Russell (Inspector of Taxes) v Scott
[1948] A.C. 422(Judgment by: Viscount Simon (including background))
Between: Russell (Inspector of Taxes) - Appellant
And: Scott - Respondent
Judges:
Viscount SimonLord Porter
Lord Simonds
Lord Normand
Lord Oaksey
Subject References:
REVENUE
INCOME TAX
ASSESSMENT
Sand-pit situated on farm
Sales of sand
'Concerns of the like nature'
Legislative References:
Income Tax Act 1918 (8 & 9 Geo. 5, c. 40) - Rules Applicable to sch. A., No. III, r. 3
Judgment date: 13 May 1948
Judgment by:
Viscount Simon (including background)
By the Income Tax Act, 1918, Rules Applicable to sch. A., No. I,
"General Rule for estimating the annual value of lands, tenements, hereditaments or heritages"
it was provided:
"In the case of all lands, tenements, hereditaments, or heritages capable of actual occupation, of whatever nature, and for whatever purpose occupied or enjoyed, and of whatever value (except the properties mentioned in No. II and No. III of this schedule), the annual value shall be understood to be:
- (1.)
- The amount of the rent by the year at which they are let, if they are let at a rackrent and the amount of that rent has been fixed by agreement within the period of seven years preceding April 5 next before the time of making the assessment; or
- (2.)
- If they are not let at a rackrent so fixed, then the rackrent at which they are worth to be let by the year."
By No. III
"Rules for estimating the annual value of certain other lands, tenements, hereditaments or heritages which are not to be charged according to the preceding General Rule,"
r. 3 provided:
"In the case of ironworks, gasworks, salt springs or works, alum mines or works, waterworks, streams of water, canals, inland navigations, docks, drains or levels, fishings, rights of markets and fairs, tolls, railways and other ways, bridges, ferries and other concerns of the like nature having profits from or arising out of any lands, tenements, hereditaments or heritages, the annual value shall be understood to be the profits of the preceding year."
By s. 28 of the Finance Act, 1926, the concerns included in No. III of sch. A were transferred to and included in sch. D.
From 1941 to 1944 a farmer owning a farm of about 25 acres permitted divers contractors to dig and carry off sand from his land, chiefly for the construction of aerodromes, and charged from 6d. to 1s. a ton according to quality. The sand-pit so dug, which was an acre in extent and 30 to 40 feet deep and which had not previously been exploited, was worked continuouly each day by the contractors' workmen. The farmer did not advertise sand for sale but employed a person to check the quantities taken and there was a regular system of rendering accounts and making payments. He was assessed to income tax (sch. D) for the years 1940-1, 1941-2 and 1942-3 in the sums of 150l., 1,250l. and 3,750l. respectively
Held, that, though the farmer was carrying on a "concern," it was not a concern "of the like nature" to those enumerated in r. 3 of No. III and, accordingly, the assessments must be discharged, since the whole farm ought to be assessed under No. I.
Mosley v. George Wimpey & Co., Ld. (1945) 173 L. T. 24; 27 Tax Cas. 315, overruled.
Decision of the Court of Appeal in Northern Ireland affirmed.
Appeal from the Court of Appeal in Northern Ireland.
The facts, stated by Viscount Simon, were as follows:
The question in this appeal was raised by a case stated by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice in Northern Ireland.
The respondent was the owner in fee simple of a farm of some twenty-five acres in the county of Londonderry. It was discovered that, under a portion of the surface of this farm, extending to about one acre, sand existed in considerable depth and the respondent allowed various persons to come on his land, dig sand, and take it away, with the result that a sand-pit was formed which was regularly and continuously worked from January, 1941, until about October, 1944, by which time the pit was practically exhausted. The sand was of different qualities and the respondent's charges varied from between sixpence to one shilling per ton according to the quality of the sand gotten. The hours of working at the pit were from 8 a.m. to 6 p.m. daily. A road to the sand-pit from the county road was, with the respondent's approval, made by a Mr. Moore, who was the earliest and biggest contractor.
