HC Deb 07 July 1954 vol 529 cc2158-84
The Solicitor-General (Sir Reginald Manningham-Buller)

I beg to move, in page 43, line 7, to leave out from "occurs," to "no," in line 9, and to insert "within the relevant period."

This Amendment is linked with the Amendment proposed in page 43, line 36, at the end, to insert: (3) The relevant period in relation to any such event as aforesaid shall be three years, except that in relation to a sale or transfer falling within paragraph (d), or a sale, transfer or other dealing falling within paragraph (e), of the last foregoing sub-paragraph the relevant period shall be five years. These two Amendments, which it might be convenient to discuss together if the Committee agree, extend the time-limit in relation to sales or transfers of property coming within sub-paragraph (2) (d) of paragraph 1 of the Second Schedule or other transfers and other dealings under sub-paragraph (2) (e) which is the subject of the next Amendment in page 43, line 30. On the Committee stage the Economic Secretary, in response to requests made by the Opposition, undertook to consider extending the period of three

(e) any sale, transfer or other dealing with the property representing the expenditure by the person incurring the expenditure or an associate of his, being a case where it appears either—
5 (i) that the expenditure was incurred in contemplation of the property being so dealt with; or
(ii) that the sole or main benefit which accrued from that person's incurring the expenditure and the property being so dealt with was or derived from the investment and other allowances in respect of the property;
10 and not being a case where it is shown either that the purpose of obtaining tax allowances was not the sole or main purpose of that person's incurring the expenditure or of the property being so dealt with, or that his incurring the expenditure and the property being so dealt with were bona fide business transactions and were not designed for the purpose of obtaining tax allowances.

This is a somewhat complicated Amendment, which I shall endeavour to explain as shortly and clearly as I can. The object is to tighten up the Schedule against possible abuse and at the same time to permit genuine business transactions. If the Committee look at subparagraph (2) (d) of paragraph 1 of the Schedule, they will see that it applies to a sale or transfer to a person not acquiring for a qualifying purpose, that is to say, not for a business use, and that it applies where a sale or transfer was in contemplation when the expenditure was incurred.

That sub-paragraph was the subject of considerable consideration in Committee and this proposed new sub-paragraph (e) in this Amendment goes considerably further than sub-paragraph (d). Subparagraph (e) applies to a sale or transfer whether for a business or for private use or "other dealings"—that is to say, any event which gives rise to a balancing allowance, such as, for instance, the scrapping or destruction of the property—if any of those kinds of transaction were in contemplation when the property was so dealt with. That is one limb.

The second part of the Amendment makes it apply where …the sole or main benefit…

years mentioned in the Schedule to a longer period in relation to what one might call collusive transactions. These Amendments are the result of that consideration. Their effect would be considerably to extend the possibilities of checking collusive sales, transfers and other dealings for the purpose of getting investment allowances and so they would considerably strengthen the Schedule.

Amendment agreed to.

The Solicitor-General

I beg to move, in page 43, line 30, at the end, to insert:

of the transaction was the investment and other allowances in respect of the property dealt with. I would point out that for sub-paragraph (2) (e) to apply, one does not have to show that the result was contemplated. All one has to show is that that is the result. If this Amendment is accepted, the Revenue will be able to disallow an investment allowance under this new sub-paragraph (2) (e) where there is a prima facie case that the property, and the expenditure upon that property, comes within one of these two provisions to which I have referred.

If the Revenue can show that, then the taxpayer will still get the investment allowance if he can show one of two things; either that the tax allowance was not the sole or main purpose of the expenditure, or, alternatively, that it was a bona fide business transaction not designed for the purpose of obtaining a tax allowance. It is the bogus, collusive arrangement to secure investment allowance that we want to stop. We do not want to stop the genuine business transaction. It is because we do not desire to stop the genuine business transaction that one finds the last few lines inserted in this Amendment. This Amendment, if accepted, will considerably strengthen the provision.

Mr. Eric Fletcher (Islington, East)

I beg to move, as an Amendment to the proposed Amendment, to leave out lines 9 to 13.

One must concede that the Government have made a very serious effort to meet the objections we made in Committee to the inadequacies of the Second Schedule as it stood. We pointed out—and I think that the Chancellor himself recognised—that the possibility of abuse was inherent in the whole system of investment allowance. I am moving this Amendment to the proposed Amendment because, while we appreciate that the Chancellor has made an effort to redeem his promise by tightening this up to some extent, we do not yet feel that he has gone far enough.

