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Pontypridd and Rhondda Joint Water Board Versus Ostime (HM. Inspector of Taxes)

1946 (3) TMI 18 - IN THE HOUSE OF LORDS

Pontypridd and Khondda Water Act, 1910 - Dated:- 29-3-1946 - VISCOUNT SIMON, LORD THANKERTON, LORD WRIGHT, LORD PORTER, LORD SIMONDS JUDGES Tucker, K.C. and Donovan, K.C. for the Appellant. Sir Patrick Hastings, K.C. and Reginald P. Hills for the Respondent. JUDGMENT Viscount Simon - I have had the advantage of considering the opinion which my noble and learned friend Lord Thankerton is about to deliver, in which he has fully set out the facts in this case, and has examined and analysed the auth .....

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t in arriving fit the balance of profits or gains under Case I of Schedule D. It is sufficient to cite the decision of this House in the sugar-beet case (Lincolnshire Sugar Co. v. Smart [1937] 20 Tax Cas. 643) as an illustration. 3. The second proposition constitutes an exception. If the undertaker is a rating authority and the subsidy is the proceeds of rates imposed by it or comes from a fund belonging to the authority, the identity of the source with the recipient prevents any question of pro .....

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ted, it was rightly decided, but it does not help the appellants. The precept? which the appellants issued called for lump sums to be contributed by the two urban district councils which they might pay either from their respective district funds or by levying rates. They were not agents for the appellants in finding the money, but distinct parties. It is true that if either of the councils did not provide the money, the appellants, instead of suing it, might itself by precept empower an officer .....

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8, in the estimated sum of £ 10,000 for the year 1939-1940 in respect of the profits of its trade, which was that of an undertaking for the supply of water. The only question argued before this House was whether certain sums paid, under precept, to the appellant board by the Pontypridd Urban District Council and the Rhondda Urban District Council under Section 91 of the Pontypridd and Khondda Water Act, 1910, fall to be included as receipts in the computation of the appellant board s trade .....

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Commissioners held that it should be so allowed, and this conclusion was affirmed in the King s Bench Division and in the Court of Appeal, and the Crown did not press for its disallowance before this House. That point accordingly requires no further mention. On appeal, the decision of the General Commissioners that the sums received under precept by the appellant board were not trading receipts and should not be included in the computation of profits was affirmed by Macnaghten, J., but an appea .....

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unt of the rate so raised is not a receipt of the local authority s said trade, and (7) the board s position in respect of the sum raised by precept to meet its trading losses is similar to that of a local authority, its ratepayers being either the two councils, the Rhondda Urban District Council and the Pontypridd Urban District Council as its constituent authorities, or the individual ratepayers of those two districts. 9. The appellant board was established as a corporate body by a local Act, .....

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two urban district councils, these two councils being referred to in the Act as the constituent authorities. 10. Under Sections 58 and 59 of the Act of 1910, as amended by Section 25 (6) of the Pontypridd and Rhondda Water Act of 1913, the limits of supply within which the board are authorised to supply water direct to consumers are (1) the Pontypridd urban district, and (2) part only of the Rhondda urban district, but in addition the Board was authorised to sell water in bulk to the water under .....

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board from the persons to whom water-is supplied consists of (a) payments made direct to the board by the consumers within the limits of supply, and (b) payments made by the water undertakers in the Llantrisant and Llantwit Fardre rural district and part of the Caerphilly urban district for water sold to them in bulk. It is admitted that both these classes of payments are trade receipts. In addition further sums are received by the board by virtue of Section 91 of the Act of 1910, the material p .....

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case forthwith to apportion the sum required to meet such deficiency between the constituent authorities in accordance with the provisions of this section. (2) The sum required to meet any deficiency whether for satisfying past or future liabilities shall be apportioned between and borne by the constituent authorities in the proportion which the assessable value of the Pontypridd district bears to the assessable value of that part of the Rhondda district which is within the limits of supply. (3 .....

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e accordingly and the constituent authorities respectively are hereby authorised and required to make and levy any rate that may be necessary for the purposes of this section. 12. Sub-section (5) of Section 91 provides that in default of payment by a constituent authority of the amount so apportioned to it, the board may sue the defaulting authority, or itself cause a rate to be levied in the district of such authority, in order to secure payment. Pursuant to Section 91, the board made an estima .....

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o meet an estimated deficiency in the result of what are admittedly trading activities, fall to be taken into account in computing the profits and gains of the board s trade under Case I of Schedule D. 13. Counsel for the appellant board submitted in the first place that the amounts of the precepts were not to be included among its trade receipts, in view of the decision in the case usually referred to as the First Glasgow Case (Glasgow Water Commissioners v. Inland Revenue Commissioners) [1875] .....

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benefit of the well recognised principle of the exemption of public rating authorities from taxation in respect of the surplus of rates, which is defined by Lord Buckmaster in Forth Conservancy Board v. Inland Revenue Commissioners [1931] 16 Tax Cas. 103 as follows: The principle of exemption for the surplus of rates is, I think, to be found in this, that the rating authority collects money from the inhabitants of the district for the purpose of application to the expenses incurred on behalf of .....

