McMillan v Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 10 March 1942 |
| Date | 10 March 1942 |
| Docket Number | No. 23. |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION.
RevenueIncome taxIncome assessableProfits from tradeMethod of computing builder's profitsBuilder acquiring land for erection of housesHouses sold under burden of feu-dutiesFeu-duties retained unsoldProportion of outlay deductible as trading expenseIncome Tax Act, 1918 (8 and 9 Geo. V, cap. 40), Sched. D.
It was the practice of a builder in the course of his business to acquire ground, either by purchase or by feu, to develop the ground and erect houses upon it, and to sell the houses when erected, subject to a portion of the original feu-duty (if any) or to a feu-duty constituted by, and payable to, himself. He retained unsold the feu-duties payable to himself. For many years his profits as a builder under Schedule D of the Income Tax Act, 1918, had been ascertained by deducting from the prices received for the houses the expenditure he had incurred in the course of their erection. For the years 1937, 1938 and 1939 he was assessed upon the basis that the whole of this expenditure could not be attributed to the erection of the houses, but that part must be attributed to the creation of the feu-duties, and that, for the purpose of determining his profits as a builder, he was entitled to deduct from the prices he had received a part only of his expenditure calculated in the proportion which these prices bore to the estimated capital value of the feu-duties at the date of their creation.
Held that this method of assessment, although it might not be universally applicable with such simplicity, was prima faciereasonable and, in the particular circumstances of the case, was not open to challenge.Hughes v. Utting & Co.ELR, [1940] A. C. 463, applied.
At a meeting of the Commissioners for the General Purposes of the Income Tax Acts, held on 12th January 1939, John Ross M'Millan, F.R.I.B.A., 105 Crown Street, Aberdeen, appealed against estimated assessments to income tax made upon him as a builder under Schedule D of the Income Tax Act, 1918, on sums of 1000 for each of the three years ending respectively on 5th April 1937, 5th April 1938, and 5th April 1939. The Commissioners refused the appeal, and, at the request of the appellant, stated a case for appeal to the Court of Session.
The case, which is hereinafter referred to as the first stated case, set forth that the following facts were admitted or proved:"(1) For many years, and particularly during the years to which the above-mentioned assessments relate, the appellant, on his own account and sometimes in conjunction with his brother, Mr D. S. M'Millan, carried on the business of builder. He also carried on contemporaneously the business of architect. (2) It has been the appellant's practice generally to purchase ground or take it on feu, develop and build upon it, and dispose of the houses when built, subject to a portion of the original feu-duty (if any) or to a feu-duty constituted by and payable to him. (3) In the last forty years, during which he has built many houses and created many feu-duties, the appellant has never sold any feu-duties constituted by and payable to him. (4) The following are specific instances of the appellant's transactions:(a) Abergeldie Terrace Subjects.By a feu-charter dated 11th and recorded in the Division of the General Register of Sasines applicable to the county of Aberdeen on 13th, both days of March 1935, there was disponed to the appellant and his said brother certain ground at a yearly feu-duty of 19, 12s. 6d. The ground was divided by the appellant and his brother into six stances, and upon each stance they built a house. By arrangement with the superior, the whole of the feu-duty of 19, 12s. 6d. was allocated upon four of these stances. These four stances, together with the houses thereon, were then sold outright to purchasers for 600 each. When the remaining two houses were disposed of, the appellant and his brother granted feu-dispositions in favour of the purchasers, one for 600 and a feu-duty of 5, 15s. reserved to the appellant and his said brother, and the other for 600 and a feu-duty of 5, 5s., also reserved to them. (b)Cairnfield Place Subjects.By a feu-charter dated 16th April 1936 and recorded in the Division of the General Register of Sasines applicable to the county of Aberdeen on 18th May 1936 there was disponed to the appellant and his said brother certain ground at an annual feu-duty of 38, 13s. 6d. The ground was divided into twelve stances, and upon each stance a house was built by the appellant and his brother. By arrangement with the superior, the whole of the feu-duty of 38, 13s. 6d. was allocated upon seven of these stances. These seven stances, together with the houses thereon, were then sold outright to purchasers. When the remaining five stances were disposed of, the appellant and his brother executed feu-dispositions in favour of the purchasers in consideration in each case of 795 and an annual feu-duty of 5, 10s. 6d. payable to the appellant and his brother. (c) Bonnymuir Place Subjects.By a feu-charter dated 19th October and recorded in the Division of the General Register of Sasines applicable to the county of Aberdeen on 25th November 1936 there