We return to the matter for two reasons at least. As the Committee will remember, we were very disturbed by certain remarks of the Financial Secretary which seemed to show that there was a difference of opinion between us as to what might constitute an abuse. We are, therefore, anxious that everything which we regard as an abuse should be excluded from the benefit of an investment allowance. I listened very carefully to what the Solicitor-General said in explaining this Amendment. In some senses it is linked with his earlier Amendment which the Committee has just adopted.

In approaching this problem, one must bear in mind that there are two different kinds of cases which have to be dealt with. First, there is the collusive case. Secondly, there is the transaction which, though not collusive—because it does not involve any collusion of any kind—is a transaction whereby the taxpayer may buy plant and machinery for the purpose, not of genuine investment, but of getting tax remission.

The Solicitor-General was careful to say that he had put down the Amendment with a view to trying to stop the bogus or collusive transaction. By extending from three years to five years the period within which the conditions in subparagraphs (2) (d) and (2) (e) operate, I should have thought that the Chancellor had gone a long way towards eliminating the possibility of a collusive transaction in that sense. I imagine that the people who enter into collusive transactions which are to take effect after five years must be very few and far between, and the calculations which they might have to make must render any such scheme very difficult. We therefore welcome the extent to which the Chancellor has met us so far.

There remains the second type of possibility of avoiding tax, namely, the person who buys some plant and machinery, not for a bona fide purpose, and not collusively, but merely for the purpose of getting a remission of taxation. As the Chancellor recognised during the Committee stage, that was a real possibility. I thought, however, that he was rather inclined to minimise the number of cases in which it might occur, because he did not think that there were many Surtax payers paying more than 16s. 6d. in the £, and he gave some figures as to the extent to which it might occur.

The Solicitor-General

Would the hon. Member suggest that the case of the purchase for the single purpose, as he said, of getting remission of taxation or getting allowances is not dealt with by subparagraph (2) (e) (ii)?

Mr. Fletcher

There is nothing in the Solicitor-General's speech which led me to that conclusion. That was one reason why we put down this Amendment to his Amendment. If that is the objective, I think it is achieved with much greater certainty if he omits, as we suggest, the provisos at the end of sub-paragraph (2) (e), because, in my view, they contradict what has gone before.

3.45 p.m.

I was saying that we have to deal with the persons who may invest in plant and machinery for the chief object of earning a remission of taxation. The Chancellor concedes that, if they do that, then they are not persons to whom he wishes to give an incentive by this investment allowance and that it is proper to exclude them from those benefits. Therefore, what we really have to examine is whether by this Amendment the Chancellor has gone as far as he reasonably can to secure his objective.

The first question I should like to ask the Solicitor-General is what he conceives to be comprehended in the words "other dealing." The most significant distinction between the language in sub-paragraphs (2) (d) and (2) (e), which at first sight appear to cover a good many identical transactions—as I think they do—is that sub-paragraph (2) (e) for the first time uses the words "or other dealing." In the hypothetical case referred to in Committee of a person buying some plant and machinery and not using it, there would obviously be neither a sale nor a transfer. In a sense, there would be no dealing but a complete absence of dealing. We want to make quite sure that the language: …any sale, transfer or other dealing… is calculated to cover the case where there has been no dealing in the property at all. That is the case about which my hon. Friends were talking. I should have thought at first glance that "dealing" meant "no dealing," but perhaps the Solicitor-General may be able to reassure us on that point.

I am afraid that it is necessary to look at the language of the sub-paragraph a little closely. It is calculated to exclude from the benefit of an investment allowance a person who incurs expenditure with a view to obtaining the allowance and for no other purpose. It also covers the case of a person whose primary purpose in incurring the expenditure is not that of investment. I should be happy with the Government Amendment if my Amendment to it were accepted. I find it difficult to understand why it is necessary to add words which appear either to contradict what has gone before or to be surplus.

If the Amendment were to stop at the end of sub-paragraph (2) (e) (ii) that would meet precisely the case which we are trying to put. We should exclude from the benefit of the allowance any transaction …with the property representing the expenditure by the person incurring the expenditure… when the …expenditure was incurred in contemplation of the property being so dealt with. I am assuming that that covers the case of persons buying plant and machinery and not using it at all. Then the next provision deals precisely with a person whose chief object is to get the benefit of the investment allowance. It seems to me that that result is negatived if the taxpayer is then allowed to show that he has some other purpose. If it is not negatived, I find it impossible to understand why it is necessary that the words should be inserted.

If one takes the case of a person who could show that he had some legitimate bona fide object in incurring the expenditure, then he would not come within the scope of sub-paragraph (2) (e) as it stands in any circumstances. It is odd that, having defined circumstances in affirmative language, it should then be necessary to define in a negative form the exact opposite. I should have thought that if the provision were left in this con,- fused and unusual form, it would produce considerable doubts and would not be neatly as satisfactory from our point of view. It would not achieve what I understood was the Chancellor's object nearly as satisfactorily as if my Amendment to the proposed Amendment were accepted. In the knowledge that it is the Chancellor's object to make the provisions of the Schedule as stiff and as tight as possible, we hope that he will accept our suggestion.

