Fry (Inspector of Taxes) v Salisbury House Estate Ltd [1930] UKHL 1

House of Lords
Between
Fry (Inspector of Taxes)AppellantSalisbury House Estate LtdRespondent
Before
Lord WarLord AtkinLord TomlinLord Macrnillan
[1]Die Veneris, 4° Aprilis, 1930. Parliamentary Archives, HL/PO/JU/4/3/849 Viscount Dunedin. Lord War- rington of Clyffe. Lord Atkin. Lord Tomlin. Lord Macrnillan. FRY (Inspector of Taxes) v. SALISBURY HOUSE ESTATE LIMITED. JONES (Inspector of Taxes) v. CITY OF LONDON REAL PROPERTY COMPANY LIMITED. Viscount Dunedin. MY LORDS, This is an important case with probably far-reaching conse- quences, and we had the benefit of a very full and able argument from the Attorney-General on behalf of the Crown, but in, the end I have come to the conclusion, though not without difficulty, that the judgement appealed from is right and should be affirmed. The facts which give rise to the question are as follows :— Salisbury House is a building of considerable size in the City of London and is owned by a limited company which was formed for the express purpose of acquiring the property known as Salis- bury House, and utilising it. The house contains about 800 rooms. These rooms are let to tenants as offices. There is no residential occupation. No furnishings are provided. The company main- tain a staff of servants to operate the lifts and act as porters and look after the building, and there is also a large staff of cleaners all under the orders of a housekeeper paid by the company. The tenants have the exclusive use of the rooms let, but are bound to leave the keys at night with the housekeeper so as to allow access in the case of fire breaking out. The company retain certain rooms as an office. By the terms of the leases the company have to pay all rates and taxes. The company were assessed to income tax under Schedule A upon the gross value of the premises as appearing in the Valuation Roll in accordance with the Valua- tion (Metropolis) Act, 1869. This assessment was imposed on the company as landlords, instead of on the various individual tenants who are the occupiers, in accordance with Rule 8 (c) (i) of Section 7 of Schedule A of the Income Tax Act, 1918, which provides for the assessment of landlords instead of tenants in the case of any house or building let in different apartments and tenements and occupied by different persons severally, and the amount of the assessment was duly paid by the company. The Inspector of Taxes then served on the company a notice of assess- ment under Schedule D. He arrived at the assessment by calculat- ing the amount of profit as brought out in the profit and loss account of the company, after deducting expenses of management and upkeep, and then he proposed to deduct from the assessment so brought out the amount of assessment already paid under Schedule A. The company admitted that they had to pay under Schedule D upon the amount of profits which they made from the cleaning; and other services, but contended that, so far as the proceeds of the property were concerned, that had already been taxed under Schedule A and could not again be brought in computo under Schedule D and demanded a case. A case was stated by the Commissioners which sets out the above facts. The figures, apart from the question of principle, have been agreed on. Rowlatt, J. took the view that the Commissioners had decided the case rightly and dismissed the appeal. He thought the case was ruled by the judgment of the Court of Session, given in the case of Rosyth Building Co. v. Rogers 1921 Sess. Cas. p. 372. The appeal being taken to the Court of Appeal, that Court unanimously 2 [2] reversed the judgment, and the Crown now appeals to your Lord- ships. My Lords, this is one of' those cases which may be approached, so to speak from very different angles, and according as you approach it from one angle or another a different conclusion may seem to be the one that is right to follow. I can only say that, after the best consideration 1 could give it my opinion is that the angle from which I now approach it is the right one. Now, the cardinal consideration in my judgment is that the income tax is only one tax, a tax on the income of the person whom it is sought to assess, and that the different Schedules are the modes in which the Statute directs this to be levied. In other words, there are not five taxes which you might call income tax A, B, C, D, and E, but only one tax. That tax is to be levied on the income of the individual whom it is proposed to assess, but then you have to consider the nature, the constituent parts, of his income to see which Schedule you are to apply. Now, if the income of the assessee consists in part of real property you are, under the Statute, bound to apply Schedule A. Schedule A may, so to speak, get in touch with the assessee in different ways according to the condition of affairs. It may touch property in occupation which actually brings in no money return. A good example will be found in the case decided within the last few weeks in this House in the case of Lady Miller. There a lady enjoyed the use of a mansion house under the provisions of the will of her deceased husband which was feudally vested in trustees. The mansion house brought her in no money but she was reckoned as for income tax, in order to arrive at super-tax, on the yearly value of the house. In this matter it differs from all the other Schedules, all of which only deal with actual return. When, as in the present case, a subject is let, the rent, if it represents a fair bargain, is taken as the measure of that part of the income of the lessor, and he suffers the tax by way of deduction by his tenant from the rent due or as in the present case by paying it himself. The result is that by the operation of the assessment under Schedule A which is made imperative by the Statute, and was in fact applied here, the in- come of the assessee is so far dealt with and cannot be dealt with again. Of course that does not mean that the assessee may not be liable in respect of other income under other Schedules. He might be liable under Schedule B, which says in terms that the amount there is to be in addition to the assessment made under Schedule A. though the underlying subject is the same. But he might be liable under any of the other Schedules if he has income to which they apply, and in particular he might he liable under Schedule D It is a mere commonplace to remark that a man who possesses real property and is assessed under Schedule A, may also have investments and other forms of property which will be assessed under Schedule D. Now, turning to this ease. The income of the respondents, as represented by rents, is admittedly assessed and properly assessed under Schedule A. " But then," says the appellant, ' you are carrying on a business, and a business falls to be assessed ' under Schedule D." To which the respondent replies. " Quite ' so, and I am willing to pay on the profits which T make on the ' cleaning and other services." To this the appellant replies, ' No, that is not enough. Your business is one business not a con- ' geries of businesses, and if I estimate your profits from your ' own profit and loss account, I will get the higher figure which ' I ask." The answer to that is—" You cannot bring out that ' balance of profit without taking the rents I receive in compute. ' Now. these rents are also part of my income or property and ' the Statute says that any income which represents the value of ' real property is to be assessed in the manner directed under ' Schedule A ". My Lords, I think the final answer is good. [3] 3 The rents, having been assessed under Schedule A, are, so to speak, exhausted as a source of income, and the so-called conces- sion made by the appellant that there should not be double taxa- tion, and that therefore he would be willing to allow deduction of the sum paid under Schedule A is a concession which is beside the mark. It is a concession to avoid double taxation, but the con- cession cannot come into being where double taxation does not exist, and here it does not exist because, it being imperative to- deal with the rents under Schedule A, there is no possibility of subsequently dealing with them under Schedule D. My Lords, I have preferred to consider this question on the Statute alone, without reference to authority, but I am far from anxious to put my judgment on a mere ipse dixit, and I will there- tore analyse my own argument to see if it is supported by authority. Now, the cardinal proposition is that income tax is one tax, and the Schedules merely the different means of collecting it. and that there are not so many taxes as there are Schedules. This point was raised in the most distinct manner in the case of the London County Council v. The Attorney General, 1901, Ap. Cas. 26. I quote from the argument of the taxpayer:—" There " is no ground for the distinction made by the Court of Appeal " between Schedule A and Schedule D. There is only one tax, " and the Schedules constitute not separate imposts but one tax " under several heads ". And now I quote from the language of the Counsel for the Crown :— ' It is not correct to say that " there is one tax known as the income tax. The Act of 1842 " speaks in the preamble of the several rates and duties mentioned " in the several Schedules contained in the Act and marked " respectively A, B, C, D and E. The separation is maintained " throughout the Act. There are thus five different taxes." This view of the case had been upheld by the Court of Appeal. but it was rejected by this House, Lord Macnaghten, who delivered; the leading judgment, says among other things:—"It (income " tax) is one tax not a collection of taxes essentially distinct. . . " In every case the tax is a tax on income whatever may be the " standard by which the income is measured. The expression " profits or gains ' is constantly applied without distinction to " the subjects of charge under all the Schedules." And then, commenting on the Court of Appeal's judgment, he quotes from it:—" The tax under Schedule D on profits and grains is an " entirely different tax from the tax under Schedule A ", on which he says, " With great deference, I do not think this is a sound " view of the Income Tax Acts ".. The other members of your Lordships' House agreed with him. The next proposition is that when income is dealt with in the proper Schedule the same income cannot be dealt with again under another Schedule. There is no stronger foundation for this pro- position than may be found in the fact of the option given not to the Crown but to the taxpayer who is assessed under Schedule B to be assessed under Schedule D. This obviously points to the fact that, once assigned to its appropriate Schedule, the same in- come cannot be attributed to another Schedule. The same may be gathered from various decisions. There are the general words of Hamilton, J ., as he then was, in Hill v. Gregory, 1912. 2 K.B. at page 70, quoted in this case by the Master of the Rolls :—" The ' very terms which define the subject matter under Schedule D ' exclude from it the several matters which fall under Schedule ' A ". Then there is the case of Back v. Daniels. Daniels were wholesale potato merchants and were assessed under Schedule D for the profits of the business. Part of the said profits consisted of profits made by the sale of potatoes on lands held by them under special agreements with the farmers who were in possession of the lands. It was held that the profits from these sales fell to be 6970 A 2 4 [4] reckoned in the question of a Schedule B assessment in respect of the lands under the agreements, and could not be included in the amounts under schedule D. Scrutton, L. J., put the matter thus :_" When there is a separate and distinct operation uncon- " nected with the occupation of the land, such as a cheese factory " dealing with the milk of a dairy farm, or a butcher's shop " dealing with the beasts of a cattle farm, I can understand a " separate assessment of that operation, but I do not think that " the fact that the farmer sells his produce either on the farm or " at the local market, or in Mark Lane, or even if he sells it in a " shop, justifies an assessment under Schedule D as well as, or in " substitution for, an assessment under Schedule B ". In this connection it would be desirable to deal with the Rotunda case, 1921, 1 Ap. Cas. 1. This case had the peculiarity of being claimed by learned counsel on both sides as authority. The facts were these. The Rotunda Hospital in Dublin was a charity and it owned buildings. Part of the building which was not actually used as a hospital was permitted to be used on occa- sions by various persons for entertainment purposes in return for a money payment. Now, the exemption from tax in respect of charitable institutions is different under Schedule A and Schedule D. It therefore became necessary, as Lord Birkenhead pointed out, to analyse the particular income in question to see whether it fell within Schedule A or Schedule D. But the rooms were not let to anyone. There was no question of including the rents of the rooms in the profits which were calculated under Schedule D; the hospital was held to be in occupation of the whole premises. What was done in that case was this : the total profits made out of the fees paid were calculated under Schedule D, and then the calcu- lated assessable value of the premises under Schedule A was deducted. (There had been no actual assessment made under Schedule A because it had been assumed that the premises were occupied by a charity.) This was done because there was in the Irish Act a rule corresponding to Rule 5 in Cases I and II of Schedule D of the 1918 Act, which exempts from taxation under Schedule D, the profits or gains arising from annual value of the premises occupied for the purposes of the business. Now, that was a perfectly different operation from what is pro- posed here. If that case had been treated as the Crown wish to treat this one, the assessable value of the premises ought to have been added to the receipts in making up the trade profits, and then from the tax so brought out, not the value of the premises, but the tax calculated as under Schedule A in the premises, ought to have been deducted. To resume the general argument in favour of the distinction between the Schedules. There is the phraseology of Section 208— ' The provisions in this Act contained which are applied to the ' tax under any particular Schedule shall it' also applicable to the ' tax under any other Schedule and not repugnant to the provi- ' sions for ascertaining charging or levying the tax under such ' other Schedule be applied in ascertaining charging and levying ' tax under that Schedule as if the application of those provisions ' thereto had been expressly and particularly directed," which points very clearly to the different Schedules being distinctly applicable to only one class of property. Now, it is obvious that although land must be assessed under Schedule A, there may be activities connected with the land which will fall under another Schedule. Schedule B gives the simplest example, but then there are also activities which fall under Schedule D. It would be rash indeed for anyone to say that he had in his mind all the cases decided in regard to the Income Tax Acts, but at any rate no case was produced by Crown Counsel here, in which in com- puting profits under Schedule D the rents of lands, which had been [5] 5 let, and were not in the occupation of the assessee under Schedule D are taken in computo. It is therefore of no use to cite cases of which the Silloth Golf Club case, 1918 3 K.B. 75 is an in- stance where profits arising from the use of land were taxed under Schedule D, but where the assessee was not the person liable under Schedule A in respect of those lands. There are dicta against doing so. Lord Loreburn in Smith v. Lion Brewery Co. 1911 App. Cas. at p. 155 said, " 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 from Schedule A to " Schedule D." It is true that Lord Loreburn was there deliver- ing a dissenting judgment, but the point on which he differed, viz., the question of the right to a deduction in assessing the profits under Schedule D, does not affect the dictum above quoted. In this very case Rowlatt, J. states the law generally to this effect:— " Real property is always liable to Schedule A and under no cir- " cumstances can you take it out of Schedule A—discard Schedule " A—and throw it into a Schedule D account and treat it under " Schedule D." I confess I cannot reconcile this with his judg- ment except upon the view that he considered himself bound by the Rosyth case. There is a very instructive passage in the judgment of Lord Maclaren in a Scotch case Edinburgh Cemetery Co. v. Surveyor of Taxes, 17 R 153. That was a case of a Cemetery Company which rented a piece of land which they utilised as a cemetery by selling lairs to persons to be used for burial purposes and to belong to them in perpetuity. The actual derision was that this was a concern of the like nature to the enumerated properties in rule 3 of Schedule A of the Act of 1842 and so fell to be assessed under that Schedule in the way there stated. Lord Maclaren at p. 165 seems almost to anticipate the present case. He says "It is certainly not sufficient to bring a particular use of ' land within the scope of rule 3 that the proprietor of land is ' using it in connection with his trade or for purposes of trade :
