RANSOM (INSPECTOR OF TAXES)
v.
HIGGS
MOTLEY (INSPECTOR OF TAXES)
v.
HIGG’S SETTLEMENT TRUSTEES
DICKINSON (INSPECTOR OF TAXES)
v.
DOWNES
GRANT (INSPECTOR OF TAXES)
v.
DOWNES’S SETTLEMENT TRUSTEES
KILMORIE (ALDRIDGE) LTD.
v.
DICKINSON (INSPECTOR OF TAXES)
Lord Reid
Lord Morris of Borth-y-Gest
Lord Wilberforce
Lord Simon of Glaisdale
Lord Cross of Chelsea
Lord Reid
My Lords,
Your Lordships heard five appeals in two groups: first two which I shall
call the Higgs’ cases and then three which I shall call the Downes’ cases.
All arose out of two elaborate schemes devised by the same finance
company for the purpose of tax avoidance.
In the Higgs’ cases there was argument about the proper interpretation
of the findings of fact of the Special Commissioners. I do not think it
necessary to deal with this matter. I shall try to state the facts in the manner
most favourable to the Revenue because even so I am of opinion that their
case cannot succeed on the issues which we have to determine.
Mr. and Mrs. Higgs owned and controlled a number of companies. Several,
which I shall call the Higgs’ Companies, owned parcels of land ripe for
development. Another, called Coventry, was engaged in land development.
If there had been no scheme for tax avoidance the natural course would
have been for the Higgs’ Companies to have transferred the land to Coventry
which would then have carried out the development. The lands held by
the Higgs’ Companies had been bought by them at prices amounting in all
to about £80,000. It was expected that development would yield a profit of
about £200,000. In the absence of this scheme tax would have had to be
paid on this profit.
But it was suggested to Mr. Higgs by a representative of a finance company,
Harlox, that matters could be arranged in such a way that after paying to
Harlox a fee of £30,000 the remaining £170,000 would come into the hands of
trustees of a discretionary trust for the Higgs family free of liability to tax.
Mr. Higgs, who had no connection with Harlox, agreed to carry out
their scheme. He did not fully understand it but he must be held responsible
for its implementation, in that he procured the co-operation of all those
companies and individuals who played parts in the scheme.
2
The case for the Revenue as presented to your Lordships was that in
procuring the steps taken by the companies and individuals, Mr. Higgs was
carrying on a trade within the meaning of the Income Tax Acts and that
the £170,000 which under the scheme was to go to the family trustees was a
profit of that trade which was assessable to tax. So the question to be
determined is whether that contention can be sustained.
I must now briefly describe the operation of the scheme. Admittedly, Mr.
Higgs took no direct part in its operation. He never owned any of the land
and he never handled any of the money. First he obtained the consent of
his wife to his acting on her behalf in respect of her interests.
The first step in the scheme was to form a partnership called H.L.N.
consisting of Mrs. Higgs and two of Harlox’s subsidiary companies in which
Mrs. Higgs had a 90 per cent. interest. The capital of this partnership was
I think £100 and then the partnership entered into some trifling transactions.
Next Mrs. Higgs assigned to the family trustees her whole interest in the
partnership. The validity of the assignment has not been questioned. Then
the Higgs’ Companies sold their lands to the partnership for £87,000 which
was considerably less than the market value. But we do not know what the
true market value then was. No money was paid to the Higgs’ Companies.
Then Harlox bought from the trustees their interest in the partnership for
£170,000, a sum far in excess of its value at that time. It was part of the
scheme that the trustees should receive a cheque for that amount but should
immediately give their cheque for that amount to Coventry. The trustees
accordingly received no money but Coventry owed them £170,000. Harlox
then joined the partnership in place of Mrs. Higgs. The partnership then
sold the land to Harlox for £87,000 the price which they had paid for it.
Again it seems that no money was paid.
Then Harlox sold their whole interest to a subsidiary, Harley Street, for
£286,000. There were some other transactions between subsidiaries of
Harlox the purpose of which is not very clear. In the end another Harlox
subsidiary, Downry, bought the land for £286,750.
Downry then made what is called an agency agreement with Coventry.
The Special Commissioners say that they did not fully understand this, and
I do not quite understand how it dealt with the cheque which the trustees
had given to Coventry, but its main purpose seems to have been that
Coventry were to develop the land by building houses on it and when from
time to time they sold these houses they were to pay the sums which they
received less their own expenses to Downry up to a maximum of £287,000.
If the development yielded more than that Coventry were to keep the excess.
I hope that I have described the operation of the scheme accurately but
the details do not matter. The net result is clear enough. If all went well
Downry were to receive and to pass on to Harlox £287,000. That would
enable Harlox to retain their fee of £30,000, to pass on £87,000 to the Higgs
Companies and to pass on £170,000 to the Higgs’ family trust. If the
development brought in less than was expected the family trust would not
receive the full sum of £170,000.
Confronted by this labyrinth the Revenue were in some difficulty. Whom
should they assess? For what profit? In what year of assessment? It was
said in argument that there were five possibilities apart from the course which
they ultimately took. The Higgs’ Companies had sold below market value.
So they might be assessable. The partnership, the trustees, Harlox and
Coventry were also possibly liable to be assessed. I do not think it right to
say more about these possibilities than that if the Revenue fail in the present
appeal it by no means follows that the scheme was a successful attempt to
evade tax.
The Revenue decided to take a bold and novel course, based on the view
that Mr. Higgs had engaged in trade and that the trustees were assessable
as having received the profits of his trading. They do not now seek to defend
an assessment on Mr. Higgs himself. But the Revenue strenuously support
3
an assessment made on the Higgs’ family trustees for the year 1960-61 in
the sum of £170,000 in respect of ” profits in connection with partnership
” interest in H.L.N. properties “. It is admittedly an essential part of their
case that Mr. Higgs was engaged in trading and that this sum was a profit
of that trading. If Mr. Higgs was not engaged in trade or an adventure in
the nature of trade then the assessment cannot stand. So I turn to consider
whether Mr. Higgs’ activities can in law be regarded as trading within the
meaning of Schedule D.
The Income Tax Acts have never defined trade or trading farther than
to provide that trade includes every trade, manufacture, adventure or
concern in the nature of trade. As an ordinary word in the English language
” trade ” has or has had a variety of meanings or shades of meaning.
Leaving aside obsolete or rare usage it is sometimes used to denote any
mercantile operation but it is commonly used to denote operations of a
commercial character by which the trader provides to customers for reward
some kind of goods or services.
The contexts in which the word ” trade ” has been used in the Income
Tax Acts appear to me to indicate that operations of that kind are what
the legislature had primarily in mind. If I go back to the Act of 1842
I find that Schedule D covered inter alia the annual profits or gains arising
from any profession, trade, employment or vocation and that Rule 1 of
Case I provided that the tax was to be charged on the balance of the
profits and gains of such trade, manufacture, adventure or concern in the
nature of trade. And I find nothing in later legislation to alter the
fundamental conception of trade in that old Act.
As there is no limiting definition trade has been held to include cases
where some element is absent which is normally present in trading. Normally
it is a question of law whether the provisions of an Act apply to the facts
of a particular case. There may be a difference where the question is
whether provisions with regard to trading apply to particular facts. I shall
not repeat what I said on the matter in Griffiths v. Harrison [1963] A.C. 1
because in this case I have come to the conclusion that it would be
unreasonable to hold that Mr. Higgs was trading.
Mr. Higgs did not deal with any person. He did not buy or sell anything.
He did not provide anyone with goods or services for reward. He had no
profits or gains. Under this scheme he never could have had any, and it
was I think for that reason that it was admitted in this House that he could
not be assessed personally. I can find no characteristic of trading in anything
which Mr. Higgs did.
The case for the Revenue is that he procured others to enter into
transactions most, if not all, of which were trading transactions.
” Procuring” appears to include compelling where he had a power to
compel, or making an agreement or merely persuading where he had no
such power or did not use it. I could understand an argument that if A
compels B or gets B to agree to carry out a trading operation then A and
not B is the trader. But that is not what is now said in this case. And if
A merely persuades B to conduct a trading operation I do not see how A
could be said to be the trader. The Revenue made no attempt to shew that
when Mrs. Higgs and the other parties entered into the H.L.N. partnership,
when she assigned her interest to the trustees, when the Higgs’ Companies
sold their land, when the trustees sold to Harlox, when Harlox manipulated
its subsidiaries, and when Downry made the agreement with Coventry all
were acting as his agents so that he, and not they, did the trading The
case for the Revenue seemed to me to be that all these others did their own
trading so that receipts and expenditure by them would enter their own
profit and loss accounts, but that Mr. Higgs carried on a separate trade of
procuring them to do what they did.
I do not understand the basis of this argument. Is it to be said that
whenever A persuades B to do some trading which yields a profit, A as
well as B is liable to pay tax on that profit? That would be ridiculous.
4
But it has never been made clear what it is that distinguishes the present
from such a case. Mr. Higgs procured a number of people and not merely
one to act as he wished: but that is not said to make a difference. He
got an indirect benefit out of the scheme because he was one of the possible
beneficiaries and he had a moral if not a legal obligation to provide for
the other beneficiaries. But that has never been said to make the difference.
It appears to me that the case for the Revenue is totally misconceived.
