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Croft Inspector of Taxes Vs. Sywell Aerodrome Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata
Decided On
Reported in[1942]10ITR96(Cal)
AppellantCroft Inspector of Taxes
RespondentSywell Aerodrome Ltd.
Cases Referred(Rusell v. Town and County Bank
Excerpt:
- nov 11,12; dec. 17, 1941lord greene, m. r. [his lordship stated the facts and after saying that he could not follow the argument of the counsel for the crown, continued :] if the argument had been that the respondents were carrying on the business of granting leases and licences of an aerodrome which they had constructed i could have understood it. but it would not have assisted me to solve the question which is before us, namely, whether or not profits derived from such transactions are exclusively taxed under schedules a and b. to assert that the respondents are carrying on a business, and therefore are liable to tax under schedule d. is to beg the question. but i shall have to consider in the course of this judgment certain services performed by the respondents. they are (1) the.....
Judgment:
NOV 11,12; Dec. 17, 1941

LORD GREENE, M. R. [His Lordship stated the facts and after saying that he could not follow the argument of the counsel for the Crown, continued :] If the argument had been that the respondents were carrying on the business of granting leases and licences of an aerodrome which they had constructed I could have understood it. But it would not have assisted me to solve the question which is before us, namely, whether or not profits derived from such transactions are exclusively taxed under Schedules A and B. To assert that the respondents are carrying on a business, and therefore are liable to tax under Schedule D. is to beg the question. But I shall have to consider in the course of this judgment certain services performed by the respondents. They are (1) the services of their groundsman whose function is to keep the surface of the landing-ground in good order; (2) the provision of first-aid appliances and tools under a condition contained in the licence from the Air Ministry. This condition can apparently be satisfied by keeping the appliances and tools in an accessible place without the necessity of having any staff to use them or hand them out.

The first contention on behalf of the Crown was, and is, that the respondents were in respect of some of their activities carrying on a trade and were consequently assessable under Case I. This contention the Commissioners quite clearly negatived by implication. This appears from the language of Case VI which only applies to profits not falling under any of the foregoing Cases. Having regard to the conclusions which I have reached, it is unnecessary to consider the question whether, in view of finding of the Commissioners, it is open to the Crown to argue that the relevant case is Case I.

The respondents contention was to the effect that all their profits are derived from their property rights as owners of the aerodrome, or from the occupation of the land, or alternatively from a combination of the two; and that accordingly they are completely cover by the assessments under Schedule A or Schedule B, or both as the case may be. The contention that the profits are derived from occupation found favour with Lawrence, J., and these appeals result.

The questions raised by the appeals call for some re-examination of certain features of the Income-tax Acts which relate to assessments under Schedule A and Schedule B. If I may begin with a common-place, income-tax is a tax on income and this observation applies equally in the cases of Schedules A and B as in those of the other Schedules. There is, however, this difference, namely, that whereas the other Schedules only deal with income actually received (calculated it is true in accordance with the relevant rules), in the case of Schedules A and B the actual receipt of income is not necessary in order to attract the tax. The owner of lands is deemed to obtain income from his mere ownership, and the occupier of lands is deemed to obtain income from his mere occupation. The measure of the income so deemed to be derived is in the ordinary sense determined by reference to the annual value as defined.'The result' to quote the language of Lord Dunedin in Fry v. Salisbury House Estates, Ltd. (99 L. J. K. B., at p. 405; [1930] A. C., at pp. 339-40) 'is that by the operation of the assessment under Schedule A which is made imperative by the statute..... the income of the assessee is so far dealt with and cannot be dealt with again.' The same is true of income which is assessed under Schedule B. Where therefore, in respect of any particular land, tax has been assessed, as it must be, both in respect of the property in the land under schedule A and in respect of the occupation of the land under schedule B, no further tax is eligible in respect of any income referable to that property or that occupation, even if such actual income greatly exceeds the value upon which the tax is calculated. Similarily, apart from specific provisions, the taxpayers who derives from his property or his occupation an actual income which falls below the assessed value can obtain no deduction of tax. It is perhaps not unnatural that the revenue authorities, finding in certain cases a very large excess of actual income over the assessed value, have endeavored to levy tax upon that excess by treating it as referable to a trade under case I of schedule D, or to a profit under case VI. Instances of these endeavours are to be found in the case of schedule A in Gry v. Salisbury House Estates Ltd and in the case of schedule B in Glanley (Lord) v. Wightman. The effect of these decisions is that, where profits are referable to property or occupation, the crown, like the subject, is bound by the statutory make sure in accordance with which such profits fall to be ascertained. A further principle I think also emerges, namely, that even if the profits in question are made by means of highly organised commercial operation, the relevant schedule, be it A or B, must be applied. Once a profit is referable to property or occupation, in that category it must remain. It cannot be taken out of that category by calling the operation which gives rise to it a trading operation.

But these considerations do not solve the question, what profit making operations are referable to the right of property under schedule a or to that of occupation under schedule B. In ordinary legal phraseology, the right to occupy is one of the rights of property, and may, of course, become separated from the others. But for the purpose of the Income tax acts, the right of occupation is treated as always so separated, although it may be enjoyed by the person who owns the other rights of properties. Thus a person who is both owner and occupier is regarded as taxable in two different capacities in respect of two different profits calculated on two different principles. It is, or may be and in the present case I think it is important to bear this in mind. To say, for instance, that each of the heads of profit which it is sought in the present case to tax falls under one or other of the two schedules is an unsatisfactory answer. If the respondents are right, it is because these heads of profits are shown, to fall under one or the other of the two schedules they cannot fall under both.