' because in such cases it is generally possible to separate the ' income into two parts, the one representing the rent or annual ' value of the heritable property and the other representing the ' commercial profit. Where this can be done the proper mode of ' assessing seems to me to be to assess under Schedule A in respect ' of annual value and also under Schedule D for the commercial ' profits of the business or manufacture carried on within the ' heritable subjects." I now come to the case which is undoubtedly to the opposite effect, the Rosyth case. That ease does not contradict my general asser- tion as to no case having been produced in which the Crown had done what they here propose to do. But notionally for the purpose of deciding as to repayment of part of an assessment it was done, and it is a direct authority in point. The Master of the Rolls and the other Judges of the Court of Appeal were I think affected with too great politeness to the Court of Session and dealt with this case by saying it was a Scotch case and they could not quite understand it. There is no question of Scotch as discriminated from English law involved in it. but in any ease T am afraid I could not shield myself under the same excuse. I say directly it was wrong. Nor do I think it is at all difficult to see why it was wrong; and it is just here I touch what I have always felt to be the difficulty in this case. The Company there had duly been assessed under Schedule A but the point was might it have been assessed under Schedule D instead of under Schedule -V The Lord President says "It is settled that it is for the Crown to "choose in which capacity the Company shall be charged—as pro- " perty or investment owner on the one hand or as trader conducting- " a business on the other." '
The house property in this case is " not occupied for the purposes of the Company's business, it is " occupied by tenants to whom the Company lets it. Accordingly 6 [6] " I think the Crown is alternatively entitled to treat the rents " either as chargeable in respect of the Company's property under " Schedule A, or as constituents of the profits arising or accruing " to the Company from its business chargeable under Schedule D." Now that that settles the point I do not think can be doubted. But when one conies to look at the cases which were cited, and on the effect of which the Lord President says "it is settled etc." it will be found that they are all cases not of choice between Schedule and Schedule but between the various cases in Schedule D. It had been settled long ago that in the case of insurance companies who held large investments the Crown might proceed to reckon under either case 1 in Schedule D or under any of the other cases which may be found to apply. I myself said it in the case of Revell v. Equity and Law Life Insurance Co., and what I said was approved and adopted by Lord Cozens Hardy. M.R., in Liverpool London and Globe v. Bennett 1912 2K.B. 41. From this the Lord President has without authority deduced the view that as there is an option be- tween cases so there must be an option between Schedules, and he bases this in argument on the possibility of an Insurance Company having securities which would fall under Schedule C and others falling under Schedule D. My Lords, I confess this has been the difficult part of the case to me. It is very obvious to suggest that if the Crown can opt as between cases why should it not opt as between Schedules. And that the Company is carrying on a business I do not doubt. The Memorandum of Association shows that it is. But I think the answer is that an option between cases does not in arty way disturb the general scheme of the Act; an option between Schedules would. I think on a general survey of the history and policy of the Income Tax Acts one finds the great distinction that there is between Schedules A and B on the one hand and the other three Schedules on the other. I think it would upset the whole scheme of taxation if you were in the case of real property to be allowed to ignore Schedules A and B. There is no conflict between Schedules C and D if as is the hypothe- sis put by the Lord President the Crown elects to charge in Schedule D on cases other than Case 1. Schedule C is not so to speak upset. On the contrary the charge on the particular form of investment under Schedule C fits in with the charge on other invest- ments made under say case 3 of Schedule D. But in the case of real property if you do what is here asked Schedule A is upset altogether. With great respect to the learned judges in the Court of Session I think it was only Lord Skerrington who saw that by a side wind they were asked to introduce a great novelty. Lord Skerrington says " The Inland Revenue do not seek to assess the appellant ' Company according to the rules under the First Case in Schedule ' D, but it is essential to their success in this litigation to demon- ' strate that they would have been entitled to make such an assess- ' ment if they had so wished. I should have listened to the argu- ' ment with more satisfaction if at the outset we had been informed ' that a Company in the position of the appellant Company had ' never so far as known been assessed according to the rules under ' the first case in Schedule D, and if we had been invited to attend ' to the provisions of the Income Tax Acts for the purpose of con- ' sidering why there was any good reason why such an assessment ' should not now be imposed for the first time." I think this shows that the immense importance of the case had not been before the Court, and that no argument as to the imperative character of Schedule A as to real property had been presented. As I have said I recognise the case to be full of difficulty but on the whole I have come to the conclusion that the decision of the Court of Appeal is right. What are known as the Brewery cases have I think no application to the question in hand. I move that the appeal be dismissed with costs. As regards the other case that is called on it absolutely follows this, and, of course, the judgment in the first case rules the judg- ment in the second. Viscount Dunedin. Lord War- rington of Clyffe. Lord Atkin. Lord Tomlin. Lord Macmillan). [7] FRY (Inspector of Taxes) v. SALISBURY HOUSE ESTATE LD. JONES (Inspector of Taxes) v. CITY OF LONDON REAL PROPERTY COMPANY LIMITED. Lord Warrington of Clyffe: MY LORDS, The Respondents are a Company incorporated under the Com- panies Acts. They are the owners of a large building in the City of London known as Salisbury House. This building contains some 800 rooms which have been let by the Company to some 200 tenants as offices singly or in suites at rents varying according to the accommodation provided, the situation of the several rooms and so forth. The Company provides a staff of porters and cleaners who perform certain services for the tenants for which additional rents and charges are made by the Company. The question in this Appeal is whether the Company in thus letting the premises owned by it is carrying on a trade within the meaning of the Rule applicable to Case I of Schedule D of the Income Tax, 1918, and is therefore liable to be charged under that Schedule in respect of the gains and profits of that trade, the Crown contending that in that case they would be liable to bring into account as part of their gross receipts the amount of the rents received by them from the tenants of the several rooms and offices so let by them as hereinbefore mentioned. The Company is already charged as landlord under R 8 of No. VII of the Rules applicable to Schedule A in respect of the annual value of Salisbury House as appearing in the Valuation List under the Valuation (Metropolis) Act, 1869, which is by that Act made conclusive for the purposes of Income Tax in the case of hereditaments within the Administrative County of London. This annual value is considerably less than the amount of the rents payable by the several tenants. The Crown admits that if the Company were charged under Schedule D in respect of the gross amount of rents received as well as under Schedule A in respect of the annual value it would be taxed twice over in respect of the same subject matter, and concedes that if they are right in their contention that the Company should be assessed under Schedule D, the amount of the assessment under Schedule A must be deducted from the total receipts of the Company including rents less expenses. The Company on the other hand admits that it is liable to be assessed under Schedule D upon any profit which it derives from tenants outside the rents themselves so far as such profits may be described as resulting from a trade but insists that on a landowner letting the hereditaments of which it is owner it is not carrying on a trade and is liable only to be assessed under Schedule A in respect of the annual value of the hereditaments. The Company having been assessed in accordance with the con- tentions of the Crown for the four years ended the 5th April, 1928, appealed to the Commissioners who confirmed the assessments. They were required to state a Case. By that Case they stated in full 6970 A 4 2 [8] detail the facts summarised above and concluded that they were bound by authority to decide that the assessments under Schedule D were rightly made to include the amounts by which the total receipts of the Company (including its rents from offices) less expenses exceeded the Schedule A assessments. They further state that the sole question upon which the opinion of the Court is desired is whether the rents received by the Company on letting the offices in Salisbury House are properly to be included in the assessment as trade receipts of the Company for purposes of Case I of Schedule D of the Income Tax Act, 1918. The Case came before Rowlatt J., who confirmed the view of the Commissioners but on appeal to the Court of Appeal his order was reversed and the Case was remitted to the Commissioners to amend the assessments. The Crown appeals to this House. It is well settled that though the tax under Schedule A is a tax on income like that under all the other Schedules it is not a tax upon rents. It is assessed upon annual value which in the present case is fixed by the Valuation List above referred to. The latest case on this subject is Miller's Case before this House at present unreported in which it was held that a person in actual enjoy- ment of and occupying lands is liable to the tax although he is not in receipt of rent therefrom nor even, by reason of the nature of his tenure, capable of converting his enjoyment into rent. Now the effect of the Crown's contention if it be correct would be in- directly to convert this tax on annual value to a tax on rents, and therefore it seems to me that a heavy burden is east upon the Crown before its contention can succeed. The first question to be determined is whether in its capacity as landowner deriving rents from its land the Company is carrying on a trade within the meaning of Schedule D and the rules thereunder, and if this question is answered in the negative the further questions raised and argued in this House do not arise. Now in the first place the Commissioners have not in my judgment decided this question as one of fact, and it is therefore open to the House now to express their own views thereon. The Commissioners have contented themselves with stating the facts as to the mode in which the Company deals with the property of which it is the owner, and then express the opinion that the assessments under Schedule D were rightly made to include the amounts by which the total receipts of the Company including rents from offices less expenses exceeded the Schedule A assessments, and state that the sole question is whether the rents are properly included as trade receipts. That is to say whether, assuming the Company is liable to be assessed under Schedule D as a trader the rents are properly included in the gross receipts. There is nothing in the facts stated in the case which would properly lead to the conclusion that in dealing with the property the Company is acting otherwise than an ordinary landowner would act in turning to profitable account the land of which he is the owner. It would in my opinion be impossible to hold that in such a case the landowner is carrying on a trade. Such a person would I think clearly be assessable under Schedule A only and his taxable income would be measured by the conventional annual value and not by the amounts of the rents he actually received. But the Crown contends that the fact that the tax payer is a limited Company may distinguish its operations from those of an individual. Assuming the Memorandum of Association allows it, and in this case it unquestionably does, a Company is just as capable as an individual of being a landowner and as such deriving rents and profits from its land, without thereby becoming a trader and in my opinion it is the nature of its operations, and not its own [9] 3 capacity, which must determine whether it is carrying on a trade or not. Nor do I see any reason why, as in the present case, some of its operations under the wide powers conferred by the Memorandum should not be operations of trade, whereas others are not. Many cases have been cited in argument but they do not in my opinion touch the present point. That which come nearest is I think the Rosyth Company's case, 1921, Sessions Cases, 372, but when that case is examined it will be found that the fact that the Company was carrying on a trade was assumed as common ground. The Lord President in his Judgment (p. 379) says :
" It may some- " times be difficult to draw the line between land ownership and " commercial enterprises in land; but that is a question of fact of a " kind which is not infrequently met with under the Income Tax "
Acts, and it is solved in the present case in favour of the Crown " inasmuch as it is common ground that the Appellant Company " is a land investment concern." In this case the point is open. The Brewery cases seem to me not to be in point. The last one, U shers Wiltshire Brewery Company v. Bruce, 1915, A.C. 433, is, if it be relevant at all, in the Plaintiffs' favour for though the tax payer there was a Company trading as a brewery Company the rents received from its tied houses were not regarded as receipts from the brewery business except only to this extent, that inasmuch as the Company was claiming as a deduction from gross receipts sums expended in repairs to tied houses it could only make good its claim to deduct the net sum so expended and therefore must allow against the cost of repairs such sums as were received by way of rent from the houses repaired. I come then to the conclusion that the Crown fails to make good the ground on which its claim to have a right to assess the Company under Schedule D is based, except of course to the limited extent to which it is admitted, and that the question asked by the Commissioners was properly answered in the negative by the Court of Appeal. For the reason given above I express no opinion upon the further points raised in argument, and in particular upon the correctness or otherwise of the decision in the Rosyth Company's case or of the views expressed by the learned Judges in that case, but in saying this I must not be taken to dissent from the views expressed by my noble and learned friend on the Woolsack whose opinion I have read. The appeal in my opinion fails and should be dismissed with costs. It is admitted that there is no distinction favourable to the Crown between this case and that of the City of London Real Pro- perty Company and the appeal in that ease also should be dismissed with costs. A 5 Viscount Dunedin. Lord War- rington of Clyffe. Lord Atkin. Lord Tomlin. Lord Mac- millan. [10] FRY (Inspector of Taxes) v. SALISBURY HOUSE ESTATE, LIMITED. JONES (Inspector of Taxes) v . CITY OF LONDON REAL PROPERTY COMPANY, LIMITED. Lord Atkin. MY LORDS, The Respondents are a limited company who own hereditaments in the City of London consisting of a large building known as Salisbury House which they let out to tenants as unfurnished offices. They have been assessed to income tax in respect of pro- perty in the hereditaments upon the annual value thereof under Schedule A. The assessment and charge has been made upon the owners direct under the provisions of Schedule A, No. VII, r. 8 (C.) relating to any house or building let in different apartments or tenements and occupied by two or more persons severally. They have also been assessed under Schedule D in respect of the profits or gains of the trade said to be carried on by them in letting the offices and providing services for the tenants. The assessments under Schedule D are made upon the footing of including in the gross receipts of the trade the actual rents received from the tenants and deducting the cost of earning them. It is admitted that if the Respondents are taxed upon their full profits and gains on this footing they would he doubly taxed to income tax in so far as the annual value under Schedule A represents rents received. From the gross receipts therefore is also deducted the annual value upon which the Respondents have already paid In- come Tax under Schedule A, By this adjustment they are assessed under Schedule D upon so much of the profits