Besides Mrs. Higgs and the trustees there were perhaps a dozen companies
which played parts in the scheme, each carrying out one or more transactions
with one or more of the others. Most if not all of these transactions
were trading transactions. As I understood it the Revenue case was that,
in addition to the participants in any one transaction trading with each
other, Mr. Higgs also traded by procuring them to trade. As I understand
it he did not trade with them. He just traded. It was said that in dealing
with Mr. Higgs we must treat the scheme as a whole and not seek to break
it up. I do not understand that. If procuring a dozen participants to play
a dozen parts is trading then procuring each one of them must be a part
of that trading.
No one appears to have realised that this could lead to double taxation
of the profits of one transaction. It will enter the profit and loss account of
the participants and in so far as procuring if contributed to the profit of
Mr. Higgs ” trade ” it will be taxed again.
The further one analyses this matter the more novel and anomalous
does the case for the Revenue become. I find some difficulty in discovering
what precisely were the grounds of judgment below. The Special
Commissioners do not appear to have thought that the trading of Mr. Higgs
was something apart from the trading of the participants in the transactions.
They say:
” In approaching the question whether, in all this, Mr. Higgs embarked
” on an adventure in the nature of trade, we think it immaterial that
” part of the object was to avoid tax on £170,000; that was the
” explanation of the method employed, but the substance of the matter
” is that what we have in front of us is Mr. Higgs’ chosen method of
” making £ 170,000 out of the exploitation of the properties.
” Apart from one small piece of land, Mr. Higgs did not venture any
” property or capital of his own ; it all belonged initially to Higgs
” companies, but as we see it, it was in reality he who ventured it, and
” he did so for the purpose of this scheme. There seems to us no other
” explanation of the action of the Higgs companies in selling the land
” at what was quite patently a very substantial under-value ; no other
” explanation was offered to us. There is here undoubtedly a back-
” ground of trade. Although the reported cases afford no example of
” an activity of this nature being held to be trading, they do indicate
” that a wide variety of different methods of money-making may
” constitute trades.
” Our conclusion is that Mr. Higgs engaged in an adventure in the
” nature of trade in exploiting the properties in this manner.”
That appears to me to mean that the land the development of which
yielded the profit was really the property of Mr. Higgs because he owned the
companies which owned it, and that the transactions which constituted the
scheme were really his transactions and not those of the apparent participants.
If that is what the Special Commissioners meant I need not deal with it
farther because that view was not argued to your Lordships. But that I
think was the view of Megarry J. He adopted the reasoning of the Special
Commissioners ([1973] I W.L.R. at p. 1187) and he said with regard to the
Downes’ cases which in this matter are indistinguishable:
” It cannot be that a trader ceases to trade merely because he leaves
” to others the organisation and execution of his trading.” (ib at p. 1199).
It never seems to have been pointed out that if the trading of the others
was his trading then he was trading with himself because he had procured
5
the actions of both parties to each transaction. That a man can trade with
himself is indeed a novelty. I rather think that that was also the view of the
Court of Appeal:
“… the reason why Mr. Higgs is to be held to have been trading or
” engaged in an adventure in the nature of trade is because of what he
” personally did and procured and not because of what the Higgs
” companies did or were procured to do by him and those acting with
” him. I therefore reach the same conclusion on this issue as did the
” special commissioners and Megarry J.”.
No doubt Mr. Higgs engaged in an adventure but for the reasons which
I have given I cannot agree that it was an adventure in the nature of trade.
I am therefore of opinion that the appeal by the Higgs’ trustees must be
allowed.
I can deal very briefly with the first two Downes’ cases. They also arise
under a scheme prepared by Harlox for the purpose of tax avoidance. The
general nature of the scheme was the same as that of the scheme in the Higgs
cases, and the object was that the Downes’ trustees should get from the
development of the land involved a sum of £60,000 in such a way that no
tax was payable. The Court of Appeal sustained an assessment on the
trustees. Again it is admitted that this assessment can only stand if Mr.
Downes can be held to have been trading in procuring the various trans-
actions required by Harlox’s scheme. For the reason which I have given
in the Higgs’ case, I am of opinion that he was neither trading nor engaged
in an adventure in the nature of trade. I would therefore allow the appeal
of the Downes’ trustees.
The third Downes case, referred to as the Kilmorie case, raises an entirely
different question. It arises because the final stage in the Downes scheme
differed from the final stage in the Higgs scheme.
On 21st March, 1962, Downes, a company owned by Mr. Downes, made
an agreement with the owner of the Landywood estate under which Downes
was to pay £67,500 for the right to develop the land. This sum was to be
paid by instalments as Downes sold leases of the houses built by them.
Sums received by Downes in excess of that sum and certain others were to be
kept by Downes as a profit.
Then Mr. Downes put in operation the Harlox scheme. The first step
is important. Downes sold their right to Sproul for £2,250 and on 31st
March Sproul sold those rights for £2,500 to a partnership of Mrs. Downes and
two Harlox companies in all material respects similar to the H.L.N. partner-
ship in the Higgs’ case. Sproul had no connection with Mr. Downes or his
companies and this sum of £2,500 is accepted as a fair price at the time.
In other words the sum of £67,500 paid for the development rights on 21st
March was little short of a full commercial price.
Then similar transactions to those in the Higgs’ scheme took place and the
development rights came into the ownership of a Harlox company called
Opendy. But the last stage of the scheme differed from the last stage of
the Higgs’ scheme.
On 5th April, 1962, Opendy sold their rights to Kilmorie which was a
Downes’ company for £77,250. It is not suggested that the market or
commercial value of these rights had altered between 31st March and 5th
April. So this sum of £77,250 was a gross over-valuation. But the scheme
under which £60,000 was to reach the Downes’ trustees free of tax made it
essential that Kilmorie should undertake to pay this large sum.
This sum of £77,250 was paid by Kilmorie to Opendy during the three years
ending on 31st March, 1966. The first part of it, £19,240, was paid during
the year ending 31st March, 1964, and we are only concerned with that sum
6
in the present case which arises out of an assessment of Kilmorie for the
year 1964-5.
Kilmorie claim that this sum is a proper deduction, in determining their
profit for that year, under section 137 of the Income Tax Act, 1952, because
it was ” money wholly and exclusively laid out or expended for the purposes
” of ” their trade. The sole question in the case is whether that claim is
justified.
The Special Commissioners decided against Kilmorie. They held that
their agreement with Opendy
“… was an essential prerequisite to the carrying out by Kilmorie
” of the development of the estate. It proved, moreover, in the event
” to be very much to the advantage of Kilmorie to enter into the first-
” mentioned agreement (hereinafter referred to as ‘ the Kilmorie-Opendy
” ‘ agreement ‘) on the terms specified therein. We have, however, to
” consider the position at the time when the Kilmorie-Opendy agreement
” was made, and against the background of the series of transactions
” which led up to it. So approaching the matter we are of opinion that
” the Kilmorie-Opendy agreement was entered into by Kilmorie with
” the objects both of enabling that company to develop the Landywood
” Estate and of facilitating the scheme for avoiding liability to income
” tax referred to in paragraph 2(2) above. In our view the latter object
” was on the facts of the case one of the main purposes, and not a mere
” secondary consequence, of the entering into by Kilmorie of the agree-
” ment, and the outlay totalling £19,240 was thus incurred by Kilmorie
” for dual purposes being purposes one of which was, and one of which
” was not, a trading purpose.”
There was considerable argument about the meaning of this finding.
I think that it plainly means that Kilmorie would not have paid so large a
sum to Opendy but for their non-trading purpose of enabling the tax avoidance
scheme to succeed. Neither party to the agreement was acting as a free
agent in its own interest. Opendy was a Harlox subsidiary and Kilmorie
was a Downes company. Both had been procured to play their part in the
scheme. The price was dictated by the scheme, and plainly had nothing to
do with the market value of the rights sold. It was argued that we must
presume that the directors or whoever made the agreement on behalf of the
two companies acted properly in what they believed to be the interests of
the companies. In the ordinary course we would presume that in the
absence of evidence to the contrary. But here it is quite obvious that
neither the Downes nor the Harlox companies acted in their own interests.
They did just what Mr. Downes and Harlox wanted. I would agree that
if a trader is actuated by none but commercial motives the Revenue cannot
merely say that he has paid too much. He may have been foolish or he may
have had what could fairly be regarded as a good commercial reason for
paying too much. But if it is proved that some non-commercial reason
caused the trader to pay more than he otherwise would have done, then it
seems to me quite clear that the payment can no longer be held to have
been wholly and exclusively expended for the purposes of the trade. No
authority is needed for so obvious a proposition.
But what happens if even without the non-trading purpose the trader
would have spent part of the sum for the purposes of his trade. On one
view section 137 is so unreasonable that it forbids deduction even of that
part which would in any case have been expended for trading purposes.
It seems to me that the section could well be read as meaning that if it
can be shewn that a part of the expenditure was in fact wholly and
exclusively for trading purposes, then that part is a proper deduction. But
we do not have to decide that question because the Revenue have agreed
that in this case £2,500 of the £77,250 paid will be allowed as a deduction
being the then market value of the rights.
In the Kilmorie case I am of opinion that the decision of the Court of
Appeal was clearly right so I would dismiss the appeal.
7
Lord Morris of Borth-y-Gest
My Lords,
In the appeals relating to what may be called the ” Higgs ” transactions
the short question which arises is whether Mr. Higgs carried on a trade. It
is said that annual profits or gains arose or accrued from a trade carried
on by him or from an adventure or concern in the nature of trade in which
he was engaged.
Though the question can be stated with a succinctness Which seems dis-
arming there was nothing succinct about the truly remarkable transactions
which in ordered sequence were woven by ingenuity into the pattern of a tax
avoidance scheme.
