Trustees of the Tollemache Settled Estates v Coughtrie (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Date | 1958 |
| Year | 1958 |
| Court | House of Lords |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax, Schedule D - Excess rents - Sand royalties - Income Tax Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 10), Section 175.
In 1946 the Appellants demised a sandpit to tenants for a term of 21 years at a surface rent of £10 per annum and a royalty of 6d. a ton for all sand worked. Under a provision of the lease the tenants were permitted in September, 1953, to occupy a further area at a surface rent of £5 an acre. There was no separate assessment to Income Tax under Schedule A in respect of the sandpit before the year 1953-54; for that year the original area was assessed at a net annual value of £3 5s., and a further assessment was subsequently made to take account of the increased area. The royalties received for 1953-54 amounted to £646.
On appeal to the General Commissioners against an assessment to Income Tax under Schedule D for the year 1953-54 in respect of the excess of the surface rents and royalties over the Schedule A assessment, the Appellants contended that the only rents to which they were entitled within the meaning of Section 175, Income Tax Act, 1952, were the surface rents; alternatively, that if Section 175 applied to the royalties, the notional Schedule A assessment required by that Section should be based on a rack rent not exceeding £292, the figure which they claimed that a tenant taking a 21-year lease in 1946 might have been prepared to pay on the estimated tonnage of sand. For the Crown it was contended that the royalties were rent and an assessment fell to be made under Section 175 by reference to the rent, including royalties, paid in the year and the other terms of the lease. The Commissioners decided that the royalties were covered by Section 175 and the assessment should be on the excess of the dead rent together with the royalties received during the current year over the Schedule A assessment.
Held, in the Chancery Division, that the royalties should be treated as part of the rent.
Held, in the House of Lords, that the assessment should be made by reference to the actual rent receivable for the year and the other terms of the lease relevant to adjustments warranted by Part III of the Income Tax Act, e.g., that the landlord shall pay rates (Section 86) or the tenant do repairs (Section 88).
Stated under Section 64 of the Income Tax Act, 1952, by the Commissioners for the General Purposes of the Income Tax for the Drayton Division of Shropshire for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax for the Drayton Division of Shropshire held at 46, Cheshire Street, Market Drayton, on Tuesday, 8th October, 1957, the Trustees of the Tollemache Settled Estates (hereinafter called "the Appellants") appealed against an assessment to Income Tax made upon them under Schedule D of the Income Tax Act, 1952, for the year 1953-54. The assessment appealed against was an assessment in the sum of £5 in respect of excess rents and in the sum of £1,000 in respect of royalties.
2. We found the following facts admitted or proved on the evidence adduced at the hearing of the appeal:
(2) By a lease dated 17th December, 1946, and made between Eustace Bowles and the Count de Salis (who were at that date the Trustees of the Tollemache Settled Estates), of the one part, and Joseph William Weston, John Herbert Weston and Walter Weston, trading together in partnership as the Tarvin Supply Co., of Tarvin in the county of Chester (therein and hereinafter called "the tenants"), of the other part, the Appellants demised to the tenants for a term of 21 years from 25th March, 1946, a sandpit at Beeston in the county of Chester, being a sandpit on the Peckforton estate forming part of the Tollemache Settled Estates. A copy of the said lease is attached and forms part of this Case (Exhibit A(1) ).
-
(3) So far as material, clause 2 of the said lease provided as follows:
2. In consideration of the rents and royalties hereinafter reserved and of the covenants, conditions and agreements hereinafter contained and by the Tenants to be paid observed and performed the Lessors hereby demise unto the Tenants the following liberties:-(a) Liberty for the Tenants to enter upon and occupy the said land (b) Liberty for the tenants and their servants and workmen…to dig raise and get by open surface workings in and from the said land the demised sand.
(4) Clause 6 of the said lease provided that the tenants should pay a surface rent of £10 per annum and a royalty of 6d. per ton for all sand worked and gotten from the demised land. Clause 6 further provided that the said rent and royalties should be due and payable quarterly.
(5) The area originally demised to the tenants was an area of approximately two acres and nine perches. Clause 10 of the said lease provided that if and when the tenants should have worked and removed from the demised land all the demised sand or so much thereof as could reasonably be worked they should be entitled from time to time during the term to occupy and work and to remove sand from certain additional land adjoining the land originally demised. Clause 10 further provided that as from the date of such occupation the tenants should pay to the Appellants, in addition to the surface rent and royalty referred to in clause 6, a yearly surface rent at the rate of £5 per acre in respect of all additional land from time to time occupied. In accordance with the provisions of clause 10, the tenants occupied an additional five acres from 29th September, 1953.
(6) In previous years the Beeston sandpit was not separately assessed to tax under Schedule A, but for the year 1953-54 an assessment under Schedule A in respect of the sandpit was made upon the tenants as follows:
£ |
s. |
|
Gross annual value |
3 |
15 |
Repairs allowance |
10 |
|
Net annual value |
£3 |
5 |
(7) This assessment was made by reference to the original area of the sandpit, the additional five acres taken over by the tenants in September, 1953, being covered by the separate assessment on Mill Farm, of which the land originally formed part.