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er Chamber, Keating, J., said: Mr. Manisty does not contend that harbour and port dues, and other revenues of that description, are not taxable; and the Attorney General admits that a district rate is not. The question then is, does the rate in question partake more of the nature of the one or of the other? I am of opinion that it does not partake of the character of a district rate imposed by the inhabitants of a place upon themselves ; and that, on the other hand, it is very difficult to disti .....

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as representing and for and on behalf of the community of the said city, are hereby appointed commissioners for executing and carrying into effect the purposes of this Act. They were required to furnish the City of Glasgow, that is, within the municipal boundaries, with a supply of water for domestic purposes, and to erect thirty-two public fountains within those boundaries which form the limits of compulsory supply. They were empowered also to deal with parties outside the compulsory limits. W .....

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, interest on borrowed money and sinking fund charges, the commissioners were required to apply any surplus in reduction of the domestic water rate for the following year. Having been assessed to income tax for the year 1872-1873 in respect of profits to the amount of £ 17,032 15s., arising upon their undertaking, the water commissioners appeal was refused by the Commissioners of Property and Income Tax for the City of Glasgow, and a case stated by them came before the First Division of th .....

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count, to be applied as the Act directs in reducing the domestic water rate ; and the question is, whether income arising from this assessment, which is appropriated to such purposes, is assessable for income tax under Schedule D as profits of this undertaking. I am humbly of opinion that it is not. It seems to me that this is an Act of Parliament by which the citizens of Glasgow have undertaken, through this water corporation as their representatives, to assess themselves for a very important p .....

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icial interest accruing to any individuals, or to any corporation. The object of the assessment is to pay for bringing in the water, and when that is done the assessment and the authority to levy it come to an end. The Lord President then distinguishes the case from the case of Attorney General v. Black [1871] 1 Tax Cas. 52, and Attorney-General v. Scott [1874] 1 Tax Cas. 55. The case is entirely different from those that have been cited, which have been decided in the Court of Exchequer in Engl .....

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es from the rates levied within the limits of compulsory supply, and that portion of the revenue which is raised in the districts beyond the limits of compulsory supply, I should have been very glad to attend to any grounds which might have been urged for such a distinction. The taxability of profits in respect of the extraneous sources of revenue was raised in Glasgow Water Commissioners v. Miller [1886] 2 Tax Cas. 131, in which it was held that, while the rates levied within the compulsory are .....

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elivering the judgment of the Court, said : We were all of opinion that within the limits of compulsory supply the concern or undertaking as denned by the local Act, was of this nature, that the citizens of Glasgow undertook to assess themselves for accomplishing the important public purpose of supplying the city (being the limits of compulsory supply) with a good supply of pure water; that in doing so they had and could have no view of making profit, for that would have been equivalent to payin .....

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expressly appointed as representing and for and on behalf of the community of the City of Glasgow, which formed the area of compulsory supply; (2) the commissioners had the power of levying the domestic and public rates direct on the ratepayers within the compulsory area, and, quoad these rates, the ratepayers were ratepayers of the commissioners and not of the municipal corporation; (3) these rates were payable whether the particular ratepayer chose to use the water or not; (4) no price was pai .....

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) are not directly representative of the inhabitants of the Rhondda and Pontypridd Urban District Councils; (2) their limits of supply do not include the whole of the Khondda urban district; (3) they have no power to levy a rate, except on default of a constituent authority; (4) the sums obtained by precepts under Section 91 are not the expense of obtaining a benefit for the inhabitants of the compulsory area, but are designed to meet a deficiency arising out of the insufficiency of their admitt .....

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enter into a trading transaction with the board. In all these respects the present case is in strong contrast to the First Glasgow case [1875] 1 Tax Cas. 28. 18. It is true that in the case of the Forth Conservancy Board v. Inland Revenue Commissioners [1931] 16 Tax Cas. 103- Lord Buckrnaster, while finding it unnecessary for the purposes of that case to examine the soundness of the decision in the First Glasgow case, said it appeared difficult to reconcile it with the later decision in this Ho .....

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decision referred to the First Glasgow case. Lord Blackburn approved of the principle on which the Court of Session acted, though not having the Glasgow Act before him, he was not able to say whether a proper construction had been put on it. Lord Fitzgerald clearly found no inconsistency between the decision in the Glasgow case and the decision in the Mersey Docks case. Having again considered the matter, I am unable to find any inconsistency between the decisions in these two cases. 19. The app .....

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a local rate raised by a public body for the assistance of an undertaking carried on by that body, which is entitled to have such assistance. But I will deal first with head (a) of his second contention, by which he contended on general grounds that the sums in question were not trade receipts. In regard to this contention he cited two cases, the first of which was Seaham Harbour Dock Go. v. Crook [1931] 16 Tax Cas. 333, which was decided by this House in 1931. The Harbour Dock Co. had applied f .....

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n employment. It was not a trade receipt. Lord Atkin said : When received, they were received by the appropriate body not as part of their profits or gains or as a sum which went to make up the profits or gains of their trade. I am unable to regard the sums here in question as falling into the same category as the unemployment grants; on the contrary, they were received as a sum which went to make up the profits or gains of their trade. The other case cited was Lincolnshire Sugar Co. v. Smart [1 .....

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