James Spencer & Company v Commissioners of Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 31 May 1950 |
| Date | 31 May 1950 |
| Court | Sheriff Court |
No. 1458-COURT OF SESSION (FIRST DIVISION)-
Excess Profits Tax - Income Tax principles - Firm of stevedores not insured against compensation claims by its workmen - Period in which sums payable under such claims to be debited in computing profits.
The Appellant firm, the partners in which were the surviving partners and the widow of a deceased partner of an earlier firm, took over from 1st April, 1945, the business as stevedores previously carried on by that firm. Neither the Appellant firm nor its predecessor insured against risks or liabilities arising from claims by workmen either under the Workmen's Compensation Acts or under common law, and on taking over the business the Appellant firm assumed responsibility for the previous partnership's liabilities to its workmen in this respect.
On appeal to the Special Commissioners against an assessment to Excess Profits Tax for the chargeable accounting period ended 31st December, 1945, the firm contended that as soon as an accident to a workman occurred in its employment a liability arose, that whether the liability was admitted or disputed it was proper to make provision for it in the accounts for the period within which the accident occurred, and that in computing, for Excess Profits Tax purposes, its profits for the nine months ended 31st December, 1945, it was entitled to deduct:-
(a) a sum representing claims against the Appellant firm or its predecessor in respect of which no payments had been made at 31st December, 1945, either because (i) liability had not been admitted; or (ii) liability was admitted but the amount payable was not agreed; or (iii) the amount payable was agreed but no payment had actually been made; and
(b) a sum representing the amount estimated at 31st December, 1945, as required to purchase annuities equal to the sums then regarded as payable under the Workmen's Compensation Acts to workmen who had been injured in the employment of the Appellant firm or its predecessor.
For the Crown it was contended (i) that no deduction was permissible in respect of claims for which liability had not been admitted at 31st December, 1945; (ii) that where liability to pay a lump sum was admitted by the firm, or imposed upon it by a Court, a deduction was due for the period in which the liability was admitted or imposed, and not for the period in which the accident occurred; and (iii) that where there was a liability to pay periodic sums under the Workmen's Compensation Acts deduction was due only for the sums actually paid during the relevant period.
The Commissioners held that no liability in respect of an accident arose until it was admitted by the firm or, if disputed, determined by a competent Court and that the firm's claim failed.
Held, that the Commissioners' decision was correct.
For the opinion of the Court of Session stated under Section 21 (2), Finance (No. 2) Act, 1939, and Section 149, Income Tax Act, 1918, by the Commissioners for the Special Purposes of the Income Tax Acts.
I. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 13th April, 1948, James Spencer & Co. (a firm) appealed against an assessment to Excess Profits Tax for the chargeable accounting period beginning 1st April and ending 31st December, 1945, on the estimated sum of £50,000.
The following facts were admitted or proved:-
(2) James Spencer & Co., hereinafter called "the Appellant firm", is a partnership which carried on business as stevedores on the River Clyde. It was constituted on 1st April, 1945, and took over the business of stevedores which had been carried on for a number of years by an earlier partnership of the same name which terminated on the death of its predominant partner on 31st March, 1945. The partners of the Appellant firm consisted of the surviving partners and the widow of the predominant partner of the earlier partnership. During the war years accidents to the employees of the earlier partnership and the Appellant firm increased owing to the greater volume of work carried out by night and day and as a result of more difficult conditions due to the black-out. Down to the end of 1945 neither the earlier partnership nor the Appellant firm insured against risks or liabilities arising from claims by workmen either under common law or the Workmen's Compensation Acts.
(3) On the constitution of the Appellant firm it took over and assumed liability for the liabilities of the earlier partnership including liabilities to its workmen in respect of accidents.
(4) The Appellant firm lodged with the Inspector of Taxes an account of its business from 1st April, 1945, to 31st December, 1945. That account shewed a profit for that period of £21,417 11s. 11d.after deducting inter...
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