Evans and Co v Phillips (Inspector of Taxes)

• Judge: Molony C J,Samuels J and Dodd J.
• Judgment Date: 07 March 1924
• Court: High Court

Income tax, Sch D - obsolescence of assets - ITA 1918, Sch D, Cases I and II rule 7.

The appellants claimed a deduction from their profits for the year 1919 of £5,102, the difference between the cost of certain machinery which had been installed for munitions contracts, £6,159, and its value when the contracts ceased, £1,057.

Part had become useless and had only scrap value, and the remaining part had been adapted to other manufacturing purposes at an expenditure of £1,969.

The revenue commissioners claimed that no part of the £5,102 was allowable, and that alternatively if rule 7 had any application, the deduction should be restricted to the sum of £1,969.

The special commissioners decided that owing to the difference in character between the munitions work and the engineering work carried on by appellants after the war the claim failed.

Held, in the King’s Bench Division, dismissing the appeal, with costs, that “obsolete” did not include machinery discarded because it was unsuitable for a new business.

Legislation

ITA 1918 Sch D Cases I and II rule 7.

2. Prior to the war the appellants carried on business as oil, colour, hardware, seed, manures, agricultural implements, machinery and general merchants and also manufactured small part of separators for dairy use. The value of their plant and machinery as shown in the appellants’ balance-sheet as at 31 December 1913, was £111 0s 7d.

3. Towards the end of 1915 the appellants entered into a contract with the Ministry of Munitions for the manufacture of gaines (part of the mechanism of shells). Further contracts for gaines were made from time to time up to 1918 and their manufacture stopped in July 1918. A contract for fuse hammers (also for use in shells) was made in 1918 which was cancelled at one month’s notice at the Armistice. The business did not become a controlled establishment under the Munitions of War Act, 1915. Any profit arising from these contracts was included in their profits on which the appellants’ liability to income tax has been computed.

4. For the purpose of carrying out these contracts the appellants had to install a considerable quantity of plant and machinery. On the termination of the contracts a small portion of the machinery, viz, three machines only, was reconstructed for use in the present engineering work undertaken by the appellants which consists partly in dairy machinery work of the kind undertaken prior to the war, but mainly in a new kind of work commenced since the...