Glenboig Union Fire-clay Company v Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 05 February 1921 |
| Docket Number | No. 41. |
| Date | 05 February 1921 |
| Court | Court of Session |
Lord President (Clyde), Lord Justice-Clerk (Scott Dickson), Lord Dundas, Lord Salvesen, Lord Mackenzie, Lord Cullen, Lord Ormidale.
RevenueExcess profits dutyProfitsCapital or IncomeCompensation paid for minerals left unworked to support railwayDamages paid for expenses incurred while wrongous interdict in forceFinance (No. 2) Act, 1915 (5 and 6 Geo. V. cap. 89), sec. 40 (1) (2), and Fourth Schedule, Part I. par. 1, Part II. par. 1.
In 1913 a fire-clay company, whose assets included leasehold rights in fire-clay seams, and whose business consisted in mining for fire-clay, some of which they sold raw and some manufactured, received payment from a railway company of two sums of 15,316, l1s. 4d. and 4500. The former sum was paid as compensation in respect of the fire-clay in an area reserved by the railway company, under the powers contained in the Railway Clauses Act, 1845, for the support of its line; the latter was an agreed-on payment by way of damages for wrongous use of interdict, based on the Company's expenditure in keeping open certain parts of its mine, the working of which was interdicted while the question of the ownership of the fire-clay was being litigated. These two sums were credited to the Company's revenue account for the year 1913, and income-tax was paid upon them.
In a question as to whether, for the purposes of excess profits duty, these sums fell to be included in computing the Company's profits for the pre-war trade year 1913
Held by a Court of seven Judges (1) (diss. Lord Salvesen) that the 15,000 was not profits within the meaning of the Finance (No. 2) Act, 1915, in respect that it was paid to the Company as the consideration for a capital asset which had been rendered unavailable for the purposes of its business; (2) (diss. Lord Salvesen and Lord Ormidale) that the 4500 also was not profits, in respect that it was merely the equivalent of expenditure for the protection of a capital asset which had ultimately proved unproductive in consequence of the railway company's embargo.
The Glenboig Union Fireclay Company, Limited, appealed to the Commissioners for the Special Purposes of the Income-Tax Acts against an assessment to excess profits duty in the sum of 26,320 net duty, for the accounting period commencing on 1st September 1916 and ending on 31st August 1917, made upon the Company by the Commissioners of Inland Revenue under the provisions of Part III. of the Finance (No. 2) Act, 1915, and subsequent enactments.*
The Commissioners confirmed the assessment, and at the request of the appellants stated a case for appeal to the Court of Session.
The case set forth:
The following facts were admitted or proved:1. The Company was incorporated on 26th August 1882 under the Companies Acts, 1862 to 1880. 2. The objects for which the Company was established include(a) Carrying on the trades or businesses of manufacturing and trading in fire-clay and other kinds of clay goods. (b) The quarrying of rocks, stones, and sand, and vending the same (c) The purchasing or leasing of any lands, clay, &c., for the purpose of the Company's businesses or trade. (d) The realising of all or any part of the lands held by the Company (e) Selling and otherwise dealing with and disposing of all or any parts of the Company's businesses, effects, and estates. 3. Since 1882 the Company has carried on business as manufacturers of fire-clay goods and as merchants of raw fire-clay. 4. The Company is lessee of numerous fire-clay fields in or near Glenboig, the total extent of which is about 1835 acres. 5. The Company was lessee of the fire-clay at Gartverrie, Glenboig, and in 1908 its workings had approached the Caledonian Railway line running over that field, and notice, dated 25th January 1908, of intention to work that fire-clay was given by the Company to the Caledonian Railway Company (hereinafter referred to as the Caledonian) in terms of the Railways Clauses Consolidation (Scotland) Act, 1845. 6. The Caledonian in reply to that notice took up the position that the fire-clay was not a mineral, and therefore was not excluded from the conveyance of the ground which it held, and was the property of the Caledonian. 7. The Company repudiated that claim, and, on its proceeding to work the fire-clay underneath the railway at that point, the Caledonian raised an action of interdict against it to prevent it from working the fire-clay underneath any part of the railway at Gartverrie. 8. On 29th February 1908 interim interdict was granted in the Court of Session against the Company working the fire-clay at the place in question, and that interdict remained operative until 15th April 1910, when after various proceedings it was recalled by the Inner House of the Court of Session. 9. The Caledonian appealed the case to the House of Lords, and on 12th November 1910 interim interdict was again granted in the Court of Session against the Company pending the decision in the House of Lords Appeal. This interdict remained operative until 28th April 1911, when the interdict was recalled by the House of Lords. 10. During the two periods of interdict, viz., from 29th February 1908 till 15th April 1910, and from 12th November 1910 till 28th April 1911, the Company had to bear the expense of keeping
