§ Where, on a claim for relief under section thirty-three of the Income Tax Act, 1918, made by a company, society, or bank for any year of assessment after the year 1932–33 in respect of the sums disbursed by it as expenses of management (including commissions) for that year, relief is disallowed in respect of the whole or part of those sums by reason only of the provisions of proviso (a) to sub-section (1) of the said section, the amount in respect of which relief has been so disallowed may be carried forward and treated for the purpose of the said section as if it had been disbursed as aforesaid for any of the six years of assessment next following:
§ Provided that relief in respect of an amount so carried forward shall be given for the first year of assessment next following, in so far as relief can be so given in accordance with the provisions of the said 548 section in respect of that amount as well as in respect of the sums actually disbursed as aforesaid for that year, and so far as it cannot be so given, then for the next year of assessment, and so.—[Mr. Boothby.]
§ Brought up, and read the First time.
§ 6.46 p.m.
§ Mr. BOOTHBY
I beg to move, "That the Clause be read a Second time."
This matter is extremely complicated, and I would ask the House to bear with me while I point out that relief from Income Tax in respect of management expenses of investment trust companies was originally allowed under Section 14 of the Finance Act, 1915, and later under Section 33 of the Income Tax Act, 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 ordinary rules applicable under Schedule D. In practice, the Inland Revenue have been taking the gross income of the company for the preceding year and then deducting management expenses on that same preceding year, and calculated Income Tax on the difference between the two. They then have said that the amount of tax which can be repaid must not 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 has arisen during the last few years has been that in the case, for example, of an investment trust company, if the profits of the investment trust company have gone down they have had no relief from taxation in respect of their management expenses, but if, on the other hand, the profits were to rise they would get the relief which they claimed.
It was to consider this point that the Chancellor of the Exchequer invited me to discuss with the Treasury officials the possibility of putting the matter right, and the Clause which I am now moving is really the result of those discussions. What it attempts to do, and what I think it does, is to give companies, or societies or banks 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 549 of tax under the provisions of Section 33 of the Income Tax Act, 1918. I am sure that hon. Members will realise that this is very complicated, but, obviously, it is agreed that there has been an anomalous position which requires to be corrected. I hope that in the circumstances my hon. Friend the Financial Secretary will see his way to accept the Clause.
§ 6.48 p.m.
§ Mr. HORE-BELISHA
My hon. Friend has moved an Amendment in connection with the Income Tax of an investment company, which was briefly discussed on the Committee stage of the Bill. An investment company's gross income is taxed in full. Its true income is its net income, that is to say, its gross income, less expenses. The company ought to pay on its net income. The law secures that it does pay on its net income, but it attaches the condition in the case to which my hon. Friend has referred that the company must not pay a tax on less than its net income for the preceding year. If, for example, the net income for the preceding year was £9,000 and this year it had fallen to £7,000 the company would be paying on a greater sum than one would clearly expect it to pay on. This Clause has not entirely removed that anomaly, but it enables the company in any year to carry forward, in the same way as a trading company, its losses to credit against future assessment. The relief can be carried forward from year to year in that way. That is the eminently just proposal of my hon. Friend, who has discussed the matter with the Treasury officials. My right hon. Friend tells me that he is able to accept the proposal. He made certain modifications in it, which my hon. Friend has made, and I am now ready to accept it.
§ Clause added to the Bill.