of the net income absorbed by the life interest. The draftsman has (not unnaturally, as it appears to me) conceived the release of the property from the burden of the life interest as an addition (or increment) to the property itself, capable of estimation by reference to

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that it is necessary for the proper interpretation of the section to figure this addition in the shape of a separate and independent estate-in character such as to present a microcosm of the Murthly property, and in size such as to bear a sufficient income to produce the £4000 a year to which the deceased annuitant was entitled. The argument, of course, was that this income must be net and not gross, because the annuity of £4000 was payable net. I am not at all sure that the idea of an addition to the property" was intended by the draftsman to take this somewhat fanciful shape. For the cesser of a life interest does involve an addition or increment to the property in the hands of the fiar or other reversioner; and there is nothing impossible or out of the way in figuring the market value of that addition or increment as a value which corresponds in amount with the proportion of the net income set free. I do not say that the view so strongly insisted in by the Revenue is wrong; indeed, I think it results in the same conclusion at which I have arrived by a different road. But, for reasons which I need not elaborate, I distrust the reliability of the microcosmic conception involved in it; and I confess that the addition of another to the already sufficiently numerous fictions which obscure the construction of the Act of 1894 brings more confusion than enlightenment to my mind. I prefer, therefore, to rest my judgment on what humbly seem to me to be broader and simpler grounds. It will be observed that according to those grounds the same meaning is given to the word income wherever it occurs in subsection (7) of section 7, and that that meaning makes the valuation section a consistent and harmonious adjunct to subsection (1) (b) of section 2, the relative charging section.

repairs are the price which must be paid for preserving a property in existence. They are incommoda which are essential, according to the nature of most (though not of all) kinds of real property, to prevent the loss of them, and to enable them to bring any commoda whatever to their owner. The gain sought by saving on ordinary and necessary repairs is only another aspect of the loss consequent upon the inevitable deterioration of the property, and could not, as I understand the Act of 1894, be brought within the category of a benefit.

The circumstances of the Murthly property and the method adopted for its valuation create no difficulty in arriving at the correct number of years' purchase to be applied to the net income of the property, or to that proportion of it to which the annuity extended, viz. £4000. I think, therefore, the contention of the Revenue should prevail.

Lord Skerrington. The only question which we have to decide is whether in carrying out the calculation prescribed by section 7 (7) of the Finance Act, 1894, an allowance for repairs ought to be deducted from the gross income of a landed estate as was contended for by the Inland Revenue. The defender, following the example of the defenders in the case of Lord Advocate v. Henderson's Trs. (7 F. 963), conceded in his third plea in law that feu-duties and public burdens ought to be so deducted, and this plea has been sustained by the Lord Ordinary. The sole question argued before the Lord Ordinary was whether repairs could be assimilated to feu-duties and public burdens. He decided this question in the negative and in favour of the defender. While I do not agree with all his reasoning, I think that he came to a correct conclusion upon the only question which he was asked to consider. When the case came to the Inner House the defender's counsel argued, with no great confidence as it seemed to me, that the judgment reclaimed against might be supported upon a broader ground which if sound would lead to the conclusion that feu-duties, public burdens, and repairs ought not to be deducted from gross rental for the purposes of section

ment for valuation purposes at an annual average figure sufficient to meet ordinary and necessary upkeep. In the present case that has been done, and the figure agreed on is 10

was, of course, still open to them, but only for the purpose of supporting and not of altering the Lord Ordinary's interlocutor.

The broader argument, which the Lord

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ham. from the cesser of an interest in property November 17, which must by section 2 (1) (b) be deemed to have passed on the death of a person who died after 1st August 1894. In the present case we have to value the benefit accruing to a landowner from the cesser by the death of the annuitant of a free life annuity of £4000 charged upon the rents of his estate by a former heir of entail under the powers of the Aberdeen Act. The annuity as granted was for more than £4000, but it was restricted after the death of the granter to a sum which the parties agreed to be one-third of the free rental of the estate. Accordingly, the annuitant's interest in the rental of the estate "extended" to the sum of £4000 per annum. The formula for valuing the benefit sustained by the landowner in a case like the present is exceedingly artificial. It requires us to resort to no less than three legal fictions, of which two are highly advantageous to the Inland Revenue, whereas the third, being of advantage to the taxpayer, is, as it appears to me, tacitly repudiated by the Inland Revenue. The first fiction is that the benefit accruing to a landowner through the death of a life annuitant is the same whatever may be the age of the annuitant. The second fiction is that the benefit to a landowner can be measured by the market price of the property, and that it is equal either to the whole market price or to an aliquot part of the market price according as the annuitant's interest extended to the whole income or only to a part of the income. The market price of a property may be exceptionally great owing to the supposed existence of undeveloped minerals, and it is not easy to understand why in such a case the cesser of a life annuity of fixed amount should be supposed to confer an exceptionally great benefit upon the landowner who already possessed during the annuitant's life full power to develop his estate as he might choose. The third fiction has to do with the mode of ascertaining the fraction which when applied to the market price will give the statutory value of the benefit accruing to the landowner from the cesser of a life annuity of fixed amount but not exhausting the full rental of the property. The general meaning of the subsection is clear enough. The fraction for which we are searching must depend upon the proportion which the income to which the annuitant's interest extended bears to the whole income of the property. In the present case I did not understand it to be disputed that the annuitant's interest in the income extended

