Roebank Printing Company Ltd v Commissioners of Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 12 June 1928 |
| Docket Number | No. 80. |
| Date | 12 June 1928 |
| Court | Court of Session (Inner House - First Division) |
Lord President(Clyde), Lord Sands, Lord Blackburn, Lord Morison.
RevenueIncome taxMode of assessmentDeductionsLossesCompany Irrecoverable overpayments of commission to managing directorIncome Tax Act, 1918 (8 and 9 Geo. V. cap. 40), Sched. D, Cases I. and II., Rule 3 (e).
A calico printing company paid its managing director in part by a commission on profits. During the first year of the arrangement the directors authorised him to draw two sums on account of his commission, and in subsequent years he drew sums on this account without special authority but with the knowledge of the directors. These sums were debited to a commission account. During the year ended 31st December 1923 he drew out 5141 in sums varying between 50 and 300, and paid in 1750 in sums varying between 150 and 400. It was subsequently ascertained that no commission was due for that year, and the commission account showed a balance due by him to the Company of 3391. The director's estates having been sequestrated, the Company claimed this sum, but the sequestration closed without any dividend having been paid.
In arriving at its profits for income tax purposes the Company claimed to be entitled to deduct this loss.
Held that the loss was a loss not connected with or arising out of the trade within the meaning of Rule 3 (e) of the Rules applicable to Cases I. and II. of Schedule D of the Income Tax Act, 1918, and was therefore not a proper deduction, in respect that, although it might accord with sound commercial practice to make advances on account of commission the amount of which had still to be ascertained, the transactions on the commission account for 1923 clearly went beyond anything required by the trading interests of the company.
The Roebank Printing Company, Limited, calico printers, Renfrewshire, appealed to the Commissioners for the General Purposes of the Income Tax Acts for the County of Renfrew against an assessment of 3200 made upon them under Schedule D, Case I., of the Income Tax Act, 1918,* in respect of their trade profits for the year ended 5th April 1925. They claimed to deduct from their profits of the year ended 31st December 1923, the last of the years taken into account for the purposes of average, a loss of 3391 incurred owing to the bankruptcy of their managing director, who had overdrawn to that extent a commission which formed part of his salary. The Commissioners having confirmed the assessment, the Company obtained a stated case for the opinion of the Court of Session as the Court of Exchequer in Scotland.
The case set forth that the following facts, inter alia, were proved or admitted:(2) The Company, which was incorporated on 6th November 1912, claimed that, in computing its profits for income tax purposes for 19241925, on the basis of the three years'
average, a deduction should be allowed, in computing the profit for the year ending 31st December 1923, in respect of losses incurred by the Company as a result of certain drawings on the part of Hugh Melville, the Company's managing director, which are hereinafter referred to. (3) The said Hugh Melville's salary and commission were fixed by the directors' resolution of 12th February 1920, in the following terms:It was proposed by the chairman, and seconded by Mr Norman Melland, that the salary of the managing director, Mr H. Melville, be at the rate of 14, 10s. per week, with a commission of 25 per cent on the profit of the Company after deducting therefrom a dividend of 10 per cent per annum on the issued share capital of the Company for the time being, whether this sum be paid to the shareholders or not. It was agreed that the said profits will be the net profits of the Company as certified by the auditors, after charging directors' fees of 50 per annum for each director, and after making allowance for bad and doubtful debts, but before charging income tax and excess profits duty, or creating any reserve other than the aforesaid reserve for doubtful debts, and before making any allowance for depreciation of plant.