Tollemache Settled Estates Trustees v Coughtrie
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE PEARCE,LORD JUSTICE HARMAN |
| Judgment Date | 24 March 1960 |
| Judgment citation (vLex) | [1960] EWCA Civ J0324-1 |
| Date | 24 March 1960 |
| Court | Court of Appeal |
[1960] EWCA Civ J0324-1
In The Supreme Court of Judicature
Court of Appeal
The Master of the Rolls,
Lord Justice Pearce and
Lord Justice Harman.
(The Appeal of the Respondent)
Mr R.O. WILBERFORCE, Q.C. and Mr ALAN ORR (instructed by the Solicitor of Inland Revenue, Somerset House, Strand, London, W.C.2.) appeared as Counsel for the Respondent (Appellant).
Mr H.H. MONROE (instructed by Messrs Peake & Co., 6 & 7, Bedford Row, W.C.1.) appeared as Counsel for the Appellants Respondents).
: I have asked Lord Justice Pearce to deliver the first Judgment.
This case concerns the assessment of certain royalties received by the taxpayers in respect of sandpits let by them. These royalties are admittedly covered by Section 175 of the Income Tax Act, 1952, and fall to be taxed as excess rent under Case VI of Schedule D. The Crown contend that the assessment should be made year by year on the basis of the actual receipts, subject to certain deductions. The General Commissioners adopted that view. On an appeal by the taxpayers, who contended that there must be an assessment on Schedule A principles with evidence as to value, the learned Judge accepted their contention and remitted the case to the Commissioners.
The material part of Section 175 reads as follows: "(1) If, as respects any year of assessment, the immediate lessor of a unit of assessment is entitled in respect of the unit to any rent payable under a lease or leases to which this section applies, he shall be chargeable to tax under Case VT of Schedule D in respect of the excess, if any, of the amount which would have been the amount of the assessment of the unit for the purposes of Schedule A, as reduced for the purpose of collection, if the annual value of the unit had been determined (in accordance, in whatever part of the United Kingdom the unit is situated, with the provisions of Part III of this Act) by reference to that rent and the other terms of the lease or leases, over whichever is the greater of - (a) the actual amount of the assessment of the unit for the purposes of Schedule A, as reduced for the purpose of collection; or (b) the amount of any rent payable by the immediate lessor in respect of the unit under any short lease or short leases".
The problem here is to find what is the amount which would have been the amount of the assessment for the purposes of Schedule A if the annual value had been determined "by reference to that rent and the other terms of the lease". "That rent" is the rent to which the lessor is entitled in the year in question, the rent whose excess over the Schedule A assessment has provoked the incidence of Section 175 - namely, in this case, £681. The opening words, "If, as respects any year of assessment," indicate that the section envisages a yearly operation. The fact that the charge is under Case VI of Schedule D makes it clear that the assessment is aimed at a year's profit or gain.
According to the Respondents, the section really does no more than provide for a revaluation of Schedule A assessments, and the resulting excess liability is only put into Case VI, Schedule D because that is a receptacle for oddments. It is said further that the resulting assessment would have to be an enquiry on Schedule A principles; namely, what the unit is worth to be let by the year having regard not only to the rent of £681 received this year, but also "to the other terms of the lease", including the fact that there are several years of the lease to run. It is not disputed that this procedure will produce a different and practically always a lower figure than that produced by an assessment on the actual figure of the excess rent. In spite of Mr Monroe's forceful argument, I cannot accept this view of the section.
