R G Davis (Inspector of Taxes) v The Superioress, Mater Misericordiae Hospital, Dublin

• Judge: Sullivan P,Hanna J and O’Byrne J.
• Judgment Date: 06 May 1932
• Court: High Court

Income tax, Schedule D - Hospital - whether carrying on a trade - profits derived from associated private nursing home - ITA 1918 Sch D.

A hospital opened by the community of the Sisters of Mercy in the year 1861 for the relief of the sick poor was from time to time enlarged by the acquirement of adjoining houses. In the year 1894 a limited number of paying patients were first accommodated with private rooms in the annexe, but these were not invariably used for paying patients only. Although voluntary contributions in respect of non-paying patients in the public wards of the hospital were usually offered and received, the total receipts from paying patients are insufficient to maintain the hospital, which depends also upon public subscriptions, donations and bequests. The management and secretarial work of the hospital was in no way separated from that of the nursing home and no separate accounts of receipts and expenditure applicable to the paying patients only were kept, while the nursing services were interchangeable throughout the whole hospital and private nursing home. Contracts for goods etc, required were entered into, and food, medicines, appliances and furniture issued in general for the whole undertaking. Free medical attention was given to all paying or non-paying patients except those who paid more than 3 1/2 guineas a week.

The Superioress appealed against an assessment for the year 1923-24 in respect of the profits and gains arising from the carrying on of the nursing home, contending that a trade was not carried on, or, alternatively, that if the hospital was carried on as a trade, it was not a profitable trade.

The Special Commissioners decided that the hospital was carried on as one undertaking, as the treatment of private patients was incidental to the main purposes and no line of demarcation could be drawn so as to separate the profitable from the non-profitable activities. They accordingly held that the Superioress was not carrying on a trade.

Held, in the Supreme Court, confirming the decision of the High Court, that the non-severability of the taxable from the non-taxable part of an undertaking is no answer to an assessment and that, in arriving at the conclusion that the Superioress did not carry on a trade, the Special Commissioners had misdirected themselves in law.

Legislation

ITA 1918 Sch D, ITA 1967 s 334.

Cases referred to in judgment

Carlisle and Silloth Golf Club v Smith 6 TC 198, [1912] 2 KB 177, [1913] 3 KB 75.

Religious Tract and Book Society of Scotland v Forbes 33 SLR 289, 3 TC 415.

Grove v Young Men’s Christian Association 88 LT 696, 4 TC 613.

Governors of Rotunda Hospital v Coman 7 TC 517, [1921] 1 AC 1.

Brighton College v Marriott 10 TC 213, [1925] 1 KB 312, [1926] AC 192.

Iveagh v Revenue Commissioners 1 ITC 316, IR 386.

Mersey Docks and Harbour Board v Lucas 2 TC 25, [1903] 8 AC 891.

New York Life Assurance Co v Styles 2 TC 460 [1914] 14 AC 381 (p 389).

St Andrew’s Hospital case (Northampton) v Shearsmith 2 TC 219, 19 QBD 624.

CIR v Peebleshire Nursing Association 11 TC 335, [1927] SC 215.

Inland Revenue v Falkirk Temperance Cafe 11 TC 353, [1927] SC 261.

Pemsels case 3 TC 53, [1891] AC 531.

Cases also cited

Levene v The Commissioners of Inland Revenue 13 TC 486, [1928] AC 228.

Lysaght v Commissioners of Inland Revenue 13 TC 511, [1928] AC 234.

Commissioners of Inland Revenue v South Behar Railway Co Ltd 12 TC 657, [1925] AC 476.

City of Dublin Steampacket Co v Revenue Commissioners 1 ITC 118, [1930] IR 317.

Commissioners of Inland Revenue v Kingston Railway Co 1 ITC 131.

Erichsen v Last 4 TC 422, 8 QBD 414.

Werle & Co v Colquhoun 2 TC 402, 20 QBD 753 (p 759).

The Trustees of Psalms and Hymns v Whitwell 7 TLR 164, 3 TC 7.

Case stated

Case stated under ITA 1918 s 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice

1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 21 November 1929, at Dublin, for the purpose of hearing appeals, the Superioress of the Mater Misericordiae hospital, Dublin, (hereinafter referred to respectively, as “the Superioress” and “the hospital”) appealed against an estimated assessment to income tax in the sum of £5,000 made upon “The Superioress, Mater Private Nursing Homes, Eccles Street, Dublin” under ITA 1918 Sch D Case 1, for the year of assessment 1923/24, in respect of profits or gains arising or accruing from private nursing homes.

