Finance Act 1951

31 Effect of capitalization of profits on rate of profits tax

(1) Subject to the provisions of this section, where—

(a) whether before or after the passing of this Act but after the sixth day of April, nineteen hundred and forty-nine, a body corporate, unincorporated society or other body capitalises any distributable sum; and

(b) then or thereafter, whether before or after the passing of this Act but after the tenth day of April, nineteen hundred and fifty-one, any sum is applied in reducing its capital,

there shall be deemed for the purposes of section thirty-five of the Finance Act, 1947 (which defines the expression "gross relevant distributions to proprietors " for profits tax purposes), to be a distribution to the members of the body corporate, society or other body of an amount equal to the sum so applied or to the total amount of the distributable sums previously capitalised by it as aforesaid, whichever is the less, taking place when the sum is so applied.

(2) Subject to the provisions of this section, where a body corporate, unincorporated society or other body—

(a) whether before or after the passing of this Act but after the tenth day of April, nineteen hundred and fifty-one, applies any sum in reducing its capital; and

(b) then or thereafter, whether before or after the passing of this Act, capitalises any distributable sum,

there shall be deemed for the purposes of the said section thirty-five to be a distribution to the members of the body corporate, society or other body of an amount equal to the distributable sum capitalised or to the total amount of the sums previously applied by it as aforesaid in reducing capital, whichever is the less, taking place at the time of the capitalisation.

(3) Where by virtue of subsection (1) of this section there is deemed to be a distribution to the members of a body corporate, society or other body by reason of the application of any sum in reducing its capital—

(a) that sum shall be taken into account for the purposes of subsection (2) of this section only to the extent, if any, to which it exceeds the amount of the distribution ; and

(b) the total amount of the distributable sums capitalized by the body corporate, society or other body after the sixth day of April, nineteen hundred and forty-nine, but before the distribution shall, in relation to any further reductions of capital, be treated for the purposes of subsection (1) of this section as diminished by the amount of the distribution.

(4) Where by virtue of subsection (2) of this section there is deemed to be a distribution to the members of a body corporate, society or other body by reason of the capitalisation of any distributable sum—

(a) that the sum shall be taken into account for the purposes of subsection (1) of this section only to the extent, if any, to which it exceeds the amount of the distribution; and

(b) the total amount of the sums applied in reducing capital of the body corporate, society or other body after the tenth day of April, nineteen hundred and fifty-one, but before the distribution shall, in relation to any further capitalisations, be treated for the purposes of subsection (2) of this section as diminished by the amount of the distribution.

(5) In this section—

• " distributable sum " means, in relation to a body corporate, society or other body, a sum which could be utilised in making a distribution, within the meaning of subsection (1) of section thirty-six of the Finance Act, 1947, to the members thereof;

• " capitalise " means capitalise by means of an issue of paid up or partly paid up share capital or by the paying up, in whole or in part, of share capital already issued or by the creation of loan capital, and " capitalisation " shall be construed accordingly,

and references to the reduction of capital shall be deemed to include references to the repayment or return of share capital and the repayment or redemption of loan capital, other than loan capital issued for full consideration paid in cash to the body corporate, society or other body or redeemable preference shares so issued:

Provided that—

(a) no application of any sum shall be treated as a capitalisation for the purposes of this section if, apart from this section, it falls to be treated as a distribution to the members of the body corporate, society or other body within the meaning of subsection (1) of the said section thirty-six; and

(b) where the body corporate, society or other body has acquired any business, undertaking or property for full consideration, any loan capital or redeemable preference shares issued by the body corporate, society or other body in or towards payment therefor shall be deemed for the purposes of this subsection to have been issued for full consideration paid in cash to the body corporate, society or other body.