- (1.) The question raised in this appeal is whether the Stow Bardolph Gravel Co. Ltd., to whom I will hereafter refer as the taxpayers, were entitled to bring into their trading and profit and loss accounts for the two years ended March 31, 1949 and 1950, by way of expenses and in reduction of the profits or gains in respect of which they were being assessed, an item representing the purchase of gravel made during the year in question, less any stock of gravel so purchased at the end of that year. It is necessary to make it clear that the taxpayers are admittedly being charged for tax in respect of the gainful occupation or business of sand and gravel merchants. Therefore, prima facie it seems reasonable enough that in arriving at the taxable gains at the end of any given year the taxpayers should be entitled to deduct and to bring into account as an expense any sums laid out by them during the year in buying the stock-in-trade in which they dealt, namely, sand or gravel; but in fact when the matter is examined it is not quite so simple, for the alleged purchase of gravel represents what the taxpayers obtained under an agreement, made in October, 1947, not with them, but with a predecessor in title.
(2.) The Commissioners for the General Purposes of the Income Tax were of opinion that these claims to make deductions were not admissible, but Harman, J., was of opinion that the deductions were admissible. I have myself reached a different conclusion from that reached by Harman, J., and I have reached it, I confess, with some slight feelings of regret and misgiving on two grounds : first, I think the result bears a little hardly on the taxpayers for reasons which will, I think, emerge without any necessity for emphasis as I recite the facts; second, I am not for my own part satisfied that if close investigation were made of the method whereby the taxpayers and others in the same line of business carry on their business, it might not emerge - I say no more than than - that the commissioners would find as a fact that, notwithstanding the apparent legal consequences of the agreement to which I have referred, there was here in truth such a taking possession of the deposit of gravel in question that it could sensibly for tax purposes and rightly and fairly be said that once the consideration money had been paid under the agreement the deposit was in truth the stock-in-trade of the taxpayer. However, I have felt compelled to say that there is no finding of fact to support such a conclusion, nor indeed is there before us any evidence sufficient to warrant it. It is in that respect, I apprehend, that I find myself at variance with Harman, J.
(3.) Having regard to the dates which I have mentioned, the Act which is relevant is that of 1918. The taxpayers having been assessed under Schedule D, their case, admittedly as I follow it, falls within the first two cases. [His Lordship read rule 3 of the rules applicable to Cases I and II of Schedule D of the Income Tax Act, 1918, and continued :] If the question were asked, as a matter of what might be called business common sense, whether the sums which were paid under this agreement of October, 1947, were sums wholly and exclusively laid out or expended for the purposes of the trade as sand and gravel merchants. I think the answer would be that they were. But when their true nature is more closely examined in the light of the authorities which have been cited to the Court, and bearing in mind also the prohibition in sub-paragraph (f) of rule 3, I think that one comes in this case to a conclusion contrary to that which commended itself to Harman, J.;