Tollemache Settled Estates Trustees v Coughtrie
| Jurisdiction | England & Wales |
| Judge | Lord Chancellor,Lord Denning,Lord Morris of Borth-y-Gest,Lord Hodson |
| Judgment Date | 13 February 1961 |
| Judgment citation (vLex) | [1961] UKHL J0213-1 |
| Date | 13 February 1961 |
| Court | House of Lords |
[1961] UKHL J0213-1
House of Lords
Lord Chancellor
Lord Denning
Lord Morris of Borth-y-Gest
Lord Hodson
After hearing Counsel, as well on Monday the 16th, as on Tuesday the 17th and Wednesday the 18th, days of January last, upon the Petition and Appeal of Richard Bertram Verdin, of Stoke Hall, Nantwich, in the County of Chester (Barrister-at-Law), Sir Randle John Baker Wilbraham, Bart, of Rode Hall, Scholar Green, in the said County of Chester, and Wilfrid Pyemont of White Lodge, Church Street, Willingdon, near Eastbourne, in the County of Sussex (Esquire), the Trustees of the Tollemache Settled Estates, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 24th of March 1960, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of W. D. Coughtrie (Her Majesty's Inspector of Taxes), lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 24th day of March 1960, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondent the Costs incurred by him in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
This is an appeal from an Order of the Court of Appeal (Lord Evershed, M.R., Pearce and Harman, L.JJ.), allowing an appeal by the Respondent from an Order of the High Court (Upjohn, J.) by which an appeal by the Appellants by way of Case Stated from a determination of the General Commissioners for the Drayton Division of Shropshire was allowed and the determination of those Commissioners was reversed.
The matter arises upon an assessment made upon the Appellants under Schedule D of the Income Tax Act, 1952, for the year of assessment 1953-54 and concerns surface rent and royalties, received by the Appellants under a twenty-one year lease, granted by them in the year 1946, of certain land comprising a sand-pit.
Under the lease the tenants paid £10 a year rent and a royalty of 6d. per ton of sand taken from the land. There was also provision, of which in the event the tenants took advantage, for additional land to be taken on similar terms.
The sand-pit was assessed to Schedule A for the first time for the year 1953-54 and the additional land taken over by the tenants was the subject of a separate assessment. It is not necessary for me to state the details. Royalties paid by the tenants rose steadily from £90 odd for the year 1946-47 to over £840 for the year 1952-53; for the year 1953-54 they were £646 1s. 0d.
Evidence was given before the General Commissioners by surveyors on behalf of the Appellants and the Respondent respectively as to what would have been a reasonable fixed rent in respect of the original area of the sand-pit together with the additional five acres for a 21-year lease from the 25th March, 1946. Such reasonable rent was estimated by the Appellants' surveyor at £292 per annum and by the Respondent's surveyor at £500 per annum, but both surveyors were of opinion that a sand-pit would rarely be let at a fixed rent for a term of 21 years and that the only terms of letting which would be satisfactory to both landlord and tenant would be those adopted in the present case, namely, a small fixed rent and a royalty per ton of sand extracted.
Both surveyors were agreed that if required to estimate at the beginning of a year a fair annual value for occupation of the sand-pit over the coming year (in accordance with the Respondent's alternative contention) they would have to consider all the circumstances including the results of the previous year's workings and the likely commercial demand for sand in the coming year but that, in the absence of any significant change of circumstances, their valuation would not differ greatly from that shown by the previous year's working.
It is common ground between the parties that the rent and royalties fall within section 175 of the Income Tax Act, 1952, which subjects what are commonly called "excess rents" to income tax under Case VI of Schedule D, and the question at issue in the appeal is whether, as the Respondent contends, the Appellants are by the provisions of that section assessable for the year of assessment on the basis of the rent and royalties actually received by them in that year (less the amount of the Schedule A assessment on the land, and subject to such reduction as is allowable under Schedule A for the purpose of collection), or whether, as the Appellants contend, the section on its true construction requires a computation to be made (in accordance with certain provisions applicable to Schedule A, and having regard to the rent and royalties reserved by, and the other terms of, the lease), of the annual value of the land. It is common ground that such a computation would result in a different, and in almost all cases a lower, assessment than would be produced on the basis of the rent and royalties actually received in the year of assessment.
The history of section 175 and its statutory ancestor, section 15 of the Finance Act, 1940, is set out at length in the judgment of Upjohn, J., and I need only make a short reference to it at this stage, adapting slightly the words of Lord Asquith of Bishopstone in Barron (Inspector of Taxes) v. Littmann [1953] A.C. 96 at pp. 121 and 122)—
"The" (old) "system" (of taxing under Schedule A only) "worked fairly, so long as Schedule A value was frequently revised and so kept in step with commercial value. But when, during the war, quin-quennial revaluations under this Schedule were suspended, an increasing disparity declared itself between the old Schedule A values and the rents which the premises in fact commanded in the market, and therewith an increasing tax-free commercial profit lodged in the hands of the entrepreneur. Section 15 of the Act of 1940 was clearly designed to 'catch' this profit."
It is, I think, convenient to split section 175 (1) into the following parts:
A. "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 …".
By these words—
( a) one is instructed to look at the year of assessment, in this case 1953/4;
( b) the lease in question is one to which this section applies under subsection (4);
( c) the Appellants are immediate lessors entitled to any rent payable under this lease.
B. "he shall be chargeable to tax under Case VI of Schedule D in respect of the excess, if any …".
With regard to these words I note—
( a) the assessment is under Case VI of Schedule D;
( b) that it is in respect of an excess. The top line of the subtraction sum which gives the excess is derived from the formula in the subsection and the bottom line is the actual amount of the assessment for Schedule A as stated in paragraph ( a) of the subsection.
C. "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 has 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 …".
This is the formula and it is essential to note:
( a) that despite the reference to Schedule A, the wording keeps one's view focussed on an annual value determined in accordance with the words which follow. One is taken away from the conception of an objective rack-rent to the term of the lease in question. This fits in with the need for determining not the market value of the land, but the profit of the immediate lessor in question;
( b) the determination of the annual value in this subsection has two constituents:
(i) it must be by reference to "that rent and the other terms of the lease", The words "that rent" refer back to "any rent payable under a lease" in the earlier part of the subsection.
(ii) it must (in order to give effect to the words in brackets) be in accordance … with the provisions of Part III of this Act
From this analysis of the subsection it is, in my opinion, impossible to escape the following construction. First and foremost, one is directed to the year of assessment. Secondly, as might be expected in a section the precondition of which is that a lessor should be entitled to rent, one proceeds to "that rent", in other words, the rent actually payable. This is emphasised by the fact that the words chosen are not "the terms of the lease including the rent" but "that rent and the other terms of the lease". Thirdly, having reached the figure of the rent actually paid one has to consider whether it is the true rent.
At this point one must bear in mind the two constituents of the formula to which I have referred. In other words, one has to look at "the other terms of the lease" but "in accordance with the provisions of Part III of this Act". This means, in my view, that one has at this point to consider section 86, which deals with tenants' rates, etc. paid by the landlord and...
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