a judgment of Sir Francis
Jeune in the Attorney-General v. ClarksonC) which makes it
quite clear to my mind that if I had been construing the Finance
Act, 1916, I should have been bound, having regard to the fact
that 1 have to read these Acts together, indeed they say they are
to be read together—I should have been bound to say that clearly
Parliament in 1916 had imposed by necessity, not in direct words,
but imposed by saying the thing was to be done which involved
the necessary law, there being necessary authority to do i t ; it
imposed a rate of tax on trades or businesses commencing after
the 4th day of August. But that does not quite cover the ground
—I wish it did—because I am not here construing the Act of
1916, I am construing an Act which does not contain those
words and which preceded the Act of 1916, and Sir William
Finlay drew my attention to another series of cases which
decided that an Act of Parliament does not alter the law by
merely betraying an erroneous opinion of it. But that does not
cover this case either, because the cases which Sir William Finlay
cited are cases in which argumentatively and indirectly it can be
suggested that Parliament showed it thought the law to be
different from what it in fact was. That is to say, take the
simplest case, take a typical case where an Act of Parliament
(7 Jac. I, c. 12) says that a trader’s shop books should
not be evidence above a year, that did not make them evidence
within the year, though Parliament apparently thought that they
were. It did not do that indirectly (see Pitman v. Maddox, 2
Salk. 690). But here I have something different because Parliament is saying that the two Acts shall be read together, and it
provides that the tax shall be levied on businesses of this character—i.e, on post-war businesses. I have come to the conclusion
that Section 45 (2) of the Act of 1916 extends the scope of the
Act of 1915. I must treat this exposition in the Act of 1916 in
the same way as if it had been given by a Court binding upon me,
compelling me to construe the Act of 1915 in a way I could not
otherwise have done. It is true, as Sir William Finlay says,
that here you are only dealing with an enactment which fixes
the rate, and that is a very good way of putting it, if Sir William
will allow me to say so. It is the best way of putting it but I
do not think it quite carries it, because the two Acts are to be
read together, and it says the rate shall be so and so. I think
that cannot be read otherwise than as saying that under the Act
which is to be read with this Act a rate of 60 per cent, is to be
levied, and that expounds the A ct; and although I do not think
there is authority precisely in point, I think the only possible
(26551)
(!) [1900] 1 Q .B . 156.
c
368 T h e Cape B r a n d y S y n d ic a te v . [V o l. X II.
(Rowlatt, J.)
effect I can give to the legislation on the subject is to say that
that interpretation of the Act of 19.15 given by the Act of 1916
must enure for the purposes of construing precisely similar Acts,
although they do not contain the same words as the Finance
Act, 1916.
Now I very much wish that I could have decided this case
in some way without seeming to reflect upon the language of the
Legislature; but I think the parties are entitled to know why I
decide, and personally I am incapable of saying that I can
construe the Act of 1915 in a way that I cannot construe it. I
can only say that I consider that Parliament has bound me by
authority if you like to put it that way, or has amended the Act
by reason of what it has said in 1916. If I am wrong in that
principle and right in the other, then the subject ought to have
succeeded but as it is he fails and fails with costs.
An appeal having been entered against this decision, the
case came before the Court of Appeal (Lord Sterndale, M .R.,
and Scrutton and Younger, L .JJ.) on the 10th and 11th February, 1921, judgment being given on the latter day unanimously
in favour of the Crown, with costs.
The Hon. Sir William Finlay, K.C., and Mr. A. M. Bremner
appeared as Counsel for the Appellants, and the Solicitor-General
(Sir Ernest Pollock, K.C.) and Mr. R. P. Hills for the Crown.
J u d g m e n t .
Lord Sterndale, M.R.—This is an appeal from Mr. Justice
Rowlatt, who held that the Appellants here were liable to be
assessed to Excess Profits Duty. It raised two questions. One
was a question of fact whether the Appellants were carrying
on a trade or business, or whether they were1 only entering on an
isolated transaction, and the other whether, assuming they were
carrying on a business, they were liable to be charged with
Excess Profits Duty. The first question is of importance only
with regard to this case. The second question is a question of
very far-reaching importance because if it be decided in favour
of the Appellants the result is that no persons carrying on a
business which began after the commencement of the war can
be charged with Excess Profits Duty at all, and that is obviously
a question of very great importance.
The questions arose in these circumstances. One of these
three gentlemen, the Appellants, early in 1916, heard that the
Government of Cape Colony had a quantity of Cape brandy
which they were wishing to dispose of. He got the assistance
of two friends in the speculation, and they bought a considerable
quantity of this Cape brandy, over 3,000 casks. Some of it
P art V.] T he Commissioners of I nland R e v e n u e. 369
(Lord Sterndale, M.R.)
was allowed to go to other countries, but the greater part of
it was brought to London. These three gentlemen were all
members of different wine merchants’ firms, and when the
brandy came to London it was blended with French brandy,
which was purchased by the Appellants, the blending being done
by their firms, and was sold in England under the description
of Old Vatted Brandy, and it was sold, not all at once, but from
time to time, in different sales ranging from July, 1916, to
September, 1917, and profits were made upon the sale.
