HOUSE OF LORDS. YSTRADYFODWG AND PONTYPRIDD MAIN SEWERAGE BOARD v. Revenue-Income tax-Sewage carrier-Income Tax Act, 1842 (5 & 6 A sewer constructed partly above and partly below the surface of the ground by a joint sewerage board and vested in the board by provisions in the provisional order establishing the board similar to the provisions of section 13 of the Public Health Act, 1875, whereby ordinary sewers are vested in the local authority, is a hereditament capable of actual occupation within section 60, Schedule A, Rule No. I. of the Income Tax Act, 1842, and is assessable to income tax accordingly. And such a sewer is not taken out of that rule and rendered assessable under Rule No. III. of Schedule A by the fact that some payments are made to the joint board by other authorities who make use of the sewer, so long, at any rate, as those payments do not exceed the cost of maintaining the sewer, and the sewer is accordingly not a source of profit to the joint board. Decision of the Court of Appeal, 1907, 1 K. B. 490; 5 L. G. R. 189; 76 L. J. K. B. 282, affirmed. Appeal from a decision of the Court of Appeal, affirming a decision of Walton J. upon a case stated by the Commissioners for the General Purposes of the Income Tax Acts for the district of Newport, in the county of Monmouth, upon an appeal to them against the assessment made upon the Ystradyfodwg and Pontypridd Main Sewerage Board, under Schedule A of the Income Tax Acts, in respect of property of the Sewerage Board in the parish of Rumney. The case is fully set out in the report of the decision of Walton J., 4 L. G. R. 241; and the facts are shortly stated in the report of the case in the Court of Appeal, ante p. 189. And it has been thought unnecessary to insert any further statement of the facts in this report than is contained in the head note. It should, however, be mentioned that the sewage carrier in question was, in Ystradyfodwg and Pontypridd Main Sewerage Board v. Newport Union, 1901, 1 K. B. 406; 70 L. J. K. B. 318, held to be rateable to the poor rate. Section 60 of the Income Tax Act, 1842 (5 & 6 Vict. c. 35), contains the following provisions : The duties hereby granted and contained in the said Schedule marked (A) shall be assessed and charged under the following rules .. . 1907. June 19. M M M SCHEDULE (A). No. I. GENERAL RULE FOR ESTIMATING LANDS, TENEMENTS, HEREDITA- The annual value of lands, tenements, hereditaments, or heritages charged under Schedule (A) shall be understood to be the rent by the year at which the same are let at rack rent, if the amount of such rent shall have been fixed by agreement commencing within the period of seven years preceding the 5th day of April next before the time of making the assessment, but if the same are not so let at rack rent, then at the rack rent at which the same are worth to be let by the year; which rule shall be construed to extend to all lands, tenements, and hereditaments, or heritages, capable of actual occupation, of whatever nature, and for whatever purpose occupied or enjoyed, and of whatever value, except the properties mentioned in No. II. and No. III. of this Schedule. No. III.-RULES FOR ESTIMATING THE LANDS, TENEMENTS, HEREDITAMENTS, The annual value of all the properties hereinafter described shall be understood to be the full amount for one year, or the average amount for one year, of the profits received therefrom within the respective times herein limited. Third. Of ironworks, gasworks, salt springs or works, alum mines or works, waterworks, streams of water, canals, inland navigations, docks, drains, and levels, fishings, rights of markets and fairs, tolls, railways and other ways, bridges, ferries, and other concerns of the like nature, from or arising out of any lands, tenements, hereditaments, or heritages, on the profits of the year preceding. DANCKWERTS, K.C., and S. T. EVANS, K.C. (REDMAN with them), for the appellants. The sewer in this case is not within the meaning of Sheldule A, Rule No. I., a hereditament which is "capable of actual occupation," and the appellants therefore are not assessable to income tax in respect of it. They are a public body corporate, precluded from making any profit. The vesting of the sewer in the Board is precisely similar to the vesting of ordinary sewers in the local authority under the Public Health Act, 1875, and, as appears from sections 13, 15, and 16 of the Act, such vesting is for limited purposes only. Profit or gain is the essence and basis of income tax. That was clearly pointed out by Lord Macnaghten in London County Council v. Attorney-General, 1901, A. C. 26, at p. 35; 70 L. J. K. B. 77, where he says: "Income tax is a tax on income. It is not meant to be a tax on anything else. It is one tax not a collection of taxes essentially distinct. . . It is a tax on profits or gains in the case of duties chargeable under Schedule A, and everything coming under that Schedule-the annual value of lands capable of actual occupation, as well as the earnings of railway companies and other concerns ... 