The facts which are fully set out in the Stated Case and which therefore I
need not recapitulate show that the Higgs’ Companies owned properties
which quite clearly had become worth vastly more than they had cost. The
companies carried on the trades of dealing in or developing land. Mr. and
Mrs. Higgs were the main or sole shareholders and directors in the companies.
The problem that someone sought to solve was how the profits and gains
which would result from dealing in or developing the properties could be
spared from being diminished or partly dissipated by being taxed. The plan
which was devised and adopted was to interpose between ownership of the
properties by the Higgs owning companies and the later development of
the properties by another Company (also a Higgs’ company) a sequence of
elaborate and complicated transactions as a result of which, at a cost of
£30,000 payable to the Harlox companies as the price of their co-operation,
a sum of £170,000 would be floated away into what was hoped would be a
tax-free backwater. The £170,000 would be received by trustees and would
be held on discretionary trusts to pay, divide or apply the capital or income
among the following beneficiaries—Mr. Higgs and the children or remoter
issue of Mr. Higgs, his daughter and his son.
There was, however, considerable risk that at various junctures the scheme
would mis-fire. What would be the tax position of the Higgs’ companies of
the properties which on the 30th March, 1961, they sold for £87,135 (which
was just a little over what they had paid for them) were then worth a very
great deal more? Would the market value have to be substituted for the
agreed sale price? (Compare Petrotim Securities Ltd. v. Ayres 41 T.C. 389.)
The Higgs’ Companies are not before us and we do not have to decide as
to their tax liability. Nor do we have to decide as to the tax position of the
intermediaries involved in the plan adapted.
Our problem, having patiently traced a path, step by step, through the
transactions pressurised to take place within the space of quite a few days
(but all having been planned in advance at one and the same time and
planned so that each one was to be carried through upon the understanding
that all the subsequent ones also would be carried through) is first to look
at Mr. Higgs’ part in it all and then to ask the question—Was he trading?
or Was he engaged in an adventure or concern in the nature of trade? It
is not suggested that the trustees carried on any trade or any adventure in
the nature of trade.
A preliminary and not unreasonable enquiry to submit to those asserting
that Mr. Higgs was trading or was engaged in an adventure or concern in
the nature of trade might well be to ask the name of the suggested trade.
Mr. Higgs had been assessed under Case 1 of Schedule D in respect of profits
of the trade of ” Land Dealer and Developer “. However, it was not sought
to say that that name or description could in reference to Mr. Higgs be
justified. In turn it was not suggested that the case was advanced merely
because the adoption of that name or description of his alleged trade was
not defended and was abandoned. Could any revised or substituted name
or description be given or suggested? None could be. But, so it was said,
the categories of trading are not closed and if trading there was. it matters
not that it was innominate. So the question arises whether the facts as set
8
out in the Case Stated reveal a form of activity which, though nameless, and
defying the process of being named, and though one the like of which has
never before been identified, should yet be graded or upgraded as being a
trade or an adventure or concern in the nature of trade.
The findings of fact of the Special Commissioners as recorded in the Case
Stated must be accepted. Appeal from the Commissioners lies only on law.
It is, however, in my view a question of law as to what is the meaning of
” trade ” as that word is referred to in sections 122 and 123 of the Income
Tax Act, 1952. By section 526 of that Act ” trade ” includes every trade,
manufacture, adventure or concern in the nature of trade.
In considering whether a person ” carried on ” a trade it seems to me to
be essential to discover and to examine what exactly it was that the person
did. The Case Stated sets out and describes certain transactions. The
Special Commissioners drew an inference as to what was the scheme of
the transactions and as to what was the broad object of the scheme. That
object was that properties belonging to ” the Higgs companies ” would be
profitably developed by a ” Higgs company ” but would be developed in
such a way that it was hoped that a large slice of the expected profit would
escape tax. But what part did Mr. Higgs play? What did he do? One
finding was in the following terms : —
” (3) the person who put the scheme into operation and was in control
” of it throughout was Mr. Higgs: we do not mean by this that he
” planned or even understood the details, which he left to his pro-
” fessional advisers ; what we mean is that we regard the whole scheme
” as his operation. We regard Mrs. Higgs and the Trustees, as well as
” the Higgs companies, as persons who acted at his behest and in
” accordance with his wishes, and we regard the Harlox companies as
” participating with his agreement and because he was prepared to make
” it profitable to them.”
Another finding was that Mr. Higgs was not himself a party to any of
the transactions in the chain. He was however ” the person who initiated
” and controlled them, and so far as concerned the parties who constituted
” the Higgs interest he procured them to act as they did “. If the activities
of the particular Higgs company (Coventry) that was to develop the properties
prospered, then Mr. Higgs would “have placed £170,000 where it suited
” him to place it “. ” The substance of the matter ” was that ” what we have
” in front of us is Mr. Higgs’ chosen method of making £170,000 out of the
” exploitation of the properties “.
So we have various phrases which express the conception which is pre-
sented. Mr. Higgs was said to be in control because there were persons
who ” acted at his behest “. He ” initiated and controlled ” the transactions
in that though he was not a party to them (the transactions) he ” procured ”
parties to act as they did. The transactions represented his ” chosen method ”
of getting a sum of money to a destination that suited him.
Bearing all this in mind the question still arises—what did Mr. Higgs do?
To be engaged in trade or in an adventure in the nature of trade surely a
person must do something and if trading he must trade with someone. In
C.I.R. v. Livingston & Ors. 11 T.C. 538, the Lord President (Clyde) at p. 542
said—” I think the test which must be used to determine whether a venture
” such as we are now considering is, or is not,” in the nature of Trade ” is
” whether the operations involved in it are of the same kind, and carried
” on in the same way, as those which are characteristic of ordinary trading
” in the line of business in which the venture was made “. All that Mr. Higgs
did was to pay heed to an idea which was suggested to him (see paragraph
5(16)(a) of the Case), to take advice about it, to understand the purpose of it,
though not to comprehend all the details of the scheme which embodied the
idea, and then somehow to contrive that his wife and certain limited com-
panies and others would act ” at his behest” and play their part in effecting
the transactions which the scheme necessitated. But can this in any rational
or realistic sense be described as trading or as being an adventure in the nature
of trade? Quite lacking are the indicia which are common to so many
9
forms of trading activity. Mr. Higgs was not himself concerned in any
buying or selling activity. He gave no services. He supplied nothing. Nor,
in any real sense, was he introducing anyone or acting as a broker. What
the companies did were the acts of the companies. What they did cannot be
regarded as Mr. Higgs’ acts. The scheme that was being furthered was an
artificial and unnecessary one: its sole purpose was to avoid tax. Even if
Mr. Higgs initiated the scheme and if he did persuade or procure the com-
panies to act, his suggested ” trading ” only consisted in persuading or
procuring them to make certain elaborate arrangements for his expected
benefit by the contemplated withdrawal of large sums of money from their
taxable profits. I cannot think that in requesting or procuring or persuading
or cajoling or ” behesting ” the companies concerned or others to play their
part so as to achieve the purpose and objects of the scheme, Mr. Higgs was
doing anything that could be graced with the description of being a trading
activity or of being an adventure or concern in the nature of trade.
The views which I have expressed apply equally in the Downes case. In
each case I would allow the appeal.
In the case relating to Kilmorie (Aldridge) Limited an entirely separate
point arises. The Kilmorie company played its part in what I may call the
” Downes ” transactions the general pattern of which followed the earlier
Higgs or Harlox prototype. The main difference in the pattern was that in
the Downes case the asset of value was a building agreement made at arms’
length on the 21st March, 1962, under which A. J. Downes & Sons Ltd.,
as builders, acquired the right, on certain terms as to payment to K. J.
Roodhouse Ltd. to develop an estate known as the Landywood Estate. The
sale on the 30th March, 1962, of that building agreement to a Harlox com-
pany (Sproul Bros. (Builders) Ltd.) was the start of its journey along a route
comparable to that which the Higgs’ properties had had to follow. The
price (£2,250) payable on that sale was one which the directors of the Downes
company (Mr. and Mrs. Downes and Mr. Southall) considered to be a good
one as fully reflecting the value of the building agreement. It was towards
the end of the sequence of the pre-planned transactions that the Kilmorie
company joined in. By the 5th April, 1962, the building agreement was
in the ownership of. a Harlox company called Opendy Building Company
Ltd. The Kilmorie company was a company concerned with estate develop-
ment. Its shares were owned as to 9/10ths by Mr. Downes and as to 1/10th
by Mrs. Downes. On the 5th April, 1962, the Kilmorie company acquired
the building agreement from Opendy at a price which in aggregate amounted
to £77,250. That sum was of course separate from and was additional to
the sums which under the Building Agreement had to be paid to K. J.
Roodhouse Ltd. The reason why an agreement which reasonably was sold
by a Downes company on the 30th March, 1962, for £2,250 had to be
acquired by a Downes company on the 5th April, 1962, for £77,250 was
that the intervening transactions had been those devised for profit-siphoning-
tax-avoiding purposes.
In computing their gross profits the Kilmorie company deducted the sums
which in aggregate amounted to £77,250. In the year ended the 31st March,
1964, the amount deducted was £19,240: that was such part of the £77,250
as was paid to Opendy in that year. Could that deduction be made?