Mr. G. R. Mitchison (Kettering)

Should I be in order, Sir Charles, in referring to the next two Amendments which are in my name?

The Chairman

Yes. Both these Amendments deal with part of the words proposed to be left out by the hon. Member for Islington, East (Mr. E. Fletcher).

Mr. Mitchison

On that basis, I agree with my hon. Friend the Member for Islington, East (Mr. E. Fletcher) that far the simplest thing would be to omit these lines and in that way to leave two alternative tests, one a subjective one of intention and the other an objective one of result. However, if that is not to be done, I take objection to the lines as they stand. I propose to state my objections and, having done so, to suggest that the Amendments in my name would provide a much simpler and easier method of doing what is apparently intended by these lines.

I want to make it clear that I can see no real objection to omitting the lines altogether. I imagine that the Government take no serious objection as far as the subjective test is concerned. Where in fact …the expenditure was incurred in contemplation of the property being so dealt with… surely there can be no question that the investment allowance ought not to be given, because that is the case where the man was contemplating it and intended to do it, and that is exactly what it is desired to exclude.

Turning to the objective test, which is simply the way in which it works out, the Chancellor has sought to limit that and perhaps to some extent to limit the other test also by a most peculiar form of words. I agree entirely with the Solicitor-General that this is a complicated provision, but it is made infinitely more complicated 'by these lines. If they were not there, the Amendment at least would have the merit of being very much plainer.

If we are to have them in, it is open to the taxpayer to show either that the purpose of obtaining tax allowance was not the sole or the main purpose of incurring the expenditure or of the property being so dealt with. There are two separate transactions. The first is incurring the expenditure. The second is dealing with the property. Dealing with the property means, in the most obvious case, reselling it. The statute is to be strictly construed in favour of the subject. It seems to me that if the taxpayer is able to show that either the one or the other of these two separate transactions fell within that exception, he will be entitled to escape from the consequences of the provision notwithstanding that either the main objective or the main subjective test would otherwise have applied it to him.

I cannot believe that that can be the intention of the Government. If one reads the Amendment, one finds the word "or" and in the next half of the provision one finds the word "and". I am certain that attention would have to be given to the distinction.

The next point is that the taxpayer is supposed to prove a negative. This discussion shows how very complicated the matter is for the purpose of debate and how complicated it will be for the purpose of administration. The taxpayer has to show that it was not the sole or the main purpose. Surely, by far the simplest thing to do, and what he would do in practice, is to show that there was some other main purpose or perhaps some other sole purpose. It would only be a sole purpose if he had never considered this as anything at which he was aiming and if he was so completely disinterested that investment allowances did not enter into the picture. He might be able to show that he had a main purpose. If, for instance, he had bought a new farm tractor every year and said that he found it economical and wise to run his farm and to buy his farm machinery in that way, I should imagine that he would have gone a very long way towards establishing that he had another definite purpose. Of course, some business purposes are far less obvious than that. One would have to search for some time to find any example that would be so clear.

4.0 p.m.

Surely the simplest thing is to say that and leave it at that, that is to say, where we are considering the subjective, not the objective, test. If a man can show positively that he has some other purpose in mind as his sole or main purpose, then, if the exception is persisted in, he may be allowed to avail himself of it and to treat the transaction as one that ought to attract investment allowance. To go beyond that seems to me unnecessary and difficult.

I come to the second alternative. The second thing he must show is that he incurred the expenditure and dealt with the property—both things this time—as a bona fide business transaction, and that they were not designed for the purpose of obtaining tax allowances. I do not know what the difference between something in contemplation and something that is "designed for" is in this kind of matter, but let us assume there is some difference or other. What exactly has one to show?

I should say that this kind of inquiry is an inappropriate one. I agree that we have gone quite a long way from the time—in the Middle Ages, I think—when we were told that the mind of man was not triable, but we are now allowing the Inland Revenue to try it. Surely the trial that is contemplated in this case will be a fantastically complicated one? Take the second alternative. He may apparently incur the expenditure in contemplation of a resale, but if that was a bona fide business transaction and was not designed for the purpose of obtaining an investment allowance, then this lack of an investment allowance will not apply to that case.

I find that a subtlety that ought not to be introduced into a taxing statute, if only on the ground that it involves not merely a trial of a man's mind but a trial of a subtlety more suitable to the days of the Inquisition than to modern Treasury practice. I should think it much better left out altogether. For these reasons, I should prefer the simple course of leaving this out altogether.

