Commissioners for the General Purposes of the Income Tax for the City of London v Gibbs and Others
[1942] 1 All ER 415(Judgment by: Lord Porter)
Between: Commissioners for the General Purposes of the Income Tax for the City of London
And: Gibbs and Others
Judges:
Viscount Simon LC
Lord Russell of Killowen
Lord MacMillan
Lord Wright
Lord Porter
Subject References:
INCOME TAX
Partnership
Admission of new partner
Assessment of profits
'Succession'
Continuance of business
Legislative References:
Income Tax Act 1918 (c 40) - Sched D, Cases I and II, rr 8, 9, 10, 11
Finance Act 1926 (c 22) - s 32
Case References:
Income Tax Special Purposes Comrs v Pemsel - [1891] AC 531; 28 Digest 10, 51, 61 LJQB 265; 65 LT 621
Baird's Trustees v Lord Advocate - (1888) 15 R (Ct of Sess) 682; 28 Digest 10, g
R v Hogg - (1787) 1 Term Rep 721; Cald Mag Cas 266; 42 Digest 671, 818
Saltoun (Lord) v Advocate General - (1860) 3 Macq 659; 42 Digest 675, 868; 3 LT 40
Caledonian Ry Co v North British Ry Co - (1881) 6 App Cas 114; 42 Digest 638, 410
Sadler v Whiteman - [1910] 1 KB 868; 36 Digest 319, 21; 79 LJKB 786; 102 LT 472; on appeal sub nom Whiteman v Sadler [1910] AC 514
Watson & Everitt v Blunden - (1933) 18 Tax Cas 402; Digest Supp
Brace v Calder - [1895] 2 QB 253; 36 Digest 392, 652; 64 LJQB 582; 72 LT 829
Kensington Income Tax Comrs v Aramayo - [1916] 1 AC 215; 28 Digest 102, 622; 84 LJKB 2169; 113 LT 1083
Judgment date: 20 FEBRUARY 1942
Judgment by:
Lord Porter
My Lords, the question at issue in this case is a short but by no means easy one. Unfortunately, the Income Tax Acts are not a coherent whole, but a congeries of provisions often enacted to deal with specific problems without any sufficient care to see how they fit into the general framework amidst which they are inserted. Some of your Lordships in this House have set out the vital rule (Income Tax Act 1918, Sched D, cases I and II, r 9), which requires elucidation, and in the course of the speeches delivered have traced the history of that rule itself and of the rules following it which deal with partnership businesses.
The argument on behalf of the subject, as I understand it, is that, in the case of a partnership, so long as one partner continues in the business, it cannot be said that the partnership has "ceased to carry on a trade" or has been "succeeded by another person." Partnerships, it is said, do not carry on a trade: the several partners do. An individual may cease to carry on a business and be succeeded by another person, and so may the individuals forming a partnership, provided all the original partners are replaced by another person or other persons, but unless all are changed there is no cessation and no succession by a person carrying on the business. The argument is strengthened by pointing out that in the Act of 1842, Sched D, cases I and II, r 4, a distinction is made between a change of partners on the one hand and a succession to a trade on the other, that this distinction was continued in r 11 of the 1918 Act, which substantially reproduces r 4 of the 1842 Act, and, it is said, again continued, though perhaps not quite so definitely, in the new r 11 embodied in the Act of 1926. Rule 9, it is added, deals with cessation and succession, and not with a change of partners. In spite of this forcible argument, if I were faced only with the rules as they now stand, I think that in common with my noble and learned friend, Lord Macmillan J, I should, without undue difficulty, consider r 9 at least capable of bearing the interpretation which the appellants put upon it, more particularly in view of the circumstance, which he has pointed out, that r 10 treats the entity of assessment as being the partnership, and not the individuals composing it.
It is true that r 9 speaks of persons ceasing to carry on a trade and being succeeded by another, but for my own part I can conceive of the legislature, when dealing with a partnership consisting of A, B, C and D, describing them as ceasing to carry on a trade when those four individuals cease to carry it on as a group and of their being succeeded by other persons when a different group of four carry it on (eg A, B, C and F), albeit three out of the four are persons who previously constituted the partnership. Some of the individuals indeed remain, but A, B, C and D have ceased to carry on the business and are succeeded by A, B, C and F. The phraseology may be loose, inasmuch as strict accuracy compels one to acknowledge that in England, though not in Scotland, the business is carried on by the individual partners jointly, and not by the partnership. Nevertheless, it is not unimportant to recall that one partner alone does not carry it on. The totality of members form a joint body of management and responsibility.
