Scottish Court of Session Decisions

At a meeting of the Commissioners for General Purposes of the Property and Income-Tax Acts for the City of Glasgow, held at Glasgow on the 20th day of June 1892, the Corporation of Glasgow appealed against assessments made upon them under Schedule D of the Income-Tax Acts for the year ending 5th April 1892, in respect of (1) Burgess and Freedom Fines, £216; (2) Sand Lordship, £140; (3) Petty Customs, £1500. 1. The “Burgess and Freedom Fines” are the payments made by individuals on becoming burgesses and freemen of the city. The amount assessed, £216, is the sum received, less portions paid to the Trades' House and Merchants' House of Glasgow, and is the average nett receipts during the three years preceding the year of assessment. 2. The “Sand Lordship” is paid by the Lord Provost, Magistrates, and Town Council of Glasgow, acting as Police Commissioners, for sand removed from the river margin of Glasgow Green. The sum assessed, £140, is the amount paid during the year preceding the year of assessment. 3. The “Petty Customs” is a statutory annual sum paid by the said Glasgow Police Commissioners as commutation of the dues exigible on articles brought into the city for sale, in respect of the abolition of said dues by 9 and 10 Vict. cap. 289. Section 36 provided—“And whereas it is expedient to provide a sum sufficient to defray the additional expense of the municipal establishment of the said city of Glasgow as extended by this Act, and the expense attending the elections and other expenses to which the

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Corporation is and will be subject under the said recited Act of 3 and 4 Will. IV. and this Act, and also to compensate the funds of the Corporation of the city for the loss consequent upon the abolition by this Act of the right to levy the said Petty Customs: Be it enacted, That the said Police and Statute Labour Committee hereby constituted shall be entitled, and they are hereby authorised and required, out of the funds levied for police purposes under the foresaid first of the Acts passed in the sixth and seventh years of the reign of Her present Majesty before recited and this Act, to pay annually to the Magistrates and Council of the said city, or to their treasurer or clerk, such a sum as may be necessary for that purpose: Provided always, that such sum shall not exceed in any one year the sum of £1500.”

The assessments were appealed against by the Corporation on the following grounds—(1) That the items of revenue assessed formed part of the income of one corporate estate, namely, the “common good” of the city and royal burgh of Glasgow, which is appropriated by common law and by immemorial custom to the maintenance of the burgh and of its municipal staff, to the support of the city clergy, and to other purely burghal purposes; and that so exclusively is it applicable to these objects that in so far as it is required therefor it cannot be alienated or attached for burghal debt. The “common good” of royal burghs being so applicable to public purposes, it is contended that it does not form a subject for Imperial taxation. Besides, in Glasgow the “common good” did not in the year in question yield any clear surplus after payment of the whole expenditure necessarily and legitimately defrayed out of the “common good.” (2) Under reservation of the contention that the “common good” of royal burghs does not form the subject of special taxation in respect of income, objection was stated to the splitting up of the various items of the “common good” revenue, and the charging of income-tax on three items of that revenue separately and distinctly from the other items of revenue therein contained. (3) It was contended that as the items thus assessed separately and distinctly formed part of the income of one corporate estate, the Inland Revenue authorities were not entitled to split up for the purposes of assessment under the Income-Tax Acts the general items of that income in the manner done, but were bound, if entitled to assess the “common good” for income-tax at all, to deal with the whole revenue of the “common good,” from whatever source derived, as a unum quid, and to allow as deductions from that revenue before assessing it under Schedule D of the Income-Tax Acts the whole expenditure necessarily and legitimately incurred in connection with the “common good.” (4) It was further contended on behalf of the Corporation that as the return lodged with the Surveyor with respect to the assessment of the “common good” for the year 1891–92—and which return had been made up in the same manner as it had been made up and accepted by the Inland Revenue authorities for many years past—showed that in the aggregate there was no surplus of revenue over expenditure for the year in question, no assessment was payable by the Corporation under Schedule D of the Income-Tax Acts. If the revenue derived from the “common good” as a whole, after deducting the entire expenditure necessarily and legitimately incurred in connection with the “common good” showed a clear surplus, then it would be necessary to have it determined whether the “common good” of royal burghs formed a legitimate subject of taxation under the Income-Tax Acts; but in the year in question no such surplus appears on the face of the “common good” account, and no assessment under Schedule D is claimable or falls to be made as regards any particular items of revenue in that account. (5) The assessment of item No. 3 (Petty Customs) was appealed against also on the special ground that it was a payment out of a public rate, and it was contended on behalf of the Corporation, under reservation as aforesaid, that as the £1500 received by the Corporation from the Police Commissioners of the city of Glasgow as a statutory commutation for these Petty Customs was a payment out of a public rate, this item was not in any case liable to be assessed, even assuming it was competent for the Inland Revenue authorities to disintegrate the various items of the “common good” revenue in the manner now for the first time done. (6) It was also contended that the decision in the case of the Attorney-General v. Scott, founded on by the Surveyor, could not be held as governing the question raised in the present appeal, as the law and practice in relation to not only the Corporation of the city of London, which is altogether exceptional, but also as regards municipal corporations in England generally, was essentially different from the law and practice in relation to municipal corporations in Scotland, and, moreover, the circumstances connected with the case referred to were not identical with those under which that appeal had been made.

