SINGLETON L.J. The Madras Electric Supply Corporation Ltd., later referred to as the company, was incorporated under the Companies Acts, 1862-1900, on January 27, 1906, with the object of carrying on in India the business of an electric light and power undertaking in all its branches. The undertaking was carried on under three licences granted by the Government of Madras. Under the first two licences the local authority, with the sanction of the local government, had an option to purchase such portion of the undertaking as was in the area for which it was constituted, and a similar option was given to the local government if the local authority did not elect to purchase. Under the third licence the Governor-General in Council had the option to purchase. The option was exercisable in each case on August 29, 1947. The company carried on its business until that date. Notices to exercise the options were duly given
On August 27, 1947, an agreement was entered into between the Government of Madras and the company, the effect of which is stated in paragraph II of the case : '. . . it was declared and agreed (inter alia) as follows :- Clause I : that the Government of Madras and the company agreed to entrust the valuers with the work of valuation of the physical assets to be purchased by the government and to be sold by the company : Clause 2 : that the valuation to be made by the valuers should be in conformity with the first proviso to section 7(1) of the Indian Electricity Act, 1910. For the removal of doubts, it was declared that the company should not be eligible for any soluation to be added to such valuation in accordance with the second proviso to the said section 7(1) for determining the purchase price :... Clause 7 : that the company should hand over the undertaking to the government and the government should take over the undertaking from the company at the commencement of August 29, 1947.'
There followed a supplemental agreement of August 29, 1947, by which it was witnessed : - (1) that the company had on the date of execution thereof handed over physical possession of the lands, buildings, works, materials and plant suitable of and used by by the company for the purpose of the undertaking; (2 ) that the company acknowledged receipt of certain moneys (being a payment on account of the purchase price, provided for in the principal agreement of August 27, 1947); (3) that the company undertook to execute and register in favour of the Government of Madras a proper deed of conveyance and assignment of the lands, buildings, fixed machinery and plant.
In due course the valuation forming the measure of the purchase price was agreed at Rs. 215 lakhs, excluding the sum to be paid to the company for service lines paid for by consumers (the valuation of which was reserved for arbitration). The sterling equivalent of this sum of rupees was Pound 1,612,500, and the amount actually received by the company (due to exchange rates) was Pound 1,611,437. On September 29, 1950, the company went into voluntary liquidation.
On the date of the sale, August 29, 1947, the company ceased to trade. Its former undertaking continued to be carried on without interruption in Madras under the management of a department of Madras Government. Substantially all the companys former staff continued to work in the undertaking. On March 30, 1951, the company made a formal conveyance and assignment of lands, buildings, fixed machinery and plant to the Government of Madras.
It is claimed by the Crown that the circumstances give rise to an assessment to income-tax in the sum of Pound 8,50,000 in respect of balancing charges under Part II of the Income Tax Act, 1945.
The claim is made in this way : Rule II(2) of the rules applicable to Cases I and II of Sch. D provides that if any person succeeds to the trade which until that time was carried on by another person, the tax payable for all the years of assessment by the person succeeding shall be computed as if he had set up or commenced the trade at that time, and the tax payable for all the years of assessment by the person who until that time carried on the trade shall be computed as if it had then been discontinued. It is said that on August 29, 1947, the Government of Madras succeeded to the business which the company had carried on until that time.
The next step leads to a consideration of Section 17(1) of the Income Tax Act, 1945, which provides that :
'(I) Subject to the provision of this section, where, on or after the appointed day, any of the following events occurs in the case of any machinery or plant is respect of which an initial allowance or a deduction under rule 6 of the Rules applicable to Cases I and II of Sch. D had been made or allowed for any year of assessment to a person carrying on a trade, that is to say, either - (a) the machinery or plant is sold, whether while still in use or not;..... and the event in question occurs before the trade is permanently discontinued, an allowance or charge (in this part of this Act referred to as a balancing allowance or a balancing charge) shall, in the circumstances mentioned in this section, be made to, or, as the case may be, on, that person for the year of assessment in his basis period for which that event occurs.'
The reason for the introduction of this section is, I think, fairly clear. Under rule 6 of the Rules applicable to Cases I and II of Sch. D a trader is allowed a deduction each year on account of wear and tear of machinery. He may sometimes be allowed less than he ought to be allowed : in other cases he may be allowed more than is warranted. If he continues in trade the matter may adjust itself in course of time. On the other hand, if he sells the plant or machinery before the trade is permanently discontinued there may arise a balancing allowance to him or a balancing charge against him, and the section is intended to provide for adjustment accordingly. We are not concerned with figures. It is sufficient to say that the claim of the Crown is that something in the neighbourhood of Pound 8,50,000 falls to be included as a balancing charge in the companys assessment to tax.
