§ (1) Where in the year 1964–65 or any subsequent year of assessment any person receives any money or money's worth—
- (a) forming part of the assets of a body corporate, other than assets representing capital, or
- (b) forming part of the consideration for the transfer of the assets of a body corporate, other than assets representing capital, as part of a scheme of amalgamation or reconstruction which involves the winding up of the body corporate, or
- (c) consisting of the consideration for a transfer or surrender of a right to receive anything falling under paragraph (a) or (b) above, being a receipt not giving rise to any charge to income tax on the recipient apart from this section,
§ (2) If a transfer or surrender of a right under subsection (1)(c) of this section is not at arm's length, the person making the transfer or surrender shall, for the purposes of this section, be deemed then to have received consideration equal to the value of the right.
§ (3) If in respect of a payment of any amount made to the body corporate for the purposes of its mutual business any deduction has been allowed for the purposes of income tax in computing the profits or gains or losses of a trade, then—
- (a) if at the time of the receipt the recipient is the person, or one of the persons, carrying on that trade, the amount or value of the receipt shall be treated for the purposes of income tax (and for the purposes of the profits tax) as a trading receipt of that trade, and
- (b) if at the time of the receipt the recipient is not the person, or one of the persons, carrying on that trade, but was the person, or one of the persons, carrying on that trade when any payment was made to the body corporate for the purposes of
1167 its mutual business in respect of which a deduction was allowed for the purposes of income tax in computing the profits or gains or lossess of the trade, the recipient shall, subject to the provisions of subsection (5) of this section, be charged under Case VI of Schedule D for the year of assessment in which the receipt falls on an amount equal to the amount or value of the receipt
§ Paragraph (a) of this subsection applies notwithstanding that, as a result of a change in the persons carrying on the trade, the profits or gains are under section 19(1) of the Finance Act 1953, determined as if it had been permanently discontinued and a new trade set up and commenced.
§ (4) Where an individual is chargeable to tax by virtue of subsection (3)(b) of this section and the profits or gains of the trade there mentioned fell to be treated as earned income for the purposes of the Income Tax Act 1952, the sums in respect of which he is so chargeable shall also be treated for those purposes as earned income.
§ (5) If the trade mentioned in subsection (3)(b) of this section was permanently discontinued before the time of the receipt, then in computing the charge to tax under the said subsection (3)(b) there shall be deducted from the amount or value of the receipt—
- (a) any loss, expense or debit (not being a loss, expense or debit arising directly or indirectly from the discontinuance itself) which, if the trade had not been discontinued, would have been deducted in computing for tax purposes the profits or gains or losses of the person by whom it was carried on before the discontinuance, or would have been deducted from or set off against those profits as so computed, and
- (b) any allowance under Part X or Part XI of the Income Tax Act 1952 to which the person who carried on the trade was entitled immediately before the discontinuance and to which effect has not been given by way of relief before discontinuance.
§ Relief shall not be given under this subsection or under section 32(4) of the Finance Act 1960 (receipts accruing after discontinuance of trade) in respect of any loss, expense, debit or allowance if and so far as it has been so given by reference to another charge to tax under this section or the said section 32.
§ (6) For the purposes of subsection (1) of this section assets representing capital consist of—
- (a) assets representing any loan or other capital subscribed, including income derived from any investment of any part of that capital, but not including profits from the employment of that capital for the purposes of the mutual business of the body corporate,
- (b) assets representing any profits or gains charged to tax as being profits or gains of any part of the trade carried on by the body corporate which does not consist of the conducting of any mutual business,
- (c) (so far as not comprised in the paragraphs above) assets representing taxed income from any investments.
§ (7) In this section "mutual business" includes any business of mutual insurance or mutual trading.
§ (8) Subsections (3), (4) and (5) of this section shall apply with any necessary modifications—
- (a) to a profession or vocation, and
- (b) to the occupation of woodlands the profits or gains of which are assessable under Schedule D,
§ (9) The provisions of this section apply whether the time when the payment was made to the body corporate fell before or after the passing of this Act
§ (10) It is hereby declared that the description of trades in subsection (1) of this section does not include any trade all the profits or gains of which are chargeable to income tax and, in particular, does not include such a trade carried on by any registered industrial and provident society.—[Mr. Maudling.]
