Roebank Printing Company Ltd v Commissioners of Inland Revenue
| Jurisdiction | Scotland |
| Date | 1927 |
| Year | 1927 |
| Court | Sheriff Court |
NO. 678.-COURT OF SESSION, SCOTLAND (FIRST DIVISION).-
Income Tax - Schedule D - Deduction from profits - Loss of money advanced to managing director in excess of commission due.
The managing director of the Appellant Company was entitled to a commission on the Company's profits as certified by the auditors at the end of each year, and was authorised by the directors to draw sums during the year in anticipation. The commission
account was adjusted annually, any balance in favour of the managing director or the Company being carried forward. At 1st January, 1923, the balance due to the Company was £466; during 1923 the managing director paid into the account six amounts totalling £1,750, and drew some forty amounts totalling £4,675. As the Company made a loss for 1923 the managing director was not entitled to any commission, and at 31st December, 1923, he owed the Company £3,391. His estates were sequestrated in 1924 and no dividend was paid. The Company claimed that the managing director was entitled to draw on the account as he had done, and that the sum of £3,391, representing payments made as the remuneration of an employee for the purposes of and in connection with their business, should be deducted in arriving at their profits for Income Tax purposesOn appeal the General Commissioners decided that the question was governed by the decision in Curtis v. J. & G. Oldfield, Ltd.,9 T.C. 319, and refused the deduction claimed.
Held, that the Commissioners were entitled on the evidence before them to hold that the deduction was not admissible.
At meetings of the Commissioners for the General Purposes of the Income Tax Acts for the Division of the Upper Ward of the County of Renfrew, held at Paisley on the 8th day of June, 1925, and on the 4th day of February, 1927, the Roebank Printing Company, Limited (hereinafter referred to as the Appellants), appealed against an assessment made upon them under Schedule D, Case I, of the Income Tax Acts in respect of their profits as calico, etc., printers, for the year ending 5th April, 1925, of £3,200 (duty £720).
I. -The following facts were admitted or proved:-
1. The assessment is an estimated one, made before the correct liability, on the basis of the three preceding years, had been determined.
2. The Company, which was incorporated on 6th November, 1912, claimed that in computing its profits for Income Tax purposes for 1924-25, on the basis of the three years' average, a deduction should be allowed, in computing the profit of 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 nett 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:-
Dr. Balance 1919 |
£217 |
11 |
0 |
Drawn to account of commission |
7663 |
9 |
6 |
£7,881 |
0 |
6 |
|
Commission |
4489 |
4 |
5 |
Balance at debit |
£3,391 |
16 |
1 |
5. The account was as shewn 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. 1d. for the year 1922, as shewn 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 shewn below, and at the close of that year there was a debit balance on the commission account of £3,391 16s. 1d., as also shewn below:-
1923 |
£ |
s. |
d. |
||
Jany. |
1. |
To Balance-Amount of Commission over- drawn for 1922 |
466 |
16 |
1 |
29. |
To Cash |
100 |
0 |
0 |
|
Feby. |
10. |
100 |
0 |
0 |
|
17. |
100 |
0 |
0 |
||
24. |
100 |
0 |
0 |
||
Mar. |
3. |
200 |
0 |
0 |
|
6. |
50 |
0 |
0 |
||
14. |
150 |
0 |
0 |
||
17. |
50 |
0 |
0 |
||
19. |
50 |
0 |
0 |
||
Forward |
£1,366 |
16 |
1 |
6.
£ |
s. |
d. |
|||
Forward |
1366 |
16 |
1 |
||
April |
3. |
To Cash |
250 |
0 |
0 |
18. |
50 |
0 |
0 |
||
23. |
300 |
0 |
0 |
||
May |
5. |
100 |
0 |
0 |
|
9. |
300 |
0 |
0 |
||
21. |
100 |
0 |
0 |
||
26. |
100 |
0 |
0 |
||
29. |
150 |
0 |
0 |
||
June |
4. |
150 |
0 |
0 |
|
11. |
100 |
0 |
0 |
||
16. |
50 |
0 |
0 |
||
23. |
100 |
0 |
0 |
||
29. |
100 |
0 |
0 |
||
July. |
2. |
200 |
0 |
0 |
|
23. |
50 |
0 |
0 |
||
28. |
50 |
0 |
0 |
||
Augt. |
4. |
200 |
0 |
0 |
|
18. |
50 |
0 |
0 |
||
Sept. |
17. |
100 |
0 |
0 |
|
Octr. |
1. |
50 |
0 |
0 |
|
2. |
100 |
0 |
0 |
||
9. |
70 |
0 |
0 |
||
10. |
70 |
0 |
0 |
||
13. |
80 |
0 |
0 |
||
20. |
75 |
0 |
0 |
||
26. |
100 |
0 |
0 |
||
30. |
150 |
0 |
0 |
||
Novr. |
5. |
130 |
0 |
0 |
|
12. |
50 |
0 |
0 |
||
14. |
50 |
0 |
0 |
||
20. |
70 |
0 |
0 |
||
Decr. |
10. |
200 |
0 |
0 |
|
22. |
50 |
0 |
0 |
||
28. |
30 |
0 |
0 |
||
£5,141 |
16 |
1 |
Less paid in by him:- |
|||||||
Jany. |
19. |
By Cash |
£400 |
0 |
0 |
||
Mar. |
6. |
400 |
0 |
0 |
|||
Apr. |
10. |
150 |
0 |
0 |
|||
May. |
31. |
300 |
0 |
0 |
|||
Aug. |
1. |
250 |
0 |
0 |
|||
Octr. |
2. |
250 |
0 |
0 |
1750 |
0 |
0 |
£3,391 |
16 |
1 |
6.
7. Towards the end of 1923 the business of the Company fell away, and on the books being audited it was found that no commission was payable-the audited accounts showing a net loss of £7,295 8s.51/2d. after charging the managing director's salary of £1,250 and depreciation £980 4s. 9d.
8. In preparing the Company's annual accounts, the loss of £3,391 16s. 1d. has not been written off against the profits of the year 1923. Provision has, however, been made in the 1924 accounts for the sum of £3,952 15s., which includes the former sum together with a further ascertained loss during the year 1924. Hugh Melville's estates were sequestrated in May, 1924, and the Company lodged a claim on the sequestration for the said debit balance of £3,391 16s. 1d. as a debt due by the bankrupt to the Company...
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