Scottish Court of Session Decisions

This was a case stated by the Commissioners of Income Tax for the county of Aberdeen under the Taxes Management Act 1880 on the appeal of the Commissioners of Supply for the county of Aberdeen. The case set forth as follows—At a meeting of the Commissioners of Income Tax for the county of Aberdeen, held at Aberdeen on the 12th February 1890, James Forbes Lumsden, Clerk of Supply, appealed against an assessment on £92, 10s. under Schedule D of the Income Tax Acts made against the Commissioners of Supply of the county of Aberdeen for the year 1889–90.

The following facts were found by the Commissioners

1. The Commissioners of Supply are the vested proprietors of certain portions of buildings in the city of Aberdeen known as the “Aberdeen County and Municipal Buildings,” erected under the provisions of the Act 29 and 30 Vict. cap. 104.

2. The portions of the buildings in question are occupied as a county hall, and as the rooms and offices of the Clerk of Supply, and as writing chambers rented by Messrs Robertson & Lumsden, advocates, at a yearly rent of £40, and are assessed under Schedule A of the Income-Tax Acts on £145, their full annual value, as appearing in the valuation roll.

3. Under the provisions of the Act in question the Commissioners of Supply are empowered to borrow money for the erection of the buildings, and the sum of £92, 10s., which forms the subject of appeal, is the interest for the year 1889–90 of the money so borrowed.

4. The money borrowed is secured not on

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mortgage over the buildings, but on mortgage of the several rates and assessments authorised by the Act in question to be levied by the Commissioners of Supply… .

6. The money to pay the interest is raised by the Commissioners of Supply by an assessment (commonly called the County Buildings Assessment) levied under the provisions of the Act in question, and the rent received for the portion of the buildings let is not placed to the credit of this assessment, but to the credit of the County General Assessment, being the rate liable for the maintenance and repair of the buildings.

In support of his appeal the appellant stated that the money, the interest of which formed the subject of assessment, was borrowed under the provisions of the Act 29 and 30 Vict. cap. 104, for the express purpose of erecting the buildings, and as these buildings are assessed to income-tax under Schedule A on the full annual value, the Commissioners of Supply are entitled, in paying to the creditors in the money so borrowed the yearly interest thereof, to deduct and retain the tax corresponding to such interest in the same way as if there were a bond over the buildings for the money borrowed.

The appellant argued that the right to make such deduction and retention under section 102 of the Act 5 and 6 Vict. cap. 35, and section 40 of the Act 16 and 17 Vict. cap. 34, was not limited to interest on mortgages of the property assessed, but extended to interest on any personal debt or obligation of the person or corporation whose property is assessed. He further argued that to assess the interest under Schedule D as well as the buildings under Schedule A would be to assess the same subject twice, as the interest simply represented pro tanto the annual value of the buildings.

He therefore claimed that if the interest was to be assessed under Schedule D, a sum equivalent to the interest must be deducted from the annual value of the buildings before assessing their value under Schedule A. In other words, the Commissioners of Supply are only liable in income-tax on the net annual value of these buildings, and that result is arrived at by their paying income-tax (either wholly under Schedule A, or partly under Schedule A and partly under Schedule D) on the gross annual value, and retaining the tax from the yearly interest payable out of it.

The appellant also argued that the concluding proviso of section 102 of the Act 5 and 6 Vict. cap. 35, only applied where the creditor on the rates and assessments had no debtor paying income-tax deductible from the yearly interest payable to such creditor.

The surveyor (Mr Russell), on the other hand, contended that the buildings being the property of the Commissioners of Supply, are assessable under Schedule A, which indeed was admitted; that there is no provision in the rules relating to Schedule A of the Income-tax Acts, authorising any deduction in name of interest to be made from the annual value before assessment, such as contended for by the appellant, that any deduction except those enumerated is prohibited by the express words of the Statute 5 and 6 Vict. cap. 35' sec. 60, No. 4, rule 14, and also that as the money borrowed is secured on mortgage over the rates, and the interest on the same is payable out of the assessment levied for that purpose, and not out of the rents of the property, such interest is assessable in terms of section 102 of 5 and 6 Vict. c. 35. He further argued that as the tax under Schedule A is borne by the Commissioners of Supply, and the tax under Schedule D by the creditors on the rates as argued for by the appellant, there is no double assessment.

The Commissioners having fully considered the case, refused the appeal, and requested a case to be stated.

Section 102 of the Act 5 and 6 Vict. cap. 35 enacts—“And be it enacted, that upon all annuities, yearly interest of money or other annual payments, whether such payment shall be payable within or out of Great Britain, either as a charge on any property of the person paying the same by virtue of any deed or will or otherwise, or as a reservation thereout, or as a personal debt or obligation by virtue of any contract, or whether the same shall be received and payable half-yearly, or at any shorter or more distant periods, there shall be charged for every twenty shillings of the annual amount thereof the sum of sevenpence, without deduction, according to and under and subject to the provisions by which the duty in the third case of Schedule D may be charged… . Provided always that where any creditor on any rates or assessments not chargeable by this Act as profits shall be entitled to such interest, it shall be lawful to charge the public officer having the management of the accounts with the duty payable on such interest, and every such officer shall be answerable for doing all acts, matters, and things necessary to a due assessment of the said duties and payment thereof, as if such rates or assessments were profits chargeable under this Act, and such officer shall be in like manner indemnified for all such acts as if the said rates and assessments were chargeable.”

At advising—