Mr W. Stacey Webber, the Surveyor of Taxes, on behalf of the Crown, stated that the three items of income against the assessment of which this appeal was made, had not been specially selected for assessment, but that all the other sources of income had been separately taxed, either by direct assessment under the several schedules of the Income-Tax Acts or by deduction on payment of the dividends or interest, and that owing to the several sources of income being so chargeable they could not be dealt with in one assessment. He further contended that the Corporation were liable to be assessed for the individual items of income, less only the legitimate expenses of acquiring the same, and without allowance of any portion of the general expenditure of the Corporation.

He referred to the statement lodged on behalf of the Corporation as the Corporation's return for the assessment of the

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year 1891–92, and argued that the principle on which such statement had been prepared was erroneous and unworkable, The Corporation claimed exemption upon the ground, among others, that after taking credit for the portions of the revenue that were charged under Schedule A or were received minus income-tax, and after deduction of the general expenditure of the Corporation, there was a debit balance; but it was neither legal nor possible to so deal with revenue which accrued from a variety of sources and was assessable unde different schedules and rules of the Income-Tax Act. Many items of the revenue were chargeable under and according to the rules of Schedule A, many others were receivable minus income-tax, whilst the remainder, including the three items under appeal, were chargeable under and according to various rules of Schedule D. The Surveyor referred the Commissioners to the case of the Attorney-General v. Scott, January 16, 1873, Court of Exchequer, 28 L.T. (N.S.) 302. This case decided that the profits of the Corporation of the city of London derived from market-tolls, corn and fruit metages, brokers' rents, &c., were liable to income-tax under Schedule D, without reference to the purposes to which they were applied, and that the proper principle on which the assessment should be made was to take each item or head of income separately and assess the income-tax upon the produce of such item after deducting from the gross receipts only the expenses incurred in earning and collecting the same, and not the general expenditure of the Corporation. The Surveyor contended that the circumstances of the case quoted were so identical with the circumstances of the case of the Glasgow Corporation as to make the ruling wholly applicable. With reference to the assessment on item No. 3 (Petty Customs, £1500), the Surveyor contended that the nature of the source from which the “Petty Customs” annual payment of £1500 arose did not affect the liability of the Corporation to assessment for it.

The Commissioners decided in favour of the appellants, their determination being that if assessable at all, the “common good” should be held as one concern for income-tax purposes, and that the Corporation should deduct all expenditure disbursed in their corporate capacity.

The Commissioners did not consider any special judgment relative to the assessment on item No. 3 (Petty Customs) necessary.

The Surveyor of Taxes, on behalf of the Crown, being dissatisfied with the determination, as being erroneous in point of law, the present case was stated for the opinion of the Court of Exchequer.

Argued for Surveyor of Taxes—The “Petty Customs” was really an annuity payable to the Corporation as a commutation for certain dues abolished by 9 and 10 Vict. cap. 289, sec. 15, and as such it should pay income-tax under 16 and 17 Vict. cap. 34. No doubt in origin it came out of the rates, but it was not the Corporation but the Police Commissioners who were the rating authority. The case of Adam v. Maughan, November 15, 1889, 27 S.L.R. 64, 17 R. 73, and 2 Tax Cases, 541, was on all fours with Scott (quoted supra), and they were conclusive of the questions here raised.

Counsel for the appellants stated that the judgment under appeal was directly in face of the case of Adam, and that he could not ask the Court to sustain it.

At advising—