Whitworth Park Coal Co Ltd (in liq) and Ors v. Inland Revenue Commissioners

[1959] 3 All ER 703

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(Judgment by: Viscount Simonds, Lord Reid, Lord Tucker)

Between: Whitworth Park Coal Co Ltd (in liq)
And: Inland Revenue Commissioners
Between: Ramshaw Coal Co Ltd (in liq)
And: Inland Revenue Commissioners
Between: Brancepeth Coal Co Ltd (in liq)
And: Inland Revenue Commissioners

Court:

Judges:
Viscount Simonds
Lord ReidLord Radcliffe

Lord TuckerLord Keith of Avonholm

Subject References:
TAXATION
INDUSTRY
INCOME TAX
PROFITS
Computation of profits
Year of assessment
Interim income payments in respect of compensation on nationalisation of coal industry
Payments in respect of specified periods
Whether income of those periods or of years of receipt
COAL MINING
Nationalisation of industry
Colliery company
Interim income

Legislative References:
Income Tax Act, 1918 (8 & 9 Geo 5 c 40) - Shc D, Case VI, r 2
Coal Industry Nationalisation Act, 1946 (9 & 10 Geo 6 c 59) - s 22(2), (3)
Coal Industry (No 2) Act, 1949 (12, 13 & 14 Geo 6 c 79) - s 1(2)

Case References:
Dewar v Inland Revenue Comrs - [1935] All ER Rep 568; [1935] 2 KB 351; 104 LJKB 645; 153 LT 357; 19 Tax Cas 561; 28 Digest (Repl) 333, 1475
Ensign Shipping Co Ltd v Inland Revenue Comrs - (1928) 139 LT 111; 12 Tax Cas 1169; 28 Digest (Repl) 414, 1836
Forth Conservancy Board v Inland Revenue Comrs - [1931] All ER Rep 679; [1931] AC 540; 100 LJPC 193; 145 LT 121; 95 JP 160; sub nom Inland Revenue Comrs v Forth Conservancy Board, 16 Tax Cas 103; 28 Digest (Repl) 48, 181
Gardner, Mountain & D'Ambrumenil Ltd v Inland Revenue Comrs - [1947] 1 All ER 650; 177 LT 16; 29 Tax Cas 69; 2nd Digest Supp
Grey v Tiley - (1932), 16 Tax Cas 414; 28 Digest (Repl) 219, 941
Hanbury, Re, Coniskey v Hanbury - (1939) 20 ATC 333
Hawley v Inland Revenue Comrs - (1925), 134 LT 502; 9 Tax Cas 331; 28 Digest (Repl) 332, 1470
Hill v Gregory - [1912] 2 KB 61; 81 LJKB 730; 106 LT 603; 6 Tax Cas 39; 28 Digest (Repl) 159, 625
Holden (Isaac) & Sons Ltd v Inland Revenue Comrs - (1924), 12 Tax Cas 768; 28 Digest (Repl) 417, 1851
Howe (Earl) v Inland Revenue Comrs - [1919] 2 KB 336; 88 LJKB 821; 121 LT 161; 7 Tax Cas 289; 28 Digest (Repl) 350, 1549
Inland Revenue Comrs v Butterley Co Ltd - [1956] 2 All ER 197; [1957] AC 32; 36 Tax Cas 411; [1956] 2 WLR 1101; 28 Digest (Repl) 377, 1645
Inland Revenue Comrs v City of London Corpn (as the Conservators of Epping Forest) - [1953] 1 All ER 1075; 117 JP 280; 34 Tax Cas 293, 315; [1953] 1 WLR 652; 28 Digest (Repl) 171, 690
Inland Revenue Comrs v Haddington (Earl) - 1924 SC 456; 8 Tax Cas 711; 28 Digest (Repl) 356, 803
Lambe v Inland Revenue Comrs - [1933] All ER Rep 417; [1934] 1 KB 178; 103 LJKB 69; 150 LT 190; 18 Tax Cas 212; 28 Digest (Repl) 333, 1474
Lambert Bros Ltd v Inland Revenue Comrs - (1927), 12 Tax Cas 1053; 28 Digest (Repl) 413, 1834
Leigh v Inland Revenue Comrs - [1928] 1 KB 73; 96 LJKB 853; 137 LT 303; 11 Tax Cas 590; 28 Digest (Repl) 334, 1482
LCC v A-G - [1901] AC 26; 70 LJQB 77; 83 LT 605; 65 JP 227; 4 Tax Cas 265; 28 Digest (Repl) 191, 790
Moss' Empires Ltd v Inland Revenue Comrs - [1937] 3 All ER 381; [1937] AC 785; 1937 SC (HL) 35; 106 LJPC 138; 157 LT 396; 21 Tax Cas 264; 28 Digest (Repl) 170, 688
Newcastle Breweries Ltd v Inland Revenue Comrs - [1927] All ER Rep 287; 96 LJKB 735; 137 LT 426; sub nom Inland Revenue Comrs v Newcastle Breweries, Ltd 12 Tax Cas 927; 28 Digest (Repl) 413, 1833
St Lucia Usines & Estates Co Ltd v St Lucia (Colonial Treasurer) - [1924] AC 508; 93 LJPC 212; 131 LT 267; 28 Digest (Repl) 167, 486
Simpson v Maurice's Exors - (1929) 14 Tax Cas 580; 28 Digest (Repl) 203, 850
Smith v Smith (No 2) - [1923] P 191; 92 LJP 132; 130 LT 8; 28 Digest (Repl) 178, 721
Try Ltd v Johnson - [1946] 1 All ER 532; sub nom Johnson v Try, Ltd 174 LT 399; 27 Tax Cas 167; 28 Digest (Repl) 36, 164

