November 25, Revenue-Income tax-Exemption - Sewers - Finance 1924. Act, 1921 (11 & 12 Geo. V. cap. 32), section 34Public Health (Scotland) Act, 1897 (60 & 61 Vict. cap. 38), sections 103 and 108" Sewers," defined as sewers maintained by local authority under their statutory duties in relation to public health, exempted from income tax under Finance Act, 1921, section 34 Held that the exemption conferred by the Finance Act, 1921, when construed with reference to the statutory powers conferred by sections 103 and 108 of the Public Health (Scotland) Act, 1897, did not include sewage purification works.

Exchequer Cause.

The First or Upper District Committee of the County Council of the County of Renfrew appealed to the Commissioners for the General Purposes of the Income Tax Acts and for executing the Acts relating to inhabited house duties for the Upper Ward of Renfrewshire against assessments under Schedule A of the Income Tax Acts for the year ending 5th April 1922 in respect of certain sewers and sewage works.

The Commissioners sustained the appeals and discharged the assessments. At the request of the Inspector of Taxes they stated a case for appeal to the Court of Session.

The case set forth, inter alia:

I. The following facts were admitted:

(1) The sewers and sewage works and their annual value as per the Valuation Roll are as follows:

Valua- Valuation Total tion of of Sewage ValuaSewers.

Works.

tion.

(2) The sewers and sewage works have been constructed by, and are under the control and jurisdiction of, and are maintained and administered by, the respondents as Local Authority under the Public Health (Scotland) Act, 1897, and Acts explaining and amending the same, and constitute the public sewerage system within the following special drainage districts formed by the respondents under and for the purposes of the Public Health (Scotland) Acts, viz. Corkerhill, Eaglesham, Elderslie, Giffnock, Neilston, and Newton Mearns. (3) The parts of the sewerage system above described as sewers consisting solely of pipes for the conveyance of sewage but without any provision for treatment thereof are exempt under the provisions of section 34 of the Finance Act, 1921, and the assessments would fall to be reduced as follows:

Corkerhill to

Eaglesham to

Elderslie to

Giffnock to

Neilston to

Newton Mearns to

(4) It is necessary to treat the crude sewage before discharging it into watercourses in order to avoid producing a nuisance and polluting the stream. The sewage works are placed near the point of outfall for each drainage district. The sewage from the district is conveyed by the sewer pipes to the works in a crude state, and by them it is conveyed at a much slower rate, and while in transit it is subjected, owing to the retardation of flow, to bacterial treatment by which the noxious matters. are broken up and neutralised, and the sewage after being passed through the filters and other aerating and purifying processes leaves the works by the outfall channel as a comparatively purified effluent with the exception of a certain quantity of sludge, mud, or grit which remains in the grit chambers or septic tanks.

(5) All the sewage works, except those at Newton Mearns, may be described as consisting of pipes or concrete, or built channels, whereby the crude sewage is conveyed from the inlet sewer or

sewers in the first place to a grit
chamber or chambers where, as it passes
through, grit from roads and other
intractable solid matter is intercepted,
and in the next place to the septic tank
or tanks, which are of concrete covered.
in and of considerable size with refer-
ence to the normal inflow of sewage, so
as to secure that the passage of the
sewage through them shall be very slow
to allow the bacterial process to operate.
From the outfall of the septic tank
other pipes or channels convey the
partially purified sewage to the filters,
where it is mechanically distributed by
metal pipes, drums, or channels over
the filter beds through which it passes,
being aerated and purified in its pro-
gress, and on leaving them enters other
pipes or channels, by which it is con-
veyed to the main outlet pipe or channel
also forming part of the sewage work, by
which it is discharged as a purified
effluent into a watercourse. There is
also provision whereby in times of rain-
fall and flood the storm-water over-
flow is conveyed through storm-water
channels to the watercourse direct.
(6) Newton Mearns differs from the other
works in that when the partially purified
effluent leaves the septic tank it is
conveyed by artificial channels through
a meadow which it irrigates, being
aerated and purified in the process, and
the purified effluent is by the outfall
channel or sewer discharged into a
watercourse. Irrigation thus takes the
place of filtration.

(7) None of these sewage works earns or is
capable of earning profit. The sludge
is not marketable. They are a source
of expense. Even in Newton Mearns the
right to dispose of the sewage by irriga-
tion of the meadow has to be paid for.
(8) There is only a small continuing expense
involved in maintaining the sewer pipes,
but greater expense is incurred at the
sewage works, the filters requiring to
be periodically cleaned; and at works
such as Giffnock, the wages of a man
who is in constant attendance are a
necessary charge.

II. Mr James A. M'Callum, writer and clerk to the respondents, appeared for them and contended

(1) That the subjects charged fell within the exemption granted by section 34 of the Finance Act, 1921;

(2) That the term " sewer" includes not only

the pipes but also the purification works necessary for the treatment and disposal of the sewage; and that the description of the sewage disposal works and their mode of operation shews that no distinction for the purposes of the Act can be drawn between the pipes and other appliances for disposal of the sewage;

(3) That the definition of the term " sewer 1ST DIV. is to be found in section 103 of the Summers Public Health (Scotland) Act, 1897; v. Upper (4) That in Renfrewshire there are no sewers District running into the sea. The sewage is Committee treated in bacterial method and the of the effluent led into a river. The Corpora- County tion of the City of Glasgow has power Council to prevent anyone putting crude of the sewage into any water leading into the County of River Clyde ; (5) That the meaning of " sewers could not November 25, be restricted to the drain-pipes, but that sewers comprise the whole works disposing of the sewage, including both the pipes and what for convenience are called sewage purification works and which themselves include pipes;

(6) That the whole system-pipes and works -is a sewer within the meaning of section 103 of the Public Health (Scotland) Act, 1897; and

(7) That the word sewers "should not be interpreted according to its popular meaning, but according to its technical legal meaning as contained in the Public Health Acts;

(8) That as the disposal works do not earn profit but are incapable of earning profit and a source of expense they are not liable to assessment to income tax. III. H.M. Inspector of Taxes, Mr L. B. Summers, for the Crown contended:

(1) That prior to 1921, both sewers and sewage purification works were liable to income tax;

(5) That section 103 of the Public Health (Scotland) Act, 1897, did not define

sewer," but simply gave a local authority power to lay sewers and erect suitable buildings and apparatus for the disposal of the sewage.

IV. The Commissioners on consideration of the facts and arguments submitted to them were of opinion that on a sound construction of the exemption in section 34 (1) of the Finance Act, 1921, it was not limited to the actual channel or pipe in which sewage is conveyed to a certain spot for disposal, but includes works for the disposal or treatment of sewage which have been constructed by

Renfrew.

1924.