Ostime (HM Inspector of Taxes) v Pontypridd and Rhondda Joint Water Board
| Jurisdiction | England & Wales |
| Judgment Date | 29 March 1946 |
| Date | 29 March 1946 |
| Court | King's Bench Division |
NO. 1379-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax, Schedule D - Water Board - Sums received under precepts issued to constituent authorities - Whether trading receipts - Sums paid under precept and as fixed contribution to body of which constituent member- Whether admissible deductions.
The Pontypridd and Rhondda Joint Water Board was established by an Act of 1910, its constituent authorities being the Urban District Councils of Pontypridd and Rhondda. The Board's statutory limits of supply of water were restricted to the Pontypridd Urban District and part of the Rhondda Urban District, but it had a statutory right to sell water in bulk to the water undertakers in certain other districts. Its revenue consisted mainly of payments by consumers of water in the Pontypridd and Rhondda Districts and payments by the water undertakers in the other districts, and such payments were admitted to be trading receipts. The Board was, however, also entitled to receive moneys from its constituent authorities under a provision in the 1910 Act which required the Board to make an advance estimate of its net revenue for each year, and, if there was an estimated deficiency, to apportion the sum required to meet it between its constituent authorities and to issue precepts to them for the amounts so apportioned. The constituent authorities were to pay the money out of their respective general rate funds, and were authorised and required to levy any rate that might be necessary. The sums required to satisfy the precepts in question were levied by the constituent authorities upon their ratepayers whether the said ratepayers took a supply of the Board's water or not, and, in the case of the Rhondda Urban District Council, upon the ratepayers for the whole of the Urban District, notwithstanding that the greater part of the District was outside the Board's statutory limits of supply.
The P. and R. Board was itself a constituent member of the Taf Fechan Water Supply Board, from which, in common with other constituent members, it purchased in bulk some of the water which it supplied to its own consumers. The P. and R. Board was bound to take from the Taf Fechan Board, or pay for as taken, a minimum quantity of water at a fixed price of 1s. per 1000 gallons, and could require certain further quantities of water to be supplied to it at the same price. The Taf Fechan Board had the statutory right to apportion any estimated deficiency in its annual net revenue between its constituent members, including the P. and R. Board, and to issue precepts to them requiring them to pay out of their respective revenues the amounts so apportioned. The P. and R. Board was also required to pay to the Taf Fechan Board a fixed contribution of three-quarters of the product of a
penny rate in the Pontypridd Urban District and in so much of the Rhondda Urban District as was within the P. and R. Board's limits of supply; the fixed contribution was to be deducted from the amount payable by the P. and R. Board for water supplied in excess of the minimum quantity which it was required to takeOn appeal against an assessment to Income Tax made upon the P. and R. Board under Case I of Schedule D, the General Commissioners, accepting the Board's contentions, decided (1) that the sums received by the Board under precepts issued to its constituent authorities were not trading receipts, and (2) that the amounts payable by the Board to the Taf Fechan Board, whether under precept or as a fixed contribution, were admissible deductions in computing the P. and R. Board's profits for Income Tax purposes.
Held, (i) (Court of Appeal) that the amounts payable by the Board to the Taf Fechan Board were admissible deductions for Income Tax purposes;
(ii) (House of Lords) that the sums received by the Board under precept were trading receipts (In re Glasgow Corporation Waterworks,1 T.C. 28, distinguished).
Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the General Purposes of the Income Tax for the Division of Miskin in the County of Glamorgan, for the opinion of the High Court of Justice.
1. At a meeting of the said Commissioners held at Pontypridd in the said Division on 28th October, 1941, for the purpose of hearing appeals, the Pontypridd and Rhondda Joint Water Board (hereinafter called "the Board") appealed against an assessment to Income Tax made upon it under Case I of Schedule D in the estimated sum of £10,000 for the year 1939-40 in respect of the profits of its trade, namely the supply of water, in the circumstances set out hereunder.
It is admitted that the Board is assessable to Income Tax under Case I of Schedule D upon the excess of its trading receipts over its expenditure generally, but the questions raised before us and upon which the opinion of the Court is required are as to (a) the inclusion as such receipts of sums paid to it under precepts issued to constituent authorities, and (b) the allowance as deductions of sums paid by it to a body of which it is a constituent member, as set out hereinafter.
