LAWS(PVC)-1939-3-99

UNION COLD STORAGE CO Vs. SIMPSON (INSPECTOR OF TAXES)UNION COLD STORAGE COVELLERKER (INSPECTOR OF TAXES)

Decided On March 16, 1939
UNION COLD STORAGE CO Appellant
V/S
SIMPSON (INSPECTOR OF TAXES)UNION COLD STORAGE COVELLERKER (INSPECTOR OF TAXES) Respondents

JUDGEMENT

(1.) On the main issue between the parties these two appeals raise the same question, the only difference between the two being that the case in which Mr. Simpson is the respondent relates to the tax years 1923-24 to 1926-27, whereas the appeal in which Mr. Ellerker is respondent relates to the tax years 1927-28 to 1934-35. The question is whether the appellant company is entitled to allowances in those years for depreciation by wear and tear and obsolescence of certain leased machinery and plant under rule 6 of the Rules applicable to Cases I and II of Schedule D. The Commissioners in both cases held that they were precluded by the decision of Finlay, J., in Heyhoe V/s. Slough Theatre Co., from admitting the companys claim. In that case the respondent company did not appear to support the decision of the Commissioners in its favour and the only argument heard was on the Crown side. Finlay, J., did his best to consider possible answers for the respondent company, but in the end gave a reasoned judgment in favour of the Revenue. In the present two cases the Union Cold Storage Co. appealed, but Macnaghten, J., followed the decision of Finlay, J., in Heyhoes Case and dismissed both appeals. From his decision the company now appeal to this Court. The correctness of the Heyhoe decision is thus also in issue.

(2.) The allowance for depreciation was first introduced by Section 12 of the Customs and Inland Revenue Act, 1878. It is reproduced in almost the same language in sub-rules (1), (2) and (5) of rule 6 of the Rules applicable to Cases I and II of Schedule D in the code of 1918. It was in its nature a departure from the principle of income-tax in that it was a concession concerned with capital. But commercially it was not a departure since over any long period of years the profits of a business must be affected by the cost of renewing capital items, and fixed plant and machinery may in a commercial view be regarded as standing half-way between land and buildings at one end of the scale and pure revenue items like removable implements at the other. A practice was early adopted as between the Inland revenue and the trader of agreeing on an appropriate annual percentage to apply year by year to prime cost. In Hall, Junior & Co. V/s. Rickman the Inland Revenue raised the contention that where the percentage allowances made over a prolonged period of years nearly approached the capital cost of the unit, any further claim was by law limited to such figure as would not make the total concessions plus saleable value of the worn item exceed 100 per cent. of its capital cost. But Walton, J., held on the construction of the section that the taxpayers right in the tax year in question was not affected by the allowances of past years. To repeal this decision the Legislature passed Section 26 of the Finance Act, 1907 now represented by sub-rule (6) of rule 6. Sub-rules (1), (2) and (5) deal severally with a business carried on by the owner of the plant and machinery (sub-rule (1)); by a lessee of it, bound by covenant to repair, renew and yield up at the end of the term in good condition (sub-rule (2)); and by a lessee whose lessor undertakes the burden of restoring and renewing (sub-rule (5)). The general purpose of the detailed provisions of those sub-rules is to give effect to the above scheme. The dispute between the parties to the appeal is, first, whether the appellants were, as they claimed, entitled to the benefit of sub-rule (2) and, secondly, whether the language used by the Legislature in 1907, when by Section 26 of the Finance Act of that year it imposed the limitation rejected by Walton, J., in Hall, Junior & Co. V/s. Rickman, did not go much farther than the mere enactment of that limitations, and impose wholly new limitations, cutting down the benefits to the taxpayer intended by sub-rules (1), (2), and (5). [His Lordship then referred to the facts found by the Commissioners and continued.]

(3.) Questions were raised before the Commissioners whether the parties had not agreed in practice to disregard the repairing covenant, but the Commissioners find that "there has been no general agreement varying the terms of the lease" with regard to the obligation of repair. Any payments made by the lessors beyond their obligations under the lease must therefore be regarded as gifts irrelevant for tax purposes : Birmingham Corporation V/s. Barnes. The total amount at stake for the twelve years is Pounds 1,788,398, the annual figure varying from 126,570 in 1923-24 up to 174,695 in 1929-30.