and gains received from rents as exceeds the annual value of property assessed under Schedule A. The Respondents admit that they are liable to assessment under Schedule D in respect of the profits they make for services rendered to tenants which appear to consist of cleaning offices and providing- fuel. They contend, however, that in respect of the profits and gains they make from letting the offices the assessment can only be made under Schedule A, whether the rents exceed the annual value or not. The Inland Revenue on the other hand contend that they have an option to charge under whatever Schedule is more advantageous to them, always making an adjustment against double taxation. They say that the Respon- dents carry on a trade and for the full profits and gains of such trade they are chargeable whether the income is derived from property in land or not. The sum in dispute is considerable. Except in London the ques- tion would hardly arise. Annual value under Schedule A as measured by rule 1 is the actual rent if the hereditaments were let at a rack rent within 7 years of the assessment, or if not the rack rent which they are actually worth subject to the statutory allow- ances. The Inland Revenue can hardly lose and may gain on this computation of income. But in the Administrative County of London as provided by the terms of Schedule A the annual value is to be the annual value as fixed under the Valuation (Metropolis) Act, 1869. It therefore may happen that the fact that the valua- tion is made quinquennially, that an allowance is made for empties, and that the actual cost of repairs in any year or three years may be less than the statutory allowances will cause the profits calculated under Schedule D to be greater than the annual value. Of course the opposite result may follow, and in such case the tax- gatherer would doubtless exercise his option for Schedule A. [11] 2 My Lords, I think that this case should be decided in favour of the Respondents upon the simple ground that annual income derived from the ownership of lands tenements and hereditaments can only be assessed under Schedule A and in accordance with the rules of that Schedule, In my opinion it makes no difference that the income so derived forms part of the annual profits of a trading concern. For the purpose of assessing such profits for the purpose of Schedule D the income so derived is not to be brought into account. The option of the Revenue authorities to assess under whichever Schedule they prefer in my opinion does not exist: and is inconsistent with the provisions of the Income Tax Acts through- out their history. The scheme of the Income Tax Acts is and always has been to provide for the taxation of specific properties under Schedules appropriated to them and under a general Schedule D to pro- vide for the taxation of income not dealt with specifically. Schedule A provides for the taxation of income derived from property in land : B for income derived from the occupation of land : C for income derived from government securities : E for income derived from employment in the public service. It is unnecessary to go further back than the Income Tax Act of 1842 the provisions of which were incorporated in every Customs and Inland Revenue or Finance Act up to 1918, when the present consolidation Act was passed. I need not repeat the familiar Schedules altered and ex- tended by the Act of 1853. It is only necessary to refer to s. 100 of the Act of 1842 which defined the tax to be imposed under Schedule D. ' The duties hereby granted contained in the ' Schedule marked D shall be assessed and charged under the ' following rules, which rules shall be deemed and construed to be ' a part of this Act and to refer to the last mentioned duties, as if ' the same had been inserted under a special enactment. " Schedule D. ' The said last mentioned duties shall extend to every descrip- ' tion of property or profits which shall not be contained in either ' of the said Schedules A, B, or C and to every description of em- ' ployment of profit not contained in Schedule E." My Lords, nothing could be clearer to indicate that the Schedules are mutually exclusive : that the specific income must be assessed under the specific Schedule : and that D is a residual Schedule so drawn that its various cases may carry out the object so far as possible of sweeping in profits not otherwise taxed. For this reason no doubt the actual Schedule was drawn in the widest terms. " For and in respect of the annual profits or gains arising ' or accruing to any person residing in the United Kingdom from ' any kind of property whatever whether situate in the United ' Kingdom or elsewhere." etc. Such language covers income from land in Schedule A and from Government securities in Schedule C. Its true meaning is made apparent by S. 100. Moreover, the dominance of each Schedule A, B, C, and E over its own subject matter is confirmed by reference to the sections and rules which respectively regulate them in the Act of 1842. They afford a complete code for each class of income dealing with allowances and exemptions, with the mode of assessment and with the officials whose duty it is to make the assessments. Thus under A and B the assessment and collection is regulated by the general commissioners : under C the assessment is by com- missioners specially appointed for the purpose : under E the assess- ment and collection is made in the departments or by the officers of the public corporations concerned : while under D the assessment is regulated by additional commissioners. I find it impossible to conceive that these various commissioners had an option to encroach upon the duties of one another : or that the taxpayer was exposed to having his income freed from the restrictions and exemptions 3 [12] imposed by statute under one schedule in order to be subject to a different set of restrictions and exemptions imposed by statute under another schedule. To take a concrete instance which has been before the courts it seems to me impossible that the legislature intended that a farmer taxed for profits of his occupation under Schedule B might at the option of the authorities after a successful year or term of years be taxed on his profits under Schedule D. The point was decided by the Court of Appeal in Back v. Daniels 1925 : 1 K.B. : 526. It was argued that this decision turned on the express option given to the occupier to be assessed under Schedule D, which therefore negatived an implied option in the authorities to assess him under that Schedule. The express option to the occupier was not given until 1887 by the Customs and Inland Revenue Act of that year. I confess I fail to see why an option given to the taxpayer should negative the existence of an option in the tax gatherer : still less how an option given for the first time in 1887 should destroy an option in the tax gatherer which on the hypothesis had been in existence since 1842. The judgments do not support any such contention. Similarly I am of opinion that income derived by a trading company from investments of its funds whether temporary or permanent in g overnment securities must be taxed under Schedule C : and cannot for the purposes of assessment under Schedule D be brought into account. I am dearly of opinion that the Act of 1918 which is expressed to be a consolidation Act did not alter the law so as to give to the authorities an option they did not possess before. It is true that the words of Schedule D and the cases are wide as before : the words as to annual profits or gains arising to any person re- siding in the United Kingdom from any kind of property whatever are repeated. But they must be cut down as they were before. I may refer to one expression in the rule applicable to case III. 1. a. where it is provided that the tax shall extend to . . . ' any other " annual payments whether payable as ... a personal debt by virtue " of any contract or received or payable half-yearly or at any " shorter periods." This would include rent under a lease but it is obviously not intended to cover cases under Schedule A. I attach no importance to the express exception in some of the rules under D of income coming within named other Schedules. They are inserted ex majori cautela and similar instances can be found in the rules under the former Act where, as I have stated, the position was clearly expressed by s. 100. Believing as I do that the specific Schedules A, B, C, and E, and the rules thereunder contain definite codes applying exclusively to their respective defined subject matters I find no ground for assessing the taxpayer under Schedule D for any property or gains which are the subject matter of the other specific Schedules. In the present case the in- come from the offices should be and has been assessed under Schedule A on the annual value as prescribed by Statute. It therefore is not the subject matter of assessment under D. I should add that if there had been an option to assess under A or D 1 cannot conceive a more conclusive election under the option than the assessment and receipt of payment under Schedule A but this point need not be determined. The Rotunda case, Coman v. Governors of the Rotunda Hospital Dublin, 1921, 1 A.C. 1, much relied on by the Appellants, appears to me to afford them no help. In that case Lord Birkenhead expressed the view that the lettings were not such as to constitute the relation of landlord and tenant but the possession and occupa- tion of the rooms remained with the Respondent. Lord Cave, pp. 23, 24, expressly held that the profits in question were not as- sessable under Schedule A and accordingly fell to be assessed under Schedule D. Lord Finlay appears to have been of the same opinion. The case merely decided that the Respondents the governors of the Hospital used their own premises of which they were in occupa- [13] 4 tion for the purpose of carrying on a profitable trade, and that they were liable to be assessed under Schedule D for those profits with the statutory deduction of the annual value assessed under Schedule A. The case entirely differs in its facts and appears to throw little light on the law in question before this House. The Rosyth case so far as it decided that the Inland Revenue authorities have an option to select which Schedule they prefer must I think be held to be wrongly decided. The actual decision may possibly be supported on the view that for the purpose of the particular claim for exemption the whole profits must be calculated under a notional Schedule D which would pay no regard to other Schedules. It is unnecessary in the present case to discuss that matter. I desire to add that I do not desire to throw any doubt upon decisions which indicate that the Inland Revenue authorities may have an option as to the several cases of any given Schedule upon which they may determine to assess the taxpayer. An option within a Schedule is not the same thing as an option to select Schedules. My Lords, it may well be that another mode of expressing the result I have stated is to hold that a person capable of being assessed under Schedule A cannot be said in respect of his income from land to be earning profits from " trade ". This view appears to commend itself to some of your Lordships. I do not dissent from it; but I view it with some misgiving. I find it diffi- cult to say that companies which acquire and let houses for the purposes of their trade, such as breweries in respect of their tied tenants, and collieries and other large employers of labour in respect of their employees do not let the premises as part of their operation of trading. Personally I prefer to say that even if they do trade in letting houses their income so far as it is derived from that part of their trading must be taxed under Schedule A and not Schedule D. I agree that this Appeal should be dismissed . Viscount Dunedin. Lord Warring- ton of Clyffe. Lord Atkin. Lord Tomlin. Lord Macmillan. [14] FRY (Inspector of Taxes) v. SALISBURY HOUSE ESTATE, LTD. JONES (Inspector of Taxes) v. CITY OF LONDON REAL PROPERTY COMPANY, LIMITED. Lord Tomlin. MY LORDS, This is an Appeal by H.M. Inspector of Taxes against an order of the Court of Appeal dated the 26th June, 1929, reversing a decision of Mr. Justice Rowlatt. That learned judge had dis- missed the Respondents' Appeal from a decision of the Commis- sioners for the Special Purposes of the Income Tax Acts confirming assessments to income tax made upon the Respondents under Schedule D for the four years ending 6th April, 1928. The Respondents are a limited company formed in 1902 to acquire a large block of buildings known as Salisbury House and to let out as offices the rooms contained in the block. Since their incorporation the Respondents have held let and managed Salisbury House. They have not acquired managed or dealt in any other property. Salisbury House contains some 800 rooms let to 200 tenants or thereabouts. The lettings are all unfurnished lettings of single rooms or suites. The Respondents maintain and operate the lifts in the building and for this purpose and for the purpose of keeping clean the halls corridors and staircases provide a staff of some 80 to 90 persons under the supervision of a housekeeper. Under the Respondents' standard form of lease certain sums are payable by the tenants by way of additional rents. These sums represent contributions by the tenants towards the cost of lighting the halls corridors and staircases and like matters. Some of the tenants also pay to the Respondents remuneration for certain clean- ing and other services rendered to them. The Respondents have throughout in respect of Salisbury House been directly assessed to income tax on the whole building under Schedule A No. VII 8(c) of the Income Tax Act, 1918. As the property is situate within the administrative County of London the annual value with respect to Schedule A is by sect. 45 of the Metropolis (Valuation) Act, 1869, deemed to mean the gross value stated in the valuation list under that Act. By section 4 of the same Act gross value means the annual rent which a tenant might reasonably be expected taking one year with another to pay for an hereditament. The rents actually received during the years of assessment exceeded by a substantial amount the assessed value for the pur- poses of Schedule A. From the case stated it appears that at the hearing before the Commissioners the Respondents admitted that they were liable to be assessed under Schedule D upon any profit which they derived from Salisbury House tenants outside the mere rents for the offices so far as such profits might be described as resulting from a trade. For the purpose however of the assessments appealed against the profits of the Respondents were computed by taking the total of their receipts from all sources including the rents received by [15] 2 them from the lettings of rooms in Salisbury House and deducting therefrom their expenses and the amounts or the assessments under Schedule A made upon the Respondents in respect of the premises. The Special Commissioners confirmed the assessments stating that they did so following a previous decision of the Commissioners and in deference to opinions expressed in the Court of Session in the case of the Rosyth Building and Estates Company, 1921 Sess. Cases 372. The sole question upon which the opinion of the Court was desired by the Special Commissioners was whether the rents received by the Respondents on letting the offices in Salisbury House were properly to be included in the assessments as trade receipts of the Respondents for the purposes of Case I of Schedule D of the Income Tax Act, 1918. Mr. Justice Rowlatt apparently took the view that the Respon- dents were carrying on a trade in the nature of an hotel business and that the assessments were rightly made. The Court of Appeal however rejected this view of the case and in substance held that a landowner who happens to make tax- able profits by rendering certain services to his tenants cannot for that reason be treated as carrying on a trade in respect of the receipt of rents so as to be chargeable with income tax under Schedule 1) upon the excess of the actual rents over the annual assessments to Tax under Schedule A. The arguments presented to your Lordships' House on behalf of the Appellant as I understand them may be stated as follows :— It is true that tax under Schedule A is necessarily charged in every case in respect of the property in all lands tenements and hereditaments. Where however besides receiving his rents the land- owner by means of rendering services to his tenants or other- wise in relation to the management of his land makes profits taxable under Schedule D there may come a point where his activities which earn profits and his perception of rents must be treated as a business concern in the nature of an indivisible trade taxable under Schedule I) and this is inevitably the case if the landowner is a limited company formed to acquire and manage land. In the condition of affairs last supposed the Revenue Authority has an option so far as the lands are concerned either to rely upon the Schedule A assessments or to require the rents to be brought in as part of the gross trade receipts a de- duction of the Schedule A assessment being allowed where the rents exceed such assessment. My Lords, in my view the scheme of the Income Tax Act, 1918, properly understood does