£199, 18s. 5d. £373, 2s. 10d. (9) Sir Archibald Campbell had paid income tax on other income sufficient to cover the tax on the excess of the average cost of maintenance as reduced by the repairs allowance over the net annual value, Schedule A, of the Cumlodden Estate. The claimant maintained that repayment should be made on the excess without any restriction whatsoever, subject to sufficient tax having been paid in respect of the estate and other income to cover the amount of relief claimed. Alternatively, Sir Archibald claimed, in the event of an adverse decision on the first ground of claim, that the Cumlodden and Garscube Estates should be considered together as lands managed as one estate," within the meaning of subsection (4) of Rule 8, No. V., Schedule A, Income Tax Act, 1918, and relief given accordingly. 66 IV. The Commissioners, after duly considering the facts and arguments submitted to them, gave their decision in the following terms: The Court interprets Rule 8, No. V., Schedule A, as not restricting the amount of the repayment to the duty on the net annual value of the property concerned, and sustains the claim of Sir Archibald Campbell." The decision being in favour of the claimant on his first ground of claim, the second ground of claim was not considered by the Commissioners. The Question of Law for the opinion of the Court was: Whether the claimant is entitled, by virtue of Rule 8, No. V., Schedule A, of the Income Tax Act, 1918, to relief in respect of maintenance, repairs, insurance, and management of the Cumlodden Estate to an extent greater than the amount of tax paid under Schedule A in respect of that estate ? land, one-eighth part of the annual value of the land as adopted under this Schedule, and in the case of houses, one-sixth part of that value, he shall be entitled in addition to any reduction of the assessment for the purposes of collection, on making a claim for the purpose, to repayment of the amount of the tax on the excess. The case was heard before the First Division on 25th and 26th November 1924. Argued for the Appellant: Schedule A was quite distinct from the other schedules, for the reason that it was based on annual value instead of profit. Accordingly, it was not competent to make good out of assessments imposed under another schedule any loss that might be incurred in subjects dealt with under this schedule. The right to repayment, conferred by Rule 8, No. V., of Schedule A, was limited to the amount of tax actually paid in respect of any property under that schedule. The appeal, therefore, should be allowed. Argued for the Respondent: The respondent was entitled to have the question of law answered in his favour on either of two groundseither (a) because, where there was a deficiency in respect of one of the subjects assessed under Schedule A, he could encroach upon the other assessments made under that schedule; or (b) on the wider ground that income tax was one single tax, though imposed by means of different schedules, and that, consequently, the taxpayer could encroach on any assessments made under any schedule, in order to make good a deficiency. Reference was made to London County Council v. The Attorney-General, [1901] A.C. 26, per Lord Macnaghten at p. 35; and Brown v. National Provident Institution, [1921] 2 A.C. 222. The respondent's claim was based on the words of the subsection itself, which in terms gave him the right to recover the excess. No limit was expressed to that provision. Accordingly, the subsection must receive its natural meaning, and the appeal should, therefore, be refused. On 26th November 1924 the Court answered the question of law in the negative. The Lord President (Clyde).-In each of the two years which are in question in the present case, the average cost of maintenance on the respondent's Cumlodden Estate works out at a sum in excess of the annual value of the estate under Schedule A, as reduced for purposes of collection. The respondent is therefore entitled The Income Tax Act, 1918 (8 & 9 Geo. V. to whatever relief is provided to him under cap. 40), enacts: paragraph (1) of Rule 8, No. V., Schedule A, of A and, it being admitted or proved that the respondent had paid income tax on an amount of income (other than that represented by the annual value of the estate in question) as great as, or greater than, the amount of the excess of said cost of maintenance over the annual value of the estate, they found him entitled to repayment of the income tax paid by him on such other income to the extent of said excess. We are not told under which of the schedules of the Income Tax Act the income tax to be so repaid was assessed and paid; it may have been assessed and paid wholly under one or more of the schedules other than A-or it may have been assessed and paid wholly under A, but in respect of lands and heritages other than the estate in question-or it may have been assessed and paid partly in the ore form and partly in the other. The respondent's claim to repayment, as maintained before us, covered all these alternatives. The contention of the Inland Revenue is that the relief to which the respondent is entitled is limited, on a sound construction of Rule 8 (1), to the amount of the tax paid (1) under Schedule A, and (2) in respect of the estate in question. 