§ Sir Henry d'Avigdor-Goldsmid (Walsall, South)
I beg to move, in page 10, line 20, to leave out from "accrue" to the end of line 20 and to insert:
This is the first of a number of Amendments to Clause 9 and I do not wish to anticipate the comments that will be made later. The philosophy behind Case VII is that certain gains which have hitherto escaped the Revenue's net should be caught for Income Tax and Surtax.
- (a) from discounts chargeable under Case III of Schedule D;
- (b) on a disposal of assets such that the part of the proceeds of such disposal are or are treated as income by virtue of some other provision of the Income Tax Acts.
I am not a fisherman myself, but I understand that it is one thing to catch a fish with one hook, but that a fish with two hooks in its mouth is described as foully caught. That is the case, or could be the case, under the present language used in subsection (1) which begins by stating:Without prejudice to any other provision the Income Tax Acts directing income tax to he charged under Schedule D, …Therefore, there is no suggestion that the rights under Schedule D are being modified by this Clause. The Clause details the transaction of those who can be caught, in the words:… not being gains which accrue as profits of a trade, profession, vocation, office or employment.130 This seems a long and detailed phrase which would cover most normal forms of income. I am advised, however, that it does not cover all forms of income and that there is the danger of certain transactions being foul hooked, or taxed twice, if the Bill were allowed to go through in its present form.
I notice that Amendments have been put down from both sides of the Committee on this Clause and that even the most savage one is not suggesting that transactions should be caught doubly. I think that there is general agreement in the Committee that double taxation is not in mind. I should like to give the Economic Secretary an example of three kinds of transaction, which are perfectly legal, and which are already caught by Schedule D but which do not in fact gain benefit from the exemption that is mentioned in line 20 of the Clause:Profits of a trade, profession, vocation, office or employment.The first of these is the Treasury bill. It suits individuals and institutions to purchase Treasury bills at a discount. The discount on a Treasury bill is itself taxable. It seems, however, that this wording does not really cover the Treasury bill.
The second example is rather more sophisticated. It relates to Section 318 of the Income Tax Act, 1952, which charges capital sums received from the sale of patent rights in so far as they exceed the prices paid for the rights. It is a very sophisticated example, but this is again something which if the Clause were allowed to stand as it is would be caught for double taxation.
Finally, I would remind my hon. Friend of a Clause over which we had very long debates two years ago. I refer to the Finance Act, 1960, Section 21 (11) which taxes the proceeds of sales of shares of certain property companies in cases where… apart from this section the consideration would not be a receipt of an income…The words which I have just quoted charge a case in which disposal of shares produces a gain within the Case VII charge.
I am a child in the affairs of the House of Commons and I have a very short experience of Finance Bills, but I know that it is not the lot of a back bench 131 Member to frame an Amendment which, however laudable, will be acceptable to Government draftsmen in the form in which it is presented. I am putting my Amendment forward to give my hon. Friend an opportunity of stating categorically that double taxation is excluded from the Government's intention in this matter, and to ask him to give me an undertaking that he will look into the points that I have raised with a view to an alteration that would meet the case and thus make it unnecessary for me to detain the Committee any further.
§ The Economic Secretary to the Treasury (Mr. Anthony Barber)
I am grateful to my hon. Friend the Member for Walsall, South (Sir H. d'AvigdorGoldsmid) for giving me an opportunity to clear up what, on the face of it, appears to be a somewhat odd situation. As he has said, his Amendment proposes that there should be excluded frim the new Case VII the types of transaction which are set out in the Amendment. There are a number of cases in which a gain already chargeable under Schedule D would fall within Case VII if the realisation took place within the relevant period— that is to say, either six months or three years.
One example is that of a profit made by an investment holding company on the realisation of an asset acquired from an associated company with a business of dealing in investment. Any such profit, whenever it is realised, is already chargeable under Case VI of Schedule D, under the provisions of Section 25 of the Finance Act, 1960. But I want to assure him that it is a recognised principle, which has been established in the courts, that, in the case of certain types of income which are assessable under Schedule D, the Inland Revenue has the choice of assessing under different cases of that Schedule.
I give the categorical assurance that there is no question whatever of assessing the same income more than once— that is to say, under different cases. The charging provisions of Case VII have been framed on the footing that this same general principle will apply in certain instances where a gain might be held to be chargeable under other cases under the existing law.
132 The Amendment refers specifically to discounts chargeable under Case III of Schedule D, and it is the intention of the Inland Revenue to continue charging these discounts under Case III and not under the new Case VII. The Committee will therefore, I hope, see that this Amendment is not needed to prevent a double charge to tax on the same amount of profits.
