Inland Revenue v Emery & Sons
| Jurisdiction | Scotland |
| Judgment Date | 27 June 1935 |
| Docket Number | No. 79. |
| Date | 27 June 1935 |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION.
RevenueIncome taxMode of assessmentIncome assessableProfits on purchase and resale of building feuSale by builder of houses erected on land feuedBuilder obtaining ground annual in consideration of saleWhether realisable value of ground annual to be credited as receipt in computing trading profits of the yearIncome Tax Act, 1918 (8 and 9 Geo. V, cap. 40), Sched. D.
A firm of builders obtained feus of plots of ground, upon which they erected dwelling-houses. They sold certain of the houses to separate purchasers in consideration in each case of a sum of money and the creation of a ground-annual secured on the land and buildings. They did not realise any of the ground-annuals.
Held that the firm had realised a profit from the creation of the ground annuals, even though the profit had not been received by them in the form of cash; and, accordingly, that the realisable value of these ground annuals fell to be taken into account in computing the firm's profits and gains.
At meetings of the Commissioners for the Special Purposes of the Income Tax Acts, held on 4th July 1933 and 7th March 1934 for the purpose of hearing appeals, Messrs John Emery & Sons appealed against an additional assessment to income tax on the sum of 541 for the year ending 5th April 1927, and an estimated assessment to income tax on the sum of 8000 for the year ending 5th April 1929, made upon them under the provisions of the Income Tax Act, 1918,1 Schedule D. The Commissioners altered the basis of assessment, and, at the request of the appellants and also of the Inspector of Taxes, stated a case for appeal to the Court of Session as the Court of Exchequer in Scotland.
The case set forth that the following facts were admitted or proved:"(1) In the years to which the assessments relate and in earlier years the appellants carried on as a partnership firm the business of builders and building contractors. (2) By a feu-contract dated 7th and 13th, and recorded in the Division of the General Register of Sasines applicable to the County of the Barony and Regality of Glasgow on 26th, all days of August 1924, there was disponed to the partners of the appellants' firm as trustees for their said firm (hereinafter referred to as the partners) 2.643 acres of land at a yearly feu-duty of 79, 5s. 10d. Upon this land the partners as trustees foresaid bound themselves to erect within two years from the date of the deed at least 15 self-contained dwelling-houses or villas, or such number as the feu-duty should have been allocated upon, upon one-half of the ground, and within three years from the date of the deed at least other 16 self-contained dwelling-houses or villas on the remaining half of the ground. Each house was to be of the value of at least 900, and was to be built according to plans approved by the superior. The houses were to be upheld and kept in good repair by the feuars, so as to remain of the foresaid value in all time coming. The feuars were bound to fence off the land with walls or railings, and it was declared that, whereas the superior had formed or was about to form a certain road or street and lanes, and common sewers, &c., with which the drainage system of the houses to be erected would be connected, the feuars were to repay to the superior the cost thereof and were to maintain the said road or street and lanes, common sewers, &c., until taken over by the Corporation of Glasgow. It was further provided that the feuars should, in the event of their erecting more than one house on the ground thereby feued, have power to sell and dispone the said ground and buildings thereon in parcels, and to allocate thereon the feu-duty, but only on condition that buildings of the description and values before mentioned had been previously erected on the ground so to be sold and disponed, and also that the proportion of feu-duty applicable to each part and portion of ground so to be sold and disponed should be at the rate of 60 per acre, and it was further declared that, after the whole of the said feu-duty had been allocated in terms thereof on houses of the description and value before specified erected on one-half of the ground, the feuars should be entitled to feu or dispone the remaining ground for payment of such feu-duties and other prestations as they might deem proper, but only for the erection of buildings of the description and value before
specified. (3) By another feu-contract dated 26th and 29th April" judge=" and recorded in the Division of the General Register of Sasines applicable to the County of the Barony and Regality of Glasgow on 28th May, 1926, there was disponed to the partners as trustees for their said firm a further area of 3.920 acres of land at a yearly feu-duty of 117, 12s., and the partners as trustees foresaid bound themselves to erect within two years from Whitsunday 1926 at least 24 self-contained dwelling-houses or villas or such number as the feu-duty should have been allocated upon on one-half of the ground, and within three years from Whitsunday 1926 at least other 24 self-contained dwelling-houses or villas on the remaining half of the ground. Each house was to be of the value of at least 900 and was to be built according to plans approved by the superior. In all other respects the provisions of the feu-contract were similar to those of the feu-contract mentioned in the preceding paragraph hereof. (4) On the ground feued under the first feu-contract the appellants built 33 houses, and the feu-duty of 79, 5s. 10d. was allocated on the first 15 completed at the rate of 13 houses at 5, 5s., 1 at 4, 14s. 10d., and 1 at 6, 6s., leaving the remainder of the land (over which ground annuals were to be created as hereinafter mentioned) free of feu-duty. On the ground feued under the second feu-contract the appellants built 47 houses, and the feu-duty of 117, 12s. was allocated on the first 22 completed (being 20 houses at 5, 5s. each and 2 houses at 6, 6s. each), leaving the remainder of the land free of feu-duty. On the remaining 18 houses built on the ground first feued and on the remaining 25 houses built on the ground feued under the second feu-contract, the appellants created ground annuals of 5, 5s. and 6, 6s., amounting in all to 95, 11s. and 134, 8s. respectively. (5) The contract of ground annual relating to the 18 remaining houses built on the ground first feued was dated 21st and 22nd and recorded...
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