Scottish Court of Session Decisions

The Income Tax Act 1853 (16 and 17 Vict. cap. 34) enacts—Section 2—“For the purpose of classifying and distinguishing the several properties, profits, and gains for and in respect of which the said duties are by this Act granted, and for the purposes of the provisions for assessing, raising, levying, and collecting such duties respectively,

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the said duties shall be deemed to be granted and made payable yearly for and in respect of the several properties, profits, and gains respectively described or comprised in the several schedules contained in this Act, and marked respectively A, B, C, D, and E, and to be charged under such respective schedules—that is to say,… Schedule E.—For and in respect of every public office or employment of profit,… and to be charged for every twenty shillings of the annual amount thereof.” Section 5—“The said duties hereby granted shall be assessed, raised, levied, and collected under the regulations and provisions of the Act passed in the session of Parliament held in the fifth and sixth years of Her Majesty, chapter thirty-five.…”

The Income Tax Act 1842 (5 and 6 Vict. cap. 35) enacts—Section 146—“And be it enacted that the duties hereby granted, contained in the schedule marked E, shall be assessed and charged under the following rules:—… Schedule E.— Rules for Charging the said Duties.— First—The said duties shall be annually charged on the persons respectively having, using, or exercising the offices or employments of profit mentioned in the said Schedule E,… for all salaries, fees, wages, perquisites, or profits whatsoever accruing by reason of such offices, employments …; and each assessment in respect of such offices or employments shall be in force for one whole year.… Fourth—The perquisites to be assessed under this Act shall be deemed to be such profits of offices and employments as arise from fees or other emoluments, and payable either by the Crown or the subject, in the course of executing such offices or employments, and may be estimated either on the profits of the preceding year, or of the fair and just average of one year of the amount of the profits thereof in the three years preceding.…”

Francis James Shand, formerly general manager of Nobel's Explosives Company, Limited, respondent, appealed to the Commissioners for the General Purposes of the Income Tax Acts for the Lower Ward of Lanarkshire against an additional first assessment made upon him under Schedule E of the Income Tax Act 1842. The Commissioners sustained the appeal and discharged the additional assessments. Against that decision D. M'Donald, Inspector of Taxes, appealed.

The Case stated—“The following facts were admitted or proved:—The respondent, as general manager of Nobel's Explosives Company, Limited, and in virtue of his agreements with that company, received during the years 1914 to 1917 (both inclusive) a fixed salary and a commission or bonus on the company's net profits. During these years, and for a series of years prior thereto, he was assessed under Schedule E upon the amount of the salary received by him during the year of assessment, plus an amount equal to the average of the bonuses received by him during the three years immediately preceding the year of assessment. By the additional assessments appealed against it is proposed to assess both salary and bonus upon the amounts received or receivable by the respondent in respect of each year of assessment. The sole point at issue between the respondent and the Crown is whether the bonuses in question fall to be assessed under Rule 1 or under Rule 4 of section 146 Income Tax Act 1842, Schedule E. There is no dispute about the figures involved, and if effect is given to the view of the Crown both parties were agreed and submitted to the Commissioners that the additional assessments appealed against should be amended as follows, namely, to £5829, £24,194, £35,126, and nil for the years 1914–15, 1915–16, 1916–17, and 1917–18 respectively.

Mr Alexander Moncrieff, K.C., appeared for the respondent and contended—( a) That the respondent had correctly interpreted the law in returning for assessment his commission on an average of the three years preceding the year of assessment. This basis had for about thirty years been accepted by the Inland Revenue authorities, who had expert knowledge of the Income Tax Acts. Counsel, however, did not maintain that the Revenue authorities were thereby barred from now assessing on a different basis. ( b) That the assessment came under section 146 of the Income Tax Act of 1842 as the charging section, which was re-enacted by section 2 of the Income Tax Act of 1853. The rule contained in Schedule E of the Act accordingly applied. It was to be noted that by section 82 of the Taxes Management Act of 1880 the duties imposed were made payable annually on or before the 1st day of January. Thus payment was due before the expiry of the year of assessment, and as commissions might not be ascertainable before the expiry of the year of assessment, it must be inferred that the basis of assessment was to be looked for in a year or period of years prior to the year of assessment. ( c) That under Rule 1 of Schedule E, while both salaries and wages which might be termed stable income, and perquisites and profits which were unstable and fell to be estimated, were made chargeable, it was neither provided nor implied that the manner of assessment should be uniform. On the contrary, it was necessary in order to give effect to the statutory rules that stable income should be assessed on the actual receipts of the year, while unstable income was assessed upon an estimate based on the receipts of former years. ( d) That under Rule 4 perquisites were defined as such profits of offices and employments as arise from fees or other emoluments. In view of this definition the term ‘perquisites’ was appropriate, and was the only term in the schedule which was appropriate to include the bonuses paid to the respondent. Such bonuses fell to be estimated at the option of the receiver either on the profits of the preceding year or on the fair and just average of one year of the amount of profits thereof in the three years preceding. Thus perquisites were withdrawn from the scope of Rule 1, and the receiver of such bonuses was thus given an option to be assessed either on the preceding year or on the average of the three preceding years.

