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Clause 25—(Exemption Of Individuals And Partnerships Of Individuals From The Profits Tax)

Volume 440: debated on Wednesday 16 July 1947

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I beg to move, in page 22, line 44, at the end, to insert:

"(3) If, for a year or period which inclules, or for years or periods which together include, the whole of a chargeable accounting period of a trade or business carried on by a body corporate, the actual income of the body corporate from all sources is apportioned under or for the purposes of the said section twenty-one, and some (but not all) of the persons to whom the income is apportioned are individuals, then if by notice in writing given to the Commissioners within six months from the end of that chargeable accounting period, or such longer time as the Commissioners may in any case allow, the body corporate and the persons other than individuals to whom the income is apportioned jointly so elect as respects that chargeable accounting period and each subsequent chargeable accounting period the whole of which is included in a year or period or years or periods for which the said actual income is so apportioned to those persons and persons who are individuals, the provisions of this Part of this Act shall apply as if—
  • (a) the trade or business had been carried on, during that and each subsequent chargeable accounting period, in partnership by the persons to whom the income is apportioned, and the share of any one of them of the profits and losses of the trade or business therefor had been equal to the proportion of the income apportioned for the year or period or years or periods in question which is apportioned therefor to that one of them; and
  • (b) any payment which is received from the body corporate during that or any such subsequent chargeable accounting period by any of the persons to whom the income is apportioned, and which is not allowable as a deduction in computing the profits of the trade or business therefor, had not been made;
  • and the body itself shall not be chargeable to profits tax for that or any such subsequent chargeable accounting period."
    This Amendment is rather formidable in appearance but it is not so formidable when one analyses it. It is designed to meet a suggestion made by hon. Gentlemen opposite during the Committee stage. Clause 25 excludes the provisions relating to Profits Tax from applying to partnerships. Subsection (2) of Clause 25 excludes its application to certain companies under the control of five persons whose income has not been distributed to a reasonable extent and, in accordance with Section 21 of the Finance Act, 1922, has been deemed to be the income of the members of the company. It excludes those companies in so far as the members of the company are individuals. The hypothesis is that really the income there is the income of individuals and not the income of a body corporate, and, therefore, the company in that case should not be within the scope of Excess Profits Tax. Hon. Gentlemen opposite, however, during the Committee stage of the discussions on this Bill pointed out that Subsection (2) does not really provide for the case where income is apportioned to the members of a company of that kind under Section 21 of the Finance Act, 1922, when members are not individuals but are bodies corporate themselves. The suggestion was made that that particular position ought to be dealt with because it was a gap in the drafting as it then stood.

    This Amendment seeks to remedy that omission. It provides that where you have income apportioned to the Members of such a company, and some of the members are bodies corporate, the tax shall not apply to that company to the extent that its members are individuals and not bodies corporate. Really, it does justice in providing that, to the extent that the mem- bers of the company are individuals, the Profits Tax provisions shall not apply to that company. It effects a division in that company between that part of it which is owned by bodies corporate and that part which is owned by individuals.

    Amendment agreed to.

    Further Amendment made: In page 23, line r, leave out from first "of," to "account," in line 3, and insert:

    "the last two preceding subsections to what persons income is apportioned."—[The Solicitor-General.]