It was common ground between the parties :- (I) that by reason of Section 17(I) of the Income Tax Act, 1945, the balancing charges forming the subject of the assessment under appeal fell to be made upon the company (if at all) for the year of assessment in the companys basis period for which the sale of its plant and machinery occurred; (2) that for the purposes of the said Act such sale occurred of August 29, 1947; (3) that by reason of Section 57 (2) of the said Act the companys basis period for the year of assessment 194 7/48 was the period on the profits or gains of which income-tax for that year fell to be computed under Case I of Sch. D in respect of its trade.
The contention put forward on behalf of the company is that rule II (2) does not apply to the facts of this case and that no balancing charge can be made on the company. This is based mainly, if not wholly, on the submission that the sale of plant, etc., was a sale to the Crown, and it is claimed that the Crown is not a person within the meaning of that word in rule II(2). This contention was accepted by the Special Commissioners, from whom Upjohn J. allowed the appeal of the Crown. The company appeals to this court.
Mr. Millard Tucker drew our attention to Section 175(2) of the Government of India Act, 1935, under which it is provided that : 'all property acquired for the purposes of the federation or of a province shall vest in His Majesty for those purposes.' He appeared to seek to draw a distinction between this case and other cases in which the state acquires property for the benefit of subjects. I do not see that any such distinction can be drawn. The undertaking was undoubtedly acquired for the public good and it vested in His Majesty for the purpose for which it was acquired. The options to purchase were exercised by the Government of Madras. The two agreements of August 27 and August 29, 1947, were made between the Government of Madras and the company - and the conveyance was to the Government.
Counsel submitted that the Crown acquired the undertaking of the company and that rule II(2) has no application to such a case. He put his submission in this way. 'The Queen is the Monarch legislating with the other estates. The Finance Acts are all addressed to subjects; charging orders cannot include the Crown itself. Therefore the word person in charging order, or section, will not include the Crown. The Crown does not impose a tax upon itself.' He drew our attention to the preamble to the Finance Act, 1947 : 'Most Gracious Sovereign, We, Your Majestys most dutiful and loyal subjects, the Commons... in Parliament assembled,... have freely and voluntarily resolved to give and grant unto Your Majesty the several duties hereinafter mentioned; and do therefore most humbly beseech Your Majesty that it may be enacted, and be it enacted by the Kings most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows -' Mr. Millard Tucker added that Sch. D was a charging schedule and the rules under it were charging rules, and it would not be right to read 'person' in rule II (2) in two different ways : in other words, it could not include the Crown.
The old form of preamble is preserved. It is, however, recognised that the freedom of the Monarch from taxation arises by virtue of the prerogative. In Rex v. Cook, Lord Kenyon C.J., said : 'Now although there is no special exemption of the King in this Act of Parliament, yet I am of opinion that he is exempted by virtue of his prerogative, in the same manner as he is virtually exempted from 43 of Eliz. and every other Act imposing a duty or tax on the subjects.' In Coomber v. Berkshire Justices, Lord Blackburn cited those words of Lord Kenyon and referred to 'the exemption, by virtue of the prerogative, of property actually occupied or enjoyed for the Crown.'
Now the Crown is a person : see the Magdalen College case where it is said : 'And, first, it is resolved, (a) that the general words of the Act extend to the Queen, for the words are, To any person or persons, body politic or corporate; a nd without question the Queen was a person, as it is said in 10 Henry 7, page 18a.' Indeed it has not been disputed that the Monarch is a person, but it is said that he (or she) is n to person within the meaning of that word in the Income Tax Act, 1918, or at least for the purposes of Sch. D. It appears to me that this reasoning fails to draw a distinction between the word 'person' and a 'taxable person.' I cannot see why we should not give the ordinary meaning to the word ' person' when considering the provisions of rule 11(2). Of course, the Crown is not chargeable under Sch. D : that follows from the exemption arising from the prerogative. I draw attention to the words of Wrottesley J. in Attorney-General v. Hancock where said : 'Section 1 of the Courts (Emergency Powers) Act, 1914, begins with the words : From and after the passing of this Act no person shall... Pausing there, Mr. Murphy said, and everybody, I think, must agree with him, that the word person clearly can include the Crown, and it is for that reason that it has been necessary from time to time for the courts to remind themselves of the rule with which I am dealing.'
It would be strange indeed if the provisions of rule II(2) were not to apply if the purchaser of a business - the one who succeeded to the trade - was the Crown or a department of State; it is difficult to think of any reason for any such distinction. And when one comes to apply Section 17(1) of the Income Tax Act, 1945, it is worth noticing that there may be a balancing allowance or a balancing charge : it matters not who the purchaser is so long as the event in question happens before the trade is permanently discontinued.