The finding in the Case Stated is as follows :-
” As regards the question before us relating to Kilmorie, the agree-
” ment entered into by that company with Opendy in relation to the
” Landywood Estate building agreement was an essential prerequisite
” to the carrying out by Kilmorie of the development of the estate. It
” proved, moreover, in the event to be very much to the advantage of
” Kilmorie to enter into the first-mentioned agreement (hereinafter
” referred to as the ‘ Kilmorie/Opendy agreement’) on the terms speci-
” tied therein. We have, however, to consider the position at the time
” when the Kilmorie/Opendy agreement was made, and against the
” background of the series of transactions which led up to it. So
“approaching the matter we are of opinion that the Kilmorie/Opendy
10
” agreement was entered into by Kilmorie with the objects both of
” enabling that company to develop the Landywood Estate and of facili-
” tating the scheme for avoiding liability to income tax referred to in
” paragraph 2(2) above. In our view the latter object was on the facts
” of the case one of the main purposes, and not a mere secondary
” consequence, of the entering into by Kilmorie of the agreement, and
” the outlay totalling £19,240 was thus incurred by Kilmorie for dual
” purposes being purposes one of which was, and one of which was not,
” a trading purpose.
” We find accordingly that that outlay is, having regard to the provi-
” sions of section 137(a) of the Income Tax Act, 1952, not allowable
” as a deduction in computing the profits of the trade of Kilmorie. We
” therefore conclude that the appeal made by that company fails, and
” hereby confirm the additional assessment to income tax against
” which it was made, that is to say, the additional assessment on the
” company for the year 1964/65 in the sum of £19,240.”
That clear finding and the emphatic language of section 137 of the Income
Tax Act, 1952, that ” no sum shall be deducted in respect of—(a) ” any
disbursements or expenses, not being money wholly and exclusively laid
” out or expended for the purposes of the trade, profession or vocation: …”
seem to me to make the decisions of Megarry J. and of the Court of Appeal
clearly right.
It was strongly argued that by the use of the words ” essential prerequisite ”
the Commissioners had found that Kilmorie could not have made its profits
on developing the Landywood Estate save by agreeing to the terms of the
Kilmorie agreement and that therefore the intention of Kilmorie was single.
It was said that the intention or purpose of expending the money was to
obtain the Kilmorie agreement on terms on which profits were thought to
be obtainable and were in fact obtained. But in my view the meaning of
the finding of the Commissioners is clear. It was necessary in order that
the scheme should be carried out that the building agreement should be back
in the hands of a Downes company after what I may call the Harlox
excursion, but the whole basis of the scheme was that money should be
taken away from anticipated profits and that the sum paid by Kilmorie to
Opendy should cover and provide that money so taken away. Opendy only
came into the story in order to facilitate the scheme and the amount of
£77,250 had to be paid, not wholly and exclusively for the purpose of
developing the Landywood Estate, but mainly in furtherance of and in
order to facilitate the scheme for avoiding liability to income tax.
It is true, as Megarry J. pointed out, that section 137(a) may be Draconian
in its operation and the point was taken that as the building agreement
was admittedly of value (as was shown when the Downes company sold it
and as was appreciated by the directors of the Downes company) the dis-
allowance of the whole of the £19,240 bore somewhat hardly. But on the
findings in the Case Stated I think that the result is that the appeal of
Kilmorie fails.
Lord Wilberforce
My Lords,
I do not think that any extended narrative of the transactions which have
led to the present appeals is needed: indeed a complete immersion in the
details tends to confuse rather than to clarify. A brief outline summary is
sufficient to enable the argument to be understood: for further particulars
the Cases Stated and the judgments below can be consulted.
The appeals relate to operations of ” stock stripping ” the design of which
is to take properties held as trading stock which are ripe for development,
arrange for their development at a profit, and to convert the profits into a
capital asset by turning them into the purchase price for other assets. Thus
11
the recipient of the profits, who is not the developer, gets them in a tax free
form. In order to enable this to be done a series of preplanned transactions
was carried out between 1st March and 5th April, 1961, involving the follow-
ing cast: (i) a number of companies (the ” Higgs Companies “) owning the
properties and controlled by Mr. Higgs and his wife (the precise shareholdings
and directorships were not proved); (ii) a number of companies (the
” Harlox Group “) not associated with Mr. Higgs but brought in to provide
finance and execute the stripping; (iii) a partnership in which Mrs. Higgs
and certain Harlox Companies were concerned ; (iv) trustees of a discretionary
settlement for the benefit of Mr. Higgs and his family.
The operation consisted broadly of the sale by Higgs Companies of proper-
ties at an undeveloped value: their ultimate development by another Higgs
Company and the passing of the profits of development through companies
of the Harlox Group so that ultimately they reached the Trustees as purchase
consideration for Mrs. Higgs’ interest in the partnership which she had
previously assigned to them.
The actors in these transactions were (i) the Higgs Companies ; (ii) Mrs.
Higgs ; (iii) the Trustees ; (iv) the partnership, consisting of Mrs. Higgs and
Harlox Companies; (v) companies of the Harlox Group.
It will be seen that this enumeration does not include Mr. Higgs. But
Mr. Higgs’ involvement was the subject of certain findings by the Special
Commissioners. These were criticised by counsel appearing for the
appellants and perhaps in some respects they go beyond the facts, but
for the purpose of these appeals I take them in the manner most favourable
to the Revenue.
The Commissioners found that the whole of the transactions were planned
in advance on the basis that they would be executed as one whole. Mr. Higgs
did not himself devise them or wholly understand them ; they were suggested
to him and he accepted and authorised them. In the Commissioners’ words
he put the scheme into operation and was in control of it throughout. They
regarded Mrs. Higgs and the Trustees as well as the Higgs Companies ” as
” persons who acted at his behest and in accordance with his wishes ” and the
Harlox Companies ” as participating with his agreement and because he was
” prepared to make it profitable to them.” The Commissioners also found
that Mr. Higgs was not himself a property developer, and it appeared from
their findings that he personally received nothing out of the scheme.
Mr. Higgs was assessed for the year 1960-61 under Case I of Schedule D
” in respect of profits of the trade of Land Dealer and Developer “. The
Trustees were also assessed under section 148 of the Income Tax Act, 1952,
as having received profits of Mr. Higgs’ trading. Before this House the
Revenue limited their contentions to the claim against the Trustees on the
basis of Mr. Higgs’ trade. They did not claim that the Trustees had traded
themselves: it was essential to their case to establish trading by Mr. Higgs.
As the above summary demonstrates, we are concerned with some
sophisticated transactions, evidently the product of expert intellects in the
tax avoidance business. To resolve the problems which they create, we are
not called upon, as has usually happened since 1965, to apply correspondingly
sophisticated tools of legislation. We have rather to apply to the facts the
legal concept of ” trade “. (Income Tax Act, 1952, sections 122, 123 and
526 (i).) This may be called a concept of common law. Trade has for
centuries been, and still is part of the national way of life: everyone is
supposed to know what ” trade ” means: so Parliament, which wrote it into
the Law of Income Tax in 1799, has wisely abstained from defining it and
has left it to the Courts to say what it does or does not include.
Trade is infinitely varied ; so we often find applied to it the cliché that its
categories are not closed. Of course they are not: but this does not mean
that the concept of trade is without limits so that any activity which yields
an advantage, however indirect, can be brought within the net of tax. Some
systems tax in general terms all profits or income arising from personal
exertion ; some also tax the produce of any profit making enterprise ; but
12
English law does not do this. It names the commonest and most recognisable
forms of personal exertion or enterprise in Schedules D and E of the Code
and, apart from special provisions which are not invoked here, each case
must be brought within one of them.
” Trade ” cannot be precisely defined, but certain characteristics can be
identified which trade normally has. Equally some indicia can be found
which prevent a profit from being regarded as the profit of a trade. Some-
times the question whether an activity is to be found to be a trade becomes
a matter of degree, of frequency, of organisation, even of intention, and in
such cases it is for the fact finding body to decide on the evidence whether a
line is passed. The present is not such a case: it involves the question as
one of recognition whether the characteristics of trade are sufficiently present.
I do not think that we need here to get enmeshed in the intricacies—I am
tempted to say sophistries—of primary or secondary facts or inferences. We
are clearly in the realm of principle and of law.
Trade involves, normally, the exchange of goods, or of services, for
reward, not of all services, since some qualify as a profession, or employment,
or vocation, but there must be something which the trade offers to provide
by way of business. Trade, moreover, presupposes a customer (to this too
there may be exceptions, but such is the norm), or, as it may be expressed,
trade must be bilateral—you must trade with someone. The ” mutuality ”
cases are based in part at least upon this principle, and it was the existence
of it that made Sharkey v. Wernher [1956] A.C. 58 an interesting problem:
could Lady Zia trade with herself?
Then there are elements or characteristics which prevent a trade being
found, even though a profit has been made—the realisation of a capital
asset, the isolated transaction (which may yet be a trade). In recent years
a transaction, even one of property dealing, which amounts to no more than
a planned raid on the revenue (see Lupton v. F.A. & A.B. Ltd. [1972]
A.C. 634), has been held not to be by way of trade—a sophistication which
I do not reject, but which must be carefully watched for illegitimate
extension. Although these are general characteristics which one cannot
state in terms of essential prerequisites, they are useful benchmarks, so
when one is faced with a novel set of facts, as we are here, the best one
can do is to apply them as tests in order to see how near to, or far from,
the norm these facts are. I attach no importance to the fact that, if there
was trade, there is a difficulty in knowing what to call it. Christening
normally follows some time after birth, and if Mr. Higgs’ activities were
found to be trading activities, a description would soon be found. Are
they trading activities?
Now Mr. Higgs, whose trading is in question, the trade being described
as the trade of land dealer and developer, had not previously engaged in
property deals (the two houses he had sold he held as long term investments).
