Lindsay v Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 18 November 1932 |
| Date | 18 November 1932 |
| Docket Number | No. 6. |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION.
Revenue—Income tax—Income assessable—Income from "adventure … in the nature of trade"—Profits from export of whisky to America—Illegal transaction—Income Tax Act, 1918 (8 and 9 Geo. V. cap. 40), sec. 237 and Shed. D, Case I.
Partnership—Constitution—Export of whisky to America—Agreement to share profits.
A wine merchant, who owned a large quantity of rye whisky, invited two friends to assist him in exporting it to the United States for sale there. The latter agreed to contribute towards the cost of exporting the whisky, but took no share in the actual arrangements. It was agreed that the three parties should share the profits of the transaction. They knew that the import of whisky into the United States was against the laws of that country, and that it necessarily involved the making of untrue customs declarations in this country.
The parties having appealed against an assessment to income tax made upon them jointly under Schedule D. of the Income Tax Act, 1918, in respect of the profits of the transaction,—
Held (1) that the question whether the transaction was undertaken in partnership was a question of fact, on which there was evidence to support the finding of the Commissioners that such a partnership existed; (2) that the disposal of the whisky was an adventure "in the nature of trade"; and (3) that the fact that the adventure involved a contravention of the law did not preclude assessability to income tax in respect of the profits.
F. A. Lindsay, A. E. Woodward, and W. Hiscoxappealed to the Commissioners for the Special Purposes of the Income Tax Acts against an additional assessment made upon them jointly under Schedule D of the Income Tax Act, 1918,1 for the year ended 5th April 1923 on the sum of £75,000 by the Additional Commissioners of Income Tax for the Division of Perth, such assessment having
been made shortly before the end of the year ended 5th April 1929 The Special Commissioners refused the appeal, subject to an agreed reduction of the amount of the assessment to £36,108, and, at the request of the appellants, stated a case for the opinion of the Court of Session as the Court of Exchequer in Scotland.
The case set forth:—
"I. The following facts were admitted or proved:—At the material times Lindsay was a wine merchant in Perth. Woodward was chairman and managing director of Edward Young & Company, Limited, wine merchants, Liverpool. Hiscox was the London representative of the same company. At the time of the hearing of the appeal, Lindsay, who was professionally represented separately at the hearing, had gone abroad and was reported to have no intention of returning to this country. Woodward was absent ill, but counsel on his behalf tendered a medical certificate as to his condition, and offered to agree to an adjournment of the hearing of the appeal if either the Special Commissioners or the Crown desired his evidence to be taken. No request for an adjournment for this purpose was made. Hiscox was present and gave evidence as hereinafter set fourth. (2) All three appellants, by reason of their occupations, were fully acquainted with the conditions governing the export of dutiable spirits duty free. Under those conditions the exporter was required to declare the destination of the spirits and to enter into a bond under penalty forfeitable if the spirits were not exported to the declared destination. In practice during the years 1922 and 1923 close inquiries were not usually made by the Customs Department with a view to ascertaining whether exported spirits actually reached the declared destinations, nor was production of clearance certificates insisted upon by the Customs Department. This practice was, however, altered as hereinafter set out. Copies of the forms of bond, warrants, request note, and shipping bill in use during 1922 and 1923 are attached to and form part of this case. (3) The three appellants had come to know each other about 1920 over ordinary business transactions, and a friendship had resulted. Early in 1922 Lindsay informed the other two appellants that he had a large quantity of American whisky, which he proposed to ship to the United States of America and sell there contrary to the law of those States, and he invited them to take part in the venture. They both consented and Woodward agreed to contribute £4000 and Hiscox £1200 towards the expenses, on the understanding that the proceeds would be shared in the proportions of Woodward and Lindsay 9/20ths each and Hiscox 2/20ths. This arrangement, which was left to rest on an honourable understanding between Lindsay, Woodward, and Hiscox, and was never reduced to writing, was made somewhere in January or February 1922. (4) The shipping of the whisky was arranged by Lindsay from Perth and was carried out gradually over a period of two years. The other two appellants did not take part in and were not consulted as to actual arrangements, but they met Lindsay from time to time and were merely told that whisky had been shipped successfully to the United States and sold there and that good profits were being earned. the end of 1922 Hiscox asked for and was given a larger share in the proceeds, which were subsequently shared equally in thirds. …(5) Notwithstanding repeated requests no accounts of the transactions were obtained from Lindsay by the other two appellants during the years 1922 and 1923. The sums of £1200 and £4000 advanced by them were, however, repaid to them. Towards the end of 1923 the Customs Authorities became more rigorous in enforcing the conditions attaching to the bonds under which spirits were exported, and the whole business of exporting whisky to the United States of America became more risky. The appellants accordingly agreed to discontinue the export and to employ the moneys which had been accumulated in buying a wine business in Portugal with a view to its resale at a profit. This business was bought about Easter 1924, but has proved wholly unsaleable up to the present. It could only be sold at a very heavy or almost total loss. (6) In 1925 Woodward and Hiscox, after considerable pressure, obtained accounts from Lindsay, and these accounts were the only accounts that Woodward and Hiscox obtained from Lindsay. These accounts are set out below. [The accounts were set forth along ith explanations regarding certain items.] (7) Hiscox, giving evidence, which was accepted, stated that Lindsay had helped him in connexion with certain Stock Exchange and other speculative losses, and it was about the time that he did so that he came to suggest the whisky transactions to Woodward and himself; that he himself was under contract with Edward Young & Company, Limited, not to engage in any competing business, but that after discussing the matter he and Woodward agreed that it was no concern of the company at all; that Lindsay gave them very little information about the American venture, but that he himself had been asked by him on about half a dozen occasions to accept and clear cheques from the American 'bootleggers' of the whisky; that he had been told by Lindsay of one loss of a cargo of whisky by 'pirates'; that he himself had never even seen the whisky; that there was no ordinary trade in this country in American whisky, which was made from rye; that he did not know whether the whisky was shipped direct to the United States of America or to some intermediate destination, but that to the knowledge of all three the whisky shipments necessarily involved the making of untrue Customs declarations in this country (though not for the purpose of evading Customs or excise duties); that they all were well aware that the sale of the whisky in the United States was illegal and risky; and that Woodward knew no more about the details of the venture than he (Hiscox) did. He explained that to the best of his recollection it was at the end of 1923 that the...
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