The first question, as I say, was whether they were carrying
on a business. That is a question of fact, and the Commissioners
decided the finding of fact that these gentlemen were carrying on
a business and were not merely entering upon an isolated transaction. That was affirmed by Mr. Justice Rowlatt, and the
learned Counsel for the Appellants—very properly if I may
say so in the face of those findings—did not argue that matter
before us, and therefore we start with the position that they
were carrying on a business which was begun after the beginning
of the war. It was not begun in fact till 1916.
The next question—whether in those circumstances they are
chargeable with Excess Profits Duty—depends upon the construction of the Finance Acts of 1915 and onwards, and the contention
on behalf of the Appellants is that under those Acts there is no
power to charge Excess Profits Duty on any business which
began after the beginning of the war.
The first Act that one has to go to is the Finance (No. 2)
Act of 1915. The first section of importance is Section 38.
Section 38, Sub-section (1), provides that : “ There shall be
“ charged, levied, and paid on the amount by which the profits
“ arising from any trade or business to which this Part’ of this
“ Act applies, in any accounting period which ended after the
“ 4th day of August, 1914, and before the 1st day of July, 1915,
“ exceeded by more than £200, the pre-war standard of profits
“ as defined for the purposes of this part of this Act, a duty
“ (in this Act referred to as ‘ excess profits duty ’) of an amount
“ equal to 50 per cent, of that excess.”
Sub-section (2) provides for the way in which the accounting
period is to be made out, and it is, taking it shortly, this,
that where a business has been in the habit of making up
its accounts for certain periods, that is to be the accounting
period ; but where that is not so, then the Commissioners of
Inland Revenue may determine what is the accounting period.
There are two accounting periods with which we have to deal
in this case. Neither of those accounting periods comes directly
under the Act of 1915,. because that only dealt with accounting
periods from August, 1914, to July, 1915. The first accounting
period with which we have to deal comes under the 1916 Act
which deals with accounting periods from July, 1915, to August,
370 T h e Cape B r a n d y S y n d ic a te v . [V o l. X II.
(Lord Sterndale, M.R.)
1917, and the second accounting period comes under the 1917
Act, which deals with the accounting periods from July, 1917,
to August, 1918.
Then Section 39 of the Act of 1915 provides : ‘ ‘ The trades
“ and businesses to which this Part of this Act applies are all
“ trades or businesses (whether continuously carried on or not)
“ of any description carried on in the United Kingdom, or owned
“ or carried on in any other place by persons ordinarily resident
“ in the United Kingdom,’’ excepting certain businesses with
which I need not deal.
Section 40 provides first for the way in which the determination of profits is to be arrived at, then with the question of the
pre-war standard, and it provides, by Sub-section (2), that : “ The
“ pre-war standard of profits for the purposes of this Part of
“ this Act shall, subject to the provisions of thia Act, be taken
“ to be the amount of the profits arising from the trade or
“ business on the average of any two of the three last pre-war
“ trade years, to be selected by the taxpayer (in this Part of
“ this Act referred to as the profits standard) : Provided that
‘ ‘ if it is shown to the satisfaction of the Commissioners of Inland
“ Revenue that that amount was less than the percentage
“ standard as hereinafter defined, the pre-war standard of profits
“ shall be taken to be the percentage standard.”
Then it provides what the percentage standard shall be, and
I do not think it necessary to read that. Then it goes on : “ The
“ provisions contained in the Second Part of the Fourth
‘ ‘ Schedule to this Act shall have effect with respect to the com-
“ putation of the profits of a pre-war trade year, and the provisions
“ contained in the Third Part of the Fourth Schedule shall have
effect with respect to the ascertainment of capital for the
“ purposes of this Part of this Act.”
The argument upon that Act, pausing for a moment before 1
go to the schedule, is this : It is said first that it contemplates an
excess profit—an excess profit over what? The excess profit
in an accounting period over a pre-war standard, that is to say,
pre-war standard as defined for the purposes of th’s Act. But a
pre-war standard, it is said, only means a standard which is in
existence before the war, and therefore unless there be something
in the definition of pre-war standard in the Act, it is said that the
charge imposed by this section cannot apply to any business in
respect of which no comparison can be made with any pre-war
period, because there is not any pre-war period or any pre-war
standard with which to compare it. For the definition reference
is made to the Fourth Schedule, Part II, and the important part
of that is this. The heading is “ Pre-War Standard.” It
speaks of the way in which the profits are to be computed, and
then proceeds in this way in paragraph 4 :
P art V.] The Commissioners of I nland R e v e n u e. 371
(Lord Sterndale, M.R.)
