[HOUSE OF LORDS.]

AND

Revenue - Income tax - Crown - Succession to trade - Sale of electricity undertaking to Crown - "Person succeeds to any trade ..." - Person includes Crown - Balancing charge - Income Tax Act, 1918 (8 & 9 Geo. 5, c. 40), Sch. D, Rules applicable to Cases I and II, r. 11 (2) (as substituted by Finance Act, 1926 (16 & 17 Geo. 5, c. 22), s. 32 (1)) - Income Tax Act, 1945 (8 & 9 Geo. 6, c. 32), s. 17 (1).

Crown - Prerogative - Revenue. "Person."

By rule 11 (2) of the Rules applicable to Cases I and II of Schedule D to the Income Tax Act, 1918 (as substituted by section 32 (1) of the Finance Act, 1926): "If at any time after the said April 5 any person succeeds to any trade, profession or vocation which until that time was carried on by another person and the case is not one to which paragraph (1) of this rule applies, the tax payable for all years of assessment by the person succeeding as aforesaid shall be computed as if he had set up or

commenced the trade, profession or vocation at that time, and the tax payable for all years of assessment by the person who until that time carried on the trade, profession or vocation shall be computed as if it had then been discontinued. In this paragraph references to a person include references to a partnership."

On August 29, 1947, the undertaking, plant and machinery of a company in India were purchased by the Madras Government, acting as a branch of the Crown. An assessment to income tax for the year of assessment 1947-48 was made on the company under section 17 of the Income Tax Act, 1945, in respect of a balancing charge alleged to arise on the sale of the plant and machinery:-

Held, that rule 11 (2) was applicable to the case of a succession to a trade by the Crown, since the word "person" therein included the Crown by necessary implication, for the reasons which required the scope of charging provisions to be limited so as not to include the Crown were inapplicable; and accordingly that the assessment was rightly made, since by the joint effect of rule 11 (2) and section 31 (1) (a) of the Finance Act, 1926, the year of assessment in which the sale took place was its own basis period for the purposes of the balancing charge.

Per Lord Oaksey and Lord Tucker. It is unnecessary to decide whether the Crown's immunity from taxation depends upon the construction of the statute or arises from the prerogative.

Per Lord MacDermott. The Crown cannot find in the prerogative an immunity from tax if a statute, according to its true construction, includes the Crown amongst those made liable to a tax it imposes; but in an Act of Parliament general words shall not, as a rule of construction, bind the Crown to its prejudice unless by express provision or necessary implication.

Per Lord Reid. A general taxing provision must be construed in light of the "implied exemption on the ground of the prerogative."

Per Lord Keith. That the Crown is not bound by a statute, unless by express words or by clear implication, necessarily involves that words in a statute capable of applying to the Crown may be overridden by the exercise of the prerogative.

Decision of the Court of Appeal (sub nom. Boarland (Inspector of Taxes) v. Madras Electric Supply Corporation) [1954] 1 W.L.R. 87; [1954] 1 All E.R. 52 affirmed.

APPEAL from the Court of Appeal (Singleton, Birkett and Hodson L.JJ.).

This was an appeal from an order of the Court of Appeal dated December 9, 1953, dismissing an appeal by the appellant company, Madras Electric Supply Corporation Ld. (in liquidation) from an order of the High Court (Upjohn J.) dated June 18, 1953, whereby an appeal by the respondent, Harold Victor Boarland (Inspector of Taxes), from a determination of the Commissioners for the Special Purposes of the Income Tax Acts on a case stated by them was allowed and their decision was reversed.

The point in issue was whether the Government of Madras, being for this purpose a branch of the Crown, was a "person" within the meaning of rule 11 (2) of the Rules applicable to Cases I and II of Schedule D to the Income Tax Act, 1918.

An assessment to income tax for the year of assessment 1947-48 for balancing charges was made in the estimated sum of £850,000 on the appellant company under section 17 of the Income Tax Act, 1945, in respect of the sale by the company of its electric light and power undertaking in Madras, and the machinery and plant belonging to it, to the Government of Madras on August 29, 1947. As from that date the Government succeeded to the trade and the company ceased trading. The undertaking was sold as a going concern and was taken over and carried on as previously by the purchaser. Depreciation allowances on the assets transferred had been received in previous years by the company to an extent which justified an assessment for balancing charges, provided it could properly be made with reference to the period in which the sale occurred. The company's normal basis period for assessment was its own accounting period immediately preceding the year of assessment.

It was common ground between the parties before the Special Commissioners "(1) that by reason of section 17 (1) 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 company's basis period for which the sale of its plant and machinery occurred; (2) that for the purposes of the said Act such sale occurred on August 29, 1947; (3) that, by reason of section 57 (2) of the said Act, the company's basis period for the year of assessment 1947-48 was the period on the profits or gains of which income tax for that year fell to be computed under Case I of Schedule D in respect of its trade."

The contentions on behalf of the respondent in support of the assessment before the Special Commissioners were as follows:- "(1) that on August 29, 1947, there was a succession to the company's trade, which brought into operation the provisions of rule 11 (2) of the Rules applicable to Cases I and II of Schedule D; (2) that by virtue of the said rule 11 (2) the tax payable by the company for all years of assessment fell to be computed as if the trade had been discontinued on that date; (3) that by virtue of section 31 (1) (a) of the Finance Act, 1926" (which deals with the permanent discontinuance of a trade), "the company fell to be charged to income tax for 1947-48

on the amount of the profits or gains for the period beginning April 6, and ending August 29, 1947, and that that period was the company's basis period for 1947-48; (4) that the sale of the company's plant and machinery occurred in its basis period for 1947-48; (5) that accordingly the assessment was correctly made, subject to final adjustment of the figures."

The contentions on behalf of the appellant company before the Special Commissioners in opposition to the assessment were as follows:- "(1) that the person succeeding to the company's trade on August 29, 1947, was the Crown, and that rule 11 (2) had no application to a case where the Crown succeeded to a trade; (2) alternatively, that if the Crown did not succeed to the trade, the person so succeeding was not a person chargeable to income tax in respect thereof, and that rule 11 (2) has no application where the person succeeding to the trade in question is not so chargeable; (3) that section 31 of the Finance Act, 1926, did not apply to the company in relation to the year 1947-48 or any relevant year; (4) that the company's basis period for 1947-48 was the preceding year, namely, the year to December 31, 1946; (5) that the sale did not occur in the company's basis period for 1947-48, and that the assessment was therefore bad."

The Special Commissioners accepted the company's first contention that the purchaser of the trade was not a "person" within the meaning of rule 11 (2), and allowed the appeal of the company against the assessment to the balancing charges. At the request of the respondent they stated a case for the opinion of the High Court pursuant to section 64 of the Income Tax Act, 1952. The case stated by the Special Commissioners came on for hearing in the High Court on May 12 and 13, 1953, before Upjohn J., who on June 18, 1953, gave judgment allowing the appeal and reversing the determination of the Special Commissioners. The appellant company appealed to the Court of Appeal, and on December 9, 1953, the Court of Appeal gave judgment dismissing the appeal and affirming the decision of the High Court.