The Schedule A assessment under Section 82 is an attempt to find the annual value. If a rack rent has been fixed within the preceding seven years, then that is the annual value: if such a useful guide cannot be found, and the premises are not let at a rack rent so fixed, the enquiry is to ascertain the rack rent which the premises are worth to he let by the year. From a practical point of view, Section 175 comes into play because during the year in question there is an extra profit to be taxed and the rent to which the lessor has become entitled has shown the inadequacy of the Schedule A assessment; it has shown that either the actual rack rent or the estimate of the rack rent at which the premises are worth to be let by the year has produced an annual value that is incorrect for the year in question. The section directs that the lessor shall be chargeable on the amount which would have been the Schedule A assessment if the annual value of the unit had been determined by reference to "that rent" -namely, a rent of £681; that is, if the actual rack rent or the rack rent at which it is worth to be let had been £681. There is no need for further valuations or for calculations under Section 82 2 (a) or 82 2 (b). The words "by reference to that rent" provide an adhoc formula for the ascertainment of the annual value; a formula which excludes further estimation. The figure of £681 is, as it were, written into Section 82, or is a tertium quid to 2.(a) and 2 (b). The case has to be considered as a Schedule A case only for the purpose of deductions and allowances. When Section 175 refers to the annual value being determined by reference to "that rent and the other terms of the lease", the "other terms" mean those which are relevant to allowances, such as liability for rates and maintenance.
The Master of the Rolls in argument pointed out that if the excess rent is lower than the rent at which they are worth to be let (as it well might be) the computation could not be made under Section 82 2 (b), as Mr Monroe contends should be done in each case. For the computation has to be done by reference to "that rent" — that is, the actual rent for the year — while Section 82 2 (b) demands the computation of the rack rent at which they are worth to be let. In such a case, a tertium quid is necessary in Section 82 2, and that tertium quid must surely be the actual rack rent for the year in question, which is the objective of Section 175. It would be thus more analogous to subsection 2 (a), which uses a recent actual rack rent where it can be found.
It would be contrary to good sense that the section, whose object was to ensure that certain actual profits did not go untaxed, should throw the assessment away from the realm of actual and exact figures, and back into the realm of estimation, in which the profit had once already been allowed to escape. Seeing that the assessment under Section 175 is a yearly one, intended to catch a particular year's profit, it is hard to believe that it intended to send each case back to Section 82 for a valuation focussed not on the particular year but on a period of years and calculated to assess "what a tenant taking one year with another may fairly and reasonably be expected and required to pay" (per Lord Justice Swinfen Eady in Gundry v. Dunham, 7 Tax Cases at page 22). Had such an odd result been intended, it would have been very easy to say so.
The normal case of excess rents is dealt with by direct calculation without a further assessment on Schedule A principles For instance, in the case of Strick v. Longsdon, 34 Tax Cases, 528, the direct figures of the excess rents were used without embarking on further computation (except as to deductions). I sec no reason why this case should differ from it. This view accords with that expressed by Lord Reid in a somewhat different context in Barron v. Littman, 1955 Appeal Cases at page 119, where he said: "The calculation which Section 15", now Section 175, "directs is simply the method by which profits from the transaction are to be measured for income tax purposes and the assessment and charge to tax under the section are in respect of the profits so measured".
The point is not an easy one, but for these reasons I would allow the appeal.
I agree. Section 175 is designed to deal with the injustice caused by the delay in re-assessing freeholds under Schedule A. These assessments were intended to represent rack rents, but first they were allowed as a matter of convenience to run for a quinquennium, and then, owing to the war, even these re-assessments were pretermitted. Meanwhile, in a period of inflation, values were continually going up, and landowners were more and more escaping from making a fair contribution to taxation. Hence Section 175, the object of which was to tax "excess rents": excess over what? - over the out-of-date Schedule A values. It follows that one expects to find in the section provisions designed...
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Commissioners of Inland Revenue v Bates
...it might be useful perhaps to have a new procedure about the form of Order. In Trustees of Tollemache Settled Estates v. Coughtrie(1) [1960] 2 W.L.R. 825, at the end of the judgment, on page 835, Lord Evershed M.R. did not like the form of Order where it was simply remitted for the assessme......
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Commissioners of Inland Revenue v G. B. Bates
...it might be useful perhaps to have a new procedure about the form of Order. In Trustees of Tollemache Settled Estates v. Coughtrie(1) [1960] 2 W.L.R. 825, at the end of the judgment, on page 835, Lord Evershed M.R. did not like the form of Order where it was simply remitted for the assessme......
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Trustees of the Tollemache Settled Estates v Coughtrie (HM Inspector of Taxes)
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