Inland Revenue v Hay
| Jurisdiction | Scotland |
| Judgment Date | 15 March 1924 |
| Docket Number | No. 54. |
| Date | 15 March 1924 |
| Court | Court of Session (Inner House - Second Division) |
NO. 480.-COURT OF SESSION (SCOTLAND), SECOND DIVISION.-
Super-tax - Total income - Deduction - Yearly interest - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Sections 5(1) and 27(1)(b).
In connection with the purchase and sale of certain estates the Respondent's solicitors made advances to him at the rate of interest charged by Scottish banks on overdraft accounts, the rate fluctuating with the bank rate. The interest, less the appropriate deduction for Income Tax, was charged to the Respondent annually and was treated in the hands of the solicitors as having suffered Income Tax.
The advances, while varying in amount, had been in continuous existence for some years, but there was no written agreement relating to them and no security was given. Reductions of the advances were made from time to time out of the Respondent's income, which was collected by the solicitors, and out of the proceeds of sale of part of the estates.
Held, that the interest on the advances was "yearly interest" within the meaning of Section 27(1)(b) of the Income Tax Act, 1918, and was admissible as a deduction in computing the Respondent's total income for the purposes of Super-tax.
At a Meeting of the Commissioners for the Special Purposes of the Income Tax Acts, held on the 2nd July, 1923, for the purpose of hearing appeals, Sir Duncan Edwyn Hay, of Haystoun, Baronet, hereinafter called the Respondent, appealed against an assessment to Super-tax on the sum of £3,951 for the year ending 5th April, 1923, made upon him under the provisions of the Income Tax Acts.
The sole question before us on the appeal was whether certain interest, amounting to £550 12s., was admissible as a deduction in computing the Respondent's total income for the purpose of assessment to Super-tax.
I. The following facts were admitted or proved:-
-
(2) The Respondent had obtained advances from his solicitors in connection with the purchase and sale of some estates. These advances had been in existence continuously since the year 1919. The amount of the advances fluctuated from time to time, and the maximum and minimum amounts due to the solicitors in the four years to the 31st July, 1922, were as follows:-
Maximum
Minimum
…
amount due.
amount due.
Year to 31st July, 1919
…
7096
-
Year to 31st July, 1920
…
8784
6415
Year to 31st July, 1921
…
10,681
7180
Year to 31st July, 1922
…
10,700
9378
(3) There was no fixed maximum to the amount of the advances, the limit being a matter of arrangement between the Respondent and his solicitors.
(4) Interest was charged on these advances at the rate charged by the Scottish banks on overdraft accounts, the rate fluctuating with the bank rate. There was no written agreement relating to these advances, nor was any security given. The Respondent's solicitors, however, held for safe custody documents of title of a part of his property.
(5) The Respondent's income is collected by the solicitors, and reductions of the advances are made out of this income from time to time, as well as out of the proceeds of sale of part of the estates. The interest is charged to the Respondent annually on the 31st July, and debited to his account. In computing the amount of interest the solicitors make the appropriate deduction for Income Tax. This interest is treated in the hands of the solicitors as having suffered Income Tax, and is not again charged to Income Tax in their hands.
II. It was contended on behalf of the Respondent that, the loan being a continuing one and the interest paid annually, the interest in question was annual interest, and admissible as a deduction in computing his income for the purposes of Super-tax in the same way as it had been allowed as a deduction for Income Tax.
III. It was contended on behalf of the Commissioners of Inland Revenue:-
(2) That there was no evidence that the interest was paid out of revenue, or that any interest had been paid at all;
(3) That the said interest was not a charge on the Respondent's income; and
(4) That in any event, as all the indicia of annual interest were wanting, this interest was not an admissible deduction in computing the Respondent's income for the purpose of Super-tax.
