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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> The Inland Revenue v. The Glasgow Corporation Gas Commissioners [1876] ScotLR 13_556 (20 June 1876) URL: http://www.bailii.org/scot/cases/ScotCS/1876/13SLR0556.html Cite as: [1876] ScotLR 13_556, [1876] SLR 13_556 |
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Page: 556↓
The Glasgow Corporation Gas Commissioners were under a local Act empowered to manufacture and sell gas to the inhabitants of Glasgow and suburbs. It was provided that the balance of revenue, after certain payments of interest on debt and of annuities, was to be carried to the credit of the corporation for their general purposes.
Page: 557↓
Held that as under this Act the corporation were traders in gas, the balance was assessable as profits under Schedule D of the Income-Tax. Observations ( per curiam) on the distinction to be drawn between this case and that of The Glasgow Corporation Water Commissioners, May 26, 1875, 2 Rettie 708.
This was a Case stated by the Commissioners for General Purposes under the Property and Income-Tax Acts for the city of Glasgow, which coming before the Lord Ordinary ( Shand) in Exchequer causes, was appointed by his Lordship to be heard before the First Division of the Court.
The case was as follows:—The Glasgow Corporation Gas Commissioners appealed against an assessment made upon them under Schedule D of the Income-Tax Acts, for the year 1875-6, on the sum of £62,083, the alleged profits of the gas-works—1st, On the plea of res judicata, in respect it was alleged that under an arrangement come to between the solicitors in Edinburgh acting respectively for the Inland Revenue and the Glasgow Corporation, it was agreed that the decision in the case of the water-works ( The Glasgow Corporation Water-works v. Inland Revenue, Exchequer, Scotland, First Division, 26th May, 1875, 2 Rettie 708) should rule that of the gas-works; and 2d, On the merits—that under the statutes and the decision just quoted they are only assessable for their annuities, interest on mortgages, and feu-duties, from which they are entitled to retain the tax on payment. The facts are these—By “The Glasgow Corporation Gas Act 1869” the Glasgow Gas Light Company and the City and Suburban Gas Company of Glasgow, with all their privileges, obligations, and liabilities, were transferred to and vested in the Municipal Corporation of the city, the former as at 31st May 1869, and the latter as at 30th June 1869. That Act was amended by “The Glasgow Corporation Gas Act 1871,” and “The Glasgow Corporation Gas Act 1873.” The corporation are authorised to supply gas to the city of Glasgow and suburbs. They are also required to pay the shareholders of the original companies perpetual annuities to the extent of £34,762, 10s., and in the event of there being any deficiency of funds to pay these annuities they are authorised to assess the occupiers of all lands and heritages situated within the parliamentary and municipal boundaries of the city of Glasgow at a rate not exceeding 6d. per £ on the real rent or yearly value of such lands and heritages. The corporation are also empowered to borrow money, not exceeding one million sterling, on mortgage, for the purposes of their carrying the Act into execution. They are further required to set apart as a sinking fund a sum not less than one per centum per annum on the amount borrowed, which fund is to be applied in the redemption of the mortgages or annuities, and must never be less than £2000. They are further empowered to manufacture and sell gas, gaspipes, and lamps, and carry on such operations and business as are for the time being usually carried on by gas companies. The price charged by the corporation must not exceed 4s. 7d. per 1000 cubic feet. The monies received under the Act (not being money borrowed) must be applied in the following manner, and not otherwise:— First, “In payment of the expenses of and incidental to the raising, levying, and recovering the rents, charges, and revenues, and the borrowing of monies under this Act.” Secondly, “In payment of the expenses of managing and maintaining the gas-works of the corporation.” Thirdly, “In payment of the Glasgow Corporation gas annuities, and annuities to holders of funded debt, and interest of money borrowed under this Act.” Fourthly, “In carrying the several powers and provisions of this Act into execution, including any extension and improvement of the gas-works and mains, and may carry any balance thereof to the credit of the corporation for their general purposes.” In support of their preliminary objection, the corporation stated—[here followed the argument upon the plea of res judicata, which was not insisted on before the Court of Exchequer.] .… The corporation admit their liability to pay tax on the annuities, interest, and feu-duties, as they did in years prior to 1872-73, and which amounts for the year 1875-76 to £59,712; but they maintain that they are not liable for income-tax on any surplus after payment of the working expenditure, nor for the sinking fund (which in the case of the Water Company were found not to be assessable), as such an assessment would be practically one on means and substance. It was submitted that the case of the gas-works is substantially the same as that of the water-works, in which it has been found by the Court of Exchequer that there can be no profits in the sense of the Income-Tax Acts. The expenses and revenue are intended to meet each other, and if there happen to be a surplus, it is simply carried forward to aid in reducing the price of gas in the succeeding year. The charge for gas in this case is cost price as nearly as can be estimated, and is simply “a district rate” imposed by the corporation upon themselves, and payable in proportion as they use the article. The object of the corporation in taking over the undertakings of the old gas companies was to save profits and give the inhabitants gas at cost price. There are no profits belonging to any one for his patrimonial interest, and no individual is enriched by the exercise of the statutory powers of the corporation, who are merely gratuitous trustees for the general community; and though the corporation have power to apply the surplus to their general purposes, they have never done so, and have refused to do it—any surplus being always carried forward to next year's account. Reference was also made to the opinion of the Judges who took part in the decision of the water case, and to the cases and dicta of the English Judges there referred to. [Here came the answer of the Crown to the plea of res judicata.] .… In reply to the second plea, it was argued that in the water-works the whole point was whether the monies collected by means of a compulsory general district rate, under the authority of an Act of Parliment, could be regarded as profit; and the Court held that they could not be so regarded, because the rate must be, and was, adjusted so as to cover the expense incident to the supply of water, and leave no surplus. In the case of the gas-works there is no obligation upon any householder in Glasgow to have pipes laid down to his house or to burn gas; and the amounts paid by those to whom gas is supplied are in no respect general