Mrs. Higgs, too, if that is relevant, had never dealt in land (with the same
exception). Mr. Higgs had no trading stock. In the whole course of these
transactions he bought nothing, sold nothing, and ventured nothing. Taking
each individual transaction, from first to last, not one was performed by
Mr. Higgs: so far as relevant, two only were carried out by Mrs. Higgs;
she made the settlement on discretionary trusts ; she was concerned in the
partnership with two Harlox Companies, her interest in which she assigned
to the Trustees of the settlement. There are nowhere here any of the indicia
of trade so far as Mr. Higgs, or, if relevant, Mrs. Higgs is concerned. The
negative indicia are not strong but more present than absent. The overall
object was certainly to procure a fiscal advantage—though it was to do so
out of what would otherwise be development profits. The transaction was
isolated, but that is not decisive. The test of ” capital profit ” does not
arise because Mr. Higgs disposed of no asset—relevantly he had no asset
to dispose of. Mr. Higgs (and Mrs. Higgs) had no apparent customer
out of whom any profit was made: I say “apparent” for one line of
argument seems to suggest that he dealt with the Harlox Group; I shall
13
comment on this later. Where, then, does the Revenue seek the necessary
indicia?
First, the Commissioners found, and the Court of Appeal relied on this,
that there is throughout these transactions the ” flavour of trade “. Such
metaphors are suspicious, in fact the scheme as a whole has to me another
flavour altogether, but what it means here is clear enough, and it works
against the Revenue, not for it. There are clearly enough elements of
trade, such classical elements as selling and developing properties. But these
acts of trading were done by the Companies, or just possibly by the
Trustees. Their attribution to these entities, which is indisputable, makes it
impossible to attribute them to Mr. Higgs. The same trade cannot be
located in two different places. Then it is said that Mr. Higgs provided
services: he acted as a quasi broker between his companies and the Harlox
Group and the ” profit ” was the reward for his services. Again the Court
of Appeal took up the analogy. But, in my opinion, this contention bears
no relation to the facts—indeed is inconsistent with what the Commissioners
did find (see the next paragraph below), namely, that Mr. Higgs organised
the exploitation of ” his ” companies’ properties with a view to extracting
their profits in a tax free form. To regard the £170,000 development profit
as a brokering commission seems to me quite unreal and even bizarre.
Thirdly, it is contended that Mr. Higgs organised the whole scheme with a
view to profit, i.e., with a view to the financial benefit of himself and his
family. This is the basis of the Commissioners’ findings, and is the real
foundation of the judgments below. The transactions, so it is put, were
planned in advance and together; the scheme must be regarded as a whole ;
its purpose and result was to secure the development of properties belonging
to the Higgs’ Companies in such a way as to produce tax free profits for
the Trustees of the settlement and for the Harlox Group. Mr. Higgs
initiated the scheme and controlled it throughout in his financial interest.
My Lords, I have already said that I am willing for the purposes of these
appeals to accept in full the findings of the Commissioners reflected above.
Moreover, I accept that it is legitimate to consider the ” scheme as a whole ”
where there is evidence, as there is here, that each separate step is dependent
on others being carried out. An example of the same process—right or
wrong on the facts—was the Privy Council case of Inland Revenue Commis-
sioner v. Europa Oil (N.Z.) Ltd. [1971] AC 760. But the question remains
whether this organisation or control by Mr. Higgs of a complex process
involving, possibly, or probably, trading by others can possibly constitute
trading by himself.
To say that it does, obviously raises novel and difficult problems. There
is no basis, and it is not so found, upon which the acts of the other persons
involved in the scheme can be imputed to Mr. Higgs, so that he becomes a
vicarious trader. Even in relation to Mrs. Higgs there is no finding that
she was his agent, or that he was hers, or indeed that she herself traded at
all. And so far from the Higgs Companies being Mr. Higgs’ agents, if
anything he was theirs. The Harlox Group was independent, and came into
the scheme for its own interest. The case has never been put on the basis
of vicarious trading.
Nor has the argument been put on Mr. Higgs’ shareholding in the Higgs
Companies or on his directorship of those Companies ; to do so would invite
difficult questions how either of these factors can make Mr. Higgs responsible
for his Companies’ trading. Unless under specific statutory provisions English
law has never made individuals, on the basis of control or shareholding,
fiscally responsible for Companies’ activities.
The Revenue’s case was in the end quite candidly rested on Mr. Higgs’
” procurement ” of the actions of the trading actors—procurement by persua-
sion, by bargaining (with the Harlox Group), by the natural influence he
had over his wife and his fellow directors, and, so far as relevant, share-
holders. This approach has at least the merit of some concordance with the
facts, though one would doubt whether Mr. Higgs played so Napoleonic a
role ; but once it is so stated it reveals its nakedness in law. How can a man
14
who procures others to do acts which amount to trading by them with their
own assets be said to trade, within any conception, however wide, one may
have of trading? None of the characteristics of trading are present—the
implications of so wide and vague an extension are alarming. If procuring
persons to trade were itself to be a trade, it is obvious that the Commissioners
of Income Tax would be faced with a multitude of cases where there is some
sort of relation between the trade and the person sought to be taxed and
with the necessity of deciding whether the former was procured by the latter.
Since ” procurement ” has no statutory warrant, or, this case apart, basis in
authority, this would open a new and completely uncharted field, placing
the taxpayer at the mercy of findings of fact which he could not challenge.
In particular this doctrine would lead inevitably to claims being made, over
a wide range, resulting in individuals being assessed in respect of the profits
of companies.
Secondly, the result would in many cases be that the same profits in
respect of the same activity would be taxed twice, once in the hands of the
actual trader, again in the hands of the procurer. Admittedly, in the present
case, it is said that the Trustees’ ” profits ” were, apart from the present
claims, tax free ; certainly it was the object of the scheme that they should
be so. I express no opinion about that: but what is clear is that, on the
Revenue’s argument, tax would be leviable on these profits as profits of Mr.
Higgs’ trade, even if any of the participators in the scheme were themselves
assessable as traders. So wide an extension of the concept of trading, to a
set of facts which contains none of the normal ingredients of trade, is one
that I find unacceptable. It was argued, indeed, that there was some autho-
rity for taxing a man on ” organisation ” —the cases cited were Smith Barry
v. Cordy 28 T.C. 250 and Graham v. Green 9 T.C. 309. But the use of these
cases is just an example of the familiar process of extracting a word or a
phrase from particular decisions and converting it into a proposition of law.
From the fact that a man was held to trade in insurance policies from having
organised the buying and surrender of them, from the fact that a man who
organised a betting business might be thought to be in trade, it does not
begin to follow that ” organisation ” as such is a principle of taxation—or
many estimable ladies throughout this country would be emperilled. All
depends on what you organise.
!t may be said that profits of a scheme such as this ought to be taxed and
that, since some parts of the transactions are ” artificial ”, and not genuinely
trading transactions, and since the badge of trade must be placed somewhere,
it ought to be placed on Mr. Higgs. This, it may be claimed, represents the
reality behind all the artificiality.
But this will not do. In the first place, I do not accept that no tax (under
Schedule D) was recoverable against any of the Companies or persons
directly involved in the trading. To assess the original vendor companies on
the basis of the market value of the properties sold might well be possible
(c.f. Petrotim Securities Ltd. v. Ayres 41 T.C. 389); and I am not persuaded
that assessments were not capable of being made on the Trustees. There is
no stark alternative between taxing Mr. Higgs’ profits in the hands of the
Trustees and getting no tax at all.
Secondly, if schemes such as these succeed in taking trading stock profits—
by a stripping process—outside the net, the remedy, as in the case of dividend
stripping, lies in legislation. Indeed, if one asks for a description of what
this scheme is, if it is not trade, the answer is to be found in the Finance
Act, 1969, section 32—a section passed eight years after these transactions
and so too late to catch them. It is (I take my words directly from the
section) an artificial transaction in land by which land held as trading stock
is disposed of by an arrangement or scheme which enables a gain to be
realised by an indirect method by a person who is a party to or concerned
in the scheme. The fact that it can, indeed can only, be so described seems
to me to confirm that this case is not one of trading.
I have a genuine sympathy with the numerous courts whose time has been
occupied in analysing these transactions. To endeavour to reach a positive
15
result is understandable. But the conclusion seems to me clear that, if a
successful attack is to be made, it cannot be by use of the concept of trade.
Or, putting it another way, if tax were gained by the use of it that would
be at the cost of a serious distortion of a plain concept which would have
far-reaching implications. The judgments so holding cannot, in my opinion,
be sustained.
I would dismiss the first appeal (that of Ransom (Inspector of Taxes)) and
allow the second (that of the Trustees).
The Downes Appeals
These appeals involve a scheme very similar to that considered in the
two Higgs’ appeals. It is conceded by the Revenue that if the Higgs’ appeals
are decided against it, the Revenue must fail in the present cases. Indeed,
it is clear that in several respects, which need not be gone into, the taxpayers’
position in these cases is stronger than that of the taxpayers in the Higgs’
cases. Accordingly, I do not think it necessary to examine the facts in the
instant cases or to do more than conclude that both must be decided in the
taxpayers’ favour.
The Kilmorie Appeals
This case arises out of the transactions considered by the Courts and this
House in the appeals of Downes v. Dickinson and Grant v. Trustees of Mrs.
Downes’ 1962 settlement. It is necessary to state some of the separate facts
which give rise to this appeal.
The Downes’ transaction involved a similar scheme of forward stock
stripping to that which I briefly summarised in the Higgs’ appeals—similar
but with some differences. The subject matter, i.e., the stock, in the Downes
case, consisted, not of properties as in the Higgs’ cases, but of a building
agreement made on 30th March, 1962, between a Downes Company and an
outside concern (not connected with the Downes interests) called K. J.
