Scottish Court of Session Decisions

The Income Tax Act 1853 (16 and 17 Vict, cap. 34), section 2, Schedule D, is quoted supra in rubric.

Robert Thomson, Hawick, appellant, being dissatisfied with a decision of the Commissioners for the General Purposes of the Income Tax Acts at Jedburgh confirming an assessment made upon him for the year 1911–12 on the sum of £300 in respect of his income as a mercantile agent, took a Case in which the Surveyor of Taxes was respondent.

The assessment was made under Case 2, or alternatively Case 6, Schedule D, section 100, of the Income Tax Act 1842 (5 and 6 Vict. cap. 35), and section 2, Schedule D, of the Income Tax Act 1853 (16 and 17 Vict. cap. 34).

The Case set forth—“The following facts were admitted or proved:—1. The appellant was and is employed by Miller Bros. (Liverpool) Limited as agent in Southern Nigeria. 2. In the year in question he was serving under a separate agreement with that company in respect of each journey to that country. A copy of said agreement, signed by the Commissioners, forms part of the case. 3. On the expiry of each agreement the appellant returned to this country. During the periods of his stay in this country he was not in the service of Messrs Miller Bros. and earned no income, the whole of his income whether by salary or commission being earned abroad. It was a condition of the appellant's earning salary or commission that he should remain in West Africa during the period of his agreement. 4. During the year in question he was the rated owner of a residence in Hawick, in which his wife and family resided, and he was personally present, there, and in this country during a portion of such year, i.e., four months from 6th April 1911 until August 1911, when he left for Southern Nigeria. 5. Since then he has been in this country during a portion of each successive revenue year, and he owned the residence in question at the date of the hearing, 1st February 1916. 6. Sums of money were paid by his instructions to his wife in this country by the company during his absence abroad. 7. The balances of his earnings, less some small

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amounts expended by him whilst abroad, were also received by him in this country.”

The agreement referred to, after providing that the appellant should “become, be, and continue for two years, or until the date of his giving up charge, in the service and employment of the first party as agent for them at Abonnema or elsewhere on the West Coast of Africa or the rivers thereof,” stated—“The outward passage shall be paid by the first party, but the passage homewards shall be charged to the agent's account should the said agent from any cause but unavoidable sickness return before the expiration of the two years. Should the agent remain and complete the full terms and conditions of this agreement, his passage homewards to Liverpool shall be paid by the first party.… The said agent shall not leave the coast of Africa, or the service of the said company, without giving them six months' previous notice of his intention so to do … and in case of breach of these stipulations, or any of them, he shall for every breach as and for liquidated damages, and not as a penalty, be absolutely debarred from all claim for any salary or commission which but for this clause would have then or thereafter accrued due to him from the said company, and he shall also render himself liable to instant dismissal. … In consideration of his faithful service and due performance of all the conditions hereof, the first party agree to pay the agent a fixed salary at the rate of Three hundred pounds per annum, commencing from the date of his sailing for Africa, as hereinafter mentioned, and terminating on the day he shall from any cause give up charge of their agency on the African coast. In the event of unavoidable sickness necessitating (in the opinion of the medical officer of the first party) the return of the agent to England, the first party shall defray the cost of his homeward passage, but on his recovery it shall be at the option of the first party to require the said agent to return to the coast and complete the term of this agreement.”

The Commissioners found that “( a) The appellant was resident in this country for the year in question, and was therefore correctly chargeable with income tax under Case 2, or alternatively Case 6. ( b) The assessment was properly made at his place of residence, and it was accordingly remitted to parties to agree as to the amounts of such liability.”

Argued for the appellant—(1) The appellant was not resident in the United Kingdom in the sense of the statute. (2) Even if he was, no income accrued to him while he was so resident, and therefore there was nothing that could be taxed—The Income Tax Act 1853 (16 and 17 Vict. c. 34), section 2, Schedule (D). What distinguished the present from all previous cases was that here if there was residence it was residence only and not residence plus earnings. West Africa was appellant's ordinary and permanent residence. His agreement terminated when he left West Africa, and his salary ceased. The mere fact that his wife and children occupied a house in this country would not bring him within the ambit of the section— Turnbull v. Inland Revenue, 1904, 7 F. 1, 42 S.L.R. 15. In Inland Revenue v. Cadwalader, 1904, 7 F. 146, 42 S.L.R. 117, the respondent was only assessed on the sums remitted to this country. In Lloyd v. Solicitor of Inland Revenue, 1884, 11 R. 687, 21 S.L.R. 482, the appellant managed his Italian business while resident in this country, and the income therefrom was always accruing. The word “residing” did not mean simply “having a residence.” In the present case the first four months of the financial year were spent in this country, and during that time the appellant could have no income. The test of residence in income tax cases was not the same as in poor law cases— Young v. Commissioners of Inland Revenue, 1875, 2 R. 925, per Lord President Inglis at p. 926, 12 S.L.R. 602. In the case of Pickles v. Foster, [1913] 1 KB 174, where the circumstances were similar to the present case, the Crown had attempted unsuccessfully to assess the subject under rule 3 of sec. 146, Sched. E, of the Income Tax Act 1842 (5 and 6 Vict. c. 35) as holding a public appointment in the United Kingdom. Revenue Acts should be construed fairly and not against the subject— Gilbertson v. Ferguson, 7 Q.B.D. 562, per Cotton, L.J., pp. 572–573.

Argued for the respondent—To render appellant subject to income tax under the statutes it was only necessary that he should satisfy two conditions—(1) that he was a person residing in the United Kingdom during the financial year, (2) that income accrued to him during the year of assessment. Appellant satisfied both conditions. Under Schedule D, section 2, of the Income Tax Act 1853 a person residing in the United Kingdom and engaged in a trade carried on entirely abroad was chargeable to income tax in respect of profits or gains remitted to or received in this country during the financial year— Inland Revenue v. Cadwalader ( cit. sup.); Young v. Commissioners of Inland Revenue ( cit. sup.); Rogers v. Solicitor of Inland Revenue, 1879, 6 R. 1109, 16 S. L.R. 682. The test was the period during which the money was received and not the period during which it was earned— Scottish Provident Institution v. Inland Revenue, 1912 S.C. 452, 49 S.L.R. 435. What was subject to tax was only what appellant sent or brought home. Appellant would still have been liable to tax even if he had not returned home during the financial year. It was immaterial that appellant's agreement bound him to stay in West Africa. The case of Turnbull v. Inland Revenue ( cit. sup.) was different, because in that case the subject was never in the country during the year of assessment, and because his principal, actual residence, and his sole physical one was in Madras, the title to the house in this country was in his wife's name, and she herself had contributed substantially to its purchase, [The Lord Justice-Clerk referred to Brown v. Burt, 1911, 5 Tax Cas 667, 81 L.J., K.B. 17.]

At advising—