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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Campbells v. Commissioners of Inland Revenue [1879] ScotLR 17_23 (25 October 1879) URL: http://www.bailii.org/scot/cases/ScotCS/1879/17SLR0023.html Cite as: [1879] SLR 17_23, [1879] ScotLR 17_23 |
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Page: 23↓
[Exchequer Cause.
A hotel was let on lease at a rent of £500, the tenant to pay interest on sums spent on improvement. Subsequently, and during the currency of the first lease, a second containing numerous additional stipulations, and assigning to the tenant certain rights of stabling accommodation and delivery over to him of certain horses and tools, was substituted for it and the rent fixed at £1000. Held, it being stated that part of this rent was paid for moveable subjects, that it was competent to prove how much was paid for the heritable and how much for the moveable, that such sum might be deducted from the £1000 before fixing the assessment under the Property and Income Tax Acts.
This was a Case stated to the Court of Exchequer by the Commissioners for the Lorn district of Argyllshire in a judgment by them under the Property and Income Tax Acts confirming the assessment made by the assessor under Schedule A of the Property and Income Tax Act 1842 (5 and 6 Vict. c. 35), and subsequent Acts, and under the Inhabited House Duty Act 1851 (14 and 15 Vict. c. 36), for year 1878–1879.
The Property and Income Tax Act 1842, sec. 60, and Schedule A, enacted that “the annual value of lands, tenements, hereditaments, and heritages charged under Schedule A shall be understood to be the rent by the year at which the same are let at rack-rent, if the amount of such rent shall have been fixed by agreement commencing within the period of seven years preceding the fifth day of April next before the time of making the assessment, but if the same are not let at rack-rent, then at the rack-rent at which the same are worth to be let by the year.”
The Inhabited House Duty Act 1851, sec. 1, and Schedule A thereto annexed enacted, that “for every inhabited dwelling-house which, with the household and other offices, yards, and gardens therewith occupied and charged, is or shall be worth the rent of twenty pounds or upwards by the year, there shall be charged for every twenty shillings of such value the sum of sixpence.”
In 1876 Donald Campbell, proprietor of the Caledonian Hotel, entered into negotiations with Alexander Campbell with a view to a lease of the hotel, and a lease was executed between them for the period of ten years at a rent of £500, with entry at Whitsunday 1876, and in respect of certain improvements to be executed by the proprietor the tenant obliged himself to pay interest on the sum to be so expended at the rate of 7
per cent., to be paid termly with the rent. This lease was dated 6th and 12th February 1877, and did not include the stables of the hotel, and the tenant further bound himself not to engage in any coaching or posting business during the currency of the tack. 1 2 In the course of the year 1877 improvements to the value of £2000 were completed, and by the time of their completion the parties had entered into a new arrangement whereby the proprietor Donald Campbell had disposed to the tenant Alexander Campbell his whole interests in certain coach companies in the district, consisting of the stock of horses and coaches belonging thereto and the stabling accommodation in connection with it. The parties deemed it advisable in the circumstances to cancel the then existing lease and execute a new lease in which all the matters between them should be embodied, and a new lease was accordingly executed, in which an annual rent of £1000 sterling was stipulated to be paid by the tenant. The subjects included in this new lease were the Caledonian Hotel, the coaches and horses therein specified, and stables in Tweeddale Street, which were required by the tenant as additional stabling accommodation. The stables in Tweeddale Street were in no way connected with the hotel. The basis upon which the sum of £1000 of annual rent was fixed was explained to the Commissioners, and by them stated in the Case to be as follows:—“The former rent was £500, and the cost of the improvements was stated to be about £2000, the annual interest of which, at seven and one-half per cent., yielded £150, which interest, being added to the rent stipulated in the first lease, made a total new rental for the Caledonian Hotel of £650. The said Donald Campbell's interest in the said coaching
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business, consisting of twenty horses, harness, &c., a list of which was produced to the Commissioners—the value of the said coaches enumerated in the said lease, together with certain outlays, amounting to £827, a note of which was also produced, made by the said Donald Campbell in connection therewith, and also including the rental of the stables in Tweeddale Street for the nine years of the lease then to run—was estimated at about £3000, and that this was the true value thereof the appellants offered to prove. To cover this sum of £3000 it was agreed, in terms of the new lease, that a yearly sum of £350 should be paid termly with the rent for the hotel; and it was stated that in order to save the expense of a separate agreement it was agreed between the parties to add this sum of £350 to the said rental of £650, thus bringing out a total sum of £1000 payable annually by the tenant to the proprietor, being the apparent rental due to that amount for the hotel and stables.” The new lease, which was dated 7th July 1877, contained, inter alia, the following clauses:— First, “That the said Donald Campbell should let along with the hotel, as presently possessed by the said Alexander Campbell, the stables belonging to him situated in Tweeddale Street, Oban.” Then followed an assignation to the tenant of the proprietor's right in certain coaches. Third, “That the said Donald Campbell should forthwith give and deliver to the said Alexander Campbell all the horses used in connection with the coaches above mentioned, being 20 in number, together with all the coach harness and stable tools presently in use for the same, the said horses, harness, and tools to become the property of the said Alexander Campbell.” Then followed an assignation to certain rights of stabling, and then this clause— Fifth, “That the said Alexander Campbell should pay to the said Donald Campbell a rent of £1000 sterling yearly for the said hotel and stables, and that for a lease of nine years from and after Whitsunday last, when the former lease came to an end.”