On the other hand, I should add, in view of what my hon. Friend said, that the incorporation of his Amendment in the Bill could cause difficulties in certain cases because it would mean that, where the Income Tax Acts imposed a charge to tax under, for example, Case VI of Schedule D, a Case VII assessment would be invalid. If the Committee wish me to go into details on this point, I will do so to explain why it is in the general interest that the Inland Revenue should have the choice between two cases in certain instances. But I can assure my hon. Friend, on the main point he raised, that there is no question of a double charge arising as the Clause stands, although I agree that that might be the impression of someone who did not know the decisions of the courts on this matter. With that assurance, I hope that my hon. Friend will not press his Amendment.
§ 8.15 p.m.
§ Mr. Mitchison
I rise only to ask the Economic Secretary to give us the additional explanation which he thought would be tedious. I assure him that I do not share his opinion. I think that this is a difficult matter. I have found the provisions of the whole of this tax quite complicated— inevitably so, I think. But I am very anxious that the rights of the taxpayer should, so far as possible, depend on what is said in the Bill rather than on any practice or concession by the Inland Revenue. It is better, particularly in a tax of this kind, that we in this Committee should know that the Inland Revenue cannot go beyond what is in the Bill, for if it is left as a matter of discretion or anything of that sort we have no countervailing assurance.
I want to ask one question. This Amendment, I agree, deals, first, specifically with discounts, and Case III, of course, covers a very great deal besides discounts. Does what the Economic 133 Secretary has just said apply to discounts only, or does it apply to other periodical payments or payments by way of interest of the types to which the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) referred? What is the substantial difference between the second part of the Amendment and the words in the Bill?
I speak without the profound know-ledge which I think only a Treasury Minister or a skilled banker can have of these matters, but I am puzzled as to why general words such as "excluding Income Tax arising out of a calling'' — if I may use such a sweeping word— would not cover this case. I should have thought that discounts must have been profits of that kind, or be taken into account in estimating them. I do not quite understand what the point is. I believe that the further cases the Economic Secretary has in mind would serve to illustrate.
§ Mr. John Diamond (Gloucester)
Will the Economic Secretary also turn his attention to the point about discounts raised more specifically by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid)? The Economic Secretary said, quite separately from the point raised by my hon. and learned Friend the Member for Kettering (Mr. Mitchison), that, with discounts, it is the intention of the Government that there shall be these two alternatives— and we understand that that is a principle which applies to other matters which he is to explain— and that the Inland Revenue will select one and continue to assess under Case III as opposed to assessing under the alternative Case VII where that would be appropriate.
Why is it necessary, under new legislation, when we are starting off clean, to bring in these alternatives while, at the same time, saying that one of them will not be exercised, but that assessment will continue to be under Case III? What is the validity of the Economic Secretary's statement that the Inland Revenue will assess under Case III? This is not a personal question reflecting on him, but to what extent will that bind either the taxpayers or the courts?
§ Mr. Graham Page (Crosby)
I understand, from what my hon. Friend the Economic Secretary has said, that this tax, being chargeable under Schedule D, 134 will not be chargeable twice under the same Schedule. The latter part of the Amendment does not deal with Schedule D specifically, however, but with the disposal of assets such as might be chargeable under another part of the Income Tax Acts. A letting of property for more than twenty-one years is a disposal. What is the position with regard to rent? Does one value the lease and calculate it on the capital sum of the lease? If one does that, is rent to be chargeable under a different part of the Income Tax Acts as well?
I can see that, under Schedule D, there would not be a double charge, but if some of the gain is chargeable under some other part of the Income Tax Acts, as the rents would be, then I do not think that it is clear, in Clause 9 (1), as drafted, that the taxpayer will quite definitely not be caught twice.
§ Mr. Barber
The hon. and learned Member for Kettering (Mr. Mitchison) asked me two questions. The first concerned paragraph (a) in my hon. Friend's Amendment. Of course it is clear from the Amendment, in respect of Case III and paragraph (a), that he is dealing only with the case on discounts. On the other hand, there is something in the hon. and learned Gentleman's point that paragraph (b) of the Amendment would probably embrace what is already in paragraph (a)— in other words, it would cover discounts under Case III of Schedule D.
The hon. and learned Gentleman asked me how it was that the words in paragraph (b) are wider, as he assumed they were, than the words already in Clause 9 (1), and this point was also mentioned by my hon. Friend the Member for Crosby (Mr. Graham Page). The reason is that the words in Clause 9 (1) immediately before the proviso relate only to theprofits of a trade, profession, vocation office or employment— in other words, only to Cases I and II of Schedule D, whereas the words of the Amendment go wider and deal with any income which may be chargeable to tax, although it may be outside Cases I and II. Therefore it goes wider than the reservation made in the Bill.
The hon. Member for Gloucester (Mr. Diamond) referred to the fact that the 135 Revenue selects only one charge— in other words, it charges under only one case. He asked me what validity my assurance had when I said that it was the intention of the Revenue in respect of discounts to charge only under Case III and not under the new Case VII. He is right in his implication that what I say in Committee certainly does not bind the courts in any decision which they make, although I have no doubt that under successive Governments, unless the matter were brought before the Committee and the House again, the Revenue would act in accordance with that assurance which I have given.