It is interesting to observe in this connection that r 9 speaks of cessation and succession as a change-as indeed it is-and thereby makes less marked the difference between the language used in r 4 and the earlier r 11, when referring to a change of partners and that used in a case where persons who are not partners cease to carry on a business and are succeeded by others. Moreover, those rules treat the death or dissolution of partnership as to all partners exactly on the same footing as the death or dissolution of some only. Further, as Viscount Simon LC has pointed out, it is at least possible to read the phrase "unless such partners or such person succeeding" as if "partners" as well as "persons" were qualified by the word "succeeding."
Nevertheless, if I were dealing with a case where r 4 of the 1842 Act, or the old r 11 embodied in the Act of 1918 applied, I should be less willing to disturb the judgment of the Court of Appeal, not only because the construction of the Act is itself a matter of some doubt, but also because I feel the force of the reasoning of the Court of Appeal, and in a case of doubt recognise that your Lordships would affirm their decision.
However, this House is not directly concerned with the Act of 1842 or with r 11 of the 1918 Act as it originally stood. In the language of the present r 11 and elsewhere in the Act of 1926, there are, I think, some expressions sufficient to weight the scale in favour of the construction contended for by the appellants. I may tabulate them as follows.
- (i)
- The proviso to the present r 11(2) speaks of a case of cessation and succession to which para (1) of the rule does not apply, and para (1) deals with changes of partnerships. This phraseology gives some indication that in the Act changes of partnership are treated as involving a cessation of and a succession in the carrying on of the business. In this connection it is also, I think, not unimportant to observe that in the new rule, as in the old, no distinction is made between those cases where all the partners are changed and those where there is a change of some only, or even nothing except an addition to or subtraction from the existent partners without further change. This, in my view, suggests that no difference was intended to be made between a complete and a partial change in the ownership of a business.
- (ii)
- Rule 11(2) expressly provides that in that paragraph references to a person include references to a partnership. The conclusion I should draw is that the first paragraph was intended to deal primarily with a partial change of partners, and the second as including a complete change and in each case the change is treated as a succession.
- (iii)
- It was conceded by the respondents in argument that, except for the two years before the Act of 1926 came into force, r 9 would find no set of circumstances upon which to operate. It seems unlikely that Parliament would leave that section unrepealed for all time, if this were the result of the new r 11.
- At best this particular argument is only of slight weight, but I have some doubt as to whether the admission should properly have been made by the respondents if their argument is sound. If the business is carried on, not by the partnership, but by individual partners, I see no reason why a new partner should not buy out an old one with the consent of the others. In such a case, I should have thought it might be contended that the outgoing partner had ceased to carry on the business and the incoming one had succeeded him, and that as between those two an apportionment under r 9 should be made. This argument, however, does, to my mind, accentuate certain difficulties in the respondents' contentions. In the first place, the outgoing partner does not cease to carry on the business: he only ceases to help in doing so. In the second place, it would be an add thing if apportionment were possible where partner succeeded partner, but none where the only change was that a new partner was taken in or an old one retired, and odder still if no apportionment were possible unless a new partner took exactly or substantially the old partner's share and place so that it could be said he had succeeded him.
- (iv)
- Finally, s 35(1) of the 1926 Act contains the words "Provided that nothing in this section shall be construed as limiting the power of the general commissioners with respect to the adjustment of an assessment under Sched. D, cases I and II, r. 9." That provision seems to indicate that that rule was intended to retain its effect in addition to the powers granted and obligations imposed by r 11.
The general effect of this summary is to induce me to believe that in this difficult matter of construction, r 9 continues to be effective and does apply to a partnership where a change of partners occurs though the old members are not superseded by entirely new persons. I cannot say that this result is achieved by that clarity of expression which one would desire in a taxing, or, indeed, in any, Act of Parliament, but of the two views I think it is the better. Accordingly, I find myself in agreement with the opinions expressed by Viscount Simon LC and Lord Macmillan, and in proposing that the appeal should be allowed.
Appeal allowed.