Irish Catholic Church Property Insurance Company, Ltd v The Revenue Commissioners

• Jurisdiction: Ireland
• Judgment Date: 03 May 1918
• Date: 03 May 1918
• Court: King's Bench Division (Ireland)

NO. 2*.-HIGH COURT OF JUSTICE, IRELAND (KING'S BENCH DIVISION).-

COURT OF APPEAL, IRELAND.-

(1) IRISH CATHOLIC CHURCH PROPERTY INSURANCE CO., LTD.

and

THE COMMISSIONERS OF INLAND REVENUE

Excess Profits Duty - Investment company - Employers' liability insurance company - Capital - Reserve fund - Computation of profits - Sums set aside out of profits to meet depreciation of investments - Finance (No. 2) Act, 1915 (5 & 6 Geo. V, c. 89), Fourth Schedule, Part I, Rule 8, and Part III, Rule 2.

The Appellant Company which carried on a fire insurance and employers' liability insurance business set aside sums each year out of profits to form a reserve fund (invested in outside securities) shown in its balance sheet under the headings "Fire Insurance Fund," "Employers' Liability Insurance Fund" and "Investment Reserve Fund," the last named fund being created by reference to the requirement in Section 4 of the Assurance

Companies Act, 1909, that such a company shall make such provision in its balance sheet for any depreciation in its investments as will enable the persons signing the balance sheet to certify that in their belief the assets therein set forth are in the aggregate fully of the value stated, less any investment reserve fund taken into account

The Company had a further invested reserve of £20,000, being the statutory deposit made when it commenced employers' liability insurance business.

All sums received by the Company, except so far as immediately required, were invested as soon as possible. The Company had no agents and carried on all business with its policy holders through the post or at its office in Dublin. In 1916 the paid up capital of the Company was £20,000, its total reserve fund was £25,968 16s. 11d. in addition to the statutory deposit of £20,000, and the risks insured exceeded £12,000,000.

The assessments to Excess Profits Duty made upon the Company for the two accounting periods ending the 31st December, 1914, and 1915 respectively, were computed by reference to the profits of the Company as shown in its published accounts, but excluding altogether from the computation both all the income received by the Company from its investments and all the capital and accumulated profits represented by such investments, such exclusion being based on Rule 8 of Part I, and Rule 2 of Part III, of the Fourth Schedule to the Finance (No. 2) Act, 1915.

The Company contended, however, (i) that it should be treated as a company carrying on a business "where the principal business consists in making investments" within the meaning of the exception in the said Rule 8; (ii) that the accumulated profits which had been invested should be treated as capital of the Company employed in the business; and (iii) that allowance should be made out of the profits of each accounting period for the sums set aside to make good the depreciation in the value of the securities.

Held, (i) that the Company was not one whose principal business consisted in making investments within the meaning of the exception in Rule 8 of Part I of the Fourth Schedule to the Finance (No. 2) Act, 1915;

(ii) that the investments of its reserve fund could not be treated as capital employed in its business; and

(iii) that there is no statutory obligation on a limited company, whether an insurance company or not, to replace out of profits capital lost by depreciation in securities, and that the Company was accordingly not entitled to an allowance in computing its profits for sums set aside for that purpose.

CASE

Stated under the Finance (No. 2) Act, 1915, Section 45 (5), and 43 and 44 Vic., Ch. 19, Section 59, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice.

At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held at No. 6, St. Stephen's Green, Dublin, on 13th December, 1916, the Irish Catholic Church Property Insurance Company, Limited, hereinafter referred to as the Company, appealed against assessments to Excess Profits Duty made upon them under the Finance (No. 2) Act, 1915, Part III, for two accounting periods of one year each ended respectively 31st December, 1914, and 31st December, 1915.

1. The Company is a company incorporated under the Acts relating to companies and carries on a fire insurance and employers' liability insurance business in Dublin.

The Company's capital is divided into 20,000 shares of £5 each, of which £1 per share has been paid up.

2. Prior to the passing of the Employers' Liability Insurance Companies Act, 1907 (7 Edw. VII, cap. 46), the Company carried on a fire insurance business only, but...