“ Where owing to the recent commencement of a trade or
“ business there have not been three pre-war trade years, but
“ there have been two pre-war trade years, the pre-war standard
“ of profits shall be taken to be the amount of the profits
“ arising from the trade or business on the average of
“ those two years, or, at the option of the taxpayer, the profits
“ arising from the trade or business during the last of those two
“ years ”—that evidently cannot apply in ascertaining the prewar standard of a business that did not exist until after the war.
Then—“ and where there have not been two pre-war trade years,
“ but there has been one pre-war trade year, the pre-war stand-
“ ard of profits shall be taken to be the profits arising from the
“ trade or business during that year.”
Now that is a standard which cannot be applied to a business
which did not exist till after the war. Then there follows the
only one which can apply : ‘ ‘ And where there has not been one
“ pre-war trade year, the pre-war standard of profits shall be
“ taken to be the statutory percentage on the average amount
“ of capital employed in the trade or business during the
“ accounting period.”
The argument is this, that reading that with the previous
part of the clause, that can only mean this : Where there has
been some period of pre-war but there has not been a whole
year, or, as Mr. Justice Rowlatt expressed it, where there has
been less than one pre-war trade year. If it is to be read in that
way, then it does seem very difficult to bring within the scope of
this Act a business which began after the war, because it can
only be taxed by a comparison with its pre-war standard as
defined by the A ct; and if the schedule which determines how
the pre-war standard is to be arrived at necessarily pre-supposes
some standard applicable to businesses carried on before the war,
it is very difficult to see how a business beginning after the war
is included. Unless there be a charging section in one of the
subsequent Acts, the only charging sections are to be found in
this Act, and therefore although this does not refer to the
accounting periods with which wTe have to deal, it is, unless some
thing be found in the subsequent Acts, the only Act under which
the Excess Profits Duty can be charged. ‘
Now what is said on behalf of the Commissioners of Inland
Revenue is this, that the words “ where there has not been one
“ pre-war trade year ” are not confined to cases in which there
has been some part of a year but not the whole, but may also
be read “ where there has been no pre-war trade year.” That
was rejected by Mr. Justice Rowlatt on the construction of this
Act alone. For reasons that I shall give directly, I do not think
it is necessary to decide whether Mr. Justice Rowlatt was correct
in saying that, apart from any other Act, this Act of 1915 could
not and did not refer to businesses commenced after the war. My
inclination, I think, apart from any other Act, would be to agree
372 T h e Cape B r a n d y S y n d ic a te v . [V o l. X II.
(Lord Sterndale, M.R.)
with the construction put upon this by Mr. Justice Rowlatt, but
as I say it is not necessary to decide that for reasons which I
shall give directly. I must say that in all this legislation,
and in all these Acts with which we have to deal, it does seem
as if the framers had done their very best, and done it with
very conspicuous success, to raise difficulties on the construction
of the Act, and as if, if they had only considered the matter
perhaps a little more, the sections might have been made so
plain that the taxpayer would know whether he was taxed or not,
and no Court would have any dealing with the legislation.
Unfortunately that has not been done, and we have to deal
with questions which are certainly difficult. The Finance Act of
1916, which extended the operation of the Act of 1915 to a later
accounting period, in Section 45 contained this provision. After
continuing the charge of Excess Profits Duty, as I have said,
down to the 1st August, 1917, it went on to say this : “ In the
“ case of trades or businesses commencing after the 4th day of
“ August, 1914, the rate of duty shall be 60 per cent, of the
‘ ‘ excess in respect of any accounting period ending after the 4th
‘ day of August, 1915.”
When it was dealing with other businesses the provision was
this : “ Section 38 of the principal Act shall, as respects excess
“ profits arising in any accounting period beginning after the
“ expiration of a year from the commencement of the first
“ accounting period, have effect as if 60 per cent, of the excess
“ were substituted as the rate of duty for 50 per cent, of the
“ excess.”
The curious result of those two parts of the sub-section is this,
that there may be one accounting period at any rate in which
a new business, if I may call it so, was paying 60 per cent, and
an old business would be paying 50 per cent, showing that the
matter again had not been at all carefully considered. It also
shows in my opinion that the framers of the Act of 1916 were
of opinion that the Act of 1915 did include those new businesses.
For the moment I pass over the question of whether that is a
charging section and imposed a new charge upon new businesses which did not exist under the old Act. It is provided that
Part III of this Act, which is the Part dealing with Excess
Profits Duty, shall be construed together with Part III of the
Finance (No. 2) Act, 1915. That is the Part also dealing with
Excess Profits Duty.