Hearing date: 15-16, 20-22 July 1959
Judgment date: 5 November 1959

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Judgment by:
Viscount Simonds
Lord Reid
Lord Tucker^[F1]

My Lords, at the conclusion of the argument in this case I found myself in full agreement with my noble and learned friend Lord Reid. He thereafter wrote an opinion to which, since I concurred in it at all points, I intended to add nothing. He has, however, been prevented by illness from taking his seat in your Lordships' House in the present Parliament and cannot speak in it. I have, therefore, with his permission, adopted his opinion as my own and I will now state it.

My noble and learned friend, Lord Tucker, who is also unable to be here today, has intimated to me that he takes the same view.

My Lords, the first appellants, which I shall call "the company", owned and operated a colliery until 1 January 1947, when its colliery assets were vested in the National Coal Board under the Coal Industry Nationalisation Act, 1946. Thereafter it was an investment company to which the provisions of s 21 of the Finance Act, 1922, and s 14 of the Finance Act, 1939, had to be applied. Directions under these sections were given to the company with regard to the years 1948-49, 1949-50 and 1950-51 under which its "actual income" for those years fell to be apportioned among its members, so that surtax would become payable as if the amounts so apportioned were parts of the incomes of the members. When another company is a member of such a company, a sub-apportionment has to follow and the second and third appellants are only concerned with such sub-apportionments. No separate point arises in their cases; it is agreed that the decision of the company's appeal must rule these other cases and I shall, therefore, say no more about them.

The "actual income" from any source of a company subject to such a direction is, under para 6 of Sch 1 to the Act of 1922, the income from that source estimated in accordance with the provisions of the Income Tax Acts. Under some of these provisions the income of the taxpayer for a particular year is the income which he actually receives during that year. Under others that is not so, and it may make a great difference to liability for surtax if particular income payments are included in the actual income of one year rather than in that of another. For example, if five years' arrears of interest are paid in one year, it is clearly to the advantage of the surtax payer that these arrears should be spread back so as to be regarded as income of the years when the interest fell due or accrued rather than that the whole sum should be regarded as income of the year of receipt. The income payments with which this case is concerned are a number of payments made to the company by the Ministry of Fuel and Power under the Act of 1946 and the Coal Industry (No 2) Act, 1949, during the three years which I have mentioned. The contention of the Crown is that all these payments from part of the actual income of the company for these years and that is denied by the company. So it is necessary to decided which provisions of the Income Tax Act applied to these payments, and that depends on the nature of the payments. Then, having decided which provisions apply, it will be necessary to decide what they mean.

