Inland Revenue v Scottish Automobile and General Insurance Company
| Jurisdiction | Scotland |
| Judgment Date | 19 November 1931 |
| Date | 19 November 1931 |
| Docket Number | No. 11. |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION.
RevenueIncome taxIncome assessableProfit on realisation of investmentsInsurance companyPower to "deal with and turn to account" assets"Trade"Question of fact or of lawIncome Tax Act, 1918 (8 and 9 Geo. V. cap. 40), sec. 237, and Sched. D, Case I.
An insurance company was empowered, in terms of its articles of association, to "sell, deal with and turn to account any of the assets of the company." The company invested its reserve funds in British Government securities. From the date of the company's incorporation in 1919 till 1928 it occasionally changed its investments in these securities. In several years there were no sales of investments. In 1928 the company made a profit of 4800 on the realisation of certain investments. The General Commissioners found that this profit was not made by trading; and, accordingly, was not assessable.
Held (diss. Lord Morison) that the question whether a profit was made by trading was one of fact, and that there was evidence justifying the finding of the Commissioners.
Opinions that the finding of the Commissioners was right.
At meetings of the Commissioners for the General Purposes of the Income Tax Acts for the Division of the Lower Ward of Lanarkshire, the Scottish Automobile and General Insurance Company, Limited, appealed against an assessment to income tax under Schedule D of the Income Tax Act, 1918,1 on the sum of 19,139 for the year ended 5th April 1930.
The Commissioners reduced the assessment to 14,298, and, at the request of the Commissioners of Inland Revenue, they stated a case for the opinion of the Court of Session as the Court of Exchequer in Scotland.
The case set forth that the following facts were admitted or proved:"1. The Company was incorporated on 4th November 1919 with a capital of 250,000 in 1 shares, of which 150,000 shares have been issued. On each of these shares 5s. has been called up, making the issued capital 37,500. 2. The Company was formed to carry on the business of insurance of all kinds, and to issue and grant insurance policies, tickets, or other contracts in relation to risks of all kinds, except in connexion with life assurance or bond investment; and to carry on any other business which might seem to the Company capable of being conveniently carried on in connexion with the above objects and calculated directly or indirectly to enhance the value of or render profitable any of the Company's property or rights. 3. The Company is empowered by Article 3 of its memorandum of association,inter alia, as follows:'(9) To enter into partnership or any arrangement for sharing profits, union of interests, or co-operation with any company, firm or person carrying or proposing to carry on any business within the objects of this Company and to acquire and hold shares, stock, or securities of any such company. (10) To promote or form, or assist in the promotion or formation of any other company or companies, either for the purpose of acquiring, working or otherwise dealing with all or any of the properties, rights and liabilities of this Company, or any property in which this Company is or may become interested, or for the purpose of forming any business or undertaking, the formation of which may seem profitable to the Company, or likely to advance its interests, (15) To lend money to any company, partners, association, or person either with or without security, and generally upon such terms as may seem expedient to the directors. (16) To invest and deal with the moneys of the Company not immediately required, in such manner as may from time to time be determined.' 4. Article 80 (23) and (24) of the Company's articles of association empowers the directors in the name and on behalf of the Company as follows:'(23) To advance and lend money out of the funds of the Company within the British Empire, with or without security, real or
personal, and upon such terms as may be arranged, and to invest the funds of the Company within the British Empire or in any foreign country in the purchase of real or heritable property, whether held in feu or leasehold, freehold, copyhold or otherwise, or in the purchase or acquisition of shares, stocks, debentures, debenture stocks, bonds obligations, and securities with power to acquire any such investments as aforesaid by original subscription, participation in syndicates or otherwise, and whether or not fully paid up, and to make payments thereon as called up or in advance of calls or otherwise, and to underwrite or subscribe for the same conditionally or otherwise, and to vary the investments of the Company, and generally to sell, exchange or otherwise dispose of, deal with and turn to account any of the assets of the Company. (24) To advance or lend money on any security real or heritable and personal or moveable (except shares of the Company) of which the board of directors may approve.' 5. Article 88 of the articles is in the following terms:'(88) No dividend or bonus shall be payable except out of the income and profits arising from the investments and business of the Company.' 6. Article 89 of the articles is in the following terms:'(89) The Directors may, before paying or recommending any dividend, add to the Reserve Fund by setting aside out of the profits of the Company such sums as they think proper for the purpose of meeting contingencies, equalising dividends, payment or allowance of bonuses, or for other matters required by or connected with the business of the Company, or any part thereof. The Directors may invest the Reserve Fund upon such investments (other than shares of the Company) as they think fit, and from time to time deal with and vary such investments and dispose of all or any part thereof for the benefit of the Company, and may divide the Reserve Fund, or any part thereof, into such special funds as they think fit, with power to employ the assets for the time being constituting the Reserve Fund in the business of the Company, and that without being obliged to keep the same separate from the other assets of the Company.' 7. The Company deals, inter alia, in indemnity, motor, workmen's, and third party risks insurance. 8. The Company has invested its surplus funds in British Government Securities, and it has no other investments. Its investments include 20,000 which the Company is bound to deposit with the Paymaster-General under section 2 of the Assurance Companies Act, 1909 (9 Edw. VII. cap. 49). 9. The investments have on occasion been changed, and the following table shows the Company's holdings for the years 1920, 1921, and 1922, and the variation of the investments from 1923 to 1928...To continue reading
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