Birmingham Corporation v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | Lord Buckmaster,Viscount Sumner,Lord Atkin,Viscount Dunedin |
| Judgment Date | 27 February 1930 |
| Judgment citation (vLex) | [1930] UKHL J0227-1 |
| Court | House of Lords |
[1930] UKHL J0227-1
House of Lords
Lord Buckmaster.
Viscount Dunedin.
Viscount Sumner.
Lord Blanesburgh.
Lord Atkin.
After hearing Counsel, as well on Monday the 9th, as on Tuesday the 10th and Thursday the 12th, days of December last, upon the Petition and Appeal of The Lord Mayor, Aldermen and Citizens of Birmingham, of the Council House, in the City of Birmingham, praying. That the matter of the Order set forth in the Schedule thereto, namely an Order of His Majesty's Court of Appeal, of the 1st of May, 1929, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order might be reversed, varied, or altered, or that the Petitioners might have such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of the Commissioners of Inland Revenue, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 1st day of May, 1929, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
The Attorney-General stated in his argument that this case could be confined in a nutshell. This may be true, but it is certain that when once liberated it assumed the dimensions of an Afrite and was equally difficult to recapture.
The issue arises out of an assessment to income tax of the Corporation of Birmingham and for its explanation it is necessary to refer to a few facts which can be briefly stated.
The Corporation of Birmingham owns and successfully works certain public undertakings such as Gas, Water, Electricity, Tramways, etc., the profits from which are considerable; by virtue of some private Acts of Parliament all such profits are carried into one fund known as The Borough Fund into which also are paid moneys levied by rates.
The Housing & Town Planning Act of 1919 provided by sec. 7 that in the case of a rehousing scheme carried out pursuant to its provisions by a local authority, the Local Government Board should, on certain conditions, all of which are satisfied in the present case, with the consent of the Treasury pay to the local authority out of moneys provided by Parliament "such part of the loss as may be determined to be so payable under regulations made by the Board with the approval of the Treasury, subject to such conditions as may be prescribed by those regulations."
The section continued to define the scope of these regulations as follows:—
"Such regulations shall provide that the amount of any annual payment to be made under this section shall—
(a) in the case of a scheme carried out by a local authority, be determined on the basis of the estimated annual loss resulting from the carrying out of any scheme or schemes to which this section applies, subject to the deduction therefrom of a sum not exceeding the estimated annual produce of a rate of one penny in the pound levied in the area chargeable with the expenses of such scheme or schemes; …"
The regulations made under this section threw on the local authority (see Art. IV) the duty of keeping a separate account to be called The Housing (Assisted Scheme) Accounts including a separate revenue account to be called the Housing (Assisted Scheme) Revenue 'Account, and directed that such accounts should be prepared so that they should cause to be debited in each financial year—
"(a) the sums required for interest and repayment of principal in respect of all moneys borrowed by them for the purposes of the assisted scheme (including moneys borrowed for the purchase of land which is approved by the Minister as part of the assisted scheme) which in the opinion of the Minister may properly be debited to the said account, …"
The Corporation for the three years 1921-22, 1922-23, 1923-24 prepared accounts on this basis showing serious deficits which were paid by the Exchequer, and it is in respect of the sums so paid that the claim for Income Tax has arisen.
The case of the Inland Revenue depends on the following facts: The Corporation raised loans to assist the scheme and in their accounts each year brought forward, as a debit item, the gross amount of the interest they had paid on such loans, a sum which in each case was larger than the ultimate deficit. In fact, of course, they paid the interest after deducting the tax and the Inland Revenue authorities contend that measured on the amount of the deficit the tax so retained must be paid over to them. The Commissioners, the learned Judge who heard the appeal from their decision and the Court of Appeal have all supported this contention.
The Corporation argue that these decisions are wrong because in their Borough Fund, out of which the payments for interest were made, there were large sums representing the profits on their undertakings which had already paid tax and that out of these sums they paid, as they were entitled to do, the interest on the loans. By this means the income tax in respect of the interest on the loans was discharged because the moneys used for its payment had already paid tax under Schedule D. They say therefore that they thus properly paid the gross amount of the interest and were entitled to bring in the full sum as a debit in their accounts.
The right of the Corporation to pay interest on loans out of taxed profits and to deduct the tax in so doing is established by authorities that cannot be disputed and need not be discussed; for the curious in such matters the cases of The London County Council v. The Attorney-General, (1901) A. C. p. 26; The London County Council v. The Attorney-General, (1907) A.C. 131, Sugden v. Leeds Corporation, (1914) A.C. 483 may be referred to.
But admitting this does not appear to me to solve the difficulty. The persons to whom the interest was payable are the persons whose income is to be taxed. If paid without deduction they could be assessed for the amount. If, however, paid out of profits taxed under Schedule D, the debtor can get a full discharge by paying the sum less tax; in such a case it is assumed he has paid the tax on behalf of his creditor and the creditor where entitled to abatement can recover on this hypothesis. In the present case, if the accounts had brought in the actual sum paid no question would have arisen, but the accounts were prepared for a department of the Crown to whom, acting through another department, the tax was payable, and, so regarded, were prepared upon the footing that the tax was unpaid, with the result that either the creditor was still liable for the tax or that, if it had been deducted, it was retained to satisfy his liability in that respect.
The first hypothesis was not accurate and the other is the only one tenable.
The position may be put in other words. The Corporation by the accounts put forward for the purpose of obtaining and measuring the subsidy, represented that the sum required for interest was the gross sum. If the interest was paid out of moneys already taxed this was not the sum required, they only required the lower figure. The statement therefore was equivalent to saying that the interest had not been paid out of moneys which had already paid tax. They cannot therefore now set up the contrary, but if not so paid the tax is still undischarged and it is in their hands for payment.
It is unnecessary to dwell on the results of the other contention, but it would appear and was indeed accepted that if it were correct the effect of the Act, the regulations and the circumstances were such as might cause part of the sum provided by the subsidy to be used in relief of the general...
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