Roodhouse Ltd. for the development of the Landywood Estate belonging
to the latter company. As consideration for this agreement A. J. Downes
& Sons Ltd. paid the sum of £67,500, a commercial price. Shortly after
this contract was made, the benefit of it was assigned by A. J. Downes &
Sons Ltd. to an outside company for £2,250. Various further transactions
followed, similar to those considered in the Higgs appeals, involving a
partnership and the trustees of a discretionary settlement made by Mrs.
Downes, the object of which was to strip the agreement of its prospective
profits so as to enable £60,000 to reach the trustees of the settlement. At
the end of the chain was an agreement, dated 5th April, 1952, between
Opendy Building Co. Ltd. (” Opendy “) which had acquired the Building
Agreement, and the appellant company Kilmorie (Aldridge) Ltd.
(” Kilmorie “) which was a ” Downes ” company. By this agreement
Kilmorie agreed to carry out the development of the Landywood Estate
and to pay (i) all money owing under the Building Agreement (i.e., the
£67,500); (ii) premiums amounting to £77,250—these to be paid as leases
if the developed properties were granted. This £77,250 in due course was
to provide the £60,000 for the Trustees of the discretionary settlement, and
a profit for the intermediate finance group. Kilmorie engaged A. J. Downes
& Sons Ltd. to do the actual work on the Landywood Estate. This work
was carried out and made good profits—apparently larger than had been
foreseen. Kilmorie, in the years ended 31st March, 1964, to 31st March,
1967, made £83,450 gross. These profits were arrived at after deducting
the premium of £77,250 due to Opendy. Of these premiums £19,240 were
paid in the year ended 31st March, 1964. The question in this appeal is
whether the deduction of this sum, in computing Kilmorie’s trading profits,
was justified. In order to be so, the deduction must satisfy the requirement
of section 137 of the Income Tax Act, 1952.
” Subject to the provisions of this Act, in computing the amount of
” the profits or gains to be charged under Case I or Case II of Schedule
” D, no sum shall be deducted in respect of—(a) any disbursements
16
” or expenses, not being money wholly and exclusively laid out or
” expended for the purposes of the trade, profession or vocation ;….”
The Special Commissioners made, as regards this sum, the following
finding:
” As regards the question before us relating to Kilmorie, the agreement
” entered into by that company with Opendy in relation to the Landy-
” wood Estate building agreement was an essential prerequisite to the
” carrying out by Kilmorie of the development of the estate. It proved
” moreover, in the event to be very much to the advantage of Kilmorie
” to enter into the first-mentioned agreement (hereinafter referred to as
” the ‘ Kilmorie/Opendy agreement ‘) on the terms specified therein. We
” have, however, to consider the position at the time when the Kilmorie/
” Opendy agreement was made, and against the background of the
” series of transactions which led up to it. So approaching the matter
” we are of opinion that the Kilmorie/Opendy agreement was entered
” into by Kilmorie with the objects both of enabling that company
” to develop the Landywood Estate and of facilitating the scheme for
” avoiding liability to income tax referred to in paragraph 2 (2) above.
” In our view the latter object was on the facts of the case one of the
” main purposes, and not a mere secondary consequence, of the entering
” into by Kilmorie of the agreement, and the outlay totalling £19,240
” was thus incurred by Kilmorie for dual purposes being purposes one
” of which was, and one of which was not, a trading purpose.”
On this basis they disallowed the deduction and their decision has been
upheld by both Courts below.
My Lords, I so entirely agree with the reasoning, as to this matter, of
Roskill L.J. that I can deal with this matter shortly: anything more would
merely repeat his reasoning on which I cannot improve. Counsel for the
taxpayer, in an attractive argument, naturally placed much emphasis on
the words ” an essential prerequisite to the carrying out by Kilmorie of the
” development of the estate “. This, he said, amounted to a finding that
the payment of the £77,250 (£19,240 in the relevant year) had to be made
in order to secure the trading stock out of which the profits were made. If
this is so it is not for the Courts to examine or even to consider whether
the consideration was excessive: how a trader conducts a trade is his
business, and it is no concern of the taxing authorities to see whether he could
have made more profits than he did.
In my opinion, the Commissioners’ phrase will not bear the weight sought
to be put on it and fails to lay the necessary foundation for the legal proposi-
tion which is said to follow from it. What the Commissioners meant by
” an essential prerequisite ” is clear in this context: that is that the agreement
with Opendy was a necessary step in the scheme which started with the
acquisition of the Building Agreement and ended with the development by
Kilmorie/Downes. The scheme required—almost as its lynchpin—an agree-
ment by which the prospective profits, to be made by Kilmorie/Downes,
should be passed back through Opendy, so as to reach, as to £60,000, the
Trustees. The agreement was an essential prerequisite in this sense only:
and what is not being said is that it was necessary in a commercial sense.
The contrary to that is clearly found in the latter part of the paragraph.
Once then these words are properly understood, the Commissioners’ finding
is fatal to the taxpayers’ claim. To have found that to agree to pay £77,250
for the benefit of an agreement which barely a week earlier had been
assigned for £2,250 was a commercial purpose would have been simply
perverse. After all, the Directors of A. J. Downes & Sons Ltd. had con-
sidered that, on 30th March, 1962, £2,250 was a good price fully reflecting
the value of the Building Agreement. The price Kilmorie paid was 34 times
that good price.
Adopting, as I do, the argument more fully developed by Roskill L.J.,
I am of opinion that the Commissioners were right to disallow the deduction.
I would dismiss this appeal.
17
Lord Simon of Glaisdale
My Lords,
These five conjoined appeals arise out of two blatant tax avoidance schemes.
Their object was so to develop property that the increment would not attract
income tax but be placed as capital in the hands of trustees on discretionary
trusts for Mr. Higgs and his issue (in the first scheme) and Mr. Downes and
his issue (in the second scheme). In some fiscal systems there is a general
provision that any transaction the paramount object of which is the avoidance
of tax shall be void for that purpose though valid for all other purposes.
Our own fiscal system has no such provision, but rather attempts to deal
with tax avoidance schemes specifically as they come to notice. The
inevitable result of this and of other matters is a fiscal code of such complexity
that many ordinary citizens, particularly those engaged in commerce and
industry, seek the aid of experts in handling the tax affairs of themselves and
the corporations for which they have responsibility ; and, since the burden
of taxation is heavy (in some circumstances punitive), and since there is
generally some delay before tax avoidance schemes come to light (during
which time a rich windfall may be garnered), there is a strong incentive for
such experts to devote their talents to devising tax avoidance schemes for
clients, actual or potential, and for such clients to adopt the schemes devised.
That is what appears to have happened in the instant cases: Mr. Higgs
and Mr. Downes themselves did not, on the respective Commissioners’
findings, fully understand the schemes in which they were involved ; while
the same group of finance companies played a crucial role in both schemes
and drew handsome profits thereby. It may seem hard that a cunningly
advised taxpayer should be able to avoid what appears to be his equitable
share of the general fiscal burden and cast it on the shoulders of his fellow
citizens. But for the Courts to try to stretch the law to meet hard cases
(whether the hardship appears to bear on the individual taxpayer or on the
general body of taxpayers as represented by the Inland Revenue) is not
merely to make bad law but to run the risk of subverting the rule of law
itself. Disagreeable as it may seem that some taxpayers should escape what
might appear to be their fair share of the general burden of national expendi-
ture, it would be far more disagreeable to substitute the rule of caprice
for that of law. The most famous warning in the history of our fiscal law
is constituted by The Case of Shipmoney (1637) 3 State Trials 343. It could
be strongly argued that it was contrary to fiscal equity that the financial
burden of providing warships (or their money equivalent) for the defence of
the whole realm should fall exclusively on the inhabitants of maritime towns
and districts, to the exoneration of inland citizens: yet such, it seems, was
the law of the land ; and the judges who appear to have stretched that law
have not escaped the censure of history. So I think that counsel for the
taxpayers was justified, when frankly admitting that your Lordships were
concerned with unmeritorious tax avoidance schemes, in drawing attention
to C.I.R. v. Duke of Westminster [1936] AC 1. There Lord Tomlin (p. 19)
cited Coke (4 Inst. 41), on the danger of
” substituting ‘ the incertain and crooked cord of discretion ‘ for ‘ the
” ‘ golden and streight metwand of the law.’ “.
And Lord Russell of Killowen (p. 24) cited Lord Cairns (Partington v. A.G.
(1869) L.R. 4H.L. 100, 122):
” If the person sought to be taxed comes within the letter of the law
” he must be taxed, however great the hardship may appear to the
” judicial mind to be. On the other hand, if the Crown, seeking to
” recover the tax, cannot bring the subject within the letter of the law,
” the subject is free, however apparently within the spirit of the law the
” case might otherwise appear to be “
–although I do not take either great judge as meaning that the ” letter ”
of the law was to be interpreted in exclusion of the resolutions in Heydon’s
Case (1584) 3 Co Rep 7a.
18
The letter of the law which falls for primary consideration in the instant
appeals is the word ” trade ” in paragraph l(a)(ii) of section 122 of the
Income Tax Act, 1952, which provides that tax under Schedule D
” shall be charged in respect of—(a) the annual profits or gains arising
” or accruing … to any person residing in the United Kingdom from
” any trade, profession, employment or vocation.”
