Arthur Guinness, Son, & Company Ltd, v Revenue Commissioners

JurisdictionIreland
Judgment Date17 July 1923
Date17 July 1923
CourtKing's Bench Division (Irish Free State)
Guinness & Co. v. Commrs. of Inland Revenue
Between ARTHUR GUINNESS, SON, & CO., LIMITED,Appellants, and G. C. MORRIS (H.M. Inspector of Taxes)
Respondent
and between ARTHUR GUINNESS, SON, & CO., LTD., Appellants, and THE COMMISSIONERS OF INLAND REVENUE
Respondents.

K. B. Div. (I. F. S.)

Appeal.

Revenue-Income tax - Excess profits - Income Tax Act, 1918 (8 & 9 Geo. 5,c. 40), sect. 145, Case 1, Schedule D - Finance Act (No. 2), 1915 (5 & 6Geo. 5, c. 89), sect. 45, sub-s. 5 - Sale of barley requisitioned under Defence of the Realm Acts - Trade profit.

The appellant company acquired stocks of barley for the purpose of brewing stout. These stocks, under the War Emergency legislation, were requisitioned by the Royal Commission on Wheat Supplies, and disposed of in circumstances which resulted in a profit to the appellants. Income tax and excess profits duty were assessed on these profits, and the assessments were confirmed by the Special Commissioners for Income Tax. On case stated for the decision of the High Court:

Held by the Court of Appeal (O'Connor M.R., Ronan L.J., Pim J. dissentiente), reversing the King's Bench Divisional Court (Molony C.J. and Dodd J.), that the profits in question were not annual profits or gains arising from the trade and business of the appellants, and that the assessments were not properly made.

Mullingar Rural District Council v. Rowles ([1913] 2 I.B. 44) distinguished.The Glenboig Union Fireclay Co., Ltd., v. The Commissioners of Inland Revenue (unreported) applied.

Case Stated under the Income Tax Act, 1918, sect. 149; the Finance (No. 2) Act, 1915, sect. 45, sub-s. 5; and the Taxes Management Act, 1880, sect. 59, by the Commissioners for the Special Purposes of the Income Tax Acts, for the opinion of the King's Bench Division of the High Court of Justice in Southern Ireland.

1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 21st November, 1921, for the purpose of hearing appeals, Arthur Guinness, Son, & Co., Limited, hereinafter called the appellants, appealed against additional assessments to income tax in the sums of £20,450 for the year ending 5th April, 1919, £17,207 for the year ending 5th April, 1920, and £20,114 for the year ending 5th April, 1921, made upon them under the provisions of the Income Tax Acts, and against an assessment to excess profits duty in the sum of £126,014 (subject to a set-off in respect of deficiencies in previous accounting periods) for the accounting period of three months ending 30th June, 1917, made upon them by the Commissioners of Inland Revenue under the provisions of the Finance (No. 2) Act, 1915, Part III, and subsequent enactments.

The sole question raised on the appeal was whether certain profits arising from the sale of barley in the circumstances hereinafter described ought to be included as profits, arising from a trade or business carried on by the appellants, for the purposes of assessment to income tax and excess profits duty.

2. The appellants are a company incorporated under the Companies Acts, whose main object is to carry on in Great Britain, Ireland, and elsewhere the trade or business of common brewers, distillers, wine, spirit, and aerated and mineral and other waters manufacturers, and merchants, maltsters, hop merchants, and licensed victuallers, and any other business incidental to or arising out of, or which can be conveniently carried on in conjunction with such business, or any of them.

3. For use in the manufacture of stout the appellants habitually purchase and hold large stocks of barley, which they use solely as raw material for the manufacture of the commodity sold by them. Except on the occasions referred to in this case, they have never sold any barley as such.

4. In April, 1917, owing to the shortage of materials for making bread, the Government put in force its powers under the Defence of the Realm Act, and requisitioned the appellants' stocks of barley.

5. By the Barley (Requisition) Order, dated 16th April, 1917, all persons owning or having power to sell or dispose of any barley were directed to place such barley at the disposal of the Food Controller, and to deliver the same to him, or such persons as might be named by him, in such quantities and at such time as the Food Controller might from time to time require. In accordance with the terms of the Order, the appellants furnished to the Food Controller, on a form supplied for the purpose, a return of all barley in their possession or under their control, which amounted to 196,555 quarters. By a series of notices served on the appellants from time to time, the Royal Commission on Wheat Supplies instructed the appellants to supply barley to various millers who required it, at prices fixed by the Commission. In compliance with these instructions, 163,313 quarters of barley were disposed of, which had cost the appellants in all £561,191, and eventually the appellants received in respect of these supplies a sum of £714,935. A profit of £153,744 was therefore derived from this series of transactions.