open and in a workable state the portion of the fire-clay field which it had been interdicted from workingin particular it had to bear the expense of pumping operations and of keeping the roadways, airways, and haulage ways in this area in a proper state of repairalthough the Company was not during these periods getting any return from this expenditure. The expenses so incurred were included in the ordinary general mining expenses of the company, and debited in a charges account which in turn was at the end of each year debited to the revenue account of the Company. 11. These expenses were debited to the revenue accounts for the years ended 31st August 1908, 31st August 1909, 31st August 1910, and 31st August 1911, in the proportions in which they had been incurred during these years. 12. Following on the decision by the House of Lords, which was to the effect that fire-clay was a mineral and so was excluded from the Caledonian's conveyance, the Caledonian, by notice, dated 29th June 1911, intimated in terms of its powers under the Railways Clauses Consolidation (Scotland) Act, 1845, its desire that a certain portion of red fire-clay at the place in question, extending to l306 acres, should be left unworked, and offered compensation therefor. 13. By similar notice, dated 3rd October 1911, the Caledonian reserved a further small portion of red fire-clay, extending to 109 acres, and offered compensation therefor. 14. By a similar notice, dated 3rd October 1911, the Caledonian reserved an area of white fire-clay, overlying the red fire-clay and extending to 1222 acres, and offered compensation therefor. The area of fire-clay reserved by the Caledonian therefore extended at its greatest part to 1415 acres, made up of the areas of 1306 acres and 109 acres of red fire-clay before referred to. 15. The interdict proceedings related to the whole of the Gartverrie field underlying the railway, but the portions of fire-clay reserved by the Caledonian under the above notices only form a small portion of the interdicted area. 16. The parties could not agree as to the amount of compensation payable by the Caledonian for the fire-clay so reserved by the latter, and the question went to arbitration. 17. After a proof and various other proceedings, the oversman in the arbitration issued proposed findings, thereafter final findings, and finally a decree arbitral awarding 15,316, l1s. 4d. as the amount of compensation due. 18. On 9th April 1913 the Caledonian paid to the Company the above sum of 15,316, l1s. 4d., together with interest thereon at 5 per cent from 6th March 1913 (being the date of the final findings by the oversman), amounting to 67, 3s. 6d., after deduction of income-tax. 19. The following receipt, endorsed on the decree arbitral, was given to the Caledonian by the Company:Glasgow, 9th April 1913. Received from the Caledonian Railway Company the several sums mentioned in the foregoing decree arbitral, amounting to Fifteen thousand three hundred and sixteen pounds, eleven shillings and fourpence sterling, together with the sum of Sixty-seven pounds, three shillings and sixpence, being the nett interest thereon at five per cent from 6th March 1913 to date, after deducting Four pounds, three shillings and twopence of income-tax. 20. The above sum of 15,316, l1s. 4d. and relative interest were credited to the revenue account of the Company for the year ending 31st August 1913. 21. Income-tax was duly paid by the Company on the said sum of 15,316, l1s. 4d. 22. In May 1913 the Company paid an interim dividend of 10 per cent to its shareholders in respect of the year ending 31st August 1913. The capital of the Company is 150,000, so that the amount required to pay the said interim dividend was 15,000. 23. On 29th August 1913 the Company received payment from the Caledonian of the sum of 4500 as compensation for damages which the Company had suffered in connexion with the interdict proceedings, and the Company in exchange granted the Caledonian a discharge of its claims arising out of the said interdicts. A copy of the discharge is annexed hereto, and forms part of this case.* 24. The said sum of 4500 was credited to the revenue account of the Company for the year ending 31st August 1913. 25. Income-tax was duly paid on the said sum. 26. In the question of excess profits duty, the pre-war standard of profit of the Company falls to be fixed on the average for the years ending 31st August 1912 and 31st August 1913 respectively. 27. In arriving at that pre-war standard of profit, the surveyor of taxes contends that there should be eliminated from the Company's...
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