Scottish Court of Session Decisions

The Customs and Inland Revenue Act 1885 (48 and 49 Vict. cap. 51), sec. 11, enacts—“Whereas certain property, by reason of the same belonging to or being vested in bodies, corporate or unincorporate, escapes liability to probate, legacy, or succession duties, and it is expedient to impose a duty thereon by way of compensation to the Revenue: Be it therefore enacted that there shall be levied and paid to Her Majesty in respect of all real and personal property which shall have belonged to or been vested in any body, corporate or unincorporate, during the yearly period ending on the fifth day of April One thousand eight hundred and eighty-five, or during any subsequent yearly period ending on the same day in any year, a duty at the rate of five pounds per centum upon the annual value, income, or profits of such property accrued to such body, corporate or unincorporate, in the same yearly period, after deducting therefrom all necessary outgoings, including the receiver's remuneration, and costs, charges, and expenses properly incurred in the management of such property.

“Subject to exemption from such duty in favour of property of the descriptions following (that is to say)—… (3) Property which, or the income or profits whereof, shall be legally appropriated and applied for any purpose connected with any religious persuasion, or for any charitable purpose, or for the promotion of education, literature, science, or the fine arts.”

On March 19, 1912, the Grand Lodge of Ancient Free and Accepted Masons of Scotland, and certain of its office-bearers on its behalf, presented a petition and appeal to the Court of Session as the Court of Exchequer in Scotland praying for recal of certain assessments for corporation duty imposed by the Commissioners of Inland Revenue, under section 11 of the Customs and Inland Revenue Act 1885, for the years 1908–9, 1909–10, and 1910 11, to the extent of £56, 1s. 3d., £73, Os. 10d., and £92, 5s. 7d. respectively. Repayment of the duty was also craved.

The petition, which was presented under sec. 19 (2) of the Act, stated—“8 … Grand Lodge is composed of certain office-bearers and others, and of the master and wardens, or, in their absence, the proxy master and proxy wardens, of each daughter lodge holding a charter from Grand Lodge. The members and office-bearers of Grand Lodge, must be master masons whose names have been recorded in the books of Grand Lodge, and who are subscribing members of a lodge holding under the Scottish constitution. By rule 74 of the constitution and laws of Grand Lodge every member of that lodge is required, in order to raise a fund for supporting the same, to pay five shillings annually besides the contribution specified in the schedule of fees contained in rule 226. By rule 77 all lodges holding of Grand Lodge are required to pay annually the fees exigible for representation in Grand Lodge. Rule 115 fixes the fee for commissions to provincial or other district grand masters at ten guineas, renewable every five years under rule 116 for a further fee of two guineas. By rule 138 the lodges in the metropolitan district are required to pay certain fees annually to Grand Committee of Grand Lodge to meet the necessary expenses of the Visitation Committee and for purposes of benevolence on behalf of applicants belonging to the said lodges, the funds so collected being administered under the direction of Grand Committee. Each daughter lodge must annually obtain a certificate from Grand Lodge under rules 151 and 152, for which the sum of five shillings is payable. By rule 164 the master of each lodge is required annually to make up a list of all intrants and affiliates in his lodge during the preceding year, and to transmit the same along with the fees to Grand Lodge. Rule 188 requires each brother at his initiation or affiliation to pay 11s. 6d. through his lodge towards the funds of Grand Lodge for recording his name and for a Grand Lodge diploma when he shall have become a master mason, and by the same rule certain other fees are fixed. By rule 189 no brother whose name has not been registered in the books of Grand Lodge shall be eligible to be a member thereof or of any provincial or district Grand Lodge, or to be a member or office-bearer in any daughter lodge, neither shall he have any claim on the Fund of Scottish Masonic Benevolence or on the Annuity Fund. Rule 226 contains a schedule of fees payable to the General Fund.…

10. The petitioners and appellants hold and administer five separate funds, known respectively as the General Fund, the Metropolitan District General Fund, the Fund of Scottish Masonic Benevolence, which includes a small fund known as the Dalhousie Annuity Fund, the Annuity Fund, and the Metropolitan District Benevolent Fund. No question arises with regard to the General Fund or the Metropolitan District General Fund.