When the Act of 1946 was passed, it was realised that it would take a considerable time to work out and satisfy the rights to compensation which arose under it, and this Act provided rights to interim income under s 19 and s 22, of which the relevant parts are as follows:

"19(1)

Compensation in respect of a transfer of transferred interests or of an overhead expenses increase shall be due on the primary vesting date, subject to determination of the amount thereof.

"(2)

For the period between the primary vesting date and the date on which any such compensation is fully satisfied, there shall be a right to interim income, to be satisfied in accordance with the provisions of s. 22 of this Act.

"(3)

Provision may be made by regulations for authorising the partial satisfaction of such compensation before the determination of the amount thereof has been completed.

"22(1)

The right conferred by sub-s. (2) of s. 19 of this Act to interim income for the period between the primary vesting date and the date of the satisfaction in full of compensation in respect of a transfer of transferred interests, or of an overhead expenses increase, shall be satisfied in accordance with the provisions of this section.

"(2)

Subject to the provisions of sub-s. (3) and sub-s. (4) of this section as to the revenue payments therein mentioned,-(a) the said right conferred by sub-s. (2) of s. 19 of this Act shall be satisfied, so far as regards interim income for the period between the primary vesting date and the time when any amount of compensation in respect of a transfer of transferred interests or of an overhead expenses increase is satisfied, by making, in addition to the issue of the stock then issued in satisfaction of that amount of compensation or to the making of the money payment then made in satisfaction of that amount of compensation, as the case may be a money payment of an amount equal to interest for that period on that amount of compensation at such rate or rates as may be prescribed as respects that period or different parts thereof by order of the Treasury; ...

"(3)

The following provisions of this subsection shall have effect as to the making to colliery concerns, and to subsidiaries within the meaning of Sch. 1 to this Act of such concerns, of payments in respect of each of the two years beginning with the primary vesting date and the first anniversary thereof respectively, that is to say,-(a) a colliery concern or such a subsidiary shall be entitled in respect of each of the said two years to a payment of an amount equal to one half of the comparable ascertained revenue of the concern, or of the subsidiary, as the case may be, attributable to activities thereof for which the transferred interests thereof were used or owned; (b) the payments to be made under the last preceding paragraph are in this section referred to as 'revenue payments', and shall be money payments; (c)... [Method of computing comparable ascertained revenue]; ...

"(4)

The provision made by the last preceding subsection shall be deemed, in the case of any colliery concern or of any such subsidiary, to be in substitution for the provisions of sub-s. (2) of this section, so far as regards additions thereunder for the said two years or any part thereof to compensation for a transfer of transferred interests being compensation attributable to transferred interests of that concern or subsidiary, except as to any excess of the aggregate amount of such additions over the aggregate amount of the revenue payments of that concern or subsidiary.

"(5)

The Minister may by regulations make such provision supplementary to or consequential on the provisions of this section as appears to him to be necessary or expedient, and in particular, but without prejudice to the generality of this subsection, provision may be made by regulations made thereunder for making adjustments requisite for giving effect to the last preceding subsection and for making good any underpayment or overpayment to a colliery concern or such a subsidiary which may occur in consequence of the making of additions or revenue payments under this section before all the facts relevant for giving effect to the last preceding subsection have become ascertainable."

Section 22(2) is comparatively simple. Whenever a part of the compensation is satisfied, the company is to be paid a sum equal to interest on that part from 1 January 1947, until the date when that part is satisfied. But then sub-s (3) confers a further right to receive "revenue payments" which are to be equal to half the "comparable ascertained revenue" for the years 1947 and 1948; and sub-s (4) provides that these are to be in substitution for the provisions of sub-s (2), at least so far as they go. Then further provision was apparently thought necessary, and that further provision is contained in s 1 of the Act of 1949. All these provisions are extremely complicated, but I think that it is sufficient to say that, in effect, the Act of 1949 provides for further payments analogous to revenue payments under s 22(3) of the Act of 1946 in respect of 1949 and subsequent years. I do not think that a meticulous examination of these provisions is necessary, and I do not propose to quote from the Act of 1949.

