Hood Barrs v Commissioners of Inland Revenue (No. 2)
| Jurisdiction | Scotland |
| Judgment Date | 14 March 1957 |
| Date | 14 March 1957 |
| Court | Court of Session (Inner House - First Division) |
COURT OF SESSION (FIRST DIVISION)-
HOUSE OF LORDS-
Income Tax, Schedule D - Deduction - Expenses - Timber merchant - Payments for right to fell and take standing timber.
The Appellant commenced business as a timber merchant, sawmiller and joiner in April, 1947. Under the terms of agreements dated 30th September, 1947, and 30th September, 1948, relating to the purchase of standing timber from a company of which he was a shareholder and director, for £24,275 and £24,900 respectively, he was entitled to enter the lands of the vendor, and to select, fell and remove a specified number of various types of tree. Neither agreement set any limit to the time within which the felling was to be completed.
On appeal to the General Commissioners against assessments to Income Tax made on him for the years 1947-48 to 1951-52 inclusive under Case I of Schedule D, the Appellant contended (a) that the price paid for the timber was a fair and proper price, (b) that the purchase was a purchase of goods and that the timber was stock-in-trade, (c) that if what had been acquired was a right to fell and remove timber the sum paid should nevertheless be taken into account in arriving at the profits of his trade as sawmiller and joiner, and (d) that if the timber purchased was not stock-in-trade the assessments, which represented profits from its sale, should be discharged. For the Crown it was contended (a) that the Appellant had acquired a capital asset and that no part of the two sums was accordingly deductible in computing the profits of his business for Income Tax purposes, and (b) that in any event the prices payable under the agreements should not without investigation be regarded as the proper cost of the trading stock to be taken into account for Income Tax purposes. The Commissioners dismissed the appeal, holding that the sums paid were capital payments and that they were not satisfied that these sums were proper commercial prices for the timber in question.
The case was remitted by the Court of Session to the Commissioners for amplification and amendment. The Commissioners subsequently issued further findings stating that "the words "capital payments" were used… to denote payments made from the capital of the business and were intended so to indicate that the payments under the contracts referred to were substantial sums and therefore represented capital in the ordinary meaning of the word. But as these payments did not purchase what can be regarded as fixed capital assets we must regard them as having been made from the circulating capital of the business." They also stated that the payments in question "constituted the purchase of stock-in-trade"; that "the tim
specified in the Case…was in fact stock-in-trade of the Appellant's business"; that "such timber was being sold and used for a hill farming scheme" and "was represented in the sales of the business"; that in deciding that they were not satisfied that the sums paid were proper commercial prices they meant to say that they were unable to state what the proper commercial prices should be rather than that they had any reason to assume that they were wrong; and that the prices for the timber specified in the Case could not be considered by them from the evidence submitted to be other than correctHeld, that the sums in question were capital expenditure.
Stated for the opinion of the Court of Session, as the Court of Exchequer in Scotland, under the Income Tax Act, 1952, Section 64.
At a meeting of the Commissioners for the General Purposes of the Income Tax for the Division of Mull, held at the Aros Hall, Tobermory, Isle of Mull, on 12th November, 1952, Henry Rupert Hood Barrs (hereinafter called "the Appellant"), appealed against assessments made upon him (trading as the Killiechronan Sawmills & Joinery Works, Aros, Isle of Mull) under Case I of Schedule D, Income Tax Act, 1918, as under:-
1947-48 in the sum of £500.
1948-49 " " " " £500.
1949-50 " " " " £100.
1950-51 " " " " £500.
1951-52 " " " " £500.
The primary question for our determination was whether, and if so to what extent, the sums payable by the Appellant under the two agreements relating to the purchase of standing timber hereinafter referred to, fell to be taken into account in computing his trading profits for the years under appeal. It was agreed between the parties and approved by us that that primary question should be decided in principle by us in the first place, the consequences of our decision being deferred for agreement between the parties or failing such agreement, for our subsequent determination.
I. The following facts were proved or admitted before us and we therefore find as facts the matters hereinafter set out in this paragraph.
(2) On 6th April, 1947, the Appellant commenced to and did thereafter carry on the business of timber merchant, sawmiller and joiner in the name of the Killiechronan Sawmills & Joinery Works, Killiechronan, Aros, Isle of Mull, and for that purpose he purchased and installed thereat a quantity of sawmilling and joinery machinery.