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11. The Fund of Scottish Masonic Benevolence was instituted in August 1846 and is regulated by rules 199 to 213 inclusive of the said constitution and laws. Rule 199 provides that ‘this fund shall be devoted to the purposes of benevolence and shall not be appropriated to any other use.’ It is raised by means of annual contributions from the office-bearers and members of Grand Lodge, the amount of these annual contributions being fixed by rule 227, one shilling from the registration fee paid for each intrant, and such voluntary donations as may from time to time be made. It is directed to be kept separate from the ordinary income of Grand Lodge, and no part of the ordinary income may be applied to benevolent purposes unless by special vote on notice given. Rule 200 earnestly recommends Provincial and District Grand Lodges and daughter lodges to contribute annually to this fund as a central fund for carrying out the benevolent objects and principles of Freemasonry, either from their lodge funds or by subscription among the brethren. The application and distribution of the fund is by rule 201 entrusted to a committee of Grand Lodge, known as the Benevolent Fund Committee. All applications for benevolence are by rule 203 required to be made through and considered by the lodge from which the petitioner derives right. Under rule 204 no petition shall be considered from any brother whose name is not registered in Grand Lodge books, nor from the parent, widow, or child of such brother, neither shall any brother have a claim to be relieved unless his name has been at least two years so registered, with certain exceptions. All applications are decided upon by the said Benevolent Fund Committee, and must be accompanied by a certificate by grand secretary of the registration of the applicant or the applicant's son, husband, or father. … In cases of extraordinary distress, relief may be afforded by the committee, under rule 207, to brethren or their widows or children, under the constitution of other Grand Lodges. In urgent cases grand secretary, by rule 208, may authorise grand treasurer to give such poor brethren as may appear proper objects of relief any sum not exceeding 10s. Rule 211 directs the moneys received to be from time to time paid into bank to an account kept in name of the fund. By rule 212,10 per cent. of the moneys received is required to be annually set apart to form a sinkingfund, and the yearly interest is made applicable to benevolence in addition to the annual revenue.… The Dalhousie Annuity Fund is a small fund consisting of the investments, representing a balance of £150, with certain accumulations of interest, of a fund subscribed in 1872 by members of Grand Lodge and other craftsmen for the purpose of presenting a bust of himself to the then Earl of Dalhousie, Past Grand Master, and which remained over after that object had been accomplished. The fund is held by the trustees of the Fund of Scottish Masonic Benevolence, and the annual proceeds are payable to the aged wife or aged widow of a Scottish freemason by way of annuity during the pleasure of Grand Committee, in accordance with a scheme approved by Grand Committee on 27th December 1894.…

12. The Annuity Fund was established by Grand Lodge in November 1888, and is regulated by rules 214 to 225 inclusive of the said constitution and laws. By rule 215 this fund is placed under the management of an Annuity Board, consisting of the members of Grand Committee and is supervised by the Finance Committee. By rule 218 the accounts of the income and expenditure of the fund are directed to be kept separate from the other funds of Grand Lodge. The fund, as provided by rule 219, consists of donations from lodges and individual brethren of one-half of the annual free income of Grand Lodge, of any other sums that Grand Lodge may see proper to grant, and of the proceeds of annual and special collections made in the daughter lodges. The donations and one-half of all sums received from Grand Lodge are reserved as capital and invested in the names of the trustees for the Fund of Masonic Benevolence or such other trustees as Grand Lodge may direct. The contributions from daughter lodges are purely voluntary and many of them make no contributions to the Annuity Fund. Further, a sum of £15,000, being the proceeds of a bazaar held in 1889 on behalf of the Annuity Fund, was in that year added to the fund, and is now represented by investments held by the Annuity Fund trustees. In addition to these sources of revenue Grand Lodge in 1908 transferred from their general funds to the Annuity Fund as a donation under rule 219 a sum of £20,000, now represented by investments held by the Annuity Fund trustees. By rule 220 the half not directed to be capitalised of the sums which have been received from Grand Lodge, and the income which has arisen from capital during the preceding year under deduction of management expenses, are directed, so far as may be required, to be distributed in annuities. Any surplus is carried forward for disposal in subsequent years. By rule 221 the Annuity Board is empowered to grant twenty annuities of £15, ten of £20, and five of £25 each in cases which are considered deserving of special treatment. All other annuities are to be of £10 each. The board is empowered to appoint annuities to be paid by instalments, and, if deemed expedient, to fix in what way they are to be applied for the benefit of the annuitants. Under rule 222 every master mason registered in the books of Grand Lodge, and every parent, widow, or child of a master mason so registered, is qualified to be placed on the roll of annuitants, but only one annuity shall be on the roll at the same time in favour of parties deriving right from the same brother.… Rule 223 provides that any annuity may be withdrawn at the pleasure of the board. Annuities are granted to applicants qualified as before mentioned, whether the lodge through which they claim contributes to this fund or not.

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13. The Metropolitan District Benevolent Fund is a fund devoted to the purposes of masonic benevolence connected with the metropolitan district, and is administered by a committee under a scheme which was adopted by Grand Lodge at a quarterly communication held on 1st August 1907, The fund is divided into two parts—capital and revenue. The capital consists of (1) a fund amounting to £1102, 9s. 1d. or thereby, then set aside and invested; (2) one-half of the annual levy of 5s. per intrant payable by each lodge in the district; (3) such other funds as may from time to time be added to capital as thereinafter provided; and (4) any legacy or donation of £20 or upwards unless otherwise specially stipulated by the donors. The revenue consists of (1) the interest or dividends on invested capital;(2) jone-half of the said annual levy of 5s. per share; and (3) any legacy or donation under £20, unless otherwise specially stipulated by the donors. The accounts of the fund are directed to be kept separate from those of the other funds administered by Grand Lodge. Any unexpended balance on revenue account at the end of the financial year may, in the discretion of the committee, either be added in whole or part to capital or carried forward for distribution in the succeeding year. The capital of the Fund is directed to be invested in name of the trustees of the Fund of Scottish Masonic Benevolence, but as an ear-marked fund. Ik is further provided by the said scheme that the revenue of the Fund shall be devoted solely to the relief of worthy poor and distressed brethren who are members of lodges in the district, and of the widows, children, or parents of such brethren, or of such others as may be deemed by the committee to have been dependent on them. The Fund is distributed by a committee consisting of the members of the Visitation Committee of the Metropolitan District and the masters of the lodges in that district. Provision is made for the committee obtaining all necessary information regarding the circumstances of each case in respect of which an application for relief is made, and the committee is required to examine all applications for relief, and is empowered in its discretion to grant according to the circumstances of each case such sums as may appear necessary.

