Lambert Bros. Ltd v Revenue Commissioners

• Jurisdiction: Ireland
• Date: 1930
• Year: 1930
• Court: King's Bench Division (Irish Free State)

NO. 67*.-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-

COURT OF APPEAL.-

(1) LAMBERT BROS., LTD.

and

THE COMMISSIONERS OF INLAND REVENUE

Excess Profits Duty - Coal pool - Operations resulting in surplus stock of coal on closing of pool - Moneys arising from surplus and address commission accruing to coal merchants forming pool - Whether profits of trade - Date of arising.

With a view to overcoming difficulties in the supply of coal to ships at Gibraltar which arose during the War, a pooling agreement to operate from 1st January, 1918, was entered into between the coal merchants at Gibraltar, including the Appellant Company, and the Ministry of Shipping, under which the merchants administered the coal supplies as a pool and their remuneration therefor was limited to 10s. a ton to cover profit, hulkage, labour, establishment and all other charges, subject to revision in the event of any material change in conditions. The pool took over the existing stocks of coal and from time to time purchased further supplies from England which were carried in vessels chartered nominally on account of the coal merchants, who retained the address commission (being 2 per cent. on the freight) allowed by the shipowners.

When the pool was closed on 15th March, 1919, the actual stock of coal remaining in hand was very considerably greater than the closing stock shown by the books of the pool, calculated

by reference to the opening stock, the coal shipped to Gibraltar, and the supplies charged to ships. The Government claimed from the merchants the whole of the excess receipts in their hands, representing the value of the surplus stock, and also the whole of the address commission which had been retained by them. The claim was resisted by all the coal merchants except the Appellant Company, and pending a settlement the surplus stock fund was transferred to trustees, and the amount of address commission received by the Company was carried by it to a suspense account. After prolonged negotiations extending over four years, an agreement was reached in June, 1923, by which the coal merchants agreed to pay over one-half of the address commission to the Government and the surplus stock fund was divided equally between the Government and the coal merchants, the Appellant Company receiving its share from the trustees, together with accrued interest, on 23rd July, 1923

The Company was assessed to Excess Profits Duty for the accounting periods ending on 30th June, 1918, and 30th June, 1919, in respect of (a) the sum received by it in July, 1923, in respect of the surplus stock, and (b) the address commission retained by it under the agreement, and for the accounting periods ending on 30th June, 1920, and 30th June, 1921, in respect of the interest accruing on its share of the surplus stock fund in the hands of the trustees up to 23rd July, 1923.

The Company appealed against the assessments, contending that neither its share of the surplus stock fund nor the accrued interest thereon, nor its share of the address commission, were profits arising from the Company's trade or business and assessable to Excess Profits Duty, and that in any event they were not profits arising in the accounting periods under appeal.

The Special Commissioners confirmed the assessments.

Held, that the sums received by the Appellant Company in respect of the surplus stock fund and address commission were trading profits arising to the Company in the period during which the pool was in existence, and that they were assessable to Excess Profits Duty accordingly. (As regards the interest accruing on the Appellant Company's share of the surplus stock fund after the close of the accounting period ending on 30th June, 1921, it was held in the King's Bench Division-and this point was not taken to the Court of Appeal-that this should be excluded from the assessments.)

CASE

Stated under the Finance (No. 2) Act, 1915, Section 45 (5), and the Taxes Management Act, 1880, 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.

1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 2nd December, 1925, for the purpose of hearing appeals, Lambert Brothers, Ltd., (hereinafter called the Company) appealed against the following assessments to Excess Profits Duty made upon the Company by the Commissioners of Inland Revenue under the provisions of the Finance (No. 2) Act, 1915, Part III, and subsequent enactments, namely:-

1. (a) An assessment in the sum of £35,360 17s. 0d. for the accounting period ending 30th June, 1918.

2. (b) An assessment in the sum of £37,570 19s. 0d. for the accounting period ending 30th June, 1919.

3. (c) An assessment in the sum of £1,718 10s. 0d. for the accounting period ending 30th June, 1920.

4. (d) An assessment in the sum of £2,788 10s. 0d. for the accounting period ending 30th June, 1921.

2. The Company carry on business as ships' bunkerers, oil fuel merchants and coal exporters at 85, Gracechurch Street, London, E.C.