6. In January, 1918, the situation in Ireland as regards the supplies of cereals for bread had become critical, and the appellants received an urgent appeal from the Royal Commission on Wheat Supplies for assistance in providing 18,000 quarters of barley for immediate needs. In response to this appeal, the appellants supplied 16,2881/2 quarters of barley, which had cost them £60,224, and for which they received £64,484, thus making a further profit of £4,260.

7. In February, 1918, the Food Controller issued a further Barley (Requisition) Order, under which the appellants supplied further quantities of barley, which had cost them £28,320, at prices amounting in all to £28,626, thus obtaining a further profit of £306.

8. In all cases the sales of barley, which were very numerous, were made nominally to the Royal Commission on Wheat Supplies; but in fact the barley was sent under instructions from the Commission to millers, who remitted the price to the appellants. There were subsequent adjustments of accounts between the appellants and the Commission.

9. The total amount received by the appellants for barley sold as above described under the instructions of the Royal Commission on Wheat Supplies was £808,045. When the control was removed and the appellants were able again to purchase barley, they replaced the stocks so sold at a cost of £918,000, or approximately £110,000 more than they had obtained by the sale of the barley. The whole of the cost of replacement of the stocks was charged as an expense in the accounts of their business for the periods in which such cost was incurred.

[Paragraph 10 exhibited the relevant Orders and correspondence.]

11. It was contended on behalf of the appellants that the profit arising from the sale of barley (a) was not a profit arising from the trade or business carried on by the appellants; (b) was not an annual profit; (c) was an accretion of capital: (d) arose from an isolated transaction; (e) arose from a compulsory or involuntary transaction, which was contrary to the interest of the appellants; and (f) was not chargeable to income tax or excess profits duty.

12. It was contended on behalf of the Crown that the said profit formed part of the annual profits or gains arising from the trade or business carried on by the appellants, and was chargeable to income tax and excess profits duty.

13. We, the Commissioners who heard the appeal, after considering the evidence and arguments put before us, held that the profit arising from the sale of barley by the appellants to or under the instructions of the Government formed part of the annual profits or gains arising from the trade or business carried on by the appellants, and fall to be included in the computation of the appellants' profits for the purposes of income tax and excess profits duty, and we confirmed the assessments under appeal.

Molony C.J. :—

The appellants are a company incorporated under the Companies Acts, whose main business is the manufacture of stout, and in the usual course of trade they purchase large stocks of barley, which they use solely as raw material for the manufacture of the commodity sold by them. By the Barley (Requisition) Order, 1917, the Food Controller, acting under the powers conferred on him by Regulations 2F and 2G of the Defence of the Realm Regulations, requisitioned the barley of the appellants, and the Royal Commission on Wheat Supplies instructed them to sell same on behalf of the Commission to various millers, at prices fixed by the Commission.

In 1917 they sold, on the instructions of the Royal Commission, 163,313 quarters of barley, and a profit of £153,744 was derived from this series of transactions.

In January, 1918, the situation in Ireland as regards the supply of cereals for bread had become extremely critical, and the appellants received an urgent appeal from the Royal Commission for assistance in providing barley for immediate needs. The appellants at once responded to this appeal, and sold 16,2881/2 quarters of barley, making a further profit of £4,260.

In February, 1918, another Barley (Requisition) Order was issued by the Food Controller, called "The Barley (Requisition) Order, 1918," and under and in pursuance of this Order the appellants sold further quantities of barley, on which they obtained a profit of £306.

In respect of these transactions additional assessments were made upon the appellants, under the provisions of the Income Tax Acts, for £20,450, £17,207, and £20,114, and a further assessment was made to excess profits duty in the sum of £126,014 under the provisions of the Finance (No. 2) Act, 1915, Part III, and subsequent enactments.

The appellants appealed to the Special Commissioners of Income Tax, who held that the profit arising from the sale of barley by the appellants to or under the instructions of the Government formed part...

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