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HMRC internal manual

Business Income Manual

Meaning of trade: scope of trade: J Bolson & Son Ltd v Farrelly [1953] 34TC161

The point at issue in the case was whether the sale of ships used to provide a passenger service was a transaction on trading account or the disposal of fixed capital assets.

The company’s original activity had been the operation of a passenger boat service, though it also carried on shipbuilding and repair activities. The sales of ships used in the passenger service were treated as disposals of fixed capital assets.

Following the outbreak of the Second World War its passenger vessels were requisitioned and the passenger boat service was discontinued. However it continued, and expanded, its shipbuilding and repair activities throughout the war.

At the end of the war the company re-commenced its passenger boat service. It re-acquired requisitioned vessels, purchased others from The Admiralty, and converted and repaired these for use as passenger carriers. Certain of these vessels it sold, some after being used for a period in the passenger boat service. The company argued that the profits arising from the sale of these vessels were capital profits.

The Commissioners decided that the profits from the sales of the vessels were assessable as trading profits. The Court of Appeal held that the Commissioners had evidence to conclude that the sales were made by way of trade.

Although Harman J in the High Court thought there was a single trade, albeit with two separate branches, Jenkins LJ, in the Court of Appeal, proceeded on the basis that there were two separate businesses. Even so, he decided that there was evidence on which the Commissioners could properly come to their conclusion.

Jenkins LJ noted that:

‘… it seems to me that the true inquiry is: What in fact was the character of this business, described as it is as a passenger carrying business, during the relevant period?’

He went on to say that, on the facts, it was open to the Commissioners to conclude that:

‘… the so-called passenger carrying business during the period under review comprised not only the carrying of passengers but also the purchasing, reconditioning and reselling of the ships in question and that the trading character which these operations prima facie possessed was not destroyed or ousted by the use made by the appellant company of ships from time to time on hand for the purpose of carrying passengers. I think there was evidence on which the Commissioners could conclude that these ships never did become the “fixed capital assets” of a business of carrying passengers, but they were, throughout the relevant period, the subjects of a trade, albeit that while in hand they or most of them were used for passenger carrying purposes’ (at page 174).