Inland Revenue Commissioners v Ayrshire Employers Mutual Insurance Association Ltd
[1946] 1 All ER 637(Judgment by: Lord Uthwatt)
Between: Inland Revenue Commissioners
And: Ayrshire Employers Mutual Insurance Association Ltd
Judges:
Lord Thankerton
Lord MacMillan
Lord Wright
Lord Simonds
Lord Uthwatt
Subject References:
taxation
Other Taxation
Income Tax
Mutual insurance association
Surplus arising from transactions with members
Whether assessable
Legislative References:
Finance Act, 1933 (c 19) - s 31(1)
Case References:
New York Life Insurance Co v Styles - (1889), 14 App Cas 381; 28 Digest 59, 300; 59 LJQB 291; 61 LT 201; sub nom Styles v New York Life Insurance Co 2 Tax Cas 460
Municipal Mutual Insurance Ltd v Hills - (1932), 147 LT 62; Digest Supp; 16 Tax Cas 430
Judgment date: 29 March 1946
Judgment by:
Lord Uthwatt
My Lords, this case was dealt with by the First Division of the Court of Session and argued in this House by the appellants upon the assumption-dictated by the form of the case stated-that the relevant terms of the contracts of insurance between the company and its members were such that, apart from the Finance Act, 1933, s 31, no taxable profit could thereby arise to the company. Into the validity of this assumption it is not permissible to enter. The assumption implies that in the case of a member all those terms in the articles of association which secure to him rights in respect of surplus contributions-as those articles stand at the date of his contract of insurance-enter into and form part of the contract of insurance. The member therefore as respects surplus contributions can rely not only on his rights as a member of the company under the articles but also on his contractual rights.
Upon the construction of sect 31 it is, in light of the definition of company or society, beyond dispute that the members there referred to are members of the company or society under consideration. The subsection brings within the compass of profits or gains for purposes of income tax the surplus which would arise if transactions with members were transactions with non-members. The status of membership and all that results from that status are to be ruled out. But there the section stops.
The ruling out of the status of membership and its consequences leaves unaffected the substance of the contract and in that there is inherent the right in respect of surplus contributions. There is therefore-on the assumption made-no sum finding its origin in payments under the contract which can enter into the "profit or surplus" referred to in the section.
I would dismiss the appeal.