2. The Board was established by the Pontypridd and Rhondda Water Act, 1910, for the purposes (inter alia) of acquiring and carrying on the then existing undertaking of the Pontypridd Water Company and of supplying water within certain territorial limits statutorily defined as "the limits of "supply". The said Act, after reciting that it was expedient to establish a joint Water Board consisting of representatives of the Rhondda Urban District Council and the Pontypridd Urban District Council and to empower the Board to acquire the undertaking of the aforesaid company, went on to provide in Section 5(1) thereof as follows:-
A Board to be called the Pontypridd and Rhondda Joint Water Board "shall be established for the purposes of acquiring by purchase and of "completing managing and carrying on the Undertaking of the company "and generally for the purpose of supplying water within the limits of this "Act and for carrying the powers of this Act into execution.
It was further provided by Section 5(3) of the said Act that the constitution of the Board should be as follows:-
(a) The chairman for the time being of the Rhondda Urban District Council.
(b) The chairman for the time being of the Pontypridd Urban District Council.
(c) Six members to be appointed by the Rhondda Urban District Council.
(d) Four members to be appointed by the Pontypridd Urban District Council.
3. The territorial limits within which the Board was originally empowered to supply water are set out in Section 58 of the said Act. The original limits of supply comprised:
(2) The Pontypridd Urban District.
(3) Part of the Rhondda Urban District.
(4) The Llantrisant and Llantwit Fardre Rural District.
(5) Part of the Caerphilly Urban District.
Under the provisions of Section 59 of the Pontypridd and Rhondda Water Act, 1910, and Section 25(6) of the Pontypridd and Rhondda Water Act, 1913, Districts 3 and 4 were excluded from the Board's limits of supply, but the Board was given a statutory right to sell water in bulk to the water undertakers in these Districts. The Board, therefore, supplies water direct to the consumers in Districts 1 and 2, and supplies in bulk to the undertakers in Districts 3 and 4.
4. The receipts of the Board consist of payments made by consumers in Districts 1 and 2; payments made for water supplied in bulk to Districts 3 and 4; and payments made to it under statutory precepts as hereinafter set out.
5. The statutory provisions in the said Act of 1910 relating to the charges to be made by the Board for the water include Sections 61, 67 and 68. These charges were altered by Sections 26 and 27, Pontypridd and Rhondda Water Act, 1913. An increase of charges was later authorised by Section 18, Pontypridd and Rhondda Water Act, 1925, and the maximum permitted charges have at all material times been levied by the Board.
6. The Board is also entitled to receive moneys from its constituent bodies under Section 91 of the said Act of 1910, which provides, in effect, as follows:-
(2) In or about April of each year the Board is to make an estimate of its probable net revenue for the financial year commencing on 1st April. If that estimate shows that there will be a deficiency in the net revenue of the Board for the year, then "the Board are hereby authorised and required in "every case forthwith to apportion the sum required to meet such deficiency "between the constituent authorities in accordance with the provisions of "this Section."
(3) The deficiency in question is to be apportioned between the two constituent authorities in the proportion which the rateable value of the Pontypridd Urban District bears to the rateable value of that part of the Rhondda Urban District which is within the Board's limits of supply.
(4) The Board is to issue precepts to the constituent authorities for the amounts so apportioned, and the latter are to pay the amounts within three months from receipt of the precept.
(5) The constituent authorities are to find the money out of their respective general rate funds and general rates which are, by the Section, charged with payment of the same; and each constituent authority is "authorised and "required to make and levy any rate that may be necessary for the purpose "of this Section".
(6) In default of payment by a constituent authority of the amount apportioned to it as aforesaid, the Board may sue the defaulting authority or itself cause a rate to be levied in the district of such authority, in order to secure payment.
7. Attached hereto, marked "A1" and "A2" and "B", respectively, and forming part of this Case(1), are (i) copies of precepts issued by the Board, pursuant to the foregoing provisions, to the Rhondda Urban District Council on 14th March, 1938, and 12th December, 1938...
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