J. Millard Tucker Q.C., Kenneth Diplock Q.C. and G. B. Graham for the appellant company. The relevant statutory enactments are section 1 of the Income Tax Act, 1918, Schedule D, Case I, and rule 11 (2) of the Rules applicable to Cases I and II of Schedule D; sections 29, 31 and 32 of the Finance Act, 1926; sections 16, 17, 22, 25 (1) (iii), 57 (1) (2), and 68 of the Income Tax Act, 1945; section 175 of the Government of India

Act, 1935; sections 7 (1) (b), 8 (3), 9 (1) (a) (c) of the Indian Independence Act, 1947; the India (Provisional Constitution) Act Order, 1947 (dated August 14, 1947, and made by the Governor-General of India under that Act). Subject to the amendments of the Order, the Act of 1935 remained in force in India until January 26, 1950, when India became a republic: see India (Consequential Provision) Act, 1949.

There may be confusion if the rule governing the construction of statutes relating to the Crown is not properly and succinctly stated. The normal rule is that statutes are made for subjects and therefore general words in an Act referring to "persons," "occupiers," "married women" or "property" are not to be construed as including the Sovereign, whether in a personal or corporate capacity, unless the Crown is expressly named in the Act or included by necessary implication, or the nature of the Act is such as to indicate that the Crown is included. Otherwise the Crown is never brought within the scope of any statutory provisions which might prejudice its interests if they applied to it. The enacting body is the Sovereign with the consent of Parliament, and prima facie an Act imposing duties or obligations or monetary liability on persons, property or rights is never construed as including the person, property or rights of the Crown. But if any of the conditions previously mentioned is satisfied the Crown must obey the Act, for the prerogative is of no avail against a statute. The Court of Appeal in this case approached the matter wrongly in accepting that the Crown's immunity from taxation depended on the prerogative.¹ Admittedly, if the word "person" in the relevant provisions includes the Crown, this appeal must fail, but in income tax Acts it never includes the Crown. But if the word were taken to include the Crown one would reach the absurdity that the Crown must pay income tax. Its immunity from tax depends not on the prerogative but on construction of the Acts, because inherently the Crown is not a taxable person.

On the true construction of Schedule D to the Act of 1918 the word "person" means every person except the Crown, whereas the false basis of the judgment of the Court of Appeal is that the Crown is within the charging words but can claim an overriding exemption by virtue of the prerogative. It is the other way about. By virtue of the prerogative the Crown is not included in the Act but if on the true construction of the Act

1 [1954] 1 W.L.R. 87, 93, 97; [1954] 1 All E.R. 52.

it is found to fall within it, then the prerogative is of no avail. Rule 11 (2) of the rules applicable to Cases I and II of Schedule D must be construed in the context in which it is found, and there the Crown was not legislating for itself any more than in any other Act, The Crown is not there included in the word "person" any more than in other places Her Majesty is included in the term "married woman."

The prerogative cannot override a statute: see Attorney-General v. De Keyser's Royal Hotel Ld.² If the Crown is not named in a statute it is not bound by it: Mersey Docks and Harbour Board Trustees v. Cameron.³ The expressions in Coomber v. Berkshire Justices⁴ do not mean that the Crown's exemption only comes in to limit the operation of an enactment which, unless so limited, would apply to Crown property. See also Rex v. Cook⁵ and the Case of Magdalen College, Cambridge.⁶ Reliance is placed on Bacon's Abridgement, 3rd ed. (1768), vol. IV, p. 198, and 7th ed. (1832), vol. VI, p. 462; Attorney-General v. Donaldson⁷; Gorton Local Board v. Prison Commissioners (1887)⁸; Attorney-General v. Hancock⁹; and Bombay Province v. Bombay Municipal Council.¹⁰ See also Attorney-General for Ceylon v. Silva¹¹ and Stewart v. Thames Conservators.¹² It is to be noted that the Post Office is not liable to income tax because its trade is carried on by the Crown.

On the true construction of rule 11 (2) the word "person" there is not apt to include the Crown and does not include it. Nothing in that rule gives the word any different meaning from that which it bears in the charging provisions of paragraph 1 of Schedule D. Even if the rule is not itself a charging provision, it is so closely connected with the charging provisions that the word "person" must have the same meaning in it.

This construction is supported by the wording of the preamble to the Finance Act, 1947, repeating in substantially similar form that of all the previous Acts imposing income tax, including the Income Tax Act, 1799. If the word "person" were apt to include the Crown the combined effect of the Income Tax Act,

2 [1920] A.C. 508, 526; 36 T.L.R. 600.

3 (1865) 11 H.L.C. 443, 511.

4 (1883) 9 App.Cas. 61, 71, 74, 76, 79.

5 (1790) 3 Term Rep. 519, 520, 521.

6 (1615) 11 Co.Rep. 66b.

7 (1842) 10 M. & W. 117, 123-7.

8 [1904] 2 K.B. 165n, 167.

9 [1940] 1 K.B. 427, 428, 435-6; 56 T.L.R. 286; [1940] 1 All E.R. 32.

10 [1947] A.C. 58, 61; 62 T.L.R. 643.

11 [1953] A.C. 461; [1953] 2 W.L.R. 1185.

12 [1908] 1 K.B. 893; 24 T.L.R. 333.

1918, and the Finance Act, 1947, would be to charge income tax on the annual profits and gains accruing to the Crown. But such a construction must be wrong because the Commons cannot "freely and voluntarily give and grant" to the Crown a part of what already belongs to it. When it is desired that the Crown should be made liable to a Parliamentary tax imposed on subjects, this must be effected by a special enactment: see Crown Private Estate Act, 1800, and Crown Private Estates Act, 1862. The appellant company's contention is supported by the provisions of the Act of 1918 as originally enacted and the previous enactments re-enacted by them: see rule 9 of the rules applicable to Cases I and II of Schedule D (brought in by section 62 of the Taxes Management Act, 1880); rule 11 (for which the present rule 11 was substituted by section 32 (1) of the Finance Act, 1926), and rule 3 of the Miscellaneous Rules of Schedule D. All these interlocking rules dealt with changes of ownership of a trade and with the person succeeding to a trade. See also Income Tax Act, 1842, s. 100, rules applicable to Cases I and II of Schedule D, rule 4, and also section 134. Rule 11 (2) is clearly bound up with all the provisions which impose the charge, and when "person" is referred to there and in section 134 the legislature is not purporting to include the Crown in the general word. See also section 83 of the Duties on Income Act, 1799 (39 Geo. 3, c. 13). Reliance is placed on Income Tax Commissioners for City of London v. Gibbs,¹³ where it is said that "person" in rule 9 means "an entity of assessment." The same is true of rule 11.

As to the use of the word "person," see also sections 116 (1) and 132 (2) of the Act of 1918. In the Act the word is sometimes used without relation to the question whether or not the "person" is liable to tax. In such a case the meaning depends on the context, but such examples do not bear on the question whether or not the Sovereign is a "person" for the purposes of the Act.

Kenneth Diplock Q.C., following. The word "person" in the context of these Acts means one inherently taxable, someone who may be liable to tax if certain conditions are fulfilled. Paragraph 1 of Schedule D is limited to such persons and the Crown is not such a "person." General words in an Act of Parliament are not apt to include the Crown save by necessary implication displacing the prima facie rule of construction. The rule is stated in Bacon's Abridgement, 7th ed., vol. VI, pp. 462-3, and

13 [1942] A.C. 402, 419; [1942] 1 All E.R. 415.

