Commissioners of Inland Revenue v Fraser
| Jurisdiction | Scotland |
| Judgment Date | 08 July 1942 |
| Date | 08 July 1942 |
| Docket Number | No. 42. |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION.
Revenue—Income tax—Income assessable—Profits from "adventure … in the nature of trade"—Purchase and sale of whisky in bond—Isolated transaction outwith the scope of normal occupation—Income Tax Act, 1918 (8 and 9 Geo. V, cap. 40), sec. 237 and Sched. D, Case I.
A woodcutter purchased through an agent whisky in bond to the value of £407. The purchase was made with the sole object of reselling, if possible, at a profit; and about two years later a profit of £712 was realised. The transaction was an isolated one. The woodcutter had no special knowledge of the whisky trade. He did not take delivery of the whisky or have it blended or advertised. His large profit was due to the outbreak of war.
The General Commissioners having discharged an assessment to income tax under Schedule D, Case I, deciding that he had not carried on an adventure in the nature of trade but had merely made and realised an investment;
Held, reversing their decision, (1) that, whether it was regarded as a mixed finding of fact and law or as a pure finding of fact, it was, nevertheless, open to review in respect that there was no evidence to support it; and (2) that, although the transaction was an isolated one and was outwith the scope of a woodcutter's ordinary business, it was an adventure in the nature of trade, in view, in particular, of the nature of the commodity dealt in and the fact that the operations of purchase and resale were exactly of the kind which took place in ordinary trade.
Rutledge v. Inland Revenue, 1929 S. C. 379,followed.
Richard Fraser, woodcutter, Rafford, Forres, (hereinafter called the respondent) appealed to the Commissioners for the General Purposes of the Income Tax Acts against an additional first assessment to income tax under Schedule D of the Income Tax Act, 1918,1for the year ended 5th April 1941, on the sum of £712 arising from the purchase and sale by him of whisky in bond. The Commissioners sustained the appeal and discharged the assessment, and, at the request of the Inspector of Taxes, stated a case for the opinion of the Court of Session.
The stated case set forth that the following facts were admitted or proved:—"(1) 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 1937 for | £71 | Sold this lot in August 1940 for | £151 |
| (b) Purchased one lot in May 1938 for | 230 | Sold this lot in August 1940 for | 535 |
| (c) Purchased one lot in November 1938 for | 106 | Sold this lot in November 1940 for | 445 |
| Total Purchases | £407 | Total Sales | £1131 |
| Gross Profit | £724 | ||
| Expenses | 12 | ||
| Net Profit | £712 |
(2) 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. (3) The purchase and sale of whisky in circumstances similar to that under consideration was a common type of transaction in the neighbourhood. (4) 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."
The contentions of the parties were stated as follows:—
"It was contended on behalf of the respondent:—(1) That the profit which was assessed to income tax represented the fruits of an isolated and casual transaction. (2) That the profit referred to was not income, but an accretion to capital. (3) 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. (4) Reference was made to the following cases:—Inland Revenue v. LivingstonTAX, 1927 S. C. 251, 11 T. C. 538; Martin v. LowryELRTAX, [1927] A. C. 312, 11 T. C. 297; Rutledge v. Inland RevenueTAX, 1929 S. C. 379, 14 T. C. 490; Jones v. LeemingELRTAX, [1930] A. C. 415, 15 T. C. 333; Ryall v. HoareELRTAX, [1923] 2 K. B. 447, 8 T. C. 521."
"It was contended on behalf of the appellants:—(1) 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. (2) That the buying and selling of the whisky in the circumstances constituted an adventure in the nature of trade. (3) 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. (4) 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. Inland Revenue (supra); T. Beynon & Co. v. OggTAX, (1918) 7 T. C. 125. (5) That special knowledge of a trade was not necessary to establish liability in respect of that trade—Martin v. Lowry (supra); Rutledge v. Inland Revenue (supra). (6) That the absence of blending was irrelevant."
The Commissioners stated their decision in the following terms:—"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."
The question of law for the opinion of the Court was:—"Whether the majority of the Commissioners were warranted on the evidence in determining as they did."
The case was heard before the First Division on 7th July 1942.
At advising on 8th July 1942,—
LORD PRESIDENT ...
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