I see no real reason why a man who gets the sole or the main benefit out of these two transactions should be allowed to get an investment allowance out of them, but even if it is persisted in and we are to have some limiting words, then they should be much simpler than the words here.

Surely the substantial point is that once we have a sort of subjective limitation of what was the sole or main purpose, then, if he can show that it was some other purpose, well and good, and then, subject to what I have already said, one could let that pass; but if we apply the proposed Amendment, what we do in fact is to stop up one loophole, which was recognised in Committee before, and stop it up with a piece of mesh wire containing a mass of other loopholes.

Therefore, in the name of simplicity, in the name of justice, I believe, and certainly in order to prevent such appallingly difficult psychological questions being posed to the Revenue and becoming a test of the taxpayer's liability, I suggest that we should either leave out the lines, as proposed, or put in some simpler form as suggested in my Amendments to the proposed Amendment.

Mr. Roy Jenkins (Birmingham, Stechford)

I think we all agree that, so far as the proposed Amendment goes, we welcome it—all of us, that is, with the possible exception of the Financial Secretary to the Treasury, because the proposed Amendment is a substantial departure from the attitude that he took when he replied to an Amendment of ours in Committee on this subject. Then the Financial Secretary scoffed at any arguments we put forward; implied that there was no problem here, that it did not matter if a few people did a certain amount of dealing in this way and made a profit out of this arrangement; that it was not a matter of great concern, and that we had all enormously exaggerated the problem. We are very glad his views have not prevailed, that the Chancellor's rather more moderate views have prevailed, and that we have this proposed Amendment to this Schedule, even though it did not appear from what the Financial Secretary said that we were very likely to get it.

We should recognise just how far the proposed Amendment goes and how far it does not go. It is clear that, while it will stop certain abuses, it does not deal with what is, perhaps, the major problem—that, for the first time, under this investment allowance provision it will remain possible to make an actual cash profit out of the installation of a piece of machinery, and that, therefore, for the, first time in our taxation history, it will in certain circumstances pay individuals to install machinery without themselves making any financial sacrifice at all to pay for it.

That is now the situation, and it is not entirely dealt with. Of course, the situation is dealt with—and we welcome it—where it can be shown that people are taking advantage of it to make a sort of Inkiness of installing machinery, and doing it on a large scale, but the fact remains that certain people will have their plant and machinery more than paid for by the Inland Revenue under Clause 16 and the Second Schedule, even as amended. The proposed Amendment, as it stands, makes a substantial amount of progress, but it appears to be somewhat weakened by its last five lines.

Substantial criticisms of them have been put forward, and I hope that the Solicitor-General, who, I trust, will reply to this debate, will at any rate tell us exactly what, in his mind, is designed to be accomplished by these last five lines that would not be accomplished by the proposed Amendment as it would stand without the last five lines. Even if we accept, as may be we shall—we cannot at the present time—after we have heard the Solicitor-General, that there is a desirable purpose to be served by the inclusion of the last five lines, I think it must still be accepted that the last five lines are an extraordinarily confused and muddling way of accomplishing any purpose at all.

Double negatives are always fairly difficult to deal in, but I think the double negative that we have in these last five lines is without exception the most difficult to grasp I have ever come across: and not being a case where it is shown either that the purpose of obtaining tax allowances was not the sole or main purpose of that person's incurring the expenditure… It so happens that I myself have had a certain amount of unfortunate experience with double negatives. Some, months ago I wrote a letter on a different subject to "The Times," in collaboration with my hon. Friend the Member for Yardley (Mr. Usborne). When my hon. Friend showed me the draft of his letter, I said I agreed with the substance of it but I thought it needed a little redrafting and touching up, and in the course of redrafting it I inserted a double negative, a very simple double negative in comparison with that which we have here: …and few would now contend that too many checks cannot be at least as harmful to democracy as too few. That, I think, was a very simple one, but it called forth a comment which, I regret to say, appeared in "The Times" the following day, and that could be applied far more positively to the double negative in the proposed Amendment than to the double negative inserted by me in the draft of the letter of my hon. Friend: I have read this 15 times: 10 times silently, four times aloud and once in a psalm chant. I have written it out in columns, in coloured chalks, in concern. I have tried the translator's trick of transposition—' Few…cannot,' therefore Many…can.' And I am still defeated. I am bound to say that the view which I took at the time was that this was a most exaggerated comment, but I do not think that it is in any way an exaggerated comment upon the Amendment which the Solicitor-General has moved. The only possible way in which I believe we can understand this Amendment, after reading it a great number of times and after giving it a great deal of thought by means of this translator's trick of transposition, is to turn the double negatives into affirmatives, which is the only way in which one can see what it is all about. It is an extraordinarily confused piece of language to attempt to place in a statute.

