LEITH, HULL, and HAMBURG STEAM PACKET COMPANY v BAIN (Surveyor of Taxes.)
| Jurisdiction | England & Wales |
| Judgment Date | 16 June 1897 |
| Date | 16 June 1897 |
| Court | Exchequer |
No. 198.-COURT OF EXCHEQUER (SCOTLAND),
Income Tax. - Deduction. - Depreciation. - Ships. - A Company owned a fleet of passenger and cargo steamers. In assessing the Company to Income Tax the Commissioners for General Purposes allowed a deduction of 51/2per cent. from the written down value of the whole fleet in the Company's books, as representing the diminished value of the ships by reason of wear and tear during the year of assessment. The Company claimed a reduction of the Assessment, on the ground of overcharge, consequent upon insufficient allowance for depreciation.
Held, that the Appeal must be refused.
At an adjourned meeting of the Commissioners for General Purposes under the Property and Income Tax Acts for the County of Edinburgh, held at Edinburgh on the 24th day of April 1896, for the purposes of hearing and disposing of Appeals.
The Leith, Hull, and Hamburg Steam Packet Company appealed against the assessment imposed on them for the year ended 5th April 1896, under Schedule D. of the Property and Income Tax Acts, and craved a reduction of the assessment "on the ground of overcharge, consequent upon insufficient allowance for depreciation."
The Appellants having specially requested that the profits of their business should not be made public, the Surveyor of Taxes on behalf of the Crown agreed that the annual profits should not appear in the Case.
The following are the facts found or admitted:-
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1. The Appellants are owners of a fleet of 37 iron and steel steamers, which they employ in trading between Leith and Newcastle, Sunderland, Hull, Hamburg, and the Baltic Ports.
2. The ages of the Appellants' 37 vessels vary from 3 to 36 years-11 are from 29 to 36 years old, and of these 11, 3 are from 34 to 36 years old. The average age of the fleet is about 151/2 years. The Commissioners were desirous for their guidance of obtaining from the Appellants an expression of their opinion as to the average life of a steamer, but they declined to offer any opinion on the subject.
3. With the view of facilitating the adjustment of the allowance for depreciation, the Crown and the Appellants agreed than one-half in value of the fleet were passengers steamers and one-half cargo steamers, and that the value of the whole fleet, as at 31st December 1893, was to be taken at the written down value in the Company's books at that date, namely, 398,000l. It was also agreed that passenger steamers, owing to the speed at which they are driven, diminish in value more rapidly from wear and tear than cargo steamers.
4. The Crown and the Appellants further agreed upon a sum to be taken as representing the profit earned by the Appellants from their business as shipowners, estimated in terms of the 1st rule of section 100 of the Income Tax Act 1842, on an average of the three years ended 31st December 1894, and that they are assessable to income tax for the year ended 5th April 1896 on said sum, less the just and reasonable deduction, to represent the diminished value of their shipping, by reason of wear and tear, during the year, authorised by section 12 of the Customs and Inland Revenue Act, 1878. The question discussed during the hearing of the Appeal was the amount which should be deducted to represent "the diminished value" under the Act last quoted.
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5. Shipping may diminish in value from at least three causes:-
(a) From depression owing to over competition and to bad trade.
(b) From the ships becoming more or less obsolete and unable to compete with newer vessels of an improved type.
(c) From physical deterioration on account of wear and tear.
5. It is admitted that the last is the only cause of diminished value that comes within the provision of the Customs and Inland Revenue Act 1878.
6. For the year ended 5th April 1896 the Appellants claimed for depreciation by wear and tear 28,208l., this is at the rate of 71/2 per cent. on 376,110l. This 376,110l. is brought out by deducting from 398,000l. the actual value at 31st December 1883, the 21,890l. allowed for depreciation in year 1894-95, but the assessing authorities reduced the allowance for wear and tear to 20,686l., which is equal to 51/2 per cent. on 376,110l., the value of the vessels at 31st December 1894.
7. In estimating the amount to be allowed for diminished value by reason of wear and tear under the Customs and Inland Revenue Act 1878, the Commissioners by a majority found as a fact that the normal life of a steam vessel may be reasonably taken as at least 22 years, and that is followed as a matter of arithmetical calculation that an annual allowance of 5 per cent. on the reducing value, with compound interest at the rate of 3 per cent., will recoup the original capital expenditure; or in other words, meet the depreciation of wear and tear.
In support of the Appeal the Appellants contended:-
1. That the "reasonable deduction" fixed by the Commissioners is not...
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HM Revenue and Customs v Lansdowne Partners Ltd Partnership
...stated 4 The case stated leaves a lot to be desired, even if it does not warrant the excoriating criticism to be found in Leith, Hull and Hamburg Steam Packet Co v Bain (1897) 3 TC 560, 567. The primary function of a case stated is to set out the facts that the Commissioners found (either a......