On principle and apart from authority, and leaving aside special cases for which particular provision is made, the broad distinction between the two schedule appears to me to be that the profits falling under schedule A are those annual profits which an owner makes, or could make, by granting or limiting part of his rights as owner of the land in favour of others; while those falling under schedule B are those annual profits which an occupier makes, or could make, by his own operation on the distinction which I see lies in the difference between rights which are a legal conception with no physical thing. Let me take the simple case of land belonging to A which is let at a rack rent to B. Here A is not himself by his own operation extracting profits from the land itself he is transferring to B for an annual consideration part of his rights of property in relation to the land B on the other hand, is the occupier, and such is in a position to extract profit from the land itself by his own operations. In other words, A is exploiting his rights; B is exploiting the land itself which is the subject matter of those rights. If, on the other hand, A, instead of leasing the land, retains it in his own hands, he is treated for tax purposes as deriving two different profits, the one which he could have made by exploiting his rights of property, the other which he makes, or could have made, by exploiting the land itself. The word 'exploit' as I have used it requites a word of explanation. To adopt the illustration of Romer, L J., in the Glanely case, a man who occupies his land merely by sitting on it and therin writing poetry is not exploiting either his right of property in the land or the land itself. It is not correct to say that one of the rights of property to occupy land, but the purpose for which it is occupied is from the point of view of property rights and apart form such matters as restrictive covenants irrelevant. The reason why a person can lawfully sit and write poetry, but because he is entitled or property confers any rights to write poetry, but because he is entitled to occupy that particular land by sitting on it, or standing on it or lying on it, as he pleases. The writing of poetry, on the other hand is a thing which anyone is entitled to do wherever he may be, just as is the right to twiddle ones thumbs. The word 'right' inregard to these activities is used in a totally sense to that of rights of property. Similarly, an occupier in virtue of his right of occupation is entitled to sit on the land, but the writing of poetry is not an exercise of the right of occupation. The right to occupy a piece of land is essential to the writing of poetry on that piece of land, and that is all that can be said about it.

The extraction of profit from the land may, of course, take different forms. Thus the occupier may himself consume the fruits of the land, or he may sell them to others. Such sale again may take different forms; the sale of potatoes grown on the land, the agistment of cattle, the provision of the services of a stallion and the accommodation of visiting mares are all in the last analysis utilisation for profit of products of the land, any they are inherently different from transactions under which the proprietor of a general or limited property in land grants to another rights over or in relation of the land. The typical example of such a transaction is, of course, that of a lease, but, for the purposes of schedule A, profits derived from property are not confine to profits derived under leases, as appears from the decision of the House of Lords in Elliott v. Burn, to which I will refer later.

These considerations appear to me to provide an answer to the question, why and on what principle i a person who, for example, sets up a refreshment stall on his land, or provides service for people admitted to his land not exhaustively taxed under schedule A or B (as the case may be) in respect of the profits so earned? Such a person in my view, is not exploiting his rights of property or of occupation save in the sense and to the limited extent that he must own or occupy the land before he can erect and carry on the refreshment stall or perform the services. The profits earned in such a case are referable, not to the exercise of the rights of property or of occupation, since the customers come on to the land for the purpose of obtaining refreshment or procuring the benefit of the service. If, on the other hand, the owner of land having (let me suppose) a remarkable view or some historic monument merely allows the public to come on to the land in return for an admission fee, I cannot myself see why it should not be said that his profits are not covered by the schedule A assessment, since all that he is doing is to exploit his right of property by granting licences to come upon the land. The fact that he keeps the path in order or the monument in repair in order to make no difference any more than does the action of the landlord of a house keeping it in repair.

To revert now to my illustration of A and B, it is to be noted that Bs Position is a dual one. As lessee he has vested in him part of the property rights of A; as lessee in occupation, he is in a position to exploit the land itself to his own advantage. Now suppose that B in his turn sub demises the land to C. What he is then doing is not to exploit the land itself, but to exploit the rights in the land which the head lease has conferred upon him. In other words the profit which he derives from the sub lease is a schedule A matter, not a schedule B matter, but this does not mean that he is liable to bear tax in respect of the rent which he receives. He may or may not have to bear some tax according to circumstances. For example, if both the head lease and the sub lease are ate the same rent, being a rack rent, C deducts the tax on paying his rent to B and B deducts the same of tax on paying his rent to A (schedule A, No VIII, Rule 4) If on the other hand, the head lease is at a rent which is less than a rack rent and sub lease is at a rack rent, B can only deduct from the rent which he pays to B the result of this is that the tax payable under schedule A is to be regarded as payable in respect of the totality of the property rights in the land, notwithstanding that those rights may be separated so as to lie in different hands, and any exploitation of the rights by any of the persons among whom they are distributed is covered by the one assessment. The incidence of the tax as between those persons may result in one of them paying the whole, or in the tax being distributed among them as in the last example given above. In support of this view I would call attention to the language used in schedule A, No VIII, Rule 4 (1) in the second proviso to which reference is made to 'such persons as aforesaid' scilicet ' a landlord owner or proprietor.... who is also a tenant or the occupier and the contrasted phrase ' a tenant occupier' in Rule 1.

The relevance of these observations to the present case will appears from what follows. The respondents are, as I have pointed out, the owners, and in so far as regards the land as distinct from the buildings, they are occupiers. If the lease to Brooklands Aviation, Ltd., be assumed to have been the sole transaction, the first question to arise is whether the profit derived by the respondents from the lease in so far as it relates to the land as distinct from the buildings, is covered by the schedule A or B assessments and if so which? If my reasoning be correct, it is not covered by the schedule B assessment but is covered by the schedule A assessment, for the reason that the lease in the land, and not an exploitation of the land itself. They are not by the lease extracting profits from the land by their own exertions such as tilling the land, or by waiting for the fruits of the lands to fall into their laps without exertion of their own, as in the case of an apple falling from an untended apple tree. They are for an annual consideration conferring upon another company something which they can only confer by virtue of their right of property in the land, namely, the right to come upon the land and do certain acts upon it. The matter may be tested by assuming that the respondents had demised the land to X and X had then (in the absence of any restrictive covenant in his lease) granted the lease to Brooklands Aviation, Ltd. It appears to me that X would thereby have been exploiting the right of property vested in him under the lease, not his right as occupier. Now if Xs lease Brooklands Aviation, Ltd, had been a profitable one to him it is to be assumed as a matter of business that when Xs lease came to an end, if the Brookland Co., desired to renew their agreement, the rent payable by X under a new lease would be put up, and accordingly the schedule A tax which would ultimately fall on the head lessors would be increased by reasons of the proved increase in annual value. In the result the statutory profits derived from the property rights divided between the head lessors and X would bear one tax which would reflect the increased value of those rights.

