Inland Revenue v Mackinlay's Trustees
| Jurisdiction | Scotland |
| Judgment Date | 1938 |
| Year | 1938 |
| Date | 1938 |
| Court | Sheriff Court |
NO. 1092-COURT OF SESSION (FIRST DIVISION)-
Sur-tax - Additional assessment - Discovery - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Section 125; Finance Act, 1927 (17 & 18 Geo. V, c. 10), Section 42.
The partnership deed of a certain firm provided that, in the event of the death of a partner, the sum to be paid out in respect of his share in the partnership should include a sum in lieu of profits for the period from the date of its last balance sheet to the date of his death calculated by reference to the average profits during the three preceding years, for the corresponding period. One partner died in December, 1934, and in the return of his income for Sur-tax purposes for the year 1934-35 the Respondents, his trustees, included his share of the profits of the firm calculated in accordance with the partnership deed.
he assessing Commissioners, who were at all material times in possession of the full facts, assessed the Respondents to Sur-tax for the year 1934-35 originally upon the view (which they communicated to the Respondents) that the deceased was not entitled to any share of the firm's profits for that year. Later, on further consideration, they raised an additional assessment in respect of the deceased's share of partnership profits for the year in which he died, computed in accordance with the provisions of Section 20 of the Income Tax Act, 1918.
On appeal, the Respondents contended that the additional assessment did not proceed upon a discovery of fact and was incompetent under the provisions of the Income Tax Acts.
Held, that the additional assessment was competent in law.
At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held held at Edinburgh on the 4th February, 1938, for the purpose of hearing appeals, Mrs. Edith Mary Crabbie or Mackinlay, widow of the late Lieutenant-Colonel Charles Mackinlay of Kynachan, residing at Kynachan, Tummel Bridge,
Perthshire (hereinafter called "the deceased"), Ian James Mackinlay, son of the deceased, residing at 21, Ravelston Park, Edinburgh, Hew Francis Cadell, Writer to the Signet, Edinburgh, and Graham Aitchison Usher, Chartered Accountant, Edinburgh, the Trustees acting under a trust disposition and settlement granted by the deceased, dated 4th April, 1924, and with two codicils thereto, dated respectively 15th November, 1929, and 24th October, 1934, registered in the Books of Council and Session on 12th December, 1934, the Trustees of Charles Mackinlay, deceased (hereinafter called "the Trustees"), appealed against an additional assessment to Sur-tax made upon them on the sum of £7,454 for the year ending 5th April, 1935.I. The following facts were admitted or proved:-
(2) Up to the date of his death on 8th December, 1934, the deceased was a partner in the firm of Charles Mackinlay and Company. The other partners were Mr. J. Thomson and the said Mr. Ian James Mackinlay.
(3) The partnership was carried on in terms of a partnership deed executed in 1917 as modified by a minute of agreement made in 1927 and a further minute of agreement made in 1932.
(4) Clause 15 of the partnership deed of 1917 provided that in the event of the death, bankruptcy or expulsion of any of the partners, "the price to be paid for the share of "such deceasing or outgoing partner or partners shall "be the amount standing at his credit in the immediately "preceding balance sheet but under deduction of "any sums drawn out by him and with the addition of "any sums paid in by him since the date of that balance "sheet with progressive interest at 5 per cent. per "annum from the date of the balance sheet to the date "when the partner's interest shall cease, and a sum "in lieu of profits for the same period calculated upon "the assumption that the profits shall be the same as "the average for the corresponding period during the "immediately preceding three years and a proportion "taken which is applicable to the said partner's share "for the period that has run since the date of the said "last balance sheet…"
(5) A copy abstract of the said partnership deed and copies of the said minutes of agreement are attached hereto, marked "A", and form part of this Case(1).
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(6) The firm's accounts are made up to 31st March in every year.
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(7) The profits of the firm (subject to the provisions of Clause 15 of the said partnership deed of 1917) were divisible between the partners in the following proportions:-
The deceased
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35/60ths.
Mr. J. Thomson
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20/60ths.
Mr. Ian Mackinlay
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5/60ths.
(8) The profits of the firm for the purposes of Income Tax for the year ending 5th April, 1935, and based on the accounts for the year to 31st March, 1934, were agreed in July, 1935, between the firm's accountants and the Inspector of Taxes to amount to £21,875, and an assessment in that sum under Schedule D was accordingly made on the firm in terms of Rule 10 of the Rules applicable to Cases I and II of Schedule D of the Income Tax Act, 1918.
(9) In March, 1935, the solicitors acting on behalf of the Trustees made a return to the Special Commissioners of the deceased's total income from all sources to the date of his death for the purpose of Sur-tax for the year ending 5th April, 1935. This return showed a total income of £11,097 12s., which...
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