Lord Advocate v Corporation of Edinburgh

JurisdictionScotland
Judgment Date15 October 1903
Date15 October 1903
Docket NumberNo. 1.
CourtCourt of Session
Court of Session
1st Division

LdStormonth-Darling, Lord M'Laren, Lord Adam, Lord President, Lord Kinnear.

No. 1.
Lord Advocate
and
Corporation of Edinburgh.

Revenue—Income-Tax—Deduction of Income-tax from interest on loan for less than a year—Customs and Inland Revenue Act, 1888 (51 and 52 Vict. cap. 8), sec. 24, subsec.(3).—

Held that a municipal corporation was bound by the Customs and Inland Revenue Act, 1888, sec. 24, subsec. (3), to deduct income-tax from the interest paid by it on loans for periods less than a year, and to render an account thereof to the Commissioners of Inland Revenue.

The Corporation of Edinburgh, in virtue of powers conferred upon them by various Acts of Parliament, borrowed money temporarily by the issue of bills and promissory-notes, and simple acknowledgments granted to lenders.

On 9th January 1903, the Lord Advocate, on behalf of the Commissioners of Inland Revenue, brought the present action, concluding that the Corporation should be decerned and ordained to render to the Commissioners ‘a full account of the sums retainable by the defenders in respect of income-tax during the period from 22d September 1901 to 5th April 1902, upon their payment of interest on moneys borrowed by them on temporary loan by means of bill or promissory-note or simple acknowledgment.’ There was also a conclusion for payment of £1200, or such other sum as might be found due in repect of income-tax so retainable.*

The defenders, in their statement of facts, averred, inter alia;— (Stat 4) ‘… Since the passing of the Edinburgh Corporation Act, 1899, the Corporation have also borrowed money temporarily by the issue of promissory-notes. None of those notes are issued to or discounted with private individuals. They are discounted with bankers or other financial traders, who are assessed as traders upon their profits from the discounts as part of the income derived from their trade or business. … The defenders aver that all these bankers or financial traders have duly accounted for the profits arising from the said discounts, and paid the income-tax exigible from them in respect thereof. The Corporation also borrow money temporarily by means of short loans or overdrafts from banks. … In the case of the aforesaid discounts and interest to banks the Corporation are not bound or entitled to deduct income-tax.’

In answer to these averments the pursuers stated;—(Ans. 4)‘… It is the case that in practice bankers are assessed as traders upon their profits from interest on short loans, and if information be supplied by the defenders shewing that the parties to whom promissory-notes were issued or acknowledgments were granted within the period libelled were bankers, the Corporation will not be required to deduct tax from the discount or interest in these cases.’

The defenders further averred;‘(Stat. 5) ‘The temporary loans received by the Corporation from individuals or companies other than banks do not bear annual interest. The whole of said loans are for periods less than a year. … Many of the lenders are trading firms or companies who keep regular business books. The interest paid to such firms or companies is included in their income in calculating their profits, and the defenders aver that the income-tax exigible in respect thereof during the period libelled has been duly paid by said firms or companies. No further income-tax is chargeable in respect of said interest. The Corporation are not bound to deduct income-tax from interest, not being annual interest paid by them, and in point of fact they have not done so.’

The pursuers pleaded, inter alia;—1. The defence being irrelevant ought to be repelled. 2. The interest payable by the Corporation in respect of moneys borrowed by them on temporary loan is chargeable to income-tax. 3. The Corporation, when paying interest on moneys so borrowed, ought to deduct income-tax at the rate in force at the time of payment, and are bound to account therefor to the Commissioners of Inland Revenue.

The defenders pleaded, inter alia;—3. The defenders should be assoilzied from the conclusions of the summons in respect that— (a) The defenders are not bound or entitled to deduct income-tax

from discounts on bills or promissory-notes discounted with banks or financial traders, or from interest paid on short loans or overdrafts from bankers. (b) Income-tax on interest, not being annual interest, falls to be accounted for by the recipients of such interest under section 100 of the Act 5 and 6 Vict. cap. 35, Second Rule of Third Case of Schedule D, and the defenders are not bound to deduct the income-tax from such interest. (c) The income-tax sued for, in so far as the same was due or payable, has been already duly accounted for and paid over to the Inland Revenue.

On 7th July 1903 the Lord Ordinary (Stormonth-Darling) pronounced this interlocutor:—‘Finds that under the Customs and Inland Revenue Act, 1888, section 24, subsection 3, the defenders are bound, upon payment by them of any interest on money, whether yearly interest or not, or of annuities charged with income-tax under Schedule D, and not payable, or not wholly payable, out of profits or gains brought into charge to such tax, to deduct out of such interest or annuities the rate of income-tax in force at the time of such payment, and forthwith to render an account to the Commissioners of Inland...

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