Birmingham Corporation v Barnes
| Jurisdiction | England & Wales |
| Date | 1935 |
| Court | House of Lords |
NO. 951-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax, Schedule D-Wear and tear allowance-"Actual "cost" to person charged of machinery or plant-Income Tax Act, 1918 (8 & 9 Geo. V. c. 40), Schedule D, Cases I and II, Rule 6 (6).
The Appellant Corporation entered into an agreement with a company to lay a tramway track and establish a tramway service to the company's works and, by virtue of the work having been completed and the service established by a certain date, received from the company, in accordance with the terms of the agreement, a specified sum.
The Corporation also expended considerable sums on the renewal, etc., of their tramway tracks, in respect of which they received grants from the Unemployment Grants Committee. These grants were made under certain conditions to local authorities to assist them in carrying out at once approved schemes of work of public utility on which a substantial number of unemployed persons could be engaged.
Held, that the payment by the company and the grant from the Unemployment Grants Committee should not be taken into account in ascertaining, under Rule 6 (6) of Cases I and II of Schedule D, the "actual cost" to the Corporation of the tramway tracks in question for the purposes of computing the allowance due to the Corporation for wear and tear of such tracks.
Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 13th December, 1932, for the purpose of hearing appeals, the Corporation of Birmingham (hereinafter called "the Corporation") appealed against assessments to
Income Tax for the years ending 5th April, 1931, and 5th April, 1932, respectively, made upon it in respect of the profits of its tramways undertaking by the Additional Commissioners of Income Tax for the Division of Hemlingford under the provisions of the Income Tax Acts.2. The sole question at issue on the appeal was the amount of the deductions to be allowed under Rule 6 of the Rules applicable to Cases I and II of Schedule D in respect of the diminished value by reason of wear and tear during the respective years of the Corporation's tramways tracks.
3. On 19th April, 1920, the Corporation entered into an agreement with the Dunlop Rubber Company, Ltd., (a copy of which marked "A" is attached hereto and forms part of this Case)(1) to lay a tramway track and establish a tramway service between Salford Bridge, Erdington, and the Company's works upon the terms that in view of the facilities which the tramway would give for the employees of the Company to travel to and from its works the Company would pay the Corporation the sum of £10,000 if the track was laid and a regular service established by the 1st June, 1920, and a further sum of £50 for each day the service was run prior to that date. The Corporation fulfilled these requirements, and a sum of £10,806 was paid by the Dunlop Rubber Company, Ltd. The Corporation laid the track by direct labour at a total cost of £54,752.
4. In the year ending 31st March, 1922, the Corporation spent £271,399 on renewals of its tramway tracks, and received £46,238 from the Government Unemployment Grants Committee.
5. On 22nd December, 1920, the Unemployment Grants Committee had issued a Circular Letter to County Councils and other Local Authorities (a copy of which marked "B" is attached hereto and forms part of this Case)(1), drawing attention to an announcement made in Parliament that the Government had decided to provide a grant of £3,000,000 for the purpose of assisting Local Authorities to carry out at once works on which a substantial number of the unemployed could be engaged. This letter described the conditions imposed upon or adopted by the Committee to govern the distribution of the grant. These conditions were that works would be approved only in areas where the existence of serious unemployment which was not otherwise provided for was certified by the Ministry of Labour; that preference in employment must be given to unemployed Ex-Service Men; that the grant must not in any case exceed 30 per cent. of the wages bill of additional men taken on for work; that the works must be such as were approved by the appropriate Department of the Government as suitable works of public utility; that the unemployed workmen taken on must remain on the registers of the Employment
Exchanges and would be required to take other work at any time if the Exchanges were in a position to offer them such work; and that the actual working of the schemes and the accounts relating thereto should be open at any time to any inspection required by the Committee. Applications for a grant were invited, which were to be accompanied by a general description of the works to be undertaken; a statement of the estimated expenditure on the whole scheme, showing the cost of labour as a separate item; an estimate of the expenditure which would be incurred on labour during the next three months; an estimate of the average number of men likely to be continuously employed on the work during the next three months, or of the number of additional men who would be taken on if a grant were made; information as to the manner in which the balance of the cost of the scheme would be defrayed, and the date when the scheme could be commenced or additional men taken on.6. The Corporation made applications to the Unemployment Grants Committee for assistance under the specified conditions and furnished the particulars required in regard to the works to be undertaken and the Committee assented to the grants. The schemes in respect of which applications for assistance were made included, inter alia,works described as the reconstruction of tramway tracks in certain named roads, and in applying for the actual payment of the grants the proper officers of the Corporation set out in the prescribed form the numbers of and payments made to workmen in respect of whose wages a claim was made, and certified that all workmen in respect of whose wages a claim was made had been taken through the agency of an Employment Exchange; that the accounts and vouchers of the Corporation relating to the work in question were available to be submitted to audit when required by the District Auditor on behalf of the Unemployment Grants Committee; and that the payment of wages to workmen engaged for the work through the Employment Exchange had been duly made and accounted for as shown in the statement submitted. Copies of the documents relevant to the applications for and payments of the grants, marked "C," are attached hereto and form part of this Case(1).
7. As a matter of administrative convenience, the Board of Inland Revenue have from time to time agreed with representatives of Local Authorities and other persons working tramways schemes for the computation of the deductions to be allowed in respect of the wear and tear of the machinery and plant used for the purposes of such concerns. By paragraph 2 of a scheme adopted in 1922 it was provided that "From the date when the track, or any portion "thereof, is or has been renewed, such renewal shall be recorded "and dealt with as if it were a new track, and annual allowances
"shall be granted in respect thereof on the basis of the sum "actually expended and of the agreed life as provided in paragraph "3, provided that such allowances shall continue until the "full cost has been allowed, notwithstanding that the said track "or portion thereof may be again renewed before such aggregate "cost has been allowed. This proviso shall apply also to expenditure "on new track since 1908." Paragraph 3 of the scheme dealt with the methods to be adopted in computing the life of the permanent way of a tramway undertaking. In the case of the Corporation's tramways the agreed life of the tracks has been taken as twelve years.8. Between 1921 and 1926 several questions were under debate between the Board of Inland Revenue and various Local Authorities in regard to the manner in which grants from the Unemployment Grants Committee ought to be dealt with for the purposes of computing the liability to Income Tax of the Authorities which had received them, and the determination of the amount of the deductions to be allowed to the Corporation in respect of the wear and tear of its plant was left in suspense. In October, 1926, the Special Commissioners heard an appeal by another Local Authority in which one of the questions at issue was whether the deduction to be allowed in respect of the diminished value of the permanent way of the Authority's tramways by reason of wear and tear during the year under review ought to be based on the full value of the track or on the net cost to the Authority of the relaying of the track after the deduction of the amount of a grant received from the Unemployment Grants Committee towards the cost of the work. The Commissioners who heard that appeal decided that they must fix the allowance under Rule 6 on the value of the plant in question, irrespective of the fact that the cost of the plant was in part defrayed by some other person than the owner. In giving this decision they observed that the question of the actual cost to the Appellant Authority would become material in course of time when Sub-section (6) of the Rule was applied.
9. The principle of this decision was followed in settling the deductions allowed for wear and tear of the Corporation's tramways tracks. A deduction at the rate of £4,563, or one-twelfth of the total cost of £54,752, was allowed for each of the years from 1921-22 to 1929-30 inclusive, in respect of the new track laid in 1920, and a deduction at the rate of £22,617, or one-twelfth of the total cost of...
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