Wisdom v Chamberlain (Inspector of Taxes)
[1969] 1 All ER 332(Judgment by: Salmon LJ)
Between: Wisdom
And: Chamberlain (Inspector of Taxes)
Judges:
Harman J
Salmon LJCairns J
Subject References:
INCOME TAX
Casual profit on hedge against devaluation
Purchase of silver bullion
Profit on re-sale
Finding that other considerations influenced purchase unsupported by evidence
Whether adventure in the nature of trade
Legislative References:
Income Tax Act 1952 - (15 & 16 Geo. 6 & 1 Eliz 2 c 10), Sch D, Case I
Case References:
Edwards (Inspector of Taxes) v Bairstow - [1955] 3 All ER 48; [1956] AC 14; [1955] 3 WLR 410; 36 Tax Cas 207; 28 Digest (Repl) 396, 1763
Inland Revenue Comrs v Livingston - (1927) 11 Tax Cas 538; 1927 SC 251; 28 Digest (Repl) 45, 121
Jenkinson (Inspector of Taxes) v Freedland - (1961) 39 Tax Cas 636; Digest (Cont Vol A) 850, 173n
Leeming v Jones (Inspector of Taxes) - [1930] 1 KB 279; 99 LJKB 17; 141 LT 472, affd HL, sub nom
Jones (Inspector of Taxes) v Leeming - [1930] AC 415; [1930] All ER Rep 584; 99 LJKB 318; 143 LT 50; 15 Tax Cas 333; 28 Digest (Repl) 22, 87
Judgment date: 8 November 1968
Judgment by:
Salmon LJ
I agree. I am afraid that I cannot accept the learned judge's conclusion ([1968] 2 All ER at p 720, [1968] 1 WLR at p 1240.) that it was not open in law to the commissioners to find that the transaction here in question was an adventure in the nature of trade. Whether or not any transaction is an adventure in the nature of trade is essentially a question of fact. The courts from time to time have laid down guide lines for helping to solve that question of fact. For example, in Inland Revenue Comrs v Livingston , which was referred to by Rowlatt J at first instance in Leeming v Jones (Inspector of Taxes) ([1930] 1 KB 279 at pp 283, 284, 15 Tax Cas 333 at p 340.), Lord Clyde said ((1927), 11 Tax Cas at p 542.):
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."
Then again, in Jenkinson (Inspector of Taxes) v Freedland ((1961) 39 Tax Cas 636 at p 647.), Donovan LJ, said:
"It cannot be right, therefore, to assert, as the Crown did before us, that whenever something is bought to re-sell at a profit an adventure or concern in the nature of trade necessarily results, and any finding of Commissioners to the contrary must be perverse. Otherwise there would hardly be any need to introduce a capital gains tax. It would virtually be here already. The true position, in my opinion, is that all the facts in each case must be considered, not merely the motive of acquisition, and a conclusion arrived at from such a comprehensive review."
It is often very difficult for the commissioners to decide on which side of the line the transaction falls. But once they make a finding of fact one way or the other it is quite clear that the court cannot interfere with the finding unless it comes to the conclusion not only that it might well have arrived at a different decision but that it is not possible to support the finding made by the commissioners on any reasonable basis. That was laid down in Edwards (Inspector of Taxes) v Bairstow , following many other cases to a like effect.
Here, it seems to me, it would have been possible for the commissioners to come to the view at which they did arrive in favour of the Crown or they might have taken a view of the facts in favour of the taxpayer. On the whole (not that it matters) I think that in the circumstances of this case I should have been inclined to agree with the view taken by the commissioners. With great respect to the learned judge, it is in my opinion impossible to say that the view expressed by the commissioners was not a view at which any reasonable tribunal could arrive.
The main facts are quite simple. The taxpayer was a man who was earning a very large income; he was in the top, or very nearly in the top, surtax bracket. His assets were in the region of £200,000 in stocks and shares, government securities, a country house, and a yacht which was in building. Mr Halpern, who managed the taxpayer's financial affairs, was naturally concerned with what was regarded as a crisis in sterling which developed during 1961 when it appeared that there was a real danger of devaluation. The evidence shows clearly that it was because of his expectation that devaluation would probably come that he entered into the transactions in question. He did not sell out the taxpayer's assets; he did not dispose of his government securities and stocks and shares and redeploy those assets by investing the proceeds in silver. If he had done so, the case might have been quite different. But that is not what happened at all. It obviously occurred to Mr Halpern that it would be wise to buy a large quantity of silver on behalf of his client because silver had a stable worldwide price, and accordingly if the pound were devalued the price of silver would remain constant in dollars but it would be bound to appreciate in devalued pounds. If there were a devaluation, therefore, he had it in mind that he would sell the silver and make a profit. If the danger of devaluation passed-why, he would sell the silver; but as the market appeared to be stable it was unlikely that there would be much movement one way or the other. And so he borrowed £200,000-which, in spite of the high bank rate, anyone in the surtax bracket which this taxpayer is fortunate enough to occupy can do quite cheaply-and bought £200,000 worth of silver. He did that in April 1962. I need not go into the details of the transaction save to say that some months later the fear of devaluation subsided but there was a sharp fortuitous rise on the silver market; Mr Halpen sold and made a profit of over £48,000 for his client.
It seems to me, as I have already indicated, that that really is a trading adventure-and a very sensible and successful one. I for my part cannot see that it is any the less a trading adventure because one describes it as something to offset the loss incurred by a fall in the value of sterling, or as a "hedge", or insurance, against devaluation.
Counsel (who has said everything that could be said on behalf of the taxpayer very attractively) seeks to escape from what I fancy he recognises as a difficult position by fastening on a finding in the Case which is admittedly unsupported by the evidence, and he has very skilfully got the last ounce out of that finding. That is the finding (b)-that:
"At the time of the second transaction [i.e., when the £200,000 worth of silver was bought] other considerations influenced the purchase, the fear of devaluation having subsided."
In the finding that occurs immediately before that, the commissioners state that:
"The [taxpayer's] original intention was to purchase the silver as a hedge against the devaluation of sterling."
Counsel for the taxpayer says that that finding (b), which is admittedly unsupported by the evidence, vitiates the finding of the commissioners that this was an adventure in the nature of trade. He says that but for that finding the commissioners might have come to a different conclusion. I cannot agree. They found that the November transaction was entered into with the intention of making a hedge against devaluation but was nevertheless an adventure in the nature of trade. It seems to follow that, if that is the view they took about the November transaction, then they must have taken precisely the same view about the April 1962 transaction even if they had not made the finding that at that time other considerations influenced the purchase.
In those circumstances, the point that has been made, very skilfully, in an attempt to support the judgment of the learned judge, really disappears and we are left with a case in which the commissioners have found-to my mind quite reasonably-that this transaction falls on the side of the line which makes it an adventure in the nature of trade and cannot be classified as a pure investment. As there was ample material to support that finding it is plain that the learned judge had no power to interfere; and I would allow the appeal accordingly.