If, in the present case, the land had been demised to the Brooklands Co., with appropriate restrictions on user and a power reserved to the respondents to grants licences to others to bring their aircraft to ground upon the land, there could since the Salisbury House Case have been no questions but that the schedule A assessment covered the profits derived from the lease. But it is suggested that the case is different, because here the Brooklands Co., so far as the land is concerned, are merely licences. does. When the owner of land grants a licence to another to come upon his land he is exercising his rights of property just as much as when he is granting a lease. It is by virtue of his proprietary rights that he has power to grant the licence, and this equally true be he freeholder or leaseholder. The fact that a licensee carries on a trade on the strenght of his licence has nothing in the world to do with the owner who grants the licence. It does not convert him for tax purposes into a person carrying on a trade any more than in the case where a lessee carries on a trade. The fact that the land is peculiarly suitable for carrying on the trade whether under a lease or a licence, will or should in the long run be reflected in its annual value for tax purposes. If, for instance a person owns a piece of land contiguous at a racecourse where there is a great demand for parking accommodation, the existence of the demand should in thereby be reflected sooner or later in an increased assessment for the purposes of schedule A. But i cannot see on what principle the profit which the person in question makes from granting temporary licences to park motor cars on the land can be said not be covered by the schedule A assessment but to fall under case I or case VI of schedule D. If, on the other hand, more is done than the mere granting of licences, for examples, if the cars are washed or repairs effected, the profits realised by these activities will clearly fall outside schedule A.

I cannot find in any one of the respondents activities anything but the exercise and exploitation of their rights of property. If the grant of on licence is merely an exercise of such rights I cannot see that the grant of half a dozen licences bears a different character. The crowns case is that although if there had only been one activity the profits derived from it might have been covered by schedule A, yet taking the totality of the activities there is a trade under case I of schedule D, or at any rate a profit which is not covered by schedule A. and is therefore assessable under case VI. This argument with all respect appears to me to be fallacious. Nought plus nought plus nought does not equal one. If the crown is dissatisfied at the sight of land owner obtaining by the exercise and exploitation of his property rights a profits greater than the annual value of the land as assessed under schedule A, its remedy is to obtain if it can a revision of the assessment, and not to endeavour to force into another schedule profits which are already taxed under schedule A In my view the present attempt deserves to fail, just as completely as did the attempt in the Salisbury House Case.

I have set out the conclusion at which I have arrived on principle. But they cannot of course stand if the authorities forbid it, and I must now turn to a consideration of certain cases on which reliance was placed. I may begin by saying that the Crowns unsuccessful attempts in the Salisbury House Case and Glanely cases achieved one most useful result, since the decisions in those cases have shed a flood of light on much that was previously obscure in the principles governing schedules A and B, in their relation to schedule D. The cases principally relied on by the crown before us were all earlier than those decisions and must be interpreted in the light of the law s laid down in those decisions. The principal case to which reference must first be made is Coman v. Rotunda Hospital Dunlin (governors). In that case the hospital was edneavouring to obtain for the profits of the Rotunda rooms the exemption given in facour of hospitals by the third paragraph of No. VI of schedule A by section 61 of the Income tax act, 1842 (now reproduced in section 37 (1) of the income-tax act, 1918). In order to make good this claim it was necessary for the hospital to establish that the profits were profits of tenements belonging to it that they were assessable under schedule A, that being the schedule under which the exemption was and is granted. The case seems to me have been a clear one, since once the nature and source of the profits was examined it became impossible to describe them as profits of tenements' Lord Birkenhead said of the hospital that they 'afford the hirers not merely a right or licence of use the rooms but also fixture and fitting, some of which are clearly not part of the building but are separate chattlel and the respondents provide certain services such as heat, light and attendance' (89 L J P C, at p. 166; [1921] 1 A C., at p, 18; 7 Tax cas., at p. 582) : 'Profits' he says, 'are undoubtedly received in the present case which are applied to charitable purposes, but they are profits derived, not merely from the letting of the tenement, but from its being let properly equipped for entertainments. The business of the governors in respect of these entertainment is to have the hall properly fitted and prepared for being hired out for for such uses. The profits fall under schedule D and to such profits the allowance in question has no application, as they cannot be properly described as rents or profits of lands, tenements, hereditament or heritages.' I call attention to the words ' the mere denement as it stands without furniture, etc., would be almost useless for entertainments.' As appears from the stated from the state case there, which is printed in the report in 7 tax cas., at pp. 518-21, the hospital made no attempt to apportion the profits as between the tenement itself and the other matters provided, and there would obviously have been no point in attempting to do so. In the present case there is nothing analogous to the provision of chattels and services found in the Rotunda case, and I cannot regard that case as lord Tomlin puts it in the Salisbury House (99 L J K B., at p. 416; [1930] A C., at p. 462; 15 Tax cas., at p. 324) utlisation of the land attributable neither to the property quality nor to the occupation quality producing profits assessable to tax under schedule D.'

In the Salisbury House Case reference is made in some of the opinion delivered to the fact in the Rotunda case the hospital remained in occupation and granted mere licence. I do not understand these passages as suggesting that there is for present purposes any difference in principle between a lease and a licence. They are, I think, directed to pointing out that in the Rotunda case the hospital was actually carrying on activities which could only b carried on by a person in occupation whereas in the Salisbury House case the company had granted leases.