1. It has to be observed, in the first place, that the Rule on which the question turns is one of the Rules applicable to Schedule A (and to no other schedule), and is therefore applicable to income tax assessed under that schedule (and under no other). In the second place, it has to be observed that the Rule forms part of the chapter, No. V. of those Rules, which regulates the deductions and allowances to be made from, or in respect of, assessments to income tax under Schedule A (and under no other schedule). It is not one of the All Schedules Rules which apply equally to A, B, C, D, and E, and to assessments to income tax made under any of them. It thus becomes difficult to adopt a construction of the Rule which gives it the effect of altering or interfering with the liabilities of the respondent as a person liable to income tax under some one or more of the other schedules, in respect of assessments made upon him in entire accordance with the Rules of those schedules. Yet, if the respondent's claim is a good one, it might entitle him, in respect of a claim arising solely with reference to an assessment under Schedule A, to claim repayment (more or less) of tax correctly assessed on him under one or more of the other schedules, the Rules applicable to which do not entitle him to repayment. If the terms of the Rule made such a construction inevitable, it would no doubt be our duty to adopt it, and make the best we could of the confusion which would ensue. But even if the draftsmanship of the Rule is not so perfect as it might have been, it is certainly not such as 18T DIV. to compel us to this course. Crompton 66 66 66 1924. 2. The Rule assumes three things as the con- V. ditions of its operation: (first) that the owner Campbell. of a heritage has been assessed to income tax November 26, under Schedule A; (second) that the owner has paid the tax referred to in such assessment; and (third) that the actual cost of maintaining the said heritage, according to the average of the preceding five years, has exceeded " the fixed deductions provided in Rule 7. It is on these assumptions that Rule 8 (1) gives the owner right to claim repayment. It seems obvious that what is to be repaid is the tax already paid by the owner on the annual value of the particular heritage in question; and that (prima facie at any rate) the right to repayment cannot in the nature of things extend beyond this. Now, the right to repayment is thus expressed: He shall be entitled in addition to any reduction of the assessment for the purposes of collection, on making a claim for the purpose, to repayment of the amount of the tax on the excess." What is the tax alluded to in these last words? Clearly, I think, it is the tax referred to in the assessment as reduced for purposes of collection, and paid by the owner; that is to say, the tax in respect of the annual value of the particular heritage in question. The Rule is concerned with no other tax or assessment. That tax or assessment is to be repaid on the excess "-that is to say, on the amount by which it is countervailed by the excess of the average maintenance costs of the particular heritage in question over the statutory deductions. The expression of the Rule may be criticised as elliptical, but I cannot think its meaning doubtful. In the result, the owner's liability for the tax may be wiped out and extinguished, but that is the utmost limit of the possible operation of the right of an owner to have a tax, assessed and paid under Schedule A on a heritage belonging to him, repaid. The respondent carried his argument so far as to maintain that the tax alluded to meant income tax at the current rate," and that his right was to be repaid so much of the income tax upon his total income from all sources, or at least upon the annual value of all land and heritages belonging to him, as would be represented by a figurative charge of such tax upon the entire excess of the average maintenance costs of the estate here in question over the statutory deductions made from its annual value. I think this argument fanciful and unsound. As I have already pointed out, Rule 8 (1) finds its place in the chapter of Deductions and Allowances from Schedule A assessments. A right to recover the amount of an imaginary tax on a minus quantity-whatever may be thought 66 66 V. November 26, 1st Div. of it otherwise-is certainly not a deduction or had not been brought into charge for income tax. I do not doubt that the primary purpose and effect of Rule 8 were as I have stated. It was, however, open to the respondent's counsel to argue that the owner's right "to repayment of the amount of the tax on the excess was not limited to securing to the owner relief from the injury which he had suffered in consequence of the excessive and unreal amount of the annual value of the property, as assessed under Schedule A for the purposes of collection in terms of Rule 7; but that after such relief had been accomplished, Rule 8 conferred upon the owner a secondary and additional right, viz. the right to be repaid the income tax (if any) which he had paid upon so much of his income as he had applied in defraying the average cost of maintenance, etc., after deducting from such cost the annual value of the property as assessed for the purposes of collection. This contention is open to the objection that it requires the appellant to attribute to Rule 8 in its application to what I have described as the owner's secondary claim, a construction and effect different from its construction and effect so far as applicable described as the owner's secondary claim is foreign to what I regard as the subject-matter of Rule 8; and is also, in my opinion, one which is unreasonable in itself, and which it is unlikely that the Legislature would have authorised. The language of Rule 8 is fully satisfied although limited to what I have called the owner's primary claim. For these reasons I think that the appeal should be allowed. Lord Skerrington.