Edward Collins & Sons, Ltd v The Commissioners of Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 28 November 1924 |
| Date | 28 November 1924 |
| Court | Court of Session (Inner House - First Division) |
NO. 50*.-COURT OF SESSION, SCOTLAND (FIRST DIVISION).-
Excess Profits Duty - Profits of trade - Deduction - Fall in market value of raw materials purchased for future delivery - Finance (No. 2) Act, 1915 (5 & 6 Geo. V, c. 89), Section 40, and Fourth Schedule, Part I, Rule 1.
The final accounting period of the Appellant Company ended on the 30th April, 1921, and prior to that date it entered into various contracts with foreign concerns under which it agreed to purchase quantities of raw material for delivery between November, 1920, and December, 1921. After the contracts had been made prices fell, and it also became clear that the supplies contracted for would be in excess of the Company's requirements.
The Company had received up to the 30th April, 1921, only a portion of the goods to be delivered under one of the contracts, but letters were obtained from all the vendors stating that the whole of the goods had been set aside in their warehouses prior to the 30th April, 1921, and were held for the Company and appropriated absolutely to the contracts. The Company had also received pro forma invoices dated not later than the 30th April, 1921, for the whole of the goods.
In computing the Company's profits for Excess Profits Duty purposes for the final accounting period, the Company claimed to deduct the excess of the contract prices of the undelivered goods over their current market value at 30th April, 1921, as representing the estimated loss on the contracts.
Held, that, as the loss was only an apprehended future one and had not been suffered in the accounting period in question, the deduction claimed was inadmissible.
At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held at Glasgow on 16th November, 1923, for the purpose of hearing appeals, Edward Collins and Sons, Ltd., of Kelvindale, Maryhill, Glasgow (hereinafter called the Company), appealed under the Finance Act, 1922, Section 35, against a determination of the Commissioners of Inland Revenue of the amount of the deficiency or loss in respect of which the Company was entitled to repayment of Excess Profits Duty for the accounting period of four months ended 30th April, 1921.
I. -The following facts were admitted or proved:-
(2) The accounting period in question is the last accounting period of the Company.
(3) On 5th January, 1921, the Company, which is a paper manufacturing company, entered into a contract with La Societe Commerciale de l'Afrique du Nord, Tunis, for a supply of 2000 tons of esparto grass. The deliveries of the grass under this contract were to take place during the year 1921 as mutually arranged. The price was £10 15s. a ton. A copy of the contract is annexed to and forms part of this Case(1), and it is hereinafter referred to as Contract A. The contract was negotiated in cancellation of a previous contract for 500 tons at a higher price.
(4) On 16th February, 1920, the Company entered into a contract with Messrs. Greaker of Christiania, Norway, for a supply of 1000 tons of bleaching sulphite pulp. The deliveries of the pulp were to take place between November, 1920, and June, 1921. The price was 775 Norwegian kroner a ton.
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(5) A copy of this contract is annexed to and forms part of this Case(1), and it is hereinafter referred to as Contract B.
(6) On 17th March, 1920, the Company entered into a contract with the same Messrs. Greaker for a supply of 500 tons of "Swan" brand bleaching sulphite pulp, deliveries to take place between May and December, 1921, at a price 950 kroner per ton.
(7) A copy of this contract is annexed to and forms part of this Case(1), and it is hereinafter referred to as Contract C.
(8) Messrs. Andrews and Co., Ltd., of Queen Victoria Street, London, were the agents employed by the foreign firms in each case to negotiate and make the said Contracts A, B and C.
(9) Before and in the course of the accounting period it became clear to the Company that owing to the great depression in trade and fall in prices it had contracted for the above supplies of esparto grass and sulphite at prices far in excess of the prices ruling or likely to be ruling during the periods fixed for delivery and in excess of its requirements owing to the said depression in trade.
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(10) In the case of Contract A the Company did not arrange to take nor did it take any actual delivery of the esparto grass during the accounting period. The Company entered into correspondence with Andrews and Co., Ltd., refusing from time to time to take any of the grass in, and endeavouring to obtain some concession. On or about the 21st April, 1921, the Company received upon its own request a document which is called a "pro forma invoice" for the whole of the esparto grass at the full contract price. A copy of this document is annexed to and forms part of this Case(1) and is marked D. This document, which was issued by Andrews and Co., Ltd., states that "This grass is being held in stock for your account." At the hearing of the appeal a certificate signed by the African Company was produced to us. This certificate which was obtained for the purpose of the appeal, states that "prior to 15th April, 1921, we "had set aside in our warehouses 2000 tons of "esparto as the goods purchased from us by Edward "Collins and Sons, Ltd., under a contract dated "5th January, 1921, and held these goods in our "warehouses as for them under that contract and "appropriated absolutely thereto." By the practice and custom of the trade pro forma invoices are issued before the correct and accurate invoice is ready, for parcels of goods, which are in course of shipment or have been shipped, and they are intended to notify a customer as to the probable amount of goods in transit.
(11) The condition Contract A requiring payment in "prompt cash" was inserted as a war-time precaution and had not in fact been insisted on, it having remained usual to allow payment to stand over until some time after the delivery of the goods.
(12) In the case of Contract B, 350 tons of sulphite had actually been delivered before the end of the accounting period and 650 tons remained undelivered. In the case of Contract C no goods were delivered or contracted to be delivered before the end of the accounting period. In both cases upon the request of the Company "pro forma invoices" were received from Messrs. Greaker, sometime after 30th April, 1921, but dated 30th April, 1921, and marked "pro forma." Copies of these documents (marked E and F) are annexed to and form part of this Case(1).
(13) At the hearing of the appeal a certificate signed by the Norwegian Company was produced to us. This certificate, which was obtained for the purpose of the appeal states, that "prior to 15th April, 1921, we "had set aside in our warehouse 1500 tons of wood "pulp as the goods purchased from us by Edward "Collins and Sons, Ltd., under contracts dated "16th February and 17th March, 1920, and held "them in our warehouse as for them under that "contract and appropriated absolutely thereto."
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(14) The books of the Company were made up some time after 30th April, 1921, to show the pro forma invoices issued under Contracts A, B and C as...
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