§ Brought up and read the First time.
With this new Clause it will be possible to discuss on the Question, "That the Clause be read a Second time" the first two Opposition Amendments in the name of the hon. Member for Cardiff, South-East (Mr. Callaghan) and the Amendment to the second Opposition Amendment in the name of the hon. Member for Hudders-field, West (Mr. Wade) and also the third Amendment in line 86, with a division if required on the second Amendment in line 86.
§ Mr. Maudling
I apologise for the complexity of this new Clause, but it is necessary to carry out its objective and to ensure that we do not go beyond what we have in mind. In fact, in proposing it, I am doing no more than meeting the points made on both sides of the Committee during the earlier discussion of what was Clause 19 but is now Clause 20 of the Bill in its present form. I will propose later that Clause 20 should be negatived and that this new Clause should take its place.
This proposal is of a very much more limited purpose than the original Clause 19. I can safely say, I think, that the Amendments which you, Mr. Deputy-Speaker, said that we could discuss with it, although relevant to the Clause in its original form, are not relevant to the Clause in its new form because the possible dangers which hon. 1169 Members had in mind cannot arise under the new Clause.
May I explain as briefly as I can the purpose of the new Clause by reference to what was intended by the original Clause 19? That Clause was drafted with two purposes in mind: first, to deal with the taxation of the surpluses of mutual trading companies; and, secondly, to deal with a possible form of tax avoidance which had become more likely as a result of recent court decisions. The new Clause does not do anything on the first point. We drop the first point and concentrate solely on the second point, which is the anti-avoidance provision.
I think that the House will be aware that there is quite a long history to the question of the taxation of mutual trading companies. Under an Act of 1933 it was thought that their profits—or surpluses—had become taxable. A subsequent judgment of the House of Lords in 1946 declared that Parliament had—I think the word was—misfired. In 1955 the Royal Commission recommended that surpluses derived from the trading operations of mutual corporations or mutual associations should be subject to tax.
The original Clause 19 was designed to carry that out for two reasons: first, as I say, because the Royal Commission had recommended it; and, secondly, because it was necessary to deal with a new form of tax avoidance, the possibility of which had been shown by a House of Lords judgment in 1963.
I was impressed by the arguments put forward in Committee on both sides against the general proposition that the surpluses deriving from mutual trading operations should be made taxable. I have therefore proposed this new Clause and my Amendment to delete Clause 20. There will be no question under this new provision of taxing the surpluses of mutual trading associations—or whatever the correct phrase is. I am confining my attention to the situation arising when mutual trading bodies go into liquidation and make a distribution from their surpluses. Here there is the possibility of tax avoidance, which has been opened up by the recent House of Lords decision.
1170 The position roughly is this. In the case of a trader, for example, insuring himself with a mutual insurance agency, the premium that he pays would be a trading expense and therefore he would be able to set it off against his receipts for tax purposes and get a tax allowance in respect of it. If subsequently he received a repayment out of the surplus of the mutual insurance company, that payment in the normal way of business would be a trading receipt, and he would have to pay tax on it. Therefore, the thing would balance up, because he would have in effect to pay back the tax relief which he had formerly had in respect of an excessively high premium.
In normal circumstances one gets relief when one pays, and one gets taxed when one has a distribution out of surplus. This was all right until a decision in the House of Lords in 1963 about a case under the Workmen's Compensation Act where it was held that if the distribution of a surplus was made on liquidation it would be a capital payment and therefore not liable to tax. This, therefore, opens the possibility of organising a mutual insurance corporation and paying to it unjustifiably high premiums which would be deductible for tax purposes as an expense of business. Then the surplus on liquidation of the company could be distributed free of tax to the original payers. That would be clearly a form of avoidance the possibility of which was opened up by the 1963 judgment.
I am therefore confining what I propose solely to this particular problem. The Clause deals only with circumstances in which there is a payment out of a trading surplus accumulated by a body carrying on mutual business. Ordinary capital distribution is not affected, and there is no effect where there has been accumulation out of surpluses which have already borne tax.
