NEW CLAUSE.—(Amendment of s. 33 of Income Tax Act, 1918.) (Hansard, 1 June 1933)

§ Mr. BOOTHBY

I beg to move, "That the Clause be read a Second time."

Relief from Income Tax in respect of management expenses was first allowed to investment trust companies under Section 14 of the Finance Act of 1915, and it was repeated in Section 33 of the Income Tax Act of 1918. There is a proviso to the effect that relief shall not be given so as to make the tax paid by the company less than the tax which would have been paid if the profits had been charged in accordance with the rules applicable to case I. of Schedule D, and on the face of it that is a perfectly 2202 fair proviso, but in practice, during the last few years, the Inland Revenue have taken the company's gross income of the preceding year and then deducted its management expenses of that preceding year, and then calculated Income Tax on the difference between the two. They then say that the amount of tax which can be repaid cannot be more than the excess of the tax actually borne by the company in the year of claim over the tax on this purely notional assessment based on the figures of the previous year. What arises I If the gross income of the previous year exceeds that for the year of claim, the amount of management expenses in respect of which repayment can be obtained will be reduced or entirely wiped out, according to the measure of such excess. Therefore, the investment trust companies are now faced by this extraordinary anomaly: If their income is steady or rising, they get full relief on their management expenses, but if, on the other hands, their income falls, the relief in respect of management expenses is certainly reduced and may be completely wiped out.

My new Clause seeks to give an invest-menn trust company the right to carry forward for six years the amount of any expenses of management in respect of which it has failed, by reason of the official interpretation of proviso (a), to obtain repayment of tax under the provisions of Section 33 of the Income Tax Act, 1918. I ask that it shall be made retrospective until 1930–1 for the reason that that was the year when investment trust companies, like so many other companies in this country, began to be severely hit, but I do not necessarily press this particular aspect of it. It would not involve the reopening of any past claims for repayment of tax on management expenses. It would merely require the amounts disallowed on past claims to be considered when and if profits arise in future.

That is as briefly as I can put the case which I have to present to the Committee, but I would like to add this. If the Chancellor of the Exchequer were to accept, either in the present form or in a modified form, the new Clause which I am moving, it would not, as far as I can see, involve the revenue in any im- 2203 mediate loss at all. I doubt if it would involve the revenue in any loss for the next two or three years. Perhaps it may never involve the revenue in any loss if, when the trust companies make a profit sufficient to enable them to make retrospective claims in respect of management expenses, their revenue has increased to an extent sufficient for them to increase the revenue by way of Income Tax which goes to the Exchequer— sufficient, I should have thought, to cover the particular remission which will be involved by the passage of this or a similar Clause.

As the Committee well knows, the investment trust companies have been going through a particularly bad time during the last three or four years owing to the colossal depression in securities all over the world. The shareholders of theses investment companies, which are a distinctive, and, I venture to suggest, a distinguished part of the commercial apparatus of this country, are to a large extent people of very moderate means, people on the whole who cannot afford to invest in individual securities for themselves, but who place their money in the care of people who are in their opinion competent to invest it. By that means they are able to spread a comparatively small amount of money for the purposes of investment over a wide field. The fall in commodity prices and in the price of securities have been so great that the investment trust companies have been in some ways hit harder than any comparable type of commercial or financial company in this country. Therefore, a very large number of shareholders of moderate means have been hit hard and are likely to be hit for some time to come, because I cannot see that there is much chance of these investment trust companies being able to pay a substantial dividend—in some cases no dividend at all—on their ordinary stock for several years.

I do not want to press this new Clause in its exact form, but I beg the Chancellor to give the question his serious consideration, not in the light of a favour in any way, but because I am genuinely convInced that it is a matter of equity that these investment trust companies should be allowed—and I believe it was always the intention of the Legislature that they should be allowed—to take 2204 their management expenses into consideration when they come to be assessed for Income Tax. I earnestly and urgently ask the Chancellor of the Exchequer if he cannot see his way either to accept the proposed Clause as it stands, or to agree after discussion to place in the Finance Bill for this year a Clause which will give effect to the proposals which are embodied in it.

Mr. CHAMBERLAIN

I have listened very attentively to my hon. Friend in his account of the proposal he has been making, and I must say that I think he has certainly made out a prima facie case for considering that proviso to which he refers, which probably does act with some hardship and perhaps injustice in certain cases. He has said that he does not insist on the exact form in which his proposal is couched, and I think I should certainly have to take exception to any proposal to make the Clause retrospective, because I think that would land me, if not immediately, in the long run, perhaps, in considerable expense. If he is prepared to drop that part of his Clause which makes it retrospective, I shall be very glad to consider it between now and the Report stage, and see whether it is not possible to recast it in such a form that I can remedy what, I think, is, perhaps, an injustice.