Die
Veneris, 4° Aprilis, 1930.
Parliamentary
Archives,
HL/PO/JU/4/3/849
Viscount
Dunedin.
Lord War-
rington
of Clyffe.
Lord
Atkin.
Lord
Tomlin.
Lord
Macrnillan.
FRY (Inspector of Taxes)
v.
SALISBURY HOUSE ESTATE LIMITED.
JONES (Inspector of Taxes)
v.
CITY OF LONDON REAL PROPERTY COMPANY
LIMITED.
Viscount Dunedin.
MY LORDS,
This is an important case with
probably far-reaching conse-
quences, and we had the benefit of a
very full and able argument
from the Attorney-General on behalf of
the Crown, but in, the end I
have come to the conclusion, though
not without difficulty, that the
judgement appealed from is right
and should be affirmed. The facts
which give rise to the question
are as follows :—
Salisbury House is a building of
considerable size in the City
of London and is owned by a limited
company which was formed
for the express purpose of acquiring the
property known as Salis-
bury House, and utilising it. The house
contains about 800 rooms.
These rooms are let to tenants as
offices. There is no residential
occupation. No furnishings are
provided. The company main-
tain a staff of servants to operate
the lifts and act as porters and
look after the building, and
there is also a large staff of cleaners
all under the orders of a
housekeeper paid by the company. The
tenants have the exclusive
use of the rooms let, but are bound to
leave the keys at night
with the housekeeper so as to allow access
in the case of fire
breaking out. The company retain certain
rooms as an office. By
the terms of the leases the company have
to pay all rates and
taxes. The company were assessed to income
tax under Schedule A
upon the gross value of the premises as
appearing in the Valuation
Roll in accordance with the Valua-
tion (Metropolis) Act, 1869.
This assessment was imposed on
the company as landlords, instead
of on the various individual
tenants who are the occupiers, in
accordance with Rule 8 (c) (i)
of Section 7 of Schedule A
of the Income Tax Act, 1918, which
provides for the assessment of
landlords instead of tenants in the
case of any house or building
let in different apartments and
tenements and occupied by
different persons severally, and the
amount of the assessment was
duly paid by the company. The
Inspector of Taxes then served on
the company a notice of assess-
ment under Schedule D. He arrived
at the assessment by calculat-
ing the amount of profit as brought
out in the profit and loss
account of the company, after deducting
expenses of management
and upkeep, and then he proposed to deduct
from the assessment
so brought out the amount of assessment
already paid under
Schedule A. The company admitted that they had
to pay under
Schedule D upon the amount of profits which they made
from the
cleaning; and other services, but contended that, so far
as the
proceeds of the property were concerned, that had already
been
taxed under Schedule A and could not again be brought
in
computo under Schedule D and demanded a case. A case
was
stated by the Commissioners which sets out the above facts.
The
figures, apart from the question of principle, have been
agreed on.
Rowlatt, J. took the view
that the Commissioners had decided
the case rightly and dismissed
the appeal. He thought the case
was ruled by the judgment of the
Court of Session, given in the case
of Rosyth Building Co. v.
Rogers 1921 Sess. Cas. p. 372. The appeal
being taken to
the Court of Appeal, that Court unanimously
2 [2]
reversed the judgment, and the
Crown now appeals to your Lord-
ships.
My Lords, this is one of' those
cases which may be approached,
so to speak from very different
angles, and according as you
approach it from one angle or
another a different conclusion may
seem to be the one that is
right to follow. I can only say that,
after the best
consideration 1 could give it my opinion is that the
angle from
which I now approach it is the right one. Now, the
cardinal
consideration in my judgment is that the income tax is
only one
tax, a tax on the income of the person whom it is sought
to
assess, and that the different Schedules are the modes in which
the
Statute directs this to be levied. In other words, there are
not
five taxes which you might call income tax A, B, C, D, and E,
but
only one tax. That tax is to be levied on the income of
the
individual whom it is proposed to assess, but then you have
to
consider the nature, the constituent parts, of his income
to see
which Schedule you are to apply. Now, if the income
of the
assessee consists in part of real property you are,
under the
Statute, bound to apply Schedule A. Schedule A
may, so to
speak, get in touch with the assessee in different
ways according
to the condition of affairs. It may touch
property in occupation
which actually brings in no money return.
A good example will
be found in the case decided within the last
few weeks in this
House in the case of Lady Miller. There a
lady enjoyed the use
of a mansion house under the provisions of
the will of her deceased
husband which was feudally vested in
trustees. The mansion
house brought her in no money but she
was reckoned as for income
tax, in order to arrive at super-tax,
on the yearly value of the house.
In this matter it differs from
all the other Schedules, all of which
only deal with actual
return. When, as in the present case, a
subject is let,
the rent, if it represents a fair bargain, is taken as
the measure
of that part of the income of the lessor, and he suffers
the tax
by way of deduction by his tenant from the rent due or
as in the
present case by paying it himself. The result is that
by the
operation of the assessment under Schedule A which is made
imperative
by the Statute, and was in fact applied here, the in-
come of the
assessee is so far dealt with and cannot be dealt with
again.
Of course that does not mean that the assessee may not be
liable
in respect of other income under other Schedules. He might
be
liable under Schedule B, which says in terms that the amount
there
is to be in addition to the assessment made under Schedule
A.
though the underlying subject is the same. But he might be
liable
under any of the other Schedules if he has income to which
they
apply, and in particular he might he liable under Schedule
D
It is a mere commonplace to remark that a man who possesses
real
property and is assessed under Schedule A, may also have
investments
and other forms of property which will be assessed
under Schedule
D.
Now, turning to this ease.
The income of the respondents, as
represented by rents, is
admittedly assessed and properly
assessed under Schedule A.
" But then," says the appellant,
' you are carrying on a
business, and a business falls to be assessed
' under Schedule D."
To which the respondent replies. " Quite
' so, and I am willing to pay
on the profits which T make on the
' cleaning and other
services." To this the appellant replies,
' No, that is not enough.
Your business is one business not a con-
' geries of businesses, and if
I estimate your profits from your
' own profit and loss account,
I will get the higher figure which
' I ask." The answer
to that is—" You cannot bring out that
' balance of profit without
taking the rents I receive in compute.
' Now. these rents are also part
of my income or property and
' the Statute says that any
income which represents the value of
' real property is to be
assessed in the manner directed under
' Schedule A ". My
Lords, I think the final answer is good.
[3] 3
The rents, having been assessed
under Schedule A, are, so to
speak, exhausted as a source of
income, and the so-called conces-
sion made by the appellant that
there should not be double taxa-
tion, and that therefore he would
be willing to allow deduction of
the sum paid under Schedule A is
a concession which is beside the
mark. It is a concession to avoid
double taxation, but the con-
cession cannot come into being where
double taxation does not
exist, and here it does not exist
because, it being imperative to-
deal with the rents under
Schedule A, there is no possibility of
subsequently dealing with
them under Schedule D.
My Lords, I have preferred to
consider this question on the
Statute alone, without reference to
authority, but I am far from
anxious to put my judgment on a mere
ipse dixit, and I will there-
tore analyse my own
argument to see if it is supported by
authority. Now, the
cardinal proposition is that income tax is
one tax, and the
Schedules merely the different means of collecting
it. and that
there are not so many taxes as there are Schedules.
This point was
raised in the most distinct manner in the case of
the London
County Council v. The Attorney General, 1901, Ap.
Cas. 26.