The demand for this sand principally arose in connexion with the construction of aerodromes in Northern Ireland. The sand was excavated by the various contractors' men by shovelling, and was loaded into lorries for removal. The respondent employed a man to record the tonnage of sand taken in each case, and this employee supervised the pit generally and directed the various contractors to the particular part of the face of the pit where each should work. There was a regular system for rendering accounts, for checking them and for receiving payments. The profits made by the respondent from the disposal of sand from this sand-pit amounted to 150l. in 1940-41, 1,250l. in 1941-42 and 3,750l. in 1942-43. The revenue contended that the respondent, in connexion with this sand-pit, was carrying on a concern "of the like nature" within the meaning of those words in No. III, r. 3 of the Rules Applicable to Schedule A.
If so, income tax would be separately charged by reference to the profits made by him in the preceding year. The respondent, on the other hand, argued that what he was doing in connexion with this sand-pit did not amount to the carrying on of a "concern" at all, and that even if it did, it was not a concern "of the like nature" within the meaning of r. 3. If this contention prevailed, income tax would be charged on the annual value of the farm as a whole, calculated as directed for Ireland by s. 187 of the Income Tax Act, 1918. The commissioners decided against the respondent on both points, but stated a case which set out the facts found by them, and formulated their decision thus:
"We find that the sales of sand by the appellant"
(the present respondent)
"which amounted to more than 100,000 tons and extended over three years, were by way of trade, that they were not merely casual and occasional but constituted a series of transactions carried out in pursuance of a regular method and we arrive at the conclusion that the sand-pit was a concern carried on by the appellant.
Further, following the decision in the Court of Appeal in Mosley v. George Wimpey & Co., Ld., [F1] we hold that it was a concern of a like nature with those enumerated in r. 3 of No. III of sch. A. We accordingly confirm the assessments appealed against in principle and leave the figures to be agreed between the parties."
When the matter came on appeal before Black J., the learned judge considered himself to be bound by the views expressed in an earlier stage of the same controversy by the Court of Appeal in Northern Ireland, and consequently reversed the view of the commissioners. In the Court of Appeal Andrews C.J., confirmed the commissioners' view that the respondent was conducting a "concern," but rejected the commissioners' other conclusion that it was a concern "of the like nature." Babington L.J. considered the revenue's contention to be wrong on both points, saying, as regarded the first, that he could find no evidence to justify the finding of the commissioners that the respondent carried on any "concern" or did anything more than convert his sand into money. Porter L.J. agreed with the view that there was no concern "of the like nature" being carried on by the respondent, and thus the Court of Appeal was unanimous in holding that the revenue's claim failed. From this decision an appeal was brought to the House of Lords.
Curran A.-G. for Northern Ireland, Topping K.C. (of the Irish Bar), Reginald Hills (of the English Bar) and F. A. L. Harrison (of the Irish Bar) for the appellant. The sand-pit and its operation and the sale of sand from it by the respondent constituted a concern "of a like nature, having profits from or arising out of any lands, tenements, hereditaments or heritages" within r. 3 of No. III of the Rules Applicable to Schedule A to the Income Tax Act, 1918, since a sand-pit is one of a class of concerns of like nature with those enumerated therein.
The words "of a like nature" are not very precise but these rules clearly draw a distinction between normal or ordinary use of land and an extraordinary use of land. A normal use of land is agriculture or forestry or building a house. In such cases assessment is by reference to annual value, as defined by No. I, and that annual value is unlikely to vary each year. An extraordinary use of land involves some intensive exploitation of the surface or sub-soil, e.g., by taking stone out of the land or by standing a factory on it. Here No. III would apply, for the profits are liable to vary from year to year. It includes all concerns connected with land which are of a commercial nature: see the definition of "trade" in s. 237 of the Income Tax Act, 1918.