1907. connected with land-just as much as it is in the case of the other schedules of charges." No doubt the sewer has been held to be rateable Ystradyfodwg to the poor rate, but the question whether the sewer was occupied was and Pontypridd Main Sewerage not raised; and there is, moreover, a distinction between rateable Board v. Bensted occupation and the "actual occupation" referred to in the Income Tax (Surveyor of Taxes). Act. In In re Glasgow Corporation Waterworks (1875) I Tax Cas. 28, at p. 48, Lord President Inglis, referring to the corporation, said: "They had not in view certainly to make profit by the undertaking. On the contrary, what they have distinctly in view is to pay money in order to obtain this particular benefit. They are not therefore trading in any commodity, nor are they entering into any undertaking for the use of property that is to be attended by a resulting profit or a beneficial interest accruing to any individuals or to any corporation." In Glasgow Corporation v. Miller (1886) 2 Tax Cas. 131, the assessment was confined to the extra municipal supply beyond the area of compulsion and to supply for trade purposes, and therefore the same principle was applied. In Dublin Corporation v. M'Adam (1887) 20 L. R. Ir. 497, the principle of "no profits, no tax" was enforced by Palles C.B. Blackburn J. thought that the liability was limited to cases of "property or profit" and so held in Attorney-General v. Black (1871) L. R. 6 Ex. 308; 40 L. J. Ex. 194. The liability was again cut down to profits only in Paddington Burial Board v. Inland Revenue Commissioners (1884) 13 Q. B. D. 9; 53 L. J. Q. B. 224; see also Harris v. Irvine Corporation (1900) 4 Tax Cas. 221, at p. 231. The expenses of the appellants are far in excess of their revenue, and therefore it is impossible that in any view they make a profit or gain out of their undertaking. If the sewer were assessable at all, it would be as a "drain" falling within Rule III. of Schedule A, but even then it would be only rateable on the profits of the preceding year. This assessment is on the rack rent based on Rule I. of Schedule A, which makes rack rent or annual value the standard. But there is no annual value, and the theory of the hypothetical tenant is not applicable. It cannot be said that the Board are in "actual occupation" of the sewer, and such considerations as would apply in the case of a school board have no place here. Even if the Board were held to be in actual occupation that fact alone would be insufficient to render them liable to income tax, for it must be a profitable occupation. That is the fallacy in the judgments of the Court of Appeal. The Court failed to distinguish between "beneficial" and "profitable" occupation. Yet that distinction was clearly pointed out by Lord Herschell, in London County Council v. Erith Overseers, 1893, A. C. 562; 63 L. J. M. C. 9. To quote Bowen L.J., in West Bromwich School Board v. West Bromwich Overseers (1884) 13 Q. B. D. 929, at p. 943; 53 L. J. M. C. 153, this M M M 2 1907. sewer is "struck with sterility when in any and everybody's hands, so Ystradyfodwg that no profit can be derived from the occupation of it." See also and Pontypridd per Lord Davey in London County Council v. Attorney-General, 1901, Main Sewerage Board v. Bensted A. C. 26, at pp. 41, 45; 70 L. J. K. B. 77. (Surveyor of Taxes). THE ATTORNEY-GENERAL (SIR J. LAWSON WALTON, K.C.,) and SIR R. B. FINLAY, K.C. (W. FINLAY with them), for the respondents. The question is not whether profits are derived from the sewer by the appellants, but whether their occupation of the sewer is such as comes within the definition of occupation in Rule No. IX. (2) of Schedule A. We submit that the sewer is clearly a hereditament within the meaning of Schedule A, and therefore liable to duty. The appellants in the performance of a statutory duty have built a solid structure occupying a substantial area of land, and at great expense. There is a strong analogy between this sewer and the case of a railway