not afford support for these arguments but leads to an opposite conclusion. Section 1 of the Act provides that " where any Act enacts that " income tax shall be charged for any year at any rate the tax at " that rate shall be charged for that year in respect of all property " profits or gains respectively described or comprised in the " schedules marked A, B, C, D and E contained in the first schedule " to the Act and in accordance with the Rules respectively applic " able to those schedules." Schedule A begins with the following words:— " Tax, under Schedule A shall be charged in respect of " the property in all lands, tenements, hereditaments and heri- " tages in the United Kingdom for every twenty shillings of " the annual value thereof." The Rules under Schedule A prescribe (No. VII, rule 4) that " Tax under this schedule shall be charged on all lands, tenements and hereditaments whether occupied at the time of assessment or not." 3 [16] For lands outside the administrative County of London as for lands within that county rent or rental value is the measure of annual value (see Schedule A, No. 1, and cf., Section 45 of the Metropolis (Valuation) Act 1869). Now income tax is one tax. There is not a separate tax under each Schedule (see London County Council v. Attorney-General, 1901, A.C. 26). Further there is admittedly no double taxation. A subject matter of taxation properly assessed to the tax under one schedule cannot be brought again into assessment under another schedule. Laud in regard to its property quality is assessable to tax under Schedule A and in regard to its occupation quality is assessable to tax under Schedule B. There may also be such utilization of the land attributable neither to the property quality nor to the occupa- tion quality producing profits assessable to tax under Schedule D (see Coman v. Governors of the Rotunda Hospital, Dublin, 1921, A.C.1). Putting aside the special cases dealt with in Schedule A, No. III, tax in respect of the property quality in land is exigible under Schedule A on the annual value measured by reference to rental value. The tax is a charge on the property and is inescapable. Neither the Revenue Authority nor the tax payer can demand to exclude the subject matter from the Schedule. When once the annual value has been ascertained and fixed for the purposes of Schedule A it is irrelevant to consider whether the landlord in fact receives by way of rent more or less than or the same as the assessed annual value. The subject matter, namely land in respect of its property quality, being necessarily taxed under Schedule A cannot be brought again under any other schedule. To do so would offend the rule against double taxation. The option which the Revenue Authority sets up here is in my judgment inconsistent with the scheme of the Act and in particular with the obligation of the authority to tax under Schedule A. If such an option existed it would be reasonable to expect machinery whereby upon the exercise of the option in the direction of some Schedule other than Schedule A allowance could be made in respect of the tax necessarily exigible under Schedule A. No such machinery is in fact provided by the statute and the Revenue Authority has been driven in this case to invent it to meet the objection" of double taxation. It is noteworthy that where a land owner carries on a trade on his own property the computation of tax is to be made exclusive of the annual value of lands occupied for the purpose of the trade and separately assessed and charged under Schedule A (see Schedule D, Cases I and II, Rule 5). I am therefore of opinion that as between Schedule A and other schedules the Revenue Authority has no option to select the Schedule to be applied and in this respect I disagree with the reasoning upon which the decision in the Rosyth Building and Estates Company, Ltd., v. Rogers, 1921, S.C. 372, is based. Further in my view the perception of rents as land owner is not an operation of trade within the meaning of the Act. If this be so, I am unable to appreciate how the existence of ancillary activities which produce profits taxable under Schedule D can affect the nature of the operation or how the legal significance of the percep- tion is altered for the purpose of income tax if the recipient is a limited company rather than an individual. My Lords, for the reasons which I have endeavoured to indicate I reach the conclusion that the decision of the Court of Appeal was correct and I think that this Appeal should be dismissed with costs. Viscount Dunedin. Lord War- rington of Clyffe. Lord Atkin. Lord Tomlin. Lord Macmillan. CECIL FRY (HIS MAJESTY'S INSPECTOR OF TAXES) v. SALISBURY HOUSE ESTATE, LIMITED. JONES (Inspector of Taxes) v. CITY OF LONDON REAL PROPERTY COMPANY, LIMITED. Lord Macmillan. MY LORDS, The Respondent Company owns a large block of buildings in the City of London known as Salisbury House, containing some 800 rooms. These rooms the Company lets unfurnished singly or in suites to tenants as business offices, and derives therefrom a large revenue in rents. Certain services are rendered by the servants of the Company such as cleaning, watching and lighting for which charges are made to the tenants. The Company has no other activities beyond acting as landlords of the premises and perform- ing the services mentioned. The broad question raised by the Appeal now under your Lord- ships' consideration is as to the proper method of assessing the Company to income tax, although the actual issue relates to the validity of assessments made upon the Company under Schedule D for the four years ending 5th April, 1928. The first step taken by the Inland Revenue authorities in each of the years in question was to assess Salisbury House to income tax under Schedule A upon the gross value as appearing in the valuation list in accordance with the Valuation (Metropolis) Act, 1869, section 45. The assessments were made upon the Com- pany as landlords under Schedule A, No. VII, Rule 8, which pro- vides that " the assessment and charge shall be made upon the " landlord in respect of . . (c) any house or building let in different " apartments or tenements and occupied by two or more persons " severally. Any such house or building shall be assessed as one " entire house or tenement." The tax exigible upon these assess ments was duly demanded by the Crown and duly paid by the Company. The Inland Revenue Authorities, taking the view that the Company were not only landlords but also traders, proceeded in addition to assess the Company under Schedule D on the annual balance of its profits or gains claiming that on the credit side of the computation there should be entered the rents received and the receipts from services rendered while on the debit side it was conceded that the assessments under Schedule A should be entered as well as all expenses incurred by the Company in earning their profits. The Company challenged the validity of this assessment but admitted that it was liable to be assessed under Schedule D on any profit apart from rents which it earned from rendering in connection with the premises the various services mentioned. The Commissioners decided that the assessments under Schedule D were rightly made to include the amounts by which the total receipts of the Company (including its rents from offices) less expenses exceeded the Schedule A assessments. This decision was affirmed by Rowlatt J., but was reversed by the Court of Appeal. The Crown now appeals to your Lordships' House and 2 [18] asks that the decision of the Commissioners and Rowlatt J . be restored. Important questions of principle not hitherto directly the subject of consideration in this House are involved in the determination of the case. As I approach the problem the first question which presents itself is whether the revenue authorities were bound to assess the premises under Schedule A. They did so but had they any option in the matter ? In my opinion they had none and the assessments made under Schedule A were not only proper but obligatory. Section 1 of the Act of 1918 enacts that income tax is to be charged " in respect of all property, profits or gains respectively described " or comprised in the schedules marked A B C D and E contained " in the First Schedule to this Act. and in accordance with the Rules " respectively applicable to those Schedules." Turning to Schedule A, I find that it opens with the words " Tax under Schedule A shall " be charged in respect of the property in all lands, tenements, " hereditaments and heritages in the United Kingdom for every " twenty shillings of the annual value thereof." The Rules applicable to Schedule A provide (No. VII, Rule 4) that " tax under this Schedule shall be charged on all lands, " tenements and hereditaments." I may refer also to Section 110 (1) which enacts that '' the assessments under " Schedules A and B for any parish shall contain (a) the full and " just annual value of all lands, tenements, hereditaments and "heritages estimated in each particular case as directed by this " Act; and (b) the names of the occupiers and proprietors thereof." It is clear from these and other provisions of the income tax code which it is unnecessary to refer to in detail that it is obligatory to assess to income tax under Schedule A all lands, tenements, here- ditaments and heritages in the United Kingdom, and that the re- venue authorities have no option in the matter. If they have an option as regards other sources of income in the matter of the Schedule under which they may charge them, upon which I do not consider it necessary for the present purpose to pronounce, it is at least certain that they must charge tax in respect of property in land under Schedule A. An examination of the Income Tax Acts past and present establishes that a clear distinction has always been drawn between income from land and income from all other sources. The subject of tax is all property as well as all profits or gains and indeed the tax under Schedule A is designated property tax not only colloquially but on official forms. Schedules A and B in com- bination contain and in my view contain exhaustively and ex- clusively the charge upon landed property, the former containing the tax on the owners of land and houses in respect of the property in them and the latter containing the tax on the benefit derived from the occupation of land. The consequences of this are far-reaching for the present pur- pose. If the revenue authorities must assess .Salisbury House under Schedule A they must do so on the annual value thereof ascertained in the manner prescribed by the Rules applicable to that Schedule. The premises being situated within the administrative County of London the annual value with respect to Schedules A and B is by Section 45 of the Valuation (Metropolis) Act, 1869, to be deemed to mean the gross value stated in the valuation list under that Act and by Section 4 gross value means " the annual rent ' which a tenant might reasonably be expected taking one year with another to pay for an hereditament " on ordinary letting terms. Rent or rental value is thus the criterion of annual value for the purpose of the tax on property under Schedule A. Similar provisions apply to lands outside the Metropolis under " No. I.— " General Rule for estimating the annual value of lands, tene- " ments, hereditaments or heritages ". Here also rent or rental value is the criterion of annual value for the purposes of taxation. [19] 3 Once it is determined that the annual value of all lands and houses must be assessed to income tax under Schedule A it follows that this annual value cannot be assessed to income tax under any other Schedule, for it is elementary that the same source of income cannot be twice taxed. Income tax is one tax, not several taxes (London County Council v. Attorney-General [1901], A.C. 26), and the annual value of a particular property having been once assessed to income tax cannot be re-assessed to the same tax. The explanation of the assessments under appeal is obvious. If the rents received by the respondent Company were the exact equiva- lent of the annual value of the property in the metropolitan valua- tion lists the Crown would have no interest in seeking to assess the Company under Schedule D because it would receive under Schedule A all the tax to which the rents were liable, while any profits from services rendered are admittedly assessable under Schedule D. Thus the whole income derived by the Company in respect of its property would yield tax. But the Company, in fact, lets out its rooms at rents which are in excess of the annual value of its premises, and consequently if the company is assessed only under Schedule A the excess of the rents received over the annual value escapes taxation. This circumstance in my opinion affords no justification for the attempt to treat the Company as a trading concern whose profits are assessable under Schedule D. Landowning, however profit- able, is not a trade within the meaning of the income tax code. Property in land as a source of income is dealt with, and can only be dealt with under Schedule A, and the Rules of that Schedule prescribe how the income from landed property is to be ascertained and measured. If the measure is an imperfect one and when applied does not ascertain the actual income derived from the pro- perty so much the worse for the revenue. Discrepancies one way or the other between actual income and statutory income for tax purposes are familiar features of income tax law. Theoretically, the annual value and the rental should correspond for annual value is based on rent. If they part company one way or the other the fault lies with the imperfection of the statutory machinery for ascertain- ing the income from landed property and the Inland Revenue authorities are not entitled to resort to a different measure designed for a different source of income if the actual rents happen to exceed the annual value. It is necessary, however, to make it quite clear that the income from property which is taxable under and only under Schedule A is income derived from the exercise of property rights properly so called. Property is regarded as yielding income from the exercise by the proprietor of the right either of himself enjoying the possession or of parting with the possession by letting his property to tenants. The owner of property may make profit out of it in other ways and by doing so he may render himself liable to taxation under Schedule D. The case of Coman v. Governors of the Rotunda Hospital Dublin [1921] 1 AC 1 is an excellent example. There us Lord Birkenhead L.C. pointed out at p. 8 the arrangements between the owners of the premises and the persons who paid for their use for the purpose of entertainments were not such as to constitute the relation of landlord and tenant, and the owners remained in possession and occupation of their property. The receipts derived from hiring out their premises along with various movable fittings and affording services in the way of heating lighting and attendance were receipts of an enterprise quite distinct from the ordinary receipts which a landlord derives from letting his property. Con- sequently the owners of the premises were rightly held to be engaged in the carrying on of a trade or business in their premises, the 4 [20] " trade or business " in Lord Shaw's language at p. 37, " of pro- " viding or providing for public entertainments." There is nothing to prevent a landlord who has been assessed under Schedule A in respect of his income as a property owner being also assessed under Schedule D in respect of a trade business or other enterprise carried on by him on his premises. It is not without significance that in the case of certain kinds of property the annual value under Schedule A is directed to be ascertained in accordance with the Rules applicable to Schedule D, that is to say on a profits basis. Under the Rules applicable to Schedule A, No. III (1) quarries, (2) mines and (3) an enumerated series of undertakings mostly of a public utility character and " other concerns of the like nature " are directed to be assessed on an annual value based on profits not rental and the profits are to be arrived at as if they were trading concerns. In the case of The Edinburgh Southern Cemetery Company v. Surveyor of Taxes, 1889, 17 R. 154 where it was held that a cemetery company should be assessed under Schedule A No. III 3 as a " concern of the like " nature " with the enumerated concerns, Lord McLaren said at p. 165 :
" It is certainly not sufficient to bring a particular use of " land within the scope of rule III that the proprietor of the land " is using it in connection with his trade or for purposes of trade; " because in such cases it is generally possible to separate the " income into two parts, the one representing the rent or annual " value of the heritable property, and the other representing the " commercial profit. Where this can be done, the proper mode of " assessing seems to me to assess under Schedule A in respect of " annual value, and also under Schedule D for the commercial " profits of the business or manufacture carried on within the " heritable subjects. But there are cases where it is very difficult " to separate the income of a proprietor into rental and commer- " cial profits. Rule III appeals to have been devised to meet such " cases."