Chitty's Prerogatives of the Crown, p. 383. So far as paragraph 1 of Schedule D is concerned, on no principle of construction can the Crown be included in the word "person" because the Act imposes a tax liability. Since the Crown has no prerogative power to overrule an Act of Parliament, the exclusion of the Crown can rest only on the basis that the words are not apt to include it. It is purely fortuitous whether the effect of the argument for the appellant company is to benefit the taxpayer or the Crown, and accordingly the question of prejudicing the Crown does not arise. However the rule is stated, "person" here must be construed so as not to affect the Crown. Prima facie, under the ordinary rule of construction, "person" must have the same meaning wherever it occurs in this Act. There is nothing in rule 11 (2) to compel one to say that "person" there has an extended meaning.

Sir Reginald Manningham-Buller Q.C., A.-G., J. H. Stampand Sir Reginald Hills for the respondent. The company has been rightly assessed to income tax in respect of balancing charges in pursuance of section 17 of the Income Tax Act, 1945, for the year of assessment 1947-48, because it is not disputed that it sold its undertaking (including plant and machinery) as a going concern to the Government of Madras.

The only issue is the meaning to be given to the word "person" in rule 11 (2). On this point it is a fallacy to say that the Crown is inherently non-taxable: see the Crown Private Estates Act, 1862. Nor is it established by the authorities that general words in an Act of Parliament are not apt to include the Crown. General words do not suffice to cut down the prerogative; but that is a different proposition. The Crown prerogative does not affect the construction of this Act. If on its true construction an Act does not affect the Crown, it need not rely on the prerogative to repel any claim based on that Act. The prerogative only arises when the Act, on its true construction, might apply to the Crown, which can then invoke the prerogative in order to defeat the operation of the Act in relation to itself.

It is a fundamental fallacy to contend that the word "person" excludes the Crown unless the contrary is shown; it includes the Crown unless the contrary is shown. The word should be given the widest possible interpretation, and there is no ground for cutting it down in a way which, while it might benefit one taxpayer would prejudice another. No assistance is found in going to the preambles of the Acts, as counsel for the appellant

company have done. It is a non sequitur to say that words like "person" or "married woman" cannot be construed as including the Crown. "Person" includes the Crown and "married woman" includes Her Majesty. But, unless its operation is cut down by express words, the prerogative will prevent any Act from prejudicing the Crown, for the basis of the Crown's immunity is the prerogative. It is only because the word "person" is apt to include the Crown that it may be the recipient of a grant under section 3 (3) of the Forestry Act, 1919. The Crown can consent to its prerogative being cut down by express words in an Act of Parliament, but, unless it is clear that it has so assented, the prerogative is not so cut down; it then remains in operation and can be relied on by the Crown.

Before the Interpretation Act, 1889, the Crown was regarded as a person: see Co. Lit., vol. I, p. 15b, note 4; Blackstone's Commentaries, 1st ed., vol. I, p. 457; and the Case of Magdalen College, Cambridge.¹⁴ In the Interpretation Act see section 1 (1) (b) and the broad definition of "person" in section 19. As to the construction of the word "person" generally in an Act of Parliament, see Pharmaceutical Society v. London and Provincial Supply Association Ld.,¹⁵ and as to the exemption of the Crown depending on the prerogative, Rex v., Cook.¹⁶

The word "person," unless a contrary intention appears, must have a wide meaning. In rule 11 (2) there appears no contrary intention, nor does anything appear in the charging provisions of Schedule D: see per Upjohn J. in the present case.¹⁷ "Person" means the same thing in both places. There is no particular magic in the fact that the words of rule 11 (2) are said to be "charging words." The rule is not a charging rule; it is merely dealing with the computation of the liability on a successor to a trade. Its object is to secure an adjustment by allowance or charge where there is a succession, irrespective of who the successor may be. That object would be in part defeated if a narrow construction were given to the word "person." Here one is only concerned with the meaning of "person" in rule 11 (2). Accordingly it is not essential to establish that it applies to the Crown in the charging provisions of Schedule D. That is not decisive in dealing with rule 11 (2), the language and purpose of which would in any event justify the wider interpretation. The words of rule 11 (2) are apt to cover any transfer, no matter to

14 11 Co.Rep. 66b.

15 (1880) 5 App.Cas. 857, 868-9.

16 3 Term Rep. 519, 520-1, 522.

17 [1953] 1 W.L.R. 920, 927; [1953] 2 All E.R. 467.

whom it is made. It is not really a charging rule but a method of computation.

The meaning of the word "person" is not cut down by the exercise of the prerogative; the admitted immunity of the Crown from taxation is based on the prerogative right to claim that immunity. Though on its true construction the Act applies to the Crown, the prerogative comes into play to prevent its operating to the prejudice of the Crown.

The appellant company is in substance seeking to persuade the House to disregard Coomber v. Berkshire Justices,¹⁸ the basis of which was not that the Income Tax Acts should be restricted in their operation but that, despite their clear language, the Crown was exempt by reason of the prerogative. If the construction of the Act had been narrowly restricted the Crown would not have had to rely on the prerogative at all. This case is a very powerful authority for the respondent and the House should follow its ratio decidendi.

The parts of the decision of the Court of Appeal in Bank voor Handel en Scheepvaart N.V. v. Administrator of Hungarian Property¹⁹ are unaffected by the decision of the House of Lords, which gives no support to the proposition that the prerogative can affect the construction of the words of a statute, affecting their meaning. It is a novel proposition that an Act must be qualified on construction in accordance with the royal prerogative. If it had been so there would have been no scope for waiver in that case: see per Lord Reid.²⁰ One cannot waive an immunity unless one is first liable and so the charging provisions of these Acts apply to the Crown. The Crown must waive its rights if it wishes the Acts to apply to its property. The prerogative is effective until it is waived; it is not necessary for it to be asserted in every case. The argument for the respondent in Bank voor Handel²¹ is similar to that now advanced for the Crown.

The trustees of a charity are "persons" within the Income Tax Acts, but are exempt from tax by reason of special provisions. In the same way the Crown is a "person" but is exempt just as if there were an express exemption in the Act. The fact that the exemption exists does not mean that the Crown is not a person.

18 9 App.Cas. 61, 65, 71, 76-7, 79.

19 [1953] 1 Q.B. 248; [1952] 2 T.L.R. 861; [1952] 2 All E.R. 956 (C.A.); [1954] A.C. 584; [1954] 1 All E.R. 969.

20 [1954] A.C. 584, 624-5.

21 Ibid. 595.

The principles of Fry v. Burma Corporation²² apply to this case. Income Tax Commissioners for City of London v. Gibbs²³ has no relevance. See also the Income Tax Act, 1918, s. 30, and Sch. A, No. VII and No. VIII.

In summary, this appeal is solely concerned with the meaning of "person" in rule 11 (2), the aim of which is only achieved by giving the word the meaning contended for by the respondent. The intention to include the Crown is apparent, and if "person" in Schedule D must always bear the same meaning it is included. The Crown is exempted not because it is not a "person" but by reason of the prerogative. It is really novel to seek to limit, on the ground of the prerogative, the meaning of general words in a statute which do not cut down the prerogative. Further, relying on the Interpretation Act, 1889, s. 19, no "contrary intention appears" in Schedule D as to the construction of the word "person." There is nothing in the preamble to any of the relevant Acts suggesting that the Crown is not a "person," though, like the Charity Commissioners, who are also "persons," it is exempt. It is not sought to challenge the proposition that the prerogative can be limited by the express words of an Act, but it cannot be cut down by general words. General words do not bind the Crown, which is not the same thing as saying that they do not include it. Where general words are used the prerogative is not restricted. The construction of an Act depends on the language used.

