Collyer (HM Inspector of Taxes) v Hoare and Company, Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 23 February 1932 |
| Date | 23 February 1932 |
| Court | King's Bench Division |
NO. 838.-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
COURT OF APPEAL.-
HOUSE OF LORDS.-
Income Tax, Schedule D - Brewer - Beer, wine and spirit merchant - Deduction - "Deficiency of rent" - Method of computation.
The Respondents in the first case were brewers and the Respondents in the second case were beer, wine and spirit merchants. Both Companies were owners and lessees of a number of licensed houses which they let to tenants who were "tied" to purchase their liquors from the Companies. Leases were granted for periods of from 31/2 to 21 years and in a number of cases the tenants paid a premium in addition to the annual rent.
The rent paid by the Company or the amount of the Schedule A assessment (where the Company was the freeholder) was in nearly every case greater than the rent paid by the tied tenant, but less than the rent paid by the tenant plus the sum arrived at by spreading over the term of the lease the premium paid by him.
The Crown contended that in determining whether the Companies had sustained a deficiency of rent in connection with their tied houses (which would admittedly be admissible as a deduction under the decision in Usher's Wiltshire Brewery, Ltd. v. Bruce(2) both rents and premiums received must be taken into account; and that the figures for all the tied houses must be aggregated for that purpose.
Held,
Held, that in determining the amounts to be allowed as deductions in respect of deficiencies of rent each tied house must be considered separately; and that in computing the appropriate deduction for a particular tied house account must be taken of any premium paid as well as of rent.
(1) COLLYER (H.M. INSPECTOR OF TAXES) v. HOARE & CO., LTD.
Stated under the Taxes Management Act, 1880, Section 59, and 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 the 14th May, 1924, for the purpose of hearing appeals, Hoare and Company, Limited, (hereinafter called the Company) appealed against the following assessments to Income Tax made upon the Company under the provisions of Schedule D of the Income Tax Acts in respect of the profits of its trade.
For the year ended the 5th April, |
1918, in the sum of £70,000 |
1919, £114,583 |
|
(less £7,404, wear and tear). |
|
1920, in the sum of £145,805 |
|
(less £, 6406, wear and tear). |
|
1921, in the sum of £215,000 |
|
1922, £205,000 |
|
1923, £220,000 |
|
1924, £180,000 |
2. The Company carries on the business of brewers at the Red Lion Brewery, St. Katherine's Way, E. Following a common practice among brewers, the Company has, in order to increase its trade, purchased from time to time licensed houses, which it lets on yearly tenancies or for periods ranging from seven to twenty-one years, to tenants who are tied to the Company for all the beer, wine and spirits sold in the premises let. In very rare instances only are licensed houses let by the Company without such a tie. The Company has a few free tenants. At the date of the appeal, the Company had about 600 leasehold or freehold licensed houses let to tied tenants.
3. The tenants who are not tied to the Company are allowed a higher rate of discount for the goods purchased from the Company than is allowed to the tenants who are tied. On the other hand, a tenant who is not tied is charged a higher rent for the premises than a tied tenant would be, the difference in the rent being calculated by taking a percentage (five per cent. in town and three per cent. in the country) of the cost price to the tenant of the normal quantity of beer sold annually in the house.
4. In a number of cases, which, however, form only a small proportion of the total number of licensed houses, the tenant was charged a substantial premium for the lease in addition to the annual rent. A statement marked "A" is annexed, giving particulars of all the leases-eleven in number-granted during the three years ended the 5th April, 1922, for which a premium was charged in addition to the rent and a statement marked "B" showing the value of the barrelage. Statement "A" also shows the rent which the Company would have expected to obtain had the houses been let to a tenant who was not tied on the footing that he also paid the premium shown in column 5 of the statement.
5. Under the decision in the case of Usher's Wiltshire Brewery, Limited v. Bruce, [1915] A.C. 433(1), the Company is entitled to a deduction in computing the profits of its trade for assessment under Schedule D of the difference between the rents paid by the Company for its leasehold houses, or the Schedule A assessments of its freehold houses, and the rents received by it from the tied tenants, and also to a deduction for the amounts expended on repairs to its tied houses.
6. The Company in making up its own accounts brought into its profit and loss account, as items of receipt or expenditure, all rents received and paid by it and also the premiums (spread over the periods of the leases in annual proportions) charged on granting the leases.