I think that I have covered all the points raised in the debate, but if there are any others I shall be happy to deal with them.
§ Mr. Mitchison
I am sorry to go on with this, but I am not happy about it. Let us take the discounts. It seems to me that although in some cases discounts would be incidental and, therefore, would fall to be assessed under Case III, there would be other cases in which they would arise out of a trade. The trade, I suppose, would be that of a merchant banker or discount house, and therefore they would be excluded. Is it intended that there should be any difference in their treatment in the one case from the other?
I hope that the hon. Member will bear in mind, as I repeat, that I have not his experience in these matters, but let me take one other case, that of a company. I have seen notices of such companies in the newspapers— companies whose business it is to buy landed property and re-sell. They do not merely hold it as a casual investment; it is part of their business to re-sell. What will happen in that case? Supposing a company re-sells a house within the three years which the Government allow and another house at the end of that period: is one transaction to be treated in one way and the other to be treated in the other way? Or how will it be dealt with? Will the Minister be good enough to deal with this, remembering that if house transactions are to be dealt with as taxable profits of a trade, then there are questions of management expenses which may not arise in the instance of the Government's present Case VII.
§ Mr. Diamond
The Economic Secretary has made it clear that paragraph (a) in the Amendment is satisfactorily drafted. It is well drafted; it means what the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) intended it to be and what the rest of us took it to mean. It says that discounts chargeable under Case III of Schedule D shall not also be chargeable under Case VII. The Economic Secretary said, "We are not accepting the Amendment because we do not want them taxed under Case VII; we want them taxed under Case III". That is precisely what the Amendment proposes. Would he make it simple for the simple souls in the Chamber and explain why he is adopting this very ambivalent attitude?
§ Mr. Frederick Mulley (Sheffield, Park)
An important question of principle arises here, because although the Economic Secretary has given us a categorical assurance about discounts under Case III, as he has said, paragraph (b) of the Amendment goes very much wider and goes beyond Schedule D altogether. I should like an answer to what I thought was the very important point raised by the hon. Member for Crosby (Mr. Graham Page), who gave the example of a lease for more than 21 years which could quite properly be caught under this new Case VII. Does that— obviously it must— have some bearing on other Income Tax requirements on the rent and the rest? For example, how would a lease of over 21 years be assessed under Case VII and to what extent does that assessment under Case VII have any bearing in the tax year or future years on the rents or other income coming from the lease?
No doubt there are those with knowledge of property and financial matters who could think of other instances in which it could well be that some transaction was properly caught under Case VII but in which there would be some element of injustice if, as a result of being caught under Case VII, the liability under another part of Schedule D, or indeed any other Schedule, was not extinguished. On the other hand, the principle stated by the Economic Secretary is well established— that you do not pay tax twice; but in this calculation there might well 137 be an instance in which such a double taxation arises.
In particular, I should like the hon. Member's answer to the points raised by the hon. Member for Crosby about how one treats a lease both in regard to Case VII and in regard to tax commitments flowing from it under any of the other Schedules of the Act.
§ Mr. Barber
I do not think that tinder this Amendment I can deal with the question of how the profit on the disposal of a lease is to be computed. The hon. Member for Sheffield, Park (Mr. Mulley) might look at Clause 11, where he will see in subsection (3) a reference to the consideration which is to be taken into account. That provision is elaborated in the Ninth Schedule, but that does not arise under this Clause, I understand, and——
§ Mr. Mulley
The second part arises under the Amendment, because the words in paragraph (b) are the disposal of assetssuch that the part of the proceeds of such disposal are or are treated as income by virtue of some other provision of the Income Tax Acts".We want to be clear that there will not be any possibility of tax being charged, by virtue of the same transaction, in two parts of the Income Tax Acts. I submit that the Amendment is very wide indeed.
§ Mr. Barber
Certainly it is quite possible. I do not know about the specific case raised by my hon. Friend the Member for Crosby, but there are eases, as I thought I made clear at the outset. in which tax can be charged under two different provisions of the Income Tax Acts. In that case it is open to the Inland Revenue to choose under which case it proposes to levy the charge, and I gave an assurance that of course the Revenue would, and could according to the law, I think, charge only under one case.
The hon. Member for Gloucester (Mr. Diamond) asked why, if it is the intention of the Inland Revenue in the case of discounts to make the charge under Case III and not under Case VII, even though they might come within the scope of Case VII, we should not incor 138 porate a provision to that effect in the Bill? There are a number of instances where tax liability arises under different Cases. This is only one. If we had to deal with the particular case of discounts, I would have thought that it would probably be desirable to put in the whole list of instances where tax might be charged under Case VII and also under some other Case. I cannot think that that would be the wish of the Committee, because if we were to do that there is no doubt that it would in certain instances prejudice the work of the Inland Revenue.
