Scottish Court of Session Decisions

The Income Tax Act 1842 (5 and 6 Vict. cap. 35) [after providing (section 41) for trustees and guardians of incapacitated persons being charged] enacts, section 42—“Provided always that no trustee who shall have authorised the receipt of the profits arising from trust property by the person entitled thereunto, or by the agent of such last-mentioned person, and which person shall actually receive the same under such authority, nor any agent or receiver of any person being of full age and resident in Great Britain, … who shall return a list in the manner hereinafter required of the name and residence of such person, shall be required to do any other act for the purpose of assessing such person.…”

Section 51 enacts—“Every person who shall be in receipt of money or value, or the profits or gains arising from any of the sources mentioned in this Act, of or belonging to any other person, in whatever character the same shall be received, for which such other person is chargeable under the regulations of this Act, or would be so chargeable if he were resident in Great Britain, shall within the like period prepare and deliver, in manner before directed, a list in writing in such form as this Act requires, signed by him, containing a true and correct statement of all such money, value, profits, or gains, and the name and place of abode of every person to whom the same shall belong, together with a declaration whether such person is of full age, … in order that such person, according to a statement to be delivered as herein mentioned, may be charged either in the name of the person delivering such list, if the same shall be so chargeable, or in the name of the person to whom such property shall belong, if of full age, and resident in Great Britain, and the same be so chargeable by this Act,.…”

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On 5th July 1905 Hugh Gibb, 109 Hope Street, Glasgow, acting or representative partner of the firm of Cayzer, Irvine, & Company, underwriters, Glasgow, was cited to appear to answer to an information by the Lord Advocate on behalf of His Majesty, under the Income Tax Acts, 5 and 6 Vict. cap. 35, 16 and 17 Vict. cap. 34, and 4 Edw. VII, cap. 7.

The information bore—“That Hugh Gibb, No. 109 Hope Street, Glasgow, acting or representative partner of the firm of Cayzer, Irvine, &Company, underwriters, Glasgow, the said firm being persons in receipt of money, value, profits, or gains of or belonging to other persons, and chargeable under Schedule (D) of the Income Tax Act, 16 and 17 Vict. cap. 34, for the year ending the 5th day of April in the year 1905, in terms of 4 Edw. VII, cap. 7, and being bound in terms of the Income Tax Acts, and in particular of section 51 of the Income Tax Act (5 and 6 Vict. cap. 35), to prepare and deliver to the proper person appointed to receive the same, at his office, a list in writing containing a true and correct statement of all such money, value, profits, or gains, and the name and place of abode or residence of every person to whom the same belonged, with relative declarations, has refused or neglected to deliver to … a list in writing containing a true and correct statement of all money, value, profits, or gains of or belonging to any other person and chargeable under Schedule (D) of the Income Tax Act 16 and 17 Vict. cap. 34, for the year ending the 5th day of April in the year 1905, in terms of 4 Edw. VII, cap. 7, and received by the said firm, and the name or place of abode or residence of every person to whom the same belonged, with relative declarations, contrary to the provisions of the Income Tax Act (5 and 6 Vict. cap. 35), and particularly of sections 51 and 55 thereof; whereby the said Hugh Gibb has forfeited the sum of £50.”

Gibb pleaded not guilty and lodged defences.

In his defences he stated—“Cayzer, Irvine, & Company are steamship owners in Glasgow, but they also act as insurance brokers and underwriting agents under mandates authorising them to underwrite risks for a number of underwriters all resident in Great Britain.… Each of the said underwriters is engaged in other trades, businesses, or concerns falling within Schedule D of the Income Tax Act 1842, and several of them are also engaged in other underwriting transactions through other agencies. The profits of said underwriters, which are chargeable for income tax, can be ascertained therefore only after there has been deducted or set off against the profits acquired in the said concerns, the excess of the loss sustained in any other of the said concerns over and above the profits thereof. … No form is prescribed by the Income Tax Acts appropriate for making the return called for, and the sections of the statute founded on in the information are not intended to and do not apply to the case of the respondent. The business carried on by the said Cayzer, Irvine, & Company is similar to that carried on in all cases of brokerage of every kind, where one person employs another to do business for him, on the understanding that the person employed accounts to the client for the profit, if any, arising from the client'sown business. In such cases of brokerage section 51 of the Act has not been applied, and is not applicable.”

The Lord Advocate lodged answers, in which he stated, inter alia—“On behalf of the underwriters for whom they act and take payment of premiums and to whom they are bound to account, Messrs Cayzer, Irvine, & Company are each year, and were in the year libelled, in receipt of money or value or profits or gains belonging to the said underwriters, and chargeable with income tax.… The notice which was duly given on 17th March 1905 by .… was in a form prescribed and approved of by the Board of Inland Revenue. As provided by the Taxes Management Act 1880, notices of demand or other documents required to be used in assessing, charging, levying, and collecting duties are to be made out, drawn, and prepared according to forms prescribed and supplied or approved by the Board from time to time.”