Before leaving in the Rotunda case, I must refer to one passage in the speech of Lord Birkenhead upon which the Attorney General placed particular reliance. In it (89 L J P C., at page 169; [1921] 1 A. C. at B is directed to tax the benefit of occupation where the land or tenement is not occupied as a dwelling or warehouse or for the purpose, of carrying on a trade or business, the profits of trade or business being assessed under schedule D. As was pointed out by Clauson, L J., in the course of the argument, this passage as reported is merely a paraphrase of schedule B No. VII, in section 63 of the act of 1842 (now Rule 1 of schedule B). If the actual words of the satute had been adopted the passage would have run ' where the land or tenement is not occupied as a dwelling house and is not a warehouse occupied for the purpose of carrying on a trade' When this is appreciated the passage affords no support to the crowns arguments.

The next case which was greatly relied upon was the carlisle and Silloth Golf Club Co. v. Smith. In that case the club was lessee and occupier of the golf course with its buildings and the subject matter which it was sought to tax were the profits derived from visitors, who on payment of green fees were entitled to enjoys the amenities of the club and services provided. The main argument put forward by the club was a very narrow one (see 6 tax cas., at p. 50). It claimed to be exempt from assessment because it was a members club and was not carrying on any business. The question to what extent if any, the profits from green fees ought to be attributed to property or occupation was not raised no doubt for the very good reason that without the provision of amenities and services would not have been earned at all. The judgment of Hamilton, J., is directed to disposing of the argument which I have mentioned. His conclusion upon it is as follow (81 L K J B., at p 585; [1912] 2 K B., at p. 187; 6 tax cas, at p. 55) : 'In my judgment, therefore, the club has annexed to strangers for the purposes of obtaining other advantages, the revenue that those strangers provide' In the court of appeal there are two observation which must be noted, one by Buckly, L J., and one by Kennedy, L J., {82 L J K B., at pp 841,842; [1913] 3 K B., at pp 81,83; 6 tax cas., at pp 199,201) Buckly, L J., said : ' if a landowner laid down upon his land a golf course and charged fees for admission and user if that is to say, the link were a proprietary golf links carried on with a view to profit there can be no question, but that the proprietor would be assessable' Kennedy, L J., said : '.... it appears to me that this club is really carrying on the business of supply to the public for reward a recreation ground fitted for the enjoyment of the game of golf'. Both the Lords Justice were thinking of a golf club of the familiar type with amenities and service as was the case upon the facts before them, and I which I have provisionally stated in the present case. In any event, the point with which we have to dealing the present case was not reased or agrued in the carlisle case. But in the case of bare land, as distinct from services and the amenities of a club house, etc., I cannot myself see that p person who leases the land to others or grants lecences to others to come upon it is doing anything more than exploiting his own rights of property, even if the lessee or licensee is, by the terms of the lease or licence, entitled himself to carry on a trade upon the land. If a land owner lays out his land as a cricket field and leases it to a cricket club, it cannot be suggested that the profits so derived are not covered by the schedule A assessment. Which can if necessary be raised so as to reflect the annual value of the land as so laid out. In order to secure the tenancy, the landlord has to level the land and prepare the pitch; and it may be that in the lease he undertakes to cut the grass and keep the pitch rolled and in order. Such an undertaking would have the effect of lowering the annual value, but I cannot see that this would take the case out of schedule a any more than the undertaking by the lessor of a house to kept the house in repair. If, instead of granting a lease to one club the landowner grants licences to different clubs to play of different days of the week, what difference can it make? I cannot find any satisfactory ground for drawing any distinction between the case of the other. The fact that in order to secure the rent or the sum payable for the licence the landowner has to put and keep the land in a particular condition does not in my view make any difference. Any increased value in the land due to its suitability or adaptation to a particular purpose, any expense incurred by the proprietor in keeping the land in such a condition as to earn profit, are, it seems to me matters to be taken into account infixing the schedule A valuation, just as they would be in the case of a house or other building.

Before leaving the Carlisel case I must observe that the decision was approved in the House of Lord in the Rotunda case. This fact was not unnaturally relied on by the attorney general but the Carlisle case was clearly being treated by the house of lords as being, what in fact it was, a decision based on the provision of services and amenities which fell outside the scope of schedule A.

The next case relied on was that of Inland Revenue Commissioner v Stonehaven Recreation Ground Trustees. That again was a case of a ground laid out and provide with all the necessary equipment for various games. It was not and could not have been seriously argued that the profits derived from such a concern were covered by schedule A. The substantial argument in the case appears to have been that the ground was carried on entirely for the benefit of subscribers, and was therefore a mutual concern. I do not find that this case assist me in the solution of the present problem.

The two other cases relied on by the Attorney General namely, Carnoustie Golf course committee v. Inland Revenue commissioners and Smith v. York Race Committee, do not carry the matter any further. The facts were entirely different to those in the present case and the point which we have to consider did not arise.

Three cases relied upon by counsel for the respondents must be mentioned. In Elliott c Burn a surface owner whose land was let to a farmer at a rack rent granted to a colliery company the right to withdraw support from the surface in consideration of annual rents. These annual rents the crown claimed to be assessable either under rule 7 of NO. II of schedule A or under case III or case VI of schedule D. It was held by the house of lords that the rent arose from the owners property in the lands and that liability in respect of them was exhausted by the schedule A assessment. The ground of the decision (so far as now relevant) was that the right of support which the owner had given up was a natural right incident to the land itself and the payments made must be regarded as arising from the ownership of land. This decision appears to me to lend support to the view which I have ventured to express since it is an example of the exploitation (in a special manner and not by a lease of the land) of one of the owners rights of property in the land.

The next case was Whelan v. Leney & co. This was another example of an attempt by the Crown to obtain payment of tax on rents exceeding the annual value. As in the Salisbury House Case the attempt failed. The Crowns contention was that the rent was paid not for the land alone, but partly for the ties affecting the subject-matter of the demise (namely, the licensed house) which could be separated from the property in the land. Lord Russell of Killowen pointed out (105 L. J. K. B., at p. 200; [1936] A. C., at p. 402; 20 Tax Cas., at p. 370) that 'the rent is paid for the land, the ownership of which carries with it the power to impose a tie if the existing tenancy determines and (by abstaining from determining the tenancy) to retain a tie if the sitting tenant is willing to remain.' This case again appears to me to be at any rate consistent with my view as to the scope of 'property' under Schedule A.