J. H. Stamp following. If rule 11 stood alone no one could doubt its meaning. Beyond doubt it would apply to every case in which a trade changed hands. It is suggested on behalf of the appellant company that the word "person" has acquired an artificial meaning in the Act and in rule 11. This involves two subordinate propositions: (1) that the meaning of the word is restricted by way of construction in that the charging provisions of Schedule D exempt the Crown, and (2) that the restriction is annexed to the word throughout the Act. The Crown challenges both propositions. There is no ground for treating the word or construction otherwise than if there were no Crown prerogative. But, since the prerogative exists, the question is: how does it affect the operation of the Act? The ambiguous words of the preamble could not override the clear meaning of the word "person" which is not capable of being so cut down. It is a clear and unambiguous word and includes the Crown (section 19

22 [1930] A.C. 321, 327, 331, 334.

23 [1942] A.C. 402.

of the Interpretation Act, 1889). Does the prerogative affect the operation of the Act by a construction of the word "person" restricting its application and altering its meaning? Or does it provide the Crown with a defence to claims made on it in its character as a person? The court must consider whether the Act or the prerogative prevails, having regard to the fact that the Crown is not bound by an Act unless named in it or included by necessary implication. There is not enough in the Income Tax Act to exclude the prerogative. So how does the prerogative prevail? By altering the words of the Act or by overruling them for this purpose'? By the latter method. The prerogative protects the Crown from assessment. The commissioners will not in practice assess when they know that they have no right to do so, though apart from the prerogative the words of the Act cover the Crown; so, though the prerogative is there the Crown need not in practice rely on it. Suppose the Duke of Wellington had been exempted by statute from taxes - he would have been in the same position as the Crown, but he would still have been a "person." The effect of an exemption is not to alter the meaning of any Act of Parliament. The true view is that the Crown is in the same position as the Charity Commissioners, who are exempted from tax by this Act. That only means that special words over rule the general words.

The appellant company's argument produces an absurd result in that it makes a vital difference whether the transfer is to the Crown or to someone else, and an absurd result throws doubt on the validity of the reasoning leading to it.

This Act does not bind the Crown either by express words or by necessary implication. Assuming, against the respondent's contention, that the prerogative operates by annexing a restriction to the construction of the word "person," what restriction would it be right to imply? Either that for the purposes of a charge under Schedule D the Crown is not a "person," and that is wrong, or else that the word "person" does not include the Crown, and that is wrong, too.

The legislature's knowledge that the prerogative exists has no bearing on the construction of the Act, which operates according to its words in expressing the mind of the legislature. The legislature leaves the impact of the prerogative to the words of the Act.

Under Schedule A there is a general charge on hereditaments. Crown lands fall within it as a matter of construction but are exempted.

J. Millard Tucker Q.C. in reply. The immunity of Crown officers and servants and money applied for Crown purposes was the whole point of the Bank voor Handel case.²⁴ It was argued that the contention of the appellant company would produce hardship in defeating the end of the legislature. But the court is not to legislate under the guise of interpretation. It must interpret, even if the results are untoward as in Inland Revenue Commissioners v. Dowdall, O'Mahoney & Co. Ld.²⁵

The argument that the Crown is within the interpretation of the Act but escapes from it by the prerogative is contrary to sections 1 and 2 of the Bill of Rights (1 W. & M., sess. 2, c. 2).

Their Lordships took time for consideration.

Mar. 11. LORD OAKSEY. My Lords, this is an appeal from an order of the Court of Appeal (Singleton, Birkett and Hodson L.JJ.) dated December 9, 1953, dismissing an appeal by the appellant company from an order of the High Court (Upjohn J.) dated June 18, 1953, whereby an appeal by the respondent from a determination of the Commissioners for the Special Purposes of the Income Tax Acts upon a case stated by those commissioners was allowed and the decision of the commissioners was reversed.

The matter arises upon an assessment to income tax for the year of assessment 1947-48 for balancing charges made in the estimated sum of £850,000 upon the appellant company under section 17 of the Income Tax Act, 1945, in respect of the sale by the company of its undertaking and the machinery and plant belonging to it to the Government of Madras on August 29, 1947. The undertaking was sold as a going concern, and was taken over and carried on as previously by the purchaser, and it is agreed that the purchaser succeeded to the trade of the appellant company on August 29, 1947.

It is agreed that in these circumstances the company was liable to balancing charges in respect of the sale of its plant and machinery, and further that such balancing charges were correctly assessed for the year of assessment 1947-48 if the purchaser of the company's undertaking was a "person" within the meaning of rule 11 (2) of the Rules of Cases I and II of Schedule D of the Income Tax Act, 1918. If, however, the purchaser was not a "person" within the Rules, such balancing charges could not be assessed for the year 1947-48 as, unless rule 11 (2) applied, the

24 [1954] A.C. 584.

25 [1952] A.C. 401; [1952] 1 T.L.R. 560; [1952] 1 All E.R. 531.

basis of assessment for that year would be the profits of the previous year which would not include the said balancing charges. The point in issue in the appeal is, therefore, whether the purchaser, the Government of Madras, being for this purpose (as is admitted by the respondent) a branch of the Crown, was a "person" within the meaning of rule 11 (2), the contention for the appellant company being that neither the Crown nor any person exercising the functions of the Crown is a "person" within the meaning of the rule, so that no "person" succeeded to the undertaking of the company.

There is no dispute as to the construction and effect of the provisions of the Income Tax Act, 1945, which impose balancing charges. The balancing charge is to be made for the year of assessment in the "basis period" for which the disposal of the machinery or plant takes place, and the "basis period" for the year of assessment 1947-48 in the present case is the period on the profits of which income tax for that year falls to be computed under the directions contained in the Rules of Cases I and II of Schedule D of the Income Tax Act, 1918, and in subsequent amending enactments.

These directions (so far as they affect the question in dispute) are as follows:- (a) Section 31 (1) (a) of the Finance Act, 1926, provides that where in any year of assessment a trade is permanently discontinued, the profits of the trade for the period from the beginning of the year (April 6) to the date of discontinuance shall be the profits to be charged to income tax under Cases I and II of Schedule D for that year. (b) By section 32 of the Finance Act, 1926, the present rule 11 was introduced by amendment into the Rules of Cases I and II of Schedule D and was substituted for the previous rule 11 contained in those rules. Paragraph (1) of the rule deals with successions to a trade as the result of the formation of a partnership or a change in a partnership in circumstances which admittedly do not apply to the facts of the present case.

Paragraph (2) of rule 11 (in which the meaning of the word "person" is the issue in this appeal) is in the following terms; [His Lordship read the paragraph and continued:] If the succession by the Government of Madras to the trade of the appellant company was the succession of a "person" within the meaning of rule 11 (2) of the Rules of Cases I and II of Schedule D, the "basis period" for the year of assessment 1947-48 will admittedly be the period from April 6, 1947, to August 29, 1947, in which said period the sale of the machinery and plant took place, and

the assessment for that year in respect of the balancing charges will admittedly be competent, the joint effect of rule 11 (2), if it applies, and section 31 (1) (a) of the Finance Act, 1926, being that the year of assessment in which the sale takes place is its own "basis period."