IV. Reference was made to the following cases:-
Bebb v. Bunny, ENR(1854) 1 Kay & J. 216
Farmer v. Scottish North American Trust, LimitedTAX(1),
Gateshead Corporation v. Lumsden, ELR[1914] 2 K.B. 883
Earl Howe v. Commissioners of Inland RevenueTAX(2),
Stocker v. Commissioners of Inland RevenueTAX(3),
V. Having considered the facts and arguments, I, the undersigned J. Jacob, was of opinion that the interest was not annual interest, and was inadmissible as a deduction, while I, the undersigned W.J. Braithwaite, found that the advances of money were made under an agreement, which the parties treated, and intended to treat, as a continuing one to endure from year to year, and that the interest was therefore, in my opinion, annual in its nature, and admissible as a deduction. There being this difference of opinion between us, I, the undersigned J. Jacob, withdrew my opinion, so that, as in other similar cases of difference of opinion before the Special Commissioners, the decision might be given in favour of the taxpayer. We both accordingly concurred in allowing the deduction, and, giving effect to other agreed adjustments, we reduced the assessment to the sum of £2,633.
VI. The Commissioners of Inland Revenue immediately upon the determination of the Appeal, declared to us their dissatisfaction therewith as being erroneous in point of law, and having duly required us to state and sign a Case for the opinion of the Court of Session, as the Court of Exchequer in Scotland, this Case is stated and signed accordingly.
VII. The question of law for the opinion of the Court is whether the said interest is admissible as a deduction in computing the Respondent's income for the purpose of assessment to Super-tax.
J. JACOB, W.J. BRAITHWAITE, Commissioners for the Special Purposes of the Income Tax Acts.
York House,
23, Kingsway, London, W.C.2.
25th January, 1924.
The case was heard by the Second Division of the Court of Session (the Lord Justice Clerk and Lords Hunter, Armidale and Anderson) on the 27th February, 1924, when judgment was reserved. The Solicitor-General (Mr. Fenton, K.C.) and Mr. A.N. Skelton appeared as Counsel for the Appellants, and Mr. Candlish Henderson, K.C., and Mr. MacLean as Counsel for the Respondent.
Edinburgh, 15th March, 1924. The Lords having considered the Case stated and heard Counsel for the parties Answer the Question of Law in the Case in the affirmative: Affirm the determination of the Commissioners and Decern: Find the Appellants liable to the Respondent in expenses and remit the Account, when lodged, to the Auditor to tax and to report.
(Signed) ROBERT MUNRO, I.P.D.
Lord Hunter.-The question raised in this case is whether or not the Respondent, who is a landed proprietor, is liable to pay Super-tax on a sum of £550 12s. which consists of interest paid by him to his solicitors in the following circumstances. In 1919 the Respondent obtained certain advances from his solicitors in connection with the purchase and sale of some estates. The advances have remained in existence ever since, although the actual amount has varied. Interest was charged upon the advances at the rate charged by Scots banks on overdraft accounts, the rate fluctuating with the bank rate. This was matter of agreement between the parties, although the agreement was not reduced to writing.
According to the information submitted to us "the Respondent's "income is collected by the solicitors, and reductions of the advances "are made out of this income from time to time, as well as out of the "proceeds of sale of part of the estates. The interest is charged to the "Respondent annually on the 31st July, and debited to his account. "In computing the amount of interest, the solicitors make the appropriate "deduction for Income Tax. This interest is treated in the hands "of the solicitors as having suffered Income Tax, and is not again "charged to Income Tax in their hands."
The object of the Income Tax Acts is to recover a tax upon income. The person liable in payment of the tax is the person in enjoyment of the income. This is not altered by the fact that in certain cases with a view to facilitate collection the tax payable out of A's income has to be paid by B with a right of relief against A. Super-tax is only an additional tax imposed upon an individual whose income exceeds a certain amount.
It is perfectly clear that the interest received by the Respondent's solicitors is part of the income enjoyed by them. They are liable to pay Income Tax upon it and the partners of the firm in making their returns for Super-tax necessarily include the interest, as part of their share in the income of the firm's business. For the purposes of this case it makes no difference that the Respondent's agents are a firm and not an individual who in his return would have to include the whole of the interest as part of his income.
The Inland Revenue authorities do not contend that the interest received by the Respondent's agents is chargeable with tax both in their hands and in the hands of their client. They allow the agents to found upon the circumstance that the tax, properly payable by them, has been collected from their client. To do otherwise would amount to claiming a right to impose double taxation against the same income which is contrary to the provisions of the Income Tax Acts as explained in several decisions of the Court. It seems to me, however, that a claim to such a right must be the basis of the Appellants' claim unless the anomalous result is to be approved that income which is only chargeable once in payment of Income Tax is to be chargeable twice in...
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