The last case was Shop Investments, Ltd. v. Sweet, a decision of Wrottesley, J., whose judgment, if I may say so, I have found particularly illuminating and is, in my opinion, manifestly correct. There the appellant company whose business was that of acquiring and modernising properties and letting or selling the properties so modernised had, on one ocasion and contrary to their usual practice, let a cinema furnished with all its equipment and plant. Assessments were made in respect of the profits of this letting, the amount of the Schedule A assessment being allowed as deduction. The company contented (wrongly) that the profits were covered by the Schedule A assessment. It also contended that the profits made by letting the furniture, etc., must be separated from the profit made by letting the cinema building itself, for which purpose an estimate must be made of what part of the total rent was referable to the furniture, etc. The object of this contention was, of course, to enable the company to show that a proportionate part of the rent greater than the assessed annual value was attributable to the building itself. Wrottesley, J., agreed with this contention and, in my opinion, rightly so. If the owner of a building, the assessed annual value of which is X can let if unfurnished for X plus Y, he cannot be separately taxed in respect of the Y. If, instead of letting it unfurnished, he furnishes it and lets it furnished for X plus Y plus Z, to tax him on Y plus Z would be to exact double tax in respect of Y which, as the result of the artificial measure of profits adopted under Schedule A, has already in law borne tax. An apportionment such as was made in the case would, I think, have been claimed in the Rotunda Case and the Golf Club and similar cases if the point had been considered and if (what seems unlikely) any benefit could thereby have accrued to the taxpayer in those cases.

I have so far ignored the one act done by the respondent which, in my view, falls outside the profit-making activities with which Schedules A and B are concerned -viz., the provision of tools and equipment which is a condition of the license. Compliance with this condition cannot, in my opinion, change the whole picture and turn what would otherwise be profits covered by Schedule A or Schedule B into profits assessable under Schedule D, any more then would be the case if, for example, under housing bye-laws, the landlord of a block of flats were bound to keep fire-fighting appliances of the premises. On principle, however, whatever part of the profits made by the respondents ought to be apportioned to the provision of this equipment - a matter for the Commissioners - is assessable under Schedule D. The point, however, is obviously too trivial to lead any practical result.

I have given the best consideration that I can to the authorities which, I must confess, do not appear to me to throw a particularly clear light on the point which we have to decide. I am of opinion that upon the facts of this case, and in view of the absence of any provision of services (other than those of the groundsman, which I have already sufficiently dealt with), use of chattels or other matters extraneous to the land itself other than the equipment, there is no element of profit which is not exhausted by the Schedule A assessment. I agree, therefore, with the conclusion of Lawrence, J., but for reasons different to those which found favour with him. He considered that the profits here in question were derived from occupation and does not refer to Schedule A at all. I have given my reasons for taking a different view. In the example which he gives of the tennis court he appears to regard the occupiers pleasure in using it as one of the things which are taxed. I am not satisfied as to the correctness of this view since Schedule B is concerned with profits actually earned or deemed to be earned, not with pleasure, which is essentially a non-profitable activity. But however this may be, if the tennis court is let or others are given a licence to play upon it, the profits so derived are in my judgment referable to property (whether freehold or leasehold as the case may be) and not to occupation. I should also say that Lawrence, J.s criticisms of the golf course and similar case cannot, in my opinion, be supported, as it does not seem to me that (apart from any question of apportionment which might have arisen, but in fact did not) the profits there in question could have been held to be exhaustively taxed under Schedule B any more than under Schedule A. His reference to repairs and the selling of petrol and ices suggest a view of the facts too unfavourable to the respondents who do not carry on any of these activities themselves. But, had they done so, they would, in my opinion, have been liable to tax under Case I of Schedule D in respect of the profits so made and would not, as Lawrence, J., appears to think, have been covered by the assessment under Schedule B any more than they would have been by that under Schedule A.

I must say in conclusion that my preferences for Schedule A, rather than Schedule B, as the relevant schedule is based on the view which I have ventured to express as to the basic distinction between the two schedules. If that view is unsound, I would agree that the profits now in question are profits of occupation which are exhaustively taxed under Schedule B.

I would dismiss the appeals.

CLAUSON, L. J. - At the end of the arguments in this case I had reached the opinion that there was nothing to be found in the circumstances of the case to justify the assessment of the Sywell Aerodrome, Ltd., to any tax beyond that already paid by them under Schedule A and Schedule B, and that the orders of Lawrence, J., should for this reason be affirmed. Du Parcq, L. J., was good enough to furnish me with a copy of the judgment which he is about to deliver, in which he reaches a different conclusion. I was in the course of preparing a judgment explaining my reasons for taking a view differing from that taken by his Lordship, when the Master of the Rolls was good enough to furnish me with a copy of the judgment which he has just delivered, in which he comes to the same conclusion as I had myself reached, namely, that the orders of Lawrence, J., must be affirmed, though the reasons given by the Master of the Rolls for his conclusions differ from the reasons given by the learned Judge. Having considered my Lords judgment, I am satisfied that the reasoning with which he supports his conclusions is unimpeachable and that any judgment I might frame would merely have to reproduce those arguments in different language. I am sure that neither Du Parcq, L. J., nor Lawrence, J., will charge me with discourtesy if, under these circumstances, I refrain from burdening the pages of the reported cases with any separate judgment, but adopt not only the conclusions of the Master of the Rolls but also his reasons as my own.

DU PARCQ, L. J. - The questions raised by these two appeals may be stated as follows : (1) Do the facts found, and set out in paragraphs 2 to 5 inclusive of the case stated, justify the conclusion come to by the Commissioners 'that there was a liability under Schedule D'? (2) If the answer to the first question is in the affirmative, is the only proper inference from those facts as the Crown contends, that the tax is chargeable under Schedule D, Case I, and not as the Commissioners held under Schedule D, Case VI?