I quote from the argument of the taxpayer:—" There
"
is no ground for the distinction made by the Court of Appeal
"
between Schedule A and Schedule D. There is only one tax,
"
and the Schedules constitute not separate imposts but one tax
"
under several heads ". And now I quote from the language
of
the Counsel for the Crown :— ' It is not correct to say that
" there is one tax known as the income tax. The Act of
1842
" speaks in the preamble of the several rates and duties
mentioned
" in the several Schedules contained in the
Act and marked
" respectively A, B, C, D and E. The
separation is maintained
" throughout the Act. There are
thus five different taxes." This
view of the case had been
upheld by the Court of Appeal. but it
was rejected by this
House, Lord Macnaghten, who delivered;
the leading judgment,
says among other things:—"It (income
" tax) is
one tax not a collection of taxes essentially distinct. . .
"
In every case the tax is a tax on income whatever may be the
"
standard by which the income is measured. The expression
"
profits or gains ' is constantly applied without distinction to
" the subjects of charge under all the Schedules." And
then,
commenting on the Court of Appeal's judgment, he quotes
from
it:—" The tax under Schedule D on profits
and grains is an
" entirely different tax from the tax
under Schedule A ", on which
he says, " With great
deference, I do not think this is a sound
" view of the
Income Tax Acts ".. The other members of your
Lordships'
House agreed with him.
The next proposition is that
when income is dealt with in the
proper Schedule the same income
cannot be dealt with again under
another Schedule. There is no
stronger foundation for this pro-
position than may be found in
the fact of the option given not to
the Crown but to the taxpayer
who is assessed under Schedule B
to be assessed under Schedule D.
This obviously points to the
fact that, once assigned to its
appropriate Schedule, the same in-
come cannot be attributed to
another Schedule. The same may be
gathered from various
decisions. There are the general words of
Hamilton, J.,
as he then was, in Hill v. Gregory, 1912. 2 K.B.
at
page 70, quoted in this case by the Master of the Rolls :—"
The
' very terms which define the subject matter under Schedule
D
' exclude from it the several matters which fall under
Schedule
' A ". Then there is the case of Back v.
Daniels. Daniels were
wholesale potato merchants and
were assessed under Schedule
D for the profits of the
business. Part of the said profits consisted
of profits made by
the sale of potatoes on lands held by them under
special
agreements with the farmers who were in possession of the
lands.
It was held that the profits from these sales fell to be
6970 A 2
4 [4]
reckoned in the question of a
Schedule B assessment in respect of
the lands under the
agreements, and could not be included in the
amounts under
schedule D. Scrutton, L. J., put the matter
thus :_" When there is a
separate and distinct operation uncon-
" nected with the
occupation of the land, such as a cheese factory
" dealing
with the milk of a dairy farm, or a butcher's shop
" dealing
with the beasts of a cattle farm, I can understand a
"
separate assessment of that operation, but I do not think that
"
the fact that the farmer sells his produce either on the farm or
"
at the local market, or in Mark Lane, or even if he sells it in a
"
shop, justifies an assessment under Schedule D as well as, or in
"
substitution for, an assessment under Schedule B ".
In this connection it would be
desirable to deal with the
Rotunda case, 1921, 1 Ap. Cas.
1. This case had the peculiarity
of being claimed by learned
counsel on both sides as authority.
The facts were these. The
Rotunda Hospital in Dublin was a
charity and it owned buildings.
Part of the building which was
not actually used as a hospital was
permitted to be used on occa-
sions by various persons for
entertainment purposes in return for a
money payment. Now, the
exemption from tax in respect of
charitable institutions is
different under Schedule A and Schedule
D. It therefore became
necessary, as Lord Birkenhead pointed
out, to analyse the
particular income in question to see whether it
fell within
Schedule A or Schedule D. But the rooms were not
let to anyone.
There was no question of including the rents of the
rooms in the
profits which were calculated under Schedule D; the
hospital was
held to be in occupation of the whole premises. What
was done in
that case was this : the total profits made out of the
fees paid
were calculated under Schedule D, and then the calcu-
lated
assessable value of the premises under Schedule A was
deducted.
(There had been no actual assessment made under
Schedule A because
it had been assumed that the premises were
occupied by a charity.)
This was done because there was in the
Irish Act a rule
corresponding to Rule 5 in Cases I and II of
Schedule D of the
1918 Act, which exempts from taxation under
Schedule D, the
profits or gains arising from annual value of the
premises
occupied for the purposes of the business.
Now, that was a perfectly
different operation from what is pro-
posed here. If that case had
been treated as the Crown wish to
treat this one, the assessable
value of the premises ought to have
been added to the receipts in
making up the trade profits, and then
from the tax so brought out,
not the value of the premises, but the
tax calculated as under
Schedule A in the premises, ought to have
been deducted.
To resume the general argument
in favour of the distinction
between the Schedules. There is
the phraseology of Section 208—
' The provisions in this Act
contained which are applied to the
' tax under any particular
Schedule shall it' also applicable to the
' tax under any other
Schedule and not repugnant to the provi-
' sions for ascertaining
charging or levying the tax under such
' other Schedule be
applied in ascertaining charging and levying
' tax under that
Schedule as if the application of those provisions
' thereto had
been expressly and particularly directed," which
points
very clearly to the different Schedules being
distinctly
applicable to only one class of property. Now, it
is obvious that
although land must be assessed under Schedule A,
there may be
activities connected with the land which will fall
under another
Schedule. Schedule B gives the simplest
example, but then
there are also activities which fall under
Schedule D. It would
be rash indeed for anyone to say that he
had in his mind all the
cases decided in regard to the Income Tax
Acts, but at any rate
no case was produced by Crown Counsel here,
in which in com-
puting profits under Schedule D the rents of
lands, which had been
[5]
5
let, and were not in the
occupation of the assessee under Schedule
D are taken in
computo. It is therefore of no use to cite cases
of which
the Silloth Golf Club case, 1918 3 K.B. 75 is an in-
stance where
profits arising from the use of land were taxed under
Schedule D,
but where the assessee was not the person liable under
Schedule A
in respect of those lands. There are dicta against
doing so.
Lord Loreburn in Smith v. Lion Brewery Co. 1911
App.
Cas. at p. 155 said, " You cannot by saying that a man
carries
" on the business of owning house property shift the
method of
" assessing that property for Income Tax from
Schedule A to
" Schedule D." It is true that Lord
Loreburn was there deliver-
ing a dissenting judgment, but the
point on which he differed,
viz., the question of the right to a
deduction in assessing the profits
under Schedule D, does not
affect the dictum above quoted. In
this very case Rowlatt, J.
states the law generally to this effect:—
" Real
property is always liable to Schedule A and under no cir-
"
cumstances can you take it out of Schedule A—discard Schedule
"
A—and throw it into a Schedule D account and treat it under
"
Schedule D." I confess I cannot reconcile this with his
judg-
ment except upon the view that he considered himself bound
by the
Rosyth case. There is a very instructive passage
in the judgment
of Lord Maclaren in a Scotch case Edinburgh
Cemetery Co. v.
Surveyor of Taxes, 17 R 153. That
was a case of a Cemetery
Company which rented a piece of land
which they utilised as a
cemetery by selling lairs to persons to
be used for burial purposes
and to belong to them in perpetuity.
The actual derision was that
this was a concern of the like
nature to the enumerated properties
in rule 3 of Schedule A of the
Act of 1842 and so fell to be
assessed under that
Schedule in the way there stated. Lord
Maclaren at p.
165 seems almost to anticipate the present case. He
says "It
is certainly not sufficient to bring a particular use of
' land
within the scope of rule 3 that the proprietor of land is
' using
it in connection with his trade or for purposes of trade :
'
because in such cases it is generally possible to separate
the
' income into two parts, the one representing the rent or
annual
' value of the heritable property and the other
representing the
' commercial profit. Where this can be done
the proper mode of
' assessing seems to me to be to assess under
Schedule A in respect
' of annual value and also under Schedule D
for the commercial
' profits of the business or manufacture
carried on within the
' heritable subjects."