Nothing was debited in the Company's accounts in respect of the annual value or rent forgone or sacrificed in respect of the Company's own freehold properties, whether occupied by the Company or let to tied tenants, and evidence of a chartered accountant called by the Inspector of Taxes was given to the effect that no such deduction could properly be made in computing commercial profits, and the Company did not dispute this evidence.
7. It was contended on behalf of the Company:
(2) That the premiums received on the grant of leases of the licensed houses were not receipts arising from its trade as brewers.
-
(3) That notwithstanding the receipt of the premiums the whole of the difference between the rents paid for the licensed houses (or the Schedule A assessments thereon) and the
rents received by the Company was admissible as a deduction in computing the profits of the Company for assessment under Schedule D. (4) That, on either view, the premiums should be wholly excluded from the Company's profits for the purpose of such assessment.
8. It was contended on behalf of the Crown (inter alia):
(2) That all receipts of the business on revenue account and all expenses of the business on revenue account must be included in the account made out to compute the profits made by the trader in his business.
(3) That the premiums as received or a part of the premiums as shown in the Respondent's own accounts, or as arrived at on an actuarial basis, and also all rents as received are therefore includable in computing the profits for the purpose of Case 1 of Schedule D.
(4) Alternatively, if such premiums or parts of premiums and rents are not so includable they should be taken into account in ascertaining whether there has been a deficiency of rent or rent forgone or otherwise.
(5) That the debit entry as to the annual value of property dedicated to the business in the case of freehold houses is the amount of the assessment under Schedule A as reduced for the purposes of collection under Rule 7 of No. V of Schedule A.
9. We held that the premiums received by the Company on the grant of leases were not receipts arising from its trade as brewers, and that no regard should be had to those premiums in arriving at the amount of the deficiency of rents to be allowed as a deduction in computing the Company's profits under the decision in the case of Usher's Wiltshire Brewery Company, Limited v. Bruce.
We also held that the excess of rents received by the Company over rents paid by it (or in the case of freehold premises, over the Schedule A assessments) should not be brought into the computation of the Company's liability.
We accordingly held that the premiums and any excess of rents should be altogether excluded in the computation of the Company's liability to assessment under Schedule D in respect of the profits of its trade.
10. We adjourned the appeal for the correct amounts of the said assessments to be ascertained, having regard to the principles decided by us. These amounts were subsequently agreed and, on the 17th February, 1926, we gave our final determination of the appeal, amending the said assessments to the following amounts:-
£ |
|
For the year ended 5th April, 1918 |
31,622 |
1919 |
47,347 |
1920 |
100,806 |
1921 |
142,911 |
1922 |
185,346 |
1923 |
178,608 |
1924 |
194,587 |
11. The Appellant, immediately upon the determination of the appeal, declared to us his dissatisfaction therewith as being erroneous in point of law and in due course required us to state a Case for the opinion of the High Court pursuant to the Taxes Management Act, 1880, Section 59, and the Income Tax Act, 1918, Section 149, which Case we have stated and do sign accordingly.
J. JACOB, MARK STURGIS, N. ANDERSON Commissioners for the Special Purposes of the Income Tax Acts.
York House,
23, Kingsway,
London, W.C.2.
17th February, 1928.
re PREMIUMS RECEIVED.
Name and address of house. |
H. & Co's holding. |
Date of lease. |
Period of lease. |
Premium. |
Assessment. |
Tied rent. |
Trade. |
Rent if free with same premium. |
£ |
£ |
£ |
£ |
|||||
Falcon, South Street, Ponders End, N. |
Freehold |
24/4/1919 |
7 years from 25/3/1919. |
1300 |
1919 : 140 1922 : 150 |
100 |
360 Barrels |
175 |
Off Licence, 24, Orford Road, Walthamstow. |
Freehold |
1/8/1919 |
7 years from 25/7/1919. |
150 |
1919 : 50 1920 : 65 |
25 |
83 Barrels £750 Bottled Beer |
80 |
Crown & Sceptre, Britannia St., City Road. |
Freehold |
8/3/1920 |
14 years from 25/12/1919. |
1000 |
1919 : 150 1920 : 195 |
100 |
421 Barrels |
200 |
Junction Tavern, Raynes Park |
Freehold |
5/1/1920 |
14 years from 25/12/1919. |
1000 |
210 |
100 |
362 Barrels |
220 |
Kings Head, Hogarth Place, Earls Court. |
Freehold |
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