At all times material to this Case the Company had a coaling depot at Gibraltar, called the London Coal Company, for the supply of bunker coal to merchant vessels of all nationalities.

3. In addition to the Company's coaling depot there were and are 8 other merchants at Gibraltar carrying on the same class of business, i.e., supplying bunker coal to merchant vessels.

4. Upon the outbreak of War in 1914 the coal trade at Gibraltar suffered severe dislocation.

The supply of coal, which had to be shipped from England or Wales, and the number of vessels available for carrying coal to Gibraltar became reduced, and at the same time the number of vessels calling at Gibraltar for coal was largely increased. The majority of these vessels were engaged on naval or allied service.

As a consequence the price of coal rose rapidly.

5. Throughout 1915 and 1916 various methods were adopted and restriction was imposed with a view to regulating the supply of coal to Gibraltar and checking the rise in prices.

6. By the end of 1916 it became obvious to the Government that the restrictions already imposed were inadequate, and that a severe measure of control was necessary in order to ensure an adequate supply of coal at Gibraltar and to check the ever increasing rise in prices or alternatively the Government would have to expropriate the merchants altogether.

7. In these circumstances in 1917 the Company was approached by the Government, and Mr. R. R. Steel, the Managing Director of the Company, was requested by the Government to go out to Gibraltar to prepare a scheme of control, which would be acceptable to the Government, the Naval Authorities at Gibraltar and the Gibraltar coal merchants.

8. There were prolonged negotiations with the Naval Authorities at Gibraltar and the Gibraltar coal merchants who were at first unwilling to discuss any scheme till they were informed by the Naval Authorities that, if no schemes were agreed, the Government would take over all their appliances and carry on the business themselves. In December, 1917, a pooling scheme was formulated and agreed to by all parties concerned. The pooling scheme came into operation on 1st January, 1918, and was continued until 15th March, 1919.

9. The terms of the pooling scheme are set out in a document headed "Proposals for bunkering arrangements of merchant vessels at Gibraltar agreed to by the commercial coaling firms", a copy of which (marked A) is attached to this Case.(1)

The nature of the said scheme as worked in practice may be described shortly as follows:-

1. (a) A Committee of the merchants was formed in Gibraltar under the Chairmanship of the Naval Store Officer, and there was a London Committee to control the operations of the pool at the London end subject to the approval of the Government Departments and Ministries concerned, i.e., the Ministry of Shipping and Coal Controller.

2. (b) The Gibraltar merchants forwarded their requisitions for coal to the London Committee who submitted the requisitions to the Shipping and Coal Coordinating Committee to be franked.

3. (c) The requisition having been franked by the Shipping and Coal Co-ordinating Committee the London Committee obtained from the Coal Controller licences for the supply of coal and from the Ministry of Shipping licences for the chartering of vessels.

4. (d) The London Committee went to the shipowners and colliery owners and obtained the ships and coal: Charters were made by the shipowners either to the London Committee or a named Gibraltar merchant and the coal was then shipped to Gibraltar.

5. (e) The rate of charter was fixed by the Ministry of Shipping and the price of coal by the Coal Controller.

6. (f) On arrival in Gibraltar the coal became part of a common stock. This stock was drawn on for the supply of bunkers, the ships to be bunkered, and the quantities to be supplied being approved by the Gibraltar Committee of which the Naval Store Officer was Chairman. Existing stocks on 1st January, 1918, either at Gibraltar or in vessels chartered previously to that date were likewise brought into the common stock.

7. (g) The selling price of the coal was fixed from time to time by the London Committee at a figure based upon the c.i.f. price plus 10s. a ton to cover profit, hulkage, labour, establishment and all other charges subject to revision in the event of any material change in the conditions then existing. No such revision was in fact made.

10. On 23rd January, 1919, it was decided to close the pool on 15th March, 1919, and the following cable was sent to Gibraltar:-

Pool to cease midnight 15th/16th March when stocks to "be ascertained and taken over by commercial firms "at 10s. below the current pool selling price.

11. Messrs. Deloitte, Plender, Griffiths & Co. were appointed by the Gibraltar Coal Pool Committee, with the approval of the Government, to audit the pool accounts. After an...