His Lordship proceeds to point out that the income of the company was " neither derived from the location nor from the " occupation of land " but from " a trade which is carried on by " the use of land," namely the sale of perpetual rights of sepulture in specified portions of the company's land. The present case does not fall within any of the classes of con- cerns where by the Rules under No. Ill of Schedule A the annual value of property is to be determined on the basis of profits in con- formity with the Rules of Schedule D. The income of the company being derived from the location of land, or in other words in the normal manner in which property in land yields revenue, it is in my opinion inadmissible to characterise this income as the income of a trade. Where a trade is carried on by a proprietor in his own premises Rule 5 of the Rules applicable to Cases I and II of Schedule D provide for the exclusion from the tax computation of the annual profits or gains of the property occupied for the purpose of the trade. This clearly contemplates a separation between the two characters of landowner and trader. A landowner may con- duct a trade on his premises but he cannot be represented as carry- ing on a trade of owning land because he makes an income by letting it. The relatively insignificant services for which the company makes charges to its tenants are not in my opinion sufficient to con- vert the company from a landowner into a trader though the profits so made may quite properly be charged with tax under Schedule D. To hold otherwise would be to invert the rule that the principal follows the accessory. The circumstance that the Crown has proposed in assessing the company under Schedule D to deduct the assessments under Schedule A affords to my mind strong evidence of the illogicality of the whole proceeding, I do not understand how an assessment to [21] 5 income tax can ever be a proper deduction from an assessment to income tax for the tax is one tax. It is nothing to the purpose to say that under Schedule D it is proposed to tax actual rents while under Schedule A it is the annual value which has been taxed. The source of the rents and of the annual value is one and the same, namely, the property in Salisbury House. It follows from the views which I have above expressed that I do not agree with the reasoning on which the decision in the case of the Rosyth Building and Estate Company v. Inland Revenue, 1921 S.C. 372, is based. In my opinion the principles applicable to this case are accurately expounded in the judgments of the Court of Appeal and I concur in the motion that the appeal be dismissed. This should also be the fate of the other appeal before your Lord- ships in the case of the City of London Real Property Company, Limited, which it was admitted is indistinguishable. (6970-50) Wt. 893-16 14 4/30 P. St G.311 This is an important case with probably far-reaching conse- quences, and we had the benefit of a very full and able argument from the Attorney-General on behalf of the Crown, but in, the end I have come to the conclusion, though not without difficulty, that the judgement appealed from is right and should be affirmed. The facts which give rise to the question are as follows :— Salisbury House is a building of considerable size in the City of London and is owned by a limited company which was formed for the express purpose of acquiring the property known as Salis- bury House, and utilising it. The house contains about 800 rooms. These rooms are let to tenants as offices. There is no residential occupation. No furnishings are provided. The company main- tain a staff of servants to operate the lifts and act as porters and look after the building, and there is also a large staff of cleaners all under the orders of a housekeeper paid by the company. The tenants have the exclusive use of the rooms let, but are bound to leave the keys at night with the housekeeper so as to allow access in the case of fire breaking out. The company retain certain rooms as an office. By the terms of the leases the company have to pay all rates and taxes. The company were assessed to income tax under Schedule A upon the gross value of the premises as appearing in the Valuation Roll in accordance with the Valua- tion (Metropolis) Act, 1869. This assessment was imposed on the company as landlords, instead of on the various individual tenants who are the occupiers, in accordance with Rule 8 (c) (i) of Section 7 of Schedule A of the Income Tax Act, 1918, which provides for the assessment of landlords instead of tenants in the case of any house or building let in different apartments and tenements and occupied by different persons severally, and the amount of the assessment was duly paid by the company. The Inspector of Taxes then served on the company a notice of assess- ment under Schedule D. He arrived at the assessment by calculat- ing the amount of profit as brought out in the profit and loss account of the company, after deducting expenses of management and upkeep, and then he proposed to deduct from the assessment so brought out the amount of assessment already paid under Schedule A. The company admitted that they had to pay under Schedule D upon the amount of profits which they made from the cleaning; and other services, but contended that, so far as the proceeds of the property were concerned, that had already been taxed under Schedule A and could not again be brought in computo under Schedule D and demanded a case. A case was stated by the Commissioners which sets out the above facts. The figures, apart from the question of principle, have been agreed on.[2]Rowlatt, J. took the view that the Commissioners had decided the case rightly and dismissed the appeal. He thought the case was ruled by the judgment of the Court of Session, given in the case of Rosyth Building Co. v. Rogers 1921 Sess. Cas. p. 372. The appeal being taken to the Court of Appeal, that Court unanimously 2 [2] reversed the judgment, and the Crown now appeals to your Lord- ships.[3]My Lords,[3]this is one of' those cases which may be approached, so to speak from very different angles, and according as you approach it from one angle or another a different conclusion may seem to be the one that is right to follow. I can only say that, after the best consideration 1 could give it my opinion is that the angle from which I now approach it is the right one. Now, the cardinal consideration in my judgment is that the income tax is only one tax, a tax on the income of the person whom it is sought to assess, and that the different Schedules are the modes in which the Statute directs this to be levied. In other words, there are not five taxes which you might call income tax A, B, C, D, and E, but only one tax. That tax is to be levied on the income of the individual whom it is proposed to assess, but then you have to consider the nature, the constituent parts, of his income to see which Schedule you are to apply. Now, if the income of the assessee consists in part of real property you are, under the Statute, bound to apply Schedule A. Schedule A may, so to speak, get in touch with the assessee in different ways according to the condition of affairs. It may touch property in occupation which actually brings in no money return. A good example will be found in the case decided within the last few weeks in this House in the case of Lady Miller. There a lady enjoyed the use of a mansion house under the provisions of the will of her deceased husband which was feudally vested in trustees. The mansion house brought her in no money but she was reckoned as for income tax, in order to arrive at super-tax, on the yearly value of the house. In this matter it differs from all the other Schedules, all of which only deal with actual return. When, as in the present case, a subject is let, the rent, if it represents a fair bargain, is taken as the measure of that part of the income of the lessor, and he suffers the tax by way of deduction by his tenant from the rent due or as in the present case by paying it himself. The result is that by the operation of the assessment under Schedule A which is made imperative by the Statute, and was in fact applied here, the in- come of the assessee is so far dealt with and cannot be dealt with again. Of course that does not mean that the assessee may not be liable in respect of other income under other Schedules. He might be liable under Schedule B, which says in terms that the amount there is to be in addition to the assessment made under Schedule A. though the underlying subject is the same. But he might be liable under any of the other Schedules if he has income to which they apply, and in particular he might he liable under Schedule D It is a mere commonplace to remark that a man who possesses real property and is assessed under Schedule A, may also have investments and other forms of property which will be assessed under Schedule D.[4]Now, turning to this ease. The income of the respondents, as represented by rents, is admittedly assessed and properly assessed under Schedule A. " But then," says the appellant, ' you are carrying on a business, and a business falls to be assessed ' under Schedule D." To which the respondent replies. " Quite ' so, and I am willing to pay on the profits which T make on the ' cleaning and other services." To this the appellant replies, ' No, that is not enough. Your business is one business not a con- ' geries of businesses, and if I estimate your profits from your ' own profit and loss account, I will get the higher figure which ' I ask." The answer to that is—" You cannot bring out that ' balance of profit without taking the rents I receive in compute. ' Now. these rents are also part of my income or property and ' the Statute says that any income which represents the value of ' real property is to be assessed in the manner directed under ' Schedule A ". My Lords, I think the final answer is good. [3] 3[5]The rents, having been assessed under Schedule A, are, so to speak, exhausted as a source of income, and the so-called conces- sion made by the appellant that there should not be double taxa- tion, and that therefore he would be willing to allow deduction of the sum paid under Schedule A is a concession which is beside the mark. It is a concession to avoid double taxation, but the con- cession cannot come into being where double taxation does not exist, and here it does not exist because, it being imperative to- deal with the rents under Schedule A, there is no possibility of subsequently dealing with them under Schedule D.[6]My Lords,[6]I have preferred to consider this question on the Statute alone, without reference to authority, but I am far from anxious to put my judgment on a mere ipse dixit, and I will there- tore analyse my own argument to see if it is supported by authority. Now, the cardinal proposition is that income tax is one tax, and the Schedules merely the different means of collecting it. and that there are not so many taxes as there are Schedules. This point was raised in the most distinct manner in the case of the London County Council v. The Attorney General, 1901, Ap. Cas. 26. I quote from the argument of the taxpayer:—" There " is no ground for the distinction made by the Court of Appeal " between Schedule A and Schedule D. There is only one tax, " and the Schedules constitute not separate imposts but one tax " under several heads ". And now I quote from the language of the Counsel for the Crown :— ' It is not correct to say that " there is one tax known as the income tax. The Act of 1842 " speaks in the preamble of the several rates and duties mentioned " in the several Schedules contained in the Act and marked " respectively A, B, C, D and E. The separation is maintained " throughout the Act. There are thus five different taxes." This view of the case had been upheld by the Court of Appeal. but it was rejected by this House, Lord Macnaghten, who delivered; the leading judgment, says among other things:—"It (income " tax) is one tax not a collection of taxes essentially distinct. . . " In every case the tax is a tax on income whatever may be the " standard by which the income is measured. The expression " profits or gains ' is constantly applied without distinction to " the subjects of charge under all the Schedules." And then, commenting on the Court of Appeal's judgment, he quotes from it:—" The tax under Schedule D on profits and grains is an " entirely different tax from the tax under Schedule A ", on which he says, " With great deference, I do not think this is a sound " view of the Income Tax Acts ".. The other members of your Lordships' House agreed with him.[7]The next proposition is that when income is dealt with in the proper Schedule the same income cannot be dealt with again under another Schedule. There is no stronger foundation for this pro- position than may be found in the fact of the option given not to the Crown but to the taxpayer who is assessed under Schedule B to be assessed under Schedule D. This obviously points to the fact that, once assigned to its appropriate Schedule, the same in- come cannot be attributed to another Schedule. The same may be gathered from various decisions. There are the general words of Hamilton, J ., as he then was, in Hill v. Gregory, 1912. 2 K.B. at page 70, quoted in this case by the Master of the Rolls :—" The ' very terms which define the subject matter under Schedule D ' exclude from it the several matters which fall under Schedule ' A ". Then there is the case of Back v. Daniels. Daniels were wholesale potato merchants and were assessed under Schedule D for the profits of the business. Part of the said profits consisted of profits made by the sale of potatoes on lands held by them under special agreements with the farmers who were in possession of the lands. It was held that the profits from these sales fell to be 6970 A 2 4 [4] reckoned in the question of a Schedule B assessment in respect of the lands under the agreements, and could not be included in the amounts under schedule D. Scrutton, L. J., put the matter thus :_" When there is a separate and distinct operation uncon- " nected with the occupation of the land, such as a cheese factory " dealing with the milk of a dairy farm, or a butcher's shop " dealing with the beasts of a cattle farm, I can understand a " separate assessment of that operation, but I do not think that " the fact that the farmer sells his produce either on the farm or " at the local market, or in Mark Lane, or even if he sells it in a " shop, justifies an assessment under Schedule D as well as, or in " substitution for, an assessment under Schedule B ".[8]In this connection it would be desirable to deal with the Rotunda case, 1921, 1 Ap. Cas. 1. This case had the peculiarity of being claimed by learned counsel on both sides as authority. The facts were these. The Rotunda Hospital in Dublin was a charity and it owned buildings. Part of the building which was not actually used as a hospital was permitted to be used on occa- sions by various persons for entertainment purposes in return for a money payment. Now, the exemption from tax in respect of charitable institutions is different under Schedule A and Schedule D. It therefore became necessary, as Lord Birkenhead pointed out, to analyse the particular income in question to see whether it fell within Schedule A or Schedule D. But the rooms were not let to anyone. There was no question of including the rents of the rooms in the profits which were calculated under Schedule D; the hospital was held to be in occupation of the whole premises. What was done in that case was this : the total profits made out of the fees paid were calculated under Schedule D, and then the calcu- lated assessable value of the premises under Schedule A was deducted. (There had been no actual assessment made under Schedule A because it had been assumed that the premises were occupied by a charity.) This was done because there was in the Irish Act a rule corresponding to Rule 5 in Cases I and II of Schedule D of the 1918 Act, which exempts from taxation under Schedule D, the profits or gains arising from annual value of the premises occupied for the purposes of the business.[9]Now, that was a perfectly different operation from what is pro- posed here. If that case had been treated as the Crown wish to treat this one, the assessable value of the premises ought to have been added to the receipts in making up the trade profits, and then from the tax so brought out, not the value of the premises, but the tax calculated as under Schedule A in the premises, ought to have been deducted.[10]To resume the general argument in favour of the distinction between the Schedules. There is the phraseology of Section 208— ' The provisions in this Act contained which are applied to the ' tax under any particular Schedule shall it' also applicable to the ' tax under any other Schedule and not repugnant to the provi- ' sions for ascertaining charging or levying the tax under such ' other Schedule be applied in ascertaining charging and levying ' tax under that Schedule as if the application of those provisions ' thereto had been expressly and particularly directed," which points very clearly to the different Schedules being distinctly applicable to only one class of property. Now, it is obvious that although land must be assessed under Schedule A, there may be activities connected with the land which will fall under another Schedule. Schedule B gives the simplest example, but then there are also activities which fall under Schedule D. It would be rash indeed for anyone to say that he had in his mind all the cases decided in regard to the Income Tax Acts, but at any rate no case was produced by Crown Counsel here, in which in com- puting profits under Schedule D the rents of lands, which had been [5] 5 let, and were not in the occupation of the assessee under Schedule D are taken in computo. It is therefore of no use to cite cases of which the Silloth Golf Club case, 1918 3 K.B. 75 is an in- stance where profits arising from the use of land were taxed under Schedule D, but where the assessee was not the person liable under Schedule A in respect of those lands. There are dicta against doing so. Lord Loreburn in Smith v. Lion Brewery Co. 1911 App. Cas. at p. 155 said, " 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 from Schedule A to " Schedule D." It is true that Lord Loreburn was there deliver- ing a dissenting judgment, but the point on which he differed, viz., the question of the right to a deduction in assessing the profits under Schedule D, does not affect the dictum above quoted. In this very case Rowlatt, J. states the law generally to this effect:— " Real property is always liable to Schedule A and under no cir- " cumstances can you take it out of Schedule A—discard Schedule " A—and throw it into a Schedule D account and treat it under " Schedule D." I confess I cannot reconcile this with his judg- ment except upon the view that he considered himself bound by the Rosyth case. There is a very instructive passage in the judgment of Lord Maclaren in a Scotch case Edinburgh Cemetery Co. v. Surveyor of Taxes, 17 R 153. That was a case of a Cemetery Company which rented a piece of land which they utilised as a cemetery by selling lairs to persons to be used for burial purposes and to belong to them in perpetuity. The actual derision was that this was a concern of the like nature to the enumerated properties in rule 3 of Schedule A of the Act of 1842 and so fell to be assessed under that Schedule in the way there stated. Lord Maclaren at p. 165 seems almost to anticipate the present case. He says "It is certainly not sufficient to bring a particular use of ' land within the scope of rule 3 that the proprietor of land is ' using it in connection with his trade or for purposes of trade :