I do not know whether the hon. and learned Member for Kettering (Mr. Mitchison) still wants me to give a concrete example of where it would obviously be to the advantage of the Inland Revenue and to taxpayers generally for the Inland Revenue to have at least the opportunity of exercising this opinion as between two Cases. A moment ago when the hon. and learned Gentleman last spoke he asked about two specific types of case where I think he said a company was trading in discounts, and another case where the business of the company was to buy and sell property. In both cases, by virtue of the fact that the taxpayer would be engaged in a trade, he would be excluded altogether from the charge under Case VII as a result of the concluding words in subsection (1) immediately before the proviso. Therefore, there could be no possible question of a choice arising to the Inland Revenue. He would be assessed under Case I of Schedule D, and the Revenue would not have the option of assessing him under Case VII.
§ Mr. Graham Page
There is one point with which my hon. Friend has not dealt. If the Revenue is to have a choice such as he described, is there a possibility that in one case it may be earned income and in another case unearned income? It is unearned income so far as this charge is concerned, but it may be that the Revenue could choose this as against earned income. I will not ask my hon. Friend to reply at once because I cannot give a specific case, but from what my hon. Friend said it seems that there may be cases in which the taxpayer would be deprived of his earned income allowance.
§ Mr. Diamond
I wonder whether the Economic Secretary would convey a message to his right hon. and learned Friend? On his appointment as Chancellor of the Exchequer the right hon. and learned Gentleman said that his main desire was to simplify the Tax Acts, and certainly one aspect of them. Would the hon. Gentleman be good enough to convey to his right hon. and learned Friend that in carrying out this principle of simplifying the Tax Acts, where we are starting with a new tax we are deliberately providing that there shall be confusion in everybody's mind because the tax will be collectable and chargeable both under the existing provisions, under Case III, and under the new provisions under Case VII?
I fail to see the force of the hon. Gentleman's argument that this is merely one example of a bad state of affairs; that he has many further examples which he could give of a bad state of affairs. I fail to see why this is regarded as a good cause for us incorporating a bad state of affairs. Surely when we are providing a new case we should endeavour to simplify matters?
I dare say that this is not something on which the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) feels so strongly that he wishes to divide the Committee, but if he does I will support him. We all want to see the Tax Acts well and simply drawn, and I would he far happier if the Economic Secretary would give further consideration to this to see whether he can accept at all events in principle that part of the Amendment which denies the choice available to the Revenue in a circumstance in which the hon. Gentleman assures the Committee it will never want the choice of them. It is a ridiculous state of affairs to start with a new section in this way.
§ Mr. Barber
I should like to correct the hon. Member for Gloucester (Mr. Diamond) on what I said about the position of discounts. It was not the intention of the Revenue to charge discounts. I thought I made it clear that if because the Revenue had the power or might have the power in law in certain circumstances to charge them under Case VII as an alternative to 140 Case III, it decided to do that, the House would be informed; but that is not the intention of the Revenue at the present time.
My hon. Friend the Member for Crosby (Mr. Graham Page) referred to the possibility of the Revenue having a choice between Case VII which gives rise to a charge to tax in respect of unearned income and a charge to tax under some other Case which might qualify for earned income relief. I have taken advice on the matter, and I understand it is unlikely that this difficulty will arise, but in view of the specific question put to me by my hon. Friend I will look into this further.
Perhaps I might sum up what I said some considerable time ago. I give my hon. Friend the Member for Walsall, South the assurance for which he asked, that there will be no question of double taxation.
§ Sir H. d'Avigdor-Goldsmid
I find myself largely in agreement with almost everything that has been said, except what was said by my hon. Friend the Economic Secretary, and the temptation to divide the Committee is a real one. At the same time, however, I think that it is making a mockery of our proceedings to do so on a point of abstract detail. I do not, however, propose to withdraw the Amendment, because I still think that in this new system of taxation we are introducing an element of doubt, which is contrary to all the principles for which I came here. I therefore have no intention of withdrawing the Amendment.
§ Amendment negatived.
§ Mr. Mitchison
I beg to move, in page 10, line 27, to leave out subsection (2) and to insert:(2) In respect of tax chargeable by virtue of this section there shall be allowed relief, called "lapse of time relief", in accordance with the provisions of the Schedule (Charge on gains from acquisition and disposal: lapse of time relief) to this Act.
§ The Temporary Chairman
I suggest that with this Amendment we should take the Amendments in page 10, line 29, to leave out "three" and to insert "two"; in line 29, to leave out "three" and to insert "ten"; in line 31, to leave out "six months" and to insert "five 141 years "; and the proposed new Schedules: