TMI Blog1969 (2) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits or gains of the farming enterprise carried on at Elrig by the respondents. The special commissioners allowed one-tenth of the cost of rates, repairs, maintenance and insurance incurred by the respondents in respect of the House of Elrig. The First Division of the Court of Session reversed their decision and held that the whole of the expenses referred to were a proper deduction. 3. By section 124(1) of the Income-tax Act, 1952, all farming and market gardening are treated as the carrying on of a trade and the profits or gains thereof are charged under Case I of Schedule D. By section 126 of the Act tax under Cases I and II of Schedule D is charged without any other deductions than is by the Act allowed. 4. Section 137 provides as follows : Subject to the provisions of the Act, in computing the amount of the profits or gains to be charged under Case I or Case II of Schedule D, no sum shall be deducted in respect of-(a) any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purpose of the trade, profession, or vocation ; (b) any disbursements or expenses of maintenance of the parties, their families or establishments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the maintenance of the trading asset form permissible deductions for income tax purposes. 8. The special commissioners have excluded nine-tenths of the expenditure on the basis that in terms of section 137(b) the major part of the expenses were expended for other domestic or private purposes distinct from the purposes of the trade of farming. In my opinion, the special commissioners fell into error. If the House of Elrig was the farmhouse and, as such, part of the farmland and part of the trading assets of the business, just as the fields were, then I fail to see how the repairs, rates and insurance can be said to be expenses for domestic or private purposes distinct from the purposes of the trade of farming. They are wholly and exclusively laid out on the farmhouse. It is not suggested that the expenses of maintenance were other than what were reasonable in the circumstances. The First Division were, therefore, right, in my view, in holding that the whole of the expenses fell to be allowed as a deduction. 9. There is no warrant under section 137 for an apportionment of the total expenses as between the agricultural and the private purposes, as there is to be found in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hedule D at all ; it was a natural use of land as such so that the owner who farmed his own land was taxed under Schedules A and B and the tenant farmer was taxed under Schedule B. This method of taxation being virtually fixed (subject only to periodical review) was splendid for the farmer when farming was profitable but not so good in the years of depression and so, in 1887, Parliament provided that the farmer might elect to be assessed and charged under Schedule D, while in 1896 (when the depression was even worse) it provided that where the profits fell short of the Schedule B assessment the income arising from the occupation should be taken as the actual profits or gains. But in 1941, when no doubt farming was very profitable, the legislature enacted in section 10(1) of the Finance Act, 1941, that all farming and market gardening in the United Kingdom was to be treated as a trade and charged under Case I of Schedule D accordingly. This is now section 124(1) of the Act of 1952. The result of this compulsory change to Schedule D was that, apart altogether from section 526, the farmer occupying a house (no doubt with his wife and children) for the purpose of his farming activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f which the farmhouse is an asset is a trade for the purposes of Schedule D and is, therefore, subject to section 137 which is in these terms : Subject to the provisions of this Act, in computing the amount of the profits or gains to be charged under Case I or Case II of Schedule D, no sum shall be deducted in respect of :-(a) any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade, profession or vocation ; (b) any disbursements or expenses of maintenance of the parties, their families or establishments or any sums expended for any other domestic or private purposes distinct from the purposes of such trade, profession or vocation. 18. So one must look at the claim for deduction and see whether it passes through the sieve of that section. In this case the expenses or disbursements claimed are for rates, repairs and insurance (all reasonable in amount) upon and in respect of the farmhouse that is an asset of the partnership and as such those claims are typical of expenses or disbursements which have normally to be discharged and then allowed by the Crown under paragraph (a) in respect of buildings upon which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to say that I am no more satisfied than were the Special Commissioners that this house could properly be described as the farmhouse within section 526. This is a matter of fact to be decided in the circumstances of each case and I would think that to be the farmhouse for the purposes of the section it must be judged in accordance with ordinary ideas of what is appropriate in size, content and layout taken in conjunction with the farm buildings, and the particular area of farmland being farmed and not part of a rich man's considerable residence ; I say that without reference to the facts of this case. 23. Another question that may one day arise is whether, although in section 526 the words wholly or mainly occupied for the purposes of husbandry govern grammatically only farm land, yet did Parliament intend that the definition in that section should apply to the farmhouse which, though appropriate in size, content and layout to the farmland is occupied by someone who does not really occupy it for farming but, for example, mainly as a weekend residence, though he may use it partly as a farmhouse (and possibly be entitled to make a claim under the practice I have ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits. Why, therefore, may they not be deducted ? The Revenue's answer is that the expenditure was not wholly and exclusively laid out for the purposes of the trade, but that the bulk of it was laid out for private and domestic purposes. 30. The only evidence relied upon by the Revenue in support of these contentions is that in fact the farmhouse is used a good deal by Professor Korner and his family as a private residence. Much of the expenditure, therefore, enures to the benefit of himself and his family as residents in the house. But this is immaterial unless such private benefit was the purpose of the expenditure. If a smoky chimney in the library has to be swept so as to enable the Professor to work on his farm records and statistics there, the expense incurred is none the less all trading expenditure notwithstanding that it enables him to read a novel more comfortably in the evenings. There is simply no evidence in the case to displace the legitimate prima facie assumption that the expenditure on rates, repairs and maintenance and insurance were for the purposes of the trade alone. Professor Korner gave evidence and was no doubt cross-examined : and any answers whic ..... 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