The concerns included in No. III have been transferred to sch. D. by the Finance Act, 1926, s. 28, but, though they were formerly dealt with under sch. A., because the taxpayer's income was primarily derived from his property in the land, the distinction was yet recognized between the proprietor who put his land to a normal use and the proprietor who put it to an extraordinary use by way of trade, producing uncertain annual returns: see Income Tax Act, 1803 (43 Geo. 3, c. 122), ss. 102, 103 and 104. Thus, the scheme of the Act is in accordance with good sense. In construing the words "of the like nature," the activities mentioned in r. 3 should be taken distributively as illustrations, so that any concern is included, which is like any one of those mentioned and thus a very wide net is thrown. Alternatively, the specific concerns enumerated should be regarded as a single collection with characteristics in common. These characteristics are:
- (a)
- a use of land the return from which could not be appropriately dealt with under No. I;
- (b)
- the earning of a return which is variable in amount;
- (c)
- a special use of land by exploitation of the land itself or of its constituent parts or of rights in or over land and
- (d)
- exploitation by commercial methods.
A sand-pit is ejusdem generis and falls within the class of concerns enumerated in r. 3. It is, for instance, of like nature to an alum mine or salt springs. Similarly concerns for working china clay have been customarily assessed under r. 3: see Hext v. Gill. [F2] Edmonds v. Eastwood [F3] is inconclusive on this issue but reliance is placed on the observations of Martin B. Mosley v. George Wimpey & Co., Ld. [F4] was rightly decided and to dismiss this appeal would involve overruling it. [They also referred to Edinburgh Southern Cemetery Co. v. Kinmont (Surveyor of Taxes); [F5] Ystradfodwg & Pontypridd Main Sewerage Board v. Bensted (Surveyor of Taxes); [F6] Shaw v. Lichfield Conduit Lands Trustees [F7] and Fry v. Salisbury House Estate, Ld. [F8] ] It is not contended that a sand-pit is a quarry of stone within r. 1 or a mine within r. 2.
King K.C. (of the English Bar), M'Coy K.C. (of the Irish Bar) and H. A. McVeigh (of the Irish Bar) for the respondent. Two questions arise:
- (a)
- whether what was being done by the respondent was a "concern" and
- (b)
- whether, if it was a "concern," it was a concern "of the like nature" within r. 3.
The answer to both questions is in the negative. On the facts the respondent derived all his profits from his property right as owner of the land or from his occupation of it or from a combination of the two, and, accordingly, his liability to tax would be completely covered by assessments under sch. A and sch. B. One must address one's mind to what he was doing. There is no evidence that he organized himself as a trader in sand, for he never put a spade into the ground. That was done by the contractors. A trade may consist of buying and selling or manufacturing or rendering services but here there was none of these things.
The respondent was merely licensing persons to take away part of the soil and that was not a "concern" on his part, so that there was no activity by him sufficient to warrant the conclusion that he was trading. He was merely exercising his property rights in land which in limine was subject to income tax on its annual value under No. I and not otherwise. The onus is on the Crown to establish without doubt that what he was doing was within r. 3 of No. III; the words of charge must clearly apply. From Croft v. Sywell Aerodrome, Ld. [F9] it appears what a great deal can be done by way of exercising property rights without going beyond the scope of No. I. The origins of sch. A are to be found in the Income Tax Act, 1805 (45 Geo. 3, c. 49), s. 37 and the Income Tax Act, 1806 (46 Geo. 3, c. 65), s. 74.
The words "other concerns of the like nature" first occur in No. III, r. 6, of the latter following a list of concerns, which, with some subsequent additions, is the same as that in the present r. 3. Sand-pits must have been familiar then and if they had been intended to be included they would have been specifically mentioned. From the list it is apparent that in the instances mentioned it is the concern that is carrying on the work, whereas a sand-pit is not a concern but a feature of nature. Admittedly it comes within neither r. 1 nor r. 2 and the Crown relies entirely on r. 3. But in the case of the concerns within r. 3 the land, while being put to divers uses, remains in its pristine condition, the fruit coming from the exploitation of proprietary rights. In contrast to the enterprises included in rr. 1 and 2, there is no abstraction of the land but only a special use of it.