I can now turn to the Case Stated, and I would set out the main parts of para 2 and para 4:

"2(A)

The sole question for our determination was whether, in computing the actual income of the company for the purpose of the said apportionments, interim income received by the company under the provisions of the Coal Industry Nationalisation Act, 1946 (hereinafter called the Act of 1946), and the Coal Industry (No. 2) Act, 1949 (hereinafter called the Act of 1949), should be included in the actual income of the year in which it was received or (as the company contended) of the year or period in respect of which it was paid, ...

"4(1)

The company received from time to time payments from the Ministry of Fuel and Power (hereinafter called 'the Ministry') for or in respect of interim income under the provisions (in the case of some of such payments) of the Act of 1946 and (in the case of others of such payments) of that Act and of the Act of 1949. The said payments are set out in tabular form below, and were made under deduction of income tax; each payment was accompanied by a letter from the Ministry and a Certificate of Deduction of Income Tax in the form of (or in a form similar to) the letter and certificate both dated Jan. 26, 1949, copies of which are annexed hereto, marked A1 and A2 respectively, and form part of this Case. The other letters and tax deduction certificates which were produced to us are not annexed hereto but are available for reference if required. Each such letter states that the payment relates to a claim by the company for interim income for a stated period.

There follows a number of particulars about these ten payments but, again, I do not think that in the end these particulars throw light on the present question. It will be observed from the table which I have set out from the Case that, although all these sums were paid during the three years in question, to a large extent the periods for which they were stated to be paid fall outside these three years; accordingly, if the company is right, a considerable proportion of these payments should not be included in the actual income of the company for these three years. The only provisions of the Income Tax Acts which could apply to these payments are those of Case III or of Case VI of Sch D, and it is admitted that one or other of these Cases must apply. The Crown argue that Case III applies and that r 21 of the General Rules applicable to All Schedules also applies. If that is right then, admittedly, the Crown must succeed. The company, on the other hand, argues that Case III does not apply at all and that the payments fall within Case VI or, alternatively, that, even if Case III does apply, r 21 does not apply. If either of these alternative contentions is right then difficult questions of construction arise.

The Special Commissioners held

"that the payments in question were chargeable to income tax under the provisions of Case VI of Sch. D to the Income Tax Act, 1918, and were not chargeable under Case III of the said schedule nor under Sch. D. We further held that the said payments formed part of the actual income of the company for the years or other periods for which they were stated to have been paid, and accrued from day to day throughout such years or periods."

On appeal, Harman J held that these payments were within Case III, and he also held that r 21 applied, so he allowed the Crown's appeal. He dealt with r 21 so shortly that it would seem that the argument against its applicability cannot have been fully developed before him. The Court of Appeal held that r 21 did not apply to these payments and that, as r 19 did not apply either, that prevented these payments from falling within Case III. They held that the payments fell within Case VI, but they held that, under the rules of Case VI, these payments were income of the years of their receipt. Accordingly, they dismissed the company's appeal.

I must now set out and consider these provisions of the Income Tax Act.

"Rules applicable to Case III

"1.

The tax shall extend to-(a) any interest of money, whether yearly or otherwise, or any annuity, or other annual payment, whether such payment is payable within or out of the United Kingdom, either as a charge on any property of the person paying the same by virtue of any deed or will or otherwise, or as a reservation thereout, or as a personal debt or obligation by virtue of any contract, or whether the same is received and payable half-yearly or at any shorter or more distant periods; ...

"2.(1)

The tax shall, subject as hereinafter provided, be computed-(a) as respects the year of assessment in which the profits or income first arise, on the full amount of the profits or income arising within that year; and (b) as respects subsequent years of assessment, on the full amount of the profits or income arising within the year preceding the year of assessment; ...

"(2)

Tax shall be paid on the actual amount computed as aforesaid without any deduction."

The remainder of the rules do not appear to be material for the present purposes.

"Rules applicable to Case VI

"1.

The nature of the profits or gains, and the basis on which the amount thereof has been computed, including the average, if any, taken thereon, shall be stated to the commissioners.

"2.