Mr. Millard Tucker cited the words of Lord Macmillan in Income Tax Commissioners for the City of London v. Gibbs : 'The important thing to ascertain is the meaning of the word person in the vocabulary of the Income Tax Acts. The word constantly occurs throughout the Acts, and I think that it is most generally used to denote what may be termed an entity of assessment, i.e., the possessor or recipient of an income which the Acts require to be separately assessed for tax purposes.' No question such as that arising in the present case was under consideration, and I do not think that the citation really carries us any further unless the submission is that the word 'person' throughout means taxable person - and Mr. Tucker did not make that a part of his case.
The submission of the Attorney-General for the Crown was that the word 'person' must be given its ordinary meaning apart from some compelling reason to the contrary and that 'person' includes the Crown and servants of the Crown. He argued that there is no difference for the purpose of rule 11(2) whether the successor is the Crown, or the Transport Commission, or the Post Office, or another company or an individual, and, relying upon the authorities I have mentioned, he submitted that the word 'person' includes the Crown though the Crown is immune from taxation by reason of the prerogative. Mr. Stamp, who followed, spoke of the Income Tax Acts as regulating the position between the Crown (a person) and other persons. The crown, he said, is bound by the Income Tax Acts, but by virtue of its prerogative does not pay tax. He drew our attention to the use of the word 'person' in the Act of 1918 as meaning a person other than a person taxable, e.g., section 116, section 132(2), section 133(1)(b), section 166(10) and section 190 - and there are others.
It appears to me that the contention put forward on behalf of the company fails. I can find nothing to justify the giving of a limited meaning to the word 'person' in rule 11(2). It must, I think, be read in the ordinary way. I agree with the conclusion of Upjohn J. and I would dismiss the appeal of the company.
I do not think that it was necessary for me to add anything to the which was said by Upjohn J. in relation to two cases recently before the Court of Session, except that Mr. Millard Tucker desired to keep open the position arising upon them.
BIRKETT L.J. - I agree with the judgment of my Lord which has just been delivered. I have also had the opportunity of reading and considering the judgment which is about to be delivered by Hodson L.J., and with that judgment I also agree. In those circumstances I do not desire to add a judgment of my own.
HODSON L.J. - The main question is this appeal is whether in rule 11(2) of the Rules applicable to Cases I and II of Sch. D to the Income Tax Act, 1918 (as substituted by the Finance Act, 1926, section 32 (I)], the word 'person' includes the Crown. If the word 'person' includes the Crown the appellant company, it is conceded, is liable to certain balancing charges since the Crown has succeeded to its trade within the meaning of the rule. The balancing charge is borne by the company and the identity of the successor has no effect financially or otherwise.
Upjohn J. held that as a matter of construction there was no ground for placing any limitation on the ordinary natural meaning of the word, and that in rule II(2) the word 'person' includes the Crown, persons resident abroad, charity trustees and others who for different reasons may be found to be exempt from tax. I agree with his judgment and with the reasons given in support of it.
The appellant company bases its argument on the admitted fact that the purchaser of its undertaking was the Crown, and refers in particular to the Government of India Act, 1935, Section 175(2), which came into force (other than Part II) by Order in Council on April 1, 1937. The wording of this sub-section has been slightly varied by another Order in Council, but the material words remain : 'All property... shall vest in His Majesty for those purpose.' The argument accordingly is restricted to this narrow proposition, that the successor to the company being His Majestry in person, the words 'person' in the charging sections of the Income-Tax Acts cannot be construed as including His Majestry. It is said that it is not necessary to examine the nature of the Royal Prerogative which includes exemption from taxation, but that the company is entitled to say that the words 'person' in rule II(2) cannot. as a matter of construction, include the Crown in its personal capacity.
The court was remained of the constitutional position set out by Professor Hearn in his Government of England at page 18 : 'The law places no restriction upon the extent of the Royal Power but rigorously defines the manner in which the several branches of that power nay be exercised. In every part of public affairs the expression of the Royal will is conclusive; but in each case the Royal will nest be stated through the appropriate channel.' Thus in theory in the making of a statute 'The King is part agens, the rest' (Lords and Commons) 'are but consentientes,' per St. John arg. in Hampden Ship Money case.
Emphasis was placed on the preamble to the taxing Acts, which is set out in full in the judgment Upjohn J. as showing that having regard to the language of this preamble the Crown as grantee of the taxes cannot be a person for tax purposes and that, in the charging provisions of the Income Tax Act, 1918, charging tax upon 'persons' cannot sensibly include the Crown. On the other hand it is to be observed that in numerous places in the Income Tax Act, 1918, the word 'person' is used to include others than taxable 'persons,' or, to borrow the language of Lord Macmillan in Income Tax Commissioners for the City of London v. Gibbs, entities of assessment.' This is the sense in which, as Lord Macmillan said, the word 'person' is most generally used throughout the Income Tax Acts.