tunnel; and in Metropolitan Railway v. Fowler, 1893, A. C. 416; 62 L. J. Q. B. 553, it was held that a railway tunnel was a hereditament, and liable to be assessed to land tax. The appellants here have the use of a structure of which, under Rule IX. sub-rule 2 of the Act of 1842, they must be "taken and considered . . . as the occupier." This case clearly falls within Rule No. I. of Schedule A, unless the argument that it falls within Rule No. III. is well founded. The subject of taxation under Schedule A is annual value, not profits. The words of Rule III. are wholly inapplicable. That rule deals with trading concerns, and this sewer does not fall within it because it is in no sense an undertaking which it is contemplated will earn a profit, but on the other hand is a structure made for the purpose of getting rid of a public burden. The word "drains" in the context in which it occurs cannot include a sewer such as the one in question. The words "carrying on the concern" can only point to a business. The analogy drawn in the present case by Cozens-Hardy L.J. of a quarry worked by a landowner for the purposes of his estate is an excellent illustration, for there would be no receipt of profits, and the assessment would be under Rule I. and not under Rule III. S. T. EVANS, K.C., replied. THE EARL OF HALSBURY. My Lords, I think in this case the judgment of the Court of Appeal ought to be affirmed. It appears to me that there is a mixture, not to say a confusion, of thought in using the word "profits" in a sense which is not consistent with the mode in which it is used in the statutes relating to income tax. It may be--I do not propose to controvert the idea-that in an ordinary sense there might be some difficulty in saying what are profits, but really, it seems to me, every part of the argument here has been covered 1907. Ystradyfodwg v. Bensted by authority. In the first place, it is clear there is an occupation, and, in the next place, it is clear there is a beneficial occupation. The alternative suggested-viz., that this is one of those excepted and Pontypridd Main Sewerage undertakings (the only colour for which is that the word "drain is Board used in the excepting section)—is to my mind untenable. The word (Surveyor of Taxes). "drain," used by itself, might perhaps bear the meaning that it is suggested by the appellants it ought to bear, but when you look at the mode in which the word "drain" is introduced, and the other words with which it is associated, its meaning depends upon a very familiar canon of construction-that when you have a word which may have a general meaning wider than that which was intended by the Legislature, when you find it associated with other words which show the category within which it is to come, it is cut down and over-ridden by the general proposition familiarly described as the ejusdem generis principle; and accordingly the word "drain" used in that section is not included in the excepted businesses which are therein described, so as to make the word "drain" applicable to the present question. Then, if it is not, the rest seems to me to be perfectly clear, because you have here a beneficial occupation, and by the rules applicable to Schedule A you have to take a hypothetical tenant, and the rent which the hypothetical tenant would give if he were called upon to get rid of this sewage, as ascertained by the mode by which that is to be calculated and by the machinery by which the Legislature has supposed that somewhat difficult problem is to be solved. My Lords, I really do not feel it necessary to do more than say that I concur with the judgments which have been delivered on this subject by every judicial person before whom it has come. I entirely concur with them, and I cannot forbear from pointing out that the Attorney-General, in the course of exactly seven minutes, appeared to me to dispose of the whole day's argument with which we have been entertained. I must say I congratulate him, and I am endeavouring to emulate his success by the length of the judgment which I am now delivering. LORD JAMES OF HEREFORD.- My Lords, I concur. LORD ROBERTSON.--I agree that the judgment is right, and I think the controverted subjects have been accurately and adequately discussed in the Court of Appeal. LORD ATKINSON.-I also concur. Appeal dismissed. Solicitors for the appellants-Wrentmore and Son, for Morgan, Bruce, and Nicholas, Pontypridd. Solicitor for the respondent-Sir F. Gore, Solicitor of Inland Revenue. Reported by Erskine Reid, Esq., Barrister-at-Law. |