The computation shall be made, either on the full amount of the profits or gains arising in the year of assessment, or according to an average of such a period, being greater or less than one year, as the case may require ...

"General Rules applicable to Schedules, A, B, C, D and E

"19.(1)

Where any yearly interest of money, annuity, or any other annual payment (whether payable within or out of the United Kingdom, either as a charge on any property of the person paying the same by virtue of any deed or will or otherwise, or as a reservation thereout, or as a personal debt or obligation by virtue of any contract, or whether payable half-yearly or at any shorter or more distant periods), is payable wholly out of profits of gains brought into charge to tax, no assessment shall be made upon the person entitled to such interest, annuity, or annual payment, but the whole of those profits or gains shall be assessed and charged with tax on the person liable to the interest, annuity, or annual payment, without distinguishing the same, and the person liable to make such payment, whether out of the profits or gains charged with tax or out of any annual payment liable to deduction, or from which a deduction has been made, shall be entitled, on making such payment, to deduct and retain thereout a sum representing the amount of the tax thereon at the rate or rates of tax in force during the period through which the said payment was accruing due ... "

"21.(1)

Upon payment of any interest of money, annuity, or other annual payment charged with tax under Sch. D, or of any royalty or other sum paid in respect of the user of a tatent, not payable, or not wholly payable, out of profits or gains brought into charge, the person by or through whom any such payment is made shall deduct thereout a sum representing the amount of the tax thereon at the rate of tax in force at the time of the payment.

"(2)

Where any such payment as aforesaid is made by or through any person, that person shall forthwith deliver to the Commissioners of Inland Revenue, for the use of the Special Commissioners, an account of the payment, or of so much thereof as is not made out of profits or gains brought into charge, and of the tax deducted out of the payment or out of that part thereof, and the Special Commissioners shall assess and charge the payment of which an account is so delivered on that person.

"(2A)

The Special Commissioners may, where any person has made default in delivering an account required by this rule, or where they are not satisfied with the account so delivered, make an assessment according to the best of their judgment, and if any person neglects or refuses to deliver an account so required, he shall forfeit the sum of £100 over and above the tax chargeable."

It will be convenient first to assume that these payments were annual payments within the meaning of Case III and to consider whether, on that assumption, r 21 can be applied to them. It was argued, I think rightly, that r 21 cannot be applied to payments made by the Crown. I do not base my opinion on any presumption or general rule as to applying to the Crown statutory provisions which do not bind it either expressly or by clear implication. In my view, an examination of the provisions of r 21 shows that these provisions cannot be applied, and can never have been intended to apply, to the Crown. Rule 19 deals with annual payments, etc, "payable wholly out of profits or gains brought into charge to tax", and r 21 deals with payments "not payable, or not wholly payable, out of profits or gains brought into charge". Neither expression appropriately describes payments out of money provided by Parliament, and, moreover, in all ordinary cases the Crown has other authority for deducting tax in making income payments. It can only be in a most exceptional case that the Crown would have to rely on r 21 as its only warrant for deducting tax. It is plain that between them r 19 and r 21 are intended to cover all cases of annual payments, etc, made by a taxpayer. Under both there is provision for deducting tax when making the payment, but the purpose is quite different according to whether or not the money which is paid has already borne tax. If it has, then the Crown has no interest because the same money is not to be taxed twice, and the authority to deduct tax is for the purpose of enabling the taxpayer to recoup himself when he has already paid tax on the money which he has now to pay away; and the payee has to submit to this deduction of tax because it ought in the end of fall on him. But if the money has not borne tax, then the Crown has an interest because the money becomes on payment a part of the taxable income of the payee. So the payer is bound to deduct tax and to pay it to the Revenue.

Rule 21 operates not as an authority to deduct tax but as an obligation to do so and to account to the Revenue for the tax deducted, and the whole purpose of r 21 appears to me to be to enable the Revenue to recover from the payer tax which is really due by the payee. That, I think, appears even more clearly from the original form of r 21 which first appeared as s 24(3) of the Customs and Inland Revenue Act, 1888. Before then a payer of interest, etc, out of money which had not borne tax was under no obligation to deduct tax, and the tax was payable by the payee, but provisions authorising the payer to retain tax out of money which had already borne tax so as to recoup himself go back to 1842. Section 24(3) of the Act of 1888 provided that, on payment of interest, etc, not payable, or not wholly payable, out of profits brought into charge, the payer

"... shall deduct thereout the rate of income tax in force at the time of such payment, and shall forthwith render an account to the Commissioners of Inland Revenue of the amount so deducted ... ; and such amount shall be a debt from such person to Her Majesty, and recoverable as such accordingly ..."

