Colquhoun v Brooks

APPEAL from a decision of the Court of Appeal^F1 on the following case stated under 43 & 44 Vict. c. 19 s. 59 by the Income Tax Commissioners for the city of London for the opinion of the Queen's Bench Division. The assessment was for the year ending the 5th of April 1885.

Mr. Henry Brooks, who resides solely in England, and is a partner in Henry Brooks & Co., of No. 70 Bishopsgate Street Within, merchants, made his return for the firm for income tax in respect of the profits or gains of his said trade, on an average of three years, at the sum of £8294, and was assessed on that sum, and paid the tax thereon. He returned and paid tax in addition thereto on a sum of £3000 received by him in respect of a remittance from Australia under the following circumstances.

Mr. Brooks is also a partner and has a large capital invested in the firm of Brooks, Robinson & Co., of Melbourne, Australia, who carry on the business of window-glass, oil and colour merchants, and storekeepers at Melbourne. The two businesses are entirely distinct, and the said sum of £3000 represented the entire sum received by him during the financial year ending the 5th of April 1884.

The amount, however, standing to the credit of Mr. Brooks in the books of the firm of Brooks, Robinson & Co., as representing the estimated profits due to him for the year ending the 5th of April 1885, would, if realised, amount to £9219 in addition to the said sum of £3000.

This sum of £9219 was arrived at by an estimate and valuation on taking of stock on a certain fixed day after deducting therefrom the estimate and valuation of the preceding year, but as a matter of fact only a portion of the amount had been actually realised.

No portion of the sum of £9219 had been received in England or had at any time formed part of the income of this country.

On the above facts the Surveyor of Taxes contended that Mr. Brooks should be assessed, not only on the sum of £3000 remitted from Australia as aforesaid, but also on his estimate of profits of the firm of Brooks, Robinson & Co., of Melbourne, amounting to £9219 as aforesaid; and that he should make his return and be assessed under case 1, rules 1, 2, 3, and 4 to Schedule D to the Act 5 & 6 Vict. c. 35.

Mr. Brooks contended that those provisions did not apply to the assessment for income tax on such an interest as he had in the firm of Brooks, Robinson & Co., and applied only to cases where a trade was conducted, either in the United Kingdom or elsewhere, by the person assessed, and that the details of those rules, providing for the taking of an average of profits of trade, the various deductions to be allowed or disallowed in respect of repairs, depreciation of machinery, trade, plant, house rent, and interest of capital, &c., shew that the rules were inapplicable to his case. He contended that he was only liable to be assessed on such sums as came home to him and were received in England, and that the income arising from his money interest in the firm of Brooks, Robinson & Co. was in the nature of income from securities; and that the income should be charged under the 4th case, or, in the alternative, under the 5th case of the 5 & 6 Vict. c. 35. Mr. Brooks further referred to 5 & 6 Vict. c. 35 s. 100 Sched. D, 4th and 5th cases, also ss. 39, 106, 108; 5 & 6 Vict. c. 80 s. 2; and 16 & 17 Vict. c. 34 ss. 5, 10; 24 & 25 Vict. c. 91, all of which provided for the assessment and payment of income from trade, at the place where such trade is carried on, but in cases where the income arises abroad, only on its arrival in Great Britain.

The Commissioners of Taxes were of opinion that the assessment should be confined to such sums as were from time to time received by Mr. Brooks in Great Britain, allowed the appeal accordingly, and reduced the assessment to £11,294.

The question for the opinion of the Court is whether Mr. Brooks is liable to be assessed on the said sum of £9219, or any part thereof? If the Court be of opinion that Mr. Brooks is liable to be assessed on the said sum, or any part thereof, the Commissioners' assessment is to be increased by such amount as the Court shall find; but if the Court shall be of opinion that he is not liable so to be assessed, the assessment is to stand confirmed.

The Queen's Bench Division (Stephen J., Wills J. dissenting) held Mr. Brooks liable to be assessed on the sum of £9219^F2. This decision was reversed by the Court of Appeal (Lord Esher M.R., and Lopes L.J., Fry L.J. dissenting), who held that Mr. Brooks was not liable^F3.

The 16 & 17 Vict. c. 34 s. 2 Schedule D imposes income tax:—

“For and in respect of the annual profits or gains arising or accruing to any person residing in the United Kingdom from any kind of property whatever, whether situate in the United Kingdom or elsewhere, and for and in respect of the annual profits or gains arising or accruing to any person residing in the United Kingdom from any profession, trade, employment, or vocation, whether the same shall be respectively carried on in the United Kingdom or elsewhere, and to be charged for every twenty shillings of the annual amount of such profits and gains:

“And for and in respect of the annual profits or gains arising or accruing to any person whatever, whether a subject of Her Majesty or not, although not resident within the United Kingdom, from any property whatever in the United Kingdom, or any profession, trade, employment, or vocation exercised within the United Kingdom, and to be charged for every twenty shillings of the annual amount of such profits and gains:

“And for and in respect of all interest of money, annuities, and other annual profits and gains not charged by virtue of any of the other schedules contained in this Act, and to be charged for every twenty shillings of the annual amount thereof.”

By 5 & 6 Vict. c. 35 s. 100 Schedule D:—

“Fifth case. — The duty to be charged in respect of possessions in Ireland, or in the British plantations in America, or in any other of Her Majesty's dominions out of Great Britain, and foreign possessions.

“The duty to be charged in respect thereof shall be computed on a sum not less than the full amount of the actual sums annually received in Great Britain, either for remittances from thence payable in Great Britain, or from property imported from thence into Great Britain, or from money or value received in Great Britain, and arising from property which shall not have been imported into Great Britain, or from money or value so received on credit or on account in respect of such remittances, property, money, or value brought, or to be brought, into Great Britain, computing the same on an average of the three preceding years, as directed in the first case, without other deduction or abatement than is hereinbefore allowed in such case.”