In 1917 the Excess Profits Duty was extended, as I have said,
to a later accounting period. I do not think it is important to
read that Act, because I do not think there is anything said
which throws any light upon whether businesses commenced
after the war were included in the charge or not. But that Act
which governs the second accounting period which we have to
deal with here, contains this provision : “ Part I II of this Act
“ shall be construed together with Part III of the Finance
P art V.] The Commissioners of I nla n d R e v e n u e. 373
(Lord Sterndale, M.R.)
“ (No. 2) Act, 1915,” and does not mention the Act of 1916.
That is a matter to which I shall have to refer again later.
There were subsequent Acts extending the Duty to later
accounting periods, to which I need not refer. There was an Act
in 1920, to which I think reference must be made. Part IV of
that is the Part which refers to Excess Profits Duty and it
provides in Section 44, Sub-section (3) : “ In the case of a trade
“ or business which is owned or carried on by any person who
“ has served during the war as a member of any of the naval
“ or military forces of the Crown, or of the Air Force or in
“ service of a naval or military character in connection with the
“ war for which payment was made out of money provided by
“ Parliament, or in any work abroad of the British Red Cross
“ Society of the Order of St. John of Jerusalem or any other
“ body with similar objects, and which was commenced by that
“ person for the first time, or having been wholly discontinued
“ by him during the war or some part of the war was recom-
“ menced by him, after his demobilisation or discharge, sub-
“ section (1) of section 38 of the principal Act ”—that is the
Act of 1915—“ shall have effect as though ‘ five hundred
“ ‘ pounds ’ were substituted for ‘ two hundred pounds.’ ”
That is to say, in the case of a person in those particular
services, he shall not pay any Excess Profits Duty until the
excess amounts to at least £500. But obviously in giving that
exemption to persons who had begun their businesses in those
circumstances, it again contemplates as being clear that those
businesses which commenced after the war are liable to Excess
Profits Duty and would be liable for anything above the excess of
£200 but for this privilege which is given to them. It then goes
on to say in Section 45, Sub-section (1) : “ For the pre-war
“ standard of profit there shall, on the application of the tax-
“ payer, be substituted a standard (in this section referred to as
“ ‘ the substituted standard ’) of an amount equal in the case of
“ a trade or business which had no pre-war trade year, to the
‘ ‘ statutory percentage on the average amount of capital employed
“ in the first accounting period.”
Therefore it speaks there of a business which had no pre-war
trade year, and contemplates that such a business might and
would be chargeable with Excess Profits Duty. I think it is
clearly established in a case to which we were referred, the
Attorney-General v. Clarksoni1), that subsequent legislation on
the same subject may be looked to in order to see what is the
proper construction to be put upon an earlier Act where that
earlier Act is ambiguous. I quite agree that subsequent legislation, if it proceed upon an erroneous construction of previous
legislation, cannot alter that previous legislation, but if there be
(!) [1900] 1 Q .B . 156.
374 T h e Cape B r a n d y S y n d ic a te v . [V o l. X I I .
(Lord Sterndale, M.E.)
any ambiguity in the earlier legislation then the subsequent
legislation may fix the proper interpretation which is to be put
upon the earlier. As 1 have said, taking the Act of 1915, the
words which are relied upon really, not entirely, but most
strongly, as showing that what I may call post-war businesses
were not included in the Act, are the words “ where there has
“ not been one pre-war trade year.” I do not find it possible to
say that those words are not capable of two constructions. I
have mentioned the two constructions. One would exclude postwar businesses; one would not exclude post-war businesses. I
will not say it would include them because if they are not
excluded they are included by Section 39. I think those are two
possible constructions. It is perfectly obvious that the Act of
191G and the Act of 1920 both assume that the 1915 Act was so
framed as to include post-war businesses, and therefore it seems
to me to assume and to direct really that the second construction,
which does not exclude post-war businesses, is the right construction of the Fourth Schedule, Part II, of the Act of 1915. That
was the view that was taken by Mr. Justice Eowlatt. He said
this : “ I have come to the conclusion that Section 45, Subsection (2), of the Act of 1916 extended the scope of the Act of
1915.” I do not personally like to put it quite in those words.
I do not say it extends the scope, but I agree with what he goes
on next to say : “ I must treat this exposition in the Act of
1916 in the same way as if it had been given by a Court bind-
“ ing upon me and telling me to construe the Act of 1915 in a
“ way that I could not otherwise have done.”
Then, after saying a little more, he goes on : ‘‘Although there
“ is no authority precisely in point, the only effect I can give to
the legislation is to say that the interpretation of the Act of
1915 given by the Act of 1916 must enure for the purpose of
“ construing similar Acts, although not containing the same
“ words as the Act of 1916.”
