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Cooper (Inspector of Taxes) v. Stubbs

[1925] 2 K.B. 753
[1925] All ER 643

(Judgment by: ATKIN L.J.)

Between: Cooper (Inspector of Taxes)
And: Stubbs





Subject References:
Income Tax
Speculations in Cotton
Contracts for future Delivery
Practice of Cotton Brokers
Gambling Transactions
Trade or Vocation
Income Tax Act, 1918 (8 & 9 Geo. 5, c. 40), Sch. D, para. 1 (a) (ii.), (b); Cases I. and VI.

Legislative References:
Income Tax Assessment Act 1918 - 149; Schedule D

Case References:
Cape Brandy Syndicate v. Inland Revenue Commissioners - [1921] 2 K. B. 403
Partridge v. Mallandaine - [1886] 18 Q. B. D. 276
Graham v. Green - [1925] 2 K.B. 37
Erichsen v. Last - [1881] 8 Q. B. D. 414
Thacker v. Hardy - (1878) 4 Q. B. D. 685
Currie v. Inland Revenue Commissioners - [1921] 2 K. B. 332
Ryall v. Hoare - [1923] 2 K. B. 447
Coman v. Governors of Rotunda Hospital, Dublin - [1921] 1 A.C. 1
Attorney-General v. Black - (1871) L. R. 6 Ex. 78, 308
Inland Revenue Commissioners v. Greenwood - [1921] 2 A.C. 171

Judgment date: 30 June 1925

Judgment by:

I agree that the appeal should be dismissed with costs, and I also agree it should be so for the reasons given by my Brother Warrington in the judgment he has just delivered, and as therefore I differ from the view expressed by the learned judge in the Court below, and as I find I also differ from the reasons given by the Master of the Rolls, I think it would be desirable that I should put into words the ground for the decision I have come to.

The case, it has been said, has been coloured throughout by the view taken by the Commissioners that these dealings in future contracts in cotton were gambling transactions, and, as I shall point out, I think that that is true as to one of the findings of the Commissioners, although I do not think that it did in fact colour their view as to their finding that this taxpayer in this case was not carrying on a trade. As I take it, the view that the Commissioners formed was that the transactions were in truth gambling transactions, but that whether they were gambling transactions or real transactions, it could not be said that the appellant was carrying on a trade or vocation unless a certain amount of habitual or systematic operations either in gambling or real transactions was proved, and that the transactions in question did not partake of that nature, and therefore, whatever they were, they could not properly be described as a trade. In order to dispose of the point about gambling, it appears to me it is sufficient to say that upon the evidence in this case it seems reasonably clear that all the contracts that were entered into by the appellant, whether they were entered into by him through his firm or through other brokers, were in fact real transactions. They gave rise to real contractual rights: they were contracts either for the purchase or for the sale of cotton in the future which could be enforced, and so far as the other party to the contract, who might be a dealer in this country, or a dealer in America, was concerned, he would not know whether the contract into which he had entered would be eventually closed by a contra contract or whether it would not. For these reasons it seems to me to be plain law that transactions such as the appellant entered into were real transactions and were not mere bets. I think that the principle in respect of wagering is this, that it takes two parties to make a bet, and, that if you consider one party alone, you do not sufficiently consider all the elements of the case; you have to consider the other party, and unless that other party is also betting there cannot be a bet. Therefore these transactions were, as I have said, real and enforceable contracts, in which the differences could have been sued for on one side or the other. It is true that they were speculations, and I think myself that that may be one of the material facts to be considered in respect of the question whether or not the appellant was engaged in a trade, because for my part I see some difficulty in forming a conception of a trade which consists solely of entering into transactions which would merely result in differences, and when the supposed trader never intends to get possession or control of any commodity, so that he may have the disposal of it. Although I do not say it is impossible to have a trade or adventure of that nature, I think it is a fact to be taken into account.

