Subsection (3) of Section fifty-nine of the Income Tax Act, 1945, which prohibits the making of an initial allowance to the buyer of machinery or plant in the circumstances referred to in paragraph ( a) of Subsection (1) of that Section shall be amended by the addition to the second proviso of the words:
" and where the sale takes place after the appointed day at a price which is more than four-fifths of the limit of recharge, an allowance shall be made equal to the excess with a maximum allowance of one-fifth of the limit of recharge."—[ Sir P. Bennett.]
Brought up, and read the First time.
I beg to move, "That the Clause be read a Second time."The point which I am putting is a small one, but for reasons which I will mention later, it is of considerable importance at the present moment. It deals with the 20 per cent. allowance which is made when machinery is bought in the ordinary way. This is only an advance, because in the normal way the depreciation will be allowed over the year, but the initial allowance of 20 per cent. is of considerable value in arranging capital in times of reorganisation and reconversion. When the sale is a plant purchase by an ordinary company no question arises, but there are sales between controlled companies, that is, between one controlled company and another. Then it is right that conditions should be made so that the controller company does not arrange matters so as to be able to write the plant down and pass it from one to another, and so get this 20 per cent. to cover the whole value by passing the plant on from one to the other. It is possible for a buyer inside a group to obtain from a seller inside the same group certain plant, and he ignores the fact that there is a balancing charge on the seller, which the Revenue can put into effect, which gives back the initial amount which had already been given to the other member of the group on the first purchase of the plant from outside. This new Clause simply seeks to put this point right. It gives back to the seller who has already suffered a balancing charge from the Revenue and gives back to the buyer who has taken the plant over, an initial amount equal to that with which the seller has already been charged. So it arranges that within the group there is only one initial payment. It is of some importance because at the present time there are a number of contemplated amalgamations, and it is desirable tint the plant should be modernised. I hope that I have made it clear that the group will always be certain of one 20 per cent. and nothing more, which is the Revenue's point of view; and nothing less, which is the industry's point of view. I am quite certain that the Solicitor-General, who knows this question, will understand the point that I have been trying to make. It is a simple one and I hope that he will be able to meet us.
:My right hon. Friend feels that a case has been made out, subject to certain qualifications, for this new Clause. I want to make clear what the qualification is. Section 59 of the Income Tax Act and Subsection (3) to which the hon. Member refers is drawn with a view to preventing undue allowances being obtained by fictitious sales between groups of companies, as he indicates; but where there is a perfectly bona fide sale at a proper market price, and the result of that sale is that the selling company loses the whole of its.initial allowance, there is an injustice, in the view of my right hon. Friend, which calls for some consideration. Actually, of course, the initial allowance is never completely lost. It is postponed, although postponed for a substantial number of years, because it may be used up in the annual allowance, which will take some years to materialise. Meanwhile, taxes may, and probably will, diminish considerably, and, therefore, there is a case for an initial allowance being retained for the advantage of the group where there is a bona fide sale as between companies.The Income Tax Act, 1945, comes into operation only on the appointed day, which is 6th April, 1946, so that there is no immediate urgency about the matter; but I can give the Committee an assurance, on behalf of my right hon. Friend, that, without binding himself finally to any form of words or to any particular undertaking, he will consider the matter sympathetically between now and next April. With that assurance, I hope the hon. Gentleman will withdraw the new Clause.
I wish to thank the Solicitor-General for the way in which he has dealt with this new Clause. He and the Government know that the amalgamations I have in mind are in the national interest, and as those concerned felt that it would be a considerable advantage to them to have this point cleared up, I am grateful for the Solicitor-General's promise, and I beg to ask leave to withdraw the Motion.
Motion and Clause, by leave, withdrawn.