Inland Revenue v Livingston
| Jurisdiction | Scotland |
| Judgment Date | 18 December 1926 |
| Date | 18 December 1926 |
| Docket Number | No. 29. |
| Court | Court of Session |
Lord President (Clyde), Lord Sands, Lord Blackburn, Lord Ashmore.
RevenueIncome taxIncome assessableIncome from a tradeProfit on purchase, conversion, and re-sale of a ship within four monthsIsolated operation outwith the scope of ordinary business of the partiesIncome Tax Act, 1918 (8 and 9 Geo. V. cap. 40), sec. 237 and Schedule D, Case I.
A ship repairer, a blacksmith, and a fish salesman's employee, who had not previously been connected with each other in business, bought a cargo steamer, converted it (partly by their own labour) into a steam-drifter, and sold it within four months of the date of purchase at a profit.
Held that the transaction, though isolated, was the carrying on of a trade, the profits of which were assessable to income tax under Schedule D, Case I., in respect that the operations involved in it were of the same kind, and carried on in the same way, as those which characterise ordinary trading in the business of buying, converting, and reselling ships.
Hugh Livingston, ship repairer, Alexander Leslie Florence, blacksmith, and Robert Keith, fish salesman's employee, all of Peterhead, were assessed to income tax under Schedule D of the Income Tax Act, 1918,* for the year ended 5th April 1925, on the sum of 963. They appealed to the Commissioners for the General Purposes of the Income Tax Acts for the County of Aberdeen, who allowed the appeal, and, at the request of the Commissioners of Inland Revenue, stated a case for the opinion of the Court of Session as Court of Exchequer in Scotland.
The case set forth:
I. The following facts were admitted or proved:(1) On 10th September 1924 the respondents, as private individuals, purchased as a joint adventure the cargo-carrying vessel s.s. River Ugie at the price of 1120, with a view to its alteration and sale. They were not connected with each other in business, nor had any of them bought a ship before. (2) The respondents, with the object of converting the vessel into a steam-drifter, ordered extensive repairs and alterations. to be carried out in connexion therewith, Mr Livingston as a ship repairer and Mr Florence as a blacksmith being employed and receiving remuneration thereforwhich remuneration so received was included in their annual return of income tax, and income tax paid thereonthe respondents being charged the ordinary trade rates for the work done by these two. The third respondent, Robert Keith, was simply an employee in the office at Peterhead of Messrs Richard Irvin & Sons, and did no work in connexion with the ship. (3) After the repairs and alterations were completed, the respondents sold the vessel on 31st December 1924 for the sum of 3425. The profit realised by the sale was 963, the amount of the assessment.
On behalf of the respondents it was contended:(1) That the transaction, the profit of which it is sought to render liable to income tax, was an isolated, casual, and hazardous speculation. (2) That the profit referred to was not income but an accretion to capital. (3) That the buying and selling of ships was not in the ordinary course of any of the respondents' business. (4) Reference was made to the case of Inland Revenue Commissioners v. SangsterELR, [1920] 1 K. B. 587, and to the Report of the Royal Commission on
the Income Tax (1920), where the question of casual profits is dealt with under Part I. section viii., paragraphs 84 to 94.
On behalf of the Commissioners of Inland Revenue it was contended:(1) That the object for which the joint venture was established was to purchase, convert, and sell the s.s. River Ugie. (2) That the intention to sell at a profit was clear. (3) That all parties to the venture, being connected with the shipping or ship-repairing branches of the fishing industry, had by reason of their occupations a shrewd idea that a profit could be made on the transaction. (4) That the present case was analogous to the transaction in railway wagons which formed the subject of appeal in the case of T. Beynon & Co. v. OggTAX, (1918) 7 T. C. 125. (5) That, although there was one purchase and one sale, that fact did not of itself preclude liability to income tax on the profits realised.T. Beynon & Co. v. Ogg, cit. sup.per Sankey, J., at p. 133. (6) That it was not necessary for transactions to recur annually to make the profits therefrom annual profits chargeable to income tax. Reference was also made to the following cases:Californian Copper Syndicate v. Inland RevenueSC, (1904) 6 F. 894; Ryall v. HoareELR, [1923] 2 K. B. 447; Martin v. LowryELR, [1926] 1 K. B. 550; Cape Brandy Syndicate v. Inland Revenue CommissionersELR, [1921] 2 K. B. 403.
The decision of the Commissioners was stated as follows:IV. The Commissioners, after hearing parties, allowed the appeal on the ground that the profit realised in the transaction in question was not made in the operation of business ordinarily carried on by the respondents.
The question of law for the opinion of the Court was:
Whether the respondents are assessable to income tax in respect of the said sum of 963?
The case was heard before the First Division on 9th December 1926.
Argued for the appellants;The finding of fact that the transaction was a joint adventure implied that a trade was being carried on, because trade was defined in section 237 of the Income Tax Act, 1918,1 as including adventure, and the words in the nature of trade at the end of the definition applied only to the word concern which immediately preceded them.2 But, apart from that strict reading of the statute, the transaction in question was a trade the profits of which were assessable under Case I. of Schedule D. The primary intention of the respondents in buying the ship was a commercial one. The purchase was made in order to carry out the trading operation of converting and refitting the ship, and to make their profit on the sale. Two of their number were actually employed on the work. The fact that this was an isolated instance of the respondents buying a ship did not prevent the transaction from being a trading operation coming within the scope of the Act.3 There was no other category into which it could be brought, and, in view of the facts found, it could not be described as a speculation. Isolated purchases and sales could be divided into two
types.1 There was, for example, an isolated transaction of buying and selling shares with the purpose of making a capital appreciation. Such profit was not subject to income tax. On the other hand there was the type of a buying and selling, of which the case was an example, where the purchase was made for the purpose of work being carried out upon the thing bought before it was resold. Profits made on such a sale were taxable. The case was a fortiori of Martin v. LowryELRELR2; and the dicta of Rowlatt, J., in Ryall v. HoareELR,3 founded on by the respondents could not, since Martin'sELRELR case,2 be regarded as authoritative. Alternatively, the profits fell, under Case VI. of Schedule D, as being annual profits or gains.4 The word annual simply meant for a year.5 The question of law should therefore be answered in the affirmative.
Argued for the respondents;The respondents did not dispute the construction of the word annual put forward by the appellants. But the transaction in question was an isolated one, and the profits made were a capital increase, and therefore did not come within the scope of the Income Tax Acts. The observations of Rowlatt, J., in Ryall v. HoareELR3 were directly...
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