This Cause, in an inevitably complicated fashion, provides simply that where there is a mutual trading body and people pay sums to this body which are allowed as deductible expenses of the business, and subsequently the body goes into liquidation and the surpluses are distributed to the members, those surpluses should be liable to tax as they 1171 would have been if they had been distributed before the liquidation of the mutual body corporate.
I have done my best to explain this complicated Clause. We have accepted the clearly expressed view of both sides of the Committee, as it then was, and we are not attempting to tax in any way a surplus which arises in the course of ordinary trade. We seek only to stop up a loophole which could lead to tax avoidance.
§ Mr. G. R. Mitchison (Kettering)
The Chancellor of the Exchequer has made it perfectly clear that he has changed considerably the scope of the Clause which is now Clause 20 and which he proposes to remove by a later Amendment. As I see it, what the right hon. Gentleman has done is to deal with the type of abuse to which he referred which arises on the liquidation or dissolution of a society or company and in cases analogous to that. The abuse may arise in that excessive premiums may be paid—and a case was mentioned in the 1955 Final Report of the Royal Commission—and, those excessive premiums not having been fully expended in losses, the resulting surplus may be made artificially large and grow and grow and the society may be dissolved and its assets distributed and a similar body set up shortly afterwards.
It is obvious that there has been for many years a form of avoidance to which the Royal Commission drew attention in 1955 and which is in 1964 a target for the attention of the Government. It is quite true that the position has been elucidated by successive decisions of the courts, but there is no doubt about the nature of the fundamental abuse and that this Clause is intended to deal with it. The Clause does not deal at all with the question, which might have been dealt with by the earlier Clause, of a trading surplus arising in the hands of the society or company from year to year, although that too was considered in the 1955 Report. As to that, I do not regard it as our business in Opposition, particularly owing to the somewhat ambiguous character of the earlier Clause to which attention was directed from both sides, to drive the Chancellor to do at the moment more than he wishes to do. He is dealing with tax avoidance, and in that we are prepared to support him.
1172 The resulting position will be that the premiums or contributions will be paid and in the normal course of things will constitute trade expenses deductible by the payer. It seems to me that there may be differences—and this is perhaps rather in the form of the former Clause than the present one—between various cases in which the payer gets his money's worth back, more or less. In some cases, because this is often mutual insurance, there will be compensation for a loss which I would have doubted to be an income receipt. If, for instance, the mutual association consisted of shipowners—and there are a great many such cases in which they pay premiums to meet contingency losses not covered by an ordinary insurance policy—I doubt whether those losses are anything from which tax can be deducted, because they receive indemnity for the losses.
I do not think that that question actually arises in connection with the abuse at which the Chancellor is aiming. We know that he is not going as far as he originally intended to do. On this side of the House we must reserve our position with regard to what the Chancellor had originally in the Clause, which was open to formal objection and which he has now left out, and we must agree with him that in general the Clause is satisfactory.
This is, however, a most complicated Clause and with humility and respect I must agree that the right hon. Gentleman is perfectly right to spare us a detailed exposition of it. I hope that I have understood, more or less, what it is about, but a great many people affected by it will also find it complicated. In these circumstances I wonder whether in the case of people who found difficulty about the former Clause it should not be made abundantly clear that they are not covered by this Clause.
I admit at once that the Chancellor has gone a long way to do this by the addition of subsection (10), which excepts a trade carried on by any registered industrial and provident society. This goes a long way, and it may be the whole way, towards meeting many cases and it was inserted presumably because it was necessary, as I think it was. At the very least it was a highly reasonable precaution to take.
I wonder whether the Chancellor would consider going a little further I 1173 have three types of bodies in mind. The first are the co-operative bodies, and again I recognise that this question will arise only on the distribution of a surplus at the end of the day and not in connection with a surplus gained year by year in current mutual trading. Cooperative societies include, of course, both the ordinary retail societies and the agricultural co-operatives which are in general very similar. I know that they are registered industrial and provident societies, but I do not quite see the objection to naming them specifically.