(8) Particulars of the sand extracted and the royalties paid from the commencement of the term to 31st March, 1956, are shown in the following table:
Quarter year to |
Weight of sand |
Royalties |
||||
Tons |
£ |
s. |
d. |
£ |
s. |
d. |
30th June, 1946 |
803 |
20 |
1 |
6 |
||
30th September, 1946 |
741 |
18 |
10 |
6 |
||
31st December, 1946 |
828 |
20 |
14 |
0 |
||
31st March, 1947 |
1,493 |
37 |
6 |
6 |
||
3865 |
96 |
12 |
6 |
|||
30th June, 1947 |
1548 |
38 |
14 |
0 |
||
30th September, 1947 |
1353 |
33 |
16 |
6 |
||
31st December, 1947 |
1485 |
34 |
12 |
6 |
||
31st March, 1948 |
1,541 |
38 |
10 |
6 |
||
5927 |
145 |
13 |
6 |
|||
30th June, 1948 |
1992 |
49 |
16 |
0 |
||
30th September, 1948 |
1552 |
38 |
16 |
0 |
||
31st December, 1948 |
1754 |
43 |
17 |
0 |
||
31st March, 1949 |
1,586 |
39 |
13 |
0 |
||
6884 |
172 |
2 |
0 |
|||
30th June, 1949 |
2371½ |
59 |
5 |
9 |
||
30th September, 1949 |
2469 |
61 |
14 |
6 |
||
31st December, 1949 |
4101 |
102 |
10 |
6 |
||
31st March, 1950 |
4,909 |
122 |
14 |
6 |
||
13,850½ |
346 |
5 |
3 |
|||
30th June, 1950 |
5804 |
145 |
2 |
0 |
||
30th September, 1950 |
5332 |
133 |
6 |
0 |
||
31st December, 1950 |
5118 |
127 |
19 |
0 |
||
31st March, 1951 |
5,130 |
128 |
5 |
0 |
||
21,384 |
534 |
12 |
0 |
|||
30th June, 1951 |
5881 |
147 |
0 |
6 |
||
30th September, 1951 |
5280 |
132 |
0 |
0 |
||
31st December, 1951 |
6700 |
167 |
10 |
0 |
||
31st March, 1952 |
7,776 |
194 |
8 |
0 |
||
25,637 |
640 |
18 |
6 |
(9)
Quarter year to |
Weight of sand |
Royalties |
||||
Tons |
£ |
s. |
d. |
£ |
s. |
d. |
30th June, 1952 |
8485 |
212 |
2 |
6 |
||
30th September, 1952 |
8510 |
212 |
13 |
0 |
||
31st December, 1952 |
8592 |
214 |
16 |
0 |
||
31st March, 1953 |
8,086 |
202 |
3 |
0 |
||
33,673 |
841 |
14 |
6 |
|||
Half year to |
||||||
30th September, 1953* |
13,040 |
326 |
0 |
0 |
||
31st March, 1954 |
12,802 |
320 |
1 |
0 |
||
25,842 |
646 |
1 |
0 |
|||
30th September, 1954 |
17,653 |
441 |
6 |
6 |
||
31st March, 1955 |
16,883 |
422 |
1 |
6 |
||
34,536 |
863 |
8 |
0 |
|||
Quarter year to |
||||||
30th June, 1955 |
10,756 |
268 |
18 |
0 |
||
Half year to |
||||||
31st December, 1955 |
16,497 |
412 |
8 |
6 |
||
Quarter year to |
||||||
31st March, 1956 |
6,780 |
169 |
10 |
0 |
||
34,033 |
850 |
16 |
6 |
3. Evidence was given on behalf of the Appellants by Mr. Michael Angus Oliver Hedley, a chartered surveyor and chartered land agent, to the effect that in his opinion a reasonable fixed rent for the original area of the sandpit, together with the additional five acres taken over in September, 1953, for a 21 years' lease from 25th March, 1946, would have been £292 per annum. Mr. Hedley based his calculation on what a tenant taking a 21-year lease in 1946 might have been prepared to pay by way of rent on an estimated tonnage of sand available in the area of 446,000 tons.
Evidence was given on behalf of the Crown by Mr. George Alexander, the Superintending Valuer (Minerals) in the Inland Revenue Valuation Office. His estimate of what a tenant might have been expected to pay by way of fixed rent for a 21-year lease in 1948 was £500 per annum. Mr. Alexander's calculation was based on an estimated tonnage of sand available in the area of 462,825 tons.
Both witnesses were of the opinion that a sandpit would rarely be let at a fixed rack rent for a term of 21 years. The only terms of letting satisfactory to both landlord and tenant were those adopted in the present case, whereby the tenant paid a small fixed rent and a royalty per ton of sand extracted.
We do not find it necessary to decide the question what rent a tenant might have been prepared to pay for the area covered by the assessment under appeal if offered a lease for 21 years in 1946.
4. As to the alternative approach put forward on behalf of the Crown (see paragraph 6(3) below), the witnesses said that, if asked to estimate at the beginning of a year a fair annual value for occupation of the sandpit over the coming year, they...
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