If the two Amendments in the names of my hon. and learned Friend the Member for Kettering (Mr. Mitchison) and my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) were accepted, the proviso, instead of consisting of this extraordinarily complicated language, would read like this: and not being a case where it is shown that the sole or main purpose of that person's incurring the expenditure or of the property being so dealt with, was a purpose other than the purpose of obtaining tax allowances. If there is something which is necessary about the two subsections before line 8, I should have thought that the Amendment in the names of my hon. Friends would meet the position far more completely than the very confused and tortuous language of the Solicitor-General.

The right hon. and learned Gentleman is confused and tortuous when dealing with a simple Amendment, but when we have the Solicitor-General confused and tortuous in applying himself to a confused and tortuous Amendment, we are certainly in a very complicated position indeed. I hope very much that the Solicitor-General will not only accept the views we have expressed about this extraordinarily complicated language, but will also tell us why it is necessary to have these five lines in the Bill at all.

Mr. Douglas Houghton (Sowerby)

I should like to take the suggestion made by my hon. Friend the Member for Stechford (Mr. Roy Jenkins) a little further, and ask the Solicitor-General to give us an example of the kind of transaction which will be caught by the Chancellor's Amendment and the kind of transaction which would get by under this Amendment. I should also like to ask him whether anyone who has had anything to do with the drafting of the Amendment has even been an inspector of taxes. Somebody will have to administer this provision, which is a clear example of the cure being worse than the disease.

It seems to me that, first of all, the inspector of taxes has to discover what are the appearances of the matter—whether it appears that the expenditure was incurred in contemplation of the property being so dealt with—whether he intended to do it all along—or whether the sole or main benefit which has accrued from this expenditure has been to get tax relief in the form of investment allowance. When one of these two things appears to be the case, then he must go a step further and find out whether appearances are not to some extent deceptive. It is not so much a case whether appearances are not what they appear to be as whether or not there is some other explanation.

If the inspector, first of all, is satisfied with the appearance of the matter, and, after inquiry, discovers that the taxpayer intended to do it all along, or if, although the main benefit which has accrued to him is tax relief in the form of investment allowance, he was perfectly bona fide in his intention, or if it was shown to be part of a perfectly genuine business transaction, then he should be let off That is what it is all about.

Apart from the difficulty of discovering the truth in various aspects of complex matters of this kind, would there be any real injustice done to the taxpayer if we allowed the matter to stand as it is in subparagraphs (e) (i) and (ii)? Is any real injustice done to the taxpayer, however genuine he was and however well motivated he was, if, when he had done certain things, the main benefit which accrued to him was tax relief in the form of investment allowance? Do we need to go any further? Do we need to delve deeper and deeper into how genuine the transaction was and whether it was in the normal course of business that he did it or not?

4.15 p.m.

There are some weaknesses inherent in the very idea of investment allowances on an indiscriminate basis which I think it is quite impossible to remedy by over-elaborate safeguards. The test which one has to apply is whether the allowance should be given, with its accompanying tax relief, in certain circumstances in which it is clear that the tax relief is the main benefit which the taxpayer obtains from the transaction. I really do not know what an inspector of taxes will make of it.

Can the Solicitor-General and the Financial Secretary to the Treasury contrive to keep within the rules of order and jointly give us their impression of a discussion between a taxpayer's legal adviser, on the one hand, and an inspector of taxes, on the other? I am sure that the Committee would listen enchanted to the wrangling that would go on, and to the penetrating questions which the Financial Secretary to the Treasury would ask of his right hon. and learned Friend as to what he had in mind when he did certain things, and what had been intended. Why, the Solicitor-General might even have to call upon his local vicar or another independent legal friend, or even a member of his family to testify to the genuineness of a particular transaction and be given credit as to his character.

The whole thing seems to me fantastic. How on earth inspectors of taxes, who already have between 150,000 and 200,000 back cases in their notebooks, are to cope with that kind of interrogation, I do not know. It seems to me that, although some taxpayers may feel a little hard done by, justice would, in fact, be done if the proposed Amendment ended at the end of line 8, and we left it to the first two paragraphs to govern the admissibility of the allowance. To go further is to get into complexities with which the ordinary man cannot cope.

Mr. Hugh Gaitskell (Leeds, South)

I take it, Sir Charles, that you will not mind if I begin with a double negative. It would not be gracious not to acknowledge that the Chancellor, in putting forward this Amendment, has gone some way to meet the points raised by my hon. Friends during the Committee stage of the Bill, but the credit which he duly received for that is shared with my hon. Friends who, very properly, have emphasised the great dangers which the Bill, as previously drafted, involved.