Then, it is said that the Clause is not to includea trade carried on by any registered industrial and provident society".The Government's original case was that those bodies did not carry on a trade. That is a matter that we argued in Committee, and there is some inconsistency between the line taken then by the Government and subsection (10). I think that the new Clause is right. This is, however, a difficult field and it is extremely difficult to be clear what we are or are not doing. Those responsible for the Finance Act, 1933, found it to their cost. That misfired and the results of their misfire now appear as Section 444 of the 1952 Act. That got there when the Act was codified. It is the Section under which the cooperatives, for example, have always been dealt with. It has something about them in the side note and it is, as it were, their special Section. It includes other bodies, too.
I gather that it is not intended to put more tax in any form on the co-operative societies. The Chancellor worried me a little. When he said that those societies did not trade, that was all right, but when he says, as he does in the new Clause, that it does not apply to any trade carried on by them, I wondered what would happen at the end of the day when they were dissolved. In most cases, they would be bound to have a surplus. Will the Clause have any effect on that or will it not? The surplus will be an accumulation which, under Section 444, has been taxed as it came in year after year. In the particular case of the co-operative societies, it cannot be very much else. That is the first case which I put to the Chancellor.
1174 The second one is the question of the clubs. Those with which I am concerned are the Working Men's Club and Institute Union Ltd. clubs, together with the Conservative clubs, since we on this side are pre-eminently fair-minded and we see no great distinction other than political allegiance between the clubs concerned Indeed, there is no political allegiance in the case of the working men's club. We should have no objection whatever to the inclusion of the Liberal clubs. I am sorry to have to confess that I did not even know that there was such a body as the National Union of Liberal Clubs. I have an excuse, because I looked at the relevant passage about this in Halsbury, which included all the bodies I have named and one or two others, but whoever prepared the passage fell into my error of not being aware of this body's existence. There it is, however—or I assume that it is—and, clearly, it should be treated in the same way. They are the bodies with which I am concerned.
I add one other case. The British Legion has clubs all over the place. I do not know much about the form they take. I remember that an unfortunate Member of this House once had to be indemnified by special Statute for auditing the accounts of one of the branches because there were rather obscure legal provisions about this. One does not know whether they are satisfactorily covered. I expect that they are.
Reverting to the other clubs, is it clear that the title "registered industrial and provident society" includes all of them? I have tried to ascertain, but have been unable to do so, whether any of them are registered as anything else. In some cases, I am not sure that they are not. I do not know whether the Chancellor or another Treasury Minister has information about it. I do not see how one of them can be a friendly society. It remains the fact, however, that these bodies think that they are, probably because as an industrial and provident society they have to go to the Chief Registrar of Friendly Societies. There are, therefore, doubts about the status of all these bodies. Although I have no doubt that it is intended to exclude them, I should like to know whether the Chancellor takes objection to mentioning them specifically.
1175 5.15 p.m.
Our three Amendments are slightly different in scope. The first Amendment would prevent additional taxation in the case of any body now dealt with under Section 444 of the 1952 Act. That would clearly include the co-operative societies. It would include other bodies, too.
The second Amendment is clumsy and curious, but, at least, it has the benefit of mentioning the bodies particularly concerned. It arises in this way. When any of these bodies has to register its rules or an alteration in them, it applies to the Chief Registrar of Friendly Societies and is charged a fee. In certain cases, however, where the application comes through some sponsoring body, including all the bodies mentioned in the Amendment, except the Liberal clubs—I do not know about them—they get a reduced fee. It is, therefore, a way of indicating the kind of body that is intended to be excepted. Moreover, it may be clumsy but, at least, it makes clear to the people concerned that they are excepted irrespective of the form which, say, a British Legion club or a particular working men's club or similar body may take.
I therefore suggest that the Chancellor could do no harm by making it clear in those cases and that acceptance of the Amendment would help a number of bodies who have been worried not only by the obscurity, which is now admitted, of the original Clause, but also by the fact that it has all been taken away and a new Clause, equally unintelligible, has been put in its place. It is so much better when we do not intend to damage people in a case like that simply to tell them so and to indicate the types of bodies concerned.
The last of the three Amendments, which I mention only in case the Chancellor prefers it, is more limited, because it simply refers to the working men's clubs and nothing else. It therefore does not cover as wide a field.
