C.M. Legg & Son, Ltd v The Revenue Commissioners
| Jurisdiction | Ireland |
| Judgment Date | 08 November 1920 |
| Date | 08 November 1920 |
| Court | King's Bench Division (Ireland) |
NO. 29*.-HIGH COURT OF JUSTICE, IRELAND (KING'S BENCH DIVISION)-
Excess Profits Duty - Profits of trade - Deduction - Shipowners - Loss of ship not fully insured - Finance (No. 2) Act, 1915 (5 & 6 Geo. V, c. 89), Sections 38 and 40, and Fourth Schedule, Part I - Income Tax Act, 1842 (5 & 6 Vict., c. 35), Section 100, Schedule D, First Case, Rule 3.
A company carrying on business as coal importers and shipowners insured its ships to the extent of one-half of their market value, the remaining half being covered by a self-insurance fund built up from sums set aside annually from the company's profits.
As a result of a collision a ship was sunk, and the company recovered from the underwriters a sum (approximately equal to one-half of its market value) which exceeded the written down value of the ship for Income Tax purposes.
Held, that the difference between the sum recovered from the underwriters and the market value of the ship at the date of its loss was a loss of capital and was not deductible in computing the profits of the company for the purposes of Excess Profits Duty.
for the High Court by The Recorder on the Requisition of Messrs. Legg & Son.
Messrs. Legg and Son, Limited, during the years 1916, 1917 and 1918 and previously, carried on business as coal importers and shipowners at Carrickfergus, and in the year to 31st March, 1918, and period from 1st April, 1918, to 19th July, 1918, they were assessed as liable to Excess Profits Duty under the Finance (No. 2) Act, 1915. The rate of duty at that period was 80 per cent. and the amounts of the assessments were £1,284 and £4,114 8s. 0d.
Messrs. Legg do not dispute their liability to Excess Profits Duty, but claim that in estimating their profits for the period in question they are entitled to a deduction or allowance in respect of the loss of one of their steamers, the "Carrick Castle", which became a total wreck under the circumstances hereinafter mentioned, and they claim that if such allowance or deduction is made it would wipe out the whole assessment for Excess Profits Duty.
The question whether Messrs. Legg & Son are entitled to the deduction or allowance claimed by them is the only question in this case.
Messrs. Legg had three steamers and they state that their practice since the beginning of the War was only to insure these steamers to the extent of half their value with marine insurance companies and only in respect of marine risks, leaving their ships uncovered by insurance policies as regards War risks and as regards any value in excess of one half the value. They however opened an account in their books which they called Insurance Fund Account and set aside out of their profits a sum of money which they placed to the credit of this Insurance Fund Account, and they invested the money standing to this Account in War Loan in their own name and under their own control and they received the dividends on this investment. They claim that this was an equivalent to an insurance policy and that they were entitled to retain their excess profits to the credit of this Insurance Fund Account and to apply same in renewing and restoring any ships that might be lost.
Thus one of their steamers, the "Carrick Castle", had a collision in 1918 with another vessel and became a total wreck. Messrs. Legg allege that its value was £15,000 but they had only insured it with an insurance company for £8,000 marine risk. The insurance company disputed their liability as it was proved that the collision was due to the vessels travelling without lights because of War regulations, and the Insurance Company contended that a collision caused in that way was a War risk and not covered by the ordinary marine policy. The Courts in England, however, before whom the case was tried held that this was a marine risk and awarded £8,000 to be paid to Messrs. Legg. The insurance company then appealed to the House of Lords and paid the £8,000 without prejudice to their appeal, and it will have to be returned to the insurance company if the appeal is successful.
Messrs. Legg claim that they are entitled to retain out of their profits £7,000 which will be required to make up the £15,000 the value of their lost vessel, even if they retain and are ultimately held entitled to retain the £8,000 insurance money, and to partially make up their loss if they have to repay to the insurance company the £8,000 insurance money.
On the other hand the Inland Revenue Authorities state that it appears from the books of Messrs. Legg that this Steamer "Carrick Castle" was bought by them in the year 1890, and cost a sum of £5,000, and that in every year a sum of money was written off this sum in their books for depreciation by wear and tear, and that at the time when the vessel was lost the sum so written off amounted in the aggregate to the whole original cost of the vessel except £207, and they contend that, the Messrs. Legg having been repaid in this way the whole cost of the vessel except £207, the only loss which Messrs. Legg could have sustained through the wreck of this Steamer would be £207, but as they have received £8,000 from the insurance company they have in fact made a profit by the wreck of the Steamer as...
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