-The construction of Rule 8 (1) of Schedule A, No. V., of the Income Tax Act, 1918, is difficult, because its language is not merely elliptical, but is also not easy to adapt so as to make it express with precision the contention of either of the litigants. It seems to me, however, that the clue to its interpretation is to be found in the consideration to his primary claim. Further, what I have that the primary (though I admit not necessarily the sole) purpose of the rule was undoubtedly to obviate an injustice which a landowner or a house-owner would otherwise have suffered owing to the provisions of Rule 7, which permit only a small fraction of his expenditure on maintenance, etc., to be reflected in the assessment by way of deduction from the annual value of the property. Accordingly, the right to repayment of the amount of the tax on the excess conferred on the owner of the property by Rule 8 had, at least for its primary purpose, to give effect to a right which was in substance, though not in form, a right to have the assessment of the annual value of the property for the purpose of collecting income tax thereon under Schedule A amended or entirely vacated so as to bring it into conformity with the true annual value (if any) of the property. Further, the money which fell to be repaid to the owner, viz. the amount of the tax on the excess," was primarily, at least, the Schedule A tax upon the property, in so far as such tax was excessive owing to the annual value of the property as assessed for the purposes of collection being in excess of the true annual value. It should be here noted that it would be no answer in the mouth of the Inland Revenue to a demand for repayment of the tax to point out (if such was the fact) that the money which had been applied by an owner and occupier in defraying the cost of maintenance, etc., consisted of capital borrowed by him for that purpose, or of income which Lord Cullen.-I agree. Rule 8 here in question is one distinctively regulative of the amount of an owner's liability for tax under Schedule A. It appears to me to be clear enough that its operation throughout is confined to matters arising within the sphere of Schedule A, and in particular, that the repayment which may be claimed in pursuance of its provisions is repayment of tax which has been paid on assessment under Schedule A. I can see no warrant in its terms for the view that its operation travels into the sphere of other schedules so as to enable an owner to whom it applies to claim repayment of tax which he has paid on assessments under any of these other schedules. On the narrower aspect of the case, arising within Schedule A, I am of opinion that the repayment authorised is not repayment of any tax under Schedule A which may have been paid by the owner in question, but is limited. to repayment of tax paid by him under assessment in respect of the particular sub Crompton Campbell. November 26, jects whose cost of maintenance, etc., is in estate and limited thereto. Quoad the income 1ST DIV. question. of the owner as derived from the estate, the expense of the upkeep of the estate is to be V. treated, not as a payment out of income, but as a payment which diminishes income. But I can find no direction, express or implied, that part of it may be so treated quoad the general income of the owner from other sources. accordingly agree with the conclusion at which your Lordships have arrived. I Counsel for Appellant, The Lord Advocate Lord Sands-On first impression the contention for the respondent which the Commissioners have sustained seems somewhat startling. Mr Reid, however, convinced me that there is some substance in the matter. Income tax (and property tax is just a form of income tax) is chargeable generally upon net income. Certain payments which the taxpayer has to make are regarded by the law as payments by him out of his income. In respect of such payments there is no abatement or repayment; but certain other payments are regarded by the law, not as payments out of income, but as payments which have the effect of diminishing income, and in respect of such payments, abatements and repayments are provided for. Now it is said that the statute has recognised payments in respect of upkeep and repairs of estates as falling under the latter category. Such payments are not payments out of income, but payments which have the effect of diminishing income. The taxpayer's net income from all sources is to be regarded as diminished by these payments. Suppose that a man has an income from other 13. sources of £1000 and a deficiency of £300 on an estate in respect of excess of outlays, this deficiency must presumably be made good by the owner out of the £1000. If he pays income tax upon the £300 so applied, he is paying income tax upon a sum which is not a payment out of income, but a payment which has the effect of diminishing income. Such is the contention; but we are dealing here with a revenue statute, and whilst I appreciate the plausibility of the foregoing contention, I am unable to construe the statute as bearing the interpretation which this contention requires. The owner is entitled to repayment of the amount of the tax on the excess. We are invited to construe that as meaning "the amount of the tax on the excess of payments." But there is no tax upon payments. The tax is on annual value or receipts as measured by assessment. I interpret the phrase as meaning the amount of the tax upon so much of the annual value as is swallowed up by the excess of payments. This falls to be repaid; but