Those are the considerations which I put before the Chancellor on the Amendments. I hope that he may see his way to accept one or more of them, but I imagine that whoever drafted the new Clause, or all those concerned in drafting it, must now be so pleased and proud of the result that they probably would regard any addition to it as a piece of 1176 amateur impertinence. They should, however, remember that they are dealing with people who are not particularly good at the law in these matters—indeed, it is sadly complicated—and who have been really worried, not only by the Clause, but by the form in which changes have been brought forward.
§ Sir Donald Kaberry (Leeds, North-West)
In Committee, I had the honour and pleasure of moving an Amendment to what was then Clause 19 of the Bill on behalf of a number of clubs. I declared a specific interest because I happened to be chairman of an organisation, a company limited by guarantee under the Companies Acts, known as the Association of Conservative Clubs Ltd.
The Amendment sought to remove doubts which existed in the minds of a large number of club people of all shades of political opinion, social status and all the rest throughout the country. The fear was that as the Clause was then presented there might be some broader interpretation of the words "mutual business" or "mutual trading", but I think that most of us here accepted that a social club as a club does not trade in the accepted meaning of "trade" for purposes of being liable for the payment of Income Tax. There was a doubt, however, and the more explanations that were given the more the doubt prevailed.
I for one was very glad to accept the very generous undertaking given by my hon. Friend the Financial Secretary that he would look at all the arguments presented in the discussion in Committee—in which the hon. and learned Member for Kettering (Mr. Mitchison) took a very full and free part—and would bring the matter before the House again at this stage. I readily accept the revised version—in fact, one might call it the completely new version—of what is now Clause 20, to the extent that I think it is abundantly clear that this revised Clause could never relate to the social or political club in relation to any allegations of trading activities.
Indeed, the Clause itself never arises year by year in relation to such an organisation, and even on the widest and wildest interpretation it would apply only on the winding up of such an association or club. To that extent, therefore, I 1177 would say to my right hon. Friend the Chancellor of the Exchequer, "Thank you very much indeed."
I listened with interest, if I may say so and as I always do, to what the hon. and learned Member for Kettering had to say and I would hope that my right hon. Friend the Chancellor would not give heed to the plea made by the hon. and learned Gentleman, particularly with regard to his second Amendment, because I think that it would add to the confusion of interpretation as to whether or not a club might or might not be liable for tax.
There are several grounds on which I say that, but I think that one of them is abundantly clear from the words used in the Amendment itself. The Amendment is rather loosely drawn. It is unfortunate that Transport House did not send a message a few hundred yards away to 32, Smith Square, in order to get the correct title of the Association of Conservative Clubs, but perhaps Transport House was being besieged at the time when the message should have gone.
§ Sir D. Kaberry
Be that as it may, I do not know where Halsbury creeps into the Association of Conservative Clubs.
Likewise, I think there is a fundamental error in the Amendment, because it requires exception to be made for clubs or industrial provident societies the rules of which have been approved through a number of defined bodies including theWorking Men's Club and Institute Union Ltd., Association of Conservative Clubs and the British Legion".Not all clubs, however, have their rules approved through those bodies. Certainly the organisation for which I speak does not ask for strict regimentation—all in or all out. Clubs are free and autonomous. Many clubs are not members of the Association and it would, therefore, be wrong to limit them in this way.
The hon. and learned Member referred to the clubs of the British Legion. There are a large number of ex-Service men's clubs in the country which are not, in fact, formed through the British Legion. If I may speak personally on that point, I know of one club which at this moment 1178 is being formed in my constituency and which for reasons of its own does not wish to be formed through the British Legion. Therefore, I think that there would be an answer of limitation on a cover of that type which might at some time give rise to doubt if this Amendment were to be accepted.
The hon. and learned Member referred to the different types of clubs. Many clubs are registered under the Friendly Societies Act for the reason that they do better for themselves. Many are formed under the operation of the Companies Acts, clubs limited by guarantee. They would be excluded from this Amendment. Recognising the good intentions which are, perhaps, behind the Amendment, it would seem to me to add doubt and difficulty to a Clause which will probably have to be explained by lawyers in other places in the future and would give rise to additional doubt if this Amendment were added. Therefore, I hope that if the Amendment is moved it will not be pressed and that in replying to the debate my right hon. Friend the Chancellor or my hon. Friend the Financial Secretary will make it abundantly clear again that social clubs are specifically not included in the provisions of this new Clause.