That disposes of the matter, subject to this, that it is said
that although that may be quite right as to the first accounting
period, it is wrong as to the second accounting period, because it
is governed by the Act of 1917, and the Act of 1917 takes no
notice of the Act of 1916 and is only to be construed with the
Act of 1915, and as the Act of 1917 does not contain the interpreting clause to which I have referred, of the Act of 1916, the
Appellants must escape for the second accounting period. I do
not think that is right, although I must say again I can see no
reason whatever why the framers of this legislation should have
gone out of their way to leave out a reference to the Act of 1916
in the Act of 1917, when, as a matter of fact, they put ity I
think, in all the subsequent Finance Acts which were passed. It is
quite unintelligible to me why they should have done it, but I
do not think it makes any difference.
P art V.] The Commissxonees of I nland R e v e n u e. 375
(Lord Sterndale, M.R.)
I was wrong in saying all the subsequent Acts, because the
Act of 1920 is the same as the Act of 1917 : “ Part IV of this
“ Act shall be construed together with Part III of the Finance
(No. 2) Act, 1915.” I see in the 1920 Act it is put in one way in
one place and in another way in another, so far as I can see.
What I have read is the last section, Section 64 : “ Part IY of
“ this Act shall be construed together with Part III of the
“ Finance (No. 2) Act, 1915.” In Section 51, on the contrary,
there is this provision : “ In this part of this Act ” (that is
the Part IV) “ references to the principal Act ”—the principal
Act is the Act of 1915—“ or to any provisions of that Act, shall
“ be construed as references to that Act, or those provisions as
“ amended and extended by any subsequent enactment.”
Section 34 of the Act of 1918 says: “ The Finance (No. 2)
“ Act, 1915, in this part of this Act referred to as the principal
“ Act, as amended or extended by any subsequent enactment.”
The words in the 1917 Act are only “ as amended, shall so far as
“ relate to Excess Profits Duty apply ” and so on.
As I say, the point with regard to this second accounting
period i s : Can the 1917 Act be said to apply to that accounting
period, although the 3916 Act is not mentioned in it? In my
opinion, it can. When you say that the 1916 Act and the 1915
Act are to be construed together, then it seems to me that when
the Act of 1917 says it is to be construed with the Act of 1915, it
must be construed with the Act of 1915 as construed together
with the Act of 1916. Therefore, it seems to me that that point
fails also.
It was also argued that even if Section 45 (2) of the Act of
1916 did not interpret the Act of 1915, it was itself a charging
section under which this Excess Profits Duty could be levied.
I do not in the least dissent from that argument. I think it is
very likely correct, but I prefer to base my judgment on the
ground that I have mentioned.
I think, therefore, on all the points the appeal fails, and must
be dismissed with costs.
Scrutton, L.J.—I arrive at the same result that Mr. Justice
Rowlatt arrived at, but as I arrive at it by a method which I do
not think was his method and which is a method which, I think,
my learned brethren do not prefer to their own, I express my
judgment in my own words.
Three gentlemen engaged in a transaction, and the question
in this case is whether it comes within the Finance Act which
charges trades or businesses with Excess Profits Duty. The
transaction took place between the 11th March, 1916, and the
17th September, 1917, and it consisted in buying in thfee lots
of 3,100 casks of Gape brandy, and inasmuch as apparently
Cape brandy was not an attractive term to sell it under, mixing
(26551) D
376 T h e Cape B k a n d y S y n d ic a te v . [V o l. XII.
(Scrutton, L.J.)
it with some undefined amount of French brandy, putting it into
fresh receptacles, describing it as “ old vatted brandy ” —how old
and in what vats not stated—and selling it in some 100 transactions spread over a period of 18 months, at a profit which, I
suppose, was satisfactory to the persons who engaged in it, but?,
at any rate, is sufficient if it is taxable to come under the head
of excess profits.
The first question argued below was, was that a trade or
business as distinct from one transaction? Inasmuch as there
were over 100 sales of this composite article extending over 18
months, it appears to me that there was abundant evidence on
which the Commissioners could find that it was a trade or
business, and Counsel for the Appellants very properly in this
Court did not contest the finding of the Commissioners, affirmed
by Mr. Justice Rowlatt, that it was a trade or business.
