Inland Revenue v Scottish Central Electric Power Company
| Jurisdiction | England & Wales |
| Judge | Viscount Hailsham,Lord Warrington of Clyffe,Lord Atkin,Lord Thankerton,Lord Macmillan,. |
| Judgment Date | 13 March 1931 |
| Judgment citation (vLex) | [1931] UKHL J0313-1 |
| Court | House of Lords |
| Docket Number | No. 4. |
| Date | 13 March 1931 |
[1931] UKHL J0313-1
House of Lords
Viscount Hailsham.
Lord Warrington of Clyffe.
Lord Atkin.
Lord Thankerton.
Lord Macmillan
After hearing Counsel, as well on Friday the 20th as on Monday the 23d and Tuesday the 24th, days of June last, upon the Petition and Appeal of the Commissioners of Inland Revenue of Somerset House, Strand, in the County of London, praying, That the matter of the Interlocutor set forth in the Schedule thereto, namely, an Interlocutor of the Lords of Session in Scotland, of the First Division, sitting as the Court of Exchequer, of the 13th of December 1929, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Interlocutor might be reversed, varied, or altered, or that the Petitioners might have such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of the Scottish Central Electric Power Company, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged by the Lords Spiritual and Temporal in the Court of Parliament of His Majesty the King assembled, That the said Interlocutor of the 13th day of December 1929, complained of in the said Appeal, be, and the same is hereby, Reversed, and that the Cause be, and the same is hereby, remitted back to the Court of Session in Scotland, with a Direction that the Question of law in the stated Case be answered in the negative, and further to do therein as shall be just and consistent with this Judgment: And it is further Ordered, That the Respondents do pay, or cause to be paid, to the said Appellants, the Costs of the Action in the Court of Session, and also the Costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments: And it is also further Ordered, That unless the Costs, certified as aforesaid, shall be paid to the parties entitled to the same within one calendar month from the date of the certificate thereof, the Court of Session in Scotland, or the Lord Ordinary officiating on the Bills during the Vacation, shall issue such summary process or diligence for the recovery of such Costs as shall be lawful and necessary.
My Lords,
This is an Appeal from an Order of the First Division of the Court of Session affirming a decision of the Commissioners of Inland Revenue and allowing a deduction of £1,752 to be made by the Respondent Company in calculating their profits for the purpose of assessment under Schedule D. of the Income Tax Act, 1918. The question of law stated for the opinion of the Court is whether that deduction is properly made in arriving at the balance of the profits and gains of the Respondent Company's trade. It appears from the facts as stated that the Respondent Company carries on business in Scotland, and that for the purposes of its business it owns and occupies certain mills and factories in that country. The annual value of these mills and factories is £5,976; and the Company pay Owners' Rates in respect of these premises to the amount of £1,752 annually. The right to deduct these Owners' Rates in the circumstances to which I shall presently allude, is the matter in dispute. The relevant sections of the Income Tax Act are as follows:—
Schedule A. No. V. Rule 4.
"Where it is shown to the satisfaction of the Commissioners of Inland Revenue that the landlord of lands in Scotland is by law,
( a) charged with any public rates taxes or assessments which in England are by law a charge on the occupiers of land; or,
( b) Charged with any public rates or taxes or other public burdens the like whereof are not chargeable on lands in England,
the said Commissioners shall cause such relief to be given in respect of tax as is just and reasonable having regard to the additional burden on the landlord."
Schedule D. Case I. rules applicable to cases I. and II.
Rule 1.
"The tax shall be charged without any other deduction than is by this Act allowed."
Rule 3.
"In computing the amount of profits or gains to be charged, no sum shall be deducted in respect of any disbursements or expenses not being money wholly and exclusively laid out or expended for the purposes of the trade."
