Edwards (Inspector of Taxes) v. Bairstow and Anor
[1956] A.C. 14(Judgment by: Lord Radcliffe)
Between: Edwards (Inspector of Taxes) - Appellant
And: Bairstow and Anor - Respondents
Judges:
Viscount Simonds
Lord RadcliffeLord Tucker
Lord Somervell of Harrow
Subject References:
REVENUE
INCOME TAX
Profits of trade
Isolated transaction
Adventure in the nature of trade
Purchase and sale of spinning plant
Finding of General Commissioners
Review
Principles
Legislative References:
Income Tax Act, 1918 (8 & 9 Geo. 5, c. 40) - Sch. D, Case I
Judgment date: 25 July 1955
Judgment by:
Lord Radcliffe
My Lords, the Crown has sought to charge the respondents with income tax upon the profit arising from the purchase and sales of certain spinning plant acquired and sold during the period 1946-48. This profit, it is said, came from a "trade, manufacture, adventure or concern in the nature of trade" and so is taxable under Case I of Schedule D of the Income Tax Act, 1918.
The Commissioners for the General Purposes of the Income Tax for the Division of West Morley in the County of York, to whom the respondents appealed against the assessments, determined that the "transaction" which was their subject-matter was not an adventure in the nature of trade and discharged the assessments. In the High Court the Crown's appeal was dismissed by the learned judge (Wynn-Parry J.) on the ground that the determination was "purely a question of fact" and that accordingly it was not open to the court to interfere with it. The matter was treated in exactly the same way in the Court of Appeal.
I should not myself have thought that the principles which govern a case of this sort offered much scope for controversy at this date, whether they are sought for in English or in Scottish legal decisions. The only difficulty that I see arises from the fact that in some cases judges have not been at pains to distinguish in their judgments what are the conditions which make the particular question before them no more than a question of fact.
My Lords, I think that it is a question of law what meaning is to be given to the words of the Income Tax Act "trade, manufacture, adventure or concern in the nature of trade" and for that matter what constitute "profits or gains" arising from it. Here we have a statutory phrase involving a charge of tax, and it is for the courts to interpret its meaning, having regard to the context in which it occurs and to the principles which they bring to bear upon the meaning of income. But, that being said, the law does not supply a precise definition of the word "trade": much less does it prescribe a detailed or exhaustive set of rules for application to any particular set of circumstances. In effect it lays down the limits within which it would be permissible to say that a "trade" as interpreted by section 237 of the Act does or does not exist.
But the field so marked out is a wide one and there are many combinations of circumstances in which it could not be said to be wrong to arrive at a conclusion one way or the other. If the facts of any particular case are fairly capable of being so described, it seems to me that it necessarily follows that the determination of the Commissioners, Special or General, to the effect that a trade does or does not exist is not "erroneous in point of law"; and, if a determination cannot be shown to be erroneous in point of law, the statute does not admit of its being upset by the court on appeal. I except the occasions when the commissioners, although dealing with a set of facts which would warrant a decision either way, show by some reason they give or statement they make in the body of the case that they have misunderstood the law in some relevant particular.
All these cases in which the facts warrant a determination either way can be described as questions of degree and therefore as questions of fact. In this, I am only saying what was said by Lord Sterndale in Currie v. Inland Revenue Commissioners [F81] and repeated by Atkin L.J. in Cooper v. Stubbs. [F82] And, in Scotland, Lord Sands says the same thing in Inland Revenue Commissioners v. Livingston. [F83] I agree with them. But, of course, in proper circumstances a case can be described as one of fact, or as purely one of fact (if the testimonial adds anything), without going through the procedure of explaining that is so because it is one of degree and, the facts fairly admitting of the determination come to, there is no error which justifies the court's intervention. I see nothing more than this in anything that was said in this House in Jones v. Leeming.12 The only thing that I would deprecate is too much abbreviation in stating the question, as by asserting that it is simply a question of fact whether or not a trade exists. It is not simply a question of fact. The true clue to the understanding of the position lies, I think, in recalling that the court can allow an appeal from the commissioners' determination only if it is shown to be erroneous in point of law.