Hence no concern can be within the words "of the like nature" unless the corpus is preserved while the land is being used, and a sand-pit in which the sand is gradually exhausted cannot be within r. 3. The inclusion in r. 3 of alum mines and salt springs may seem to present some difficulty but in both instances the principal activity is not extraction but processing: see Encyclopaedia Britannica (1946 ed.), vol. I, p. 762 and vol. XIX, p. 896. Accordingly, as this case falls neither within r. 3, nor within r. 1 or r. 2, it must fall within No. I, for the question of the making of profits is irrelevant and the tax in the case of this sand-pit does not depend on it. Apart from Mosley v. George Wimpey & Co., Ld. [F10] none of the authorities cited for the Crown bears on the present case. That case was wrongly decided. If it were right, one might be faced with the difficulty of several persons carrying on a concern on the same spot.
Curran A.-G. for Northern Ireland in reply. This is admittedly a case of an assessment under sch. A of the Act of 1918. The question is whether it is within No. I or No. III. The dicta running through the cases on which the Crown has relied are inconsistent with the respondent's arguments. In particular Edinburgh Southern Cemetery Co. v. Kinmont (Surveyor of Taxes) [F11] still stands and reliance is placed on the dicta there. Clearly a sand-pit is more closely connected with r. 3 of No. III than the selling of grave-plots, where there was no question of extraction of the soil: see also R. v. Bath Corporation. [F12]
As to the point relied on by the respondent with regard to the extraction of part of the soil, this is not consistent with the inclusion in r. 3 of alum mines and salt springs, and, moreover, there is no reason for treating concerns involving such extraction differently from others. In r. 3, one does not escape from concerns involving extraction. The respondent's distinction between processing and merely using land introduces needless complication. The words "other concerns of the like nature" mean "other concerns like any of the above." Sand-pits are like salt springs or alum mines. The distinguishing feature which places a case within No. III instead of No. I is the existence of a trading enterprise producing varying profits or returns. Fundamentally this is a Mo. III case. In the Income Tax Act, 1803, the various items of No. III were brought together: see ss. 102, 103 and 104. It is not till the later Acts that they are found segregated.
The House took time for consideration.
May 13. Viscount Simon -
My Lords, in order to reach a correct conclusion in this difficult matter it is necessary to examine the language of parts of sch. A with much care. It is first to be observed that No. I is the General Rule to which No. III, like No. II, is an exception. There is nothing, therefore, in the scheme of the schedule to require that No. III should be given a wider interpretation than its terms on their natural construction require. All that will happen when tax under sch. A is charged "in respect of the property in all lands, tenements, hereditaments, and heritages in the United Kingdom" is that, if the case does not fall within either of the rules which constitute exceptions, it will fall under the General Rule No. I and the tax will be calculated on annual value as therein defined. Number III is headed: "Rules for estimating the annual value of certain other Lands, Tenement,
Hereditaments, or Heritages which are not to be charged according to the preceding General Rule" and provides as follows:
- "1.
- In the case of quarries of stone, slate, limestone, or chalk, the annual value shall be understood to be the profits of the preceding year.
- 2.
- In the case of mines of coal, tin, lead, copper, mundic, iron and other mines, the annual value shall be understood to be the average amount for one year of the profits of the five preceding years ....
- 3.
- In the case of ironworks, gasworks, salt springs or works, alum mines or works, waterworks, streams of water, canals, inland navigations, docks, drains or levels, fishings, rights of markets and fairs, tolls, railways and other ways, bridges, ferries, and other concerns of the like nature having profits from or arising out of any lands, tenements, hereditaments or heritages, the annual value shall be understood to be the profits of the preceding year.
- 4.