(4) By minutes of the directors, dated 5th August 1920 and 23rd December 1920, authority was given to the said Hugh Melville to draw two specific sums of 500 to account of commission. Authority for subsequent drawings was not asked for by Hugh Melville, but it was his custom, with the knowledge of the directors, to draw throughout each of the succeeding years, from time to time, sums on account of commission, which were duly debited to a commission account in the Company's books. The cheque for each sum so drawn was signed by the said Hugh Melville as managing director and by another director or the secretary. The commission account was adjusted as at the end of each year by the Company's auditors when the actual profits of the year had been ascertained and the commission payable thereon calculated, and the debit or credit balance on the account was carried forward in the books and appeared in the Company's accounts. The said drawings by Hugh Melville were homologated by the board of directors in accepting the annual accounts of the Company, which disclosed the drawings. (5) The Company's ledger was kept by Hugh Melville, and the sums drawn by him were posted by him to an account called Commission Account. The following statement shows for the various years, down to and including 1923, (a) the drawings of the said Hugh Melville, (b) the actual commission payable to him as ultimately ascertained, and (c) the balance on the commission account in the books of the Company:
| Drawings. | Commission Payable. | Balance of Commission A/c as per Balance Sheet. | ||||||||
| Year to 31/12/19 | Dr | 217 | 11 | 0 | ||||||
| Year to 31/12/20 | 500 | 0 | 0 | 1235 | 5 | 0 | Cr | 517 | 14 | 0 |
| Year to 31/12/21 | 1800 | 5 | 0 | 2120 | 15 | 6 | Cr | 838 | 4 | 6 |
| Year to 31/12/22 | 2438 | 4 | 6 | 1133 | 3 | 11 | Dr | 466 | 16 | 1 |
| Year to 31/12/23 | 2925 | 0 | 0 | Dr | 3391 | 16 | 1 | |||
| 7663 | 9 | 6 | 4489 | 4 | 5 |
| Dr Balance 1919 | 217 | 11 | 0 |
| Drawn to account of commission | 7663 | 9 | 6 |
| 7881 | 0 | 6 | |
| Commission | 4489 | 4 | 5 |
| Balance at debit | 3391 | 16 | 1 |
The account was as shown above sometimes in credit and sometimes at debit at the end of the year when commission was finally ascertained and credited. The debit balance of 466, 16s. Id. for the year 1922, as shown above, was greatly reduced by a payment to the Company by Hugh Melville of 400 in January 1923. (6) The sums drawn by Hugh Melville during the year 1923 were as shown below, and at the close of that year there was a debit balance on the commission account of 3391, 16s. Id., as also shown below:[Here followed a conspectus which showed that Mr Melville had drawn out 5141, 16s. Id. in forty-four sums varying between 50 and 300, and had paid in 1750 in six sums varying between 150 and 400]. (7) Towards the end of 1923 the business of the Company fell away, and on the...
To continue reading
Request your trial
-
Odeon Associated Theatres Ltd v Jones
......MEDD (instructed by The Solicitor of Inland Revenue) appeared on behalf of the Crown ..., accepted by the Special Commissioners, was that in accordance with the established ... 443 , per Viscount Maldane at page 455; Roebank Printing Co. v. C.I.R ., 13 Tax Cases, page 864 ... on prior to the 8th January, 1945, by the company from which Odeon bought the cinema. I am afraid ......
-
Bamford v A.T.A. Advertising Ltd
...Company 93 15,544 6. The following cases were referred to:Roebank Printing Co. Ltd. v. Commissioners of Inland Revenue TAX13 T.C. 864; 1928 S.C. 701Curtis v. J. & G. Oldfield Ltd. TAX(1925) 9 T.C. 319English Crown Spelter Co. Ltd. v. Baker TAX(1908) 5 T.C. 327Henderson v. Meade-King Robinso......
-
Odeon Associated Theatres Ltd v Jones (HM Inspector of Taxes)
...T.C. 621. 1 2 T.C. 485. 1 2 T.C. 485. 2 12 T.C. 621. 3 [1957] 1 W.L.R. 69. 1 [1961] 1 W.L.R. 739. 2 47 T.C. 495. 3 6 T.C. 59, at p. 78. 4 1928 S.C. 701. 1 1924 S.C. 1 12 T.C. 621. 1 43 T.C.1, at p. 29. 1 12 T.C. 621. 2 [1957] 1 W.L.R. 69. 3 [1897] A.C. 1. 4 16 R. 950. 5 1927 S.C. 705. 1 [19......
-
Bamford (HM Inspector of Taxes) v A.T.A. Advertising Ltd
...Company 93 15,544 6. The following cases were referred to:Roebank Printing Co. Ltd. v. Commissioners of Inland Revenue TAX13 T.C. 864; 1928 S.C. 701Curtis v. J. & G. Oldfield Ltd. TAX(1925) 9 T.C. 319English Crown Spelter Co. Ltd. v. Baker TAX(1908) 5 T.C. 327Henderson v. Meade-King Robinso......