Commissioners of Inland Revenue v Niddrie and Benhar Coal Company, Ltd
| Jurisdiction | Scotland |
| Judgment Date | 15 March 1951 |
| Date | 15 March 1951 |
| Court | Sheriff Court |
No. 1467-COURT OF SESSION (FIRST DIVISION)-
Income Tax, Schedule D - Deduction - Claims by railway company in respect of detention of coal waggons by colliery company - Liability denied and no payments made - Claims discharged as part of subsequent agreement between the companies - Whether colliery company entitled to a deduction.
Under an agreement made in 1889, the Respondent Company sold to a railway company a number of coal waggons on terms which provided that the waggons were to be reserved for the exclusive use of the Respondent Company, who would keep them fully employed in carrying coal over the railway company's tracks. From 1909 onwards the railway company regularly presented claims for demurrage in respect of detention of the waggons by the Respondent Company, but the latter denied liability and no effort was made by the railway company to enforce payment of the claims. The Respondent Company reserved in its accounts sums equal to the railway company's successive claims for demurrage, but no deduction in respect thereof was allowed for Income Tax purposes, it being agreed between the Company and the Revenue that any sums eventually paid for demurrage would be chargeable against the profits of the year of payment.
Under an agreement made in 1944 between the Respondent Company and the railway company it was agreed inter alia that the 1889 agreement should be cancelled and all the railway company's demurrage claims discharged.
On appeal to the General Commissioners against an assessment to Income Tax under Case I of Schedule D, the Respondent Company contended (i) that the discharge of the claims was equivalent to payment by the Company, the consideration for the discharge being the cancellation of the earlier agreement, which was a valuable agreement to the Company; (ii) that the Company was entitled to a deduction for Income Tax purposes in respect of the payment of the claims. The deduction claimed was one-half of the total sum of £35,631 claimed by the railway company for demurrage. It was contended for the Crown that no payment of demurrage had ever been made and therefore that no deduction was due. The Commissioners held that £7,000 should be deducted.
Held, that the Commissioners were not entitled, on the facts, to allow the deduction of £7,000.
Stated for the opinion of the Court of Session as the Court of Exchequer in Scotland under Section 149 of the Income Tax Act, 1918.
At meetings of the Commissioners for the General Purposes of the Income Tax for the Division of Edinburgh held at Edinburgh on 3rd March, 1949, and 8th December, 1949, for the purpose of hearing appeals, the Niddrie and Benhar Coal Co., Ltd., of 2 York Place, Edinburgh (hereinafter called "the Respondent Company") appealed against an assessment in the sum of £130,000, less £11,106 wear and tear, made upon it for the year 1945-46 under Case I of Schedule D in respect of trading profits.
I. The following facts were admitted or proved:-
(2) By an agreement dated 4th September, 1889, known as the "Thirled Waggon Agreement", a copy of which is annexed hereto marked "A" and forms part of this Case(1), the Respondent Company sold to the North British Railway Company 1092 coal waggons for £25,116.
(3) In terms of the Thirled Waggon Agreement the said waggons were to be held to belong to the railway company as from and after 31st August, 1889, and the Respondent Company was to be charged and was to pay in respect of all traffic carried in them from and after that date "the ordinary rates applicable to traffic conveyed in "Railway Company's waggons." The said waggons or their substitutes were to be set aside exclusively for the Respondent Company's use and the Respondent Company bound and obliged themselves to keep the said waggons constantly employed as heretofore in carrying coal traffic over the North British Railway so long as they carried on the business of coalmasters on the North British Railway system.
(4) The Thirled Waggon Agreement also provided that in the event of any question or difference arising between the parties as to the true intent, meaning and effect thereof or the due implement thereof, the same was thereby submitted and referred to the amicable decision, final sentence and Decree Arbitral of the Sheriff of Lanarkshire.
(5) No mention of demurrage is made in the Thirled Waggon Agreement, but from time to time from 1909 onwards the railway company claimed demurrage from the Respondent Company in respect of detention of said waggons. The Respondent Company denied liability and refused to pay.
(6) In 1912 the railway company when sending to the Respondent Company the periodical account in respect of traffic conveyed, attached thereto a letter offering to accept in settlement of the aggregate demurrage charges to date, 40 per cent. of the amount thereof provided payment was made before 31st December, 1912. The Respondent Company did not accept this offer but suggested that the matter in dispute be determined by arbitration in terms of the arbitration clause in the Thirled Waggon Agreement. The railway company did not adopt this suggestion and apart from continuing to send to the Respondent Company claims for demurrage never subsequently exerted any pressure to compel the Respondent Company to make payment of the sums claimed for demurrage. The Respondent Company in making up its annual profit and loss accounts deducted as a liability the sums claimed by the railway company as demurrage.
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(7) Sometime prior to 1918 the question was raised for taxation purposes whether the Respondent Company was entitled to a deduction in respect of the said demurrage claims. This question was allowed to stand over pending the settlement of other matters which affected
the Respondent Company's taxation liability in respect of inter alia war years. The Respondent Company in its accounts had set aside a reserve in respect of the railway company's claim for demurrage. (8) On 10th December, 1924, at an adjourned hearing of appeals against assessments to Income Tax for the years 1918-19 to 1923-24, the General Commissioners for the Division of Edinburgh dealt with certain matters arising out of the said assessments and with regard to the demurrage claims they adopted the principle of allowing provisionally as a deduction for Income Tax purposes one half only of the demurrage reserve pending a complete settlement at some future time of the demurrage dispute between the Respondent Company and the railway company. Having given interim decisions the General Commissioners adjourned the hearing of the said appeals.
(9) On 1st July, 1925, the Special Commissioners heard an appeal by the Respondent Company against an Income Tax assessment made upon it for the year 1917-18. The question for...
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Gault v Commissioners of Inland Revenue
...for the Crown. The following cases were referred to in the opinion of the court: IR Commrs v Niddrie and Benhar Coal Co Ltd TAX(1951) 32 TC 244 McKerron (R & D) Ltd v IR Commrs TAX(1978) 53 TC 28 Ottley v Morris (HMIT) TAX(1978) 52 TC 375 Rose v Humbles (HMIT) TAX(1971) 48 TC 103 This was a......