The Commissioners of Inland Revenue v Livingston and Others
| Jurisdiction | Scotland |
| Judgment Date | 18 December 1926 |
| Date | 18 December 1926 |
| Court | Court of Session (Inner House - First Division) |
No. 607.-COURT OF SESSION, SCOTLAND (FIRST DIVISION).-
Income Tax, Schedule D - Profits of trade - Isolated transaction.
On the 10th September, 1924, the Respondents, a ship repairer, a blacksmith and a fish salesmen's employee, purchased as a joint venture a cargo vessel with a view to converting it into a steam-drifter and selling it. They were not connected in business and they had never previously bought a ship.
Extensive repairs and alterations to the ship were carried out by the orders of the Respondents, the first two of them being employed thereon in their ordinary capacity and at the ordinary trade rates, and on the 31st December, 1924, the Respondents sold the vessel at a profit.
Held, that the Respondents were assessable to Income Tax under Case I of Schedule D in respect of the profit arising on the transaction.
At a meeting of the Commissioners for the General Purposes of the Income Tax Acts for the County of Aberdeen, held at Aberdeen on the 10th day of December, 1925, Hugh Livingston, ship repairer, Peterhead, Alexander Leslie Florence, blacksmith, Peterhead, and Robert Keith, an employee in the branch office at Peterhead of Richard Irvin & Sons, Ltd., Fish Salesmen (hereinafter called the Respondents), appealed against an assessment to Income Tax under Schedule D of the Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), for the year ended 5th April, 1925, on the sum of £963 sterling.
I. The following facts were admitted or proved:-
1. On 10th September, 1924, the Respondents as private individuals purchased as a joint adventure the cargo-carrying vessel S.S. River Ugie at the price of £1,120 with a view to its alteration and sale. They were not connected with each other in business nor had any of them bought a ship before.
2. The Respondents, with the object of converting the vessel into a steam-drifter, ordered extensive repairs and alterations to be carried out in connection therewith, Mr. Livingston as a ship repairer and Mr. Florence as a blacksmith being employed and receiving remuneration therefor-which remuneration so received was included in their annual return of Income Tax and Income Tax paid thereon-the Respondents being charged the ordinary trade rates for the work done by these two. The third Respondent, Robert Keith, was simply an employee in the office at Peterhead of Messrs. Richard Irvin & Sons, Ltd., and did no work in connection with the ship.
3. After the repairs and alterations were completed the Respondents sold the vessel on 31st December, 1924, for the sum of £3,425. The profit realised by the sale was £963, the amount of the assessment.
II. Mr. William Webster, incorporated accountant, Peterhead, on behalf of the Respondents contended:-
1. That the transaction, the profit of which it is sought to render liable to Income Tax, was an isolated, casual and hazardous speculation.
2. That the profit referred to was not income but an accretion to capital.
3. That the buying and selling of ships was not in the ordinary course of any of the Respondents' business.
4. Reference was made to the case of The Commissioners of Inland Revenue v. Sangster(1), [1920] 1 K.B. 587; 122 L.T.R. 374, and to the Report of the Royal Commission on the Income Tax (1920) where the question of casual profits is dealt with under Part I, Section VIII, paragraphs 84 to 94.
III. H.M. Inspector of Taxes (Mr. R.J. Coombs), on behalf of the Commissioners of Inland Revenue contended:-
1. That the object for which the joint venture was established was to purchase, convert and sell the S.S. River Ugie.
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2. That the intention to sell at a profit was clear.
3. That all parties to the venture, being connected with the shipping or ship-repairing branches of the fishing industry, had by reason of their occupations a shrewd idea that a profit could be made on the transaction.
4. That the present case was analogous to the transaction in railway waggons which formed the subject of appeal in the case of T. Beynon & Co., Ltd. v. Ogg, 7 T.C. 125.
5. That, although there was one purchase and one sale, that fact did not of itself preclude liability to Income Tax on the profits realised. (T. Beynon & Co., Ltd. v. Ogg, cit. sup. per Sankey J., at p. 133).
6. That it was not necessary for transactions to recur annually to make the profits therefrom annual profits chargeable to Income Tax.
Reference was also made to the following cases:-
Californian Copper Syndicate v. Harris, (1904) 6 F. 894, 5 T.C. 159.
Ryall v. Hoare, [1923] 2 K.B. 447, 8 T.C. 521.
Martin v. Lowry(1), 41 T.L.R. 574, 42 T.L.R. 233.
Cape Brandy Syndicate v. Commissioners of Inland Revenue(2), [1921] 2 K.B. 403, 125 L.T.R. 108.
IV. The Commissioners, after hearing parties, allowed the appeal on the ground that the profit realised in the transaction in question was not made in the operation of business ordinarily carried on by the Respondents.
V. Whereupon Mr. Coombs, for the Commissioners of Inland Revenue, expressed his dissatisfaction with the determination of the Commissioners as being erroneous in point of law, and having duly required the Commissioners to state and sign a Case for the opinion of the Court of Session as the Court of Exchequer in Scotland, this Case is stated and signed accordingly.
VI. The question of law for the opinion of the Court is whether the Respondents are assessable to Income Tax in respect of the said sum of £963.
Dated and signed at Aberdeen the 17th day of September, 1926.
CAITHNESS, Commissioner.
FORBES, Commissioner.
The case came before the First Division of the Court of Session (the Lord President and Lords Sands, Blackburn and Ashmore) on the 9th December, 1926, when judgment was reserved.
Edinburgh, 18th December, 1926. The Lords having considered the Case and heard Counsel for the parties, Answer the Question of Law in the Case in the Affirmative; Reverse the determination of the Commissioners and Decern: Find the Respondents liable to the Appellants in the expenses of the Case, and remit the Account thereof to the Auditor to tax and to report.
(Signed) J.A. CLYDE, I.P.D.
The Lord President (Clyde).-The Respondents combined together in September, 1924, to purchase a cargo steamer at something over £1,000. They converted the vessel into a steam-drifter between the beginning of September and the end of December, 1924, at a cost of nearly £1,400, and they sold...
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