Without reciting the facts which are set out in the case, I find it necessary to summarise them shortly in order to show how the problem presents itself to my mind. The Sywell Aerodrome Co., to which I shall refer as ' the company', is a trading corporation with among its objects that of acquiring, providing and maintaining aerodromes, garages, hangars, sheds, landing grounds and other accommodation for, or in relation to, conveyance and vehicles of every kind. It owns free-hold land which has been laid out as an aerodrome and equipped with hangars and garages. A licence has been granted to the company by the Air Ministry, permitting the use of this aerodrome ' as a regular place of landing or departure for aircraft carrying passengers for hire or reward'. It was a condition of this licence that first-aid appliances should be provided by the licencees. The company receives landing fees from aircraft using the aerodrome and charges rent for its garages. It obtains a further part of its income from 'rent' paid by two clubs for the priviledge enjoyed by their members of using the aerodrome; and these receipts, on the view presented by the Crown, stand on the same footing as the landing fees received from the so-called 'casual users of the aerodrome'. It employs a groundsman, one whose duties it is to cut the grass, though no doubt he has others. The company does not itself undertake the repair of aircraft or supply petrol of them or for the cars; but has secured the provision of these services by granting to another trading company, Brooklands Aviation, Ltd., (to which I shall refer as 'the Brooklands Co.') the sole right to use and occupy a service hangar and the sole right to sell petrol and execute repairs to aircraft using the aerodrome. It has provided in some small measure for the refreshment of its patrons by giving to a third company the right to sell ice-cream on its premises; and it is rewarded for this concession by a percentage of the ice-cream vendors takings. Finally, it has let to the Brooklands Co., for four years certain buildings erected on the land which are to be used for the purposes of an R. A. F. Reserve School of Flying. The lease grants to the Brooklands Co., the right use for the flying purposes of such a school the fields comprising the aerodrome in common with all other users thereof. The demise is expressed to be 'subject to the rights of all other permitted users of the aerodrome for flying purposes so that no such rights shall be granted as will prevent the enjoyment by the tenant' (the Brooklands Co.), of the rights granted by the lease. It must be added that admittedly 'in fixing the rent payable under the lease regard was had to the fees which would normally be charged to the aircraft of' the Brooklands Co. for landing'.

These being the facts, I have no doubt that the company is carrying on what in ordinary parlance be called a business. This is by no means conclusive to show that the profits of its activities can be taxed under Schedule D. In the Salisbury House Case Lord Dunedin had no doubt that the respondent company was carrying on a business (see 99 L. J. K. B., at p. 409; [1930] A. C., at pp. 446,447 : 15 Tax Cas. at p. 312), but the greater part of the profits which it derived from that business could not fall within the ambit of Schedule D, because they were already franked under Schedule A. It is necessary to consider reading the relevant sections of the Act in the light of authority, whether Schedule A or Schedule B singly, or those two schedules together leave any profits untouched which can be brought within Schedule D.

It is elementary that income-tax, being a tax on income, each of the schedules imposes a tax on profits and gains, and that none of these profits and gains must be taxed twice over. Under Schedules A and B, the tax is on a presumed income : in the one case on the profits of ownership; in the other on the profits of occupations. These profits are so far distinct that, in the case of many owners who are also occupiers, tax is charged under both Schedules A and B. Similarly, an owner who occupies his land and carries on a trade upon it may well be liable to taxation on the profits of his trade under Schedule D. If, however, he lets his land and parts with the entire possession of it, his liability to tax is exhausted by his assessment under Schedule A because all the profits which he makes even though they are indirectly increase by the activities of trading tenants, are profits of ownership. It is his good fortune if his real income as owner is greater than his presumed income. He may, of course, make further profits from dealings with his tenants which do not flow from ownership at all (for example, by undertaking for reward the task of cleaning their windows), and in that case he will pay under Schedule D in respect of profits derived from his trading activity, but this liability is independent of and additional to the liability which attaches to him in his capacity of owner, the latter being strictly limited by the terms of Schedule A.'You cannot, by saying that a man carries on the business of owning house property, shift the method of assessing that property for income-tax form Schedule A to Schedule D.' This quotation is from the Speech of Lord Loreburn in Smith v. Lion Brewery Co., (80 L. J. K. B., at p. 569; [1911]. A. C., at p. 155; 5 Tax Cas., at p. 590) and his words were cited with approval by Lord Dunedin in Fry v. Salisbury House Estates Ltd. (99 L. J. K. B., at p. 407 : [1930] A. c., at p. 444; 15 Tax Cas., at pp. 310,311).

If the company had let its aerodrome on such terms that it parted with the entire possession of it, it would be plain, on the principles which I have stated, that whatever might be the activities of it leases, it taxable profits would be represented by what I have called its presumed income. The case then would be exactly on all fours with the Salisbury House Case which I have just cited. In my opinion, however, when one is considering whether this case is (if I may express myself thus briefly) a Schedule A or Schedule D case, its special facts take it out of the Salisbury House category and bring it within the decision of the House of Lords in Coman v. Rotunda Hospital, Dublin (Governors) . There the choice had to be made between Schedule A and Schedule D liability. The hospital owned rooms adapted for use as correct halls or theatres. The governors let them time to time to persons who use them as places of public entertainment. On the occasions of such lettings, the governors provided seats and they also provided heating, lighting and attendants. They remained in occupation of the rooms and continued to exercise a general control over them. It was held that their profits were assessable under Schedule D.'The governors of the Rotunda' said Lord Atkinson (89 L. J. P. C., at p. 178; [1921] 1 A. C., at p. 35; 7 Tax Cas., at p. 592), are in my opinion, engaged in the business of letting for reward their rooms, heated, lighted and furnished with seats....... and cleaned, managed and regularly controlled by their servant, the keeper....... for the purpose of providing through the operations of those who take their rooms, recreation and amusement to such members of the general public as choose to pay for admission.' For a reason which presently appear, I must also quote the next two lines : 'I do not think', Lord Atkinson continued 'the services thus rendered can be regarded as mere incidents attached to the letting of the rooms themselves'.