The next question is the really important one of general application, and it is whether, under the series of Finance Acts, businesses which are started after the war began are liable to Excess
Profits Duty. Considering that the war began in 1914 and that
the Excess Profits Duty Act began in 1915, it is very curious that
it should take six years for this question to come to the Court of
Appeal. It either suggests that the proceedings in ascertaining
revenue liability are very dilatory or that the point had not such
merits as made them conspicuous to people desiring to escape
Excess Profits Duty. However that may be, it has now arrived
in the Court of Appeal. The two accounting periods in which
it is suggested that this tax should be levied are the accounting
period commencing 11th March, 1916, and ending 31st December,
1916, and the period commencing 1st January, 1917, and ending
17th September, 1917. Now, neither of these periods would fall
within the Act of 1915. It therefore seems to me respectfully,
as at present advised, that I am not concerned to consider
whether the Act of 1915 did cover post-war businesses. This case
does not raise the question—it does not apply to accounting
periods which come within the Act of 1915 at all. The first of
these accounting periods comes within the Act of 1916 and the
second comes within the Act of 1917, and I therefore look to the
Act of 1916, in the first place, to see whether the first accounting
period is charged. The Act of 1916, Section 45, Sub-section (1),
provides in effect that the Finance Act, 1915, shall apply to two
accounting periods, and, by Sub-section (2), “ in the case of
“ trades or businesses commencing after the 4th day of August,
“ 1914, the rate of duty shall be 60 per cent, of the excess in
“ respect of any accounting period ending after the 4th day of
“ August, 1915.” Now, as at present advised, those seem to me
perfectly clear charging words, subject to your finding out what
60 per cent, means. There is a charge upon a trade or business
commencing after the 4th day of August, 1914, of 60 per cent,
of the excess to which the Act of 1915 applied.
P art V.] The Commissioners of I nland R e v e n u e. 377
(Scrutton, L.J.)
Now, no doubt, that does send us to the Act of 1915, but it
sends us with a clause that Part III of the Act of 1916 shall be
construed together with Part 111 of the Act of 1915, and I therefore have to construe the Acts of 1915 and 1916 as if they were
one Act written out together, and in that one Act I find a clause :
“ In the case of trades or businesses commencing after the 4th
“ day of August, 1914, the rate of duty shall be 60 per cent.”
As at present advised it seems to me too clear for argument that
the joint Act does charge this business with 60 per cent, of the
excess, leaving you to find out what the excess is.
As I have understood the argument, it comes to th is : Well,
it is quite true that Parliament says that, but when you come to
look into their machinery they have not provided how you are to
find out what the 60 per cent, is, and therefore the business is
not chargeable.
I go to the Act of 1915 and I find that Excess Profits Duty
is to be levied on the profits arising from any trade or business
to which this part of the Act applies. W hat is the business to
which this part of the Act applies? All trades or businesses of
any description carried on in the United Kingdom—not all
trades or businesses carried on before the war in the United
Kingdom but all traides or businesses carried on in the United
Kingdom, in respect of certain accounting periods. This business was carried on in the United Kingdom and it was carried on
during the accounting periods. So far why is the Act not to
apply? It shall be levied on profits which exceed the pre-war
standard of profits as defined. I look to see where the pre-war
standard of profits is defined and I find that I am sent to Part
II of the Fourth Schedule where I find a clause pointing out
what is to be done in case there have not been three pre-war
years of business. Where there have not been three pre-war
years of business but have been two, you take the average of the
two. If there have not been two but there has been one, you
take the profits during that year; and where there has not been
one pre-war trade year then you entirely abandon pre-war and go
to the statutory percentage on the capital employed in the trade
or business during the accounting period which is post-war. So
if there has not been one pre-war trade year, you entirely throw
over pre-war and look at a post-war figure entirely.
Now, when I have to construe that Statute, reading into it
a clause, ‘‘ In the case of trades or businesses commencing after the
“ war the rate of duty shall be 60 per cent.” , it seems to me that
the only intelligible way to read it is to assume that Parliament
intended their means of assessing to relate to the business commencing after the war which they expressly said they were going
to tax. And therefore as to the 1916 period, as to which I have
to look to a combined Act of 1915 and 1916, it seems to me that
there are clear words charging the particular business for the
(26551) D 2
378 T h e Cape B r a n d y S y n d ic a te v . [V o l. XII
{Scrutton, L.J.)
particular period, and a mode of calculating which could only be
made intelligible and applicable to the subject matter which
Parliament has stated in express words it is taxing, by assuming
that when Parliament say “ not one pre-war trade year ” they
mean “ not one or any part of one.”
I may say that if I am to look at the subsequent Acts, I find
that view justified by the provisions to which the Master of the
Eolls has referred about the taxing of the business started by
demobilised soldiers after the war which are clearly assumed to
be within the Taxing Act of 1915. There is a provision in
Section 45 (1) of the Finance Act, 1920, “ of an amount equal in
“ the case of a trade or business which had no pre-war trade
“ year,” which appears to me again to point to post-war businesses, and the phrase is repeated in Section 26 of the Act of 1917.
So much for the Act of 1916. For the second accounting period
I have to look to the Act of 1917. The Act of 1917 begins as the
Act of 1916 did : “ The Finance Act (No. 2), 1915, shall apply
“ to any accounting period ending on or after the 1st day of
August, 1917, and before the 1st day of August, 1918.” The
accounting period is covered. Section 39 of the Act of 1915
again makes the businesses referred to businesses carried on in
the United Kingdom. There is no express statement in the
Act of 1917 about post-war businesses, but there is a statement
that references to the Act of 1915 shall be construed as references
to those Acts or provisions as amended by any subsequent enactment ; and in my view the provision in the Act of 1916 is an
amendment or alteration of the Act of 1915. It is made clear by the
phrase used in the later Acts—“ amended or extended ”—but
in my view “ amended ” and “ amended or extended ” substantially mean the same thing, and I only regret that apparently
through insufficient prevision the people who draft these Acts
should use different language, with the result that one has a
long argument to see whether they meant something different or
whether they did not look back to see what language they had
used before.
