Hagart & Burn-Murdoch v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | Lord Buckmaster,Lord Shaw,Lord Warrington of Clyffe,. |
| Judgment Date | 18 March 1929 |
| Judgment citation (vLex) | [1929] UKHL J0318-2 |
| Date | 18 March 1929 |
| Court | House of Lords |
[1929] UKHL J0318-2
House of Lords
Lord Buckmaster.
Lord Shaw.
Lord Warrington of Clyffe.
After hearing Counsel on Friday the 1st day of this instant March, upon the Petition and Appeal of Hagart and Burn-Murdoch, Writers to the Signet, 10, Atholl Crescent, Edinburgh, praying, That the matter of the Interlocutor set forth in the Schedule thereto, namely, an Interlocutor of the Lords of Session in Scotland, of the First Division, sitting as the Court of Exchequer, of the 21st of June 1928, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Interlocutor might be reversed, varied, or altered, or that the Petitioners might have such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of the Commissioners of Inland Revenue, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal, in the Court of Parliament of His Majesty the King assembled, That the said Interlocutor, of the 21st day of June 1928, complained of in the said Appeal, be, and the same is hereby Affirmed, and that the said Petition and Appeal be, and the same is hereby dismissed this House: And it is further Ordered, That the Appellants do pay or cause to be paid to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments: And it is also further Ordered, That unless the Costs, certified as aforesaid, shall be paid to the parties entitled to the same within One Calendar Month from the date of the Certificate thereof, the Cause shall be, and the same is hereby, remitted back to the Court of Session in Scotland, or to the Lord Ordinary officiating on the Bills during the Vacation, to issue such Summary Process or Diligence for the recovery of such Costs as shall be lawful and necessary.
My Lords,
The Appellants are a firm of Writers to the Signet at Edinburgh. In 1923 certain of their clients were interested in the development and manufacture of a new metal alloy, and having decided to promote a Company to experiment with this invention they instructed the Appellants to undertake the necessary legal business. This the Appellants did, and the Company was duly incorporated on May 2nd, 1923, with a nominal capital of £10,000 in £1 shares. The Appellants became Law Agents of the Company. One of the partners held a £1 share which qualified him as a director, and another acquired as private investment 250 further shares, but the Appellant firm held no office or shares and their relationship to the Company was professional.
During the years 1923 and 1924 the Appellants advanced to the Company sums amounting in all to £2,615, without security and without written acknowledgment. There can be no doubt that the Appellants believed that there would be future extensive developments of the Company's operations and they may well have regarded the assistance they gave as likely to secure for them future profitable business. These hopes were unfortunately doomed to disappointment; the Company failed, and the monies are wholly irrecoverable.
In these circumstances the Appellants sought in their Income Tax Returns for the year 1925/26, to bring the sum of £2,615 into account as a loss to be properly debited on ascertaining their profits and gains under Schedule D of the Act of 1918. They were, however, assessed at a figure excluding this deduction, they successfully appealed against the assessment to the General Commissioners, but their finding was reversed by the Court of Session, against whose judgment this Appeal has been brought.
The principles to be relied on in determining how the assessment is to be made under Schedule D have often been discussed. The profits and gains have to be determined in the manner proper to the particular business or profession under review, but apart from any general principles applicable to such determination the following negative provisions are to apply.
"(b) Rules applicable to Cases I and II.
1.—(1) The tax shall be charged without any other deduction than is by this Act allowed.
. . . . .
3. In computing the amount of the profits or gains to be charged, no sum shall be deducted in respect of—
( a) Any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade, profession, employment or vocation:…..
( e) Any loss not connected with or arising out of the trade, profession, employment or vocation;
( f) Any capital withdrawn from, or any sum employed or intended to be employed as capital in such trade, profession, employment, or vocation;
The question, therefore, is, ought this sum to be deducted in ascertaining the profits and gains of the business as carried on by the Appellants as Writers to the Signet, and if this were so, apart from Statutory prohibition, is the allowance excluded by the restrictions already quoted?
Now, it appears that the loans under consideration are not isolated instances of such transaction. The Commissioners have found that the Appellants are "in the habit of making advances to clients when required without security," and certain instances are given.
The facts and circumstances in which the loans were made are not analysed; it is not even stated whether they bore interest or not, and except in one case where the loan was to purchase sheep, the object of the loan is not disclosed. It must, therefore, be taken that in the present case, there was no question of advances being made in the strict and usual course of professional work as, for example, in making payments to defray expenses in connection with a law suit or the purchase of property. The present position is strictly limited by the words of the finding "The sole relations between them and the company were those of solicitor and client, in the course of which they also became creditors for the advances above mentioned."
In my opinion the loss of money so advanced cannot be treated as a loss in ascertaining the profits and gains for the profession of Writer to the Signet and if it could be so regarded without the restrictions of the rules I think it is excluded by r. 3a or e. It was, in fact, a separate venture from that of Writers to the Signet and even if undertaken in the hope and expectation that it would help their business, it was none the less no part of their true profession.
I agree with the criticism of the Dean of Faculty that in the present case to consider whether the source from which the monies came was capital or income is not to apply the true test. In this instance it is the application of the monies and not their origin that provides the real criterion.
No decided case lends much aid to this decision. The nearest is that of Reid's Brewery v. Male, 1891, 2. Q.B., p. 1, where monies advanced by a brewery to tenants were held to be properly deducted, but in that case the Commissioners found as a fact that "the loans and advances were essentially necessary" and without them the business could not be carried on at a profit. It was held that as the result the brewery and moneylending business was one and that the money was laid out exclusively for the purposes of the brewery trade. The findings in the present case do not approach even remotely such a situation. The case of Morley v. Law ford Tax Leaflet No. 403, where monies paid under a guarantee given for the express purposes of obtaining trade were held properly deducted, depended largely upon the very express findings of fact of the Commissioners that the monies were expended "wholly and exclusively for the purposes" of the trade, and the present case, though quoted in support of the Crown, was distinguished on sound grounds by Greer L.J. It is unnecessary, therefore, to express any opinion as to the correctness of the decision.
In Stott v. Hoddinott 7 Income Tax cases, p. 85, architects were held at liberty to deduct losses on shares taken up by them in companies for whom they acted professionally, but it was held that it was necessary to take such shares to secure contracts for their services and in fact the contract for the shares and for the services were in several instances part of the one and the same bargain.
In the present case the findings are confined to the bare statement that the advances were made "in the course of" the relation of Solicitor and Client, and that this was in accordance with a habit. This to my mind is insufficient. Lending money to clients may often be done by Writers to the Signet, but it is no essential and necessary part of their profession, and if a case ever arose in which it could be held that moneylending and the profession had become one and the same business it would require a special...
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