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A cemetery company received payments from the proprietors of lairs in the cemetery in return for which they undertook to keep the lairs in order in all time coming. The directors of the company had by a minute of meeting resolved that the sums so received should be set aside, and the interest only applied to the upkeep of the lairs, but this was not made part of the contract under which the money was received. Held, in a question with the Revenue, that income-tax was payable on the capital sums received, and not on the annual interest only.
At a meeting of the Commissioners for the general purposes of the Property and Income-Tax Acts for the Upper Ward of the County of Renfrew held at Paisley on 7th December 1897, the Paisley Cemetery Company, Limited, appealed against an assessment under No. 3 of Schedule A, Rule 3, of the Act 5 and 6 Vict. c. 35, on the sum of £503, and craved that the amount of assessment should be reduced to £467 in respect of a sum of £36 received by them for upkeep of lairs in perpetuity, which they claimed did not fall to be included in the amount of assessment.
The Commissioners having by a majority refused the appeal, the appellants called upon them to state a case.
The case as stated contained, inter alia, the following statements:—“(2) The Paisley Cemetery was originally an unincorporated joint-stock company, formed in 1846 under a contract of copartnership, executed in that year on various dates, produced herewith and made part of the case. It was registered as a limited liability company in 1883 under the Companies Acts 1862 to 1880. The object of the company was to acquire lands, and lay these out as a place for interment, the erection of monuments, and the resort of shareholders and certain other persons. (3) The twenty-sixth article of the said contract provides that the committee of management are hereby empowered to sell pieces of the ground acquired or to be acquired by the company for a cemetery as aforesaid for burial places, lairs, tombs, and graves, and for sites for monuments, tablets, mausoleums, sarcophagi, cenotaphs, vaults, and catacombs at such places as they may think proper, and that either in perpetuity or for a limited period or for single interments. (5) The thirty second article provides—‘The directors shall cause to be kept in their books separate accounts of the fees received, an account of burials in ground sold, and fees for single interments, and shall cause such books and accounts to be balanced annually, and against the said fees shall be set the whole charges of management, servants’ salaries, and other charges and expenses, and as the operations of the company advance, on a balance coming to be realised on such account, the same shall be divided among the shareholders in proportion to the number of shares held by them.’ (7) There is no provision either in the contract of copartnership or in any rules, regulations, and bye-laws framed under the powers conferred on the committee of management by the twentieth article,
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which deals with payments received for the upkeep of lairs in perpetuity. This matter was, however, considered by the directors, and the minutes of their meeting held on 14th June 1858 bear that ‘the proposal of accepting a sum from proprietors of lairs to be set aside and the interest to be applied towards the keep of the same in perpetuity was again under consideration, when it was resolved that upon payment by the proprietors of lairs of the sum of £2 for each breadth of 3 feet, the company shall undertake to keep, maintain, and dress such lairs in good order and condition from time to time during each year in all time coming.’ (9) The slump payments received during the year ended 2nd February 1897 amounted to £36, and this sum was credited direct to the capital account, and formed part of the accumulated fund as at that date of £1211, 12s. 11d. for keep of lairs in perpetuity. (10) The above accumulated fund was not separately invested, but was included in and formed part of the invested fund of £1290, mentioned in the balance-sheet as on loan to the Paisley Water Commissioners, and the income derived therefrom was credited in the revenue account, and was assessed to income-tax, duty at the current rate being retained on payment of the interest by the Paisley Water Commissioners. (11) The appellants claimed to be relieved of the tax on this sum of £36, and contended that these slump payments were regarded as trust funds, devoted by them to a specific purpose, incapable of being appropriated for the ordinary purposes of the company, and were properly treated as capital; that they were not in any sense profits divisible among the members of the company, and that the annual interest derived therefrom was alone subject to assessment. (12) Mr James