It seems to me that the legislation has the result of bringing
both those accounting periods within the charging sections in the
Acts of 1916 and 1917, and it is not necessary, in my opinion,
to express a view as to the Act of 1915 by itself. I do not
assent to or dissent from the view which Mr. Justice Eowlatt
arrived at. When some post-war business with an accounting
period in 1915 comes before the Court it will be time enough to
decide what the effect of the 1915 Act only is. In this case there
is no accounting period coming within the 1915 Act only.
For these reasons, which are not quite the reasons put
forward by Mr. Justice Eowlatt, though I do not desire to say
that I differ from them—I only say I prefer to put it in the way
I have done—I think the appeal should be dismissed.
P art V.] T h e Commissioners of In la n d R e v e n u e. 379
Younger, L.J.—I am of the same opinion. The result of the
discussion which has taken place in this Court, and also of the
judgment of the learned Judge from whom this appeal comes, has
demonstrated, I think, that there are more roads than one by
which one can arrive at the conclusion that the Appellants in
this instance are subject to this tax. It is, of course, conceded by
the Appellants that if a business, commenced for the first time
after the war, is brought under the Excess Profits Duty by the
Act of 1915, that the subsequent Acts which have fixed further
accounting periods will automatically bring them within their
charging provisions. And accordingly the Solicitor-General, in
dealing with the case which was made against him by Sir William
Finlay, elected mainly to reply upon his contention that upon
the true construction of the Act of 1915 the business of these
Appellants, which has been made subject to charge, was brought
directly under charge.
Now the learned Judge has said in his judgment that it
seemed to him quite impossible to hold that the Act of 1915 did
impose this Excess Profits Duty upon a person in respect of a
business that had no pre-war existence. Now, speaking for
myself, I am not able to arrive, with the certainty that the
learned Judge has expressed, at the same conclusion. Indeed,
with reference to businesses generally, the result of the full discussion, I think,has been to persuade me that even without the assistance of the Act of 1916 one might have arrived at the conclusion,
on the construction of the Act of 1915, that they were included.
But with regard to the particular kind of business with which we
are concerned in this case, a business, namely, which is included
in Section 39 of the Act of 1915 as one which is not continuous,
it is, in my judgment, much easier to say that upon the true
construction of the Act of 1915 that kind of business was included,
even if it had had no kind of commencement until after the war.
Now, of course, Sir William Finlay, in dealing with this part
of the case, attached very great emphasis, and rightly attached
very great emphasis, to the expressions in the Act of 1915 relating
to a pre-war standard of profits, words which connoted that there
must have been some kind of business carried on by which prewar profits could have been earned. If the expression, however,
be analysed and investigated it will be found that while, if that
pre-war standard of profits is arrived at with reference to profits,
the existence of a pre-war business is necessarily involved in the
notion, yet if the pre-war standard of profit is, as it may be,
arrived at with reference to what is called the percentage
standard, there is no such necessity at all; because the percentage
standard is arrived at without reference to profits earned by
this business or that business; it is a certain rate of profit which is
deemed to have been earned by any business in the period prior to
the war. Accordingly the use of the words “ pre-war standard of
“ profit ” when applied to the percentage standard as distinct
from the profits standard, does not in any way, as it seems to me,
380 T h e Cape B r a n d y S y n d ic a te v . [V o l. XII.
(Younger, L.J.)
involve the necessity that the business should have continued at
all or have been in existence at all before the war. When you
get rid of that idea you do find in Section 39 of the Act of 1915 a
definition of businesses to which the Act is to apply that is extraordinarily wide in its terms. And amongst other businesses to
which the Act is so to apply is a business of the kind with which
we are here concerned, namely a business which is said to be
one not continuously carried on.
Now the argument of the Appellants involves this view that in
order that a business not continuously carried on may be brought
under charge by the Act of 1915, there must have been some
non-continuous carrying on of that business at some period more
or less remote from the passing of the Act, before the beginning
of the war, and that a business non-continuously carried on is,
under the Act of 1915, brought into charge by the accident
of whether at some previous stage of its owner’s existence he
had carried on that non-continuous business or not.
