Lochgelly Iron and Coal Company, Ltd, v Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 18 March 1913 |
| Date | 18 March 1913 |
| Docket Number | No. 110. |
| Court | Court of Session (Inner House - First Division) |
NO. 347.-COURT OF SESSION (SCOTLAND) FIRST DIVISION.-
Income Tax. - Profits of Trade. - Deductions. A Company, member of a Coalowners' Association, claims allowance of certain contributions representing levies made by the Association and expended (1) in defraying expenses of the Conciliation Board (Scotland), (2) in paying subscriptions to the Mining Association of Great Britain, and (3) in experimenting with coal dust.
Held, that, so far as applied in defraying the expenses of the Conciliation Board, the levies were an admissible deduction in arriving at the liability of the Company: but that, so far as applied to the other two purposes, they were not admissible.
At a meeting of the Commissioners for the special purposes of the Income Tax Acts, held at the Inland Revenue Office, Edinburgh, on the 16th January, 1912, for the purpose of hearing appeals under Schedule D of the Income Tax Acts:-
The Lochgelly Iron & Coal Company, Limited, of Lochgelly, Fife (hereinafter called the Appellants), appealed against an assessment of £60,148-less wear and tear allowance, £9,693- for the year ending 5th April, 1912, made upon them under Section 60, Schedule A, No. III., Rule 2 and Section 100, Schedule D of the Income Tax Act, 1842 (5 and 6 Vict., cap. 35), as amended by the Income Tax Act, 1853 (16 and 17 Vict., cap. 34), and the Revenue Act, 1866 (29 and 30 Vict., cap. 36), Section 8, in respect of the profits of the concern.
The Appellants were represented by Mr. James Armour, their secretary and commercial manager, and Mr. David Connel, writer to the signet, Dunfermline, their solicitor.
The only point in dispute is as to the admissibility or nonadmissibility of the deduction-for Income Tax purposes-of the following sums which have been debited in the profit and loss accounts of the Appellants in respect of their contributions in the form of levies to the Fife and Clackmannan Coalowners' Association of which they are members:-
£ |
||
Year ended 31st May, |
1906 |
22 |
,, ,, |
1907 |
74 |
,, ,, |
1908 |
59 |
,, ,, |
1909 |
74 |
,, ,, |
1910 |
720 |
It was agreed (1) that should the deductions in question be held to be inadmissible, the correct liability of the Appellants to Income Tax, Schedule D, for the year ending 5th April, 1912, is £60,163-less wear and tear allowance, £9,693; and (2) that should the deductions be held to be admissible, the assessment should be reduced to £59,973, less wear and tear allowance, £9,693.
I. The following facts were admitted or proved:-
(2) The Fife and Clackmannan Coalowners' Association (hereinafter called the Association) consists of thirteen collieries in Fife and Clackmannan.
(3) During the five years entering into the average on which the assessment under appeal was based, the Association, which was formed many years ago with the object-inter alia-of discussing methods and arriving at conclusions tending to the more economical working of the whole of the collieries concerned, was purely mutual, voluntary, and informal, possessing no rules, regulations, or constitution of any kind, and had no legal power to recover payment of any levy from its members. The Appellants along with the other members of the Association have now formally adopted certain rules and regulations. These are set forth in a Deed of Agreement which became operative as from 1st January, 1912, and from which it appears that the objects of the Association now are to provide mutual protection to its members in matters affecting their general interests, and to indemnify members for loss of output in case of a strike, or restriction of output on the part of the workmen. A copy of the Deed of Agreement is annexed hereto-lettered "F"(1) -and forms part of this Case.
(4) Meetings of the Association have been held from time to time, at which all proposed levies from its members, and the manner in which such levies should be expended, were discussed and agreed.
-
(5) The Appellants produced the following copies of abstracts of income and expenditure of the Association, covering the whole of the five years, on the average of which the assessment on the Appellants was based, viz.:-
Period May, 1905, to October, 1906
lettered
"A"
,, November, 1906, to 18th May, 1908
,,
"B"
,, 18th May, 1908, to 30th April, 1909
,,
"C"
,, 30th April, 1909, to 1st December, 1910
,,
"D"
-
(6) and also-lettered "E"-a copy of a representative minute of a meeting of the Association.(1) The copies of these abstracts and the copy of the representative minute of meeting are annexed hereto, and form part of this Case. During the above periods the income of the Association consisted almost entirely of the proceeds of the levies made on its members, and the accounts show the precise manner in which the proceeds of the levies were expended.
(7) The £59 debited in the Appellants' accounts for the year ended 31st May, 1908, already referred to, represented their share of a special levy calculated at the rate of £60 per million tons of output, for the purpose of experimenting at the request of His Majesty's Government in coal dust, with a view to preventing, so far as possible, explosions in mines. Of the levy of £720 debited in the accounts for the year ended 31st May, 1910, £435 thereof related to a special levy of one-tenth of a penny per ton of 1908 output levied on the Appellants in common with the whole of the collieries in Scotland (vide note on the accounts of the Association for period ended 1st December, 1910, "D"). The total levy so raised was paid over to the treasurer of the Scottish Coal Trade Association (formed for this purpose only) and applied to fighting before the Railway and Canal Commission, on behalf of all the collieries concerned, the principal Scottish Railways in connection with a disputere demurrage and siding rents. A portion of the levies was expended in subscriptions to the Mining Association of Great Britain, in meeting Conciliation Board (Scotland) expenses, and in installing a Central Rescue Station consequent on the passing of the Mines Accidents (Rescue and Aid) Act, 1910.
II. Mr. David Connel, on behalf of the Appellants, contended that their contributions-in the form of levies-to the Fife and Clackmannan Coalowners' Association were sums laid out exclusively for the purposes of their trade, having been expended on objects which could be more economically carried out by collieries in combination than individually, and hence that such payments were properly allowable as admissible deductions in arriving at their profits assessable to Income Tax Schedule D. He explained that, had the Appellants not been members of the Association, their costs would have been considerably greater on account of their having to fight Cases, supply rescue appliances, etc., single-handed, and distinguished their Case from that of the Rhymney Iron Company,
Limited v. Fowler ELRTAX(1896, 2 Q.B. 79, 3 T.C. 476
) in which payment of an indemnity to members of a Coalowners' Association in the event of deficiency or stoppage of output caused by...
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