I want to say that, to some extent, this Amendment is satisfactory to us. How far it is satisfactory I think will already be apparent from the speeches of my hon. Friends. Broadly speaking, we are happy about it down to the words in line 8 "in respect of the property." On that part of the Amendment only, I want to ask one or two questions of the Solicitor-General. I take it that there is no question here that the individual concerned would, so to speak, escape this provision merely by selling the property to somebody who was using it for a qualified purpose. In this case, we are covering every kind of sale, so long as it is of the character dealt with in sub-paragraphs (e) (i) and (ii).

Secondly, I would ask the Solicitor-General whether he is satisfied that the words "other dealing" literally cover—to take our earlier example—leaving the tractors to rust in the field, or just leaving them, whether they rust or not? Apart from that, we are reasonably happy with that part of the Amendment; but we are by no means happy about the rest of it. It is not necessary for me to emphasise how extremely complex the wording is. When my hon. Friend the Member for Stechford (Mr. Roy Jenkins) was explaining somebody else's views on a letter which my hon. Friend wrote to "The Times," I rather feared that my hon. Friend was going to start to chant the Solicitor-General's Amendment to see whether he could make it any more intelligible in that way, but he spared us. I think we all agree that it is extremely complex.

I echo what was said by my hon. Friend the Member for Sowerby (Mr. Houghton); let us try to keep Income Tax legislation simple, if we can. I know that it is the view of my right hon. and learned Friend the Member for St. Helens (Sir H. Shawcross)—I think it will be generally agreed that he is a distinguished lawyer—that Income Tax law is among the worst in English law. The proposed Amendment would make it a great deal worse.

We feel that the last five lines let out far too much. I do not propose to go over the ground so well covered by my hon. Friends, but I will take the two cases where the Amendment bites. The first is where the expenditure was incurred in contemplation of the property "being so dealt with." Can it be seriously argued that in a case where the expenditure was incurred in contemplation of doing this particular deal—resale, or whatever it may be—that there is any reason whatever for giving the man concerned the investment allowance? I cannot see that there is any need to qualify that paragraph. The second case arises out of the sob-paragraph which states: that the sole or main benefit which accrued from that person's incurring the expenditure and the property being so dealt with was or derived from the investment and other allowances in respect of the property. If that is the case, there is no reason why he should get an allowance either. I do not think we need investigate in the second case what his purpose may be. The fact is shown in the result and that is a good argument for withholding the allowance.

I have one other argument to put to the Solicitor-General. If this were the case of some penalty being imposed, a fine or even worse, I could understand its being necessary to be extremely careful that no injustice was done by reason of the Amendment, but here we are dealing with whether or not a particular grant should be given or withheld. We are not even depriving the man concerned of the initial allowance but simply of the investment allowance. In view of that, it is not necessary to have these qualifications. I strongly support my hon. Friend the Member for Islington, East (Mr. E. Fletcher) in preferring to omit these five lines altogether.

Unless the Solicitor-General can give us a convincing explanation on these points, we ought to take the matter further. We agree that it is extremely difficult to follow these complex provisions, but they would be simplified if the Solicitor-General gave illustrations and said: "This is the sort of thing we are worried about. This is the kind of case in which an individual ought to be allowed to get investment allowance but would not be allowed to get it if we deleted these five lines." I hope that he will be able to deal with the matter in that way and to give us the assurance for which we ask.

The Solicitor-General

I share the view expressed by the right hon. Member for Leeds, South (Mr. Gaitskell) that it is desirable to get our Income Tax law as clear and simple as possible, but it has proved in the past and will no doubt prove in the future a matter of extreme difficulty to get the statute law into that degree of clarity and simplicity that one would desire, if it is to operate as one wishes. That is not a reason for not trying to make it as clear and simple as possible.

Having that view myself, I have spent a considerable time upon the Amendment to see whether it was possible to achieve the result one wanted with clarity and simplicity of language. The Amendment deals with a complicated subject, built up upon past statute law, but I hope I can satisfy the right hon. Gentleman whether he thinks we have gone far enough or not, that there are good reasons for the Amendment being in its present form.

Very little criticism was presented to the first part of the Amendment. The hon. Member for Islington, East (Mr. E. Fletcher) asked me the significance et the phrase "or other dealing." I tried to explain it in moving the Amendment. By those words we hope to cover events of a character which would give rise to a balancing allowance. I gave two examples, the scrapping of a vehicle and the destruction of it. If either of those events occurred, there would presumably be a case for a balancing allowance and they would certainly come within the phrase "other dealing."