I now come to the case which is
undoubtedly to the opposite effect,
the Rosyth case.
That ease does not contradict my general asser-
tion as to no case
having been produced in which the Crown had done
what they here
propose to do. But notionally for the purpose of
deciding as
to repayment of part of an assessment it was done, and
it is a
direct authority in point. The Master of the Rolls and the
other
Judges of the Court of Appeal were I think affected with too
great
politeness to the Court of Session and dealt with this case by
saying
it was a Scotch case and they could not quite understand
it.
There is no question of Scotch as discriminated
from
English law involved in it. but in any ease T am afraid I
could
not shield myself under the same excuse. I say directly
it was
wrong. Nor do I think it is at all difficult to see
why it was
wrong; and it is just here I touch what I have
always felt to be
the difficulty in this case. The Company
there had duly been
assessed under Schedule A but the point
was might it have been
assessed under Schedule D instead of
under Schedule -V The
Lord President says "It is settled
that it is for the Crown to
"choose in which capacity the
Company shall be charged—as pro-
" perty or investment
owner on the one hand or as trader conducting-
" a business
on the other." ' The house property in this case is
"
not occupied for the purposes of the Company's business, it is
" occupied by tenants to whom the Company lets it.
Accordingly
6 [6]
" I think the Crown is
alternatively entitled to treat the rents
" either as
chargeable in respect of the Company's property under
"
Schedule A, or as constituents of the profits arising or accruing
"
to the Company from its business chargeable under Schedule D."
Now
that that settles the point I do not think can be doubted. But
when
one conies to look at the cases which were cited, and on the
effect
of which the Lord President says "it is settled etc."
it
will be found that they are all cases not of choice between
Schedule
and Schedule but between the various cases in Schedule D.
It had
been settled long ago that in the case of insurance
companies who
held large investments the Crown might proceed to
reckon under
either case 1 in Schedule D or under any of the other
cases which
may be found to apply. I myself said it in the
case of Revell v.
Equity and Law Life Insurance Co., and
what I said was approved
and adopted by Lord Cozens Hardy. M.R.,
in Liverpool London and
Globe v. Bennett 1912 2K.B. 41.
From this the Lord President has
without authority deduced the
view that as there is an option be-
tween cases so there must be
an option between Schedules, and he
bases this in argument on the
possibility of an Insurance Company
having securities which would
fall under Schedule C and others
falling under Schedule D. My
Lords, I confess this has been the
difficult part of the case to
me. It is very obvious to suggest that
if the Crown can opt as
between cases why should it not opt as
between Schedules. And
that the Company is carrying on a business
I do not doubt.
The Memorandum of Association shows that
it is. But I think the
answer is that an option between cases
does not in arty way
disturb the general scheme of the Act; an
option between Schedules
would. I think on a general survey of the
history and policy
of the Income Tax Acts one finds the great
distinction that
there is between Schedules A and B on the
one hand
and the other three Schedules on the other. I think it
would
upset the whole scheme of taxation if you were in the case
of
real property to be allowed to ignore Schedules A and B.
There
is no conflict between Schedules C and D if as is the hypothe-
sis
put by the Lord President the Crown elects to charge
in
Schedule D on cases other than Case 1. Schedule C is not so
to
speak upset. On the contrary the charge on the particular
form of
investment under Schedule C fits in with the charge on
other invest-
ments made under say case 3 of Schedule D. But in
the case of real
property if you do what is here asked Schedule A
is upset altogether.
With great respect to the learned judges in
the Court of Session
I think it was only Lord Skerrington who saw
that by a side wind
they were asked to introduce a great novelty.
Lord Skerrington
says " The Inland Revenue do not seek to
assess the appellant
' Company according to the rules under
the First Case in Schedule
' D, but it is essential to their
success in this litigation to demon-
' strate that they would have
been entitled to make such an assess-
' ment if they had so
wished. I should have listened to the argu-
' ment with more
satisfaction if at the outset we had been informed
' that a
Company in the position of the appellant Company had
' never so
far as known been assessed according to the rules under
' the
first case in Schedule D, and if we had been invited to attend
'
to the provisions of the Income Tax Acts for the purpose of con-
'
sidering why there was any good reason why such an assessment
'
should not now be imposed for the first time." I think this
shows
that the immense importance of the case had not been before
the
Court, and that no argument as to the imperative
character of
Schedule A as to real property had been presented.
As I have said I recognise the
case to be full of difficulty
but on the whole I have come to the
conclusion that the decision of
the Court of Appeal is right. What
are known as the Brewery
cases have I think no application
to the question in hand. I move
that the appeal be dismissed with
costs.
As regards the other case that
is called on it absolutely follows
this, and, of course, the
judgment in the first case rules the judg-
ment in the second.
Viscount
Dunedin.
Lord War-
rington of
Clyffe.
Lord
Atkin.
Lord
Tomlin.
Lord
Macmillan).
[7]
FRY (Inspector of Taxes)
v.
SALISBURY HOUSE ESTATE LD.
JONES (Inspector of Taxes)
v.
CITY OF LONDON REAL PROPERTY COMPANY
LIMITED.
Lord Warrington of Clyffe:
MY LORDS,
The Respondents are a Company
incorporated under the Com-
panies Acts. They are the owners of a
large building in the City
of London known as Salisbury House.
This building contains some
800 rooms which have been let by the
Company to some 200 tenants
as offices singly or in suites at
rents varying according to the
accommodation provided, the
situation of the several rooms and so
forth. The Company provides
a staff of porters and cleaners who
perform certain services for
the tenants for which additional rents
and charges are made by
the Company.
The question in this Appeal is
whether the Company in thus
letting the premises owned by it is
carrying on a trade within the
meaning of the Rule applicable to
Case I of Schedule D of the
Income Tax, 1918, and is therefore
liable to be charged under
that Schedule in respect of the gains
and profits of that trade,
the Crown contending that in that case
they would be liable to
bring into account as part of their gross
receipts the amount of
the rents received by them from the
tenants of the several rooms
and offices so let by them as
hereinbefore mentioned.
The Company is already charged
as landlord under R 8 of
No. VII of the Rules applicable to
Schedule A in respect of the
annual value of Salisbury House as
appearing in the Valuation
List under the Valuation (Metropolis)
Act, 1869, which is by that
Act made conclusive for the purposes
of Income Tax in the case
of hereditaments within the
Administrative County of London.
This annual value is
considerably less than the amount of the rents
payable by the
several tenants. The Crown admits that if the
Company were
charged under Schedule D in respect of the gross
amount of rents
received as well as under Schedule A in respect of
the annual
value it would be taxed twice over in respect of the
same subject
matter, and concedes that if they are right in their
contention
that the Company should be assessed under Schedule D,
the amount
of the assessment under Schedule A must be deducted
from the
total receipts of the Company including rents less
expenses.
The Company on the other hand
admits that it is liable to be
assessed under Schedule D upon any
profit which it derives from
tenants outside the rents themselves
so far as such profits may be
described as resulting from a trade
but insists that on a landowner
letting the hereditaments of
which it is owner it is not carrying
on a trade and is liable
only to be assessed under Schedule A in
respect of the annual
value of the hereditaments.
The Company having been
assessed in accordance with the con-
tentions of the Crown for
the four years ended the 5th April, 1928,
appealed to the
Commissioners who confirmed the assessments. They
were required
to state a Case. By that Case they stated in full
2 [8]
detail the facts summarised
above and concluded that they were
bound by authority to decide
that the assessments under Schedule D
were rightly made to include
the amounts by which the total receipts
of the Company (including
its rents from offices) less expenses
exceeded the Schedule A
assessments. They further state that the
sole question upon which
the opinion of the Court is desired is
whether the rents received
by the Company on letting the offices in
Salisbury House are
properly to be included in the assessment as
trade receipts of the
Company for purposes of Case I of Schedule D
of the Income Tax
Act, 1918.