Some dozen examples were given in argument on behalf of the Crown of places in the Acts where the word 'person' does not denote an 'entity of assessment' and as pure question of construction I see no reason why the word 'person' in a charging section also should not include the Crown. No question of taxing the Crown arises, so that there is no invasion of the Crowns prerogative by construing the word 'person' in its natural and ordinary meaning. That the word 'person' in an Act of Parliament is apt to include the Crown there is no doubt. The Crown is a corporation sole, and therefore a person : see section 19 of the Interpretation Act, 1889. The authorities are all one way; the earliest cited being the Magdalen College case, where the Year Book, 10 Hen. 7, 189, is in turn cited for the sentence 'Rex est persona mixta.' One of the latest cases cited was Attorney-General v. Hancock, where Wrottesley J. stated : 'the word person can clearly include the Crown.'
The company perforce contended that the authorities drew a distinction between the Crown in its personal capacity and the Crown in its capacity as part of the constitution. In order to make the distinction reference was made to 39 & 40 Geo. 3, c. 88, section 6, which provided that Crown lands when bought by private funds of the King are liable to parliamentary and parochial rates; and reference was made to the Crown Private Estates Act, 1862. I can, however, find no justification for the distinction sought to be drawn between the Crown in its personal capacity and the Crown in the constitutional sense, which the company seeks to draw. The Crown usually can act only through its servants, and this consideration must apply to His Majesty as referred to in the Government of India Act, 1935, to which I have already referred.
Thus there is here no practical distinction between the Crown and Crown servants. There are a number of authorities w here the claim for exemption from taxation of Crown servants has been considered. This claim has always been based on the Royal Prerogative that the King is exempted from taxation by virtue of his prerogative.
In Rex v. Cook, it is decided that the posthorse duty imposed by 25 Geo. 3, c. 51, was not to be paid for horses employed for forwarding public expresses on the service of Government. It was decided that the King was exempt from tax by virtue of his prerogative. The Attorney-General pertinently observed that if the contention of the company were correct the proper question for argument in Rex v. Cook would appear to have been, not 'was there an exemption on the ground of prerogative ?' but 'were the horses royal hourses ?'. Rex v. Cook was considered in the House of Lords in Coomber v. Berkshire Justices, in which Lord Blackburn, in connection with taxation, spoke of 'an implied exemption on the ground of prerogative.'
These principles were applied by the Court of Appeal in Bank voor Handel en Scheepvaart N. V. v. Slatford. The actual decision there was that the office of Custodian of Enemy Property was not such as of itself to confer upon its holder the immunity from tax belonging to the Crown, but there was an elaborate discussion on Crown immunity in the judgments, which proceeded on the basis that the custodian was a person within the orbit of the charge created by Sch. D to the Income Tax Act, 1918. The question was answered adversely to the claim for immunity. Evershed M.R. expressed himself as follows : 'The commonly used formula that the Income Tax Act does not bind the Crown conceals the true principle, which is that, in the absence of express provision to the contrary, the Crown and the rights of the Crown are not thereby prejudiced.' There is no prejudice to the Crown in the present case in construing the word 'person' in rule 11(2) so as to include the Crown, and, as I have already indicated, I cannot distinguish the present case from Slatfords case by drawing a distinction between the King in person and servants of the Crown.
The reasoning of all the judgments in Slatfords case appears to me to be inconsistent with the claim put forward by the company that the Crown is immune, not because of the prerogative, but because it is not, as a matter of construction, covered by the word 'person' in the charging sections of the Income Tax Acts. The common law rule as to the prerogative must be applied. but the Act must first be construed in the ordinary way. When the Act has been construed, the Crown is entitled to set up its right against the construction it prejudiced thereby, and the construction will, when necessary, yield to the prerogative. There is nothing in rule 11(2) which interferes with the rights of the Crown, so that there is no conflict between the statute and the prerogative. On the contrary, the Crown is relying on the section, as it is entitled to do.
In my opinion the word 'person' is a general word which is apt to include the Crown and it is, as the Attorney-General contended, a question of construction of the Act as a whole whether, in a particular case, the Crown is entitled to claim exemption by prerogative.
As to the subsidiary point taken by the company in reliance on the decision of the Court of Session in Inland Revenue Commissioners v. Barr, the report of that case appears to show that the concluding words of Section 17(I) of the Income Tax Act, 1945, were overlooked by the court. Counsel for the company recognised this and found difficulty in supporting this decision by independent reasoning. We were informed that Barrs case is now under appeal to the House of Lords. In the circumstances I am content to say that as at present advised I can find nothing useful to add to what Upjohn J. has said upon the subsidiary point. I agree, therefore, that the appeal should be dismissed.
Appeal dismissed.
Leave to appeal to House of Lords.
Solicitors : Sanderson Lee & Co.; Solicitor of Inland Revenue.