If, however, rule 11 (2) was not applicable to the succession by the Government of Madras, the "basis period" for the year of assessment 1947-48 would, according to the rule for computing profits in the normal case when not displaced by rule 11 (2), be the preceding accounting year, namely, the year to December 31, 1946. As the sale of the plant and machinery did not take place in that period no assessment could be made for a balancing charge on account of it for the year of assessment 1947-48, and the assessment for that year which was made would not be competent. An assessment for the year 1948-49 would also not be competent, as in that year the appellant company was not carrying on a trade. Accordingly, if rule 11 (2) was not applicable, the balancing charges which would otherwise have been assessable for 1947-48 escape assessment.

The Income Tax Act, 1945, enacted a revised and extended general code of capital allowances in the taxation of the profits of business undertakings, and in Part II thereof made special provisions as regards machinery and plant. A new feature of these allowances was the provision, upon the acquisition by a trader of machinery or plant, of an initial allowance in respect of a percentage of its cost as well as an annual allowance of a specified amount representing the annual depreciation in value of the machinery or plant as previously provided by rule 6 of the Rules of Cases I and II of Schedule D.

Where the machinery or plant is disposed of by a trader before the initial and annual depreciation allowances in respect of it have amounted to its full cost and, upon its disposal, the value received falls short of the balance of its cost, it is provided by section 17 of the Act that a balancing allowance shall be claimable by the trader in respect of such balance in reduction of his chargeable profits. Conversely, in the event of the value received upon such disposal being in excess of the written down value of the machinery and plant, a balancing charge may be imposed upon the trader, so as in effect to restore to the public revenue the amount in respect of past allowances for income tax which is shown in the result to have been excessive.

[His Lordship set out the course of the proceedings and continued:] In your Lordships' House the Attorney-General and

Mr. Stamp contended that as a matter of construction the Crown is included in the persons chargeable to tax under the Income Tax Acts, but that the Crown obtains immunity from taxation by the prerogative right to claim such immunity. In the respondent's printed case the argument is expressed as follows:- "(7) Because the Crown is upon accepted principles of English law a person and comes within the ordinary meaning of that word in an Act of Parliament. (8) Because the immunity of the Crown from taxation is based upon the prerogative right to claim such immunity and not upon the construction of the word 'person' in a taxing Act as excluding the Crown."

My Lords, I agree with my noble and learned friend, Lord Tucker, that it is unnecessary in this case to decide whether the Crown's admitted immunity from taxation depends upon the construction of the statute or arises from the prerogative in some other way. In the present case the only question is whether rule 11 (2) applies to the case of a succession by the Crown to a trade previously carried on by a person taxable under the Income Tax Acts. I have come to the conclusion, though not without some doubt, that, whatever the construction of the word "persons" in the charging provisions of Schedule D may be, it must necessarily be implied that the person succeeded is not deprived of his right to balancing allowances and remains liable to balancing charges when the Crown succeeds to his trade. It cannot, I think, have been intended that in cases where the Crown succeeds to a trade the taxpayer whose trade is taken over should be affected in the matter of income tax. Either that must be the necessary implication of the statute, or the Crown would be entitled by asserting the prerogative to claim to make the balancing charges but not bound to allow the balancing allowances. The words "the tax payable for all years of assessment by the person succeeding" must, I think, be construed to mean the tax, if any, and not to deprive the taxpayer of balancing allowances to which he would have been entitled, because his successor is not taxable.

For these reasons I would dismiss the appeal.

LORD MACDERMOTT. My Lords, this appeal challenges the validity of an assessment under Schedule D of the Income Tax Act, 1918, made upon the appellants for the tax year 1947-48 in respect of balancing charges under section 17 of the Income Tax Act, 1945, which were alleged to arise on a sale of the appellants' plant and machinery. The dispute now lies within a narrow

compass, and the only question calling for determination by your Lordships is as to the true construction of rule 11 (2) of the Rules applicable to Cases I and II of Schedule D.

In these circumstances the situation which makes rule 11 (2) decisive may be stated briefly and with a minimum of detail. On August 29, 1947, the appellants transferred their electric light and power undertaking in Madras to the Crown. As from that date the Crown succeeded to the appellants' trade and the appellants ceased trading. The transfer was by way of sale and included the plant and machinery already mentioned. Depreciation allowances on these assets had been received in previous years by the appellants to an extent that justified an assessment for balancing charges, provided such assessment could properly be made with reference to the period in which the sale occurred. The appellants' normal basis period for assessment was their own accounting period immediately preceding the year of assessment, and this meant that, had the appellants continued trading, the balancing charges in question would have been payable on foot of an assessment for the tax year 1948-49. An assessment for that year could not, however, be made as trading had ceased during the previous year; and an assessment for the tax year 1947-48, based on the appellants' previous accounting period, would have been ineffective to impose liability for these balancing charges as the sale which evoked them took place subsequent to that period. These difficulties do not, however, confront the present assessment for 1947-48, the last year of trading, if rule 11 (2) applies, for in that event section 31 (1) of the Finance Act, 1926, would operate to make the relevant basis period that which began on April 6, 1947, and ended when the appellants' machinery and plant had been sold.

Rule 11 (2) therefore becomes the crux of this litigation. [His Lordship read the paragraph and continued:] The applicability of this rule, accordingly, depends on whether the transfer to the Crown of the appellants' undertaking comes within the words "If at any time ... any person succeeds to any trade ... which until that time was carried on by another person. ..." And this, in turn, depends on whether the word "person" as first used in this context includes the Crown. That is the governing issue. If the Crown is included the assessment is competent and the appeal fails. If the Crown is not included, rule 11 (2) does not apply, the assessment is bad and the appeal succeeds.

For the appellants it was contended that in the charging provisions of paragraph 1 of Schedule D in respect of the annual

profits or gains arising or accruing "to any person residing in the United Kingdom" the word "person" did not, on its true construction, include the Crown, and that there was nothing in the language or subject-matter of rule 11 (2) of that Schedule to give the same word there a different meaning. Against this an argument in alternative form was advanced on behalf of the respondent. First of all, it was said that "person" in the charging provisions of paragraph 1 of Schedule D included the Crown and that rule 11 (2) used the word in the same sense. And, secondly, it was submitted that even if "person" in paragraph 1 did not include the Crown, the language and purpose of rule 11 (2) justified a wider interpretation which would include the Crown.

My Lords, the meaning of the word "person" in the charging provisions of paragraph 1 of Schedule D was vigorously canvassed at your Lordships' bar, and counsel for the respondent took the first branch of their argument, logically enough, the length of saying that the Crown's undoubted immunity from tax under Schedule D flowed not from the construction of the statute but from the assertion, or at any rate the existence, of a prerogative right. In seeking to show that the decision of the Court of Appeal was wrong, Mr. Millard Tucker, for the appellants, contended that it had accepted that view, and he relied upon certain passages in the judgments of Singleton and Hodson L.JJ. as indicating this to be the case. When these judgments are read in their entirety I am by no means certain that they were meant to go quite as far as this, though they do contain observations such as "It is, however, recognized that the freedom of the Monarch from taxation arises by virtue of the prerogative" (Singleton L.J.¹, and "When the Act has been construed, the Crown is entitled to set up its right against the construction if prejudiced thereby, and the construction will, when necessary, yield to the prerogative" (Hodson L.J.². Some of the authorities cited in the course of the hearing also contain expressions which, when read literally, appear to relate the Crown's immunity from tax to the prerogative. But in those cases the distinction between ascribing this immunity to the prerogative and treating it as a matter of statutory construction was not the subject of dispute, and I do not think much can be built on the use of a phraseology which was never directed to the point now under consideration and which was sufficient for the purposes in connexion

1 [1954] 1 W.L.R. 87, 93; [1954] 1 All E.R. 52.