The Crown alleged that, in the circumstances summarised in the judg-
ments of the Court of Appeal and by my noble and learned friends and fully
set out in the cases stated, the sums to which Mr. Higgs and Mr. Downes
were respectively assessed were profits or gains which accrued from their
respective trades ; and, since they were entitled to such sums they were
chargeable under section 148 of the Act. Alternatively, the Crown alleged,
the trustees of the respective discretionary settlements received such profits
or gains, so that it was they who were chargeable under section 148. In
either alternative the crucial question was whether the sums were profits
or gains from any trade carried on by Mr. Higgs and Mr. Downes. But it was
common ground before your Lordships that, if any charge to tax arose at
all, it was the trustees who were assessable as having received the profits or
gains.
In the Higgs cases counsel for the Crown advanced the familiar argument
that the question whether or not the relevant activity is trade or an adventure
or a concern in the nature of trade is one of fact for the Commissioners
(Edwards v. Bairstow [1956] AC 14), and that the Special Commissioners
had made a finding that Mr. Higgs’ relevant activities constituted an adventure
in the nature of trade. When faced with the fact that the Special Com-
missioners in the Downes case had found Mr. Downes’ similar activities
were not an adventure in the nature of trade, counsel for the Crown maintained
stoutly, in effect, that sufficient to the appeal is the advantage thereof, and
that the Downes appeal was another case. When he came to that he
argued that the Commissioners were wrong in law in holding that Mr.
Downes’ activities were not trade.
The meaning of a word or phrase in an Act of Parliament is a question
of law not fact; even though the law may then declare that the word or
phrase has no statutory meaning beyond its common acceptance and that
it is a question of fact whether the circumstances fall within such meaning
(Cozens v. Brutus [1973] AC 854). But many words and phrases in English
have many shades of meaning and are capable of embracing a great diversity
of circumstance. So the interpretation of the language of an Act of Parliament
often involves declaring that certain conduct must as a matter of law fall
within the statutory language (as was the actual decision in Edwards v.
Bairstow) ; that other conduct must as a matter of law fall outside the
statutory language; but that whether yet a third category of conduct falls
within the statutory language or outside it depends on the evaluation of such
conduct by the tribunal of fact. This last question is often appropriately
described as one of ” fact and degree “.
Perhaps I may approach the relation of these propositions to the fiscal
law by an example from the matrimonial law. Various statutes used the
word ” desertion “. The meaning of the word was a question of law. So
courts were able to hold that, although the ordinary meaning of ” desertion ”
signified A leaving B, the statutory word ” desertion ” extended as a matter
of law to cases where A compelled B to leave him (” constructive desertion “).
On the other hand it was long held that, notwithstanding the ordinary
meaning, the statutory word ” desertion ” did not extend to cases where
A left B whilst of unsound mind. But this left a large area where the
question was one of fact and degree—particularly in relation to constructive
desertion, where the judicial decision depends not only on the findings of
fact but also on an assessment of degree (i.e. judgment whether the conduct
complained of was of such intensity that the other spouse would be acting
reasonably in withdrawing from cohabitation). As Asquith L.J. said in
Buchler v. Buchler [1947] p. 25, 46:
19
” It is, I think, possible to say of certain courses of conduct that they
” could not amount to constructive desertion, and of certain other courses
” that they could not fail to do so. This would appear to be a question
” of law, involving, as it does, the issue whether there was any evidence
” or no evidence to support the judge’s conclusion. But between the
” extremes indicated there is obviously a no-man’s land where the
” issue is one of fact. This does not debar an appellate tribunal from
” disturbing the judge’s findings if in the view of that tribunal they
” are plainly wrong.”
To apply these observations to the instant cases requires two riders. First,
where an appeal lies only on a point of law, the appellate tribunal ought
only to interfere with a decision falling within ” the no-man’s land ” of fact
and degree if the plain error shows that the instance tribunal must have
misdirected itself in law. Secondly, I respectfully agree with Roskill L.J. in
the instant case ([1973] 1 W.L.R. at p. 1204) as to the proper formulation
of a case stated where it is alleged that the evidence does not support a
tribunal’s finding.
As with ” desertion ” in the matrimonial statutes, so with ” trade ” in the
Income Tax Act. Its meaning is a matter of law. One of the ordinary
meanings of ” trade ” is ” any commercial activity “. But for a number
of reasons the courts have held that this is wider than the statutory meaning.
Within the meaning of the Act a man cannot trade with himself (cf. Sharkey
v. Wernher [1956] A.C. 58); so that ” mutual trading “, although a com-
mercial activity, as a matter of law is not ” trade ” for the purpose of income
tax. On the other hand, ” trade” in ordinary parlance suggests (as its
etymology indicates) some degree of continuance or recurrence; but the
law says (this time by statutory definition) that for the purpose of income
tax ” trade ” extends to an isolated adventure or concern in the nature of
trade. But between these two extremes there lies a ” no-man’s land ” of fact
and degree where it is for the Commissioners to evaluate whether the activity
amounts to trade.
In the instant appeals, however, there is no disputed question of fact, nor
is there any aspect where the evaluation of degree is in question. There is
no material difference, so far as concerns ” trade “, between the respective
activities of Mr. Higgs and Mr. Downes. Either both were trading, or
neither was. The courts below, in reversing the decision of the Commis-
sioners in the Downes case, were recognising that a question of law not fact
was involved. I respectfully agree. It is immaterial if the formulation of
the question of law is whether the activities found were capable of being
statutory ” trade ” on the part of Mr. Higgs and Mr. Downey or whether the
decision in one or the other case discloses a plain error indicative of mis-
direction as to the statutory meaning of ” trade “–though I myself prefer
the latter way of considering the matter.
For the reasons given by my noble and learned friends, I am clearly of
opinion that neither Mr. Higgs nor Mr. Downes was, in the transactions in
question in these appeals, engaged in trade or in an adventure or in a
concern in the nature of trade within the meaning of the Act. The two
matters which most impress me are, first, the extraordinary implications
which arise if ” trade ” is extended to embrace procuring others to trade, and,
secondly and particularly, the resulting liability to multiple taxation of
exactly the same profit of exactly the same transaction. Counsel for the
taxpayers in the Higgs cases stated categorically that the Higgs vendor
companies were assessable to tax on the basis of the market value of the
assets that they sold: see Sharkey v. Wernher; Petrotim Securities Ltd. v.
Ayres (1963) 41 T.C. 389. Counsel for the Crown, in the odd forensic
quadrille, was not prepared to concede that tax was necessarily exigible on
this basis. Since your Lordships were told that assessments had been raised,
it is undesirable to express a concluded opinion; though I should be
surprised if steps had not been taken to guard against payment of tax,
whether exigible or not. It is sufficient to say that it is easy to envisage
circumstances where more than one person or body would be liable to pay
20
tax on the identical profit of exactly the same transaction, if the Crown
is right in asserting that ” trade ” within the meaning of the Income Tax
Act extends to procuring others to trade.
Counsel for the Crown relied on Smith Barry v. Cordy (1946) 28 T.C. 250,
as showing (p. 261) that mere organisation of commercial or mercantile
activity can amount to trade. At p. 259 Scott L.J., delivering the judgment
of the Court of Appeal, said:
” There is hardly any activity for gaining a livelihood and not covered
” by other Schedules which does not seems to us to be swept into the
” fiscal net by Schedule D.”
So it was held that profits arising from the sale of endowment insurance
policies were the profits of trade within Case 1 of Schedule D. I think there
is a logical flaw in the argument. It may well be true that Schedule D
as a whole is an omnium gatherum Schedule ; it by no means follows that all
activities for gaining a livelihood not covered by other Schedules are ” trade ”
within Case 1 of that Schedule. I think that today the increment would
be taxable as a capital gain, and not as the profit of a trade. In short, I
doubt the correctness of the decision.
The conclusion that neither Mr. Higgs nor Mr. Downes, in the transactions
in question in these appeals, were trading within the meaning of ” trade ”
in the Income Tax Act makes it unnecessary to consider whether, if they
had been trading, there were in the Higgs cases any profits of that trade in
the year of assessment. The Commissioners held that there were none,
since the ” trade” produced no profit until the land was developed by
Coventry (and sums repaid to Downry and thence finally to the family trust):
Megarry J. and the Court of Appeal reversed the Commissioners on the
point. Out of deference to the full argument before your Lordships I state
my conclusion. I agree with the Special Commissioners. The essence of
the case for the Inland Revenue was that the whole composite scheme
whereby the land should be so developed that the increment could be taken
in a particular way was a trade or an adventure or a concern in the nature
of trade on the part of Mr. Higgs. I do not think the Crown can claim
in these circumstances that the scheme should be notionally halted at a
particular point before its completion, so that a notional profit, which had
not yet arisen, could be assessed to tax.
I would therefore hold for the taxpayers in the main Higgs and Downes
appeals.
As for the Kilmorie case, I entirely agree with the judgment of the Court
of Appeal and with the speeches of my noble and learned friends. I would
therefore dismiss this taxpayer’s appeal.
Lord Cross of Chelsea
My Lords,
The details of the two tax avoidance schemes which were ” sold ” by
Harlox to Mr. Higgs and Mr. Downes respectively are set out in the stated
cases and are summarised in the judgments in the Courts below. I will not
repeat them here. So far as concerns the point at issue in the first two of
these three appeals no distinction is to be drawn between the two schemes ;
but the findings as to the relation of Mr. Higgs and Mr. Downes to the
persons other than Harlox and the companies controlled by Harlox—who
took part in the schemes and as to the parts played by Mr. Higgs and Mr.