- Tax under the above rules shall be assessed and charged on the person or body of persons carrying on the concern, or on the agents or other officers who have the direction or management of the concern or receive the profits thereof."
Section 28 of the Finance Act, 1926, transferred the calculation of tax in respect of properties included in No. III to Case I of sch. D, and consequently the measure is now the profits of the preceding year in r. 2 as well as in rr. 1 and 3.
I agree with Andrews C.J. that what the respondent was doing in connexion with his sand-pit amounted to the carrying on of a "concern." The question is not, of course (as the language of the commissioners, if strictly read, might seem to imply), whether the sand-pit was itself a "concern" but whether the respondent's activities in connexion with it amounted to the carrying on of a "concern," and this, I think, is what the commissioners really meant by their finding. "Concern" is a very wide word, and appears to imply an adequate degree of business organization for the purpose of carrying on the undertaking.
But the amount of organization needed must depend upon the character of the "concern" itself. It will be noted from the language of r. 4 that all the various enterprises in rr. 1, 2 and 3 are spoken of as "concerns" and it is obvious that the amount of organization needed for a toll or for streams of water would be vastly less than for a mine of coal or for gasworks. The language of r. 4 implies that, in order to amount to a "concern", there must be direction or management as well as the receipt of profits. Here the facts found by the commissioners show that there was a regular system of direction and management sufficient for the exploiting of the sand-pit by its owner, and the commissioners had material before them on which they could properly arrive at the conclusion of fact that the respondent was carrying on a "concern." Such a conclusion must be accepted unless there were no facts to support it, and in my opinion the conclusion can be supported by the material in the case. I should myself draw the same conclusion.
All this, however, will not assist the appellant unless the conclusion is also reached that the "concern" was a concern "of the like nature" within the meaning of r. 3. In view of the heterogeneous list of specific undertakings which precedes this phrase, it is a matter of the greatest difficulty to determine whether the phrase can properly include a sand-pit. Indeed, if a collection of items is heterogeneous, it almost seems a conflict in words to say that they belong to the same genus. But there the words are in the statute, and, if possible, the phrase must be given some meaning.
The arguments before the House have sought an interpretation by pursuing two alternative methods. One method is to search for some common feature in the specific items regarded as a single collection. The other method is to treat the phrase as though it ran, "other concerns of the like nature to any one of the above." The two contrasted methods are illustrated in the judgments of Scott L.J. and du Parcq L.J. in Mosley v. George Wimpey & Co., Ld., [F13] where the Court of Appeal held that the undertaking of working a gravel-pit by a company, which had acquired the exclusive right to do so, fell within the words now under examination. In that case Scott L.J. took the view that the list of specific undertakings in r. 3 constituted a single genus because they all involve a special or intensive use of the land with a view to its exploitation for commercial profit as distinguished from what he regarded as the ordinary use of land for agricultural purposes (including forestry) or for the site of buildings and the like. du Parcq L.J., on the other hand, was prepared to hold that a gravel-pit could be regarded as analogous to certain items in the list, viz., "salt springs or works" or "alum works," as these are instances in which profits are made by commercially dealing with mineral deposits on or under the land.
The phrase "other concerns of the like nature," following a whole list of concerns which, with some more recent additions, constituted the specific subject matters of what is now r. 3 of No. III, first appears in the Income Tax Act, 1806 (46 Geo. 3, c. 65), s. 74. "Gasworks" and "railways" were added to the list by the Income Tax Act, 1842 (5 & 6 Vict., c. 35). Mr. Cyril King, in resisting the contention that a sand-pit could be included as ejusdem generis with what went before, pointed out that in nearly all of the specific cases in r. 3, the ground itself is substantially preserved while the concern is being carried on, and there is no abstraction of the land but only a special use of it, whereas in rr. 1 and 2 the profit was made by abstraction of a wasting asset.