2. The following facts were admitted or proved:

The Mater Misericordiae Hospital, situate in Eccles Street, Dublin, was opened for the relief of the sick and dying poor in the year 1861. At that time the accommodation was limited to 50 beds. It was then and has since been carried on by the members of the community of the Sisters of Mercy, the purpose of the hospital being as the name implies the assistance of the suffering poor. It is open at all hours for the reception of urgent and accident cases.

3. From time to time, by means of moneys obtained by public subscriptions, donations and bequests, the original hospital premises have been considerably extended and enlarged. In 1869 a private house, No 38 Eccles Street, and in 1894, four private houses, Nos 34, 35, 36 and 37 Eccles Street, were acquired and added to the hospital building. All these acquired houses have been structurally connected with the main building and with each other, and there is inter-communication from the main building to each of these houses, so that in substance the whole now constitutes one building although originally and before being added to the hospital the acquired houses were occupied as separate dwellings.

4. All the lands and buildings and property of the hospital are vested in one set of trustees who are members of the community of the Sisters of Mercy. These trustees have no active duties to perform, the management and control of the hospital and its staff being vested in the Superioress for the time being, who is always a member of the community of the Sisters of Mercy.

5. The accommodation available in the hospital for the treatment of patients having always been in excess of the accommodation required for the sick poor for whom the funds at the disposal of the hospital could afford treatment, it has been customary since about the year 1894 to admit a limited number of patients who could afford to pay for the services rendered to them. While the number of paying patients increased gradually and steadily from the year 1894 to the year 1923/24 there was a corresponding increase in the number of non-paying patients also.

6. In the year of assessment 1923/24, the total number of beds available for patients of all classes was 412 of which 320 were in the main building and 92 in the other buildings in Eccles Street.

In the main building there were three private wards in each of which there were 4 beds available for paying patients and 15 public wards containing 308 beds. In the buildings in Eccles Street there were private rooms affording accommodation for 92 paying patients and although there are no public wards there these private rooms are frequently occupied by non-paying patients while paying patients are awaiting admission. During the year 1923/24 46 non-paying patients were accommodated in these rooms. The aggregate number of days during which these 46 non-paying patients were accommodated in the buildings in Eccles Street during the year 1923/24 was 470. When simultaneous applications for accommodation in the buildings in Eccles Street are made by paying and non-paying patients and there is not sufficient accommodation available for all, preference is sometimes given to a non-paying patient especially if the case is an urgent and deserving one.

7. In 1923/24 paying patients were charged at the following rates per week:

£
Main building	12 beds	3 0 0
Buildings in Eccles Street	6 cots	3 3 0
33 beds	3 13 6
8 beds	4 4 0
30 beds	5 5 0
11 beds	6 6 0
4 beds	7 7 0

8. In 1923/24 249 patients were admitted to the hospital upon the application of County Boards of Health. These patients were treated in the public wards of the main building and a sum of 28s per week was received from each County Boards of Health on behalf of each patient.

Non-paying patients and their friends frequently made voluntary contributions to the hospital funds in return for the services rendered to such patients. In this way a number of patients from the country and city who were accommodated in the public wards of the main building contributed varying sums from 10/- to 42/- per week.

9. The treatment of non-paying patients considered separately from the rest clearly resulted in losses. These losses were met in part by public subscriptions, donations and bequests. The charges for paying patients envisaged in bulk and apart from the rest should, it was thought, leave a surplus over and above the actual expenditure incurred in the treatment of such patients. Any such surplus being merged in the common funds went to the benefit of those who were unable to pay for their treatment. No separate accounts were kept showing the amounts received from and expended on behalf of paying patients. As the nature of the nursing and attendance supplied and the work done for paying and non-paying patients was identical, the segregation of the accounts would have served no useful purpose.

10. All receipts from patients and all other receipts were paid into a common fund and all expenditure incurred by the hospital was paid out of this fund.

The hospital accounts show receipts and expenditure but they do not distinguish expenditure incurred in providing food, services, and other requirements for paying patients from such expenditure incurred on behalf of non-paying patients.

While it is possible to state definitely the amount received from patients who are under a contractual liability to pay for their treatment, it would be quite impossible, owing to the...