14. No member of any lodge has any legal right to participate in the benefits of any of the said funds described in the three immediately preceding articles hereof, nor does any member on joining a daughter lodge make any direct payment to Grand Lodge in respect of these funds. The distribution of grants and annuities therefrom is entirely discretionary on the part of the administrative bodies, and is in no way regulated by or commensurate with the contributions which may have been received from the daughter lodge through which the applicant claims relief, the sole considerations in granting relief being the necessities and merits of the particular case. The said funds are administered entirely on a charitable and benevolent system.

15. The petitioners have, since the said Customs and Inland Revenue Act 1885 came into operation, annually furnished the Commissioners of Inland Revenue with an abstract of their, whole accounts, showing separately the accounts of their General Fund, and the Fund of Scottish Masonic Benevolence, and also of the Annuity Fund, the Metropolitan District General Fund, andtheMetropolitan District Benevolent Fund, since the three last-mentioned funds respectively came into existence. No corporation duty was charged by the said Commissionerson the incomeof any of the said funds except the General Fund until recently, when the Commissioners for the first time intimated to the petitioners a claim for corporation duty on the income of the whole of the said funds for the years 1908–9, 1909–10, and 1910–11. The petitioners objected to this claim so far as regards the funds other than the General Fund and Metropolitan District General Fund, and maintained that the income of the said Benevolentand Annuity Fundswas exempt from assessment to duty under section 11 (3) of the Act of 1885, inasmuch as these funds or the income or profits thereof were legally appropriated and applied for charitable purposes, in conformity with the respective schemes above set forth, which are strictly observed in the administration of the said funds.”

The Commissioners having declined to admit the petitioners' contentions, the petitioners paid the duty under protest, and thereafter brought the present appeal.

The Commissioners lodged answers, in which they stated, inter alia—“… Each member of Grand Lodge has a legal right to demand that the funds shall be applied for the purposes laid down in the rules and for no other purpose. …”

Argued for petitioners and appellants—The purposes to which the funds in question were appropriated by the constitution of Grand Lodge were clearly charitable. This was not a provident society, for the payments made were in no way commensurate with the benefits received. The Committee had full power to decide who were to be beneficiaries. There was no contractual right to payment, nor was there any valuation of contingent rights to benefit, as in the case of the Incorporation of Tailors in Glasgow v. Inland Revenue, May 26, 1887, 14 R. 729, 24 S.L.R. 516. Moreover, in that case the fund was mainly derived from obligatory payments on entry, whereas the funds of Grand Lodge were chiefly made up of donations and voluntary contributions. The direct payments into any of these funds were made by intrants on joining a daughter lodge. The case of Baird's Trustees v. The Lord Advocate, June 1, 1888, 15 R. 682, 25 S.L.R. 533, which decided that the words “charitable purposes” did not include purposes of general benevolence, had been disapproved in Commissioners of Income Tax v. Pemsel, [1891] AC 531. The test of the matter was, What was the

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substance of the thing—a mutual benefit society or a charity?— Commissioners of Inland Revenue v. Forrest, 1890, 15 A.C. 334; in re Royal College of Surgeons of England, [1899] 1 QB 871. It was immaterial that a society was limited to a special class or to persons of a certain name provided the main object of its existence was the relief of distress. The mere fact that one or more of its purposes was the mutual benefit of its members did not deprive it of its charitable nature provided its main object was benevolent. Society of Writers to Her Majesty's Signet v. Inland Revenue, November 3, 1886, 14 R. 34, 24 S.L.R. 27, was referred to.

Argued for respondents—This was clearly a provident society. It was immaterial that the contributions to the central fund were not made directly, or that the benefits were not measured by the payments. Each member had to contribute to his own lodge, in return for which he acquired the right to have his case considered should he require assistance. The real object of this society was to assist those registered as masons, and not to dispense charity. In that respect it was just in the same position as the Incorporation of Tailors ( cit.) and the Institution of Linen and Woollen Drapers, (1887). 2 Tax Cases, 651, 58 L.T.R. 949, 4 T.L.R. 345. These cases and the present had the following elements in common—(1) that the contributions were compulsory; (2) that the funds were appropriated to benevolent purposes; (3) that the objects of benevolence were those who had contributed or their dependants; (4) that the right to benefit lay in the discretion of those administering the funds; and (5) that no individual had any absolute right to a share of the funds. The appeal therefore ought to be dismissed.

As advising—