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JUL 11 56
JUDGES OF THE COURT OF SESSION DURING THE
PERIOD OF THE REPORTS IN THIS VOLUME.
LORD PRESIDENT-THE RIGHT HON. LORD CLYDE.
THE HON. LORD SKERRINGTON, THE HON. LORD CULLEN,
LORD JUSTICE-CLERK-THE RIGHT HON. LORD ALNESS.
THE HON. LORD BLACKBURN (ROBERT F. L. BLACKBURN).
THE HON. LORD ASHMORE (JOHN WILSON).
THE RIGHT HON. LORD MORISON (T. B. MORISON).
1924, SCOTS LAW TIMES
W. R. GARSON, Esq.; MARCUS DODS, Esq., B.A.;
MAURICE J. KING, Esq., M.A., LL.B.; J. A. LILLIE, Esq., M.A., LL.B.; WILLIAM GARRETT, Esq., B.A., LL.B.; M. G. FISHER, Esq., M.A., LL.B. ; J. MACGREGOR, Esq., M.A., LL.B.; AND T. GRAINGER STEWART, Esq.,
NOTE.-Cases in this volume may be cited 1924, S.L.T.
Inland Revenue v. Fothringham, 1924, S.L.T. 2.
1ST DIV. Inland
Revenue v. Fothringham.
November 17, 1928.
(The Lord President, Lords Skerrington,
17th November 1923.
extended "-Cesser of an "Aberdeen Act" annuity
granted leave to reclaim. His Lordship's opinion is printed in the previous report.
The Lord Advocate reclaimed, and the case was heard before the First Division on 23rd and 24th October 1923.
Argued for the Pursuer: The modus calculandi of the statute was to ascertain the number Inland Revenue v. Fothringham.. of years' purchase at which the property was valued and use that number as the multiplier Revenue Estate duty-Property passing on death of the amount of the annuity. The question Heritable estate-Cesser of interest in property by had never been raised whether, in ascertaining death-Interest extending to less than the whole the number of years' purchase of the property, income of the property-Value of the benefit accruing or arising-Finance Act, 1894 (57 & 58 it was legitimate to deduct a sum in name of Vict. cap. 30), section 7 (7) (b)- 66 the the annual cost of repairs from the gross principal value of an addition to the property rental. (If such a deduction were made, as equal to the income to which the interest the capital value of the property was an agreed value, obviously the number of years' purchase was increased, and in the result the capital value of the annuity was also increased.) The deduction was a proper one, because what had ultimately to be valued was the capital of a charge-free annuity. The rental of the property used in the calculation must, therefore, also be a charge-free rental. An annuitant had an interest in the repairs of the estate on which the annuity was secured, since if the estate were not properly kept up the annuity might possibly have to be curtailed. It was, therefore, necessary to figure a hypothetical addition to the property which yielded after deduction for repairs a free annuity of £4000. Thus it
restricted to £4000 Ascertainment of number
(Reported ante, sub. nom. Lord Advocate v.
Reclaiming Note against an Interlocutor of Lord was fair and right to deduct repairs from the
The Lord Advocate, on behalf of the Commissioners of Inland Revenue, brought an action of accounting and payment, inter alia, of estate duty against Walter Thomas James ScrymsoureSteuart Fothringham of Pourie and Grandtully. The conclusions of the action, the pleadings of the parties, and the relevant sections of the Finance Act, 1894, are all sufficiently set forth in the previous report.
On 8th June 1923 the Lord Ordinary (Blackburn) sustained the second and third pleas in law for the defender, continued the cause, and
gross rental of the actual property before calculating the number of years' purchase at which it was valued. Counsel referred to the following authorities: Attorney-General v. Coole,  3 K.B. 607, per Sankey J. at p. 618; Edinburgh and Glasgow Railway Co. v. Hall, 1866, 4 M. 1006, per Lord Justice-Clerk Inglis at p. 1008; Attorney-General v. Power,  2 I.R. 272, per Palles C.B. at p. 277; In re Elwes, 1858, 3 H. & N. 719, per curiam (Watson B.) at p. 716; Lord Advocate v. Henderson's Trs., 1905, 7 F. 963; Lord Advocate v. Maclachlan, 1899, 1 F. 917, per Lord President Robertson at p. 922, Lord Adam at p. 923,
REPORTS-1924, SCOTS LAW TIMES.
and Lord M'Laren at p. 924; In re Earl Cowley's Estate,  1 Q.B. 355, per A. L. Smith L.J. at p. 367.