' because in such cases it is generally possible to separate the ' income into two parts, the one representing the rent or annual ' value of the heritable property and the other representing the ' commercial profit. Where this can be done the proper mode of ' assessing seems to me to be to assess under Schedule A in respect ' of annual value and also under Schedule D for the commercial ' profits of the business or manufacture carried on within the ' heritable subjects." I now come to the case which is undoubtedly to the opposite effect, the Rosyth case. That ease does not contradict my general asser- tion as to no case having been produced in which the Crown had done what they here propose to do. But notionally for the purpose of deciding as to repayment of part of an assessment it was done, and it is a direct authority in point. The Master of the Rolls and the other Judges of the Court of Appeal were I think affected with too great politeness to the Court of Session and dealt with this case by saying it was a Scotch case and they could not quite understand it. There is no question of Scotch as discriminated from English law involved in it. but in any ease T am afraid I could not shield myself under the same excuse. I say directly it was wrong. Nor do I think it is at all difficult to see why it was wrong; and it is just here I touch what I have always felt to be the difficulty in this case. The Company there had duly been assessed under Schedule A but the point was might it have been assessed under Schedule D instead of under Schedule -V The Lord President says "It is settled that it is for the Crown to "choose in which capacity the Company shall be charged—as pro- " perty or investment owner on the one hand or as trader conducting- " a business on the other." '
The house property in this case is " not occupied for the purposes of the Company's business, it is " occupied by tenants to whom the Company lets it. Accordingly 6 [6] " I think the Crown is alternatively entitled to treat the rents " either as chargeable in respect of the Company's property under " Schedule A, or as constituents of the profits arising or accruing " to the Company from its business chargeable under Schedule D." Now that that settles the point I do not think can be doubted. But when one conies to look at the cases which were cited, and on the effect of which the Lord President says "it is settled etc." it will be found that they are all cases not of choice between Schedule and Schedule but between the various cases in Schedule D. It had been settled long ago that in the case of insurance companies who held large investments the Crown might proceed to reckon under either case 1 in Schedule D or under any of the other cases which may be found to apply. I myself said it in the case of Revell v. Equity and Law Life Insurance Co., and what I said was approved and adopted by Lord Cozens Hardy. M.R., in Liverpool London and Globe v. Bennett 1912 2K.B. 41. From this the Lord President has without authority deduced the view that as there is an option be- tween cases so there must be an option between Schedules, and he bases this in argument on the possibility of an Insurance Company having securities which would fall under Schedule C and others falling under Schedule D. My Lords, I confess this has been the difficult part of the case to me. It is very obvious to suggest that if the Crown can opt as between cases why should it not opt as between Schedules. And that the Company is carrying on a business I do not doubt. The Memorandum of Association shows that it is. But I think the answer is that an option between cases does not in arty way disturb the general scheme of the Act; an option between Schedules would. I think on a general survey of the history and policy of the Income Tax Acts one finds the great distinction that there is between Schedules A and B on the one hand and the other three Schedules on the other. I think it would upset the whole scheme of taxation if you were in the case of real property to be allowed to ignore Schedules A and B. There is no conflict between Schedules C and D if as is the hypothe- sis put by the Lord President the Crown elects to charge in Schedule D on cases other than Case 1. Schedule C is not so to speak upset. On the contrary the charge on the particular form of investment under Schedule C fits in with the charge on other invest- ments made under say case 3 of Schedule D. But in the case of real property if you do what is here asked Schedule A is upset altogether. With great respect to the learned judges in the Court of Session I think it was only Lord Skerrington who saw that by a side wind they were asked to introduce a great novelty. Lord Skerrington says " The Inland Revenue do not seek to assess the appellant ' Company according to the rules under the First Case in Schedule ' D, but it is essential to their success in this litigation to demon- ' strate that they would have been entitled to make such an assess- ' ment if they had so wished. I should have listened to the argu- ' ment with more satisfaction if at the outset we had been informed ' that a Company in the position of the appellant Company had ' never so far as known been assessed according to the rules under ' the first case in Schedule D, and if we had been invited to attend ' to the provisions of the Income Tax Acts for the purpose of con- ' sidering why there was any good reason why such an assessment ' should not now be imposed for the first time." I think this shows that the immense importance of the case had not been before the Court, and that no argument as to the imperative character of Schedule A as to real property had been presented.[11]As I have said I recognise the case to be full of difficulty but on the whole I have come to the conclusion that the decision of the Court of Appeal is right. What are known as the Brewery cases have I think no application to the question in hand. I move that the appeal be dismissed with costs.[12]As regards the other case that is called on it absolutely follows this, and, of course, the judgment in the first case rules the judg- ment in the second. Viscount Dunedin. Lord War- rington of Clyffe. Lord Atkin. Lord Tomlin. Lord Macmillan). [7] FRY (Inspector of Taxes) v. SALISBURY HOUSE ESTATE LD. JONES (Inspector of Taxes) v. CITY OF LONDON REAL PROPERTY COMPANY LIMITED. Lord Warrington of Clyffe: MY LORDS,[13]The Respondents are a Company incorporated under the Com- panies Acts. They are the owners of a large building in the City of London known as Salisbury House. This building contains some 800 rooms which have been let by the Company to some 200 tenants as offices singly or in suites at rents varying according to the accommodation provided, the situation of the several rooms and so forth. The Company provides a staff of porters and cleaners who perform certain services for the tenants for which additional rents and charges are made by the Company.[14]The question in this Appeal is whether the Company in thus letting the premises owned by it is carrying on a trade within the meaning of the Rule applicable to Case I of Schedule D of the Income Tax, 1918, and is therefore liable to be charged under that Schedule in respect of the gains and profits of that trade, the Crown contending that in that case they would be liable to bring into account as part of their gross receipts the amount of the rents received by them from the tenants of the several rooms and offices so let by them as hereinbefore mentioned.[15]The Company is already charged as landlord under R 8 of No. VII of the Rules applicable to Schedule A in respect of the annual value of Salisbury House as appearing in the Valuation List under the Valuation (Metropolis) Act, 1869, which is by that Act made conclusive for the purposes of Income Tax in the case of hereditaments within the Administrative County of London. This annual value is considerably less than the amount of the rents payable by the several tenants. The Crown admits that if the Company were charged under Schedule D in respect of the gross amount of rents received as well as under Schedule A in respect of the annual value it would be taxed twice over in respect of the same subject matter, and concedes that if they are right in their contention that the Company should be assessed under Schedule D, the amount of the assessment under Schedule A must be deducted from the total receipts of the Company including rents less expenses.[16]The Company on the other hand admits that it is liable to be assessed under Schedule D upon any profit which it derives from tenants outside the rents themselves so far as such profits may be described as resulting from a trade but insists that on a landowner letting the hereditaments of which it is owner it is not carrying on a trade and is liable only to be assessed under Schedule A in respect of the annual value of the hereditaments.[17]The Company having been assessed in accordance with the con- tentions of the Crown for the four years ended the 5th April, 1928, appealed to the Commissioners who confirmed the assessments. They were required to state a Case. By that Case they stated in full 6970 A 4 2 [8] detail the facts summarised above and concluded that they were bound by authority to decide that the assessments under Schedule D were rightly made to include the amounts by which the total receipts of the Company (including its rents from offices) less expenses exceeded the Schedule A assessments. They further state that the sole question upon which the opinion of the Court is desired is whether the rents received by the Company on letting the offices in Salisbury House are properly to be included in the assessment as trade receipts of the Company for purposes of Case I of Schedule D of the Income Tax Act, 1918.[18]The Case came before Rowlatt J., who confirmed the view of the Commissioners but on appeal to the Court of Appeal his order was reversed and the Case was remitted to the Commissioners to amend the assessments. The Crown appeals to this House.[19]It is well settled that though the tax under Schedule A is a tax on income like that under all the other Schedules it is not a tax upon rents. It is assessed upon annual value which in the present case is fixed by the Valuation List above referred to. The latest case on this subject is Miller's Case before this House at present unreported in which it was held that a person in actual enjoy- ment of and occupying lands is liable to the tax although he is not in receipt of rent therefrom nor even, by reason of the nature of his tenure, capable of converting his enjoyment into rent. Now the effect of the Crown's contention if it be correct would be in- directly to convert this tax on annual value to a tax on rents, and therefore it seems to me that a heavy burden is east upon the Crown before its contention can succeed.[20]The first question to be determined is whether in its capacity as landowner deriving rents from its land the Company is carrying on a trade within the meaning of Schedule D and the rules thereunder, and if this question is answered in the negative the further questions raised and argued in this House do not arise.[21]Now in the first place the Commissioners have not in my judgment decided this question as one of fact, and it is therefore open to the House now to express their own views thereon. The Commissioners have contented themselves with stating the facts as to the mode in which the Company deals with the property of which it is the owner, and then express the opinion that the assessments under Schedule D were rightly made to include the amounts by which the total receipts of the Company including rents from offices less expenses exceeded the Schedule A assessments, and state that the sole question is whether the rents are properly included as trade receipts. That is to say whether, assuming the Company is liable to be assessed under Schedule D as a trader the rents are properly included in the gross receipts.[22]There is nothing in the facts stated in the case which would properly lead to the conclusion that in dealing with the property the Company is acting otherwise than an ordinary landowner would act in turning to profitable account the land of which he is the owner. It would in my opinion be impossible to hold that in such a case the landowner is carrying on a trade. Such a person would I think clearly be assessable under Schedule A only and his taxable income would be measured by the conventional annual value and not by the amounts of the rents he actually received.[23]But the Crown contends that the fact that the tax payer is a limited Company may distinguish its operations from those of an individual. Assuming the Memorandum of Association allows it, and in this case it unquestionably does, a Company is just as capable as an individual of being a landowner and as such deriving rents and profits from its land, without thereby becoming a trader and in my opinion it is the nature of its operations, and not its own [9] 3 capacity, which must determine whether it is carrying on a trade or not. Nor do I see any reason why, as in the present case, some of its operations under the wide powers conferred by the Memorandum should not be operations of trade, whereas others are not.[24]Many cases have been cited in argument but they do not in my opinion touch the present point. That which come nearest is I think the Rosyth Company's case, 1921, Sessions Cases, 372, but when that case is examined it will be found that the fact that the Company was carrying on a trade was assumed as common ground. The Lord President in his Judgment (p. 379) says :
" It may some- " times be difficult to draw the line between land ownership and " commercial enterprises in land; but that is a question of fact of a " kind which is not infrequently met with under the Income Tax "
Acts, and it is solved in the present case in favour of the Crown " inasmuch as it is common ground that the Appellant Company " is a land investment concern." In this case the point is open.[25]The Brewery cases seem to me not to be in point. The last one, U shers Wiltshire Brewery Company v. Bruce, 1915, A.C. 433, is, if it be relevant at all, in the Plaintiffs' favour for though the tax payer there was a Company trading as a brewery Company the rents received from its tied houses were not regarded as receipts from the brewery business except only to this extent, that inasmuch as the Company was claiming as a deduction from gross receipts sums expended in repairs to tied houses it could only make good its claim to deduct the net sum so expended and therefore must allow against the cost of repairs such sums as were received by way of rent from the houses repaired. I come then to the conclusion that the Crown fails to make good the ground on which its claim to have a right to assess the Company under Schedule D is based, except of course to the limited extent to which it is admitted, and that the question asked by the Commissioners was properly answered in the negative by the Court of Appeal.[26]For the reason given above I express no opinion upon the further points raised in argument, and in particular upon the correctness or otherwise of the decision in the Rosyth Company's case or of the views expressed by the learned Judges in that case, but in saying this I must not be taken to dissent from the views expressed by my noble and learned friend on the Woolsack whose opinion I have read.[27]The appeal in my opinion fails and should be dismissed with costs.[28]It is admitted that there is no distinction favourable to the Crown between this case and that of the City of London Real Pro- perty Company and the appeal in that ease also should be dismissed with costs. A 5 Viscount Dunedin. Lord War- rington of Clyffe. Lord Atkin. Lord Tomlin. Lord Mac- millan. [10] FRY (Inspector of Taxes) v. SALISBURY HOUSE ESTATE, LIMITED. JONES (Inspector of Taxes) v . CITY OF LONDON REAL PROPERTY COMPANY, LIMITED. Lord Atkin. MY LORDS,[29]The Respondents are a limited company who own hereditaments in the City of London consisting of a large building known as Salisbury House which they let out to tenants as unfurnished offices. They have been assessed to income tax in respect of pro- perty in the hereditaments upon the annual value thereof under Schedule A. The assessment and charge has been made upon the owners direct under the provisions of Schedule A, No. VII, r. 8 (C.) relating to any house or building let in different apartments or tenements and occupied by two or more persons severally. They have also been assessed under Schedule D in respect of the profits or gains of the trade said to be carried on by them in letting the offices and providing services for the tenants. The assessments under Schedule D are made upon the footing of including in the gross receipts of the trade the actual rents received from the tenants and deducting the cost of earning them. It is admitted that if the Respondents are taxed upon their full profits and gains on this footing they would he doubly taxed to income tax in so far as the annual value under Schedule A represents rents received. From the gross receipts therefore is also deducted the annual value upon which the Respondents have already paid In- come Tax under Schedule A, By this adjustment they are assessed under Schedule D upon so much of the profits and gains received from rents as exceeds the annual value of property assessed under Schedule A. The Respondents admit that they are liable to assessment under Schedule D in respect of the profits they make for services rendered to tenants which appear to consist of cleaning offices and providing- fuel. They contend, however, that in respect of the profits and gains they make from letting the offices the assessment can only be made under Schedule A, whether the rents exceed the annual value or not. The Inland Revenue on the other hand contend that they have an option to charge under whatever Schedule is more advantageous to them, always making an adjustment against double taxation. They say that the Respon- dents carry on a trade and for the full profits and gains of such trade they are chargeable whether the income is derived from property in land or not.