The Case came before Rowlatt J.,
who confirmed the view of
the Commissioners but on appeal to the
Court of Appeal his order
was reversed and the Case was remitted
to the Commissioners to
amend the assessments. The Crown appeals
to this House.
It is well settled that though
the tax under Schedule A is a tax
on income like that under all
the other Schedules it is not a tax
upon rents. It is assessed
upon annual value which in the present
case is fixed by the
Valuation List above referred to. The latest
case on this subject
is Miller's Case before this House at present
unreported in
which it was held that a person in actual enjoy-
ment of and
occupying lands is liable to the tax although he is not
in receipt
of rent therefrom nor even, by reason of the nature of
his tenure,
capable of converting his enjoyment into rent. Now
the effect of
the Crown's contention if it be correct would be in-
directly to
convert this tax on annual value to a tax on rents, and
therefore
it seems to me that a heavy burden is east upon the Crown
before
its contention can succeed.
The first question to be
determined is whether in its capacity as
landowner deriving rents
from its land the Company is carrying on
a trade within the
meaning of Schedule D and the rules thereunder,
and if this
question is answered in the negative the further questions
raised
and argued in this House do not arise.
Now in the first place the
Commissioners have not in my judgment
decided this question as one
of fact, and it is therefore open to the
House now to express
their own views thereon. The Commissioners
have contented
themselves with stating the facts as to the mode in
which the
Company deals with the property of which it is the owner,
and then
express the opinion that the assessments under Schedule D
were
rightly made to include the amounts by which the total receipts
of
the Company including rents from offices less expenses exceeded
the
Schedule A assessments, and state that the sole question is
whether
the rents are properly included as trade receipts. That is
to say
whether, assuming the Company is liable to be assessed under
Schedule
D as a trader the rents are properly included in the gross
receipts.
There is nothing in the facts
stated in the case which would
properly lead to the conclusion
that in dealing with the property the
Company is acting otherwise
than an ordinary landowner would
act in turning to profitable
account the land of which he is the
owner. It would in my opinion
be impossible to hold that in such
a case the landowner is
carrying on a trade. Such a person would
I think clearly be
assessable under Schedule A only and his taxable
income would be
measured by the conventional annual value and not
by the amounts
of the rents he actually received.
But the Crown contends that the
fact that the tax payer is a
limited Company may
distinguish its operations from those of an
individual. Assuming
the Memorandum of Association allows it,
and in this case it
unquestionably does, a Company is just as
capable as an individual
of being a landowner and as such deriving
rents and profits from
its land, without thereby becoming a trader
and in my opinion it
is the nature of its operations, and not its own
[9] 3
capacity, which must determine
whether it is carrying on a trade
or not. Nor do I see any reason
why, as in the present case, some
of its operations under the wide
powers conferred by the
Memorandum should not be operations of
trade, whereas others are
not.
Many cases have been cited in
argument but they do not in my
opinion touch the present point.
That which come nearest is I
think the Rosyth Company's case,
1921, Sessions Cases, 372, but
when that case is examined it
will be found that the fact that the
Company was carrying on a
trade was assumed as common ground.
The Lord President in his
Judgment (p. 379) says : " It may some-
" times be
difficult to draw the line between land ownership and
"
commercial enterprises in land; but that is a question of fact of a
" kind which is not infrequently met with under the Income Tax
" Acts, and it is solved in the present case in favour of the
Crown
" inasmuch as it is common ground that the Appellant
Company
" is a land investment concern." In this case
the point is open.
The Brewery cases seem to me not
to be in point. The last one,
Ushers Wiltshire Brewery Company
v. Bruce, 1915, A.C. 433, is,
if it be relevant at all,
in the Plaintiffs' favour for though the tax
payer there was a
Company trading as a brewery Company the
rents received from its
tied houses were not regarded as receipts
from the brewery
business except only to this extent, that inasmuch
as the Company
was claiming as a deduction from gross receipts
sums expended in
repairs to tied houses it could only make good
its claim to deduct
the net sum so expended and therefore must
allow against the cost
of repairs such sums as were received by
way of rent from the
houses repaired.
I come then to the conclusion
that the Crown fails to make
good the ground on which its claim to
have a right to assess the
Company under Schedule D is based,
except of course to the limited
extent to which it is admitted,
and that the question asked by the
Commissioners was properly
answered in the negative by the Court
of Appeal.
For the reason given above I
express no opinion upon the further
points raised in argument, and
in particular upon the correctness
or otherwise of the decision in
the Rosyth Company's case or of the
views expressed by the
learned Judges in that case, but in saying
this I must not be
taken to dissent from the views expressed by my
noble and learned
friend on the Woolsack whose opinion I have read.
The appeal in my opinion fails
and should be dismissed with
costs.
It is admitted that there is no
distinction favourable to the
Crown between this case and that of
the City of London Real Pro-
perty Company and the appeal in that
ease also should be
dismissed with costs.
A 5
Viscount
Dunedin.
Lord War-
rington of
Clyffe.
Lord
Atkin.
Lord
Tomlin.
Lord Mac-
millan.
[10]
FRY (Inspector of Taxes)
v.
SALISBURY HOUSE ESTATE, LIMITED.
JONES (Inspector of Taxes)
v.
CITY OF LONDON REAL PROPERTY COMPANY, LIMITED.
Lord Atkin.
MY LORDS,
The Respondents are a limited
company who own hereditaments
in the City of London consisting of
a large building known as
Salisbury House which they let out to
tenants as unfurnished
offices. They have been assessed to income
tax in respect of pro-
perty in the hereditaments upon the annual
value thereof under
Schedule A. The assessment and charge has been
made upon the
owners direct under the provisions of Schedule A,
No. VII, r. 8
(C.) relating to any house or building let in
different apartments
or tenements and occupied by two or more
persons severally.
They have also been assessed under Schedule D
in respect of the
profits or gains of the trade said to be carried
on by them in letting
the offices and providing services for the
tenants. The assessments
under Schedule D are made upon the
footing of including in the
gross receipts of the trade the actual
rents received from the tenants
and deducting the cost of earning
them. It is admitted that if the
Respondents are taxed upon their
full profits and gains on this
footing they would he doubly taxed
to income tax in so far as the
annual value under Schedule A
represents rents received. From
the gross receipts therefore is
also deducted the annual
value upon which the Respondents have
already paid In-
come Tax under Schedule A, By this adjustment
they are
assessed under Schedule D upon so much of the profits and
gains
received from rents as exceeds the annual value of
property
assessed under Schedule A. The Respondents admit that
they are
liable to assessment under Schedule D in respect of the
profits they
make for services rendered to tenants which appear to
consist of
cleaning offices and providing- fuel. They contend,
however, that
in respect of the profits and gains they make from
letting the offices
the assessment can only be made under Schedule
A, whether the
rents exceed the annual value or not. The Inland
Revenue on the
other hand contend that they have an option to
charge under
whatever Schedule is more advantageous to them,
always making
an adjustment against double taxation. They say that
the Respon-
dents carry on a trade and for the full profits and
gains of such
trade they are chargeable whether the income is
derived from
property in land or not.
The sum in dispute is
considerable. Except in London the ques-
tion would hardly arise.
Annual value under Schedule A as
measured by rule 1 is the actual
rent if the hereditaments were let
at a rack rent within 7 years
of the assessment, or if not the rack
rent which they are actually
worth subject to the statutory allow-
ances. The Inland Revenue
can hardly lose and may gain on this
computation of income. But in
the Administrative County of
London as provided by the terms of
Schedule A the annual value
is to be the annual value as fixed
under the Valuation (Metropolis)
Act, 1869. It therefore may
happen that the fact that the valua-
tion is made quinquennially,
that an allowance is made for
empties, and that the actual cost of
repairs in any year or three
years may be less than the statutory
allowances will cause the profits
calculated under Schedule D to
be greater than the annual value.