2 [1954] 1 W.L.R. 87, 97.

with which it was used. It may, indeed, be said that for most purposes it matters little whether one attributes the Crown's immunity from taxation to the existence of a prerogative right or to a construction of the taxing statute that respects that right. In the present appeal, however, the choice between these ways of explaining the position of the Crown is relevant to the issue and was regarded by both parties as having an important bearing upon it.

My Lords, I consider the appellants to be right on this particular matter. Whatever ideas may once have prevailed on the subject, it is, in my opinion, today impossible to uphold the view that the Crown can find in the prerogative an immunity from tax if the statute in question, according to its true construction, includes the Crown amongst those made liable to the tax it imposes. The appropriate rule, as I understand it, is that in an Act of Parliament general words shall not bind the Crown to its prejudice unless by express provision or necessary implication. That, however, is and has long been regarded as a rule of construction, and such being its nature its application to the charging provisions of paragraph 1 of Schedule D seems to me to make an end of the respondent's submission on this aspect. In that paragraph the word "person" is a general word capable of including the Crown, but there is no express provision and nothing by way of necessary implication to make it include the Crown, and so, as a matter of construction, it must be read in accordance with the rule as excluding the Crown.

The question, then, is whether the word is to receive a similar construction in rule 11 (2) or whether it is there used in a less restricted sense and so as to include the Crown.

The presumption that the same word is used in the same sense throughout the same enactment acknowledges the virtues of an orderly and consistent use of language, but it must yield to the requirements of the context, and it is perhaps at its weakest when the word in question is of the kind that readily draws its precise import, its range of meaning, from its immediate setting or the nature of the subject with regard to which it is employed. In the present instance it seems to me that paragraph 1 and rule 11 (2) of Schedule D are so different in their subject-matter and purpose that the word "person" must be given a different connotation in each. Paragraph 1 is intended to impose a tax and, in conformity with the rule of construction I have mentioned, the Crown is not bound because, if it were, it would be by its inclusion to its prejudice in the general word "person." Rule 11 (2), on the other

hand, is not intended to impose a tax or to do anything prejudicial to any of the persons to whom it refers. It may work now one way and now another, but its object is not to add to the liabilities of the taxpayer but to provide for terminal computations in the case of a trade changing hands. It does not purport to tax those who were not taxable before, and I am unable to see how its provisions can prejudice the Crown so as to justify its exclusion from the word "person" as used therein. Moreover, so to exclude the Crown would be to ignore and run counter to the natural meaning of rule 11 (2) and its obvious purpose. It is expressed in terms - "... any time ... any person ... any trade ..." - which are designedly comprehensive, and it caters for a situation which is there to be met whether or not it is the Crown that succeeds to or is succeeded in the trade in question.

For these reasons I am of opinion that the assessment was competent, and I would therefore dismiss the appeal.

LORD REID. My Lords, the appellants have been assessed to income tax in respect of balancing charges under section 17 of the Income Tax Act, 1945, arising from a sale of plant and machinery, which was in use by them in their electricity undertaking in Madras until the Government of Madras, who are admitted to have been the Crown, in 1947 exercised an option to purchase the undertaking. It is admitted that the Crown succeeded to the appellants' trade within the meaning of the Income Tax Acts, and it is further admitted that if the appellants' successor in their trade had been anyone else but the Crown there would be no ground for the present appeal.

The sole point at issue in this case is the meaning of the word "person" in rule 11 (2) of the Rules applicable to Cases I and II of Schedule D. That rule provides - [His Lordship read the paragraph and continued:] It is common ground that if the word "person" where it first occurs in that rule includes the Crown the appeal fails, but if it does not then the appeal succeeds.

It is not disputed that the Crown is in law a person, and the respondent's first argument is that the word "person," wherever it appears in the Income Tax Acts, includes the Crown. The appellants, on the other hand, argued that the word "person" in the Income Tax Acts never includes the Crown. In my opinion both these arguments are unsound.

It is common ground that the Crown does not have to pay income tax, but the reason for that is in dispute. The rule is often stated in the form that an Act does not bind the Crown

unless the Crown is bound expressly or by necessary implication. But neither party accepts that as an accurate or sufficient statement of the rule. It is said for the respondent that as a matter of construction the Crown is within the scope of the words of all the charging provisions of the Act; it is a person and could be assessed for tax, but if it were, it could plead the royal prerogative and decline to pay; when it is said that the Crown is not bound what is meant is that, although the terms of an Act apply to the Crown, the Crown can by the exercise of the prerogative prevent the Act from being applied so as to prejudice its interests. The appellants, on the other hand, say that the prerogative operates at an earlier stage, and that unless an Act binds the Crown expressly or by necessary implication the Crown is never brought within the scope of any of its provisions which might operate to prejudice Crown interests if they applied to it; so, as a matter of construction, the word "person" in the Income Tax Acts must be held to mean "person other than the Crown."

My Lords, this argument for the respondent is novel. I do not think that it has ever been suggested, at least since 1688, that, if an Act in its terms and on its true construction applies to the Crown, its operation can be prevented by the royal prerogative. It is true that there does not appear to be in the authorities any statement which precisely negatives this argument, but that is not surprising. As the point has never been raised it has not been necessary to formulate the answer to it.

Chitty states the rule as follows: "But Acts of Parliament which would divest or abridge the King of his prerogatives, his interests or his remedies, in the slightest degree, do not in general extend to, or bind the King, unless there be express words to that effect." (Prerogatives of the Crown, p. 383.) I draw attention to the words "extend to, or bind the King." It is not a matter of the King preventing the operation of an Act which extends to the Crown, but of the scope of provisions which prejudice the Crown being so limited that they never extend to the Crown.

The respondent relied on Coomber v. Berkshire Justices.³ In that case it was held that the justices were entitled to plead, against the Crown, immunity from taxation in respect of certain buildings used for what were held to be Crown purposes. Lord Blackburn there speaks of "the exemption, by virtue of the prerogative,"⁴ of Crown property, and of "an implied exemption on the ground of prerogative,"⁵ and Lord Watson speaks

3 (1883) 9 App.Cas. 61.

4 Ibid. 66.

5 Ibid. 71.

of "the privilege of the Crown."⁶ But I do not find in any of the speeches anything to suggest that this exemption or privilege only comes in after the Act has been passed to limit the operation of provisions which, until so limited, apply to Crown property, or that it does not limit the scope of the Act by preventing it from ever applying to such property. The case is notable in that the justices successfully invoked the prerogative against th Crown. This is intelligible if the operation of the prerogative was to exclude entirely from the scope of the Act property used for certain "Crown" purposes, whoever it might belong to. The justices could then say that on a true construction of the Act it did not apply to, or make them liable in respect of, this property, and that the Crown, by making a demand for tax, could not alter the true construction of the Act. But if the true view were that the Act did apply in the first instance and the prerogative had then to be invoked to prevent its operation, I find it difficult to see what right the justices could have themselves to invoke the prerogative against the will of the Crown.