[30]The sum in dispute is considerable. Except in London the ques- tion would hardly arise. Annual value under Schedule A as measured by rule 1 is the actual rent if the hereditaments were let at a rack rent within 7 years of the assessment, or if not the rack rent which they are actually worth subject to the statutory allow- ances. The Inland Revenue can hardly lose and may gain on this computation of income. But in the Administrative County of London as provided by the terms of Schedule A the annual value is to be the annual value as fixed under the Valuation (Metropolis) Act, 1869. It therefore may happen that the fact that the valua- tion is made quinquennially, that an allowance is made for empties, and that the actual cost of repairs in any year or three years may be less than the statutory allowances will cause the profits calculated under Schedule D to be greater than the annual value. Of course the opposite result may follow, and in such case the tax- gatherer would doubtless exercise his option for Schedule A. [11] 2[31]My Lords,[31]I think that this case should be decided in favour of the Respondents upon the simple ground that annual income derived from the ownership of lands tenements and hereditaments can only be assessed under Schedule A and in accordance with the rules of that Schedule, In my opinion it makes no difference that the income so derived forms part of the annual profits of a trading concern. For the purpose of assessing such profits for the purpose of Schedule D the income so derived is not to be brought into account. The option of the Revenue authorities to assess under whichever Schedule they prefer in my opinion does not exist: and is inconsistent with the provisions of the Income Tax Acts through- out their history.[32]The scheme of the Income Tax Acts is and always has been to provide for the taxation of specific properties under Schedules appropriated to them and under a general Schedule D to pro- vide for the taxation of income not dealt with specifically. Schedule A provides for the taxation of income derived from property in land : B for income derived from the occupation of land : C for income derived from government securities : E for income derived from employment in the public service. It is unnecessary to go further back than the Income Tax Act of 1842 the provisions of which were incorporated in every Customs and Inland Revenue or Finance Act up to 1918, when the present consolidation Act was passed. I need not repeat the familiar Schedules altered and ex- tended by the Act of 1853. It is only necessary to refer to s. 100 of the Act of 1842 which defined the tax to be imposed under Schedule D. ' The duties hereby granted contained in the ' Schedule marked D shall be assessed and charged under the ' following rules, which rules shall be deemed and construed to be ' a part of this Act and to refer to the last mentioned duties, as if ' the same had been inserted under a special enactment. " Schedule D. ' The said last mentioned duties shall extend to every descrip- ' tion of property or profits which shall not be contained in either ' of the said Schedules A, B, or C and to every description of em- ' ployment of profit not contained in Schedule E."[33]My Lords,[33]nothing could be clearer to indicate that the Schedules are mutually exclusive : that the specific income must be assessed under the specific Schedule : and that D is a residual Schedule so drawn that its various cases may carry out the object so far as possible of sweeping in profits not otherwise taxed. For this reason no doubt the actual Schedule was drawn in the widest terms. " For and in respect of the annual profits or gains arising ' or accruing to any person residing in the United Kingdom from ' any kind of property whatever whether situate in the United ' Kingdom or elsewhere." etc. Such language covers income from land in Schedule A and from Government securities in Schedule C. Its true meaning is made apparent by S. 100. Moreover, the dominance of each Schedule A, B, C, and E over its own subject matter is confirmed by reference to the sections and rules which respectively regulate them in the Act of 1842. They afford a complete code for each class of income dealing with allowances and exemptions, with the mode of assessment and with the officials whose duty it is to make the assessments. Thus under A and B the assessment and collection is regulated by the general commissioners : under C the assessment is by com- missioners specially appointed for the purpose : under E the assess- ment and collection is made in the departments or by the officers of the public corporations concerned : while under D the assessment is regulated by additional commissioners. I find it impossible to conceive that these various commissioners had an option to encroach upon the duties of one another : or that the taxpayer was exposed to having his income freed from the restrictions and exemptions 3 [12] imposed by statute under one schedule in order to be subject to a different set of restrictions and exemptions imposed by statute under another schedule. To take a concrete instance which has been before the courts it seems to me impossible that the legislature intended that a farmer taxed for profits of his occupation under Schedule B might at the option of the authorities after a successful year or term of years be taxed on his profits under Schedule D. The point was decided by the Court of Appeal in Back v. Daniels 1925 : 1 K.B. : 526. It was argued that this decision turned on the express option given to the occupier to be assessed under Schedule D, which therefore negatived an implied option in the authorities to assess him under that Schedule. The express option to the occupier was not given until 1887 by the Customs and Inland Revenue Act of that year. I confess I fail to see why an option given to the taxpayer should negative the existence of an option in the tax gatherer : still less how an option given for the first time in 1887 should destroy an option in the tax gatherer which on the hypothesis had been in existence since 1842. The judgments do not support any such contention. Similarly I am of opinion that income derived by a trading company from investments of its funds whether temporary or permanent in g overnment securities must be taxed under Schedule C : and cannot for the purposes of assessment under Schedule D be brought into account. I am dearly of opinion that the Act of 1918 which is expressed to be a consolidation Act did not alter the law so as to give to the authorities an option they did not possess before. It is true that the words of Schedule D and the cases are wide as before : the words as to annual profits or gains arising to any person re- siding in the United Kingdom from any kind of property whatever are repeated. But they must be cut down as they were before. I may refer to one expression in the rule applicable to case III. 1. a. where it is provided that the tax shall extend to . . . ' any other " annual payments whether payable as ... a personal debt by virtue " of any contract or received or payable half-yearly or at any " shorter periods." This would include rent under a lease but it is obviously not intended to cover cases under Schedule A. I attach no importance to the express exception in some of the rules under D of income coming within named other Schedules. They are inserted ex majori cautela and similar instances can be found in the rules under the former Act where, as I have stated, the position was clearly expressed by s. 100. Believing as I do that the specific Schedules A, B, C, and E, and the rules thereunder contain definite codes applying exclusively to their respective defined subject matters I find no ground for assessing the taxpayer under Schedule D for any property or gains which are the subject matter of the other specific Schedules. In the present case the in- come from the offices should be and has been assessed under Schedule A on the annual value as prescribed by Statute. It therefore is not the subject matter of assessment under D. I should add that if there had been an option to assess under A or D 1 cannot conceive a more conclusive election under the option than the assessment and receipt of payment under Schedule A but this point need not be determined.[34]The Rotunda case, Coman v. Governors of the Rotunda Hospital Dublin, 1921, 1 A.C. 1, much relied on by the Appellants, appears to me to afford them no help. In that case Lord Birkenhead expressed the view that the lettings were not such as to constitute the relation of landlord and tenant but the possession and occupa- tion of the rooms remained with the Respondent. Lord Cave, pp. 23, 24, expressly held that the profits in question were not as- sessable under Schedule A and accordingly fell to be assessed under Schedule D. Lord Finlay appears to have been of the same opinion. The case merely decided that the Respondents the governors of the Hospital used their own premises of which they were in occupa- [13] 4 tion for the purpose of carrying on a profitable trade, and that they were liable to be assessed under Schedule D for those profits with the statutory deduction of the annual value assessed under Schedule A. The case entirely differs in its facts and appears to throw little light on the law in question before this House.[35]The Rosyth case so far as it decided that the Inland Revenue authorities have an option to select which Schedule they prefer must I think be held to be wrongly decided. The actual decision may possibly be supported on the view that for the purpose of the particular claim for exemption the whole profits must be calculated under a notional Schedule D which would pay no regard to other Schedules. It is unnecessary in the present case to discuss that matter. I desire to add that I do not desire to throw any doubt upon decisions which indicate that the Inland Revenue authorities may have an option as to the several cases of any given Schedule upon which they may determine to assess the taxpayer. An option within a Schedule is not the same thing as an option to select Schedules.[36]My Lords,[36]it may well be that another mode of expressing the result I have stated is to hold that a person capable of being assessed under Schedule A cannot be said in respect of his income from land to be earning profits from " trade ". This view appears to commend itself to some of your Lordships. I do not dissent from it; but I view it with some misgiving. I find it diffi- cult to say that companies which acquire and let houses for the purposes of their trade, such as breweries in respect of their tied tenants, and collieries and other large employers of labour in respect of their employees do not let the premises as part of their operation of trading. Personally I prefer to say that even if they do trade in letting houses their income so far as it is derived from that part of their trading must be taxed under Schedule A and not Schedule D. I agree that this Appeal should be dismissed . Viscount Dunedin. Lord Warring- ton of Clyffe. Lord[37]Atkin. Lord Tomlin. Lord Macmillan. [14] FRY (Inspector of Taxes) v. SALISBURY HOUSE ESTATE, LTD. JONES (Inspector of Taxes) v. CITY OF LONDON REAL PROPERTY COMPANY, LIMITED. Lord Tomlin. MY LORDS, This is an Appeal by H.M. Inspector of Taxes against an order of the Court of Appeal dated the 26th June, 1929, reversing a decision of Mr. Justice Rowlatt. That learned judge had dis- missed the Respondents' Appeal from a decision of the Commis- sioners for the Special Purposes of the Income Tax Acts confirming assessments to income tax made upon the Respondents under Schedule D for the four years ending 6th April, 1928.[38]The Respondents are a limited company formed in 1902 to acquire a large block of buildings known as Salisbury House and to let out as offices the rooms contained in the block.[39]Since their incorporation the Respondents have held let and managed Salisbury House. They have not acquired managed or dealt in any other property.[40]Salisbury House contains some 800 rooms let to 200 tenants or thereabouts. The lettings are all unfurnished lettings of single rooms or suites.[41]The Respondents maintain and operate the lifts in the building and for this purpose and for the purpose of keeping clean the halls corridors and staircases provide a staff of some 80 to 90 persons under the supervision of a housekeeper.[42]Under the Respondents' standard form of lease certain sums are payable by the tenants by way of additional rents. These sums represent contributions by the tenants towards the cost of lighting the halls corridors and staircases and like matters. Some of the tenants also pay to the Respondents remuneration for certain clean- ing and other services rendered to them.[43]The Respondents have throughout in respect of Salisbury House been directly assessed to income tax on the whole building under Schedule A No. VII 8(c) of the Income Tax Act, 1918. As the property is situate within the administrative County of London the annual value with respect to Schedule A is by sect. 45 of the Metropolis (Valuation) Act, 1869, deemed to mean the gross value stated in the valuation list under that Act. By section 4 of the same Act gross value means the annual rent which a tenant might reasonably be expected taking one year with another to pay for an hereditament.[44]The rents actually received during the years of assessment exceeded by a substantial amount the assessed value for the pur- poses of Schedule A.[45]From the case stated it appears that at the hearing before the Commissioners the Respondents admitted that they were liable to be assessed under Schedule D upon any profit which they derived from Salisbury House tenants outside the mere rents for the offices so far as such profits might be described as resulting from a trade. For the purpose however of the assessments appealed against the profits of the Respondents were computed by taking the total of their receipts from all sources including the rents received by [15] 2 them from the lettings of rooms in Salisbury House and deducting therefrom their expenses and the amounts or the assessments under Schedule A made upon the Respondents in respect of the premises.[46]The Special Commissioners confirmed the assessments stating that they did so following a previous decision of the Commissioners and in deference to opinions expressed in the Court of Session in the case of the Rosyth Building and Estates Company, 1921 Sess. Cases 372.[47]The sole question upon which the opinion of the Court was desired by the Special Commissioners was whether the rents received by the Respondents on letting the offices in Salisbury House were properly to be included in the assessments as trade receipts of the Respondents for the purposes of Case I of Schedule D of the Income Tax Act, 1918.[48]Mr. Justice Rowlatt apparently took the view that the Respon- dents were carrying on a trade in the nature of an hotel business and that the assessments were rightly made.[49]The Court of Appeal however rejected this view of the case and in substance held that a landowner who happens to make tax- able profits by rendering certain services to his tenants cannot for that reason be treated as carrying on a trade in respect of the receipt of rents so as to be chargeable with income tax under Schedule 1) upon the excess of the actual rents over the annual assessments to Tax under Schedule A.[50]The arguments presented to your Lordships' House on behalf of the Appellant as I understand them may be stated as follows :—[51]It is true that tax under Schedule A is necessarily charged in every case in respect of the property in all lands tenements and hereditaments.[52]Where however besides receiving his rents the land- owner by means of rendering services to his tenants or other- wise in relation to the management of his land makes profits taxable under Schedule D there may come a point where his activities which earn profits and his perception of rents must be treated as a business concern in the nature of an indivisible trade taxable under Schedule I) and this is inevitably the case if the landowner is a limited company formed to acquire and manage land.[53]In the condition of affairs last supposed the Revenue Authority has an option so far as the lands are concerned either to rely upon the Schedule A assessments or to require the rents to be brought in as part of the gross trade receipts a de- duction of the Schedule A assessment being allowed where the rents exceed such assessment.[54]My Lords,[54]in my view the scheme of the Income Tax Act, 1918, properly understood does not afford support for these arguments but leads to an opposite conclusion.[55]Section 1 of the Act provides that " where any Act enacts that " income tax shall be charged for any year at any rate the tax at " that rate shall be charged for that year in respect of all property " profits or gains respectively described or comprised in the " schedules marked A, B, C, D and E contained in the first schedule " to the Act and in accordance with the Rules respectively applic " able to those schedules."[56]Schedule A begins with the following words:— " Tax, under Schedule A shall be charged in respect of " the property in all lands, tenements, hereditaments and heri- " tages in the United Kingdom for every twenty shillings of " the annual value thereof."[57]The Rules under Schedule A prescribe (No. VII, rule 4) that " Tax under this schedule shall be charged on all lands, tenements and hereditaments whether occupied at the time of assessment or not." 3 [16][58]For lands outside the administrative County of London as for lands within that county rent or rental value is the measure of annual value (see Schedule A, No. 1, and cf., Section 45 of the Metropolis (Valuation) Act 1869).[59]Now income tax is one tax. There is not a separate tax under each Schedule (see London County Council v. Attorney-General, 1901, A.C. 26).[60]Further there is admittedly no double taxation. A subject matter of taxation properly assessed to the tax under one schedule cannot be brought again into assessment under another schedule.