was disponed to the appellant and his said brother certain ground at an annual feu-duty of 66, 9s. 4d. By arrangement with the superior, the ground was divided into fifteen building stances and the feu-duty of 66, 9s. 4d. allocated over eleven of them, leaving four free of feu-duty. On these four stances the appellant and his said brother built houses, and in respect of each house and land they have granted feu-dispositions in favour of the purchasers in consideration of 795 and an annual feu-duty reserved to the appellant and his brother of 5, 19s. in respect of three of the houses and 6, 5s. in respect of the fourth. (d)Cotton Lodge Estate.By a disposition dated 8th and recorded in the Division of the General Register of Sasines applicable to the county of Aberdeen on 18th, both days of November 1933, the appellant acquired for 5000 from Patrick M'Granaghan certain ground, together with a residence known as Cotton Lodge, Aberdeen. The ground was burdened with a feu-duty of 2. By a disposition dated 13th and recorded 21st November 1933 the appellant acquired for 530 from Robert Goodlad certain adjoining ground subject to a feu-duty of 5, 9s. in order to get access to the Cotton Lodge estate from Great Northern Road. By a feu-charter granted by the University Court of the University of Aberdeen dated 3rd and recorded 23rd April 1934 there was disponed to the appellant certain further ground adjoining the Cotton Lodge estate to give him access from Leslie Road, at a feu-duty of 40, which was to be allocated on some of the houses to be built thereon. The appellant made a road through the property acquired by him as before-mentioned, and contemplated making another. By a disposition dated 6th, 12th and 19th September and 6th October and recorded on 12th November 1934 he acquired from the trustees of the deceased Alexander Scott Mearns further ground for a feu-duty of 20. This purchase enabled the appellant to straighten out a lane, in which lane he has erected thirty-seven lock-up garages which are to be let. The appellant is also under agreement to acquire from Seaton Estates (the property of Major Hay) further ground and cottages at a feu-duty of 10 per annum to enable him to complete a road through the estate. There is annexed to, and forms part of, this case a plan showing the ground acquired by the appellant in connection with the Cotton Lodge Estate scheme. Having acquired such an area of land, the appellant submitted to the appropriate local authority a lay-out scheme. This involved parcelling the land out into building stances. After receiving the sanction of the local authority, the appellant built houses on said stances as required. The Cotton Lodge Estate has not yet been fully developed or disposed of, and building operations still continue. Some of the houses built on the estate have been sold. In certain cases, feu-duties have been created and reserved by the appellant, in which case a feu-disposition is given by the appellant to the purchaser of the house in consideration of a lump sum and an annual feu-duty. In other cases, portions of the over feu-duty have been allocated to houses and land sold by him, in which case the appellant gives the purchaser of the house a disposition of the land in consideration of a lump sum of money only."
It had been agreed between the parties to the appeal that only the question of principle should be dealt with by the Commissioners at that time, viz., whether the capitalised value of feu-duties created by the appellant should be regarded as trading receipts and taken into account when computing his profits as a builder? And in the first stated case the decision of the Commissioners was set forth as follows:"We, the undersigned Commissioners, decided by a majority that the capitalised values of the feu-duties should be considered as part of the appellant's trading receipts."
In the first stated case the first question of law for the opinion of the Court was:"Whether the capitalised value of the feu-duties created by the appellant alone or jointly with his brother ought to be added to his trading receipts from the sale of houses and lands for the purpose of ascertaining the amount of his trading profits chargeable to income tax?"
The first stated case was heard before the First Division (without Lord Fleming) on 8th October 1940, when the respondents admitted that, as the result of the decision in Hughes v. Utting & Co.ELR,1 the principle applied in the assessments, and affirmed by the Commissioners, was wrong; and the Court pronounced the following interlocutor:"The Lords, having considered the...
To continue reading
Request your trial
-
McMillan v Commissioners of Inland Revenue
...[Solicitors:-Steedman, Ramage & Co., W.S., for A.C. Morrison & Richards, Aberdeen; Solicitor of Inland Revenue (Edinburgh).] 1 Reported 1942 S.C. 224. 1 Not included in the present print. 1 The letter was in the following terms:-"With reference to my letter of the "1st instant, I have to in......
-
McMillan v Inland Revenue
...[Solicitors:-Steedman, Ramage & Co., W.S., for A.C. Morrison & Richards, Aberdeen; Solicitor of Inland Revenue (Edinburgh).] 1 Reported 1942 S.C. 224. 1 Not included in the present print. 1 The letter was in the following terms:-"With reference to my letter of the "1st instant, I have to in......