J. & R O'Kane & Company v The Revenue Commissioners

JurisdictionIreland
Judgment Date24 January 1922
Date24 January 1922
CourtKing's Bench Division (Ireland)

NO. 25*.-HIGH COURT OF JUSTICE, IRELAND (KING'S BENCH DIVISION).-

COURT OF APPEAL, IRELAND.-

HOUSE OF LORDS.-

(1) J. & R. O'KANE & CO
and
THE COMMISSIONERS OF INLAND REVENUE

Excess Profits Duty - Profits of trade - Realisation of trading stock by trader intending to retire from business - Question of fact - Finance (No. 2) Act, 1915 (5 & 6 Geo. V, c. 89), Section 38 - Finance Act, 1918 (8 & 9 Geo. V, c. 15), Section 35 (1).

The Appellants, who carried on business as wine and spirit merchants, issued a circular letter early in the year 1916, announcing their decision to retire from business, and shortly afterwards they issued to their regular customers lists of spirits for sale. The lists were headed "Retiring from business" and contained certain conditions of sale which required, inter alia, that the purchaser should clear the goods from bond and retain the casks. During the year 1916 few sales were made, but during the year ended 31st December, 1917, practically the whole of the stock was sold. Meanwhile the Appellants had acquired a certain quantity of spirits up to the spring of 1917 under running contracts with distillers, but no other purchases were made.

The Appellants were assessed to Excess Profits Duty for the year 1917 in respect of the profits arising from the whole of their sales in that year, and, on appeal, the Special Commissioners found that they were still carrying on their trade during that period and that the profits in question were made in the ordinary course of trade.

Held, that there was ample evidence on which the Special Commissioners could arrive at their findings, and that the Appellants were accordingly liable to Excess Profits Duty in respect of the profits in question.

CASE

Stated under the Finance (No. 2) Act, 1915, Section 45 (5), and the Taxes Management Act, 1880, Section 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 Ireland.

At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts, held on the 13th November, 1918, at Belfast, for the purpose of hearing appeals against Excess Profits Duty, J. & R. O'Kane & Company, late of 62-66 Great Patrick Street, and then of 132 Donegall Street, Belfast, Wholesale Wine and Spirit Merchants, hereinafter called the Appellants, appealed against an assessment to Excess Profits Duty in the sum of £27,903 for the accounting period commencing on 1st January, and ending on 31st December, 1917, made upon the Appellants by the Commissioners of Inland Revenue under the provisions of the Finance (No. 2) Act, 1915, Part III, and subsequent enactments.

The following facts were admitted or proved:-

  1. 1. The said sum of £27,903 was arrived at as follows,videlicet:-

    12 months to31st December, 1917-

    Profits

    £35,986

    Add back Excess Profits Duty, 1915, charged as an expense in Profit and Loss Account for 1917

    234

    £36,220

    Add 7 per cent. on decreased capital

    469

    £36,689

    Deduct-Percentage standard £1,610

    Statutory excess 200

    1810

    £34,879

    80 per cent.-£27,903 (as assessed

    for the accounting period).

    Note-Capital at 31st December, 1916

    £16,302

    Capital at 31st December, 1913

    23,010

    Decreased capital

    £6,708

    7 per cent. on decreased capital £6,708 =

    469

  2. 1. The partners in the trade or business were Cornelius G. McKeown and James McKeown, trading as J. & R. O'Kane and Company, the Appellants.

  3. 1. The amounts in nearest round figures both of the purchases and the sales made by the Appellants in the four years 1914 to 1917 (both inclusive), and of their stock in each of those years are set forth in the following Table, viz.:-

  4. 2. Early in the year 1916 the Appellants decided to retire from business in due course, and issued from their offices and warehouse situate 62, 64, 66, Great Patrick Street aforesaid a circular under date 1st March, 1916, to their regular customers in the following terms:-

DEAR SIR (OR MADAM),

"We have decided to retire from business, and wish to "embrace the opportunity of expressing our sincere thanks "to all our good friends for the generous support that has "been accorded us during so many years. We have the "pleasantest recollections of the friendly relations that have "always existed between us.

"Wishing you the utmost prosperity,

"We are, dear Sir (or Madam),

"Yours faithfully,

"J. & R. O'KANE & CO.

"P.S.-We beg to hand you herewith Statement of "Account, and will thank you to give it your early attention. "Please oblige by returning all empties as soon as "possible.