[61]Laud in regard to its property quality is assessable to tax under Schedule A and in regard to its occupation quality is assessable to tax under Schedule B. There may also be such utilization of the land attributable neither to the property quality nor to the occupa- tion quality producing profits assessable to tax under Schedule D (see Coman v. Governors of the Rotunda Hospital, Dublin, 1921, A.C.1).[62]Putting aside the special cases dealt with in Schedule A, No. III, tax in respect of the property quality in land is exigible under Schedule A on the annual value measured by reference to rental value. The tax is a charge on the property and is inescapable. Neither the Revenue Authority nor the tax payer can demand to exclude the subject matter from the Schedule.[63]When once the annual value has been ascertained and fixed for the purposes of Schedule A it is irrelevant to consider whether the landlord in fact receives by way of rent more or less than or the same as the assessed annual value.[64]The subject matter, namely land in respect of its property quality, being necessarily taxed under Schedule A cannot be brought again under any other schedule. To do so would offend the rule against double taxation.[65]The option which the Revenue Authority sets up here is in my judgment inconsistent with the scheme of the Act and in particular with the obligation of the authority to tax under Schedule A. If such an option existed it would be reasonable to expect machinery whereby upon the exercise of the option in the direction of some Schedule other than Schedule A allowance could be made in respect of the tax necessarily exigible under Schedule A. No such machinery is in fact provided by the statute and the Revenue Authority has been driven in this case to invent it to meet the objection" of double taxation. It is noteworthy that where a land owner carries on a trade on his own property the computation of tax is to be made exclusive of the annual value of lands occupied for the purpose of the trade and separately assessed and charged under Schedule A (see Schedule D, Cases I and II, Rule 5). I am therefore of opinion that as between Schedule A and other schedules the Revenue Authority has no option to select the Schedule to be applied and in this respect I disagree with the reasoning upon which the decision in the Rosyth Building and Estates Company, Ltd., v. Rogers, 1921, S.C. 372, is based.[66]Further in my view the perception of rents as land owner is not an operation of trade within the meaning of the Act. If this be so, I am unable to appreciate how the existence of ancillary activities which produce profits taxable under Schedule D can affect the nature of the operation or how the legal significance of the percep- tion is altered for the purpose of income tax if the recipient is a limited company rather than an individual.[67]My Lords,[67]for the reasons which I have endeavoured to indicate I reach the conclusion that the decision of the Court of Appeal was correct and I think that this Appeal should be dismissed with costs. Viscount Dunedin. Lord War- rington of Clyffe. Lord Atkin. Lord Tomlin. Lord Macmillan. CECIL FRY (HIS MAJESTY'S INSPECTOR OF TAXES) v. SALISBURY HOUSE ESTATE, LIMITED. JONES (Inspector of Taxes) v. CITY OF LONDON REAL PROPERTY COMPANY, LIMITED. Lord Macmillan. MY LORDS,[68]The Respondent Company owns a large block of buildings in the City of London known as Salisbury House, containing some 800 rooms. These rooms the Company lets unfurnished singly or in suites to tenants as business offices, and derives therefrom a large revenue in rents. Certain services are rendered by the servants of the Company such as cleaning, watching and lighting for which charges are made to the tenants. The Company has no other activities beyond acting as landlords of the premises and perform- ing the services mentioned.[69]The broad question raised by the Appeal now under your Lord- ships' consideration is as to the proper method of assessing the Company to income tax, although the actual issue relates to the validity of assessments made upon the Company under Schedule D for the four years ending 5th April, 1928.[70]The first step taken by the Inland Revenue authorities in each of the years in question was to assess Salisbury House to income tax under Schedule A upon the gross value as appearing in the valuation list in accordance with the Valuation (Metropolis) Act, 1869, section 45. The assessments were made upon the Com- pany as landlords under Schedule A, No. VII, Rule 8, which pro- vides that " the assessment and charge shall be made upon the " landlord in respect of . . (c) any house or building let in different " apartments or tenements and occupied by two or more persons " severally. Any such house or building shall be assessed as one " entire house or tenement." The tax exigible upon these assess ments was duly demanded by the Crown and duly paid by the Company.[71]The Inland Revenue Authorities, taking the view that the Company were not only landlords but also traders, proceeded in addition to assess the Company under Schedule D on the annual balance of its profits or gains claiming that on the credit side of the computation there should be entered the rents received and the receipts from services rendered while on the debit side it was conceded that the assessments under Schedule A should be entered as well as all expenses incurred by the Company in earning their profits. The Company challenged the validity of this assessment but admitted that it was liable to be assessed under Schedule D on any profit apart from rents which it earned from rendering in connection with the premises the various services mentioned.[72]The Commissioners decided that the assessments under Schedule D were rightly made to include the amounts by which the total receipts of the Company (including its rents from offices) less expenses exceeded the Schedule A assessments. This decision was affirmed by Rowlatt J., but was reversed by the Court of Appeal. The Crown now appeals to your Lordships' House and 2 [18] asks that the decision of the Commissioners and Rowlatt J . be restored. Important questions of principle not hitherto directly the subject of consideration in this House are involved in the determination of the case.[73]As I approach the problem the first question which presents itself is whether the revenue authorities were bound to assess the premises under Schedule A. They did so but had they any option in the matter ? In my opinion they had none and the assessments made under Schedule A were not only proper but obligatory. Section 1 of the Act of 1918 enacts that income tax is to be charged " in respect of all property, profits or gains respectively described " or comprised in the schedules marked A B C D and E contained " in the First Schedule to this Act. and in accordance with the Rules " respectively applicable to those Schedules." Turning to Schedule A, I find that it opens with the words " Tax under Schedule A shall " be charged in respect of the property in all lands, tenements, " hereditaments and heritages in the United Kingdom for every " twenty shillings of the annual value thereof." The Rules applicable to Schedule A provide (No. VII, Rule 4) that " tax under this Schedule shall be charged on all lands, " tenements and hereditaments." I may refer also to Section 110 (1) which enacts that '' the assessments under " Schedules A and B for any parish shall contain (a) the full and " just annual value of all lands, tenements, hereditaments and "heritages estimated in each particular case as directed by this " Act; and (b) the names of the occupiers and proprietors thereof." It is clear from these and other provisions of the income tax code which it is unnecessary to refer to in detail that it is obligatory to assess to income tax under Schedule A all lands, tenements, here- ditaments and heritages in the United Kingdom, and that the re- venue authorities have no option in the matter. If they have an option as regards other sources of income in the matter of the Schedule under which they may charge them, upon which I do not consider it necessary for the present purpose to pronounce, it is at least certain that they must charge tax in respect of property in land under Schedule A. An examination of the Income Tax Acts past and present establishes that a clear distinction has always been drawn between income from land and income from all other sources.[74]The subject of tax is all property as well as all profits or gains and indeed the tax under Schedule A is designated property tax not only colloquially but on official forms. Schedules A and B in com- bination contain and in my view contain exhaustively and ex- clusively the charge upon landed property, the former containing the tax on the owners of land and houses in respect of the property in them and the latter containing the tax on the benefit derived from the occupation of land.[75]The consequences of this are far-reaching for the present pur- pose. If the revenue authorities must assess .Salisbury House under Schedule A they must do so on the annual value thereof ascertained in the manner prescribed by the Rules applicable to that Schedule.[76]The premises being situated within the administrative County of London the annual value with respect to Schedules A and B is by Section 45 of the Valuation (Metropolis) Act, 1869, to be deemed to mean the gross value stated in the valuation list under that Act and by Section 4 gross value means " the annual rent ' which a tenant might reasonably be expected taking one year with another to pay for an hereditament " on ordinary letting terms. Rent or rental value is thus the criterion of annual value for the purpose of the tax on property under Schedule A. Similar provisions apply to lands outside the Metropolis under " No. I.— " General Rule for estimating the annual value of lands, tene- " ments, hereditaments or heritages ". Here also rent or rental value is the criterion of annual value for the purposes of taxation. [19] 3[77]Once it is determined that the annual value of all lands and houses must be assessed to income tax under Schedule A it follows that this annual value cannot be assessed to income tax under any other Schedule, for it is elementary that the same source of income cannot be twice taxed. Income tax is one tax, not several taxes (London County Council v. Attorney-General [1901], A.C. 26), and the annual value of a particular property having been once assessed to income tax cannot be re-assessed to the same tax.[78]The explanation of the assessments under appeal is obvious. If the rents received by the respondent Company were the exact equiva- lent of the annual value of the property in the metropolitan valua- tion lists the Crown would have no interest in seeking to assess the Company under Schedule D because it would receive under Schedule A all the tax to which the rents were liable, while any profits from services rendered are admittedly assessable under Schedule D. Thus the whole income derived by the Company in respect of its property would yield tax. But the Company, in fact, lets out its rooms at rents which are in excess of the annual value of its premises, and consequently if the company is assessed only under Schedule A the excess of the rents received over the annual value escapes taxation.[79]This circumstance in my opinion affords no justification for the attempt to treat the Company as a trading concern whose profits are assessable under Schedule D. Landowning, however profit- able, is not a trade within the meaning of the income tax code. Property in land as a source of income is dealt with, and can only be dealt with under Schedule A, and the Rules of that Schedule prescribe how the income from landed property is to be ascertained and measured. If the measure is an imperfect one and when applied does not ascertain the actual income derived from the pro- perty so much the worse for the revenue. Discrepancies one way or the other between actual income and statutory income for tax purposes are familiar features of income tax law. Theoretically, the annual value and the rental should correspond for annual value is based on rent. If they part company one way or the other the fault lies with the imperfection of the statutory machinery for ascertain- ing the income from landed property and the Inland Revenue authorities are not entitled to resort to a different measure designed for a different source of income if the actual rents happen to exceed the annual value.[80]It is necessary, however, to make it quite clear that the income from property which is taxable under and only under Schedule A is income derived from the exercise of property rights properly so called.[81]Property is regarded as yielding income from the exercise by the proprietor of the right either of himself enjoying the possession or of parting with the possession by letting his property to tenants. The owner of property may make profit out of it in other ways and by doing so he may render himself liable to taxation under Schedule D. The case of Coman v. Governors of the Rotunda Hospital Dublin [1921] 1 AC 1 is an excellent example. There us Lord Birkenhead L.C. pointed out at p. 8 the arrangements between the owners of the premises and the persons who paid for their use for the purpose of entertainments were not such as to constitute the relation of landlord and tenant, and the owners remained in possession and occupation of their property. The receipts derived from hiring out their premises along with various movable fittings and affording services in the way of heating lighting and attendance were receipts of an enterprise quite distinct from the ordinary receipts which a landlord derives from letting his property. Con- sequently the owners of the premises were rightly held to be engaged in the carrying on of a trade or business in their premises, the 4 [20] " trade or business " in Lord Shaw's language at p. 37, " of pro- " viding or providing for public entertainments." There is nothing to prevent a landlord who has been assessed under Schedule A in respect of his income as a property owner being also assessed under Schedule D in respect of a trade business or other enterprise carried on by him on his premises.[83]It is not without significance that in the case of certain kinds of property the annual value under Schedule A is directed to be ascertained in accordance with the Rules applicable to Schedule D, that is to say on a profits basis. Under the Rules applicable to Schedule A, No. III(1) quarries,(2) mines and(3) an enumerated series of undertakings mostly of a public utility character and " other concerns of the like nature " are directed to be assessed on an annual value based on profits not rental and the profits are to be arrived at as if they were trading concerns. In the case of The Edinburgh Southern Cemetery Company v. Surveyor of Taxes, 1889, 17 R. 154 where it was held that a cemetery company should be assessed under Schedule A No. III 3 as a " concern of the like " nature " with the enumerated concerns, Lord McLaren said at p. 165 :
" It is certainly not sufficient to bring a particular use of " land within the scope of rule III that the proprietor of the land " is using it in connection with his trade or for purposes of trade; " because in such cases it is generally possible to separate the " income into two parts, the one representing the rent or annual " value of the heritable property, and the other representing the " commercial profit. Where this can be done, the proper mode of " assessing seems to me to assess under Schedule A in respect of " annual value, and also under Schedule D for the commercial " profits of the business or manufacture carried on within the " heritable subjects. But there are cases where it is very difficult " to separate the income of a proprietor into rental and commer- " cial profits. Rule III appeals to have been devised to meet such " cases."
His Lordship proceeds to point out that the income of the company was " neither derived from the location nor from the " occupation of land " but from " a trade which is carried on by " the use of land," namely the sale of perpetual rights of sepulture in specified portions of the company's land. The present case does not fall within any of the classes of con- cerns where by the Rules under No. Ill of Schedule A the annual value of property is to be determined on the basis of profits in con- formity with the Rules of Schedule D. The income of the company being derived from the location of land, or in other words in the normal manner in which property in land yields revenue, it is in my opinion inadmissible to characterise this income as the income of a trade. Where a trade is carried on by a proprietor in his own premises Rule 5 of the Rules applicable to Cases I and II of Schedule D provide for the exclusion from the tax computation of the annual profits or gains of the property occupied for the purpose of the trade. This clearly contemplates a separation between the two characters of landowner and trader. A landowner may con- duct a trade on his premises but he cannot be represented as carry- ing on a trade of owning land because he makes an income by letting it. The relatively insignificant services for which the company makes charges to its tenants are not in my opinion sufficient to con- vert the company from a landowner into a trader though the profits so made may quite properly be charged with tax under Schedule D. To hold otherwise would be to invert the rule that the principal follows the accessory.[84]The circumstance that the Crown has proposed in assessing the company under Schedule D to deduct the assessments under Schedule A affords to my mind strong evidence of the illogicality of the whole proceeding, I do not understand how an assessment to [21] 5 income tax can ever be a proper deduction from an assessment to income tax for the tax is one tax. It is nothing to the purpose to say that under Schedule D it is proposed to tax actual rents while under Schedule A it is the annual value which has been taxed. The source of the rents and of the annual value is one and the same, namely, the property in Salisbury House.[85]It follows from the views which I have above expressed that I do not agree with the reasoning on which the decision in the case of the Rosyth Building and Estate Company v. Inland Revenue, 1921 S.C. 372, is based. In my opinion the principles applicable to this case are accurately expounded in the judgments of the Court of Appeal and I concur in the motion that the appeal be dismissed.[86]This should also be the fate of the other appeal before your Lord- ships in the case of the City of London Real Property Company, Limited, which it was admitted is indistinguishable. (6970-50) Wt. 893-16 14 4/30 P. St G.311