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Mr D. M'Donald, Inspector of Taxes, contended—( a) That section 82 (3) of the Taxes Management Act 1880 provided for assessments being made after 1st January, that section 53 of the Income Tax Act 1853 provided for assessment of additional salary, fees, or emoluments, and that section 52 of the Taxes Management Act provided machinery for additional assessments. ( b) That the respondent had right to commission in virtue of a series of agreements enforceable in law. ( c) That his commission was not a perquisite, which term connoted something casual and irregular, and not an annual sum payment of which could be enforced in law.”

Argued for the appellants—The determination of the Commissioners was wrong. The commissions received by the respondent were not perquisites as defined by Rule 4. The definition indicated something fluctuating in character which was not of the nature of salary or remuneration for the services of the office and was payable casually in connection with some particular piece of work. It meant something different from profits in the ordinary sense. The essence of a perquisite was its casual character— Tennant v. Smith, 1892, 19 R. (H.L.), per Lord Watson at p. 1, 29 S.L.R. 492; Blackiston v. Cooper, (1909) AC 104, per Lord Loreburn at p. 107; Turton v. Cooper, (1905) 5 Tax Cas. 138, 92 L.T. 863, 21 T.L.R. 546; Cowan v. Seymour, (1920) 1 K.B. 500, per Lord Sterndale, M.R., at p. 507; New Oxford Dictionary, s.v. “Perquisite”; Standard Dictionary, s.v. “Perquisite.” The only thing casual about the commissions was the uncertainty of the amount. They were the remuneration for the services of his office as manager, were not connected with any particular work, and were ascertainable and payable under contract at definite periods. If they were not salary they were still to be assessed under Rule 1 as “profits whatsoever accruing by reason of such office.” Uncertainty in amount was not sufficient to withdraw them from assessment under Rule 1. The earlier statutes provided for the taxation of uncertain incomes—Income Tax Act 1799 (39 Geo. III, cap. 13), Cases 15 and 16; Income Tax Act 1803 (43 Geo. III, cap. 122), section 175, Schedule (E). There was no decision on the meaning of “perquisite” in Rule 4, but in the only cases where profits might have been held to be perquisites they had been dealt with under Rule 1 as “profits whatsoever accruing”— Ferguson v. Noble, 1919 S.C. 534, 56 S.L.R. 488; Herbert v. M'Quade, (1902), 2 K.B. 631, per Stirling, L. J., at 650. Any option there might be as to alternative methods was in favour of the crown— Lord Advocate v. Edinburgh Life Assurance Company, 1909 S.C. 847, per Lord Johnston at p. 853, 46 L.L.R. 480. The previous method of assessment had been wrong and the Crown was entitled to desert it. There was no technical difficulty in the statutes affecting the method here adopted. The additional assessments were based upon the Income Tax Act 1853, section 53, but amendment of the assessments was provided for under the Act of 1842, sections 127 and 161.

Argued for the respondent—According to the scheme of the statute and the wording of the rules this was a case for assessment under Rule 4 on the average of three years. Rule 1 provided that certain classes of income should be chargeable under Schedule (E), but was neutral as to the method of assessment. Rule 4 provided the method of assessment of certain of these classes of income which were uncertain in amount and incidence, and introduced the alternative in the option of the taxpayer of assessing on a three years’ average to overcome the difficulty of accurately anticipating the amount. The rules were not framed in contemplation of asecondassessment, and provisions for amending and for additional assessments were only for the purpose of curing oversights and were not intended to be used when a complete assessment could be made under Rule 4. The commissions received by the respondent were “payable” in the course of “executing such office.” They were just the sort of uncertain payments to which Rule 4 was intended to apply, and the language of the rule was fully habile to cover them. Counsel referred to Herbert v. M'Quade, cit. sup.; Tennant v. Smith, cit. sup.; New Oxford Dictionary, s. v. “Perquisite”; Standard Dictionary, s.v. “Perquisite.”