Nor do I think that there can be any real divergence of opinion as to what constitutes error of law for this purpose. Naturally, judges have not always expressed it in exactly the same terms. I will take one or two instances. As I have said, where there is an actual statement in the case which shows a misconception of the law, no one feels any difficulty. But, equally, no one supposes that the court's right, or as I would say, duty, to intervene stops at this. For example, in Cooper v. Stubbs, [F85] Rowlatt J. was prepared to overrule the commissioners' determination that no trade existed because, as he said:
"If one were trying a question of this sort with a jury, one would have to say upon these facts, 'Well, now a trade is proved,' and I think that what the commissioners have done is merely to give the wrong name to a state of facts which in law amount to something else."
In the Court of Appeal [F86] the majority did not agree with him, holding, in effect, that it would not have been right to give such a direction to the jury on the facts as found. We are not rehearing the case of Cooper v. Stubbs, [F87] though one can say, at any rate, "sed victa Catoni." But I see no reason to think that the majority were following any different principle. Warrington L.J. said [F87] that intervention was proper only "in a very clear case, where either the Commissioners have come to their conclusion without evidence which should support it, that is to say, have come to a conclusion which on the evidence no reasonable person could arrive at, or have misdirected themselves in point of law." And Atkin L.J. recognized [F88] that "there may be a state of facts which can only lead to one conclusion of law."
Now, if I turn to the Scottish decisions I find that the judges are stating, though sometimes in somewhat different words, the same principle. Lord Normand's judgment in the First Division of the Court of Session in Inland Revenue Commissioners v. Fraser [F89] has said almost everything that needs to be said on this branch of the subject. "In cases," he says, "where it is competent for a tribunal to make findings in fact which are excluded from review, the Appeal Court has always jurisdiction to intervene if it appears either that the tribunal has misunderstood the statutory language - because a proper construction of the statutory language is a matter of law - or that the tribunal has made a finding for which there is no evidence or which is inconsistent with the evidence and contradictory of it." And that, in its turn, appears to me to propound the same principle as that adopted by Lord Cooper in Inland Revenue Commissioners v. Toll Property Co. Ld., [F90] where he says:
"Keeping in view the nature of the transaction, the purpose with which the company was floated and the objects which were prescribed in the memorandum of association, and the whole of the other circumstances which I have briefly summarized, it seems to me that the majority of the commissioners were not entitled to reach the conclusion which they did, that they must have misdirected themselves in law, and that the true and only reasonable conclusion on the facts found is the conclusion reached by the dissenting commissioner."
My Lords, I must apologise for taking so much time to repeat what I believe to be settled law. But it seemed to be desirable to say this much, having regard to what appears in the judgments in the courts below as to a possible divergence of principle between the English and Scottish courts. I think that the true position of the court in all these cases can be shortly stated. If a party to a hearing before commissioners expresses dissatisfaction with their determination as being erroneous in point of law, it is for them to state a case and in the body of it to set out the facts that they have found as well as their determination.
I do not think that inferences drawn from other facts are incapable of being themselves findings of fact, although there is value in the distinction between primary facts and inferences drawn from them. When the case comes before the court it is its duty to examine the determination having regard to its knowledge of the relevant law. If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene. It has no option but to assume that there has been some misconception of the law and that, this has been responsible for the determination. So there, too, there has been error in point of law. I do not think that it much matters whether this state of affairs is described as one in which there is no evidence to support the determination or as one in which the evidence is inconsistent with and contradictory of the determination, or as one in which the true and only reasonable conclusion contradicts the determination. Rightly understood, each phrase propounds the same test. For my part, I prefer the last of the three, since I think that it is rather misleading to speak of there being no evidence to support a conclusion when in cases such as these many of the facts are likely to be neutral in themselves, and only to take their colour from the combination of circumstances in which they are found to occur.
If I apply what I regard as the accepted test to the facts found in the present case, I am bound to say, with all respect to the judgments under appeal, that I can see only one true and reasonable conclusion. The profit from the set of operations that comprised the purchase and sales of the spinning plant was the profit of an adventure in the nature of trade.
