Barr Crombie & Company v Commissioners of Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 27 February 1945 |
| Date | 27 February 1945 |
| Docket Number | No. 32. |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION.
RevenueIncome taxExcess profits tax"Profits"Compensation for loss of agencyCapital or income.
The manager of a shipping company, from its formation in 1924, were another company. Under an agreement dated 25th May 1937, which superseded the original agreement between the two companies, the managing company was to continue to act in that capacity until 1st January 1951; its remuneration, consisting of a management fee for each vessel plus certain commissions, was not to be less than 2,000 per annum; and by the fourth article of the agreement it was provided that, in the event of the liquidation of the shipping company, the remuneration in respect of the period from the date of liquidation to the date of expiry of the agreement was to become immediately due. On 5th November 1942, the shipping company went into voluntary liquidation. In accordance with the fourth article of the agreement the managing company received payment of 16,306, 16d. 11d., and was subsequently assessed to income tax and excess profits tax on the basis that the payment was a trading receipt of a revenue nature. As a result of the liquidation the managing company lost practically the whole of its normal business and had to reduce its staff and move into smaller premises.
Held that the payment was a capital payment which should not have been included in the computation of the profits of the business.
Barr, Crombie & Company, Limited, appealed to the Commissioners for the Special Purposes of the Income Tax Acts against an assessment to income tax for the year ending 5th April 1944 on the sum of 1,578, based upon the profits of the company
for the company's accounting year ending 31st March 1943. The company also appealed against an assessment to excess profits tax for the chargeable accounting period beginning 1st April 1942 and ending 31st March 1943 on the sum of 14,697. The special Commissioners confirmed the assessments, and, at the request of the appellants, stated two cases for appeal to the Court of Session.
Each case set forth that the following facts were admitted or proved:"(1) The company was incorporated as a private limited company on 3rd November 1916, and carries on the business of shipowners, shipping managers and agents. The issued capital was 5,000 divided into 5,000 shares of 1 each, which were originally held as to 3,000 shares by Mr Robert Barr and as to 2,000 shares by Mr Crombie. (2) The Barr Shipping Company Limited, hereinafter referred to as the shipping company was formed on 7th August 1924, and carried on the business of ship-owners until its liquidation as aftermentioned on 5th November 1942. In terms of the articles of association of the shipping company the company was appointed managers of its ships. (3) From the inception of the shipping company the company acted as their manager, and by minute of agreement dated 25th May 1937 ( a copy of which is attached hereto, marked "A," and forms part of this case), varying a previous minute of agreement, the company was to continue to act as managers of the shipping company, and its contract was extended for a period of 15 years from 1st January 1936. Under article third the remuneration was to be:The remuneration to be afforded to the third parties (that is the company) by the first parties (that is the shipping company) in terms of article third hereof, until the termination of this agreement, shall not be less than two thousand pounds per annum. Should the first parties go into liquidation either voluntary or compulsory or cease to carry on business for any other cause, then the remuneration to be paid by the first parties to the third parties in respect of the period from the date of such liquidation until the date of expiry of this agreement will become immediately due to the third parties. (4) On 5th November 1942 (i.e., 8 years before the expiry of the agreement the shipping company went into voluntary liquidation, and in terms of the said article fourth the sum sum of 16,306, 16s. 11d. was duly paid to the company. (5) For the 16 years from 1924 to 31st March 1940, 88.23 per cent of the company's company was derived from managing the shipping company, 1.78 per cent from other managements, and 9.99 per cent from sundry sources such as interest on loans. For the next three years the company obtained from the Ministry of War Transport the management of 1 British and 3 Norwegian ships: this was abnormal and temporary business which will cease if the ships are sunk (and 1 has been) or the war ends. Over the whole 19 years to 31st March 1943 the respective proportions are 84.32 per cent, 7.65 per cent and 8.02 per cent. Upon the liquidation of the shipping company the company lost its entire business apart from the abnormal business above referred to. In consequence of the said liquidation the company effected reductions of their staff and salaries, and moved to smaller premises. A statement showing the gross income received by the company from the shipping company and other sources is attached hereto, marked "B," and forms part of this case."
In each case the contentions of the parties were stated as follows:
"It was contended on behalf of the company: (1) that the case fell within the ratio of Chibbett v. RobinsonUNKTAX,(1924) 132 L. T. 26, 9 T. C. 48; (2) that the said sum...
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