Rosyth Building and Estates Company v Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 02 February 1921 |
| Docket Number | No. 38. |
| Date | 02 February 1921 |
| Court | Court of Session |
Lord President (Clyde), Lord Mackenzie, Lord Skerrington.
Revenue—Income-tax—Investment company—Relief in respect of expenses of management—Company deriving income from ownership of heritage—Income charged to tax under Schedule A—Alternative chargeability of income as profits under Schedule D—Deductions for repairs—Finance Act, 1915 (5 and 6 Geo. V. cap. 62), sec. 14 (1) (a)—Income-Tax Act, 1842 (5 and 6 Vict. cap. 35), sec. 60, Schedule A, and sec. 100, Schedule D, First Case—Finance Act, 1894 (57 and 58 Vict. cap. 30), sec.35 (b) (1).
The Finance Act, 1915, enacts, by sec. 14 (1), that an investment company, whose income-tax is not assessed on profits but is charged by deduction or otherwise on its income, may obtain repayment of tax in respect of expenses of management, provided (a) such repayment does not reduce the tax paid below what it would have been had the company been assessed on a profits basis under the First Case of Schedule D.
In estimating on a profits basis, for the purpose of proviso (a), the income of an investment company whose main revenue was derived from the rents of heritable properties which had been charged to income-tax under Schedule A,—
Held that the rents of the heritable properties would have fallen to be included in ascertaining the profits chargeable under Schedule D, and accordingly that they fell to be included in the estimate.
Held further that, where rents of heritable property fall to be included in a trading account for the purpose of assessment to income-tax under Schedule I), the sum which may be deducted for repairs is the sum actually expended during the year to which the account relates, and not the one-sixth of the assessable value allowed by sec. 35 (b) (1) of the Finance Act, 1894.
The Rosyth Building and Estates Company, Limited, applied to the Commissioners for the Special Purposes of the Income-Tax Acts, under section 14 of the Finance Act, 1915,* for repayment of so much of the income-tax paid by it for the years ended 5th April 1916 and 5th April 1917, respectively, as was equal to the amount of tax on any sums disbursed as expenses of management (including commissions) for those years.
The claim was objected to by the Surveyor of Taxes on the ground that it was excluded by proviso (a) to section 14, in respect that it would make the tax less than what would have been paid had the Company been assessed in respect of profits under the First Case to section 100, Schedule D, of the Income-Tax Act, 1842. The question thereupon fell to be determined by the Special Commissioners, in terms of subsection (2) of section 14 of the Act of 1915. On behalf of the Company it was contended that the Company was an investment company, the principal part of whose income was derived from investments in heritable property; that in ascertaining what the Company would have been charged in respect of its profits in accordance with the rules under the First Case of Schedule D, no account should be taken of the rents of these heritable properties, which fell to be assessed under section 60, Schedule A, and that, if these rents were excluded, the allowance of the claim for repayment of the duty would not make the tax paid by the Company less than the tax that would have been paid if the profits of the Company had been charged in accordance with the First Case of Schedule D. The Surveyor of Taxes contended, on the other hand, that in computing the profits of the
Company for taxation under Schedule D its income from all sources, including rents of heritage, must be taken into account, and that, if that were done, the repayment claimed would reduce the tax ultimately borne by the Company below the tax which would be borne were its profits charged in accordance with the rules of the First Case of Schedule D.
The Special Commissioners refused the application, and, at the Company's request, stated a case for appeal to the Court of Session.
The case set forth, inter alia:—
I. The following facts were admitted or proved:—
‘(1) The Company was incorporated on 22nd May 1909 under the Companies (Consolidation) Act, 1908, for the purpose, inter alia, of purchasing land and erecting property thereon. … The Company has acquired by feu a piece of land in Inverkeithing and has erected dwelling-houses and shops thereon. Up to the present there have been no sales, and the operations of the Company have been purely those of an investment Company. The income of the Company arises from—(a) Rents of property duly assessed to income-tax, Schedule A. (b) Interest on loans—taxed prior to receipt, (c) Interest on bank deposit—received in full—duly assessed under Case 3, Schedule D.*
‘(2) The Company has therefore been charged to income-tax by deduction or otherwise, and has not been so charged in respect of its profits in accordance with the rules under the First Case in section 100 of the Income-Tax Act, 1842. …
‘(4) The rents received by the Company from heritable properties after deduction of the owner's rates paid thereout, and the statutory allowance of one-sixth for repairs, were assessed to income-tax, Schedule A, as under:—
| Year ended 5th April 1916 | Year ended 5th April 1917 | |
| Net Schedule A . . | £1108 | £1099 |
The statutory one-sixth allowed for repairs in arriving at the above net Schedule A assessment was approximately £260 each year, whereas the actual expenditure of the Company on repairs was only £54, 8s. Id., and £92, 7s. Id., for its years ended 30th September 1915 and 30th September 1916 respectively.
‘(5) The tax which the Company would have paid for the years ended 5th April 1916 and 5th April 1917 respectively, if all its profits, without regard to the schedules under which they are actually chargeable, had been charged in accordance with the rules under the first case, in section 100 of the Income-Tax Act, 1842, amounted to £181, 19s., and £294, 5s. respectively, arrived at as
under—[Then followed a tabulated statement of how these figures were ascertained]. But the tax which would have been borne by the Company is equivalent to the difference between these amounts and the tax recoverable on payment of the feu-duties and interest, viz.—[Then followed figures bringing out the net amount of the tax which would have been borne by the Company for the two years at £103, 10s. 0d., and £170, 10s. 0d. respectively].*
‘(6) The total amount of income-tax to which the Company has been charged, by deduction or otherwise, and which has ultimately been borne by it, for the income-tax years ended 5th April 1916 and 5th April 1917, is as under—[Then followed figures showing that the tax actually charged on the Company for the two years was £95, lls. 0d., and £154 respectively].†
‘(7) The “expenses of management” for the years ended 5th April 1916 and 5th April 1917 (as shown in the company's accounts for its years ended 30th September 1915, and 30th September 1916), in respect of which repayment is claimed, are as under:—[Then followed figures showing the expenses of management for these years to be £173, 7s. 1d. and £204, 11s. 3d., on which sums the income-tax amounted to £26 and £51, 2s. 9d. respectively], and it is agreed on both sides that if the Company...
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