At first sight there may appear to be some inconsistency between the words of Lord Loreburn, which Lord Dunedin approved in the Salisbury House Case, and this statements by Lord Atkinson. When, however, proper weight is given to the concluding words of the first sentence which I have cited from Lord Atkinsons speech, the two statements are found to be entirely consistent. The owner of a theatre who leaves it in the exclusive possession of his lessee is not troubled by Schedule D at all. If he remains in occupation and provides services, and equipment, he may, although the rents paid by those to whom he lets the theatre constitute his sole remuneration, be chargeable under Schedule D, on the ground that he is carrying on the business of providing amusement to the public through the operations of his licensees.

When the facts of the present case are considered it is, I think true to say that they differ in one respect from those of the Rotunda Case. It may fairly be said that the services rendered by the company, namely, the provisions of a groundsman and of first aid appliances are, in Lord Atkinsons words, 'mere incidents attached to the letting'. But the facts of this case, taken as a whole, seen to me even more strongly to support the case for Schedule D liability than did those of the Rotunda Case. If the governors in the Rotunda Case had provided no services expect such as were incidental to the letting, but, while remaining in occupation and control of the premises, had themselves sold for the hospital tickets of admission to some at least of the patrons of those entertainments which their licensees provided, I venture to think according to the principles which their Lordships enunciated, the decision of the House of Lords must have been in favour of the Crown. In the Salisbury House Case Lord Atkin (99 L. J. K. B., at p. 414; [1930] A. C. at p. 458; 15 Tax Cas., at p. 312) spoke of the Rotunda Case as deciding 'that the respondents, the governors of the hospital, used their own premises, of which they were in occupation, for carrying on a profitable trade'. Lord Dunedin (99 L. J. K. B., at p. 407; [1930] A. C. at p. 443; 15 Tax Cas. at p. 309) and Lord Macmillan (99 L. J. K. B., at p. 419; [1930] A. C., at p. 468; 15 Tax Cas., at p. 329) both attached importance to the fact that the owners had remained in occupation; and Lord Macmillan referred to the receipts of the governors in the Rotunda Case as being 'receipts of an enterprise quite distinct from the ordinary receipts which a landlord derives from the letting of his property'. It may be noted that in this Court, when counsel for the Crown in the Salisbury House Case sought to rely on the Rotunda Case, Lawrence, L. J., at once pointed out that there the governors remained in occupation, while in the case then before the Court the company was not in occupation of the tenements which it had left; the tenants were the sole occupiers (see [1930] 1 K. B., at p. 313).

In the present case the company, in the view which I take of the facts, is paid money for admission and for rights to enjoy the services of the Brooklands Co., by those customers of the aerodrome who came to it in aeroplanes or cars with a view to the enjoyment of the facilities provided. In my opinion such receipts are quite different from 'the ordinary receipts which a landlord derives from letting his property' and are not profits of ownership. Whether they can be said to be profits of occupation is, no doubt, a separate question, though the answer to it may depend on similar considerations and with it I will now deal. On the latter branch of the case the Rotunda decision is not a direct authority, because in the circumstances of the Rotunda Case Schedule B could have no application, but the principles which, in my opinion, it establishes may well be applicable there also.

As I understood the argument for the Crown on Schedule B, it was contended that, whereas the person who occupies land for the purpose of husbandry, however great his profits, remains chargeable only under Schedule B and never comes within the ambit of Schedule D, unless he undertakes some profitable activity unconnected with land quite a different rule must be applied to the occupier of land 'for a purpose other than the purpose of husbandry'. Occupiers of the latter class (it was submitted) are taxed for the mere enjoyment of what is financially an unprofitable occupation, and any profits which they may make as occupiers can find no shelter under Schedule B, and must, therefore, seek a resting place in their appropriate pigeon-hole under Schedule D.

I have no doubt that this contention is wrong, though it is of course true that occupation which the law presumes to be profitable is often in fact unprofitable. I take the law on this point from the speech of Lord Buckmaster in Glanely (Lord) v. Wightman ([1933]) A. C., at p. 629. ; 17 Tax Cas., at p. 667; 1 I. T. R. at p. 258) : 'It is, of course, obvious that in some sense land is occupied for every purpose of trade, but I think it is plain that the occupation referred to in the schedule is an occupation which, in itself, and by its enjoyment, is a source of the income and profits to be taxed. Nor is such occupation limited to the purpose of husbandry, as is shown by the latter part of the rule'.

While it is, I think, undoubtedly wrong to say that, except in the case husbandry, all an occupiers profits must necessarily fall outside Schedule B and within Schedule D, it is, in my opinion, equally wrong to suppose that all profits made by an occupier, to the making of which the occupation of land is essential, fall within Schedule B. A clear case is that of the occupier of land who sets up tea gardens in the open air. He is supplying service and selling food and drink, and it would, I think, be a misuse of language to say that his occupation of the land was 'in itself and by its enjoyment' the source of his profits. Anyone who contrives to conduct on the land which occupies a business which, if the site were enclose by walls and a roof, everyone would call a shop, is no more immune for Schedule D taxation than the normal shopkeeper. If I am right as to such cases as those, it follows that nothing can be made of the point which was strongly pressed on behalf of the company, that clause (b) of the proviso to Rule., under Schedule B, which exempts from tax under that schedule 'any warehouse or other building occupied for the purpose of carrying on a trade or profession', without including land not covered by buildings which is so occupied, indicates on the part of the Legislature that when land not covered by a building is used for the purpose of carrying on trade the profits of that trade should be taxable under Schedule B alone. If once it is admitted that the profits of some trading activities pursued by an occupier of land, on land on which there are no buildings, are taxable under Schedule D, that point loses its force.

What I have found the most difficult question in this case now presents itself for solution. On the facts found, is the companys occupation of the land 'in itself and by its enjoyment' (I again quote Lord Buckmaster, ibid.) the source of its profits, in which case those profits are covered by the Schedule B assessment; or is it rather true to say that the company is making profits not merely by occupying the land, or by allowing others, for reward, to share that occupation with it, but by carrying on a business on the land?

