In estimating the profits or gains of any trade, manufacture, adventure, or concern in the nature of trade chargeable under this Schedule there shall be allowed to be deducted as expenses incurred in any year an amount equivalent to the original cost of any plant or machinery which has been withdrawn from use and removed in that year after deducting from that cost the total amount of any allowances which have at any time been made in estimating profits or gains as aforesaid on account of the wear and tear of that plant and machinery, and any sum realised by the sale of that machinery or plant. But no deduction shall be made for any plant which has been removed as the result of a trade, manufacture, adventure, or concern as aforesaid having been discontinued by the person or body of persons chargeable with tax in respect thereof.—[Sir E. Iliffe.]
§ Brought up, and read the First time.
§ Sir EDWARD ILIFFE
I beg to move, "That the Clause be read a Second time."
I would point out to the House and the Chancellor of the Exchequer that this Clause has nothing to do with the more complicated question of wasting assets. It is a proposal which if conceded might be well regarded as a self-contained act of justice. Its acceptance will not in any way prejudice the broader question of wasting assets. This Clause is designed to enable manufacturers to obtain adequate allowances for Income Tax purposes in respect of machinery which has been scrapped. The matter was considered by the Royal Commission on Income Tax in 1920, and I would like to read one paragraph from the Report of the Committee:If, owing to obsolescence, a certain machine is thrown out and replaced by a more modern machine before the aggregate allowances for depreciation have reduced its original cost to scrap value, a further allowance is granted owing to the difference between (a) the value to which it has been written down for Income Tax purposes and, (b) its scrap value. This allowance for obsolescence was in practice given as far back as 1897 but did not receive formal legislative authority until 1918. At present the obsolescence allowance can be granted only when the obsolete plant or machinery is replaced, but we recommend that it should be given in the case of machinery or plant disused for any reason, whether replaced or not, except where the disuse is the result of the discontinuance of a business, when it cannot properly be distinguished from the general capital loss entailed by cessation.1278 The Clause which I am now proposing follows exactly the recommendations of the Royal Commission. Rule 7 as it stands to-day permits allowances for obsolescence, but the defect of the rule is that the machinery in each case must be replaced, and it is not always necessary to replace obsolete machinery. I will give two examples. We have, first of all, the case of a factory which has replaced its engines and boiler by electric power obtained from the municipal corporation. In a case of that kind an inspector quite recently refused to allow the unwritten down value of the engine and boiler for Income Tax purposes. Then we have the case of electricity supply companies generally. Small stations to-day are scrapping their plant in order to take their current in bulk from electric supply stations, and the Inland Revenue have refused allowances in respect of the plant scrapped in that way. Unless the law is altered so that the loss on obsolete machinery is a charge on trade manufacturers will taxed on amounts in excess of the profits they have earned. I appeal to the Chancellor to help the producer who desires to produce economically and encourage him to scrap his obsolete machinery. As I said at the beginning, I regard this Clause as a simple act of justice and I hope the Chancellor, even if he is not able to give way at the moment, will consider this matter before the Report stage and will then be able to grant this concession.
§ Mr. A. M. SAMUEL
The hon. Member when moving this Clause said this matter could not be regarded as one concerned with wasting assets, but then proceeded to quote from paragraph 215 of the Royal Commission's Report on Income Tax, which dealt with wasting assets, and so I am in a difficulty to know on which foot he stands.
§ Sir E. ILIFFE
The particular paragraph which I quoted deals with obsolescence. The Commissioners were dealing with the broader question of wasting assets, but this particular paragraph only deals with the question of obsolescence.
§ Mr. SAMUEL
I do not read it in that way, but I accept my hon. Friend's interpretation. 1279 The present Income Tax law enables manufacturers for Income Tax purposes to claim that they have spent so much as is equivalent to the cost of the machinery replaced, after deducting allowances made for wear and tear and any sum realised by the sale of the machinery. The object of my hon. Friend's Clause is to substitute for this allowance an allowance by reference to the cost of any machinery which is so withdrawn from use, after deducting wear and tear and allowances and any sum realised by the sale of it, whether such machinery is replaced or not. I am sorry to say I cannot accept his Clause. I will draw his attention to another section in the Report of the Royal Commission on Income Tax which may, perhaps, give the reason why, I think, he should not press this matter at all. The subject of wasting assets was very fully discussed in the Royal Commission's Report and certain recommendations of a limited scope were made. It has not yet been found possible by the Government to give effect to those recommendations, and unless and until the time comes when it is possible to deal with the matter in all its aspects, it will be very undesirable, even for those for whom my hon. Friend speaks, the manufacturing interests of the country, to pick out for special treatment the recommendation in paragraph 215 which he quoted with regard to plant or machinery which is not replaced. To deal piecemeal with the matter will, I think, be highly undesirable and highly injudicious, and for that reason I would ask him not to press this Clause.
§ Sir E. ILIFFE
In view of the statement made by the Financial Secretary I do not propose to press this Clause. I hope he will read my speech very carefully and I hope the Government will give it consideration. I beg to ask leave to withdraw the Clause.
§ Question put, "That the Clause be read a Second time."
§ The Committee proceeded to a Division.
§ There being no Members willing to act as Tellers for the Ayes the DEPUTY-CHAIRMAN declared that the Noes had it.