1941 (12) TMI 27 - DSC - Income Tax

Summary

Issues Involved:
1. Whether the respondents were carrying on a trade and thus assessable under Case I of Schedule D.
2. Whether the profits derived from the respondents' activities fall under Schedule A, Schedule B, or Schedule D.
3. The distinction between profits derived from property rights and those from occupation.
4. The applicability of previous case law to the current facts.
5. The relevance of services provided by the respondents in determining the appropriate schedule for tax assessment.

Issue-wise Detailed Analysis:

1. Whether the respondents were carrying on a trade and thus assessable under Case I of Schedule D:
The first contention by the Crown was that the respondents were carrying on a trade and thus assessable under Case I of Schedule D. The Commissioners negated this contention by implication, as Case VI only applies to profits not falling under any of the foregoing Cases. Therefore, it was unnecessary to consider whether the relevant case was Case I, given the Commissioners' findings.

2. Whether the profits derived from the respondents' activities fall under Schedule A, Schedule B, or Schedule D:
The respondents contended that all their profits were derived from their property rights as owners of the aerodrome or from the occupation of the land, or a combination of the two, and thus covered by assessments under Schedule A or Schedule B. Income tax is a tax on income, and this observation applies equally to Schedules A and B. For Schedules A and B, the actual receipt of income is not necessary to attract the tax; the owner and occupier of lands are deemed to obtain income from mere ownership and occupation, respectively.

3. The distinction between profits derived from property rights and those from occupation:
The broad distinction between the two schedules is that profits falling under Schedule A are those annual profits an owner makes by granting or limiting part of his rights as owner of the land in favor of others. In contrast, those under Schedule B are those annual profits an occupier makes by his operations on the land itself or by the unaided bounty of nature. The essence of the distinction lies in the difference between rights, which are a legal conception with no physical existence, and the land itself as a physical thing.

4. The applicability of previous case law to the current facts:
Several cases were discussed to determine their applicability:
- Fry v. Salisbury House Estates Ltd. and Glanely (Lord) v. Wightman: These cases established that profits referable to property or occupation must be assessed under Schedules A or B.
- Coman v. Rotunda Hospital, Dublin (Governors): This case was distinguished as it involved profits derived from providing services and equipment, which were not merely incidental to the letting of rooms.
- Carlisle and Silloth Golf Club Co. v. Smith: This case involved the provision of amenities and services, which fell outside the scope of Schedule A.
- Inland Revenue Commissioners v. Stonehaven Recreation Ground Trustees: This case involved a ground laid out with equipment for various games, and the profits were not covered by Schedule A.
- Elliott v. Burn and Whelan v. Leney & Co.: These cases supported the view that profits derived from property rights are covered by Schedule A.
- Shop Investments, Ltd. v. Sweet: This case involved the letting of a cinema with equipment, and the profits were not covered by Schedule A.

5. The relevance of services provided by the respondents in determining the appropriate schedule for tax assessment:
The respondents performed certain services, such as providing first-aid appliances and tools, which were conditions of the Air Ministry license. However, these services were not substantial enough to change the character of the profits derived from property rights. The provision of tools and equipment was a minor aspect and did not alter the overall assessment under Schedule A or B.

Conclusion:
The appeals were dismissed, affirming that the profits derived by the respondents were covered by assessments under Schedule A or B. The Master of the Rolls and Clauson, L.J., concurred in this conclusion, while Du Parcq, L.J., dissented, believing the company was carrying on a trade assessable under Case I of Schedule D. The judgment emphasized that the respondents' activities were primarily the exercise and exploitation of their property rights, not a trading operation.