I shall not multiply references because, the present question not being in issue, the language used was not directed to it and is generally capable of more than one interpretation. But I might add a passage from the judgment of Wrottesley J. in a recent case, Attorney-General v. Hancock,⁷ "the rule is now well laid down and clear that if an Act of Parliament would otherwise devest the Crown of its property, rights, interests or prerogative, it is not to be construed as applying to the Crown unless the Crown is mentioned either expressly or by necessary implication."

I must, however, deal with the case Bank voor Handel en Scheepvaart N.V. v. Administrator of Hungarian Property,⁸ because a passage in my speech is said to assist the respondent on this question. The Custodian of Enemy Property had paid income tax on a sum which came into his hands, and the sole question was whether when he paid the tax assessed on him he was liable to do so. I agreed with the majority that he was not. I said at one point⁹ that: "Undoubtedly he would have had to pay if the Crown had waived its immunity and if he had been directed to pay by the Board of Trade." It was argued that one cannot waive an immunity unless one is first liable and that

6 9 App.Cas. 61, 77.

7 [1940] 1 K.B. 427, 439; 56 T.L.R. 286; [1940] 1 All E.R. 32.

8 [1954] A.C. 584; [1954] 1 All E.R. 969.

9 [1954] A.C. 584, 624-5.

this statement of mine is inconsistent with the view that the charging provisions of the Income Tax Acts do not apply at all to Crown income. I must confess that I had thought that if an Act of Parliament imposes a general charge but contains an exception that A.B. shall not be liable to pay that charge, and if A.B. is then asked to pay and, notwithstanding his immunity, agrees to pay the charge, that could properly be described as waiving his immunity. But I am not the best interpreter of what I said. It must stand. I can only say that I do not read anything in that case as supporting the respondent's present argument (which was not submitted in that case). Indeed, I rather think that, if it had been submitted and were right, I should have been able to decide the case the other way. The question was whether the Custodian was liable to pay when he paid the tax. If the true view were that the Acts apply to Crown income unless and until the prerogative is invoked, then it would seem to me that the Crown or its servants must be liable under the Acts unless and until the prerogative is invoked. In the Bank voor Handel case¹⁰ the prerogative was not invoked before payment and payment was made, in this view, under the Act. That seems to me to be very like paying what the Custodian was then liable to pay.

It is true that a variation of the respondent's argument was submitted to the effect that although an Act applies to the Crown, the prerogative comes into play automatically to prevent the Act from operating and, if the Crown wishes the Act to operate in a particular case on its property, it must for that case waive its privilege. At least that appeared to be the argument, but I found it too subtle to grasp easily. It seems to me to be indistinguishable from saying that the Act does not apply to the Crown but that in a particular case the Crown may waive its immunity in the sense of agreeing in that case to pay as if the Act did apply to it.

In my opinion, the real question is what the proper construction is of the statutory provision, taking into account the royal prerogative, and I now turn to the appellants' argument. They say that inherently the Crown is not a taxable person and, therefore, in a taxing Act, "person" must as a matter of construction always mean a person other than the Crown. I think that that is much too widely stated. I agree that the question is one of construction, but the Act may state expressly

10 [1954] A.C. 584.

that some one of its provisions does bind the Crown, and then the Crown will be bound by that provision, though not by others. In the Income Tax Act, 1918, there is a provision of this kind. A tenant who pays tax under Schedule A can deduct tax from his rent when he pays it to his landlord. If his landlord is the Crown he is liable to pay tax as in other cases, but in the absence of special provision he could not deduct tax in paying his rent because that would be prejudicing the Crown by interpreting the provision which allows deduction as binding the Crown. But No. VIII, rule 1, of the Rules applicable to Schedule A expressly provides that "any receiver on behalf of the Crown or other person receiving the rent shall ... allow the deduction on receipt of the residue of the rent."

If an Act contains a general provision and an express exception, then the scope of the general provision is limited by the exception. In the same way it appears to me that a general taxing provision must be construed in light of what Lord Blackburn called the "implied exemption on the ground of prerogative." A charging provision, which, on the face of it, would or could result in imposing a charge on the Crown, must be held inapplicable to the Crown unless the Crown is bound expressly or by necessary implication, and if the result of reading the word "person" in rule 11 (2) as including the Crown would be to make the Crown chargeable to tax, then it could not be so read.

But at this point I part company with the appellants' argument. Rule 11 (2) is not a charging provision. It does not say that the person succeeding to a trade shall pay tax. For example, let me suppose that, instead of being bought by the Crown, the appellants' undertaking had been bought by an Indian company which had no connexion with this country. It is admitted, and rightly, that the company would have been a person succeeding to the trade of the appellants within the meaning of rule 11 (2), but that company would not have been taxable under rule 11 (2), or any other provision of the Act. In effect, what rule 11 (2) provides is only this: if the person succeeding to the trade is taxable in this country, his tax shall be computed in a certain way. And there is nothing to exclude the application of the rule to the seller if it so happens that the purchaser is not liable to pay tax; whether or not the purchaser is taxable, the tax payable by the person who sold the business is to be computed as if the business had been discontinued at the time of the sale.

The appellants found on a passage in the speech of Lord Macmillan in Income Tax Commissioners for City of London v. Gibbs,¹¹ where he says: "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 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." Lord Macmillan does not say that the word is always used in this sense, and I do not think that it is used in this sense in rule 11 (2). If an Indian company, not taxable in this country, had bought the appellants' undertaking it would have been a person within the meaning of this rule. But it would not have been an entity of assessment in the sense that the Acts would require its income to be assessed for tax purposes.

So the reason which requires the scope of charging provisions to be limited so as not to include the Crown does not apply to rule 11 (2). But the appellants say that, even if this rule is not in itself a charging provision, it is so closely connected with the charging provisions in the Act that the word "person" must have the same meaning here as in those other provisions, where it does not include the Crown. I do not agree with that. No doubt there is a presumption that the same word preserves the same meaning in closely related sections, but there are numerous cases where that presumption has had to give way to other considerations and, in my opinion, it cannot prevail in this case. To apply it would produce an entirely unreasonable result. There is no reason why the amount of tax payable by the seller of a business should depend on the tax liability of the purchaser, and there is nothing in this rule or in any other part of the Act to indicate any intention that it should.

I am therefore of opinion that this appeal should be dismissed.

LORD TUCKER. My Lords, I am not persuaded that the decision of this appeal calls for an historical investigation of the true nature of the royal prerogative or its precise impact upon parliamentary legislation.

It is beyond dispute that the Income Tax Acts do not operate to charge the Crown with payment of tax - in other words, the immunity derived from the prerogative has not been affected by express words or by necessary implication.

11 [1942] A.C. 402, 419; [1942] 1 All E.R. 415.

This being the position, I can see no reason why the word "person" in those parts of the Acts which do not impose a charge to tax should be construed otherwise than in its ordinary and natural meaning, which clearly includes the Crown.