Now the first question is whether or not the appellant, on the footing that he was entering into real transactions for the purchase and sale of a commodity - namely, cotton - was or was not engaged in a trade or vocation, and that it seems to me must in the circumstances be a question of fact. Unfortunately or fortunately - I do not propose to express any moral judgment upon the point - one knows that a great number of persons whose ordinary life does not lie in the way of commerce do engage in speculations of this kind in commodities, and when a commodity is found which offers tempting fluctuations of price, so that there are good chances of a profit with equally good chances of a loss, one does find individuals from time to time coming into the market and making purely speculative purchases; and one knows that there have been, at any rate in one's own experience, three commodities in which that kind of speculation has been quite common at different times. One is cotton; another has been in the past, and may be in the present, copper; and another has been in the past and no doubt is in the present, rubber. There are no doubt laymen who do indulge in speculative purchases in these commodities, and they repeat those speculative purchases more than once, being probably buoyed up by their initial successes. Nevertheless, it seems to me still to be a question of fact whether the professional man, to quote an extreme case, who makes purchases of that kind, and makes more than one of them in a year, can be said to be engaged in a trade or vocation in the course of these purchases. I should think it would probably be a question of degree. Now if it is a question of degree, it must be a question of fact, and there is no tribunal more competent to deal with that question of fact than the Special Commissioners. But whether they are competent or not the point is that the Legislature has confided to them, and to them alone, the duty of determining that question of fact, and the Courts of law have no jurisdiction to deal with the matter at all. Their jurisdiction is confined to the question of law. Of course, in all these matters there may be a state of facts which can only lead to one conclusion of law, but when it is, as I have said, a question of degree, it seems to me it must necessarily be a question of fact. In this connection I should like to cite two passages from Currie v. Inland Revenue Commissioners [1921] 2 K. B. 332, which was cited to the learned judge in the Court below and also to us. There the question was whether a person who made it his business to advise as to income tax recovery and carried on a business as "The Income Taxpayers' Appeal Agency" was or was not carrying on a "profession" within the exception ( c ) to s. 39 of the Finance (No. 2) Act, 1915, so as to exempt him from assessment to excess profits duty. The Special Commissioners found he was not. That is not quite this case; it is rather a stronger case giving rise to possibilities of law, because there is no doubt there are certain elements of a profession which would perhaps be decided as part of the definition as a matter of law. But Lord Sterndale says ([1921] 2 K. B. 332 at 336) it may depend upon circumstances: "There may be circumstances in which nobody could arrive at any other conclusion than that what the man was doing was carrying on a profession. .... That reduces it to a question of law. On the other hand, there may be facts on which the direction would have to be given the other way. But between those two extremes there is a very large tract of country in which the matter becomes a question of degree; and where that is the case the question is undoubtedly, in my opinion, one of fact; and if the Commissioners come to a conclusion of fact without having applied any wrong principle, then their decision is final upon the matter." There is one further passage in Scrutton L.J.'s judgment in which he discusses the question of whether the business carried on by this man was a profession, and instanced the case of a photographer. He says ([1921] 2 K. B. 332 at 341): "Art is a matter of degree, and to determine whether an artist is a professional man again depends, in my view, on the degree of artistic work that he is doing. All these cases which involve questions of degree seem to me to be eminently questions of fact, which the Legislature has thought fit to entrust to the Commissioners, who have, at any rate, from their very varied experience, at least as much knowledge, if not considerably more, of the various modes of carrying on trade than any judge on the bench."

Now in this case the Commissioners without, so far as I can see, applying any wrong principle, taking in their consideration the question of habitual and systematic operations, which I think are indisputably relevant to the question of whether a man is carrying on a trade or not, come to the conclusion that the operations in this case are not so habitual and not so systematic as that the person can be properly said to be carrying on a trade in those particular transactions. As it appears to me that this is an inference of fact pure and simple, their finding must I think stand, and therefore it is immaterial what view I or any judge on the bench takes of the matter. I am not saying that I agree with them, because that is irrelevant. It may very well be if one were left to oneself one would find with regard to these transactions that there was a vocation of speculating in these futures, or it may be a trade, but I have not formed a definite view at all about it, and I think that the Commissioners' view on this matter must stand as a finding of fact.

