Adam Steamship Company v Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 25 November 1920 |
| Docket Number | No. 16. |
| Date | 25 November 1920 |
| Court | Court of Session |
Lord President (Clyde), Lord Mackenzie, Lord Skerrington, Lord Cullen.
RevenueExcess Profits DutyProfits of tradeDeductionsMoney wholly expended for purposes of tradePayments by shipowners to mutual insurance associationAssociation contributing to funds of Shipping FederaationFinance (No. 2) Act, 1915 (5 and 6 Geo. V. cap. 89), sec. 40 (i.), Fourth Schedule, Part I.Income-Tax Act, 1842 (5 and 6 Vict. cap. 35), sec. 100, Schedule D, 1st and 2nd Cases, rule 1.
A steamship company was a member of a shipowners' mutual insurance association, the members of which were bound to pay all calls made on them by the association, failure in payment rendering their indemnity rights liable to forfeiture. The association, in terms of a power in its regulations to support, and to contribute to the funds of, a central association for the defence or promotion of the general interests of shipowners, was a member of a body known as the Shipping Federation, and from time to time made calls on its members for the purpose of making payments to the federation. The company claimed the right to deduct from the return of profits of its business for the purpose of excess profits duty the amount of the calls paid by it to the association, as being payments of the nature of insurance premiums, and therefore money wholly and exclusively expended by the company for the purposes of its trade.
Held that the fact that the company, as a condition of obtaining the benefit of insurance, was bound to pay the calls made upon it was not per se sufficient to establish that the calls were money expended for the purposes of its trade; and that the onus was on the company to prove how much of the calls was actually applicable to these purposes.
At a meeting of the Commissioners for the General Purposes of the Income-Tax Acts, held at Aberdeen on 14th August 1919, and at an adjourned meeting, held on 18th September 1919, the Adam Steamship Company, Limited, appealed against assessments to excess profits duty of 49, 10s. for the accounting period ended 30th April 1915; of 124, 5s. 4d. for the accounting period ended 30th April 1917; and of 123, 4s. for the accounting period ended 30th April 1918, charged on them under the Finance (No. 2) Act, 1915 (5 and 6 Geo. V. cap. 89), the Finance Act, 1916 (6 and 7 Geo. V. cap. 24), and the Finance Act, 1917 (7 and 8 Geo. V. cap. 31).*
The Commissioners dismissed the appeal, and at the request of the appellants stated a case for appeal to the Court of Session.
The case set forth:
The point on which the decision of the Court is sought is whether the General Commissioners were entitled to require the appellants to produce or cause to be produced particulars of the purposes for which the amounts of the calls after referred to were expended by the Shipping Federation, Limited, and in default of such production by or through the appellants to dismiss the appeal, or were bound to decide on the evidence produced whether the amounts of the said calls were proper deductions for the purpose of excess profits duty. On the assumption that the amounts of the calls are not to any extent allowable deductions, it is agreed that the duty as calculated is correct.
I. The following facts were admitted or proved:
(1) The appellants are members of the North of England Protecting and Indemnity Association (hereinafter called the Association), which is a mutual insurance association, and which in turn is a member of the Shipping Federation, Limited.
(2) The assessments are additional assessments made under No. 11 of the Regulations prescribed by the Commissioners of Inland Revenue under section 45 (7) of the Finance (No. 2) Act, 1915, in respect of certain calls made on the appellants by the Association in terms of the articles of association and relative rules of the Association.
(3) Clause 26 of the said articles of association provides:The directors may from time to time make calls upon the members for payment, either in one amount or by instalments, of any sums
which the members are liable to pay to the Association. Clause 33. If any member makes default in payment of any call at the time and place appointed for payment thereof, he may be forthwith sued by the Association for the amount thereof, and he shall pay interest thereon at the rate of 7, 10s. per cent per annum from the day appointed for payment to the time of actual payment. And the directors may also, by resolution, declare that such defaulter shall, as from the date of the default, or as from any later date fixed by the directors, cease to be in any way protected or indemnified in the Association.
(4) Clause 62 of the said articles of association is in the following terms: The directors may join in the promotion or support of a Central Association or other organisation having for its object the defence or promotion of the interests of shipowners as a body, and may make calls upon the members for the purpose of contributing from time to time to the funds of such Central Association, or other organisation, such sums as they may deem necessary. The directors may elect and send representatives to take part in the deliberations or management of any such Central Association or other organisation.
(5) Rule (1) of the Rules of the Association, Schedule B, Class II. (Indemnity), provides as follows:These rules are subject to the memorandum and articles of association of the North of England Protecting and Indemnity Association, and the members for the time being of this class shall form one separate class within the said Association, and shall be bound by the said memorandum and articles of association, and by these rules. Rule (2) specifies the various liabilities against which an owner is indemnified by the Association, and these may be summarised as follows:(a) Claims by the owners of cargo carried in the steamer against her owners. (b) Excess liability for damages, &c., not covered by ordinary policies. (c) Losses incurred through innocent breaches of customs laws by servants of the shipowner. (d) Losses through failure to have negligence clauses in shipping documents. (e) Cargo's proportion of general average. Rule 17 of the said rules provides:The liabilities to the Association arising under this class are enforceable in the manner provided by the articles of association as to calls. Rule 18 of the said rules provides:For the purpose of providing funds for the payment of claims and other liabilities of the Association every member of this class shall (in addition to the entrance fee and subscription mentioned in Rule 14 hereof) pay to the Association two half-yearly contributions of 1/2d. per ton, or such sum as the directors may determine, on the tonnage entered by him. If the amount realised by the said contributions shall at any time prove insufficient to meet the said claims and liabilities, the directors may make calls for further contributions, which members shall be bound to pay. If the amount realised by the said contributions shall be more than sufficient to meet the said claims and liabilities, then in the discretion of the directors the whole or any portion of the surplus may be retained for the purposes of the Association, or the whole or any portion of the surplus...
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