The defender pleaded—“On a sound construction of the sections of the statute founded on in the information, and in the circumstances condescended on, the respondent is not bound to furnish the list required.”

The nature of the list which the defender was called upon to fill up appears from the following excerpt:—

“Description of every person for whom the said firm act as Trustee, Agent, Receiver, Guardian, Tutor, Curator, or Committee in relation to profits arising from Trade, Profession, Foreign Possessions, and Securities, or other profits chargeable under Schedule D, viz.—

“First. Persons of full age and resident in the United Kingdom, or married women living with their husbands, in receipt of the profits:—

Names.	Place of Abode or Residence.	Amount of Profits.
		£

“I declare the profits of the above persons are chargeable on them respectively.”

On 17th March 1906 Causes ( Johnston) pronounced this interlocutor:—“Finds that the defender, as representing Messrs Cayzer, Irvine, & Company, is bound to deliver the lists demanded of the names of the persons for whom his firm conduct the business of under writing in the manner described on record, with their addresses, but is not bound to include in such lists the amount of profit effeiring to each: Accordingly dismisses the information as laid: Finds neither party liable in expenses, and decerns.”

Opinion,—“Messrs Cayzer, Irvine, & Company, who are primarily shipowners,

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but who also act as marine insurance brokers and underwriting agents in Glasgow, conduct a business in underwriting, the particulars of which are as follows:—A number of constituents grant them letters of authority under which each respectively authorises the firm ‘to underwrite as my agent, in my name and for my account,’ a sum not exceeding £ on each risk, and ‘to sign for me and in my name the stamped policies of insurance,’ and ‘to adjust, compromise, and settle all losses, averages, returns, or claims arising thereon, and to defend at law or refer to arbitration disputed claims.’ The letter of authority then concludes—‘You are to render me in the month of January in each year the usual statements of your underwriting transactions on my behalf, retaining such a sum in your hands as you consider necessary to provide for possible losses upon all risks, say an amount equal to three total losses, and crediting my account with the bank interest allowed for same.’

“Messrs Cayzer, Irvine, & Company were to receive a commission of 10 per cent. on any profit accruing from the account. And the authority was to remain in force till cancelled in writing, but Messrs Cayzer, Irvine, & Company might close the account at discretion.

It is clear, therefore, that were a constituent of Messrs Cayzer, Irvine, & Company carrying on this business himself without their intervention, he would be liable to income tax under Schedule D, and there would be no difficulty arising from the peculiar character of the business in assessing him under the rule of The Scottish Union and National Insurance Company v. Inland Revenue, 10 R. 461.

Further, I think that there can be no doubt that Messrs Cayzer, Irvine, & Company are the agents, in the sense of the Income Tax Acts, of each constituent for whom they act under the authority of the mandate above quoted.

Now, the Inland Revenue, dealing with Mr Hugh Gibb as the representative partner of the firm of Cayzer, Irvine, & Company, on the assumption that the said firm are persons in receipt of profits or gains of or belonging to other persons, and chargeable under Schedule ID of the Income Tax Act 1853 for the year ending 5th April 1005, and as such are bound in terms of the Income Tax Acts, and particularly of section 51 of the Income Tax Act 1842, to deliver to the assessor a list in writing containing a true and corrrect statement of all such profits or gains, and the name and place of abode of every person to whom the same belong, with relative declarations, have demanded from Mr Gibb such list, and he having refused to deliver the same they sue him for penalties under section 55 of the Income Tax Act 1842. On a consideration of the various sections of this statute I have come to be of opinion that Mr Gibb is bound to deliver a list of the persons, with their places of abode, on behalf of whom his firm acts in the manner above mentioned, but is not bound to include a statement of the profits or gains for which his firm are accountable to each such person.

There are a number of sections of the Act of 1842 commencing with section 40 which bear upon the duties incumbent upon agents under the statute, and I do not think that there would be much difficulty in solving the question submitted to the Court but for a discrepancy between the 42nd and 51st sections.

Agents under the statute may be in two positions. Either they may be themselves chargeable to duty in place of the principal, or their principal may be himself directly chargeable. In the former case they must give the Inland Revenue such return of profits as the individual constituent would require to do, with a view to being assessed on his behalf. But in the latter case I think that their duty is limited to apprising the Inland Revenue of the fact of their constituent's chargeability in order that the Inland Revenue may see that their constituent makes the proper return with a view to his being himself assessed.

Section 41 of the Income Tax Act 1842 provides for the case of persons under disability whose trustees or guardians, and of non-residents whose agents, are directly chargeable, and such trustees or guardians and agents must do everything required by the Act in order to the assessing of such persons to the duties granted by the Act.