That, however, does not dispose of the matter, because the other question arises under para. 1 of Sch. D, which has been referred to, and which provides: "Tax under this Schedule shall be charged in respect of - ( a ) The annual profits and gains arising or accruing - (i.) to any person residing in the United Kingdom from any kind of property whatever, whether situate in the United Kingdom or elsewhere; and (ii.) to any person residing in the United Kingdom, from any trade, profession, employment or vocation, whether the same be respectively carried on in the United Kingdom or elsewhere; and (iii.) to any person, whether a British subject or not, although not resident in the United Kingdom, from any property whatever in the United Kingdom, or from any trade, profession, employment or vocation exercised within the United Kingdom; and ( b ) All interest of money, annuities, and other annual profits or gains not charged under Schedule A, B, C or E, and not specially exempted from tax." The profits and gains referred to in the last clause must include, therefore, profits and gains which are not derived from any kind of property whatever and are not derived from any trade, profession, employment or vocation exercised within the United Kingdom. They are something wider and larger than that. Now what is there to prevent the profits arising from these transactions being annual profits or gains? The Commissioners in this respect seem to me to have gone wrong in law. They have held that these transactions were gambling transactions, by which they must have meant what I have been discussing already, wagering transactions, and on that they were wrong. It appears to me that their view must be taken to be this, that they would be annual profits or gains if it were not that they were wagering transactions, and therefore in their view not chargeable; but whether that is so or not it appears to me that in this case there can be only one inference which can be drawn in respect of them, and that is that the profits arising from them were annual profits or gains. For that purpose no doubt you have to consider not merely whether they are profits or gains. For my part I can see no reason to doubt that they are profits or gains. I do not think that that can be disputed. They arise from having made a real contract which gives you rights, and then, taking advantage of that contract, selling the commodity, or the right which you have acquired by contract to have delivery of that commodity, either to the person who made the contract or to somebody else; it does not matter; you make a gain. There is no doubt that speculations in commodities of this kind are just like speculations in shares. They may under some circumstances be such that you could not reasonably call the profit made an annual profit or gain. It may very well be that transactions may be so carried out as to be nothing but in the nature of temporary investments repeated several times over, and resulting in something in the nature of capital accretions which could not be brought within the title or meaning of "annual profit or gain," which to my mind must mean something which is of the nature of revenue or income, although I also think it is plain that it need not be repeated every year so as to be a continuous source of income. It may come in only as income or revenue in the one year, but still it has to be in the nature of annual profit or gain. In this case you have to look at the facts, and when you do so you find that the appellant has been making these profits or gains, not by investing his capital, because he never invested any money in the matter, but by making executory contracts which he closed by other executory contracts. He invested no money as such in the matter at all. But we have figures in the schedule to the case which show that the appellant has been entering into these transactions every year from 1915 to 1922; that is, for eight years running he has been in receipt of money from these transactions; I was going to say in receipt of revenue, but that perhaps begs the question, but it appears to me to be really expressive of the true facts. He has had an annual revenue from these transactions throughout the whole of this period.

Under these circumstances, it appears to me, there can be but one conclusion from the facts. I think the Commissioners meant to find it apart from the question of gambling, but whether they did or not, it seems to me the true view is that here there were annual profits or gains, and that these ought to be brought into charge. Therefore I think that the assessment is properly made.

Like my Brother Warrington I desire to reserve the question of what the position would be if these transactions had turned out to be bets; but if the bets had been proved to be as continuous as these particular bets were, I express no opinion about it. I suppose the matter may some day arise in the Courts.

For these reasons I think the appeal should be dismissed with costs.

Case Judgement
Table of contents
  Judgment by POLLOCK M.R.
  Judgment by WARRINGTON L.J.
  Judgment by ATKIN L.J.

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