When one is considering the case of lands not used for the purposes of husbandry, it appears to me that the analogy of husbandry is of little service. Husbandry, indeed, is a case apart. Nobody lives on and by the land in the same sense as the farmer. On the other hand, almost every form of trading or business activity needs some land for its exercise, though in most cases the land is covered by buildings. Apart from the case of husbandry, I am of opinion that when once it appears that profits are being derived from the sale of goods, or from work and labour, or from any service for reward, it is impossible to regard the occupation of the land per se as the source of those profits.

If the company had done no more than invite and permit aeroplanes to alight on its land and find shelter there, it would in my opinion be right to say that its occupation of the land was the source of its profits. Anything done by way of adapting the land for use by the invitees (for example, the moving of grass and levelling of run-ways) may properly be regarded as incidental or ancillary to the occupation. So far the companys case would be analogous to that of the occupier of a plot of land who clears and suitably equips a space on which he allows cyclist to leave their bicycles for reward. If, however, to pursue the analogy, the mere occupier becomes trader, and sets himself to repair bicycles, to provide refreshment for cyclists and to sell to them all or such accessories as cyclists need, it is to my mind clear that the profits of his business as a whole will fall to be taxed under Schedule D,

It may at once be objected that this is an inexact analogy, because in the present case the company sells nothing and provides nothing except services, which, according to the criterion which I have adopted, are ancillary to the occupation of the land. What, it is proper to ask, will be the position of the hypothetical occupier of my analogy who, instead of himself doing repairs for, or selling goods to, the cyclists who pay him for the use of his premises, makes profit by granting to another persons (together, it may be, with the lease of an adjoining cottage) the sole right to engage in this business with them? I have come to the conclusion that in that case he will come under Schedule D liability. There are more ways than one of carrying on a trade; and one is by granting to others the right to carry on various branches of trading activity on premises occupied and controlled by the principal trade on such terms that the principal trader directly profits by those activities. A simple instance is that of the 'amusements park' to which reference was made in the argument. An occupier of land which has no natural attractions invites the public to enter it and to pay for the privilege. If the land were bare, or equipped only with immobile and derelict swings and roundabouts, no one would pay to come in. Remaining in general occupation and control he grants to a number of other persons the right to occupy (whether as lesses or licensees) portions of the land, and there to work swings roundabouts and other devices or to sell refreshments. It could, no doubt, be argued that he was only enjoying the fruits of mere occupation, that is granting to strangers the freedom of the land in his occupation and allowing them to make such profitable use as they could of this freedom. But in my opinion such an argument disregards the reality of the case. The occupier of the 'amusement park' derive his income, not from the occupation of the land, but from the fact that he is himself carrying on a trade. In my opinion, he is carrying on a trade just as he would be if the engaged persons whose business it is to entertain the public on his land and there to provide amusement for those members of the public whom he could induce to pay him for admission. It could hardly then avail him anything to say that he was merely, as occupier, licencing entertainers and entertained alike to use the land in his occupation. I do not think that he would improve his position by receiving remuneration from the entertainers whom he licensed instead of making a payment to them. It remains true that those who pay to enter upon his land are not paying merely to come in. They pay to come in and be amused. He is attracting to his land customers who pay not simply for admission but for entertainment, services and facilities which he has made it his business to provide, through the operation of others. So, in the case of this aerodrome, it must be assumed that the knowledge that petrol can be bought and repairs done is a strong inducement to the pilots of aeroplanes to accept the companys invitation to alight; and that if no such facilities were provided many, if not all, of them would seek some other landing-place. The business of an aerodrome proprietor is one which, in the nature of things, cannot be carried on a space surrounded by walls and covered with a roof. If the machines used by the companys customers ran on the ground, so that all its activities could be carried on in a building, I doubt if it would have occurred to anyone to describe the income which the company is making as derived from the occupation of the land 'in itself'.

Dealing now with the second of the two questions before us, which was the subject matter of the Crowns cross-appeal before Lawrence, J., I am of opinion that the right conclusion form the facts found by the Commissioners is that the company was carrying on a 'trade' within the definition of the Act. In my opinion we are not bound to regard the Commissioners conclusion 'that there was a liability under Schedule D, Case VI' as a finding of fact that the company was not carrying on a trade. As I said at the beginning of this judgment, the findings of fact are contained in paragraphs 2 to 5 of the case. The question for us is whether, as a matter of law and construction, the Commissioners have drawn the proper inference from those findings. Iam of opinion that they failed to do so. I know no better way of describing the companys activities than as an 'adventure or concern in the nature of trade'; and Iam of opinion that the learned Judge ought to have allowed the cross-appeal.

I have only to add, with regard to a subsidiary point which was argued before us, that it was in my opinion right in principle to allow a deduction of the Schedule B assessment in arriving at the assessment under Schedule D. We were referred to a statement of Lord Herschell in the House of Lords which justifies the allowance of such a deduction 'because it is an essential element to be taken into account in ascertaining the amount of the balance of profits|' (Rusell v. Town and County Bank, 58 L. J. P. C., at p. 10; 13 App. Cas., at p. 425 : 2 Tax Cas. at p. 327). Iam of opinion that contentions on behalf of the Crown which are set out in paragraphs 7 (a), (c) (1) (2) (3) (4) and (5) of the case stated, correctly state the method of assessments which should be adopted. In my opinion, therefore, both appeals should be allowed, and the case sent back to the Commissioners in order that such adjustments should be made as are necessitated by the substitution of Case I for Case VI as the measure of the assessment. This opinion will not, however, affect the result of the appeal; and, in the circumstances, I may be allowed to add that I cannot but feel misgiving as to the correctness of a judgment which differs not only from that of Lawrence, J., but also from that of the Master of the Rolls, in which Clauson, L. J., concurs. Iam none the less bound to express the view which I have formed.

Appeal dismissed.

Leave to appeal to the House of Lords granted.


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