Commissioners for the General Purposes of the Income Tax for the City of London v Gibbs and Others

[1942] 1 All ER 415

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(Decision by: Lord Russell of Killowen)

Between: Commissioners for the General Purposes of the Income Tax for the City of London
And: Gibbs and Others

Court:

Judges: Viscount Simon LC

Lord Russell of KillowenLord 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

Hearing date: 1, 4, 5, 8 DECEMBER 1941
Judgment date: 20 FEBRUARY 1942

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Decision by:
Lord Russell of Killowen

My Lords, one question only arises on this appeal, viz the true meaning and construction of the language employed in the Income Tax Act 1918, Sched D, cases I and II r 9. The particular question is: Does that rule apply where the change is of this nature, viz, where a partnership consisting of four individuals takes in, during the year of assessment, a fifth partner, with the result that during one part of the year a business is carried on by four individuals in partnership and is carried on during the remaining part of the year by those four individuals and a fifth person in partnership? That is the precise question which arises in regard to the facts of the present case; but in the argument on construction the broader question is involved, whether the rule applies to any case in which, after such a change, one or more of the members of the old partnership continue to carry on the business as members of the new partnership. I am using the word "business" so as conveniently to cover "trade, profession or vocation."

In my opinion, the language of the rule, interpreted according to the ordinary meaning of the words used, admits of no doubt. It does not apply to such a case. R 9 does not, in terms, refer to partnerships as such at all. Partnerships as such are dealt with by rr 10, 11 and 12. The word "person," in the singular, in r 9, could not, of its own force, include a partnership of two or more persons. Businesses carried on in partnership can only come within the purview of r 9 by reason of the Interpretation Act 1889, which enables the singular word "person" to be read as including the plural "persons"; for businesses carried on in partnership are carried on by individuals who are in partnership, and not by the partnership firm as a separate conception. The firm name is a mere expression to denote the individuals. Read in the light of the Interpretation Act the rule comes into operation upon, but only upon, the following hypothesis (I omit words immaterial for this purpose):

'If a person or persons ... ceases or cease within the year of assessment to carry on the trade ... in respect of which the assessment is made, and is or are succeeded therein by another person or other persons.'

As I read it, that hypothesis, according to its plain meaning, postulates that there shall be at a point of time a ceasing to carry on by a person or persons, and a commencement to carry on by other, ie, different, person or persons. In other words, the language used contemplates only the case of an owner or owners of a business ceasing to carry it on, and a different owner or owners commencing to carry it on within the year of assessment.

In coming to this conclusion, I rely simply upon the language of r 9(1), without any reference to its pedigree, or to the history of income tax legislation. If, however, reference is made to this history, it becomes abundantly clear that two conceptions have always (since 1842) been distinguished and dealt with separately, viz (i) changes in partnership, and (ii) successions to businesses. I do not think it necessary to explore this history in detail. It has been done by Clauson LJ, in his judgment, and, as he pointed out, had this case arisen before the new r 11 had come into operation, it must have been dealt with under right, and it is, in my opinion, obviously right, the case cannot, after the alteration of r 11, fall under r 9, unless, notwithstanding that the language of r 9 remains unaltered, the meaning of the words used in it has undergone some change. I feel unable myself to assent to the suggestion that the legislature has in this way, not merely enacted a new r 11, but has also, in some way-I suppose by necessary implication-enacted that a new meaning shall attach to the language of r 9. Nor do I rely on the difficulty of fitting in the mandatory provisions of r 9(2), (3), with the provisions of the new r 11. These matters however, help to corroborate what I take to be the plain meaning of the language used in r 9.

My Lords, I heard arguments on behalf of the appellants which purported to show that the construction for which they contended was a useful one from the point of view of the tax authorities or a beneficial one to the taxpayer, or was one which was in accordance with the view which had prevailed in official circles. I heard no argument on construction which did not appear to me irreconcilable with the plain meaning of the words under consideration. Rule 9 became, in my opinion, a spent force when the new r 11 came into operation. There is no longer any case to which it can apply. I have stated in my own words my views upon this question of construction, but I am not conscious of having added anything to the judgment of Clauson LJ, which, in my opinion, is unanswerable.