Scottish Court of Session Decisions

In 1865 the pursuers, the North British Railway Company, took compulsorily a portion of the estate of Duddingston, belonging to the Duke of Abercorn, who was the defender. The following was the agreement with reference to the tenants’ claim for damages for the land so taken:—“(14) This present agreement shall not embrace the claims of tenants either for permanent or temporary damages during their existing leases, which the Company shall settle with the tenants independently of this agreement. But the Marquis of Abercorn agrees to pay towards the tenants claims for permanent damage during the present leases bank interest not to exceed three per cent. per annum on the gross sums which he may receive from the Company for the land to be permanently occupied by the Company, and intersectional damages, but not upon the sum which may be allowed for deterioration to any adjoining feuing-ground. If any part of the lands to be permanently occupied by the Company shall be paid for as feuing-ground, interest shall be allowed thereon as above, on the agricultural value of £220 per acre, towards the tenants’ claims for damages on account of the land to be so occupied by the railway, and the Marquis shall relieve the Company of any claim for intersectional damage at the instance of the tenants in regard to such feuing-ground so occupied by the Company.”

A question having arisen between the parties as to whether the price agreed on was intended as the agricultural value only of the subjects, or whether it included a proportion for feuing value in terms of the above agreement, the pursuers maintaining the former alternative, and the defender the latter, this action was raised concluding for implement of the contract of sale by execution

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* Decided 7th January.

Page: 271↓

and delivery of a formal conveyance of the subjects, or for damages.

The pursuers pleaded, inter alia—“The annual payments due by the defender to the pursuers not being of the nature of income, annual profits, or gains to them, but simply portions of capital repayable for a certain period by the defender in instalments out of the gross price payable to him by the pursuers, the defender is not entitled under the Income-tax Acts or otherwise to deduct income-tax before paying or crediting the same to the pursuers.”

The defender pleaded, inter alia—“Under and in respect of the provisions of the 102d and 103d sections of the Statute 5 and 6 Vict. cap. 35, the allowances payable by the defender to the pursuers fall to be paid under deduction of income-tax, and the accounts between the parties ought to be adjusted on that footing.”

The Lord Ordinary ( Curriehill) pronounced an interlocutor, which, after dealing with the first question in the case relating to the agricultural and feuing value of the subjects in question, proceeded—“Finds (2) that the defender is entitled to deduct income-tax from the foresaid annual allowance or interest, and also from all similar annual allowances or yearly payments on account of tenants’ claims made or to be made by the defender to the pursuers in respect of sums paid by the pursuers to the defender for lands taken prior to 1865.”

“ Note.—[ The first part of his Lordship's note related to the first finding in the interlocutor]—As regards the second question, viz., the right of the defender to deduct income-tax from these annual allowances, I at first felt some difficulty, but after very careful consideration I have come to be of opinion that the defender is entitled to prevail. The mode of settlement adopted by the parties, though not unusual in 1844, was not in conformity with the requirements of the Special Railway Acts of the pursuers, or of the Lands Clauses Consolidation Act of 1845, and it is not now much followed. Under these statutes the rent of the whole farm is to be apportioned between the land taken and the land retained; and the tenant is to retain from the gross rent stipulated in the lease the portion allocated upon the land taken. But in this case the tenant continued to pay to the defender his full rent for the whole farm, and the pursuers undertook to repay to him the proportion of rent which he would otherwise have been entitled to retain from his landlord. And as the allowance to be made by the defender to the pursuers is in part to enable them to repay to the tenant that part of the rent, and as the defender receives the rent only under deduction of the income-tax, it is clear that, to the extent of that part of the allowance at least, he is entitled to deduct the tax. But it is not upon that ground alone that I think the defender is entitled to deduct the tax from his yearly payments. I think he is entitled to make the deduction from the whole allowances, to whatever purpose the pursuers may apply these—(1) because they are in my opinion yearly payments by the defender to the pursuers of the nature contemplated by section 102 of the Income-tax Act (5 and 6 Vict. cap. 35), and chargeable with assessment; and (2) because the payment is made by the defender in circumstances entitling him to retain the assessment. The Act provides that the assessment shall be chargeable upon ‘all annuities, yearly interest of money, or other annual payments, whether such payments shall be payable within or out of Great Britain, either as a charge on any property of the person paying the same, by virtue of any deed or will or otherwise, or as a reservation thereout, or as a personal debt or obligation by virtue of any contract.’ Now, it appears to me that the allowances in question are of the nature of an annuity or annual payment, payable as a personal debt or obligation by the defender under a contract with the pursuers. The Act then provides that “in every case where the same shall be payable out of profits or gains brought into charge by virtue of this Act, no assessment shall be made upon the person entitled to such annuity, interest, or annual payment, but the whole of such profits or gains shall be charged with duty on the person liable to such annual payment, without distinguishing such annual payment, and the person so liable to make such annual payment, whether out of the profits or gains charged with duty, or out of any annual payment liable to deduction, or from which a deduction hath been made, shall be authorised to deduct out of such annual payment’ the amount of such assessment. Now, the annual payment is made by the defender out of the rent received by him from his tenant, and out of the interest of the prices received by him for the land taken, and as the tax is deducted, or is liable to be deducted, from these annual rents and interests before they are received by the defender, he is, in my opinion, authorised by the statute to make a corresponding deduction from the pursuers. Indeed, from whatever source the defender makes the payments, they are presumably paid by him out of income, all of which is assessed, or liable to be assessed, for the tax, and not out of capital, and are therefore liable to deduction. The pursuers maintain that the allowance is not a yearly payment of the kind contemplated by the statute, but is truly a repayment of a capital sum by instalments, and that such instalments are not liable to be assessed; but they failed to point out what is the capital sum which is thus being repaid, or to satisfy me that the allowance is not truly a yearly payment chargeable with assessment under the statute. I am therefore of opinion that the second question submitted in this case must be answered in favour of the defender.”

The pursuers reclaimed.

The arguments sufficiently appear from the opinions of the Court.

At advising—