Scottish Court of Session Decisions

The Income-Tax Act (5 and 6 Vict. cap. 35), Schedule A, rule 3, provides—“The annual value of all the properties hereinafter described shall be understood to be the full amount for one year, or the average amount for one year, of the profits received therefrom within the respective times herein limited … Third, of iron works, gas works, salt springs or works, alum mines or works, water works, streams of water, canals, inland navigations, docks, drains and levels, fishings, rights of markets and fairs, tolls, railways, and other ways, bridges, ferries and other concerns of the

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like nature, from or arising out of any lands, tenements, hereditaments or heritages, on the profits of the year preceding.”

The Income-Tax Act 1853 (16 and 17 Vict. cap. 34), Schedule D, provides “That duty shall be chargeable in respect of all interest of money, annuities, and other annual profits or gain not charged by virtue of any of the other schedules contained in the Act.”

The Customs and Inland Revenue Act 1888 (51 Vict. cap. 8), sec. 24, sub-sec. 3, provides—“Upon payment of any interest of money or annuities charged with income-tax under Schedule D, and not payable or not wholly payable out of profits or gains brought into charge to such tax, the person by or through whom such interest or annuities shall be paid shall deduct thereout the rate of income-tax in force at the time of such payment, and shall forthwith render an account to the Commissioners of Inland Revenue of the amount so deducted, or of the amount deducted out of so much of the interest or annuities as is not paid out of profits or gains brought into charge as the case may be, and such amount shall be a debt from such person to Her Majesty, and recoverable as such accordingly, and the provision contained in section 8 of the Act of the thirteenth and fourteenth years of Her Majesty's reign, chapter ninety-seven, now in force in relation to money in the hands of any person for legacy duty, shall apply to money deducted by any person in respect of income-tax.”

The Forth Bridge Railway Company were incorporated by the Forth Bridge Railway Act 1873, and were authorised by the said Act to raise a share capital, and to create and issue debenture stock subject to the provisions of The Companies Clauses Act 1863. Further powers were conferred on the company by Acts passed in 1876, 1878, 1879, and 1882. Share capital was raised and debenture stock issued by the company in virtue of their powers. The company's railway was opened for traffic early in March 1890. Prior to that time the company's works were in course of construction and yielded no revenue. Interest was, however, paid upon the debenture stock, and under the Forth Bridge Act of 1882 was also paid on the share capital. For the purposes of assessment for income-tax for the year ending 5th April 1889, the company made a return of the interest paid to shareholders and to holders of debenture stock as shown by their half-yearly accounts ending 30th June and 31st December 1887, the year preceding the year of assessment. This account showed that £62,322, 0s. 3d. had been paid as interest to the shareholders, and £12,672, 14s. to holders of debenture stock. The company was assessed upon the return thus made, and a corresponding amount of tax was paid. As shewn by returns prepared by the secretary of the company, dated 1st August 1889, the actual amount of interest paid in the year ending 5th April 1889 to shareholders was £71,976, 11s. 3d., and to holders of debenture stock £21, 344, 13s. 5d. These payments were made under deductions in name of income-tax, the sums deducted being retained by the company.

In these circumstances an action was brought by the Lord Advocate on behalf of the Board of Inland Revenue against the Forth Bridge Railway Company for the sum of £458, 3s. 3d. The pursuer averred that looking to the returns prepared by the secretary of the company dated 1st August 1889, the amount assessed for income-tax was short as regarded the interest paid to shareholders, and debenture holders respectively by £9654, 11s. and £8671, 19s. 5d., and so the duty paid on them respectively was less than the sums deducted by £241, 7s. 3d. and £216, 16s. The company thus, on the whole, for the year ending 5th April 1889 held back from the Revenue duty amounting to £458, 3s. 3d.

The pursuer pleaded—“(1) The money deducted by the company in respect of income-tax on the interest actually paid by them to shareholders and debenture holders during the year ending 5th April 1889, formed forthwith a debt due to the Crown and recoverable as such. (2) The amount sued for being due and resting-owing by the company, decree ought to be given as concluded for, with expenses.”

The defenders pleaded—“(2) On a sound construction of the statute the defenders' undertaking falls to be assessed, not under Schedule D of the Income-Tax Act 1853, but under the third rule, No. 3, Schedule A, of the Income-Tax Act (5 and 6 Vict. cap. 35). (3) The defenders having, in compliance with the Commissioners' usual annual request, sent in returns in terms of the said rule for the year preceding 5th April 1889, and these having been accepted by the Commissioners, and the duty assesed duly paid by the defenders, the pursuer is barred from suing for additional duty.”