(3) The Appellant is a shareholder and director of the Chalmers Property Investment Co., Ltd., hereinafter called "the company", and holds 49 shares out of an issued capital of 100 shares.
(4) By agreements dated 30th September, 1947, and 30th September, 1948, respectively, the Appellant agreed to buy and the company agreed to sell to the Appellant (trading as the Killiechronan Sawmills and Joinery Works) the quantities of timber specified in the said agreements for the sums of £24,275 and £24,900 respectively. Copies of the said agreements are attached to and form part of this Case(1).
(5) The said sums of £24,275 and £24,900 payable by the Appellant to the company in terms of the said agreements were paid by him to the company as aforesaid.
(6) The said sums of £24,275 and £24,900 payable under the said agreements were arrived at (a) by estimating the cubic content of certain trees according to the "Hoppus System", which is a method recognised in the timber trade of estimating the cubic content of trees by means of certain measurements and tables, (b) by applying to the cubic content so arrived at, the maximum prices laid down by S.R. & O. 1946 No. 2209, referred to in the said agreements, and (c) by deducting from the resultant figure, a sum by way of discount. A copy of the said S.R. & O. is attached to and forms part of this Case(1) . It was estimated before us that the trees in question were some 70 to 80 years old and were therefore ripe for cutting but we were not in a position finally to determine the age or quality of the trees in question or whether the sums agreed to be paid by the Appellant under the said agreements were fair and reasonable or were proper commercial prices. There is annexed hereto and forms part of this Case(1) a statement shewing in more detail how the sum of £24,275, mentioned in the first agreement before referred to, was arrived at.
(7) After the Appellant entered into the said agreements he acted as contractor to the company and supplied some of the fencing stobs in respect of a hill farming scheme put into operation by the company under the Hill Farming Act, 1946, to the value of £85,000.
(8) Alexander Stuart Smith, the District Valuer for Dunbartonshire, a chartered surveyor and Member of the Institute of Chartered Surveyors, gave evidence before us, which evidence we accepted, that he had had experience of valuing timber in the West of Scotland, that the over-all price paid for standing timber on the Island of Mull between 1947 and 1949 was 1s. per cu. ft. for mixed conifers and hardwood: that the value of standing timber on Mull was lower than the value of similar timber in accessible places on the mainland by reason of the cost of extraction and transport to market, and that normally the value of standing timber in Mull was governed by the price which could be obtained for it on the mainland market.
(9) Timber was in short supply in 1947 and 1948 and control of timber prices continued in operation until the end of 1949. The District Valuer was of the opinion that a fair price for the standing timber mentioned in the said agreements, without having seen or inspected such timber, would be about 1s. per cu. ft., but that the price agreed to be paid by the Appellant might be a fair commercial price if the trees were selected trees. On the removal of the control on timber the value of timber generally increased greatly but since 1952 timber prices generally have fallen to amounts nearly similar to those which prevailed at the end of the control period.
-
(10) The District Valuer was of the opinion that timber which would be worth about 1s. per cu. ft. on the Island of Mull would, on the mainland, be worth from 2s. 10d. to 3s. per cu. ft. He valued timber
imported on to the island at 4s. 10d. to 5s.per cu. ft. He considered 5s. a cu. ft. would be the proper price for timber shipped to the island. (11) The District Valuer agreed that the price of 91/2d. per cu. ft. paid for pine was very fair and had no complaint at all with that price. In his experience no standing timber on Mull had been sold for as much as the controlled price.
II. It was contended by the Appellant before us as follows:-
(a) that the price of the timber provided in the said agreements was agreed on the basis of the commercial rates laid down in S.R. & O. 1946 No. 2209, and having regard to the circumstances was a fair and proper price;
(b) that there was no authority under the Income Tax Acts enabling us to concern ourselves with what in our view was or was not a reasonable price for the timber in question;
(c) that the figure proper to be inserted in the Appellant's accounts in respect of such timber was the cost price thereof, and no other;
(d) that the timber so purchased by the Appellant, whether or not such timber was sold with or without the land...
To continue reading
Request your trial