WESTWARD TELEVISION LTD Vs. HART (INSPECTOR OF TAXES)

JUDGEMENT

(1.) THE taxpayer company, Westward Television Ltd., appealed to the special commissioners against the restriction by H. M. Inspector of Taxes, St. George District (hereinafter referred to as the Crown) to the sum of Pounds 29,640 of a claim for relief for the year of assessment 1965 -66 under the provisions of the Income Tax Act, 1952, s. 342, in respect of a loss sustained by the taxpayer in its first accounting period from August 1, 1960, to April 28, 1964, amounting to Pounds 101, 214 after taking into account relief already granted.

(2.) (1) The taxpayer company was incorporated on January 12, 1960, and on August 1, 1960, commenced the trade of television programme contractors. (2) Accounts of the taxpayers trade were prepared for the following periods and disclosed the following figures of profit and loss (as adjusted for income tax) which were agreed by the parties : August 1, 1960 -April 28, 1961 : a loss of Pounds 132,107; April 29, 1961 -April 30, 1962 : a profit of Pounds 165,572; May 1, 1962 -April 30, 1963 : a profit of Pounds 74,735; May 1, 1963 -April 30, 1964 : a profit of Pounds 276,583. (3) The taxpayers liability to tax under Case I of Schedule D for the year 1960 -61, being the tax year in which it stated its trade, was computed by reference to the profit (if any) of the period from August 1, 1960, to April 5, 1961. Such profits (if any) fell to be computed on the basis of the taxpayers first set of accounts, viz., those for the period from the date of the commencement of trading to April 28, 1961, apportioned on a time basis after disallowing expenditure incurred prior to the commencement of trading. On this basis the taxpayer had incurred a loss, and an assessment for the year 1960 -61 which had been raised in an estimated amount was discharged. The taxpayer had other income subject to tax for the year 1960 -61 amounting to Pounds 4,056 and it made, and was allowed, a claim for repayment of tam on this other income, under section 341 of the Income Tax Act, 1952. It was agreed that the Pounds 4,056 fell to be deducted from the losses available to be carried forward and set off against the assessable profits of subsequent tax year under section 342 of the Income Tax Act, 1952. (4) The taxpayer fell to be assessed to tax for the year 1961 -62 being the second year in which it carried on its trade, by reference to the profits (if any) of its first 12 months of trading, viz., the period from August 1, 1960, to July 31, 1961. No accounts were in fact prepared for that period and it was, therefore, agreed between the parties that the profits (if any) which should form the basis of assessment for 1961 -62 should be computed by reference to those for the accounting periods from August 1, 1960, to April 28, 1961, and those for April 29, 1961, to April 30, 1962, apportioned on a time basis. On this basis it was agreed that a loss resulted and an assessment which had been raised on the taxpayer in an estimated amount was discharged. (5) For the year 1962 -63 the basis period fell to be determined under section 127 (2)(b) of the Income Tax Act, 1952, and in accordance with normal practice the period of 12 months ended July 31, 1961, was adopted. That basis was not in dispute. The result was the same as for 1961 -62 and was not in dispute. Accordingly no assessment was raised on the taxpayer. (6) The taxpayer was assessed to tax the year 1963 -64 by reference to the profits of its accounting period from April 29, 1961, to April 30, 1962, which amounted to Pounds 165,572, but the tax chargeable was discharged by offset, of capital allowances under section 323 of the Income Tax Act, 1952. The unrelieved loss was, therefore, carried forward under the provision of section 342 of the Income Tax Act, 1952, The amount of that unrelieved loss was in dispute. (7) The taxpayer was assessed to tax for the year 1964 -65 by reference to the profits of its accounting period from May 1, 1962, to April 30, 1963, which amounted to Pounds 74,735 which was reduced by capital allowances to Pounds 35,953. Although the amount of the taxpayers unrelieved loss was in dispute, it was agreed that on either basis the loss carried forward from 1960 -61 was sufficient to absorb the chargeable profits of the taxpayer for the year 1964 -65 and no tax was payable. (8) It was agreed that the taxpayer might by virtue of section 345 of the Income Tax Act, 1952, set against the amount of profits ultimately found to be assessable on it for the year 1965 -66 a further sum of Pounds 20,328. The taxpayer on account of interest paid by it under deduction of tax in the years 1961 -62, 1962 -63, 1963 -64 and 1964 -65, in respect of which it had been assessed to tax under section 170 of the Income Tax Act, 1952. (9) The taxpayer was assessed to tax for the year 1965 -66 by reference to the profits of its accounting period from May 1, 1963, to April 30, 1964, which amounted to Pounds 276,583 reduced by capital allowances to Pounds 255,652. The taxpayer claimed to set against that amount the amount of the unrelieved loss carried forward form the year of assessment 1960 -61. The taxpayer claimed that the unrelieved loss amounted to Pounds 80,886, computed as follows : - Loss 1960 -61 Pounds 120,895 Relieved under s. 341 1960 -61 4,056 Pounds 116,839 Relieved 1961 -62 Pounds 116,839 Relieved 1962 -63 35,953 Relieved 1964 -65 Pounds 80,886 Add amounts allowable under s. 345 20,328 Available for relief 1965 -66 Pounds 101,214 The Crown claimed that it amounted to Pounds 9,312 computed as follows : Loss August 1, 1960, to April 28, 1961 Pounds 132,107 Relieved under section 341 1960 -61 4,056 Pounds 128,051 Relieved 1961 -62 41,393 86,658 Relieved 1962 -63 41,393 45,265 Relieved 1964 -65 35,953 9,312 Add amounts allowable under s. 345 20,328 Available for relief 1965 -66 Pounds 29,640

(3.) IT was contended by the Crown : - (i) that losses taken into account with profits in a calculation made under the provisions of section 155 of the Income Tax Act, 1952, for the purposes of affording relief to a taxpayer under the provisions of section 342 of the Income Tax Act, 1952, fell to be treated as relieved pro tanto; (ii) that the amount which fell to be carried forward or set off against the profits or gains of the taxpayers trade for the year of assessment 1965 -66 was Pounds 29,640 computed in the manner hereinbefore referred to in paragraph 3(9); (iii) that the appeal should be dismissed and relief granted accordingly.