TAX ON ILLEGAL PROFITS

Otago Daily Times, Issue 21632, 30 April 1932, Page 12

TAX ON ILLEGAL PROFITS

AN INTERESTING JUDGMENT. (From Our Own Correspondent.) LONDON, March 15. Mr Justice Rowlatt, in the King’s Bench Division, decided that illegal profits are subject to income tax. Mr E. Mann, an amusement caterer, appealed against an assessment in respect of profits from the use of automatic machines called “ fruit ” or “ diddler ” machines, which he had supplied to piers, licensed premises, and other places.

As a result of a decision that the machines were illegal, Mr Mann sold those he owned. He had not been convicted in respect of their use. Mr Justice Rowlatt asked whether, if a man’s “ business or, vocation ” were that of a smuggler, he would have to state that on his income tax return, Mr Justice Rowlatt also envisaged a Chancellor of the Exchequer resigning because an Attorney-general insisted on prosecuting lucrative criminals. “That,” he said, “ would be a magnificent political crisis.”— (Laughter.) The revenue authorities, stated Mr Justice Rowlatt, while claiming tax on the profits made, did not identify themselves with the making of the profits.

-Mr St. John Field (for Mr Mann): But they do seek to share them. Mr R. P. Hills (for the Crown) said there was an element of humour in a person coming to the court and saying: “ I am a criminal, and on constitutional grounds I object to your getting my profits from me.” AN ACCOMPLISHED FACT. Mr Justice Rowlatt, in the sourse of his judgment, said that he could not sec why this letting out of machines in a commercial way with a view to the receipt of profits in a commercial way was not a trade the profits of which were chargeable to tax. He thought that they were. The question was whether the words of the definition of trade were cut down by any overriding consideration of illegality. The mainstay of Mr Field’s argument was the Irish case of Hayes v. Duggan (1929) 1.R., 400, in which it was held that no construction was to be adopted which involved that the State should come forward and claim a profit from that which the State had prohibited and ought to have prevented. It was said rather rhetorically in that case: Will the executive keep its revenue eye open and vigilant and its eye of justice closed to crime if the crime bo lucrative?

He did not see why it should not have kept both eyes open, claiming its tax on the profits and taking criminal proceedings at the same time. But the view of the matter expressed in Hayes v. Duggan was, in his opinion, misconceived. The State was merely looking at an accomplished fact, not condoning or taking part in it. It saw profits from a trade and said: “Give us our tax.” He could not see that the State was alleging its own turpitude; it was the appellant who was alleging his own turpitude. Nor was the State taking a share of unlawful gains; it was merely claiming tax which was due. He had come to the conclusion that the revenue was right. The appeal would be dismissed, with costs.