a

with any corresponding legal liability for feu-duties or public burdens or with any responsibility for the upkeep of the estate. In short, upon the death of the annuitant the landowner became richer by £4000 a year without suffering any addition to his liabilities and responsibilities as landowner. This consideration is so obvious that it cannot have escaped the attention of the Legislature. One way of meeting the difficulty would have been to enact, as has been done in other departments of the legislation, that certain enumerated deductions should be made from the gross rental, and that the amount of each deduction should be calculated in the way directed by the statute. This course was not adopted, but another, and as it seems to me a simpler and more convenient, device was resorted to by means of a third legal fiction. Having ascertained that the annuitant's interest in the income extended to £4000 a year, we are directed to regard this sum not as a free liferent annuity but as the income of a property similar in all respects to the property over which it was secured. It so happens that the property in the present case consists of land in the county of Perth. Accordingly, an annual sum which as enjoyed by the annuitant was terminable on her death but which on the other hand was exempt from the burdens affecting land-ownership must now be regarded as something very different, viz. as the permanent income of a landed property forming an "addition" to the estate of Murthly, and therefore as clogged with liabilities and responsibilities similar pro rata to those applicable to the income derived from Murthly. One of the objects of this legal fiction was, in my opinion, to avoid difficulties of the kind now raised by the Inland Revenue. If this view be sound, the lapsed annuity of £4000 ought to have been compared with the gross rental of the estate of Murthly without any deduction therefrom.

I shall now consider the case as it was argued to, and disposed of by, the Lord Ordinary. The question is whether, assuming that feuduties and public burdens ought to be deducted from the gross rental for the purposes of section 7 (7) of the Finance Act, 1894, an average annual sum in respect of repairs ought also to be deducted ?

Feu-duties and public burdens are often referred to as burdens upon the rental of an estate, but this is not a strictly accurate expression as appears from the case of Prudential Assurance Co. v. Cheyne (1884, 11 R. 871)

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1ST DIV. reading, owing to the difficulty I feel in taking the words "an addition to the property Revenue v. otherwise than as meaning a capital addition. Fothring- So taking them, one is bidden by the statute, ham. modo calculandi, to figure the cesser of the November 17, annuity as making a capital addition to the property, i.e. the entailed estates, yielding an income equal to the annuity; that is to say, an income of £4000 per annum. And then one is bidden to find the capital value of such a hypothetical addition to the estates. The hypothetical addition must, I take it, be regarded as homogeneous in income-producing capacity with the property to which it is, hypothetically, added. And the calculation of its principal value may be conveniently thrown into this form: If the property, with an income x, has a principal value of so much, what is the principal value of a homogeneous addition with an income of y? As I followed the argument, the parties were not in dispute about the suitability of this formula. The controversy came to turn on the word "income" used in it. And the reason for this is that in the case of the property the gross income is subject to certain necessary deductions before one reaches the net income which is of benefit to the defender, while in the case of the hypothetical addition the income thereof-i.e. the annual amount of the annuity -is a clear income subject to no such deductions, and, therefore, all of benefit to the recipient. This difference leads the defender to contend that the word "income" in the statutory provision in question means gross income. This contention, if sound, would lead to a result more favourable to him than that contended for before the Lord Ordinary and in his pleadings, where his calculation of principal value proceeds on a comparison of the annual amount of the annuity, not with the gross income of the property but with a net income thereof arrived at after deducting feu-duties and annual public burdens.

The statute contains no definition of the word "income." But it is clear, to my mind, that in making valuations for the purposes of duty under the Act the word cannot be taken as meaning gross income irrespective of charges necessarily to be defrayed therefrom before any benefit accrues or arises to the recipient. What has to be valued is the benefit accruing or arising. Now let it be supposed that the property charged with this annuity of £4000 yielded a gross income of £8000. The annuitant would have taken a clear £4000 per annum. The defender would have taken the other £4000 but would have had to defray therefrom certain necessary annual charges. Clearly, in point of annual benefit the annuitant would have been in the better case. And, on the cesser of the annuity, the annual income from the property

beneficial to the owner would be not merely doubled but more than doubled. No doubt from a capital point of view the annuity has, quoad the annuitant, the element of inferior value that it is temporary. But according to the Act its cesser is to be treated as amounting to a permanent accrual of benefit to the person who benefits by the cesser.

Accordingly, as it is the value of the benefit accruing or arising that is to be valued, I am unable to adopt the defender's contention that it is the gross income of the entailed estates which is to be taken for comparison, modo calculandi, with the annual £4000 of the annuity.

There remains, however, for consideration the alternative contention for the defender, adopted by the Lord Ordinary, which is to the effect that, if the calculation is to proceed on the net income of the estates, such net income should be reached by deducting from gross income only feu-duties and annual public burdens and not deducting anything for repairs. On this alternative view, the defender admits the deduction of feu-duties and public burdens because the payment of them is necessary and the amount taken out of gross income to meet them is not of benefit to the defender. But he differentiates repairs as being, in the words of the Lord Ordinary, optional and variable." They are certainly variable. But in the case of landed estates such as we are dealing with, as in the case of other kinds of heritable property, there is a burden of repair which is necessary and not optional if the property is to maintain its income-producing capacity. The calculation of principal value here proceeds on the basis of an income which it is assumed will be maintained, and, in order so to maintain it, expenditure on repairs is unavoidable. The fixing of a standard of necessary repair is a familiar enough topic with men of skill and experience. Here the parties are on record agreed in saying that £1038 represents the average annual expenditure on repairs, de facto, over a series of years. This is not quite the same thing as saying that £1038 is to be taken as the average annual amount of necessary repairs; but I understood counsel to be agreed at the bar that it might be so taken in the event of the calculation of principal value falling to proceed, quoad repairs, on the footing contended for by the Crown. I am of opinion, for the reasons above indicated, that it should so proceed, and that the claim made by the Crown is entitled to prevail.

Lord Sands. The estate of Murthly, to which the respondent succeeded as heir of entail, was burdened with an annuity of £4000 per annum in favour of Lady Stewart, the widow of his