Now, I myself should not have thought that that was the
meaning of the phrase “ whether continuously carried on or not,”
as found in Section 39 of the Act. It appears to me that that
means a business non-continuously carried on during the period
of charge, and has not necessarily or at all any reference to
a pre-war existence. And if one had any doubt upon that subject
on the Act as it stands, then it appears to me that the Legislature
has resolved that doubt by Section 44 (3) of the Act of 1920
to which the Master of the Rolls has referred, because that Act,
dealing it is true with persons who were engaged on working
abroad for the Red Cross Society or the Order of St. John of
Jerusalem or who were in the military service of the Crown
or the Air Force or any service of a naval or military character
in connection with the war, expressly provided that in the case
of a non-continuous business carried on by them and commenced
after the war they are to be subject to charge, and subject to
the charge which is referred to in the Act of 1915 because they
get a certain advantage in the sum of £500 being inserted in
that Act for their benefit, instead of a sum of £200 which applies
to everybody else. It appears to me, therefore, that so far as
non-continuous businesses are concerned, with which at the
moment we alone have to deal, you find a statutory assertion
and recognition in the Act of 1920 that these businesses were
always subject to the Act of 1915 even although they were for
the first time commenced after the war.
Now that would be enough to dispose of this case having
regard to the peculiar character of the business which is in
question here, which Sir William Finlay has now recognised
before us he must admit is a business within the meaning of the
Act if in other respects it is brought within it. Therefore from
my point of view I need not say more, and I agree that, if the
P art V.] T he Commissioners of I nland R e v e n u e. 381
(Younger, L.J.)
business be of a continuous character, the construction of the
Act of 1915, which is not in this respect assisted by the Act
of 1920, is certainly not so clear. But I think when one looks
to find what is the real difficulty which even as to these
businesses stands in the way of the assertion that they are
included in the Act of 1915, one finds that that difficulty is
confined, in the last analysis, to the proviso which is to be found
in the second paragraph of Section 40 which provides that “ If
“ it be shown to the satisfaction of the Commissioners of Inland
“ Revenue that that amount ”—that is the amount of the
profits—“ was less than the percentage standard as hereinafter
“ defined, the pre-war standard of profits shall be taken to be
“ the percentage standard.”
Now that proviso is difficult to understand; I cannot myself
as at present advised, give any very intelligible reason why it
should have been inserted at all. It seems to mean, so far as
words are concerned, that the subject, where his pre-war standard
of profits exceeds the percentage standard, is by this proviso
compelled to accept—I use the word advisedly—the standard
which is worst for the Revenue, and it seems also to be
designed to protect the Revenue from some supposed reluctance
on the part of a subject to elect to take that standard which
is best for himself. It certainly is a very strange proviso.
But whatever it may mean it does seem undoubtedly to
imply this, that there must have been a business in respect
of which it was possible for the subject, the taxpayer, to
prove that there was a certain sum in respect of pre-war profits,
the accuracy of which he had to establish to the Commissioners.
And if it stood there it would, I think, be difficult, as a mere
matter of construction, to say that that did not necessarily imply
that the business in question must have existed before the war.
But when you go to the Second Part of the Fourth Schedule,
to which by the same section we are directed for the purpose
of ascertaining the pre-war standard, then you find in paragraph 4
a provision applicable to businesses which have not existed for
a year before the . commencement of the war, which makes
the statutory percentage the only pre-war standard, and which
ex necessitate absolves the subject from the necessity of
proving to the Commissioners that which under Section 40,
Sub-section (2), he would, apart from that provision, be
called upon to prove, and if the subject in that case is absolved
from the necessity of proving any pre-war profits in the
strict sense of the words, then it appears to me that it is
no great stretch to say that where there has been no pre-war
business at all the subject is equally entitled, if the words
of the Act are sufficiently wide to cover him, to have the
percentage standard applied to the profits of his business whensoever commenced. Accordingly it does seem to me that if you
(Younger, L.J.)
take the whole of this Act together, applying it with regard to
discontinuous businesses, the words seem to be reasonably plain
that it does apply to such businesses commenced after the war.
That reasonable plainness is emphasised and I think almost to
demonstration, by the section from the Act of 1920 to which the
Master of the Eolls has referred.
With regard to other businesses the question, I agree, is
left in doubt, but it is left in such slight doubt that any
subsequent statutory recognition of the opposite position would,
I think, be sufficient to resolve it.
It appears to me that we do find in the different sections,
which have been referred to by my Lord and the Lord
Justice, sufficient statutory recognition of that point of view,
and accordingly I am prepared, taking for this purpose the view
of the learned Judge, to hold that even if the section of the
Act of 1915 were itself less clear, with regard to particular
businesses with which we are here concerned, that business
would be directly brought into charge by virtue of the provisions
in the subsequent Act.
I only desire to add this. I should be quite prepared, if
it were necessary, to accept the view which has been expressed
by Lord Justice Scrutton as to the effect of the Act of 1916
upon this case—I should be quite happy to arrive at the conclusion
in the way in which he has arrived at, as well as by the way
which I myself have chosen. Whichever may be selected it
seems to me that the appeal must be dismissed.
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