Finance Act 1939

14 Apportionment of income under s. 21 of Finance Act, 1922, to be automatic in the case of certain investment companies.

(1) Subject to the provisions of this section with respect to companies with estate or trading income, the whole of the actual income from all sources, for every year of assessment, of every investment company to which section twenty-one of the Finance Act, 1922, applies shall, however much or however little thereof has been distributed to its members, be deemed for the purposes of assessment to surtax to be the income of the members of the company, and accordingly the Special Commissioners shall give a direction under subsection (1) of the said section twenty-one in respect of each year of assessment in relation to every such company without considering whether or not the company has distributed a reasonable part of its said income.

(2) The said section twenty-one and any provisions' of this or any other Act relating thereto shall apply, with the necessary modifications, in cases in which directions are given by virtue of subsection (1) of this section as they apply in cases in which directions are given by virtue of section fourteen of the Finance Act, 1937, with respect to a year of assessment:

Provided that—

(a) no deduction shall be allowed in computing the actual income from all sources of the company which would not be allowable in computing the total income of an individual for the purposes of the Income Tax Acts, other than deductions for any national defence contribution payable by the company or for any such sums disbursed by the company as expenses of management as the Special Commissioners consider reasonable, having regard to the requirements of the company's business and, in the case of directors' fees or other payments for services, to the actual services rendered to the company;

(b) paragraph 5 of the First Schedule to the Finance Act, 1922, and section eighteen of the Finance Act, 1928 (which restrict the powers of the Special Commissioners where statutory declarations or accounts are furnished to the Commissioners) shall not apply in cases in which directions may be given by virtue of subsection (1) of this section.

(3) The preceding provisions of this section shall not apply to an investment company the whole of the actual income whereof from all sources is estate or trading income.

(4) Where part only of the actual income from all sources of an investment company to which section twenty-one of the Finance Act, 1922, applies is estate or trading income, the provisions of the said section twenty-one and any provisions of this or any other Act relating thereto shall have effect as follows :—

(a) in the first place, they shall have effect as if such part of the actual income from all sources of the company as is not estate or trading income were the whole of the income of the company/ and directions shall be given by virtue of subsection (1) of this section accordingly as respects that part;

(b) in the second place and separately (but without prejudice to the treatment of the company as an investment company for the purposes of the said provisions), they shall have effect as if such part of the actual income from all sources of the company as consists of estate or trading income were the whole of the income of the company, and, if the circumstances warrant that course, directions may be given accordingly as respects that part otherwise than by virtue of the said subsection (1):

Provided that—

(i) any income distributed by such a company to its members in such manner that the amount distributed falls to be included in the statements to be made by the members of their total income for the purposes of surtax shall, to the extent of the actual income from all sources of the company other than estate or trading income, be deemed for all purposes to have been distributed out of that other income and not out of the estate or trading income, and be left out of account accordingly in considering whether a reasonable part of the estate or trading income has been so distributed;

(ii) subject as aforesaid, any outgoings of the company of such a nature as to be capable of being taken into account in computing the amount of the actual estate or trading income of the company, in considering whether the company has so distributed a reasonable part of its estate or trading income, or in computing the amount of the actual income from all sources of the company other than estate or trading income, shall be treated as attributable to the estate or trading income or to the income other than estate or trading income, as the case may be, only to the extent that the Special Commissioners consider appropriate.

(5) If in the case of any company the cost of maintenance, repairs, insurance and management (being expenditure of such a nature as to be capable of being taken into account for the purposes of a claim by the company under Rule 8 of No. V of Schedule A) incurred by it in any year of assessment exceeds the amount of the gross estate or trading income of the company for that year, the company shall be entitled, on giving notice in writing to the Special Commissioners within six months of the end of that year and on proof to the satisfaction of those Commissioners of the amount of the excess, to require that the amount of the actual income from all sources of the company, other than estate or trading income, for that year shall be treated, for the purposes of this section, as if it were reduced by an amount equal to that excess :

Provided that, where a deduction is allowable in computing the estate or trading income of the company for any subsequent year by reference to the said Rule 8, no account shall be taken in computing the amount of that deduction of any such excess expenditure which has been taken into account for the purposes of any such reduction as aforesaid.

In this subsection the expression " maintenance " has the same meaning as in the said Rule 8, and the expression " the amount of the gross estate or trading income " means, in the case of any company, an amount computed by adding to the amount of the estate or trading income of the company the total amount of any deductions made in computing that income in respect of the cost to the company of maintenance, repairs, insurance, or management of the nature aforesaid (including any allowance made by reference to Rule 7 of No. V of Schedule A).

(6) The preceding provisions of this section shall not, in the case of any company, apply in relation to any period after an order has been made or a resolution passed for the winding-up thereof, and the period elapsing between the end of the last year of assessment and the making of the order or passing of the resolution shall, for the purposes of subsection (1) of this section, be treated as if it were a year of assessment.

(7) The preceding provisions of this section shall not apply in the case of any company if the Special Commissioners are satisfied that the company exists wholly or mainly for the purpose of carrying on a trade or for the purpose of co-ordinating the administration of a group of two or more companies each of which is under its control and exists wholly or mainly for the purpose of carrying on a trade.

(8) In this section the expression " estate or trading income " means income chargeable to income tax under Schedule A or Schedule B, income arising in respect of the ownership or occupation of land which is chargeable to income tax under Schedule D, and income which is not investment income within the meaning of section twenty of the Finance Act,

For the purposes of this subsection the expression " land " means lands, tenements, hereditaments and heritages, and the expression " income arising in respect of the ownership or occupation of land," in relation to any building or part of a building, includes profits from the letting thereof furnished.

(9) The preceding provisions of this section shall apply for the purposes of assessment to surtax for the year 1938-39 and subsequent years, and where a direction has been given in relation to a company by virtue of subsection (1) of this section in respect of the whole or any part of the year 1938-39, the Special Commissioners may, for the purposes of assessment to surtax for the year 1937-38, treat the period—

(a) beginning with the end of the last year or other period ending before the fifth day of April, nineteen hundred and thirty-eight, for which accounts of the company have been made up; and

(b) ending with the said fifth day of April, nineteen hundred and thirty-eight;

as if it were a period for which accounts of the company have been made up, or, if they think fit, as if it were a year of assessment for the purposes of subsection (2) of section fourteen of the Finance Act, 1937.