Scottish Court of Session Decisions

The Finance (No. 2) Act 1915 (5 and 6 Geo. V, cap. 89), Part III, beginning with section 38, deals with Excess Profits Duty. Section 39, enacts—“The trades and businesses to which this Part of this Act applies are all trades or businesses (whether continuously carried on or not) of any description carried on in the United Kingdom, or owned or carried on in any other place by persons ordinarily resident in the United Kingdom, excepting …( c) any profession the profits of which are dependent mainly on the personal qualifications of the person by whom the profession is carried on and in which no capital expenditure is required, or only capital expenditure of a comparatively small amount, …”

William Crooke, Edinburgh, appellant, being dissatisfied with a decision of the Commissioners for the General Purposes of the Income Tax Acts at Edinburgh, confirming an “assessment to excess profits duty made upon him on account of the profits arising from the business of photographer carried on by him at 103 Princes Street, Edinburgh, as follows—Accounting period 12 months to 30th June 1916, excess profits £240, duty £144; accounting period 12 months to 30th June 1917, excess profits £97, duty £68; accounting period 12 months to 30th June 1918, excess profits £208, duty £166”—as being erroneous in point of law, took a Case, in which the Surveyor of Taxes, on behalf of the Inland Revenue, was respondent.

The Case set forth—“The assessments were made under section 38 of the Finance (No. 2) Act 1915 (5 and 6 Geo. V, cap. 89), section 45 of the Finance Act 1916 (6 and 7 Geo. V, cap. 24), and section 20 of the Finance Act 1917 (7 and 8 Geo. V, cap. 31). Appeals against the assessments were intimated on the ground that the business was exempt from Excess Profits Duty under section 39 ( c) of the Finance (No. 2) Act 1915.

1. The following facts were admitted or proved—(1) Mr Crooke appears in the valuation roll for the year 1917–18 as the tenant of a studio at the address mentioned, at a yearly rental of £270. (2) The business carried on is the business of portrait photographer. (3) In all cases, unless Mr Crooke is absent from his studio, photographs are taken by himself personally. When he is away the customer is given the option of postponing until Mr Crooke is able to be present. (4) The accounts of the business for the three years to 30th June 1918 show, inter alia, as follows:—

Year to 30th June.	1916.	1917.	1918.
Wages paid	£791	£929	£956
Purchases and trade expenses	515	609	826
Valueof furniture and fittings at the end of the year	1411	1411	1411
Stock of frames, mounts, appliances &c.	827	789	853

(5) The capital employed in the business computed for Excess Profits Duty purposes

Page: 561↓

as shown by the accounts is as follows—As at 30th June 1916, £1850; as at 30th June 1917, £1984; as at 30th June 1918, £1874.

2. Mr D. W. Robb, solicitor, Edinburgh, on behalf of the appellant, contended—( a) That the appellant's business was a profession within the meaning of section 39 ( c) of the Finance (No. 2) Act 1915, and in respect that portrait photography for its successful execution requires qualities analogous to those of an artist. The appellant had the necessary and personal qualifications for conducting the business, and he himself was entirely responsible for the artistic part of the work. On his personal capacity and the personal reputation which it has gained for him, the success of the business entirely depended; it would deteriorate, and its profits would disappear or be largely diminished if the appellant with his personal qualifications should not continue to be engaged in taking the photographs. ( b) That the business was one in which no capital expenditure was required, or only capital expenditure of a comparatively small amount. Cameras and printing machinery were all that was requisite for the business; and the rent of the rooms, the decoration thereof, and a staff of assistants were extraneous to the business. The profits of the business resulted from the appellant's artistry and skill, and not from the amount of capital employed. It was conceded by the appellant that there might be photographic businesses which were not so personal in their nature, such, for example, as a business carried on by employees in various towns under one well-advertised name.

3. The Surveyor of Taxes (Mr A. Easson) contended—( a) That the business was not exempt from Excess Profits Duty under section 39 ( c) of the Finance (No. 2) Act 1915. ( b) That the business was not a profession. ( c) That the profits were mainly derived from the preparation and sale of an article in the production of which the services of assistants were largely used, ( d) That the dependence on the personal qualifications of the person by whom the business was carried on was no more than the similar dependence of the business of an ordinary merchant on the personal qualifications of the person buying and selling. ( e) That the capital expenditure was comparatively large. ( f) That the case was analogous to the purely business side of publishing a magazine— Commissioners of Inland Revenue v. Maxse, (1919) 35 T.L.R. 348, 120 L.T.R. 680. ( g) That the case was distinguishable from the case of The Commissioners of Inland Revenue v. North & Ingram, [1918] 2 K. B. 705.

4. The Commissioners, after due consideration of the facts and arguments submitted to them, refused the appeal.”

Argued for the appellant—The question in the case was more than a mere question of fact. The appellant's occupation fell within the exception contained in section 39 ( c) of the Finance (No. 2) Act 1915 (5 and 6 Geo. V, cap. 39). The appellant's occupation was a profession. The term “profession” had been gradually amplified and the appellant's occupation clearly fell within the definition of that term laid down by Scrutton, L. J., in Inland Revenue Commissioners v. Maxse, [1919], 1 K.B. 647, at p. 657. The appellant's profits could not be separated into professional and business profits—see argument of Sir E. Pollock in Inland Revenue Commissioners v. Maxse ( cit.), at 649. The really distinguishing point between the appellant's profession and a business was that the profits of his profession depended on his personal skill and aptitude. His was not a business involving sale or trade. There was enough in the case to indicate that the profits of the appellant's business were mainly dependent on his personal qualifications, and the capital expenditure was of a comparatively small amount— Inland Revenue Commissioners v. North & Ingram, [1918], 2 K.B. 705. The decision in Hugh Cecil v. Inland Revenue Commissioners, ( 1919), 36 T.L.R. 164, was too sweeping and accordingly was of doubtful authority.

Argued for the respondent— Prima facie the question in the case was a question of fact, and there was enough in the case to support the Commissioners' findings. The appellant's business was not a profession within the meaning of section 39 ( c) of the Finance (No. 2) Act 1915 ( cit. sup.), because (1) the taking of a photograph was a purely mechanical operation, which, while the skill and artistry Of the operator might command a higher price for the photograph, contained nothing which amounted to the element of professional skill required under the statute; (2) the capital employed in the appellant's business was not of a “comparatively small amount,” for it was almost £2000. In Hugh Cecil v. Inland Revenue Commissioners ( cit. sup.) the grounds of exception were much stronger than in the present case and yet the appellant was held liable to pay the tax. The ratio of the decision in Christopher Barker & Sons v. Inland Revenue Commissioners, [1919], 2 K.B. 222, applied to the present case. In Inland Revenue Commissioners v. Maxse ( cit. sup.) the appellant's skill as a journalist was the predominant feature.