In my opinion, it would need not interpretation but complete redrafting to turn that provision or its modern equivalent into an authority to the Crown to deduct tax when making payments out of moneys provided by Parliament.

Two questions now arise. Can Case III apply to payments which do not come within either r 19 or r 21, and, if it can, is the nature of the payments in this case such that Case III should be applied to them? The Court of Appeal answered the first of these questions in the negative but they gave no reasons, and I do not see why Case III cannot be applied if the nature of the payments is such that, apart from this point, they would come within the scope of that Case. I would agree with the Court of Appeal if direct assessment were impossible under Case III, either because the rules of Case III are inadequate or for any other reason, but it was not argued that there can never be direct assessment under Case III. Moreover, r 19 and r 21 are not linked with Case III in the Act; they appear among the General Rules applicable to All Schedules. It is true that all but the most unusual cases under Case III, r 1(a), do fall within either r 19 or r 21, but that does not seem to me to mean that these rules must be held to control the applicability of Case III, r 1(a). So I pass on to consider whether the nature of these payments is such that Case III cannot apply to them.

It was argued that the decision of this House in Inland Revenue Comrs v Butterley Co Ltd showed that these payments are unique in character and that, therefore, they cannot be annual payments within the meaning of Case III. "Annual payment" must, it is said, be read in its context, and must in some way resemble or be ejusdem generis with interest or annuities, but these payments are sui generis. That argument appears to me to be no more than a play on words. One must look at the true nature of the payments. It is well recognised that many payments which in the ordinary sense of the words might well be called annual payments do not come within Case III. One limitation is that Case III only applies to payments received as pure profit income; that is because no deductions are permitted under Case III. And further, the payments must recur, or at least be of a recurring character. I think that the payments in this case comply with both these requirements.

An argument was submitted to the effect that these payments were not received as pure profit income of the company because there ought, on proper accounting principles, to be an allowance in respect of deductions, ie, expenses necessary to "earn" or achieve these payments. But any such argument must be based on facts, and there are no facts in the Stated Case to support it. On the contrary, para 2 of the Case, which I have already quoted, clearly shows that this point was never raised before the commissioners. In my opinion, we cannot do otherwise in this case than regard these payments as pure profit income.

On the matter of recurrence, the Court of Appeal drew a distinction between those payments which were made under s 22(2) of the Act of 1946 and the others, but I do not think that there is room for any such distinction. All the payments were payments of "interim income" under s 19 of the Act of 1946, and they should, in my view, be regarded as a single series of payments although their amounts were determined by different provisions of the Acts of 1946 and 1949.

Otherwise I agree with the opinion of the Court of Appeal that the requirements of Case III are satisfied in the case of these payments.

If I am right so far, the decision of this case depends on the proper interpretation of Case III, r 2, which enacts the method of assessment of Case III payments. Under that rule, the income of any year of assessment is the "income arising" during either that year or the previous year, and I may add that, if the payments were held to fall within Case VI, substantially the same question would arise because there the words "profits or gains arising" would have to be construed. To my mind, the most difficult question in this case is to determine the meaning of these two words "income arising". Do they include only money which has been received, or do they also include money which is due and payable but has not yet been received, or money which has accrued but is not yet payable? Most of the argument on this point turned on the meaning of the word "arising", but I do not think that that is the most important word. No income can arise before there is any income, and as soon as there is income the income has arisen. The word "income" appears to me to be the crucial word, and it is not easy to say what it means. The word is not defined in the Act, and I do not think that it can be defined. There are two different currents of authority. It appears to me to be quite settled that, in computing a trader's income, account must be taken of trading debts which have not yet been received by the trader. The price of goods sold or services rendered is included in the year's profit and loss account although that price has not yet been paid. One reason may be that the price has already been earned and that it would give a false picture to put the cost of producing the goods or rendering the services into his accounts as an outgoing but to put nothing against that until the price has been paid. Good accounting practice may require some exceptions, I do not know, but the general principle has long been recognised. And if in the end the price is not paid it can be written off in a subsequent year as a bad debt.