Downes respectively in putting the schemes into operation are somewhat
more favourable to the Crown in the Higgs case than in the Downes case. If
the Crown cannot succeed in the first it certainly cannot succeed in the
second and I will give my opinion on the basis of the findings in the Higgs
case. They are that all those who took part in the various transactions (other
than Harlox and the companies controlled by Harlox)—that is to say the
Higgs vendor companies, Mrs. Higgs, the Trustees of the Settlement and
21
Coventry—simply did without question what Mr. Higgs told them to do and
that the Harlox Companies agreed with Mr. Higgs to play their parts in the
scheme because he made it worth their while to do so. Whether Mr. Higgs
was himself a shareholder in or a director of the vendor companies or of
Coventry is irrelevant to the Crown’s argument which would have been—
for better or worse—just the same if all the shares in those Companies had
been held by Mrs. Higgs and she had been their sole director. What is said
is that although Mrs. Higgs the Trustees and the various Companies were not
Mr. Higgs’ agents he was in fact able to cause them and did cause them to
play the various parts assigned to them; that his object was financial gain
for himself and his family in the shape of the £170,000 paid by Harlox to
the trustees of the settlement; that his putting the scheme into operation
by virtue of his control over the actors was ” an adventure in the nature
of trade” ; and that the £170,000 was a profit of that trade. This line of
argument if pressed to its logical conclusion would, as I see it, lead to some
very odd results. It might, for example, be said that a man who expended
time and trouble in establishing an ascendancy over a wealthy relative with
the object of causing him to settle some property on him and his family was
engaged in an adventure in the nature of trade the profit of which would be
the sum settled if the scheme succeeded—with the corollary, I suppose, that
if the scheme misfired and the relative refused to make the settlement the
” trader ” could claim any expenses to which he had been put as a trading
loss. It may be, however, that Counsel for the Crown meant his argument
to apply only to cases—such as this—where the ” adventurer ” procures others
to enter into transactions with one another some of which are trading trans-
actions. Procuring others to enter into trading transactions which incidentally
throw up a benefit to the procurer may be said to have a flavour of trade
about it which is absent from the procuring of direct gifts. But even if so
limited the Crown’s argument involves some startling consequences. The
benefit accruing to the adventurer which is said to be taxable as a profit of
his trade may have already borne tax as a result of the transactions in the
course of which it arose. Indeed in this very case, it is well arguable that
some if not all the £170,000 may have been taxable at one or other stage in
the scheme. Those who embark on elaborate tax avoidance schemes cannot
of course fairly complain if the result of their efforts is that in the end they
pay tax twice over—but the Crown’s argument cannot be limited to cases
in which the ” adventurer ” was hoping to avoid tax. If it is right it must
apply to any procuring of trading transactions which throw up a benefit
to the procurer. What then was the line of reasoning which led Megarry J.
and the Court of Appeal to the result to which they came? It may be
summarised as follows:
” Trade ” is a vague word which covers a multitude of diverse activi-
ties ; as Scott L.J. said in Smith Barry v. Cordy 28 T.C. 250 at 259
” There is hardly any activity for gaining a livelihood and not
” covered by the other schedules which does not seem to us to be
” swept into the fiscal net by schedule D ” ;
many of the transactions into which the various actors entered in the course
of the scheme were trading transactions in the ordinary sense of the word and
this gives ” a flavour of trade ” to the activities of Mr. Higgs; there is no
case which says that what he was doing does not constitute trade ; it is
obviously desirable that the £170,000 in question should be subjected to a
charge for tax ;—and so there is no reason why we should not hold that what
Mr. Higgs was doing constituted trading.
One can sympathise with their desire to prevent Mr. Higgs from ” getting
” away with it ” but that desire has, I think, blinded them to the consequences
to which their decision might lead in cases where there was no question of
tax avoidance and led them to extend the meaning of the word ” trade ”
beyond all reasonable bounds.
A man cannot be trading or engaged in an adventure in the nature of trade
unless there is someone with whom he is trading—someone to whom he
supplies something such as goods or services for some return. Here there
22
was no one with whom Mr. Higgs can fairly be said to have ” traded “.
Counsel for the Crown said that his ” role ” was analogous to that of a broker.
A broker procures other people to enter into transactions with one another
and that—he submitted—is what Mr. Higgs did. But a broker has a custo-
mer ; one or other or both of the parties to the transaction in question pays
or pay him for bringing them together. Mr. Higgs, by contrast, simply told
the parties concerned to carry out the transactions which the scheme which
he had adopted required them to carry out. In his reply Counsel suggested
that Mr. Higgs might be regarded as having ” traded ” with Harlox by
arranging that they should buy the properties belonging to the vendor com-
panies for £286,000 on the terms that they paid £170,000 to the Trustees
of the settlement; but this suggestion overlooks the fact that under the
scheme the properties ended up under the control of Coventry and it
is a wholly unrealistic way of describing what happened. Harlox by
suggesting the scheme to Mr. Higgs and agreeing for a fee to cooperate with
him in carrying it out may have been ” trading ” with Mr. Higgs ; but Mr.
Higgs, supplied them with nothing. He simply agreed that they should receive
their £30,000 fee in the way which the scheme provided. For these reasons
I would allow the appeal in the Higgs case and the Downes case. I would
only add that though the facts in Smith Barry v. Cordy bear no resemblance
to the facts in this case and the decision itself—as opposed to the reasoning
of Scott L.J.—is of no assistance to the Crown here—I doubt very much
whether the case itself was rightly decided.
The question at issue in the Kilmorie appeal is whether the premiums
amounting to £19,500 paid by Kilmorie to Opendy in the year 1963-64
under the agreement between them made on March 21st, 1962, was money
wholly and exclusively laid out or expended by Kilmorie for the purposes
of its trade within the meaning of section 137 (a) of the Income Tax Act,
1952. The Special Commissioners held that the £19,500 was not allowable
as a deduction on the ground that the agreement was entered into by
Kilmorie with a dual purpose—one being to enable Kilmorie to develop
the Landywood Estate under the agreement between Roodhouse and one
of the Downes’ Companies to the benefit of which Opendy had become
entitled and the other being to facilitate the carrying out of Mr. Downes’
scheme. ” In our view ” they said ” the latter object was on the facts of
” the case one of the main purposes and not a mere secondary consequence
” of the entering into by Kilmorie of the agreement and the outlay totalling
” £19,500 was thus incurred by Kilmorie for dual purposes one of which was
” and one of which was not a trading purpose.” In so far as this language
suggests that the fact that one of the purposes for which a payment is made
is not a trading purpose necessarily leads to the conclusion that the payment
must be disallowed it must be open to criticism. Suppose that a retailer
is in the habit of buying certain articles from a wholesaler for £10 each
which is a fair commercial price, that his son-in-law sets up in business as a
wholesaler dealing in similar articles and that thenceforth the retailer deserts
the other wholesaler and buys the articles from his son-in-law for £10 each.
One of the purposes for which the retailer is entering into the transactions
with his son-in-law is to help him in his business but nevertheless the cost
would be properly allowable because the transactions though entered into
in a sense for a dual purpose are bona fide commercial transactions. But
though the language used by the Commissioners may be open to
misunderstanding I have no doubt whatever that their conclusion that the
£19,500 was not an allowable deduction was right—and that any other
conclusion would have been wholly unreasonable. Suppose that, in the
example which I have given, the retailer bought articles from his son-in-law
for £15 each which he could have bought from other wholesalers for £10
each then the expense would not have been allowable—at all events to
the extent of the etxra £5—because the purchases were not genuine
commercial transactions but purchases at a fancy price entered into to
benefit the vendor. In this case the benefit of the agreement with Roodhouse
for which Kilmorie agreed to pay Opendy premiums totalling £77,000 had
been sold for £2,500 only a few days previously and Mr. Downes himself
had said in evidence that that was a fair price. £77,000 was in truth a
23
fancy price fixed by Downes and Harlox for the purposes of the scheme.
Counsel for Kilmorie laid great stress on the fact that Kilmorie—even though
it had to pay £77,000 for the benefit of the agreement nevertheless derived
a substantial profit from the transaction and also on the fact that the
special Commissioners found that Kilmorie’s agreement with Opendy ” was
” an essential prerequisite to the carrying out by Kilmorie of the development
” of the estate.” But these facts do not show that the price of £77,000
was a commercial price. It is, of course, true that Kilmorie could not
develop the estate unless it acquired the benefit of the agreement from Opendy
and that in order to acquire it it had to pay £77,000. Further, it is true
that the fact that a price paid is extravagant does not necessarily show
that the purchase is not a genuine commercial transaction. A purchaser
dealing at arms length with a vendor may say to himself ” The price which
” he is asking is absurdly high but I cannot get him to take less and I
” believe that even at that price I can make a profit on the deal. So I will
” agree to pay what he is asking “. But Kilmorie was not dealing at arms
length with Opendy. It was controlled by Downes and it agreed to pay
the £77,000 not because its directors other than Downes decided in the
exercise of an independent judgment that it was worth Kilmorie’s while to
agree to pay that price but because the scheme provided for that price being
paid. For these reasons I would dismiss the appeal by Kilmorie. The
Commissioners were not asked to decide whether if the whole £19,500 was
not allowable as a deduction a part of it bearing the same proportion to
the whole as £77,000 bore to the commercial value of the agreement with
Roodhouse ought not to be allowed notwithstanding the word ” wholly ”
in the subsection. When this question was raised before us Counsel for the
Crown while making no admission said that the Revenue authorities would
be willing in this case to allow such a deduction. It is not, therefore,
necessary for us to express any opinions on the point of principle which was,
indeed, not fully argued.
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