The hon. Gentleman asked whether just letting the implement lie on the farm would come within that definition. At first sight, I would think it did not, nor would it have given rise to a balancing allowance; but the time might come when the implement had been left so long that the vehicle would be regarded as scrapped. In that case it would come within the wording. I cannot carry my answer on that point any further, and I hope that I have dealt satisfactorily with it.

The next point put by the hon. Member for Islington, East was that the Clause did not bite upon the case where the single purpose was that of getting the remission.

Mr. Mitchison

The Solicitor-General has been asked a number of questions about the "other dealing." Would there be any objection if the phrase were defined in the Bill in the way in which he is now defining it? I think that the Income Tax Acts contain a statement of the circumstances in which balancing charges and allowances are payable, and the definition could be done by reference.

The Solicitor-General

I will certainly look at that point. There is a great deal to be said for treating it in this way and for leaving it to the inspectors in the first place, to the Commissioners in the second place, and possibly then to the courts, to determine whether or not it becomes "other dealing."

I was referring to the question put to me by the hon. Member for Islington, East, whether this new subhead dealt with the case of a transaction with the single purpose of getting remission of taxation. It does deal with cases where the transaction is for the purpose of getting an investment or other allowance. If that is the sole or main purpose of the transaction, it would be caught within the first part of the subparagraph.

4.30 p.m.

The right hon. Gentleman asked me a question with regard to sale. He is right in thinking that the "sale, transfer or other dealing" can be with persons who acquire for a qualifying purpose as well as with persons who acquire for other purposes. It is in that respect, although there is a little degree of overlapping, wider than subhead (d).

The real criticism here has been of what has been called the proviso, that is, the passage beginning "and not being a case where." The hon. Member for Islington, East argued that that last part beginning with these words should be omitted. He wanted to know why it was necessary to add what is called the proviso. I tried to indicate the reason quite shortly in moving the Amendment. It is to seek to exclude from the operation of subhead (e) genuine bona fide business transactions not designed for the purpose of obtaining tax allowances. Unless there is something like what is in the last six or eight lines, it may be found that quite genuine transactions not designed for the purpose of obtaining tax allowances are caught by (ii) and, indeed, caught by (i). There might well be a case where the possibility of tax and investment allowance was taken into account quite legitimately by someone engaged in a bona fide business transaction, and there might also be a case in which the sole or main benefit accruing, although not intended, is one which was derived from an investment or other allowance.

It is a complicated subhead. The hon. Member for Islington, East and the hon. and learned Member for Kettering (Mr. Mitchison) may ask, "If that last part of the Amendment is to deal solely with bona fide business transactions 'not designed for the purpose of obtaining tax allowances,' why do you have the first alternative; namely, that 'the purpose of obtaining tax allowances was not the sole or main purpose of that person's incurring the expenditure or of the property being so dealt with…'? I can give a simple illustration to show the reason for that. Suppose that a piece of property, a tractor, which is bought in the bona fide carrying on of the business, catches fire and is destroyed. No one could say that that destruction was a bona fide business transaction, and it would not, therefore, come within the second part of the paragraph.

This part of the subhead is founded on Section 412 of the 1952 Income Tax Act, which deals with tax avoidance by the transfer of income to persons abroad. I am advised that that provision has proved to work satisfactorily. In spite of the criticisms that have been advanced to this draft, in my view this subhead also will prove to work satisfactorily.

The hon. Member for Sowerby (Mr. Houghton) made great play with the difficulties of inspectors of taxes. I agree that anyone who has to study our Income Tax laws sometimes has to try to tie a damp towel round his head and hope that he will get the right answer. I believe, however, that having regard to that precedent and to the fact that when one studies it the balance in this subparagraph really is not so difficult, the inspectors of taxes will surmount this problem as well as they surmount so many others.

The hon. Member for Stechford (Mr. Roy Jenkins), in his entertaining speech, in which he was so complimentary to my right hon. Friend and to myself, talked a great deal about double negatives. I thought that he must be referring to the last time he played cricket, but he made it quite clear that it was to the last time he wrote a letter to "The Times." I think I have covered the points that the hon. Member raised.

The Clause as it stands is intended to strengthen what is in the Schedule. When the hon. Member says that under the Bill it is possible for it to pay people merely to install machinery to secure the investment allowance, I say to him that in my view, if that were the main object of the transaction, whether it was a dealing with someone also engaged in trade or someone who was not engaged in trade—as, for instance, the passing over by a shopkeeper of a refrigerator to a friend to use in his private house—that sort of transaction would be satisfactorily caught by the Clause.