But the position of an ordinary individual who has no trade or profession is quite different. He does not make up a profit and loss account. Sums paid to him are his income, perhaps subject to some deductions, and it would be a great hardship to require him to pay tax on sums owing to him but of which he cannot yet obtain payment. Moreover, for him there is nothing corresponding to a trader writing off bad debts in a subsequent year, except perhaps the right to get back tax which he has paid in error. The case has often arisen of a trader being required to pay tax on something which he has not yet received and may never receive, but we were informed that there is no reported case where a non-trader has had to do this, whereas there are at least three cases to the opposite effect-Lambe v Inland Revenue Comrs; Dewar v Inland Revenue Comrs, and Grey v Tiley, and I would also refer to what was said by Lord Wrenbury in St Lucia Usines & Estates Co Ltd v St Lucia (Colonial Treasurer). I certainly think that it would be wrong to hold now for the first time that a non-trader to whom money is owing but who has not yet received it must bring it into his income tax return and pay tax on it. And for this purpose I think that the company must be treated as a non-trader, because the Butterley case makes it clear that these payments are not trading receipts.

I would not put it that there is any general or universal principle that sums not yet paid must or must not be brought into assessment to income tax. There are two quite different cases. Traders pay tax on the balance of profits and gains and bring money owed to them into account in striking that balance, but ordinary individuals are not assessable and do not pay tax until they get the money, because until then it is not part of their income. There may well be difficult border-line cases which do not clearly fall into either of these classes, and I do not attempt to foresee how that should be decided, but the payments in this case being pure profit income and not being trading receipts must, I think, be put in the second of these classes. Part of these sums accrued during the years 1946-47 and 1947-48, but, in my view, the company could not have been assessed and required to pay tax on amounts which accrued during those years but had not been paid when the assessment was made even if the exact amount which had accrued could have been determined. But then it was argued that, although payment of tax could not have been demanded before the sums were received, not that they have been received they can be spread back over the years during which they were accruing. I would willingly accede to that argument if I saw anything in the Income Tax Acts which I thought would warrant it. In a case where the whole or parts of money received during one year had become due and payable in one or more earlier years there is much to be said for the view that, although no part of it can be taxed until it is received, it ought when taxed to be spread back and regarded as income of the year or years when it became due; a debtor ought not to be able to alter his creditor's liability for surtax by delaying payment of his debt. There is some authority for holding that that was the effect of s 5(3)(c) of the Act of 1918. But that has now been superseded. On one view, s 39(1) of the Finance Act, 1927, achieves the same result in the case of payments to which r 19 applies. But in the case of payments to which r 21 applies spreading back has clearly been excluded by s 39(2) of the Act of 1927. It was not argued that the appellants could, in the present case, derive any advantage from s 34 of the Act of 1927. And there appears to be no provision expressly dealing with payments to which neither r 19 nor r 21 applies. In the present case, it appears to me that any authority for spreading back these payments would have to be inferred from the terms of the rules of Case III. I have already stated my view that, in this case, no income arose until the money was received, and I cannot see how receipt of the money can alter the meaning of "income arising" so as to make it possible after receipt to hold that income arose not at the date of receipt but at some earlier date. And if the income had not arisen in the earlier year I can find no ground for taxing it as part of that earlier year's income.

But even if it were possible to spread income back to the years when it became due and payable, that would not cover the present case. In the present case, the income can be regarded as accruing during the earlier years, but I do not think that it can be regarded as having become due and payable then in the sense that the company could have demanded payment then. I can find nothing on which to base an inference that income, once it has been received, can be regarded as having arisen not only before it was received but even before it was payable and while it was merely accruing. For these reasons I must hold that these payments were income arising at and not before the dates when they were received by the company and therefore, these appeals should be dismissed.