Pontypridd and Rhondda Joint Water Board v Ostime

JurisdictionEngland & Wales
JudgeViscount Simon,Lord Thankerton,Lord Wright,Lord Simonds
Judgment Date29 March 1946
Judgment citation (vLex)[1946] UKHL J0329-1
Date29 March 1946
CourtHouse of Lords

[1946] UKHL J0329-1

House of Lords

Viscount Simon

Lord Thankerton

Lord Wright

Lord Porter

Lord Simonds

Pontypridd and Rhondda Joint Water Board
and
F. H. Ostime (H.M.'s Inspector of Taxes)

After hearing Counsel as well on Friday the 25th, as on Monday the 28th, and Tuesday the 29th, days of January last, upon the Petition and Appeal of the Pontypridd and Rhondda Joint Water Board, of Pontypridd, Glamorganshire, 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 24th of July 1944, 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 F. H. Ostime (His Majesty's Inspector of Taxes) lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

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 24th day of July 1944, 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.

Viscount Simon

My Lords,

1

I have had the advantage of considering the opinion which my noble and learned friend Lord Thankerton is about to deliver, in which he has fully set out the facts in this case, and has examined and analysed the authorities. I agree with his conclusion and will limit myself to a brief statement of two contrasted propositions: the real question in the appeal seems to me to be under which of these two propositions the present case falls.

2

The first proposition is that, subject to the exception hereafter mentioned, payments in the nature of a subsidy from public funds made to an undertaker to assist in carrying on the undertaker's trade or business are trading receipts, i.e. are to be brought into account in arriving at the balance of profits or gains under Case I of Schedule D. It is sufficient to cite the decision of this House in the sugar-beet case ( Smart v. Lincolnshire Sugar Co., Ltd., 20 Tax Cases 643; 156 L.T. 215) as an illustration.

3

The second proposition constitutes an exception. If the undertaker is a rating authority and the subsidy is the proceeds of rates imposed by it or comes from a fund belonging to the authority, the identity of the source with the recipient prevents any question of profits arising—See, for example, Lord Buckmaster's explanation in Forth Conservancy Board v. I.R. Commissioners [1931], A.C. 540 at p. 546, and compare what Lord Macmillan said in Municipal Mutual Insurance v. Hills, 16 Tax Cases 430 at p. 448.

4

Lord Thankerton has conclusively demonstrated that Lord President Inglis' decision in the first Glasgow Water case ( Glasgow Water Commissioners v. I.R. [1895], 2 R. 708, 1 Tax Cases 28) falls within this second proposition; so interpreted, it was rightly decided, but it does not help the Appellants. The precepts which the Appellants issued called for lump sums to be contributed by the two urban district councils which they might pay either from their respective district funds or by levying rates. They were not agents for the Appellants in finding the money, but distinct parties. It is true that if either of the councils did not provide the money, the Appellants, instead of suing it, might itself by precept empower an officer of their own to raise the necessary amount by levying a rate in place of the defaulting authority, but the substance of the matter is that there is no such identity between contributors and recipients as removes the Appellants from the application of the first proposition set out above.

5

I move that the appeal be dismissed with costs.

Lord Thankerton

My Lords,

6

The subject matter of this Appeal arises upon an assessment made upon the Appellant Board under Case 1 of Schedule D of the Income Tax Act 1918 in the estimated sum of £10,000 for the year 1939-1940 in respect of the profits of its trade, which was that of an undertaking for the supply of water. The only question argued before this House was whether certain sums paid, under precept, to the Appellant Board by the Pontypridd Urban District Council and the Rhondda Urban District Council under section 91 of the Pontypridd and Rhondda Water Act 1910 fall to be included as receipts in the computation of the Appellant Board's trade profits.

7

The Commissioners for General Purposes of the Income Tax for the Division of Miskin in the County of Glamorgan held that these sums received under precept were not trading receipts and should not be included, and, on the requisition of the Crown, stated a case for the opinion of the High Court of Justice. It may be mentioned that there was also a dispute as to whether a sum paid by the Appellant Board to the Taf Fechan Water Supply Board should be allowed as a deduction; the General Commissioners held that it should be so allowed, and this conclusion was affirmed in the King's Bench Division and in the Court of Appeal, and the Crown did not press for its disallowance before this House. That point accordingly requires no further mention.

8

On Appeal, the decision of the General Commissioners that the sums received under precept by the Appellant Board were not trading receipts and should not be included in the computation of profits was affirmed by Macnaghten J., but an Appeal by the Crown to the Court of Appeal was allowed, and it was held that the sums in question were trading receipts and should enter into computation. Hence this Appeal by the Appellant Board.

9

Counsel for the Appellant Board referred to reasons Nos. 6 and 7 of the Appellant's Case as embodying his main contentions. These are, (6) where a local authority carries on a commercial undertaking at a loss, and is permitted to make good that loss by a compulsory rate levied on the ratepayers, the amount of the rate so raised is not a receipt of the local authority's said trade, and (7) the Board's position in respect of the sum raised by precept to meet its trading losses is similar to that of a local authority, its "ratepayers" being either the two Councils, the Rhondda Urban District Council and the Pontypridd Urban District Council as its constituent authorities, or the individual ratepayers of those two districts.

10

The Appellant Board was established as a corporate body by a local Act, The Pontypridd and Rhondda Water Act 1910, the Board being constituted 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;

11

and it was provided that no one was qualified to be a member of the Board unless he was a member of either of these two Urban District Councils, these two Councils being referred to in the Act as "the constituent authorities".

12

Under sections 58 and 59 of the Act of 1910, as amended by section 25 (6) of the Pontypridd and Rhondda Water Act of 1913, the limits of supply within which the Board are authorised to supply water direct to consumers are (1) the Pontypridd Urban District, and (2) part only of the Rhondda Urban District, but in addition the Board was authorised to sell water in bulk to the water undertakers in (1) the Llantrisant and Llantwit Fardre Rural District, and (2) part of the Caerphilly Urban District. The maximum charges which may be made by the Board for supplies taken by consumers within the limits of supply are fixed by sections 61, 67, and 68 of the Act of 1910, sections 26 and 27 of the Act of 1913, and section 18 of the Pontypridd and Rhondda Water Act of 1925. The maximum permitted charges have at all material times been charged by the Board.

13

The payments received by the Board from the persons to whom water is supplied consist of (a) payments made direct to the Board by the consumers within the limits of supply, and (b) payments made by the water undertakers in the Llantrisant and Llantwit Fardre Rural District and part of the Caerphilly Urban District for water sold to them in bulk. It is admitted that both these classes of payments are trade receipts. In addition further sums are received by the Board by virtue of section 91 of the Act of 1910, the material portion of which provides as follows:—

"91.—(1) Before the first day of April in each year or so soon thereafter as may be practicable the Board shall make or cause to be made an estimate of the probable revenue and expenditure other than capital expenditure which will be received and incurred respectively during the year beginning on that day and if such estimate shows that there will be a deficiency in the net revenue of the Board for the year 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.

(2) The sum required to meet any deficiency whether for satisfying past or future liabilities shall be apportioned between and borne by the constituent authorities in the...

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