Scottish Court of Session Decisions

This was a case for James Sherman Miller, Surveyor of Taxes, on the appeal taken by the Glasgow Corporation Water Commissioners to the Commissioners of Income-Tax for the district of Glasgow against an assessment of income-tax. The Water Commissioners had appealed against an additional assessment under Schedule D [of 5 and 6 Vict. c. 35] for the year ending 5th April 1885 on the sum of £21,729, duty £543, 4s. 6d., and a surcharge under Schedule D for the year ending 5th April 1884 on the sum of £15,799, duty £339, 2s. 11d., and the Commissioners had sustained their appeal.

The present case was a sequel to a case between the same parties, decided on 26th May 1875, reported 12 S.L.R. 466, and 2 R. 708 As narrated in the previous report, the Water Commissioners were by this Act required to furnish a supply of water within the municipal boundary of Glasgow. This was the district of compulsory supply. Within that district they levied a “domestic water-rate” on the rents of all dwelling-houses, and a “public water-rate” on the annual value of all dwelling-houses, shops, and other buildings. They also supplied water to a district outside the compulsory supply boundary, but the rates there were only paid by those using the water. They also sold water within and without the boundary for manufacturing purposes by special rate or measure. Their surplus rates, after paying into sinking fund, annuities, interest, &c., were applied to reduce the next year's rates. The Court in the previous case decided that such surplus derived from rates within the compulsory supply district was not profit within the meaning of the Income-Tax Act, and therefore not assessable for income-tax, any question as to revenue raised beyond the compulsory limit remaining undetermined. The question before the Court in this case related to the surplus revenue derived from the supply of water outside the district of compulsory supply, and from the supply of water within or without it for trading purposes by special rate or measure, excluding the estimated proportion of surplus revenue arising from the “domestic water-rate” and “public water-rate” within the compulsory district, which the previous decision had settled not to be assessable.

Before the Income-Tax Commissioners the Water Commissioners contended that under the provisions of their Act of Parliament referred to no profit could arise from the undertaking, and in support of their contention they referred to the previous case stated on their appeal against a similar charge for the year 1872–73. They further submitted that the amounts on which they had been charged in the first assessment for the year in question embraced the total amount of annuities and yearly interest on borrowed money payable by them out of the revenues of the undertaking from which they retained income-tax, and that they were not liable to any further assessment; that the additional charges appealed against virtually applied to the sinking fund, which was a statutory obligation, and was expressly classed in the 89th section of the Act, with the other items of general expenditure for which money is authorised to be raised in the manner provided by the Act, and that in the statement showing how the additional assessments had been arrived at the estimated nett revenue from outside supplies, and from trade and other charges, was treated as profit, but in reality the amount was simply the proportion of the sinking fund corresponding to the rates levied, and the computation did not prove that any profit had been derived from the supply of water to the outlying districts. The total amount carried to the sinking fund in 1882–3 was £26,246, and in 1883–4, £26,735.

The Surveyor of Taxes contended as follows—(1) That under the provisions of the Income-Tax Acts the Water Commissioners were liable to be assessed in respect of the full annual value or profits of the waterworks carried on by them, and not in respect of the amount of annuities and interest payable out of the revenue derived from the property, and that for the purpose of ascertaining the amount of yearly value or profits for such assessment the total amount of the receipts should be taken, from which there should be deducted all expenses necessarily incurred in carrying on the concern, and maintaining and repairing the property, but not the annuities or interest payable upon the debt, except such proportion thereof as was payable out of the compulsory rates levied from occupiers of dwelling-houses and owners of property within the limits of compulsory supply, the proportion of interest so payable being held to be chargeable under the provision contained in section 102 of 5 and 6 Vict. c. 35. (2) That the duty under these additional assessments was properly charged on the Water Commissioners as the corporation carrying on the concern. (3) That in the 89th section of the Water Commissioners Act of 1855. directing the application of the revenue from the waterworks, the provision contained in the last clause for the payment of ‘all other charges and expenses chargeable against revenue, ‘must be read as including the Government assessments. (4) That the duties of income-tax were by statute assessed and levied throughout the whole of the United Kingdom; that there was no exemption in favour of waterworks, or other property belonging to corporations or communities; that the fact that commissioners appointed under a local Act of Parliament were empowered to take over and carry on within a certain area waterworks previously the property of joint-stock companies and to extend the same did not affect the liability to assessment to income-tax, and could not operate to deprive the Crown of the duty on such property granted by Parliament, except in so far as related to the revenue authorised to be raised by compulsory rates within the limits of compulsory supply. (5) In support of his contentions

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the Surveyor referred to the decision of the House of Lords on the appeal of the Mersey Docks and Harbour Board v. Lucas, decided June 28, 1883, L.R., 8 App. Cas. 891.

The Commissioners, as above stated, sustained the appeal and disallowed the assessment, and the Surveyor of Taxes took this Case.

Argued for the Surveyor of Taxes—What was sought to be taxed was returns obtained from those who voluntarily took the water. This source of revenue fell under the reservation of the Court in the previous case. The Water Trust was created for the benefit of citizens within the the municipal boundaries, and revenue coming from persons outside went into the pockets of persons within the municipal boundaries. This was just such a profit as the Income-Tax Act was intended to apply to.

Authority— Black v. Attorney-General, June 17, 1871, L.R., 6 Ex. 308.

Replied for the Water Commissioners—The point reserved by the Court in the previous case was not reached in this case. If there was raised a sum over and above the money necessary to reduce the domestic water-rate, then that might be such a profit as would fall under Schedule D of the Income-Tax Act. No doubt the Commissioners sold water, but they did not sell it as a private company would; they were obliged to part with it to all who desired it, and at a fixed rate. The Commissioners could not make anything by the sale of the water, as any surplus after providing for working expenses was devoted to a reduction of the rates. The money which it was sought to assess was one of the working expenses of the corporation, and so not assessable.

Authorities— Paddington Burial Board v. Commissioners of Inland Revenue, March 14, 1884, L.R., 13 Q.B. Div. 9; Mersey Docks Board v. Lucas, June 28, 1883, L.R., 8 App. Cas. (H. of L.) 891.