when the whole is swallowed up there is nothing to repay, for no more has been paid by way of tax in respect of the estate. I can find nothing in the language of the provisions to warrant the contention that it is legitimate to enquire where the money came from that made good the deficiency, and whether tax has been paid upon it. I am unable to read the provisions as being otherwise than self-contained as regards the particular FIRST DIVISION. (The Lord President, Lords Skerrington, 27th November 1924. Wood v. Inland Revenue. Revenue Excess profits duty-Income tax-Finance Exchequer Cause. John Wood, of Portknockie, appealed to the Commissioners for the Special Purposes of the Income Tax Acts against the determination by the Commissioners of Inland Revenue of his claim to a set-off under section 38 (3) of the 1924. The following facts were admitted or proved: (1) The appellant carries on business as fish salesman in Portknockie. He also owns shares in various steam drifters sailing from the port, such drifters being owned in shares, and the profits or losses on working them being divided amongst the owners according to the shareholding. (2) The appellant has been assessed separately to excess profits duty in respect of his business as fish salesman, and the various owners of the steam drifters have been assessed together for each drifter, so that each drifter has been treated as a separate business. (4) There was produced to the Commissioners, on behalf of the appellant, a letter from the Comptroller of Inland Revenue to Mr J. Henry Reid, C.A., Aberdeen, dated 26th October 1922, in the following terms: "With regard to the statement made by the Chancellor of the Exchequer on 14th October 1915, you are correct in your assumption that the concession promised is based upon Rule 13 of Cases I. and II. of Schedule D of the Income Tax Act. “Inasmuch, however, as that rule allows a set-off of the statutory loss in one business against the statutory profits of another business only for the same income-tax year, and does not provide for a set-off of the statutory loss or any part thereof against the statutory profits of any other incometax year, the Board of Inland Revenue are not prepared to allow, for excess profits duty purposes, a set-off of a deficiency in one business against an excess in another business except in periods which are coterminous." (5) The pronouncement or statement of the Chancellor of the Exchequer referred to was in the following terms: "Where for income tax purposes there are two distinct businesses such as are in law separately assessable, a loss in one business can be set-off against a profit in the other, and this principle will be applied in the case of excess profits duty." The Question of Law for the opinion of the Court was: Whether the appellant is entitled to have the deficiencies set-off against the excesses in the circumstances stated?" The case was heard before the First Division on 26th and 27th November 1924. Sections 38 (3) and 40 (1) of the Finance (No. 2) Act, 1915 (5 & 6 Geo. V. cap. 89), are quoted in the opinion of the Lord President. Argued for the Appellant: The right to a set-off in this case depended upon the Finance (No. 2) Act, 1915, sections 38 (3) and 40 (1). The former established the principle, and the latter provided the machinery by assimilating the procedure to be followed in calculating excess The effect of this second section was to apply to profits duty to that of the Income Tax Acts. the excess profits duty the machinery of Rule 13 of Cases I. and II. of Schedule D of the Income Tax Acts. On a proper construction of the statute the right to a set-off emerged in two ways. There was, first, a power to set-off within a "horizontal,' horizontal," co-terminous period that is to say, to set-off during the same financial year profits made in one trade against losses incurred in another. But there was, second, a right to a the profits made in one year in trade A against set-off over a vertical period-that is, to set-off the losses incurred in another vear in trade B. Counsel referred to the case of Gittus v. Commissioners of Inland Revenue, [1921] 2 A.C. 81, per Cave L.C. at p. 87. The concession of the Inland Revenue, referred to in the case, was so far relevant that it reflected the Inland Revenue's settled practice, and therefore shed light on the meaning of the statute. The appeal should therefore be allowed. of the Finance (No. 2) Act, 1915, referred only Argued for the Respondents: Section 38 (3) to losses in one trade or business: it had no application as between different businesses. Similarly, section 40 (1) of the Act dealt only with the ascertainment of profits in a particular business. It was true that the principles of the Income Tax Acts were invoked in order to determine the profits within that particular business, but that could not be construed as applying to the excess profits duty a rule which had no reference whatever to that duty. Accordingly, the claims to a set-off had not been made out. On 27th November 1924 the Court answered the question of law in the negative. is a fish salesman. He is also owner-partner The Lord President (Clyde).—The appellant in a number of steam-drifter partnerships, each of which constitutes a distinct and separate business. The appellant is thus liable in assessment to excess profits duty in respect of a plurality of trades or businesses. There is, first of all, his business as a fish salesman, and then there are those other businesses in which he is engaged qua owner and partner in connection with various steam drifters. The present appeal t |