Scottish Court of Session Decisions

The Property Tax Act 1842 (5 and 6 Vic., cap. 35), sec. 100, enacts—“And be it enacted that the duties hereby granted, contained in the Schedule marked D, shall be assessed and charged under the following rules, which rules shall be deemed and construed to be a part of this Act, and to refer to the said last-mentioned duties as if the same had been inserted under a special enactment.

Schedule D.

“The said last-mentioned duties shall extend to every description of property or profits which shall not be contained in either of the said Schedules A, B, C, and to every description of employment of profit not contained in Schedule E, and not specially exempted from the said respective duties, and shall be charged annually on and paid by the persons, bodies politic or corporate,… receiving or entitled unto the same.…

“ Rules for Ascertaining the said last-mentioned Duties in the Particular Cases herein mentioned.

First Case.—Duties to be charged in respect of any trade … not contained in any other schedule of this Act.

Rules.

First.—The duty to be charged in respect thereof shall be computed on a sum not less than the full amount of the balance of the profits or gains of such trade, … upon a fair and just average of three years … and shall be assessed, charged, and paid without other deduction than is hereinafter allowed.…

Third.—In estimating the balance of profits and gains chargeable under Schedule D, or for the purpose of assessing the duty thereon, no sum shall be set against or deducted from … such profits or gains, on account of any sum expended for repairs of premises … beyond the sum usually expended for such purposes according to an average of three years preceding the year in which such assessment shall be made; … nor for any sum employed or intended to be employed as capital in such trade … nor for any capital employed in improvement of premises occupied for the purposes of such trade.…”

The Granite Supply Association, Limited, 81 Union Street, Aberdeen, appealed against a deliverance of the Commissioners for General Purposes of the Income-Tax Acts, &c., for the County of Aberdeen.

The case stated by the Commissioners was as follows—The Granite Supply Association, Limited (hereinafter referred to as the company), appealed against an assessment for the year ending 5th April 1905, on the sum of £1814 (less allowance of £75 for tear and wear of machinery) made upon it under Schedule D of the Income-Tax Acts in respect of the profits of the business carried on by it.

The assessment was made under Sand 6 Vict. cap. 35, sec. 100, Schedule D, first case; 16 and 17 Vict. cap. 34, sec. 2, Schedule D; and 4 Edward VII., cap. 7, sec. 7, and computed on the average of the balance of the profits of the three years ended 31st May 1903.

1. The following facts were admitted or proved—

(a) The company was incorporated on 1st June 1897, under the Companies Acts, and its registered office is situated at 81 Union Street, Aberdeen.

(b) The object for which the company was established, as set forth in its memorandum of association, is the buying and selling of granite.

(c) The company carried on its business in a yard at Palmerston Road, Aberdeen, until Whitsunday 1903. It was found necessary to acquire a larger yard. The company did so in January 1902 at Urquhart Road. Betwixt January and Whitsunday 1903 the company removed stones and cranes from the yard at Palmerston Road to the yard at Urquhart Road, re-erecting the cranes in the latter yard.

(d) A sum of £444, 19s. of expenditure, termed ‘flitting expenses,’ appeared in the company's accounts for the year ended 31st May 1903, which sum is made up as follows—

(1) Jan. 23. Expense of telephone at Urquhart Road,	£9	10	0
(2) Feb. 28. Mr Wisely, a/c carting to new yard,	20	0	0
(3) Mar. 28. Do. do.	50	0	0
(4) April 7. J. M. Henderson & Co., taking down and re-erecting first crane,	27	12	0
(5) May . Do. do. second crane (The cost of the concrete foundations for cranes is not included above, having been charged to capital account.)	27	12	0
(6) May . Proportion of outward cartages directed by resolution of directors of 23rd May 1903, to be credited to outward cartages and charged to flitting account,	135	5	0
(7) May . Proportion of rent and taxes do. to be credited to rent and taxes account and debited to flitting account,	100	0	0
(8) May . Proportion of coals and wages do. to be credited to general expenses (say £25) and wages (£50), and debited to flitting account,	75	0	0
	£444	19	0

(e) The said sum of £444, 19s. was not allowed as a deduction in arriving at the amount of the assessment.

(f) A copy of the company's report and accounts for the year ended 31st May 1903 is appended hereto and forms part of this case.

2. The company maintained that the whole of the expenses were incurred solely

Page: 67↓

in the carrying on of its business, and were properly and necessarily deductible before the profits could be ascertained.

3. The Surveyor, Mr W. S. Kitton, offered no objections to the allowance of items Nos. (1), (6), (7), and (8) of paragraph (d) of 1, which, though termed ‘flitting expenses,’ represent the expense of carrying on the business of the new yard, but contended that the initial outlay in preparing the new yard for business, that is, the cost of transferring the stones from the old yard to the new yard and of the re-erection of cranes, items (2), (3), (4), and (5) of paragraph (d) of 1, was not an allowable deduction, as it was not incurred in carrying on business, but in preparing to carry on business.

4. The Commissioners, on consideration of the evidence and arguments submitted to them, disallowed items Nos. (2), (3), (4), and (5), amounting in cumulo to £125, 4s., allowed items Nos. (1), (6), (7), and (8), amounting in cumulo to £319, 15s., and reduced the assessment to £1688, 16s.

5.…”

Argued for the appellants—The whole of the items in the “flitting account” formed proper deductions from the gross receipts before ascertaining the profits for the year. They were all expenses necessarily incurred in earning the profits for the year, and should properly be debited against profit. They were incidents in the conduct of the company, and thus distinghished from expenses incurred in, for example, sinking a coal pit. A mine with new pits open had an increased earning capacity, but in this case, when the transference of stones, &c., was completed the earning capacity remained exactly as before— Addie v. Solicitor of Inland Revenue, February 16, 1875, 2 R. 431, 1 Tax Cases, 1, 12 S.L.R. 282; Gresham Life Assurance Society v. Styles, May 31, 1892, 3 Tax Cases, 185; Property Tax Act 1842, sec. 159.

Argued for the respondent—The expenditure was not necessarily incurred to secure the profits of one year. The outlay was part of the cost of acquiring new premises. By rule 3, case 1, no deduction was allowed for improvements. Here the improvement consisted in the removal to new and more commodious premises. The expense incurred in removing should properly be charged to capital— Smith v. Westing house Brake Company, June 29, 1888, 2 Tax Cases, &357.