Commissioners of Inland Revenue v Fraser
| Jurisdiction | Scotland |
| Judgment Date | 08 July 1942 |
| Date | 08 July 1942 |
| Court | Court of Session (Inner House - First Division) |
No. 1227-COURT OF SESSION (FIRST DIVISION)-
Income Tax, Schedule D-Trade-Isolated transaction - "Adventure in "the nature of trade."
In 1937 and 1938 the Respondent, a woodcutter, bought through an agent for resale whisky in bond for £407; the whisky was sold in 1940 for £1,131. This was the Respondent's sole dealing in whisky: he had no special knowledge of the trade, and he did not take delivery of the whisky nor did he have it blended or advertised.
The Respondent appealed against an assessment to Income Tax under Schedule D in respect of his profit on the transaction. The General. Commissioners found that the Respondent had merely made an investment, and that the profit on its realisation was not assessable to Income Tax.
Held, that the transaction was an adventure in the nature of trade.
At a meeting of the Commissioners for the General Purposes of the Income Tax Acts for the County of Moray, held at Elgin on 10th February, 1942, Richard Fraser, woodcutter, residing at Rafford, Forres (hereinafter called "the Respondent"), appealed against an additional first assessment to Income Tax under Schedule D of the Income Tax Act, 1918, for the year ended 5th April, 1941, on the sum of £712 arising from the purchase and sale by him of whisky in bond.
I. The following facts were admitted or proved:-
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(2) Towards the end of 1937 the Respondent instructed an agent to purchase on the Respondent's behalf whisky in bond to the value of about £400. Whisky was not available to that amount at that time and the agent completed the order in three parts as undernoted. The whisky was purchased with the sole object of resale if possible at a profit, and a profit as undermentioned was in fact made. The following is a statement of the dates of purchase and sale of the whisky with the profit made:-
(a) Purchased one lot in December,
Sold this lot in August, 1940,
1937, for
£71
for
£151
(b) Purchased one lot in May, 1938,
Sold this lot in August, 1940,
for
230
for
535
(c) Purchased one lot in November,
Sold this lot in November,
1938, for
106
1940, for
445
Total Purchases
£407
Total Sales
£1,131
Gross Profit
…
£724
Expenses
…
12
Net Profit
…
£712
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(3)
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(4) The Respondent had had no dealings in whisky before or after the above transactions. He was a man of little education with no special knowledge of the whisky trade. He did not take delivery of the whisky or have it blended or advertised. The purchases and sales were operated through an agent.
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(5) The purchase and sale of whisky in circumstances similar to that under consideration was a common type of transaction in the neighbourhood.
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(6) The outbreak of war had the effect of increasing largely the value of whisky, and the relatively large profit made by the Respondent is due to this fact.
II. It was contended on behalf of the Respondent:-
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(2) That the profit which was assessed to Income Tax represented the fruits of an isolated and casual transaction.
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(3) That the profit referred to was not income, but an accretion to capital.
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(4) That the Respondent's venture was not an adventure in the nature of trade, and had none of the characteristics of trading, but was the making and realisation of an investment, and that the assessment should be discharged.
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(5) Reference was made to the following cases:-
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(6) Commissioners of Inland Revenue v. Livingston and Others, 1927 S.C. 251; 11 T.C. 538.
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(7) Martin v. Lowry, [1927] A.C. 312; 11 T.C. 297.
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(8) Rutledge v. Commissioners of Inland Revenue, 1929 S.C. 379; 14 T.C. 490.
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(9) Leeming v. Jones, [1930] A.C. 415; 15 T.C. 333.
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(10) Ryall v. Hoare, [1923] 2 K.B. 447; 8 T.C. 521.
III. It was contended on behalf of the Appellants:-
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(2) That the profit in question was a profit arising from an adventure in the nature of trade (in the sense of Section 237 of the Income Tax Act, 1918) and was properly assessed to Income Tax under Case I of Schedule D.
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(3) That the buying and selling of the whisky in the circumstances constituted an adventure in the nature of trade.
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(4) That the whisky was on the face of the acting of the Respondent purchased with the sole intention of reselling it at a profit, and that to term the purchase of whisky an "investment" was a misuse of the word.
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(5) That it was immaterial for Income Tax purposes that the three purchases and subsequent sales of whisky were the Respondent's only dealings in whisky, since the profits on isolated transactions are assessable to Income Tax, provided an adventure in the nature of trade had been embarked upon-Rutledge v. Commissioners of Inland Revenue, 14 T.C. 490; T. Beynon & Co., Ltd. v.Ogg, 7 T.C. 125.
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(6) That special knowledge of a trade was not necessary to establish liability in respect of that trade-Martin v. Lowry, 11 T.C. 297; Rutledge v. Commissioners of Inland Revenue,14 T.C. 490.
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(7) That the absence of blending was irrelevant.
IV. The Commissioners, on consideration of the facts and arguments submitted to them, decided by a majority as follows:-
That an adventure in the nature of a trade had not been carried on; that merely an investment had been made and subsequently realised, and that the profit was not assessable to Income Tax. They accordingly discharged the assessment.
V. Whereupon the Inspector of Taxes for the Crown expressed his dissatisfaction with the determination of the Commissioners as being erroneous in point of law, and having duly required the Commissioners to state and sign a Case for the opinion of the Court of Session as the Court of Exchequer in Scotland, this Case is stated and signed accordingly.
VI. The question of law for the opinion of the Court is whether the majority of the Commissioners were warranted on the evidence in determining as they did.
Dated and signed at Elgin the 27th day of May, 1942.
P.F. HAMILTON GRIERSON.
EDWARD WALLACE.
The case came before the First Division of the Court of Session (the Lord President and Lords Fleming, Moncrieff and Carmont) on 7th and 8th July, 1942, and on the latter date judgment was given unanimously in favour of the Crown, with expenses.
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