Rule 11 (2) does not prescribe what persons shall be chargeable to tax. It deals with the computation of tax payable by taxable persons in a certain event, viz., when a succession to a trade takes place. It is quite immaterial to the computation of the tax payable by the person who previously carried on the trade whether the successor is or is not a taxable person. Similarly, it is immaterial to the computation of tax payable by the successor whether the previous trader was taxable. It is in this context that the words "if any person succeeds to any trade" occur. This is the natural way to describe a trade succession - an event upon the happening of which a computation of the tax payable by taxable persons is to be made.

My Lords, this appears to me to be the natural and reasonable construction of rule 11 (2), whatever may be the correct approach to the construction of the word "person" in paragraph 1 of Schedule D, which is the charging provision.

I would accordingly dismiss the appeal.

LORD KEITH OF AVONHOLM. My Lords, it is not in dispute that the appellants' undertaking was sold to the Crown on August 29, 1947. It is also not in dispute that the validity of the assessment made on the appellants (whom I shall call "the company") for the year 1947-48, being the company's last year of trading, depends on what is the "basis period" for that year of assessment, as defined by section 57 of the Income Tax Act, 1945. The company says it is its trading year 1946, for which its accounts were made up. The Revenue say it is the year of assessment, viz., 1947-48. The importance of the question lies in the fact that the balancing charge which falls to be made on the company under section 17 of the Income Tax Act, 1945, in respect of the sale of its machinery and plant, arises in the year 1947-48, and unless that year is its "basis period" for the purpose of the assessment the balancing charge cannot be brought into computation for the purpose of estimating the profits of the company liable to tax.

The determination of this question depends on whether rule 11 (2) of the Rules applicable to Cases I and II of Schedule D to the Income Tax Act, 1918, introduced by section 32 of the Finance Act, 1926, applies to the company or not. Again, it is

agreed that if rule 11 (2) applies to the company the present appeal fails; if it does not apply the appeal succeeds. For convenience I quote the rule in question. [His Lordship read the paragraph, and continued:] In seeking to exclude the application of this rule, Mr. Millard Tucker relied on two submissions: first, that "person" in rule 11 (2) has the same meaning as under the charging provision of Schedule D, which taxes the annual profits or gains arising or accruing to any person, etc.; and, secondly, that under the charging provision "any person" means any person other than the Crown.

For the second of these submissions reliance was placed on the royal prerogative as introducing a principle of construction into legislation which limited the meaning of words so as not to affect the Crown. For the Revenue, on the other hand, it was contended that the prerogative operated to give an exemption, or privilege, to the Crown to say that, though general words in a statute were capable of including the Crown, the Crown had the prerogative to claim exemption, or to say that it was not bound by the Act. Thus, while it was common ground that the prerogative operated to prevent the Crown being taxed under the statute, the dispute was as to how it did it.

Much authority was cited on this matter. But as, in my opinion, none of the cases was directed to the aspect of the matter raised by this appeal, I do not find them very helpful. In Mersey Docks and Harbour Board Trustees v. Cameron¹² references are made by the consulted judges and by their Lordships of this House, in almost identical terms, to the rule that the Crown not being named in a statute is not bound by it. But in Coomber v. Berkshire Justices¹³ the emphasis is laid on the exemption by virtue of the prerogative. Lord Watson states the matter thus¹⁴: "The exemption of the Crown from the incidence of rating statutes is a general privilege, and is nowise dependent upon the local or imperial character of the rate. It takes effect in all cases when the Crown is not named in the statute, or, I should prefer to say in all cases where the enactments do not take away the privilege, either in express terms or by plain and necessary implication." The matter will be found similarly expressed by Day J. and Wills J. in Gorton Local Board v. Prison Commissioners (1887),¹⁵ and Lord du Parcq in Bombay Province v. Bombay Municipal Corporation.¹⁶ In Bacon's Abridgment (I

12 (1865) 11 H.L.C. 443.

13 9 App.Cas. 61.

14 Ibid. 76.

15 [1904] 2 K.B. 165n.

16 [1947] A.C. 58; 62 T.L.R. 643.

quote from the 7th edition, vol. 6, p. 462) it is said: "But where a statute is general, and thereby any prerogative, right, title, or interest is devested or taken from the King, in such case the King shall not be bound, unless the statute is made by express words to extend to him"; and again at p. 463, "... in a variety of cases we find it determined, that general words in an Act shall not oust the King of his prerogative." The authority most favourable to the appellants' contention would seem to be the following passage from Alderson B. in Attorney-General v. Donaldson¹⁷: "It is a well-established rule, generally speaking, in the construction of Acts of Parliament, that the King is not included unless there be words to that effect; for it is inferred prima facie that the law made by the Crown, with the assent of Lords and Commons, is made for subjects and not for the Crown." That passage, based on Plowden, has not escaped criticism from more modern authority.

The contention for the company seems indistinguishable from the proposition that it is a principle of statutory construction that words used do not include the Crown, or Crown property, unless the contrary is expressed, or clearly implied. But, if so, no question of the prerogative arises. The matter is just a rule of statutory construction that calls for no invocation of the prerogative. If so, all the previous decisions are unexplained in their reference to and reliance on the prerogative. The true explanation, easily understandable on historical and legal grounds, is that words in a statute capable of applying to the Crown may be overridden by the exercise of the prerogative. That is necessarily involved in the oft-repeated phrase that the King is not bound by a statute unless by express words or by clear implication. If the statute does not apply to him there can be no question of his being bound by it. It is only because it can apply to him that appeal to the prerogative is necessary. The conception of the prerogative, in my view, is of something that stands outside the statute, on which the Crown can rely, to control the operation of the statute so far as it prejudices the Crown. This, in my opinion, is implicit in all the decisions and works of commentators on the subject and underlies the observations of most of their Lordships in this House who delivered speeches in Bank voor Handel en Scheepvaart N.V. v. Administrator of Hungarian Property.¹⁸ If, then, it had been necessary my opinion would, I think, have been adverse to the

17 (1842) 10 M. & W. 117, 123-4.

18 [1954] A.C. 584.

contention for the company. But I find a more limited ground of decision in the language of rule 11 (2) itself.

Rule 11 (2) is a rule designed with other rules to set up the basis of assessment on which the taxpayer will be taxed. As ex hypothesi the Crown escapes taxation under the charging provision, the Crown is not affected directly by rule 11 (2). But the Crown is bound by the assessment and other provisions of the statute which fix the basis of taxation. The tax is levied for the benefit of the Crown and can only be raised by statute, and the Crown must recognize the conditions on which Parliament says it shall be levied. Whatever the word "person" means in the charging provision, it does not necessarily follow that it means the same thing in rule 11 (2). If in rule 11 "person" meant person other than the Crown, the whole basis of assessment in the case of a particular class of taxpayer, namely, purchasers from or sellers to the Crown, would be disrupted. A different basis of assessment would exist for persons who had bought or sold businesses according as they bought from or sold to the Crown, or persons other than the Crown. No reason for any such distinction was, or can be, suggested. The rule is, in my opinion, intended merely to deal with the situation that arises on a purchase or sale of a business, and to give the rule a reasonable and intelligible meaning "person" must, if possible, be given a meaning that will include the Crown. There is nothing in the Act to exclude such a reading and it is supported also by the definition of "person" in the Interpretation Act, 1889 (s. 2 (1)).

I would dismiss the appeal.

Solicitors: Sanderson, Lee, Morgan, Price & Co.; Solicitor of Inland Revenue.