Of course the opposite result
may follow, and in such case the tax-
gatherer would doubtless
exercise his option for Schedule A.
[11] 2
My Lords, I think that this case
should be decided in favour
of the Respondents upon the simple
ground that annual income
derived from the ownership of lands
tenements and hereditaments
can only be assessed under Schedule A
and in accordance with the
rules of that Schedule, In my opinion
it makes no difference that
the income so derived forms part of
the annual profits of a trading
concern. For the purpose of
assessing such profits for the purpose
of Schedule D the income so
derived is not to be brought into
account. The option of the
Revenue authorities to assess under
whichever Schedule they prefer
in my opinion does not exist: and
is inconsistent with the
provisions of the Income Tax Acts through-
out their history.
The scheme of the Income Tax
Acts is and always has been to
provide for the taxation of
specific properties under Schedules
appropriated to them and
under a general Schedule D to pro-
vide for the taxation of income
not dealt with specifically. Schedule
A provides for the taxation
of income derived from property in
land : B for income derived
from the occupation of land : C for
income derived from government
securities : E for income derived
from employment in the public
service. It is unnecessary to go
further back than the Income
Tax Act of 1842 the provisions of
which were incorporated in every
Customs and Inland Revenue or
Finance Act up to 1918, when the
present consolidation Act was
passed. I need not repeat the
familiar Schedules altered and ex-
tended by the Act of 1853.
It is only necessary to refer to s. 100
of the Act of 1842
which defined the tax to be imposed
under Schedule
D. ' The duties hereby granted contained in the
' Schedule
marked D shall be assessed and charged under the
' following
rules, which rules shall be deemed and construed to be
' a part of
this Act and to refer to the last mentioned duties, as if
' the
same had been inserted under a special enactment.
" Schedule D.
' The said last mentioned duties
shall extend to every descrip-
' tion of property or profits which
shall not be contained in either
' of the said Schedules A, B, or
C and to every description of em-
' ployment of profit not
contained in Schedule E."
My Lords, nothing could be
clearer to indicate that the
Schedules are mutually exclusive :
that the specific income must
be assessed under the specific
Schedule : and that D is a residual
Schedule so drawn that its
various cases may carry out the object
so far as possible of
sweeping in profits not otherwise taxed. For
this reason no doubt
the actual Schedule was drawn in the widest
terms. " For and
in respect of the annual profits or gains arising
' or accruing to
any person residing in the United Kingdom from
' any kind of
property whatever whether situate in the United
' Kingdom or
elsewhere." etc. Such language covers income from
land in
Schedule A and from Government securities in Schedule C.
Its true
meaning is made apparent by S. 100. Moreover, the
dominance of
each Schedule A, B, C, and E over its own
subject matter is
confirmed by reference to the sections
and rules which
respectively regulate them in the Act of
1842. They afford a
complete code for each class of income
dealing with allowances and
exemptions, with the mode of assessment
and with the officials
whose duty it is to make the assessments.
Thus under A and B the
assessment and collection is regulated
by the general
commissioners : under C the assessment is by com-
missioners
specially appointed for the purpose : under E the assess-
ment and
collection is made in the departments or by the officers
of the
public corporations concerned : while under D the assessment
is
regulated by additional commissioners. I find it impossible
to
conceive that these various commissioners had an option to
encroach
upon the duties of one another : or that the taxpayer was
exposed
to having his income freed from the restrictions and
exemptions
3 [12]
imposed by statute under one
schedule in order to be subject to
a different set of restrictions
and exemptions imposed by statute
under another schedule. To take
a concrete instance which has
been before the courts it seems to
me impossible that the legislature
intended that a farmer taxed
for profits of his occupation under
Schedule B might at the option
of the authorities after a successful
year or term of years be
taxed on his profits under Schedule D.
The point was decided by
the Court of Appeal in Back v. Daniels
1925 : 1 K.B. : 526. It was
argued that this decision turned on
the express option given to
the occupier to be assessed under
Schedule D, which therefore
negatived an implied option in the
authorities to assess him under
that Schedule. The express option
to the occupier was not given
until 1887 by the Customs and Inland
Revenue Act of that year. I
confess I fail to see why an option
given to the taxpayer should
negative the existence of an option in
the tax gatherer : still
less how an option given for the first time in
1887 should destroy
an option in the tax gatherer which on the
hypothesis had been in
existence since 1842. The judgments
do not support any such
contention. Similarly I am of
opinion that income derived by a
trading company from
investments of its funds whether temporary or
permanent in
government
securities must be taxed under Schedule C : and cannot
for the
purposes of assessment under Schedule D be brought into
account. I
am dearly of opinion that the Act of 1918 which is
expressed to be
a consolidation Act did not alter the law so as to
give to the
authorities an option they did not possess before. It is
true that
the words of Schedule D and the cases are wide as before :
the
words as to annual profits or gains arising to any person re-
siding
in the United Kingdom from any kind of property whatever
are
repeated. But they must be cut down as they were before. I
may
refer to one expression in the rule applicable to case III. 1.
a.
where it is provided that the tax shall extend to . . . ' any
other
" annual payments whether payable as ... a personal
debt by virtue
" of any contract or received or payable
half-yearly or at any
" shorter periods." This would
include rent under a lease but it is
obviously not intended to
cover cases under Schedule A. I attach
no importance to the
express exception in some of the rules under
D of income coming
within named other Schedules. They are
inserted ex majori
cautela and similar instances can be found in the
rules under
the former Act where, as I have stated, the position was
clearly
expressed by s. 100. Believing as I do that the specific
Schedules
A, B, C, and E, and the rules thereunder contain
definite codes
applying exclusively to their respective defined
subject matters I
find no ground for assessing the taxpayer under
Schedule D for any
property or gains which are the subject
matter of the other
specific Schedules. In the present case the in-
come from the
offices should be and has been assessed under
Schedule A on the
annual value as prescribed by Statute. It
therefore is not the
subject matter of assessment under D. I
should add that if there
had been an option to assess under A or D
1 cannot conceive a more
conclusive election under the option than
the assessment and
receipt of payment under Schedule A but this
point need not be
determined.
The Rotunda case, Coman
v. Governors of the Rotunda Hospital
Dublin, 1921, 1 A.C. 1,
much relied on by the Appellants, appears
to me to afford them no
help. In that case Lord Birkenhead
expressed the view that the
lettings were not such as to constitute
the relation of landlord
and tenant but the possession and occupa-
tion of the rooms
remained with the Respondent. Lord Cave,
pp. 23, 24, expressly
held that the profits in question were not as-
sessable under
Schedule A and accordingly fell to be assessed under
Schedule D.
Lord Finlay appears to have been of the same opinion.
The case
merely decided that the Respondents the governors of the
Hospital
used their own premises of which they were in occupa-
[13] 4
tion for the purpose of carrying
on a profitable trade, and that they
were liable to be assessed
under Schedule D for those profits with
the statutory deduction of
the annual value assessed under
Schedule A. The case entirely
differs in its facts and appears to
throw little light on the law
in question before this House.
The Rosyth case so far as it
decided that the Inland Revenue
authorities have an option to
select which Schedule they prefer
must I think be held to be
wrongly decided. The actual decision
may possibly be supported on
the view that for the purpose of the
particular claim for
exemption the whole profits must be calculated
under a notional
Schedule D which would pay no regard to other
Schedules. It is
unnecessary in the present case to discuss that
matter.
