Municipal Mutual Insurance, Ltd v Hills (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | Viscount Dunedin,Lord Warrington of Clyffe,Lord Thankerton,Lord Macmillan,. |
| Judgment Date | 15 March 1932 |
| Judgment citation (vLex) | [1932] UKHL J0315-2 |
| Date | 15 March 1932 |
| Court | House of Lords |
[1932] UKHL J0315-2
House of Lords
Viscount Dunedin.
Lord Warrington of Clyffe.
Lord Atkin.
Lord Thankerton.
Lord Macmillan.
After hearing Counsel for the Appellants, as well on Tuesday the 23d, as on Thursday the 25th, days of February last, upon the Petition and Appeal of Municipal Mutual Insurance, Limited, whose registered office is situate at 25/27 Old Queen Street, Westminster, London, S.W.1, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal, of the 11th of May 1931, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order might be reversed, varied, or altered, or that the Petitioners might have such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of W. J. Hills, one of His Majesty's Inspectors of Taxes, lodged in answer to the said Appeal; and Counsel appearing for the Respondent, but not being called upon; and due consideration being had this day of what was offered for the said Appellants:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 11th day of May 1931, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondent the Costs incurred by him in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
In this case I am content with the judgment of the Commissioners as expressed by them and affirmed by Rowlatt J.
The point may be stated as a question whether the facts in this case, so far as the point of controversy extends, fall under the decision in the case of New York Life Insurance Company v. Stiles, 14 Ap. Cas. 381, or under the case of Last v. The London Assurance Company, 10 Ap. Cas. 438.
Any person, or set of persons, or company, carrying on the business of insurance, charges premiums and has to meet claims on the policies for which the premiums have been paid and, if it transpires in the course of business that the amount obtained by the premiums has been more than sufficient to meet the claims, this is a surplus. If that surplus is a profit it must bear income tax, secus if it is not; and whether it is a profit or not depends, as was found in the two cases, upon the question: to whom does it go? If it goes to the insurer or insurers it is a profit. If it simply goes back to the insured either in reduction of his premium or in enhancing the sum insured, it is in essence merely a return of his own money which he has overpaid, and is not a profit.
Now, it is found in this case as a fact that, as regards Employer's Liability business and miscellaneous business—and that is the only point disputed— "in no case is any redundant part of the premiums returnable to the contributors either in the shape of a reduction of premiums, or in cash on cessation of the policy or on winding up."
All surpluses eventually go to the Fire Policy holders. In so far as the surplus arises from a Fire Policy, they are really entitled to the money as being those who contributed it, and accordingly it has been admitted that any profit made on the Fire Policies is governed by the New York case. But as regards Employers' Liability business and miscellaneous business, it does not go to the contributors for, as Fire Policy holders in a body, they have not contributed, and therefore this business is in the same position as business with complete outsiders, the surpluses in which are admitted to be profit.
I move that the appeal be dismissed.
My Lords,
This is an appeal from an order of the Court of Appeal, dated the 11th May, 1931, dismissing an appeal from an order of Rowlatt J. whereby an appeal from the Special Commissioners was dismissed and their decision was affirmed.
The question is whether in arriving at the amount of the profits of the Appellants' trade under Case I of Schedule D, premiums received by the Appellants from holders of fire policies in respect of insurance business other than fire policy business ought to be treated as receipts of the trade or whether those premiums should be excluded as derived from mutual insurance business on the principle of decisions in this House of which New York Life Insurance Coy. v. Styles, 14 A.C. 381, is the leading example.
Mutual insurance business is now perfectly well known. It consists essentially in the association of a number of persons who insure each other against certain risks by contributing by way of premiums to a common fund to be used, together with further contributions if necessary, for the purpose of indemnifying any member or members who may have suffered injury in consequence of a risk insured against, any surplus being either carried forward or used to reduce future premiums as the members may determine.
It is now settled by the decisions above referred to and is not disputed that the mere carrying on of such a business is not a trade, nor are the surpluses profits for the purposes of income tax.
In the present case certain local bodies conceiving that through mutual insurance against fire and other risks they would be able to insure on terms more favourable to themselves than by insuring with any of the Fire Insurance Companies, determined to associate together for that purpose, and to work the business by means of a company incorporated under the Companies Acts and limited by guarantee.
On the 9th March, 1903, the Appellant company was so incorporated, the Memorandum of Association being signed by eight persons, each a member or an officer of a local authority.
The first object of the company as expressed in the memorandum is to enable public bodies and authorities by co-operation to insure against fire and other risks on the most favourable terms. In addition, power was taken in wide terms to carry on any form of insurance business except life insurance. It was provided that the income and property of the company, whencesoever derived, should be applied solely towards the promotion of the objects of the company and no portion of it should be paid or transferred by way of profit to the members of the company. Every member undertook to contribute in the event of a winding up for the purposes specified in the memorandum such amount as might be required not exceeding £10.
Under the provisions of the articles the members of the company are the original subscribers and such other persons as may apply for admission and be accepted by the managing trustees. It is a condition of a person becoming a member that he is insured or about to be insured either against fire risks or against employers' liability risks. In the event of a winding up the surplus assets, if any, are divisible amongst the fire policy holders at the date of the commencement of the winding up in proportion to the amounts of the aggregate premiums paid by them respectively upon fire policies.
Since the year 1913 the company have, in addition to the fire insurance business conducted on the mutual system, carried on an extensive insurance business of a miscellaneous character and particularly employers' liability business.
Considerable profits are derived from this miscellaneous business, and it is admitted that in general the Appellants are liable to be assessed to income tax in respect of these profits, but they claim to be exempt in respect of any surplus arising from employers' liability or other miscellaneous business done with fire policy holders. The Commissioners and both Courts below have rejected this claim and I entirely agree.
No part of the surplus arising from the employers' liability or other miscellaneous business is paid to the assured whether fire policy holders or not in reduction of premiums or otherwise. In fact in this part of the business the principle of mutual insurance business does not prevail at all. I fail to understand how the surplus arising from any part of this business can be treated otherwise than as profits and gains under Schedule D. The fact that a surplus in a possible winding up is divisible amongst those who happen to be fire policy holders at the time cannot in my opinion affect the character of the current profits.
In my opinion the appeal must be...
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