Inland Revenue v Stewarts & Lloyds, Ltd
| Jurisdiction | Scotland |
| Judgment Date | 20 July 1906 |
| Docket Number | No. 169. |
| Date | 20 July 1906 |
| Court | Court of Session |
Lord M'Laren, Lord Kinnear, Lord Pearson, Lord President.
RevenueIncome-TaxProfits of TradeDeductionsMoney wholly expended for the purposes of the tradePayment to secure a controlling interest in a rival firmIncome-Tax Act, 1842 (5 and 6 Vict. cap. 35), sec. 100, Schedule D.
S. & L., a firm of tube manufacturers, entered into an agreement with W., another firm of tube manufacturers, whereby, in return for the right to nominate a majority of the directors of W., S. & L. undertook to pay to W. each half year such sum as might be necessary to make up any deficit in the dividend on W.'s preference shares. In pursuance of this agreement, in the year 1904 S. & L. made payments to W. of sums amounting to 841. In estimating their profits for that year for income-tax purposes S. & L. claimed to deduct from the profits this sum of 841. The Income-Tax Commissioners held, on a consideration of the evidence, that S. & L. had expended this sum for the purposes of their trade and that they might sell their goods at a better price, and allowed the deduction. The Surveyor of Taxes appealed.
Held that in the circumstances the deduction had been rightly allowed.
Observed that the question was one of fact rather than of law.
Messrs Stewarts & Lloyds, Limited, having their registered office in Glasgow, were incorporated under the Companies Acts in 1890, for the purpose of carrying on, inter alia, the business of tube manufacturers. Article 3 of the memorandum of association, which specified the objects of the Company, contained this provision:(h) To enter into partnership, or into any arrangement for sharing profits, union of interests, reciprocal concession, or co-operation with any person or company carrying on or about to carry on any business which this Company is authorised to carry on, or any business or transaction capable of being conducted so as directly or indirectly to benefit this Company, and to take, or otherwise acquire and hold shares or stocks in, or securities of, and to subsidise or otherwise assist any such company, and to sell, hold, reissue, with or without guarantee, or otherwise deal with such shares or securities.
In 1903 Stewarts & Lloyds entered into an agreement with Wilsons and Union Tube Company, Limited, another firm carrying on the business of tube manufacturers. The minute of agreement between them, to which the Wilsons Company were the first parties, and Stewarts & Lloyds the second parties, contained the following provisions:First. The first parties agree to elect to their board of directors, and to continue to elect from time to time, and to retain as directors, such persons as may be nominated by the second parties greater in number than the other directors of the first parties. It shall be optional to the first parties at any time to decline to elect or re-elect or retain the nominees of the second parties, but in the event of their doing so, all obligations incumbent on the second parties under this agreement shall immediately cease. Second. So long as, and if when required, the requisite number of nominees of the second parties are elected to the board of the first parties, and retained members thereof, the second parties agree to pay to the first parties, half-yearly on 1st March and 1st September, whatever sum is required to pay or make up a half year's dividend on the preference shares of the first parties, according to the balance at credit or debit as shewn by their balance-sheets, to be made up as at 30th June and 31st December, half-yearly, and duly audited, i.e., if the profit shewn by the balance-sheet is less than 2500, the second parties shall make up the deficiency to the first parties, and if there be no profit at the credit of profit and loss account, or if there be a debit, the second parties shall pay to the first parties the sum of 2500.
During the course of the year ending 31st December 1904 Stewarts & Lloyds paid to the Wilsons Company, in pursuance of the foresaid agreement, the sum of 841. In estimating their profits for that year for income-tax purposes Stewarts & Lloyds claimed to deduct from their profits, which amounted to 172,770, this sum of 841, in terms of the provisions of Schedule D attached to sec. 100 of the Income-Tax Act, 1842.* The Surveyor of Taxes (John Moore) having refused to allow this deduction, Stewarts & Lloyds appealed to the Income-Tax Commissioners, who allowed the deduction, and against this decision the Surveyor of Taxes appealed to the Court of Session by way of stated case.
The case, after narrating the before-mentioned facts, stated the contentions of the parties as follows:
2. The Company contended (1) that the agreement was entered into and the payment of 841 was made solely for the purposes of
its own trade, and that it might sell its goods at a better price, and that, therefore, the deduction claimed was a proper one to be made from gross...
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