2. At the same time as they issued that circular, the Appellants had in contemplation the early issue of another document, a specimen of which hereto annexed marked A. forms part of this Case. This document which the Appellants issued on or about the 24th March, 1916, to all regular customers was a Descriptive List of Whiskey and Rum for Sale in Bond, and the heading on its outside cover was "Retiring from Business." The Conditions of Sale were set forth in the said document (marked A.) on which are foot-notes to the effect (inter alia) that casks were not to be returned, but were to be paid for by purchasers. In the interval between the issue of the said circular and of the said document (marked A.) numerous customers who had received the circular made enquiries of the Appellants as to the quantities and prices of their stock-in-trade for disposal.

2. The Appellants were not desirous to sell their business as a going concern which they could have tried to do, and with every prospect of success, for when they did sell their stock-in-trade they wished to sell it to their regular customers, because they considered that that course of procedure would be only fair to them.

2. During 1916 there was not much demand, but in 1917 the Appellants were able to sell out practically the whole of their stock, and this fact is indicated in the copy of the Balance Sheet as on 31st December, 1917, and of the Trading and Profit and Loss Account for the year 1917, hereto annexed which is marked B. and forms part of this Case.

3. A copy of the list of the customers so supplied in that year, hereto annexed marked C., forms part of this Case(1), and particulars appear in such list of the value of the purchases made by such customers in 1915, 1916 and 1917.

3. A few of those in such list (marked C.) who are called customers, though they were in the same trade as the Appellants, had not been the regular customers of the Appellants, and those who come within that category are in such list numbered 2, 4, 6, 15, 17, 24, 39, 42, 55, 61, 62, 63, 64, 70, 71, 77, 83 and 84, and their purchases in 1917 were in value £15,600.

3. Taking No. 1 in that list (C.), viz.:-F. Laverty, a regular customer, as an illustration, his purchases in value in round figures in 1915 were £331, in 1916, £250, and in 1917, £6,151; again, No. 3, Mr. McDevitt, also a regular customer, his purchases were-in 1915, £318, in 1916, £291, and in 1917, £5,052 15s. 10d.

3. Those were the biggest purchases in value, but no definite conclusions can be drawn from value alone, because of the inflated prices of spirits. In every instance of purchase by regular customers there was a considerable increase in value over the value in their purchases in previous years. The Appellants had never offered stock for sale as per a list until they did so in 1916.

4. In the course of 1916, after the Appellants had decided to retire as aforesaid, in due course the Appellants prepared a Realisation Account made up to 31st December, 1916, but the precise commencing date is not shown in it. A copy of that Account hereto annexed marked D. forms part of this Case.

4. A balance of £20,492 4s. 1d. was carried forward. Some stock which had been included in that account sold in 1917 for £30,624 14s. 1d., and that account related only to stock which the Appellants had as at 31st December, 1915. The result of the sale or release of the business premises realising £980, the net sales of various trade items and office furniture by auction in July, 1917, for £231 14s. 7d. and book debts recovered, £2,873 8s. 8d., are all embraced in such 1917 Realisation Account D.

4. The Appellants had not finally closed the accounts of their trade or business at the date of the hearing before us.

5. The Appellants had running contracts with various distillers to take a certain amount of spirits in each year, and having regard to the state of the market these contracts were beneficial to the Appellants, and therefore they kept to them, making after 31st December, 1915, more purchases of spirits in both 1916 and 1917, under these contracts. In 1916 such purchases amounted to £8,709 9s. 8d. net, and net sales (as above) £20,081 2s. 4d. which were carried into a Trading and Profit and Loss Account for 1916, showing £5,873 gross profit, and £3,878 4s. 10d. net profit. A copy of such Trading and Profit and Loss Account is hereto annexed (marked E.), and forms part of this Case. The results of similar purchases in 1917 appear in the trading account for that year.

5. Admittedly, those new purchases of stock sold to customers stand on a somewhat different footing for the reasons above shown to the realisation by sale of the stock in existence at 31st December, 1915.

6. On the 28th June, 1917, the Appellants had a sale on their business premises of stock by auction, but only a few hundred pounds worth were so sold, the result of which is embraced in the account for that year (B. as above), and the Balance Sheet at 31st December, 1917, (B.) shows that the Appellants retained then a substantial part of the business assets.

6. The Appellants moved after June, 1917, from 62-66 Great Patrick Street into offices in 132 Donegall Street, Belfast.

7. On a return for assessment to Excess Profits Duty made by the Appellants on 11th April, 1918, there was a statement that the Appellants desired to discontinue their business at the earliest...

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