I desire to add that I do not
desire to throw any doubt upon
decisions which indicate that the
Inland Revenue authorities may
have an option as to the several
cases of any given Schedule upon
which they may determine to
assess the taxpayer. An option
within a Schedule is not the same
thing as an option to select
Schedules.
My Lords, it may well be that
another mode of expressing the
result I have stated is to hold
that a person capable of being
assessed under Schedule A cannot be
said in respect of his income
from land to be earning profits from
" trade ". This view
appears to commend itself to some
of your Lordships. I do not
dissent from it; but I view it with
some misgiving. I find it diffi-
cult to say that companies which
acquire and let houses for the
purposes of their trade, such as
breweries in respect of their tied
tenants, and collieries and
other large employers of labour in respect
of their employees do
not let the premises as part of their operation
of trading.
Personally I prefer to say that even if they do trade
in letting
houses their income so far as it is derived from that part
of
their trading must be taxed under Schedule A and not Schedule
D. I
agree that this Appeal should be dismissed.
Viscount
Dunedin.
Lord
Warring-
ton
of
Clyffe.
Lord
Atkin.
Lord
Tomlin.
Lord
Macmillan.
[14]
FRY (Inspector of Taxes)
v.
SALISBURY HOUSE ESTATE, LTD.
JONES (Inspector of Taxes)
v.
CITY OF LONDON REAL PROPERTY COMPANY,
LIMITED.
Lord
Tomlin.
MY LORDS,
This is an Appeal by H.M.
Inspector of Taxes against an
order of the Court of Appeal dated
the 26th June, 1929, reversing
a decision of Mr. Justice Rowlatt.
That learned judge had dis-
missed the Respondents' Appeal from a
decision of the Commis-
sioners for the Special Purposes of the
Income Tax Acts confirming
assessments to income tax made upon the
Respondents under
Schedule D for the four years ending 6th April,
1928.
The Respondents are a limited
company formed in 1902 to
acquire a large block of buildings known
as Salisbury House and
to let out as offices the rooms contained
in the block.
Since their incorporation the
Respondents have held let and
managed Salisbury House. They have
not acquired managed or
dealt in any other property.
Salisbury House contains some
800 rooms let to 200 tenants or
thereabouts. The lettings are all
unfurnished lettings of single
rooms or suites.
The Respondents maintain and
operate the lifts in the building
and for this purpose and for the
purpose of keeping clean the halls
corridors and staircases
provide a staff of some 80 to 90 persons
under the supervision of
a housekeeper.
Under the Respondents' standard
form of lease certain sums
are payable by the tenants by way of
additional rents. These sums
represent contributions by the
tenants towards the cost of lighting
the halls corridors and
staircases and like matters. Some of the
tenants also pay
to the Respondents remuneration for certain clean-
ing and other
services rendered to them.
The Respondents have throughout
in respect of Salisbury House
been directly assessed to income tax
on the whole building under
Schedule A No. VII 8(c) of the Income
Tax Act, 1918. As the
property is situate within the
administrative County of London
the annual value with respect to
Schedule A is by sect. 45 of the
Metropolis (Valuation) Act, 1869,
deemed to mean the gross value
stated in the valuation list under
that Act. By section 4 of the
same Act gross value means the
annual rent which a tenant might
reasonably be expected taking one
year with another to pay for an
hereditament.
The rents actually received
during the years of assessment
exceeded by a substantial amount
the assessed value for the pur-
poses of Schedule A.
From the case stated it appears
that at the hearing before the
Commissioners the Respondents
admitted that they were liable to
be assessed under Schedule D
upon any profit which they derived
from Salisbury House tenants
outside the mere rents for the offices
so far as such profits
might be described as resulting from a trade.
For the purpose
however of the assessments appealed against
the profits of the
Respondents were computed by taking the total
of their receipts
from all sources including the rents received by
[15] 2
them from the lettings of rooms
in Salisbury House and deducting
therefrom their expenses and the
amounts or the assessments under
Schedule A made upon the
Respondents in respect of the premises.
The Special Commissioners
confirmed the assessments stating
that they did so following a
previous decision of the Commissioners
and in deference to
opinions expressed in the Court of Session in
the case of the
Rosyth Building and Estates Company, 1921 Sess.
Cases 372.
The sole question upon which the
opinion of the Court was
desired by the Special Commissioners was
whether the rents
received by the Respondents on letting the
offices in Salisbury House
were properly to be included in the
assessments as trade receipts
of the Respondents for the purposes
of Case I of Schedule D of the
Income Tax Act, 1918.
Mr. Justice Rowlatt apparently
took the view that the Respon-
dents were carrying on a trade in
the nature of an hotel business
and that the assessments were
rightly made.
The Court of Appeal however
rejected this view of the case
and in substance held that a
landowner who happens to make tax-
able profits by rendering
certain services to his tenants cannot for
that reason be treated
as carrying on a trade in respect of the
receipt of rents so as to
be chargeable with income tax under
Schedule 1) upon the excess of
the actual rents over the annual
assessments to Tax under Schedule
A.
The arguments presented to your
Lordships' House on behalf
of the Appellant as I understand them
may be stated as follows :—
It is true that tax under
Schedule A is necessarily
charged in every case in respect of the
property in all lands
tenements and hereditaments.
Where however besides receiving
his rents the land-
owner by means of rendering services to his
tenants or other-
wise in relation to the management of his land
makes profits
taxable under Schedule D there may come a point
where his
activities which earn profits and his perception of
rents must
be treated as a business concern in the nature of an
indivisible
trade taxable under Schedule I) and this is
inevitably the case
if the landowner is a limited company formed
to acquire and
manage land.
In the condition of affairs
last supposed the Revenue
Authority has an option so far as the
lands are concerned
either to rely upon the Schedule A
assessments or to require the
rents to be brought in as part of
the gross trade receipts a de-
duction of the Schedule A
assessment being allowed where the
rents exceed such assessment.
My Lords, in my view the scheme
of the Income Tax Act, 1918,
properly understood does not afford
support for these arguments
but leads to an opposite conclusion.
Section 1 of the Act provides
that " where any Act enacts that
" income tax shall be
charged for any year at any rate the tax at
" that rate shall
be charged for that year in respect of all property
" profits
or gains respectively described or comprised in the
"
schedules marked A, B, C, D and E contained in the first schedule
"
to the Act and in accordance with the Rules respectively applic
"
able to those schedules."
Schedule A begins with the
following words:—
" Tax, under Schedule A
shall be charged in respect of
" the property in all lands,
tenements, hereditaments and heri-
" tages in the United
Kingdom for every twenty shillings of
" the annual value
thereof."
The Rules under Schedule A
prescribe (No. VII, rule 4) that
" Tax under this schedule
shall be charged on all lands, tenements
and hereditaments whether
occupied at the time of assessment or
not."
3 [16]
For lands outside the
administrative County of London as for
lands within that county
rent or rental value is the measure of
annual value (see Schedule
A, No. 1, and cf., Section 45 of the
Metropolis (Valuation) Act
1869).
Now income tax is one tax. There
is not a separate tax under
each Schedule (see London County
Council v. Attorney-General,
1901, A.C. 26).
Further there is admittedly no
double taxation. A subject
matter of taxation properly assessed to
the tax under one schedule
cannot be brought again into assessment
under another schedule.
Laud in regard to its property
quality is assessable to tax under
Schedule A and in regard to its
occupation quality is assessable to
tax under Schedule B. There
may also be such utilization of the
land attributable neither to
the property quality nor to the occupa-
tion quality producing
profits assessable to tax under Schedule D
(see Coman v.
Governors of the Rotunda Hospital, Dublin, 1921,
A.C.1).
Putting aside the special cases
dealt with in Schedule A, No.
