Collyer (Inspector of Taxes) v Hoare & Company Ltd

JurisdictionEngland & Wales
JudgeLord Macmillan,Lord Buckmaster,Lord Warrington of Clyffe,Lord Atkin,Lord Tomlin
Judgment Date23 February 1932
Date1928
CourtHouse of Lords

[1932] UKHL J0223-1

House of Lords

Lord Buckmaster.

Lord Warrington of Clyffe.

Lord Atkin.

Lord Tomlin.

Lord Macmillan.

Hoare and Company, Ltd.
and
Collyer (Inspector of Taxes).

After hearing Counsel, as well on Friday the 27th as on Monday the 30th, days of November last, upon the Petition and Appeal of Hoare and Company, Limited, of Red Lion Brewery, St. Katharine's Way, in the County of London, 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 15th of October 1930, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order might be reversed, varied, or altered, and that the Petitioners might have the relief prayed for in the Appeal, or 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 E. W. Collyer (one of His Majesty's Inspectors of Taxes), 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 15th day of October 1930, complained of in the said Appeal, be, and the same is hereby, Discharged, and that the Judgment of the Honourable Mr. Justice Rowlatt, of the 5th day of July 1928, thereby Reversed, be, and the same is hereby, Restored: And it is further Ordered, That the Case be, and the same is hereby, remitted back to the Commissioners for the Special Purposes of the Income Tax Acts with a Direction to determine in each case in which a premium was charged and the rent received was below the Schedule A Assessment, or the rent paid as the case may be, what sum should be added to the rent received in respect of such premium for the purpose of determining what, if any, is the actual expense to which the Appellants have been put in maintaining the house as part of their business: And it is also further Ordered, That the Respondent do pay, or cause to be paid, to the said Appellants the Costs incurred by them in the Courts below, and also the Costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments.

Lord Buckmaster .

My Lords,

1

The Appellants are a Limited Company carrying on the business of brewers, and owning a number of licensed houses, many of which are let to tenants who are compelled to acquire from or through the Appellants all beers, wines, and spirits sold upon the premises so let. They also own a number of free houses, but the question in the present case does not apply to them. All these houses are assessed under Schedule A, at amounts fixed by determining the annual value for purposes of the Schedule a value which may be less or more than the rent actually paid under the lease or agreement which creates the tenancy. So far as the tied houses are concerned if in any case rent paid by the tenant is less than the amount of the assessment under Schedule A it has been decided in the case of Usher's Wiltshire Brewery, Ltd. v. Bruce that the Appellants are entitled in preparing their accounts for assessment under Schedule D to deduct as an expense the difference between the rent received and the Schedule A assessment. The principle underlying this decision is that such houses were solely and exclusively acquired for the purpose of the Appellants trade, and that by means of their exclusive use as a channel for the sale of the Appellants goods, the profits upon which they are to be taxed under Schedule D are earned. They are in fact regarded as business premises of the undertaking. The decision referred to places that point beyond controversy. In the present case, while accepting that principle, the Commissioners for Inland Revenue have sought to treat all the tied houses as a single entity, and, by bringing in the surplus rent which in certain cases the Appellants receive over and above the Schedule A assessment, they seek to reduce the amount of the allowances to which the Appellants are entitled in cases where the rent is below such assessment, and by this means to modify the amounts they are allowed to charge as expenses in their profit and loss account by virtue of the decision in Usher's case.

2

The Commissioners for special purposes decided the dispute in favour of the Appellants, and their opinion was confirmed by Mr. Justice Rowlatt, but reversed by the Court of Appeal. The judgment of the Court of Appeal depends upon the view that the decision in Usher's case treats the business as a whole, and regards the provision of all the houses treated as one entity as part of the business. I find it difficult to follow this reasoning from examination of the case nor does it seem to me consistent with the effect of the case of Fry v. Salisbury House Estate, Ltd., which decided that profits made from dealing with house property subject to assessment under Schedule A over and above the amount of such assessment, were not subject to tax. From this decision it would follow that if in all the houses in the present case there had been excess rentals that excess could not be taxed, but where, as here, the assessments are in some cases above and in some cases below the rent, the fact of using the rent to reduce the allowances to which the Appellants were entitled where the rents were deficient would result in causing the Appellants to pay the tax upon the surplus rents, and that notwithstanding the decision in Fry's case which distinctly holds that such surplus rents are immune.

3

The Assessments under Schedule A are each of them separate assessments in respect of each separate house, and in respect of each such house in appropriate conditions the principle of Usher's case applies, and I find it difficult to see how the allowances the Appellants are thereby entitled to make can be reduced because in a totally distinct property different conditions apply. I can see no ground upon which all the houses can be made into one, and unless they are so unified the Appellants are entitled to succeed.

4

I am not quite clear as to the extent to which the question of premiums received is still a matter of controversy, but it ought not to be difficult of determination. In all cases where rents are below the Schedule A assessment the premiums received in respect of such houses must be brought into the account for the purpose of determining what is the actual expense to which the Appellants have been put in maintaining the house as part of their business. The actual method by which the premium is so to be dealt with is not before us, but it ought not to be difficult of calculation.

5

For these reasons, I think the Appellants are entitled to succeed, the judgment of the Court of Appeal should be set aside, and the judgment of Mr. Justice Rowlatt restored.

Lord Warrington of Clyffe .

My Lords,

6

The Appellants, Hoare and Co., Ld., are the well known brewers of that name. They are the owners of a large number of "tied" houses, some freehold and some leasehold. They let these houses to publicans who are under an obligation to take their supply of beer exclusively from the Appellants. In the case of some of these houses they are let at rents less than the annual value under Schedule A in the case of freeholds and less than the head rent in the case of leaseholds. The Appellants also in some cases bear the expense of repairs and other expenses usually falling on tenants. They accept these reduced rents and make these payments for the purpose of thereby increasing the quantity of beer taken by the tenants and thus enhancing the profits of their trade as brewers. It is not disputed by the Crown that under the decision of this House in Ushers Wiltshire Brewery Company v. Bruce, 1915 A.C. 433, the difference between the actual rent taken and the annual value or the rent payable to the head lessor, as the case may be, and the amount of the expenses so incurred may be treated as costs wholly incurred in earning the profits of their trade, and therefore as a proper debit item in the account of profits and gains under Schedule D of the Income Tax Act. In some cases, however, the rents received by the Appellants exceed the annual value or the rent as the case may be, and the Crown contend that the amount of such excess must be brought into the account under Schedule D, but so far only as is required to wipe out the debit above mentioned, and that for this purpose the whole of the houses must be aggregated instead of treating each house as a separate item of assessment as it is under Schedule A.

7

This contention of the Crown, which is disputed by the Appellants, raises the whole question now in dispute between the parties.

8

The Commissioners and Rowlatt, J., decided this question in favour of the Appellants, but the Court of Appeal (Lord Hanworth, M.R., and Slesser and Romer, L.JJ.) took the opposite view. Hence this appeal.

9

A further point was raised in the Courts below. In some cases the Appellants charged and received a premium in addition to the rent, and the Crown contended that such premium ought to be taken into account in calculating the amount of the difference between the rents paid by tenants and the annual value and the head rent as the case may be, viz., in ascertaining whether in particular cases the receipts from the houses were in fact less than the annual value or the head rent. It is now conceded by the Appellants that the...

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