Argued for the Defender: This was a taxing statute and in dubio must be construed in favour of the subject. There was no authority beyond the ipse dixit of the Commissioners that the word "income in section 7 (7) of the Finance Act of 1894 meant income after deduction for repairs. It was equally open to the defender to assert that the word meant gross income, and perhaps he had conceded too much in not stating his objection to the deduction even of public burdens. If the contention of the Crown was right, why did the Commissioners stop at repairs? They might with equal logic have deducted the cost of insurance and management. But the defender had conceded the deduction of public burdens because they constituted a charge upon income prior to the annuity. The cost of repairs was not prior to the annuity. The interest of the deceased here was £4000 per annum, nothing more and nothing less. She had no concern with the repairs to the whole property. The benefit accruing to the defender was also £4000 per annum, neither more nor less, and the number of years' purchase at which that benefit should be valued must be ascertained by a consideration of the true annual value of the whole property to him. That annual value was the gross rental less public burdens. It was out of that annual value that he had to keep his property in repair. Besides, the cost of repairs had been already allowed for in fixing the number of years' purchase at which the whole property was valued. That calculation always included as a factor in it the state of the property. Counsel referred to the following authorities, in addition to those cited for the pursuers: Earl of Galloway v. Dowager Countess of Galloway, 1903, 6 F. (H.L.) 1; In re Parker-Jervis,  2 Ch. 643. [Lord Skerrington referred to AustenCartmell on the Finance Acts, p. 80.]
Avizandum, 24th October 1923.
On 17th November 1923 the Court recalled the interlocutor of the Lord Ordinary, sustained the fifth plea in law for the pursuer, and remitted to the Lord Ordinary to proceed.
The Lord President (Clyde).—The late Lady Douglas Stewart was entitled to an annuity secured over the property of Murthly. The interest which, as annuitant, she had in the property ceased on her death on 6th October 1916. By section 1 of the Finance Act, 1894, estate duty is payable in the case of every person dying after the commencement of the Act
upon the principal value of all property which 1st Div. passes on the death of such person; and, by subsection (1) (b) of section 2, property Revenue v. passing on the death of the deceased" is deemed Fothringto include "property in which the deceased or ham. any other person had an interest ceasing on the November 17 death of the deceased to the extent to which a benefit accrues or arises by the cesser of such interest."
Accordingly, the Murthly property must be deemed to have passed on the death of Lady Douglas Stewart to whatever extent (if any) a benefit arose or accrued by the cesser of her interest. The question whether a benefit has or has not arisen is crucial to the incidence of estate duty. If no benefit arose, there is no property subject to duty. It is obvious prima facie that some benefit did arise or accrue in respect of the release of a property worth nearly £240,000 and having a rental of over £13,000 gross, or £10,000 net (that is, after allowing for public burdens together with ordinary and necessary repairs), from the burden of an annuity of £4000. The next question, closely related to the first, is: What was the extent of the benefit? This is a question of valuation; and the statute provides, in subsection (7) of section 7, two special rules, (a) and (b), for valuing the benefit. Which of these two rules is applicable in any given case depends-according to their terms-on the result of a comparison between the extent of the deceased's life interest and "the whole income of the property." Rule (a) applies to the case in which the "interest extended to the whole income of the property"; and directs that the value of the benefit arising or accruing from the cesser of the interest shall be taken to be "the principal value of the property which means (according to subsection (5) of section 7) the market value of the property as at the death of the deceased. Rule (b) applies to the case in which the "interest extended to less than the whole income of the property," and directs that the value of the benefit shall be taken to be the principal value of an addition to the property equal to the income to which the interest extended."
The whole dispute between the parties is as to the meaning of the word income occurring in these rules. The revenue maintains that by income the net income-after deduction of public burdens together with ordinary and necessary repairs-is meant. The Lord Ordinary has held that what is meant is the net income-after deduction of public burdens only. The respondents, while they did not challenge the Lord Ordinary's findings, argued— after some hesitation-that the true construction to be put on the word income is gross