III, tax in respect of the property
quality in land is exigible under
Schedule A on the annual value
measured by reference to rental
value. The tax is a charge on the
property and is inescapable.
Neither the Revenue Authority nor the
tax payer can demand to
exclude the subject matter from the
Schedule.
When once the annual value has
been ascertained and fixed for
the purposes of Schedule A it is
irrelevant to consider whether
the landlord in fact receives by
way of rent more or less than or
the same as the assessed annual
value.
The subject matter, namely land
in respect of its property
quality, being necessarily taxed under
Schedule A cannot be
brought again under any other schedule. To do
so would offend
the rule against double taxation.
The option which the Revenue
Authority sets up here is in my
judgment inconsistent with the
scheme of the Act and in particular
with the obligation of the
authority to tax under Schedule A.
If such an option existed it
would be reasonable to expect machinery
whereby upon the exercise
of the option in the direction of some
Schedule other than
Schedule A allowance could be made in respect
of the tax
necessarily exigible under Schedule A. No such
machinery is in
fact provided by the statute and the Revenue
Authority has been
driven in this case to invent it to meet the
objection" of
double taxation. It is noteworthy that where a land
owner carries
on a trade on his own property the computation of
tax is to be
made exclusive of the annual value of lands occupied
for the
purpose of the trade and separately assessed and charged
under
Schedule A (see Schedule D, Cases I and II, Rule 5).
I am therefore of opinion that
as between Schedule A and other
schedules the Revenue Authority
has no option to select the
Schedule to be applied and in this
respect I disagree with the
reasoning upon which the decision in
the Rosyth Building and
Estates Company, Ltd., v. Rogers,
1921, S.C. 372, is based.
Further in my view the
perception of rents as land owner is not
an operation of trade
within the meaning of the Act. If this be so,
I am unable to
appreciate how the existence of ancillary activities
which produce
profits taxable under Schedule D can affect the
nature of the
operation or how the legal significance of the percep-
tion is
altered for the purpose of income tax if the recipient is a
limited
company rather than an individual.
My Lords, for the reasons which
I have endeavoured to indicate
I reach the conclusion that the
decision of the Court of Appeal was
correct and I think that this
Appeal should be dismissed with costs.
Viscount
Dunedin.
Lord War-
rington of
Clyffe.
Lord
Atkin.
Lord
Tomlin.
Lord
Macmillan.
CECIL FRY (HIS MAJESTY'S
INSPECTOR OF TAXES)
v.
SALISBURY HOUSE
ESTATE, LIMITED.
JONES (Inspector of Taxes)
v.
CITY OF LONDON REAL PROPERTY COMPANY, LIMITED.
Lord Macmillan.
MY LORDS,
The Respondent Company owns a
large block of buildings in
the City of London known as Salisbury
House, containing some 800
rooms. These rooms the Company lets
unfurnished singly or in
suites to tenants as business offices,
and derives therefrom a large
revenue in rents. Certain services
are rendered by the servants of
the Company such as cleaning,
watching and lighting for which
charges are made to the tenants.
The Company has no other
activities beyond acting as landlords of
the premises and perform-
ing the services mentioned.
The broad question raised by the
Appeal now under your Lord-
ships' consideration is as to the
proper method of assessing the
Company to income tax, although the
actual issue relates to the
validity of assessments made upon the
Company under Schedule D
for the four years ending 5th April,
1928.
The first step taken by the
Inland Revenue authorities in
each of the years in question was to
assess Salisbury House to
income tax under Schedule A upon the
gross value as appearing
in the valuation list in accordance with
the Valuation (Metropolis)
Act, 1869, section 45. The assessments
were made upon the Com-
pany as landlords under Schedule A, No.
VII, Rule 8, which pro-
vides that " the assessment and
charge shall be made upon the
" landlord in respect of . .
(c) any house or building let in different
" apartments or
tenements and occupied by two or more persons
" severally.
Any such house or building shall be assessed as one
" entire
house or tenement." The tax exigible upon these assess
ments
was duly demanded by the Crown and duly paid by the
Company.
The Inland Revenue Authorities,
taking the view that the
Company were not only landlords but also
traders, proceeded in
addition to assess the Company under
Schedule D on the annual
balance of its profits or gains claiming
that on the credit side of
the computation there should be entered
the rents received and the
receipts from services rendered while
on the debit side it was
conceded that the assessments under
Schedule A should be entered
as well as all expenses incurred by
the Company in earning their
profits. The Company challenged the
validity of this assessment
but admitted that it was liable to be
assessed under Schedule D on
any profit apart from rents which it
earned from rendering in
connection with the premises the various
services mentioned.
The Commissioners decided that
the assessments under Schedule
D were rightly made to include the
amounts by which the total
receipts of the Company (including its
rents from offices) less
expenses exceeded the Schedule A
assessments. This decision was
affirmed by Rowlatt J., but
was reversed by the Court of
Appeal. The Crown now appeals to your
Lordships' House and
2 [18]
asks that the decision of the
Commissioners and Rowlatt J. be
restored. Important
questions of principle not hitherto directly
the subject of
consideration in this House are involved in the
determination of
the case.
As I approach the problem the
first question which presents
itself is whether the revenue
authorities were bound to assess the
premises under Schedule A.
They did so but had they any option
in the matter ? In my opinion
they had none and the assessments
made under Schedule A were not
only proper but obligatory.
Section 1 of the Act of 1918 enacts
that income tax is to be charged
" in respect of all
property, profits or gains respectively described
" or
comprised in the schedules marked A B C D and E contained
"
in the First Schedule to this Act. and in accordance with the Rules
"
respectively applicable to those Schedules." Turning to
Schedule
A, I find that it opens with the words " Tax under
Schedule A shall
" be charged in respect of the property in
all lands, tenements,
" hereditaments and heritages in the
United Kingdom for every
" twenty shillings of the annual
value thereof." The Rules
applicable to Schedule A provide
(No. VII, Rule 4) that
" tax under this Schedule shall be
charged on all lands,
" tenements and hereditaments." I
may refer also to
Section 110 (1) which enacts that '' the
assessments under
" Schedules A and B for any parish shall
contain (a) the full and
" just annual value of all lands,
tenements, hereditaments and
"heritages estimated in each
particular case as directed by this
" Act; and (b) the names
of the occupiers and proprietors thereof."
It is clear from
these and other provisions of the income tax code
which it is
unnecessary to refer to in detail that it is obligatory to
assess
to income tax under Schedule A all lands, tenements, here-
ditaments
and heritages in the United Kingdom, and that the re-
venue
authorities have no option in the matter. If they have an
option
as regards other sources of income in the matter of the
Schedule
under which they may charge them, upon which I do not
consider it
necessary for the present purpose to pronounce, it is at
least
certain that they must charge tax in respect of property in
land
under Schedule A. An examination of the Income Tax Acts
past
and present establishes that a clear distinction has always
been
drawn between income from land and income from all other
sources.
The subject of tax is all
property as well as all profits or gains
and indeed the tax under
Schedule A is designated property tax not
only colloquially but on
official forms. Schedules A and B in com-
bination contain and in
my view contain exhaustively and ex-
clusively the charge upon
landed property, the former containing
the tax on the owners of
land and houses in respect of the property
in them and the latter
containing the tax on the benefit derived from
the occupation of
land.
The consequences of this are
far-reaching for the present pur-
pose. If the revenue authorities
must assess .Salisbury House under
Schedule A they must do so on
the annual value thereof ascertained
in the manner prescribed by
the Rules applicable to that Schedule.
