1936 (2) TMI 25 - Other - Income Tax

Summary

Issues:
1. Assessment of profits in a business transaction involving the sale of land and buildings.
2. Consideration of marketable security in determining profits.
3. Treatment of ground annuals as part of the sale transaction.
4. Applicability of accounting principles in assessing trading results.

Analysis:
1. Assessment of Profits: The case involved the appellants, builders and real estate dealers, who sold land and buildings in exchange for cash and ground annuals. The court emphasized that the transactions were completed sales, constituting part of the appellants' ordinary trading activities. The key issue was determining the profits made by the appellants in the relevant years of trade.

2. Marketable Security Consideration: The court recognized the ground annuals received by the appellants as a marketable security, akin to an annuity or bond, with a readily ascertainable market value. The ground annuals were deemed a valuable consideration received by the appellants, which needed to be factored into the assessment of profits derived from the sale transactions.

3. Treatment of Ground Annuals: The ground annuals, constituting a real burden on the land, were viewed as a tangible asset with a known market value. The court rejected the argument that the value of ground annuals should only be accounted for upon realization in the market, highlighting that the marketable value of such assets was immediately ascertainable and should be reflected in the trader's accounts.

4. Accounting Principles Application: The judgment underscored the application of standard accounting principles in evaluating trading outcomes. It was noted that the appellants had effectively exchanged their ownership rights in the properties for money and a marketable security, indicating a clear transfer of assets. The court upheld the lower court's decision, emphasizing the correctness of considering the market value of the ground annuals in assessing the profits generated from the sale transactions.

In conclusion, the appeal was dismissed, affirming the Court of Session's ruling. The judges unanimously agreed that the marketable security represented by the ground annuals had to be included in the computation of profits, given its tangible value and immediate marketability. The judgment underscored the importance of accounting for all valuable considerations received in a transaction to accurately determine the profits derived from business activities.