Hood Barrs v Commissioners of Inland Revenue (No. 2)
| Jurisdiction | UK Non-devolved |
| Judge | Viscount Simonds,Lord Oaksey,Lord Morton of Henryton,Lord Cohen,Lord Keith of Avonholm |
| Judgment Date | 14 March 1957 |
| Judgment citation (vLex) | [1957] UKHL J0314-1 |
| Court | House of Lords |
| Docket Number | No. 1. |
| Date | 14 March 1957 |
[1957] UKHL J0314-1
House of Lords
Viscount Simonds
Lord Oaksey
Lord Morton of Henryton
Lord Cohen
Lord Keith of Avonholm
Upon Report from the Appellate Committee, to whom was referred the Cause Hood Barrs against Commissioners of Inland Revenue, that the Committee had heard Counsel, as well on Monday the 28th, as on Tuesday the 29th and Wednesday the 30th, days of January last, upon the Petition and Appeal of Henry Rupert Hood Barrs of Killiechronan, Isle of Mull, praying, That the matter of the Interlocutors set forth in the Schedule thereto, namely, two Interlocutors of the Lords of Session in Scotland, of the First Division, sitting as the Court of Exchequer, of the 14th and 21st of December 1955 respectively, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Interlocutors might be reversed, varied or altered, or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen, in Her 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 Her Majesty the Queen assembled, That the said Interlocutors of the 14th day of December 1955 and of the 21st day of December 1955, complained of in the said Appeal, be, and the same are 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 Appellant 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 Judge acting as Vacation Judge, to issue such Summary Process or Diligence for the recovery of such Costs as shall be lawful and necessary.
My Lords,
The facts of this case are fully stated in the opinion of my noble and learned friend, Lord Keith of Avonholm, which I have had the privilege of reading and I will not occupy time by stating them at length myself.
Apart from some confusion which has arisen from the manner in which the Commissioners for the General Purposes of the Income Tax for the Division of Mull originally stated a case for the opinion of the Court of Session and upon a remit made further so called Findings of Fact, I do not think that the case would have presented any difficulty.
The Appellant in the year 1947 began to trade in the name of the "Killiechronan Sawmills and Joinery Works." In that and the following year he entered into agreements with a company called the "Chalmers Property Investment Company Limited", of which he owned 49 per cent. of the capital. By these agreements he agreed to pay the sums of £24,275 and £24,900 in respect of a large quantity of trees then growing on the company's estates in the Island of Mull. The first agreement related to 10,000 large, and 1,000, small larches, 500 sitka and 500 pinus silvestris, the latter to 20,000 large and 1,000 small larch, 200 common ash and 100 common oak. In the first agreement no indication was given how the price was arrived at, unless it was to be found in a reference to S.R. & O. 2209 of 1946, which regulated maximum prices for the sale of timber: in the second agreement the price was apparently arrived at by assuming a selection of trees which had not yet been made and fixing an average price.
I have used the vague words "in respect of" and "related to", because, though in each agreement there purported to be a sale and purchase of "all the timber specified in the First Part of the Schedule now standing and growing" in the forests therein mentioned, it is clear that the trees had not been selected and identified. On the contrary, the primary right of the Appellant, the purchaser, was to "mark fell and carry away all the said trees and complete all the operations authorised at such times as he the purchaser shall consider convenient." From this it follows that he did not purchase the trees, for they remained the property of the company until severance: Morison v. A. & D. F. Lockhart 1912 S.C. 1017.
It was under these circumstances that he was assessed in an arbitrary or conventional figure in respect of his trade for the years 1947-48 to 1951-52 inclusive for the purpose of determining, as was said, the question of principle whether the two sums that I have mentioned of £24,275 and £24,900 could be taken into account for the purpose of computing his trading profits for the years in question. The Appellant alleged that they could as representing the purchase price of stock in trade; the Respondent denied it, saying that these were capital sums paid for an enduring right to cut timber. The Commissioners held that the payments were in the nature of capital expenditure and this was the question submitted for the opinion of the Court. The proceedings before the Court, the remit to the Commissioners and their further Findings are fully stated in the opinion of my noble and learned friend, and I refer to what he will say.
It appears that when the matter came before the Commissioners, whether originally or at a later stage, they had no other accounts of the trade than a profit and loss account and a balance sheet for the year ended 31st March, 1948, together with a stock valuation as at the same date. It is worth while to glance at these documents, for it is possible that the Commissioners may have been misled by them into making a statement much relied on by the Appellants, for which there was no possible justification, that the payments in question "constituted the purchase of stock in trade of the business of timber merchants and that this stock is represented in the sales of the business." The stock valuation, which is reflected in the other documents to which I have referred, states the "cost price of timber" at £24,275, adds "Annual appreciation of growth at 80/90 year maturity 117, say 1% £242.15.0", deducts "depreciation attributable to gale damage—blown trees, damaged trees and extra costs lumbering, 10% £2,451", thus arriving at a figure of £22,065.19.6. To this figure there is added the net value of "blown trees" and the ultimate amount of £23,061.5.0 is reached.
My Lords, it is not putting it too high to say that this statement is sheer nonsense. The Appellant had not by selection and marking, much less by felling and carrying away, appropriated any trees. Yet he claims that already by the 31st March, 1948, he had an identifiable stock of trees of which some had grown and others had been blown down. It is hardly to be supposed that having a right of selection he deliberately selected trees that had been blown down. That there was no such scarcity as to require him to do so is plain from the fact that six months later he agreed to purchase a larger number of trees from the same forests. The Commissioners do not seem to have had any other accounts for later years and I am not prepared to assume in their absence that they would have assisted the Appellant. It is obvious that at this date the only relevant asset possessed by the Appellant was a valuable right to cut timber for which he had paid a large sum, and that, when the Commissioners upon a remit made the finding to which I have referred, they were proceeding upon a wholly false basis and their finding must be disregarded. There was, it is true, a statement that at a date unknown after the Appellant made the agreements to which I have referred he acted as contractor to the company and supplied some of the fencing stobs in respect of a certain large Hill Farming Scheme and a later statement identifying the stobs with the timber which was the subject of the agreements. But these statements, vague as to time and quantity, cannot displace what is ex facie the plain character of the asset that was purchased.
This being the position as far as it can be ascertained from the Case Stated, the further findings of the Commissioners, and their somewhat contradictory conclusions. I do not doubt that the sums payable under the agreements were (to answer the question of law as put in the Case) of the nature of capital expenditure, and that the Court of Session was right in so holding.
My Lords, I think it right to add, in view of the argument at the Bar, that in my opinion this appeal does not raise any broad question of principle nor do I think it relevant to discuss the impact of the Sale of Goods Act upon a purchase of an ascertained tree or trees. Though the agreements are in certain respects unusual and though the manner in which the case has been presented to the Court is probably unprecedented, in essence this case raises once more the familiar question which from the Alianza case ( 1904 2 K.B. 666) onwards has been the subject of so many judicial decisions. But, unlike many cases where it is difficult to say on which side of the line the case falls, here I can find no factor which does not lead inescapably to the conclusion that the payments were in the nature of capital expenditure. I will not repeat what has been said by the Lord President and Lord Sorn upon this point. I agree with them.
I will only make two further observations. In the first place, it does not follow from this decision that, whenever a timber merchant buys standing timber in small or large quantities, he cannot debit his profit and loss account with the cost....
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