§ Mr. Angus Maude (Stratford-on-Avon)
While I yield to nobody in my sympathy with the hopes and fears of social clubs, I hope that the House will forgive me for recalling to it that what this new Clause does is something of a rather greater order of magnitude than that. Having in Committee spoken with some fervour about what I regarded as the imperfections of Clause 19, as it then was, it only remains for me briefly, but very warmly, to thank and congratulate my right hon. Friend the Chancellor on having personally looked at this matter again with his usual care and attention and on having dropped one of the few main principles of Clause 20, as it now is, of the Bill.
There is no doubt that the new Clause is a quite monumental and difficult one, and I do not suppose that any hon. Member has really felt confident that he could appraise it himself without taking legal advice.
I am advised and reassured that those of my constituents who were worried about the original Clause in so far as 1179 it purported to make taxable trading surpluses of mutual insurance societies are completely reassured that the new Clause does no more than cover what we had all recognised, my constituents not least, was the perfectly desirable business of stopping a particularly dangerous kind of tax evasion.
The hon. and learned Member for Kettering (Mr. Mitchison) was, I thought, perhaps a little dubious in his acceptance of the principle that this should be tried.
§ Mr. Maude
The hon. and learned Gentleman was a little dubious. He said that he reserved his position about his future attitude on the question of the taxation of surpluses of mutual insurance societies.
I should have thought that this part of the intention of the original Clause would have died unlamented by anybody except a few purists at the Inland Revenue nostalgic for the halcyon days between 1933 and 1946 and earnestly wishing to follow the Royal Commission's recommendation, right or wrong.
Perhaps the hon. and learned Member for Kettering might with profit refer to the words of the learned law Lord, Lord Macmillan, in the judgment on the Ayrshire case which I cited in Committee, because I think the words are worth returning to again and again. Lord Macmillan—this was when the Ayrshire case in terms of the intention of the 1933 Finance Act had misfired—said that the failure of the Legislature… is perhaps less regrettable than it might have been, for the subsection has not the meritorious object of preventing evasion of taxation, but the less laudable design of subjecting to tax as profit what the law has consistently and emphatically declared not to be profit.While the hon. and learned Member may reserve his position, I hope that he and the Labour Party and anybody else who may once again be tempted to revert to the deplorable fiasco of the attempt to subject to tax the surpluses of mutual societies will take those words to heart.
Once again, I say that I am extremely grateful to my right hon. Friend and the Financial Secretary for the very great care they have taken in clearing up this 1180 matter. They could not have taken more trouble about it, and I and my constituents and many others are extremely grateful to them.
§ 5.30 p.m.
§ Mr. R. M. Bingham (Liverpool, Garston)
Some harsh words were said about the original Clause in Committee, and as the author of some of the words I rise now merely to acknowledge that the Government have made what can only be described as an ample response to the criticisms. The drafting of the old Clause received a great many criticisms. Complex though the new drafting provisions are, they seem very much more straightforward, more precise and in many ways very much simpler than those of the old Clause.
As to the substance of the new Clause, the main difficulty, as I understand it, facing the Chancellor and the Treasury has been the principle that distributions in liquidation are capital, and it would seem that the new Clause has steered round that principle with considerable and scrupulous care.
There are only two small points to which I would refer. The first concerns subsection (2) of the new Clause. At the moment I find it difficult to see what the purpose of the new subsection (2) is. It provides that the person who is to be charged under subsection (3), the person making the transfer or surrender, shall be deemed to have received consideration equal to the value of the right transferred. I can see that that is aimed at a collusive transfer or surrender by which the person receiving payment for the right receives money which is less than the real right. I can see that on a surrender back to the body corporate it might to some extent go to swell the power of the body corporate to make distributions which would not be caught, but I cannot see that subsection (2) has any great effect where a transfer is concerned. Indeed, it might lead to an ability in the Treasury to recoup itself in respect of the same amount of tax twice over, because the person who made the transfer will be deemed to have received consideration equal to the value of the right, and to that extent he would be a recipient under subsection (3), and the transferee would, as far as I can see, also be a recipient in respect of the same 1181 right under subsection (3), and so tax might be claimed or charged twice over from two people in respect of the same amount. But there may be reasons which I do not understand for subsection (2), and I raise this matter only for elucidation.