The assessor, taking the rent at £1000, fixed the assessment on the landlord under Schedule A of the Income Tax Act (5 and 6 Vict. c. 35) at £20, 8s. 4d., and that payable by the tenant under the Inhabited House Duty Act (14 and 15 Vict. c. 36) at £25. The landlord and tenant both appealed againt this assessment, and represented to the Commissioners that the bona fide rent paid by the latter was only £650 for the hotel and £150 of interest on the £2000 spent on improvements.
The Commissioners sustained the contention of the assessor, that there being in the lease an obligation to pay a yearly rent of £1000 for the subjects, it was “incompetent to examine into the details of arrangements whereby that sum was fixed by the parties as the annual rent.”
No evidence was produced to the Commissioners of the values of the coaches and horses above mentioned, and no other arrangement was alleged than the lease of 7th July 1877.
The appellants argued— Ex facie of the lease it appeared that the rack-rent was not so high as £1000. In any event, the appellants had offered to prove that the sum of £1000 mentioned in the lease as rent included the value of the horses and the interest in the coaches mentioned in the lease. The assessor was bound, when the rent shown ex facie of the lease was not the true rack-rent, to make inquiry and assess the property at the true rent—sec. 63, rule 10, and sec. 66; Menzies v. Inland Revenue, Jan. 18, 1878, 5 R. 531; Jerdan, May 25, 1876, 4 R. 1148; M'Gregor v. Menzies, June 3, 1874, 4 R. 1144. The agreement was a composite one, partly lease, partly sale. The horses were “given and delivered.”
Argued for the Inland Revenue—The agreement spoke of £1000 as “rent,” and it was not competent to go behind it. The Income Tax Acts 5 and 6 Vict. c. 35, sec. 81, and 16 and 17 Vict. c. 34, sec. 47, authorised a valuation when the value was not fixed by the lease. The value in this case was not so fixed. The tenant's case arose under 48 Geo. III. c. 55, Schedule B—rule 2 of that Schedule specially included stables.
At advising—
Now, applying that very obvious rule to the case in question, let us see what the agreement of the parties is as disclosed on the face of the lease dated 7th July 1877. It is narrated that there was a previous lease between the parties, the rent under which was £500. It is further stated that the tenant was to pay interest at the rate of 7
Now, supposing the instrument to have stopped there, it would have been a perfectly good agreement for a period of nine years, with all these several stipulations forming part of a general agreement; and stopping there, and reading no further, I do not see how anybody could possibly say that the £1000 a-year stipulated to be paid by the tenant is to be paid for a heritable assessable subject only, and not also for those other privileges and advantages which he is to obtain under the agreement, and in particular for the conveyance of the right of property in the horses, coaches, and harness, stable, and a great many other things of the same kind. The £1000 a-year is the only consideration given for everything the tenant gets under that new agreement; and therefore it is perfectly clear that some portion of that £1000 a-year must be given for subjects which he is to receive, not in lease but in property, and subjects which are not of an assessable but of a moveable character. I should say in the case I have supposed that it would be quite impossible to take this £1000 a-year as the rent of a heritable subject. Then, does it make any difference that this agreement, instead of stopping there, proceeds formally to let in lease to the tenant the hotel and the stables in Tweeddale Street, and that the tenant becomes bound in consideration of that to pay the £1000 a-year in name of rent. That does not alter the substance of the agreement, which puts the thing in a different form, and in such a form that if it stood alone, that is to say, if there were nothing in the instrument except the letting of the heritable subject, and, on the other hand, the obligation to pay £1000 a-year for the lease, a different case would be presented. It might then be a question how far in such an appeal as this either the landlord or the tenant could get behind the terms of their own lease. But on the very face of this lease we see perfectly well that that which is called rent is only partly rent, and partly also an annual payment in consideration of other things conveying the property to the tenant.
In these circumstances I am very clearly of opinion that the Commissioners were wrong in coming to the conclusion that it was incompetent to examine into the details of the arrangements whereby the sum of £1000 was fixed by the parties as annual rent. They seem to have considered themselves not entitled to make any inquiry. On the other hand, I think they were entitled and bound in the circumstances to inquire how much of this £1000 a-year was, according to a fair valuation, payable in respect of heritable and assessable subjects, and how much for the other things the tenant obtained under his agreement. I am therefore for altering the judgment of the Commissioners.
The Court reversed the order of the Commissioners, and remitted to them to make an inquiry.
Counsel for Appellants— Dean of Faculty (Fraser)— J. P. B. Robertson. Agent— J. Young Guthrie, S.S.C.
Counsel for Inland Revenue— Lord Advocate (Watson)—Solicitor — General (Macdonald)— Rutherfurd. Agent— David Crole, Solicitor to Inland Revenue.
