Discount on a commercial bill differs from interest because, unlike interest, it does not accrue from day to day. If the discount is income, it is assessable to the holder at maturity or when the bill is sold by the holder to a third party because only in that year can the profit be ascertained and earned. No income is earned before that year because the holder of the bill is entitled to either sell the bill at any time or keep it until maturity. The House recognised a clear distinction between a discount and interest. Lord Salmon said: ‘Although there may be some superficial similarity between (a) lending andpound;10,000 for 5 years at a rate of interest of X per cent per annum on the terms that none of the interest amounting in all to andpound;5,000 shall be payable until the principal becomes repayable and (b) buying a foreign bill of exchange with a face value equivalent to andpound;15,000 for a price equivalent to andpound;10,000, the two transactions are, in my view, essentially different from each other in character.’ and ‘It is well settled by the authorities cited by my noble and learned friends that a profit may not be taxed until it is realised. This does not mean until it has been received in cash but it does mean until it has been ascertained and earned.’
Lord Fraser of Tullybelton (majority) said: ‘Stamp LJ reached his conclusion in favour of the Crown by accepting the submission [1977] Ch 77, 87a, ‘that there is no distinction in principle between earning interest and earning discount.’ With respect, I cannot agree with that view. In my opinion there is an essential difference between interest and discount, so much so that to speak of ‘earning’ discount seems to me wrong. Interest accrues from day to day, or at other fixed intervals, but discount does not.’
Lord Salmon, Lord Fraser of Tullybelton, Lord Keith
[1978] AC 834
England and Wales
Citing:
Appeal from – Willingale (Inspector of Taxes) v International Commercial Bank Ltd CA 1977
Stamp LJ referred to: ‘the income tax rule that you may not be taxed on an anticipated profit.’
Sir John Pennycuik said: ‘But it is likewise well established that the principles of commercial accountancy must yield not only to statutory . .
Cited by:
Cited – Pike v HM Revenue and Customs CA 20-Jun-2014
The taxpayer challenged rejection of his claim for a loss relief arising from a ‘relevant discounted security’ within the meaning of Schedule 13 to the Finance Act 1996.
Held: It would only be such if, taking the security as at the time of its . .
These lists may be incomplete.
Updated: 20 June 2021; Ref: scu.526981
