Commissioners of Inland Revenue v Reinhold
| Jurisdiction | Scotland |
| Judgment Date | 23 January 1953 |
| Date | 23 January 1953 |
| Court | Court of Session (Inner House - First Division) |
COURT OF SESSION (FIRST DIVISION)-
Income Tax, Schedule D - Purchase and sale of house property - Whether adventure in the nature of trade.
The Respondent, a director of a company carrying on the business of warehousemen, bought four houses in January, 1945, and sold them at a profit in December, 1947. He admitted that he had bought the property with a view to resale, and had instructed his agents to sell whenever a suitable opportunity arose.
On appeal before the General Commissioners he contended that the profit on resale was not taxable. On behalf of the Crown it was contended that the purchase and sale of the property constituted an adventure in the nature of trade, and that the profits arising therefrom were chargeable to Income Tax. The General Commissioners, being equally divided, allowed the appeal.
Held, that the fact that the property was purchased with a view to resale did not of itself establish that the transaction was an adventure in the nature of trade, and that the Commissioners were justified in treating the profit in question as not assessable to Income Tax.
Stated for the opinion of the Court of Session as the Court of Exchequer in Scotland, under the Income Tax Act, 1952, Section 64.
At a meeting of the Commissioners for the General Purposes of the Income Tax for the Division of the City of Glasgow, held at 280, George Street, Glasgow, on 12th May, 1952, Morris Reinhold, of 178, Ingram Street, Glasgow, C.1 (hereinafter called "the Respondent") appealed against an assessment to Income Tax under Schedule D of the Income Tax Act, 1918, for the year ended 5th April, 1948, on the sum of £1,372 in respect of profits arising from the purchase and sale of property.
I. The Respondent gave evidence and the following facts which he gave were admitted or proved:-
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(2) He is a director of M. Reinhold & Co., Ltd., Warehousemen, at 178, Ingram Street, Glasgow, and as such is separately assessed to Income Tax.
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(3) He bought four houses consisting of fifteen separate occupations at Apsley, near Watford, in January, 1945, and sold them in December, 1947. The profit on sale of the property is agreed at £1,372 made up as follows:-
£
Cost price
…
…
…
5200
Selling price
…
…
…
6,775
Gross profit
…
…
…
£1,575
Less agents' fees and law costs
…
…
…
203
Net profit as assessed
…
…
…
£1,372
(4) He agreed that he had admitted to the Inspector of Taxes concerned before the appeal hearing and he admitted again to us in evidence that he had bought the property not as a residence for himself but for sale, and had instructed his agents to sell whenever a suitable opportunity arose. It was argued on his behalf that he could, if desired, occupy a house as he had intended at some time having a residence in London. He said he had not shown the property on his Income Tax returns because it had produced no net income.
(5) He admitted that about ten years ago he bought a hotel in Edinburgh which he said he intended to run as a hotel but actually he sold it at a profit before he completed the purchase.
II. It was contended on behalf of the Respondent that this was not an actual profit for Income Tax purposes and therefore not taxable.
The case of the Assets Co., Ltd. v. Forbes, 34 S.L.R. 486; 3 T.C. 542 was quoted in support of his contention.
III. H.M. Inspector of Taxes (Mr. A.H. Middlemast) on behalf of the Crown contended:-
(2) that in view of the Respondent's admission that he had bought the Apsley property for resale when the opportunity arose, the purchase and sale of that property should be regarded as an adventure in the nature of trade, within Section 237 of the Income Tax Act, 1918, and the profits arising therefrom were chargeable to Income Tax:
(3) that the assessment under appeal was correctly made and should be confirmed.
IV. The following cases were referred to by the Inspector:
T. Beynon and Co., Ltd. v. Ogg, TAX7 T.C. 125
McKinlay v. H.T. Jenkins and Son, Ltd., TAX10 T.C. 372
Martin v. Lowry ELRTAX[1927] A.C. 312; 11 T.C. 297
Commissioners of Inland Revenue v. Livingston and Others, TAX1927 S.C. 251; 11 T.C. 538
Rutledge v. Commissioners of Inland Revenue, TAX1929 S.C. 379; 14 T.C. 490
Commissioners of Inland Revenue v. Fraser, SCTAX1942 S.C. 493; 24 T.C. 498
MacMahon v. Commissioners of Inland Revenue, TAX32 T.C. 311
V. We, the Commissioners who heard the appeal, were equally divided in opinion. Two of us were of the opinion that the purchase and sale of the property was an adventure or concern in the nature of trade and that the profits arising are assessable under Schedule D, while the other two of us were of the opinion that the purchase and sale of the property was not an adventure or concern in the nature of trade and that the profits arising are not assessable to Income Tax.
In the circumstances we gave our determination in favour of the Respondent and discharged the assessment.
VI. Whereupon Mr. Middlemast, on behalf of the Crown, declared his dissatisfaction with the Commissioners' determination 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.
VII. The question of law for the opinion of the Court is whether on the facts above stated we were justified in treating the said sum of £1,372 as not assessable to Income Tax.
Greenhill, J. McNicol, J.D. Kelly, Robert J. Dunlop, General Commissioners of Income Tax for the Division of the City of Glasgow in the County of Lanark.
13th October, 1952.
The case came before the First Division of the Court of Session (Lords Carmont, Russell and Keith) on 13th and 14th January, 1953, when judgment was reserved. On 23rd January, 1953, judgment was given unanimously against the Crown, with expenses.
Lord Carmont.-The Respondent is a director of a limited company carrying on the business of warehousemen. As such he is separately assessed to Income Tax.
He bought four houses consisting of fifteen separate occupations near Watford in January, 1945, and sold them about three years later. The profit on the transaction amounted to £1,372 in respect of which he was assessed to Income Tax for the year ended on 5th April, 1948.
Mr. Reinhold appealed to the General Commissioners who, being equally divided (two to two), discharged the assessment.
A Stated Case has been presented to this Court in which the question of law to be answered is: On the facts stated, were we justified in treating the said sum of £1,372 as not assessable to Income Tax?
It is found as a fact that the Respondent about ten years ago purchased an hotel in Edinburgh which he intended to run as an hotel, but which he sold at a profit before he completed the purchase. But the main fact on which the Appellants relied is that the Respondent admitted that he had bought the property not as a residence for himself but for sale, and had instructed his agents to sell whenever a suitable opportunity arose.
The Appellants contend that the profit of £1,372 made by the Respondent on the transaction is income of the year in question, and the first matter that falls to be considered is whether the profits made in the transaction in question can be described as income; and in this connection it is to be noted that the Respondent is not a property agent, and that his business is not said to operate outwith the ordinary scope of warehousemen and is not associated with the purchase and sale of estates. In the next place, it appears that the transaction in this case is an isolated one, and none the less so because of the hotel purchased and sold by the Respondent ten years ago. A transaction does not require to be unique in the life experience of a businessman to be treated as isolated. In ordinary parlance a thing is isolated when it is placed apart from some other thing.
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