But section 42 provides that no agent of any person of full age, resident in the United Kingdom, and not under disability, ‘who shall return a list in the manner hereinafter required of the name and residence of such person, shall be required to do any other act for the purpose of assessing such person,’ unless the Commissioners shall require his testimony in pursuance of the powers and authorities given by the Act.

I pass over the intervening sections, and come to section 51, which provides that every person who shall be in receipt of profits or gains ‘arising from any of the sources mentioned in the Act, of or belonging to any other person, in whatever character the same shall be received, for which such other person is chargeable under the regulations of this Act,’ shall deliver a list in writing, in such form as the Act requires, signed by him, containing a true and correct statement of all such profits or gains, and the name and place of abode of every person to whom the same shall belong, together with a declaration whether such person is of full age, or a married woman, or resident in the United Kingdom, or under disability, ‘in order that such person, according to a statement to be delivered as herein mentioned, may be charged, either in the name of the person delivering such list if the same shall be so chargeable, or in the name of the person to whom such property shall belong if of full age and resident in the United Kingdom, and the same be so chargeable by this Act.’

Now, if this section had stood alone there would have been no doubt that Messrs Cayzer, Irvine, & Company are in receipt of profits or gains arising from one of the

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sources mentioned in the Act, of or belonging to other persons their constituents, and must deliver the lists demanded, not only of the names and addresses of such constituents, but of the profits or gains to which they are entitled, and that whether such constituents are sui juris and resident or not.

But I cannot ignore the distinct statement of section 42, which, in the case of the sui juris and resident principal, limits the duty of the agent to giving the name and address of his principal.

I think that the full measure of section 51 was really only intended for the case where the agent is directly assessable, and that it is limited by section 42, where the principal himself and not the agent is directly assessable. But whether this be so or not, the rule in interpreting a taxing statute in all its details is in favour of freedom from obligation unless it is expressly and clearly imposed, and I cannot say that that is expressly and clearly imposed as a duty which, though within the terms of one section, is within the exception of another section of the same Act.

And though section 190, Schedule (G) XVI, is quoted in support of the Crown's contention, I think that it really supports my conclusion. For, after providing for the cases in which lists containing names and addresses only are required, it winds up with these words, as if providing for a special class of case within the general category, ‘and where any person before described is accountable for the duty to be charged in respect of the property or profits of others, such lists as aforesaid shall be delivered, together with the required statement of such profits.’

I shall therefore find that Mr Gibb, as representing Messrs Cayzer, Irvine, & Company, is bound to deliver the lists demanded of the persons for whom his firm conduct the business of underwriting in the manner described, with their addresses, but is not bound to include in such lists the amount of profit effeiring to each; and I shall accordingly dismiss the information as laid, finding neither party liable in expenses.”

The Lord Advocate reclaimed, and argued—Section 51 of the Income Tax Act 1842 declared that the list must contain a statement of profits as well as the name and residence of the person to whom the same belonged—Dowell's Income Tax Laws (5th ed.), pp. 50 and 51 (Note b, p. 51). Section 42 was a proviso to section 41, and merely absolved an agent who had given in a list “in the manner hereinafter required” from doing any other act. The words “from doing any other act” did not mean that they were not to fill in the profits as required by section 51. Section 41 referred to the case of an agent (1) for an incapacitated person, and (2) for a non-resident person. Such an agent had to stand in his principal's place, while section 42 referred to the case of an agent for persons sui juris and resident in Great Britain. Such agents were to be dealt with as agents and not as principals. Such agents were required by section 51 to insert in the lists to be delivered a statement of the “money, value, profits, or gains” due to their principals as well as their names and addresses, but they were not required to do more, e.g., to give testimony, unless called on to do so. Vide also section 190, Schedule G, rule 16 (3), (5); Dowell, op. cit., p. 250. The form of Schedule G appended to the 1842 Act was taken from Schedule G annexed to the Act of 1806 (43 Geo. Ill, c. 65). The form used was that directed by the Taxes Management Act 1880 (43 and 44 Vict. c. 19), section 15 (2); vide Dowell, op. cit, p. 325.

Argued for respondent—Profits in the hands of Cayzer, Irvine, & Company were in the same position as profits in the hands of a stockbroker. Cayzer, Irvine, & Company were really insurance brokers, and an insurance broker was not bound to give in a list of the profit due to his client. Section 100 of the Income Tax Act 1842 provided for the computation of the duty on profits; the duty was to be on the profit, not on the gross return. That being so, Cayzer, Irvine, & Company could not make the return required, as their clients alone knew whether their ventures had been profitable or not, and what was the average amount of their profit in view of their other transactions.