Scottish Court of Session Decisions

The Religious Tract and Book Society of Scotland appealed against a decision of the General Commissioners of Income-Tax for the County of Midlothian sustaining an assessment for the year 1894–95 under the Income-Tax Acts, Schedule D, on £532, 15s. 6d. as profits derived from bookselling at the Society's central depository, Edinburgh, after deducting loss to the extent of £210, 18s. 6d. on the business of the Society's depository at Belfast.

The following facts appeared from the case stated by the Commissioners under the Taxes and Management Act 1880:—“The constitution of the Society provides (article 2) that ' The object of the Society shall be, by the circulation of religious tracts and books, to diffuse a pure and religious literature among all classes of the community,' and (article 3) ‘This object shall be carried out by the establishment of central and branch depositories and of auxiliary societies and by means of colportage and other agencies.’ Separate accounts are kept of the receipts and expenditure of each of the depositories, and of the colportage department. The accounts for each of the three years immediately preceding the year to he assessed (1894–95) show a profit on the business of the Edinburgh depository, but a loss on the Belfast depot, and a loss upon the colportage department. The result is, that placing the loss upon the Belfast depot and the colportage agencies against the profit on the Edinburgh depository, there is overhead a considerable loss on the Society's operations, which is only made good by subscriptions and donations from the public. As stated in the annual reports of the Society, the business of the depositories is conducted on strictly commercial principles, no subscriptions being received or sought on their behalf.”

The following admissions, inter alia, were made by the parties:—“3. The Society's colporteurs are to a certain extent cottage missionaries; they are often to be found reading the Scriptures, or praying with the sick and others, or conversing with them on spiritual matters; and the directors attach importance to that portion of their work. But this does not represent the chief part of a colporteur's duties. The first instruction put into the hands of every applicant for service as a colporteur, after referring to cottage visitation, declares explicitly that ‘as the Society exists to spread the knowledge of the Gospel and promote the Kingdom of Christ by means of the press, and to circulate pure and healthy general literature, a colporteur's chief duty is to sell Bibles and the books and periodicals which are supplied to him.’ 4. The two departments or the Society's work (the depository and the colportage) are alike missionary in character, as stated in the constitution of the Society, and are alike carried on by selling to the public at ordinary retail prices; but the colportage agency could not by itself be carried on at a profit as a commercial undertaking, and required the aid of subscriptions. Before the colportage agencies were added, and when the Edinburgh depository stood alone, even the latter was carried on at a loss, and the Society required and received subscriptions. That depository continued to show financial loss for many years, both before and after the addition of colportage.”

The Society maintained that its business should he treated as a whole, and that any loss on one department should he deducted from profit made in others before striking the balance on which assessment was made.

The Surveyor of Taxes maintained that the profits from the business of bookselling carried on on strictly commercial principles by the depositories could not be distinguished from ordinary profits of trade, and that the application of such profits to religious or charitable purposes did not exempt them from assessment. He also maintained that the deficiency on the colportage agencies, they being missionary and philanthropic, not business undertakings, could not be set off against the profits from the depositories.

The question of law stated for the opinion of the Court was:—“In ascertaining whether the Society has earned profits assessable under Schedule D, does the deficiency on its operations in the colportage agencies fall to be set against its profits in the Edinburgh depository?”

The assessment was laid on under the Property and Income Tax Act 1853 (16 and 17 Vict. cap. 34), sec. 2, Schedule D, and the Property and Income Tax Act 1842 (5 and 6 Vict. cap. 35), sec. 100, Case 1, rule 3.

Argued for the appellant—The decision of the Commissioners was wrong. The business of the Society must be viewed as a whole, and therefore the Society was entitled to a deduction in respect of any loss incurred in any part of the concern. The Inland Revenue allowed a deduction in respect of loss on the depository at Belfast. Why was it not logical enough to allow a deduction on the colportage branch of the business? An endowed hospital which took paying patients at remunerative prices had been held to be within the exemptions from Income Tax, Schedule A—Cawse v. Nottingham Lunatic Hospital, L.R. [18911, 1 Q.B. 585. It might well be doubted whether the Society earned trade profit at all— Last v. London Assurance Corporation, L.R., 12 QBD 389.

Argued for the respondent, the Surveyor of Taxes—The Commissioners were right. The shop business was quite distinct from the colportage business. It made no difference that the trade profit of the shop was devoted to a philanthropic object.