What other word is apt to describe the operations? Here are two gentlemen who put their money, or the money of one of them, into buying a lot of machinery. They have no intention of using it as machinery, so they do not buy it to hold as an income-producing asset. They do not buy it to consume or for the pleasure of enjoyment. On the contrary, they have no intention of holding their purchase at all. They are planning to sell the machinery even before they have bought it. And in due course they do sell it, in five separate lots, as events turned out. And, as they hoped and expected they make a net profit on the deal, after charging all expenses such as repairs and replacements, commissions, wages, travelling and entertainment and incidentals, which do in fact represent the cost of organizing the venture and carrying it through.
This seems to be, inescapably, a commercial deal in secondhand plant. What detail does it lack that prevents it from being an adventure in the nature of trade, or what element is present in it that makes it capable of being aptly described as anything else? Well, to judge by the respondents' contentions as recited in the case, there were some circumstances lacking in this deal of which the presence has been regarded as of importance in other cases. I do not think that this line of argument is ever very conclusive; but, in any event, it breaks down completely on the facts that are found. It is said that there was no organization for the purposes of the transaction. But in fact there was organization, as much of it as the transaction required. It is true that the plant was not advertised for sale, though advertisements asking for plant were answered by the respondents. But why should they incur the cost of advertising if they judged that they could achieve the sale of the plant without it? It is said that no work had been done on the maturing of the asset to be sold. But such replacement and renovation as were needed were in fact carried out, and I can see no reason why a dealer should do more work in making his plant saleable than the purposes of sale require.
It is said that neither of the respondents had any special skill from his normal activities which placed him in an advantageous position for the purposes of this transaction. It may be so, though one of them was the employee of a spinning firm. In any case the members of a commercial community do not need much instruction in the principles and possibility of dealing, and I think that given the opportunity, the existence or non-existence of special skill is of no significance whatever. It is said, finally, that the purchase and sale of plant lent itself to capital, rather than commercial, transactions. I am not sure that I understand what this is intended to mean. If it means that at the relevant period there was no market for secondhand plant in which deals could take place, there is no finding to that effect and all the facts that are recited seem to be against the contention. If it means anything else, it is merely an attempt to describe the conclusion which the respondents would wish to see arrived at on the whole case.
There remains the fact which was avowedly the original ground of the commissioners' decision - "this was an isolated case." But, as we know, that circumstance does not prevent a transaction which bears the badges of trade from being in truth an adventure in the nature of trade. The true question in such cases is whether the operations constitute an adventure of that kind, not whether they by themselves or they in conjunction with other operations, constitute the operator a person who carries on a trade. Dealing is, I think, essentially a trading adventure, and the respondents' operations were nothing but a deal or deals in plant and machinery.
There is only one thing more that I wish to add. The appeal was presented to us as involving a question of great importance, since it offered an opportunity of reconciling what were thought to be divergences between the views of the English and Scottish courts as to their jurisdiction in dealing with cases stated which involve the existence or non-existence of a "trade" under Case I of Schedule D. As I have tried to show, I do not think that there has been any such divergence of principle. But I do not feel equally confident that there has not been some divergence in the understanding and application of the governing principles. I find it difficult to think that, had there not been, the Crown would have been appellant in the present case.
I think it possible that the English courts have been led to be rather over-ready to treat these questions as "pure questions of fact" by some observations of Warrington and Atkin L.JJ. in Cooper v. Stubbs. [F91] If so, I would say, with very great respect, that I think it a pity that such a tendency should persist. As I see it, the reason why the courts do not interfere with commissioners' findings or determinations when they really do involve nothing but questions of fact is not any supposed advantage in the commissioners of greater experience in matters of business or any other matters. The reason is simply that by the system that has been set up the commissioners are the first tribunal to try an appeal, and in the interests of the efficient administration of justice their decisions can only be upset on appeal if they have been positively wrong in law. The court is not a second opinion, where there is reasonable ground for the first. But there is no reason to make a mystery about the subjects that commissioners deal with or to invite the courts to impose any exceptional restraints upon themselves because they are dealing with cases that arise out of facts found by commissioners. Their duty is no more than to examine those facts with a decent respect for the tribunal appealed from and if they think that the only reasonable conclusion on the facts found is inconsistent with the determination come to, to say so without more ado.
I agree that the appeal should be allowed.