Hence, he argued, a concern which involves the abstraction and ultimate exhaustion of sand or gravel could not be within r. 3. Moreover, as such concerns as these were neither any of the quarries specified in r. 1 nor mines dealt with in r. 2, it followed that the tax under sch. A of the concern of carrying on a sand-pit did not depend on profits, but fell within the General Rule No. I. One difficulty in the way of this argument is that an alum mine would apparently involve substantial extraction. Moreover, this view of the matter would not only involve dissent from the Court of Appeal's decision in Mosley v. George Wimpey & Co., Ld. [F14] above referred to, but also would be inconsistent with views expressed as to the scope of r. 3 in Edinburgh Southern Cemetery Co. v. Kinmont (Surveyor of Taxes). [F15] This last case deserves careful consideration in connexion with the present matter, but it is not necessary in this appeal to reach a conclusion whether it is correctly decided or not.
The Crown's contention in the present case involves the drawing of a distinction between the "ordinary" and the "extraordinary" use of land, and by the latter is meant some intensive exploitation of the surface or subsoil, by means of which a profit is derived, which is likely to vary from year to year, as distinguished from the "normal" user of land, of which its use for agriculture or forestry or for the site of buildings are regarded as examples. In the latter case the assessment is by reference to annual value as defined in No. I and such annual value is not likely to vary each year.
On this view of the matter No. III applies where the land is specially exploited as distinguished from being normally used. It is suggested that such a contrast, though difficult to work out exactly, corresponds with the common sense of the matter and with the general scheme of income tax, for although the owner of land thus specially exploited was originally dealt with under sch. A because his income was primarily derived from his property either in or under the land, it was still desirable to draw a distinction between the proprietor who made a valuable profit by extraordinary user and the proprietor in whose case the use to which the land was put was "normal." Whatever view may be taken of this contention, it does not, to my mind, decide the present issue in favour of the Revenue. The difficulty of classifying the exploitation of sand-pits, or gravel-pits, as extraordinary or abnormal uses of land still persists.
The digging and carrying away of sand or of gravel have been, I apprehend, one of the normal uses of suitable areas of land from the earliest times. The very fact that a concern depending on a sand-pit requires so little organization makes me doubt whether an enterprise of this sort can properly be thrown into the "extraordinary" class. If, in the contemplation of the legislature, the exploitation of sand-pits or gravel-pits was an example of the special cases included in r. 3 of No. III, it is difficult to imagine why the rule did not specifically mention so obvious and so common an example.
The same consideration applies to clay for making bricks, and in Edmonds v. Eastwood, [F16] a very strong Court of Exchequer held that a brickfield was not within No. III. Pollock C.B., Watson B., Channell B., and Martin B., [F17] all took the view that the getting of such material from land would not bring into play the special rule. It does not appear that this decision was brought to the attention of the Court of Appeal in Mosley v. George Wimpey & Co., Ld., [F18] nor is there any reference to it in the judgments delivered in that case. It is possible that it may have been overlooked because Edmonds v. Eastwood [F16] is not a revenue case, but the importance of what the Court of Exchequer then laid down cannot be minimized.
My conclusion, therefore, is that the concern of working a sand-pit, such as is found to exist in this case, does not fall within the concerns covered by r. 3 of No. III and that the whole farm ought, as the Court of Appeal in Northern Ireland held, to be assessed under the General Rule No. 1. This conclusion involves the overruling of the ratio decidendi of Mosley v. George Wimpey & Co., Ld. [F18] We were informed that concerns for working china-clay have been customarily assessed under r. 3 of No. III, and, in view of the much greater elaboration of that process, which involves operations akin to mining (see the account given in Hext v. Gill), [F19] the present decision does not necessarily affect that practice.
I must add that the language of the rule is so obscure and so difficult to expound with confidence that - without seeking to apply any different principle of construction to a Revenue Act than would be proper in the case of legislation of a different kind - I feel that the taxpayer is entitled to demand that his liability to a higher charge should be made out with reasonable clearness before he is adversely affected. In the present instance, this reasonable clearness is wanting. I move that this appeal be dismissed with costs.