I hope I have not taken too long in trying to explain something which is somewhat complicated. I shall certainly give careful consideration to the suggestions that have been put forward in relation to the drafting. I doubt very much whether the suggestions put forward by the hon. and learned Member for Kettering would improve the drafting, because he suggested that we should provide that the taxpayer should be required to show that he had some other purpose. If the taxpayer can show that he had some other purpose, that is one way of establishing the negative that this provision requires.

Mr. Mitchison

It seems to me that this type of case is likely to occur. A taxpayer might say, "I contemplated getting an investment allowance. It was one of the reasons that I bought this tractor. The other was that I needed it on my farm." He would be asked, "Which was your main reason?" and he would reply, "I had both reasons in mind, and they are not comparable." Is that taxpayer to get his investment allowance in that case?

The Solicitor-General

The answer, quite simply, is that if it appears to the inspector or to the Revenue that the taxpayer had in contemplation the investment allowance, it would be open to the inspector in the first place to say that the investment allowance would be disallowed. It would then be open to the taxpayer to say, "It is quite true that I had the investment allowance in contemplation, because I knew the provisions made in the last Budget—that was one of the things I took into account; but this was a perfectly bona fide business transaction and it was 'not designed' "— there is a good deal of importance to be attached to the word "designed"— for the purpose of obtaining tax allowances '. If the taxpayer can satisfy the inspector—or, it may be, the Commissioners—of that, he would be entitled to his investment allowance, although, in the first place, one of the matters that he took into consideration was the possibility of an investment allowance.

Mr. E. Fletcher

I am bound to say that I found the right hon. and learned Gentleman's second speech most unsatisfactory. He answered some of the questions but he made no attempt to answer the crucial question which a number of my hon. Friends and my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) asked. I do not want to go over the ground again, but I must put my finger on the crucial question which the Solicitor-General completely failed to answer.

He claimed that the object of the proviso was to protect the bona fide transaction, and we have been asking him why the proviso is necessary to do that. Is it not the case that the bona fide transaction gets the benefit of the investment allowance anyhow, and that such a transaction is not defeated by the paragraph without the proviso? My right hon. Friend asked the Solicitor-General to give any case of a bona fide transaction in respect of which an investment allowance would be lost if our Amendment is accepted and the proviso deleted.

The only example which has been given to us was that of a tractor which, having been purchased, was destroyed by fire. Surely in that case the taxpayer would get the benefit of the investment allowance if our Amendment were accepted. There is nothing whatever, if the proviso is deleted, to deprive the taxpayer of the benefit of the investment allowance if bona fide he acquires some property, and then, through some reason beyond his control, the property is destroyed.

No one suggests in that case, which the Solicitor-General took, that the property was acquired in contemplation that it would be subsequently destroyed by fire, or that the person concerned acquired a tractor for the sole or main purpose of getting an investment allowance because ex hypothesi on the Solicitor-General's own illustration, the person purchased the tractor bona fide without the know

ledge that it would catch fire and be destroyed. If that is the best answer that the right hon. and learned Gentleman can give us, I hope we shall divide on the Amendment to the proposed Amendment.

Mr. Gaitskell

The Solicitor-General was kind enough to give one illustration, and I should like to follow my hon. Friend the Member for Islington, East (Mr. E. Fletcher) in pressing this point. An individual buys a tractor which subsequently catches fire. Surely there is nothing under sub-paragraph (e, i) which would catch that individual. There was no suggestion in the illustration given that the individual intended that the property should catch fire. That lets him out so far as sub-paragraph (e, i) is concerned. I would ask the Solicitor-General whether the individual could possibly be caught by sub-paragraph (e, ii). Would the phrase "being so dealt with" really cover the case which the right hon. and learned Gentleman has in mind?

I do not imagine that what the Solicitor-General explained to us will cover the case of something catching fire. I absolutely agree with my hon. Friend that the Solicitor-General's answer was quite unconvincing. If he likes to have another try, we shall gladly listen to him, but if he prefers to remain silent, I hope we shall divide the Committee.

Question put, "That the words proposed to be left out stand part of the proposed Amendment."

The Committee divided: Ayes, 269; Noes, 200.

Proposed words there inserted.

Further Amendment made: In page 43, line 36, at end, insert: (3) The relevant period in relation to any such event as aforesaid shall be three years, except that in relation to a sale or transfer falling within paragraph (d), or a sale, transfer or other dealing falling within paragraph (e), of the last foregoing sub-paragraph the relevant period shall be five years.—[The Solicitor-General.]

The Solicitor-General

I beg to move, in page 44, line 39, at the end, to insert: or about any other dealing with the property. This Amendment is consequential, but I think it better to say a word about it. It is to enable information to be secured, not only in relation to sales or transfers,

but in relation to any other dealings in property.

Amendment agreed to.

Bill reported, with Amendments; as amended (in Committee and on recommittal), considered.