Reith, surveyor of taxes, on behalf of the Crown, maintained that the sum of £36 was profits and chargeable with income-tax, in respect that it consisted of payments for services rendered, and to be rendered, the whole of the expenses of the keeping and dressing of the lairs in perpetuity being allowed as a deduction. He referred to the decision of the Judges in the case of the Edinburgh Southern Cemetery Company, Limited v. Kinmont ( 17 Sess. Cas. 4th Series, p. 154), where it was held that the whole amount received for ground or lairs sold ( i.e., right of burial in perpetuity) was assessable without deduction for part thereof carried to capital account for redemption of capital. He contended that if a sum received for right of burial in perpetuity in a certain space was held to be assessable, a sum received for dressing in perpetuity the same space must be equally assessable, and that it was impossible to make a distinction in favour of sums received under the latter head. He further contended that the slump sums received for the upkeep of lairs, as well as the annual interest derived therefrom, when invested, were assessable on the same principle as in the case of the sum received for the price of lairs sold, which was taxable both as regards the principal amount, without deduction for the sum carried to sinking fund, and the annual interest produced.” The Court having called for production of one of the receipts granted by the company in return for these slump payments, the parties put in a joint-note containing a receipt, and they also admitted that the minute of 14th June 1858 had been entered in the minutebook of the company, but had not been published. The receipt was in the following terms:—“Received from the sum of, being the amount agreed to be accepted by the directors of the Paisley Cemetery Company, Limited, for keeping in order and dressing lair number compartment in said cemetery from time to time during each year in all time coming. This snm is accepted on the understanding that the company do not undertake to keep up or repair monuments or lair enclosures, or to supply shrubbery or plants where those planted decay or die out, the obligation to do so remaining with the proprietors of said lairs as if the obligation to keep in order and dress the lairs had not been undertaken by the company.”
Argued for appellants—The funds in question were really trust funds, which must be put aside in order to enable the company to fulfil their obligations to lairholders. The resolution contained in their minute bound them to this, and accordingly they could not be treated as in any sense profits of the company— Edinburgh Southern Cemetery Company v. Surveyor of Taxes, November 29, 1889, 17 R. 154; Coltness Iron Company v. Black, 8 R. (H. of L.) 67. Even if the payments were not actually in the position of trust funds, they were bound to lay them aside, having undertaken a perpetual obligation, and their other resources and income being of a precarious nature, these would be the only funds available to meet it. Accordingly they were in a different position from that of the Edinburgh Southern Cemetery Company, who had no obligation as with a third party.
Argued for respondents—There was no obligation to set aside or earmark the money, but the appellants were merely bound on receiving the payment to keep the lair in order. The receipt bore no such obligation, and accordingly their argument founded upon the unpublished minute fell to the ground. The money was in no way different from the dues received for interment, as distinguished from the price of the lairs, and was clearly part of the yearly income— Magistrates of Portobello v. Surveyor of Taxes, July 10, 1890, 27 S.L.R. 863; 2 Tax Oases 647.
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Now, that element being absent, the thing comes to be of the simplest description. The company, for a sum down, undertake a perpetual obligation, and it seems to me that the case being thus entirely deprived of the semblance of trust, it resolves into this question only—Is income-tax chargeable where money is received and a perpetual obligation undertaken? We should be going against the theory of the cases which have already been decided, and against decisions which are well recognised, if we were to give countenance to that idea. The case is exactly the same as the ordinary one of money paid down with an obligation to provide for certain expenses in the future, and it seems to me that the judgment which was pronounced by the Commissioners was right and ought to be affirmed.
The Court affirmed the determination of the Commissioners, and found the Surveyor of Taxes entitled to expenses,
Counsel for the Appellants— Shaw, Q.C.— Cowan. Agent— F. J. Martin, W.S.
Counsel for the Respondent— Sol.-Gen. Dickson, Q.C.— A. J. Young. Agent— P. Hamilton Grierson, Solicitor of Inland Revenue.