Page: 558↓
or compulsory rates, but are payments made according to the quantity consumed, and in conformity with contracts between the consumer and corporation. It was further submitted that it is a commercial undertaking. The Corporation purchased the works of two companies who carried on their works as commercial undertakings, and by section 54 of “The Glasgow Corporation Gas Act 1869” they are “empowered to manufacture, purchase, supply, sell, let, lay down, place and maintain gas-fittings, meters, pillars, pipes, lamp-posts, lamps, burners, and other articles and things connected with gas-works or with the supply of gas for public or private consumption, in such manner as the corporation think proper, and generally may carry on such operations and business as are for the time being usually carried on by gas companies.” Again, they compete beyond the municipal boundaries with other gas companies, which are purely commercial undertakings and sell their gas at the same price as the corporation do. Further, by the last part of section 86 of the said Act the corporation are empowered to carry any balance or surplus to the credit of the corporation for their general purposes, clearly showing that It is anticipated that profits will be realised; and these profits, when so realised, may be applied as part of the common good. No such powers and privileges as those conferred on the corporation by sections 54 and 86 of the Gas-Works Acts are contained in the Water-Works Acts, so that the two cases are not the same in principle, nor are they analogous. It was therefore maintained that the assessment was correct, and should be affirmed. The Commissioners having considered the case, were of opinion that there was no difference in principle between the two cases; and as the trust existed for the benefit of the community, they sustained the appeal, and restricted the assessment to the amount of the annuities, interest, and feu-duties, say £59,712. A case was then craved on behalf of the Crown for the opinion of the Court of Exchequer. At advising—
The way in which the corporation were authorised to pay the price for this subject which they so acquired, is provided by the 11th section of the statute, and it was by way of annuity to the shareholders in the former gas companies, corresponding to the value of the interest which they held in those companies. The corporation were then empowered to manufacture and sell gas to the inhabitants of Glasgow and suburbs, and the 83d section, among other things, provided that there should be a sinking fund to pay off the debt, which, of course, the corporation were obliged to incur, in the first instance for the purpose of erecting works and setting the concern on foot. Now, as regards the other clauses of the Act, with respect to the conduct of this undertaking by the corporation, it is only necessary to add that they have no power to compel anybody to take their gas. On the contrary, it is quite optional for any of the inhabitants to buy their gas from the corporation or not, as they think fit, and the corporation are put under a restriction as to the price which they are to charge for the gas by the maximum price of 4s. 7d. being allowed. Then, finally, the 86th section of the statute provides for the application of all moneys that are to go into the gas corporation in the way of revenue. The revenue of the corporation is applied in terms of this section;— in the first place, in payment of the interest of mortgage debt, and in payment of the annuities; and there can be no doubt that income-tax is charged on that part of the revenue—not on this corporation, but on their creditors, the creditors on the mortgage debts and the holders of annuities—because the income-tax which is levied on the corporation in the first instance, forms a deduction from the payment of these interests and annuities.
But then, the question has arisen, and it comes to this very narrow point, whether, if there be anything beyond that—if there be any revenue beyond what is applied in this way, or in maintaining the work, and which goes into the sinking fund in terms of the 83d section, or goes into the coffers of the corporation for their general purposes under the 83d section—that is or is not liable for income-tax. Now, I answer that question in the affirmative. It seems to me that the corporation of the city of Glasgow is by virtue of this statute empowered to enter into a speculation as traders in gas. No doubt it may have been for the benefit of the community,— that is perfectly true—but they have all the character and attributes of a trading company. They acquired the works for the purpose of manufacturing gas; they manufacture gas, and sell it to those who are willing to become buyers; but they cannot sell it to every one—that is to say, they cannot compel anybody to take it who is not willing to do so and willing to do so at their price. They are empowered and authorised—nay, bound—to make provision for the paying off of the mortgage debt which they had incurred at the commencement of the concern; and after they have done that, whatever surplus there is belongs to the corporation for its general purpose—that is to say, goes simply into the common good of the corporation, which is, in other words, saying that the surplus belongs to this company—to this trading company—for its own uses and purposes.
The distinction between this and the case which is argued by the Income-Tax Commissioners is very clear. There never could be any surplus or balance of profit under the Water Trust Act, for this simple reason, that the statute made it imperative to use every shilling of revenue that was levied under that statute, so far as it was not otherwise employed, in reducing the rates paid by the ratepayers; and in that way there never
Page: 559↓
The decision of the Commissioners was reversed, and the assessment sustained to its full amount.
Counsel for the Inland Revenue—Solicitor-General ( Watson)— Rutherfurd. Agent— David Crole, Solicitor of Inland Revenue.
Counsel for the Glasgow Corporation Gas Commissioners— Maclaren— Balfour. Agents— Campbell & Smith, S.S.C.