The other point relates to clubs, cooperative societies and the British Legion. I ask my right hon. Friend not to accede to the Amendments because it seems to me that the position at the moment is clear, and, as has been said, confusion would be introduced if definitions exempting bodies which are already exempt were introduced. In this connection, subsection (3), which is the only charging subsection in the new Clause, does not create a charge unless there has been a deduction allowed for Income Tax. That must rule out any question of retail co-operative societies being caught. I should have thought that it ruled out any clubs. So far as I understand the operations of the British Legion, of which I am a member, I do not think that any payments made to it are paid under deduction of Income Tax, and that would seem to me to be an added reason for saying that in no circumstances could those bodies be caught by this Clause.
With those comments, I welcome the Clause, and thank my right hon. Friend for its introduction.
§ Mr. Maudling
If I may speak again by leave of the House, I am glad to note that the House generally prefers the provision in its new form to the Clause which I originally introduced in the Finance Bill.
If I may reply to one or two of the points made, I do not share the fear of my hon. and learned Friend the Member for Liverpool, Garston (Mr. Bingham) about the position under subsection (2), which is designed to cover any attempt at tax wangle in the case of a transfer, and to ensure that no benefit is made on the side. It provides that the original recipient will be taxed at the true value.
§ Mr. Bingham
There is a possibility under the Clause that tax might be recoverable or chargeable from two persons in respect of the same amount of money. If my right hon. Friend can 1182 say that that is not the intention, that would remove all my doubts.
§ Mr. Maudling
It is not the intention, and from my quick reading of the provisions since my hon. and learned Friend spoke, I am sure that that could not occur.
With regard to extending the Clause, it would be unwise to amend it any further. It is made clear in subsection (1) that the Clause does not deal with the taxation of mutual concerns. The Claus; arises only where mutual concerns are being wound up or dissolved. The Clause is concerned with payments made by mutual concerns to their members on dissolution.
Secondly, it is made clear in subsection (3) that the Clause is concerned only with circumstances where the payment to the mutual concern has been allowable for tax. That rules out clubs and a whole range of social bodies. It is a perfectly clear provision.
Subsection (10) makes clear that the description of trades in subsection (1) does not include any trade all the profits and gains of which are chargeable to Income Tax. This covers co-operatives. Where people are not trading this provision does not arise, for if people are not trading, they are not subject to tax. The position is perfectly well covered.
§ Mr. Mitchison
I am not quite certain about clubs. They have a practice of receiving visitors. They have arrangements for exchanging membership facilities between their own members and members of outside clubs. Does not that affect the position? Are they still dealing merely with their own members, or are they not dealing with visitors?
§ Mr. Maudling
If they are, in these circumstances, trading, they will be subject to tax on receipts, which will be trading receipts, and that will be excluded by subsection (10).
The point is that the Clause does not bring any new class of taxpayer into liability and it imposes no charge on trading profits of mutual societies. It merely removes an anomaly. Under the present system, a distribution made by a mutual concern which continues in existence is liable to tax. A similar payment made by the same concern to 1183 the same person on dissolution is not liable. We are rectifying an anomaly, not bringing in any new charge. The provision cannot possibly affect clubs and societies to which reference has been made.
I share the view that to add any Amendments would do positive harm because, in the first place, to include in a provision certain individual bodies by name always raises questions about those left out. Secondly, it is clear that the main subsections could not possibly affect things like clubs. To put in a specific exemption of people who could not in any case be affected by a Clause would darken counsel. It would not aid our common purpose to make any further amendment.
§ Mr. Mitchison
I agree with what the right hon. Gentleman says about specific exemptions. It might, indeed, easily darken counsel. The right hon. Gentleman has dealt with registered industrial or provident societies. What about companies limited by guarantees and various other forms which are well known to the hon. Member for Leeds, North-West (Sir D. Kaberry)?
§ Mr. Maudling
It is sometimes unwise to be over-cautious. The purpose of subsection (10) is the avoidance of doubt. From the point of view of cooperative and provident societies it will be convenient, but it is not necessary.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.