The premises being situated
within the administrative County
of London the annual value with
respect to Schedules A and B
is by Section 45 of the Valuation
(Metropolis) Act, 1869, to be
deemed to mean the gross value
stated in the valuation list under
that Act and by Section 4 gross
value means " the annual rent
' which a tenant might
reasonably be expected taking one year
with another to pay for an
hereditament " on ordinary letting
terms. Rent or rental
value is thus the criterion of annual value
for the purpose of the
tax on property under Schedule A. Similar
provisions apply to
lands outside the Metropolis under " No. I.—
" General Rule for
estimating the annual value of lands, tene-
" ments,
hereditaments or heritages ". Here also rent or rental
value
is the criterion of annual value for the purposes of taxation.
[19] 3
Once it is determined that the
annual value of all lands and
houses must be assessed to income
tax under Schedule A it follows
that this annual value cannot be
assessed to income tax under any
other Schedule, for it is
elementary that the same source of income
cannot be twice taxed.
Income tax is one tax, not several taxes
(London County Council
v. Attorney-General [1901], A.C. 26),
and the annual value of
a particular property having been once
assessed to income tax
cannot be re-assessed to the same tax.
The explanation of the
assessments under appeal is obvious. If
the rents received by the
respondent Company were the exact equiva-
lent of the annual value
of the property in the metropolitan valua-
tion lists the Crown
would have no interest in seeking to assess
the Company under
Schedule D because it would receive under
Schedule A all the tax
to which the rents were liable, while any
profits from services
rendered are admittedly assessable under
Schedule D. Thus the
whole income derived by the Company in
respect of its property
would yield tax. But the Company, in
fact, lets out its rooms at
rents which are in excess of the annual
value of its premises, and
consequently if the company is assessed
only under Schedule A the
excess of the rents received over the
annual value escapes
taxation.
This circumstance in my opinion
affords no justification for the
attempt to treat the Company as a
trading concern whose profits
are assessable under Schedule D.
Landowning, however profit-
able, is not a trade within the
meaning of the income tax code.
Property in land as a source of
income is dealt with, and can only
be dealt with under Schedule A,
and the Rules of that Schedule
prescribe how the income from
landed property is to be ascertained
and measured. If the measure
is an imperfect one and when
applied does not ascertain the actual
income derived from the pro-
perty so much the worse for the
revenue. Discrepancies one way
or the other between actual income
and statutory income for tax
purposes are familiar features of
income tax law. Theoretically, the
annual value and the rental
should correspond for annual value is
based on rent. If they part
company one way or the other the fault
lies with the imperfection
of the statutory machinery for ascertain-
ing the income from
landed property and the Inland Revenue
authorities are not
entitled to resort to a different measure designed
for a different
source of income if the actual rents happen to exceed
the annual
value.
It is necessary, however, to
make it quite clear that the income
from property which is taxable
under and only under Schedule A
is income derived from the
exercise of property rights properly so
called.
Property is regarded as yielding
income from the exercise by the
proprietor of the right either of
himself enjoying the possession
or of parting with the possession
by letting his property to tenants.
The owner of property may make
profit out of it in other ways and
by doing so he may render
himself liable to taxation under
Schedule D. The case of Coman
v. Governors of the Rotunda
Hospital Dublin [1921] 1 AC 1 is
an excellent example. There us
Lord Birkenhead L.C. pointed
out at p. 8 the arrangements between
the owners of the premises
and the persons who paid for their use
for the purpose of
entertainments were not such as to constitute
the relation of
landlord and tenant, and the owners remained in
possession and
occupation of their property. The receipts derived
from hiring out
their premises along with various movable fittings
and affording
services in the way of heating lighting and attendance
were
receipts of an enterprise quite distinct from the ordinary
receipts
which a landlord derives from letting his property. Con-
sequently
the owners of the premises were rightly held to be engaged
in the
carrying on of a trade or business in their premises, the
4 [20]
" trade or business "
in Lord Shaw's language at p. 37, " of pro-
"
viding or providing for public entertainments." There is
nothing
to prevent a landlord who has been assessed under
Schedule A in
respect of his income as a property owner being also
assessed
under Schedule D in respect of a trade business or other
enterprise
carried on by him on his premises.
It is not without significance
that in the case of certain kinds
of property the annual value
under Schedule A is directed to be
ascertained in accordance with
the Rules applicable to Schedule D,
that is to say on a profits
basis. Under the Rules applicable to
Schedule A, No. III (1)
quarries, (2) mines and (3) an enumerated
series of undertakings
mostly of a public utility character and
" other concerns of
the like nature " are directed to be assessed on
an annual
value based on profits not rental and the profits are to be
arrived
at as if they were trading concerns. In the case of The
Edinburgh
Southern Cemetery Company v. Surveyor of Taxes,
1889, 17 R.
154 where it was held that a cemetery company should
be assessed
under Schedule A No. III 3 as a " concern of the like
"
nature " with the enumerated concerns, Lord McLaren said
at
p. 165 : " It is certainly not sufficient to bring a particular
use of
" land within the scope of rule III that the
proprietor of the land
" is using it in connection with his
trade or for purposes of trade;
" because in such cases it is
generally possible to separate the
" income into two parts,
the one representing the rent or annual
" value of the
heritable property, and the other representing the
"
commercial profit. Where this can be done, the proper mode of
"
assessing seems to me to assess under Schedule A in respect of
"
annual value, and also under Schedule D for the commercial
"
profits of the business or manufacture carried on within the
"
heritable subjects. But there are cases where it is very difficult
"
to separate the income of a proprietor into rental and commer-
"
cial profits. Rule III appeals to have been devised to meet such
"
cases." His Lordship proceeds to point out that the income
of
the company was " neither derived from the location nor
from the
" occupation of land " but from " a trade
which is carried on by
" the use of land," namely the
sale of perpetual rights of sepulture
in specified portions of the
company's land.
The present case does not fall
within any of the classes of con-
cerns where by the Rules under
No. Ill of Schedule A the annual
value of property is to be
determined on the basis of profits in con-
formity with the Rules
of Schedule D. The income of the company
being derived from the
location of land, or in other words in the
normal manner in which
property in land yields revenue, it is in
my opinion inadmissible
to characterise this income as the income
of a trade. Where a
trade is carried on by a proprietor in his own
premises Rule 5 of
the Rules applicable to Cases I and II of
Schedule D provide for
the exclusion from the tax computation of
the annual profits or
gains of the property occupied for the purpose
of the trade. This
clearly contemplates a separation between the
two characters of
landowner and trader. A landowner may con-
duct a trade on his
premises but he cannot be represented as carry-
ing on a trade of
owning land because he makes an income by letting
it. The
relatively insignificant services for which the company
makes
charges to its tenants are not in my opinion sufficient to con-
vert
the company from a landowner into a trader though the profits
so
made may quite properly be charged with tax under Schedule D.
To
hold otherwise would be to invert the rule that the principal
follows
the accessory.
The circumstance that the Crown
has proposed in assessing the
company under Schedule D to deduct
the assessments under
Schedule A affords to my mind strong
evidence of the illogicality
of the whole proceeding, I do not
understand how an assessment to
[21]
5
income tax can ever be a proper
deduction from an assessment to
income tax for the tax is one tax.
It is nothing to the purpose
to say that under Schedule D it is
proposed to tax actual rents
while under Schedule A it is the
annual value which has been taxed.
The source of the rents and of
the annual value is one and the
same, namely, the property in
Salisbury House.
It follows from the views which
I have above expressed that I
do not agree with the reasoning on
which the decision in the case of
the Rosyth Building and
Estate Company v. Inland Revenue, 1921
S.C. 372, is based. In
my opinion the principles applicable to
this case are accurately
expounded in the judgments of the Court
of Appeal and I concur in
the motion that the appeal be dismissed.
This should also be the fate of
the other appeal before your Lord-
ships in the case of the City
of London Real Property Company,
Limited, which it was admitted is
indistinguishable.
(6970-50) Wt. 893-16 14
4/30 P. St G.311
