- (1.) THIS is an appeal for a decision of Goff J. on a case stated by the general commissioners of Income Tax. The judges decision was in favour of the taxpayer. He held that the profit in question was not assessable to Income Tax. It is a straight forward kind of case, in my view and no great researches into the taxing Acts are required. The case merely is : Whether tax under Schedule D is exigible under case I of section 123 - tax in respect of any trade arrived on in the United Kingdom..... The only gloss upon that is that, in the definition section (hundreds of sections away -section 526) trade includes every trade, manufacture, adventure or concern in the nature of trade. So that it need not be a trade if it is an adventure in the nature of trade, which enlarges the words of the section.
(2.) THE case concerns the affairs of an factor of the name of Norman Wisdom, a man making a very large professional income. Having some savings, which no doubt were not of much significance to him at the time, he did not want them but they were a nest -egg for his future -because after all a comedians life does not go on for ever and he needs something for his declining years - he, like many of his kind, was not much concerned with the financial aspects of his life, which he entrusted to a chartered Accountant, who was accustomed, I suppose, to dealing with that sort of thing : at any rate he carried on his business in the Charging Cross Road. He was the man who regulated the taxpayers affairs : his name was Halpern. In 1961, as in many other years since the War, there was talk in the air of a devaluation. It was, as we now know, an event which did not happen at that time, though it has happened since. Mr. Halpern, advising his client about his assets (which amounted to some pounds 200,000 in value, consisting of a house, some investments, a yacht on the stocks then building, and a certain amount of cash) was minded to find some way of providing a cushion against the loss which would be occasioned to his clients capital assets in the event of a devaluation of the pound. He wanted to find something which against dollars would stop the hole made by the devaluation of the sterling assets. Casting about for an expedient, he was led to suppose that it might be a good plan for his client to buy ingots or bars of silver. That was, he ascertained, a pretty stable commodity : it had not varied in value more than five per cent. over the last six years (this was in 1961), he thought it would maintain its value, and if this country devalued its pound he could still sell it at a good profit against dollars. And so he took the advice of the well known bullion brokers, Mocatta and Goldsmid, and made an appointment to see them in November, 1961. On the very morning when he was going to see them, there was a sudden rise in the price of silver. That did not daughter Mr. Halpern at all. It did, however, deranger the bullion market to some extent, and though he wished to purchase pounds 200,000 worth of silver bars the silver would not let him have more than half that amount because the jump which had occurred that morning had somewhat upset the equanimity of the market. However that may be, Mr. Halpern continued his efforts, after purchasing the pounds 100,000 worth, to double that sum because that was, he thought, the appropriate amount for his client to buy. But it is a most significant feature of this case that it was not intended that Mr. Wisdom should realise his assets, his stocks and shares, his house, his yacht or what not, and thus furnish the money for the transaction : the plan was to borrow the money at what on the face of it were very high rates of interest - profitable, no doubt, to the broker and the banker who furnished the money, but not so unprofitable as it might seen to Mr. Wisdom, because he was a high surtax -payer. Therefore the transaction was entirely financed on borrowed money except for a sum of pounds 10,000 in cash which he put down on the deal.
(3.) THE price of silver did not later very much in the next six months or so an eventually in April, 1962, the second transaction (so to call it) was made, which was done in this way : that the first transaction was undone, at a loss to Mr. Wisdom of some pounds 3,000, and the whole pounds 200,000 worth was then purchased on somewhat different terms. The exact terms I need not trouble with, but a years interest was to be paid in advance and was not to be repayable, and there was an option on the part of Mr. Wisdom to sell back at an enhanced price and a counter -option to the broker hedging him against a loss so that he could call on Mr. Wisdom to exercise his option or to relinquish it. In the autumn of 1962 the pound recovered and all ideas of devaluation for the time being disappeared. But also that the same time and independently of that fact the price of silver began to go up very much : the upshot was that in October, 1962, and January, 1963, the silver bars were sold on Mr. Wisdoms instructions and he realised a profit of some pounds 48,000. Easily got money, one may think. But the Crown now say that is taxable profit, and of course that, having regard to Mr. Wisdoms fiscal position, would take most of the gilt off the gingerbread. And that is what this case is about. The Crown says that this was an adventure in the nature of trade. It was (say they) something in the nature of a speculation : it was never intended to do more than make a temporary incursion into this market and to realise as soon as might be, either (no doubt) at a profit it devaluation occurred or may be without a profit if it did not, but having had the insurance of the possession of the bars of silver over the period of danger. But in fact the event which happened was not expected, I suppose, by either party, and although the period of danger passed yet for extraneous reasons the value of the bars very much appreciated, with the result that an entirely unaccepted windfall flowed into the pockets of Mr. Wisdom. It is nevertheless said that this was a profit realised from an adventure in the nature of trade and the fact that it was not an expected profit is really quieter irrelevant to the matter. When you look at the commissioners findings, you find them set out in paragraph 9 of the case as follows : The commissioners found that : (a) The taxpayers original intention was to purchase the silver as a hedge against the devaluation of sterling : (b) At the time of the second transaction other considerations influenced the purchase, the fear of devaluation having subsided : (c) The commodity was useless, left unallotted in the hands of Mocatta, was not an income -producing investment, was not a long -term investment, and was financed by loans at a high rate of interest, and no organisation was needed to deal in the commodity as this was provided by Mocatta : (d) Whether there was a single transaction or two, by the nature of the subject -matter there was an adventure in the nature of trade : (e) The transaction (or transactions) was (or were) in the nature of trade and there assessable under Case I of Schedule D. If there were facts to justify those conclusions we cannot interfere even if we would. The judge did interfere : he thought that the conclusions were or might be vitiated by the fact that (according to him) a consideration influenced the commissioners which was not supported by any evidence : that is conclusion (b), that At the time of the second transaction other considerations influenced the purchase, the fear of devaluation having subsided. There was no evident, it was said, of that. In this court it is not alleged that there was any evidence to support that and, therefore, we must suppose, I think, that the motive behind the second transaction was the same as that behind the first, namely, to provide an insurance against devaluation. What the judge thought (he so stated at the end of his judgment and it is the reason of it) was : ;