Both in the years ending April 1927 and April 1928 the Respondent Company claimed to be allowed to deduct from their assessment of £5.976 the aforesaid sum of £1,752 paid by them in respect of Owners' Rates in assessing their liability under Schedule A; and the Commissioners of Inland Revenue granted the allowance. In making their return for Schedule D. the Company claimed to be allowed to deduct the £5,976 as the annual value of premises used for the purposes of their trade and also the £1,752 as a disbursement of money wholly and exclusively laid out or expended for the purposes of the trade.
In the assessment under Schedule D. for the year ending 5th April, 1927 the Inland Revenue Authorities sought to reduce the amount allowed by way of deduction in respect of the annual value of the mills and factories by deducting the £1,752 from the £5,976. This deduction was challenged by the Company and on appeal by way of special case the Court of Session upheld the Company's contention. In assessing the profits under Schedule D. for the following year, the Inland Revenue Authorities accepted this decision and allowed the deduction of £5,976 as the annual value of the mills and factories; but they refused to allow the deduction of the £1,752 Owners' Rates for which allowance had already been given to the Company in assessing their liability under Schedule A. The Court of Session has held that the Revenue Authorities are bound to allow the deduction; hence this appeal.
My Lords, I confess that I have found a very great difficulty in reaching a decision upon this case. My difficulty is increased by the facts first that the conception of Owners' Rates is not one which is familiar to English lawyers, and secondly that the argument presented for the Crown before your Lordships and, as we are informed, before the Court below, is not dealt with in any of the judgments, so that we do not have the advantage of knowing the reasons which led to its rejection by the learned Judges of the Court of Session. But after careful consideration I have reached the conclusion that the deduction was not admissible and that the appeal succeeds. It is conceded for the Respondents that if their contention is correct, it follows that the same amount is being allowed as a deduction twice over, and that in the aggregate they will pay income tax on £1,752 less than their actual profits for the year. It is further to be noted that the allowance which is granted under Rule 4. of No. V. of Schedule A. is plainly intended as an allowance conceded to landlords in Scotland in order to equalise their position with that of landlords in England. In the case of English landlords the Schedule A. tax is assessed on the annual value, and it is expressly provided that where a landlord has agreed to pay the occupiers' rates, those rates are to be deducted from the annual value of the property. Presumably in such a case the amount of the rent would reflect the result of the agreement, so that ultimately the Crown would receive tax on the full annual value of the premises. In the case where the landlord is also the occupier in England there could be no question of double allowance in respect of any part of the rates. It is an anomalous result if a rule which is designed to produce equality between landlords in England and Scotland is so worded as to give to the Scottish owner-occupier a right to double deduction which the English owner-occupier cannot possibly obtain. But in my judgment that is not the result of the enactment.
Under Rule 4. of No. V. of Schedule A. the Commissioners are to cause such relief to be given as is just and reasonable having regard to the additional burden on the landlord, i.e. the burden additional to that borne by the English landlord. If, in fact, these Owners' Rates were really money wholly and exclusively expended for the purpose of the trade so as to be deductible under the rules of Schedule D. there could be no additional burden on the landlord. In my judgment when the Respondent Company applied for relief under Schedule A. in respect of these Owners' Rates they were in effect representing that these rates were not money wholly and exclusively laid out or expended for the purpose of their trade, and that they were an additional burden laid upon them as landlords and in respect of which they could not get relief otherwise than by allowance under Schedule A. Having obtained the relief under Schedule A. on this basis, I do not think that it is open to them now to say that the rates are a proper allowance under Schedule D.
It is said that in some cases under the Income Tax Acts there is a possibility of double deduction and the case of repairs was expressly referred to; but in the case of repairs the allowance to be given under Schedule A. is an arbitrary one and the right to receive it is expressly conferred in all cases under that Schedule. No doubt the result is that the Statute has given relief in case of repairs both under Schedule A. and under Schedule D. though it is not calculated in the same way in each case. But in the case of these Scottish Owners' Rates I find no such right to double relief expressly conferred, and unless it is so conferred I do not think it can be claimed.
I do not decide that it is impossible for sums paid by way of Owners' Rates to come within the definition of disbursements and expenses wholly and exclusively expended for the purpose of trade; what I do decide is that it...
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