Revenue Commissioners v Cavan Central Co-operative Agricultural and Dairy Society Ltd

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

NO. 1*.-HIGH COURT OF JUSTICE, IRELAND (KING'S BENCH DIVISION).-

COURT OF APPEAL, IRELAND.-

(1) THE COMMISSIONERS OF INLAND REVENUE

and

THE CAVAN CENTRAL CO-OPERATIVE AGRICULTURAL AND DAIRY SOCIETY, LTD.

Excess Profits Duty - Exception - Husbandry - Registered co-operative dairy society carrying on creamery - Finance (No. 2) Act, 1915 (5 & 6 Geo. V, c. 89), Section 39(a).

The Respondent Society which was registered under the Industrial and Provident Societies Act, 1893, carried on a creamery. The bulk of the milk required was supplied daily by its members, all of whom were farmers grazing cows upon their farms. The milk was churned, the skim milk returned to the suppliers, and the butter sold in the open market. Accounts were taken at the end of each month of the proceeds of the butter and of working expenses, and the sum so ascertained as available for distribution for the past month's milk was received rateably by the suppliers in proportion to the respective quantities of milk supplied by each of them.

Held, that the Society was not carrying on the business of husbandry so as to be exempt from Excess Profits Duty under exception (a) in Section 39 of the Finance (No. 2) Act, 1915.

CASE(2)

Stated, under Section 59 of the Taxes Management Act, 1880 (43 & 44 Vict., c. 19), by his Honour Judge Brown, County Court Judge for the County of Cavan.

The following are the material passages of the Case stated by the learned County Court Judge:-A rehearing by me of an appeal by the Cavan Central Co-operative Dairy and Agricultural Society, Limited, to the Special Commissioners of Income Tax, was held at Cavan on the 20th January, 1917. The Special

Commissioners had confirmed an assessment of £108, made against the Society for Excess Profits Duty for the period ending 31st December, 1914. The only witness examined before me was C.E. Costelloe, the secretary of the said Society; and the following facts were established to my satisfaction:-

1. (2) The Society was established in the year 1907 by a number of farmers of the district for the purpose of the better marketing of some of their farm products, and was duly registered under the Industrial and Provident Societies Act, 1893. A copy of the Rules was produced and put in evidence before me, and is incorporated herewith.

2. (3) The only work carried on by the Society during the accounting period was that of a creamery.

3. (4) The method of working the creamery was as follows:- The members, all of whom were farmers grazing cows upon their farms, brought milk each day to the creamery, and had the amount thereof entered up in a supplier's pass-book. The milk was churned, the skim milk returned to the suppliers, and the butter sold. This process continued during a month, during which time no cash return was made to the suppliers for the milk, and no price or rate per gallon struck therefor. At the end of each month a meeting was held by the Committee, and the returns of the yield for butter sold, and also for the aggregate working expenses for the month were laid before the Committee on a form headed "Estimate of Trading for the Month." The sum to be distributed for the past month's milk was thus ascertained, and was subsequently received rateably by the suppliers and was in proportion to the respective quantities of milk supplied by each of them. The price or return thus received by the farmers on a milk basis depended entirely on the total amount received for the butter. Cheques were issued, usually about the 12th day of each month, to the suppliers in respect of the butter sales of the immediately preceding month. A successful month's selling would slightly increase, and a low butter price for a month would correspondingly decrease, the price or return which each supplier received for his milk.

4. (5) Occasionally the Committee thought it prudent to refrain from dividing out at once the entire proceeds of butter sales amongst the suppliers, but deferred paying a part of those receipts, in order to have money in hand to meet particularly heavy working expenses in any one month, such, for example, as might arise from a breaking-down in machinery, which would require to be mended immediately, perhaps at high outlay. These moneys so kept in reserve at any stated taking of monthly accounts were always treated as and dealt with by the Committee as deferred payments; and if it turned out that they had not actually been required to be expended in working expenses for sudden emergencies (for which purpose they have been provisionally retained), they were ultimately distributed amongst the suppliers.

The Surveyor of Taxes referred to the Finance (No. 2) Act, 1915, Fourth Schedule, Part I, Sect. 10; and also cited the following decisions:-Curtis v. Old Monkland Conservative Association(1), [1906] A.C. 86; Mersey Docks and Harbour Board v. Lucas(2), 8 App. Cas. 891, followed in City of Dublin Steam Packet Co. v.O'Brien(3); Maughan v. Free Church of Scotland(4), 30 S.L.R. 666, and Tennant v.Smith(5), [1892] A.C. 150.

I was of opinion on the foregoing facts that in point of law there were no "profits" or "surplus" of the Society which could be the subject of Income Tax; and also that there are no "excess profits" which could be assessed with Excess Profits Duty under Part III of the Finance (No. 2) Act, 1915.

I was also of opinion that milk-producing, or the keeping of milch cows by a farmer for dairy purposes (including the making of butter), was "husbandry"; and this view I understood was acquiesced in by the Surveyor of Taxes. I was further of opinion that it did not cease to be "husbandry" if two or three or more farmers joined together and appointed common servants of all, to work for all at buttermaking for the purpose of (a) saving the expenses of many separate churnings on separate farms; (b) cleanliness; (c)having modern appliances and skilled butter workers; (d) the production of a standard quality of butter from hundreds of cows; and (e) thus obtaining a better market, or for any of these or other reasons. On the facts proved the Society, though registered and entitled as aforesaid, was nothing more than this in reality; and simply acted as the churning and marketing servant of the farmers, who are the members and suppliers, continuously selling their butter. I was, therefore, of opinion that the business carried on by the Society during the accounting period was "husbandry," and that it came within the exemption contained in the Finance (No. 2) Act, 1915.

Accordingly, on this ground as well as on the before-mentioned ground of the absence of profits chargeable with Excess Profits Duty, I allowed the Society's claim to be exempt, and discharged the assessment. The figures were agreed upon; and if I am wrong in both said rulings, the Society should be assessed for £108 in respect of the said accounting period; if I am right in either of said rulings, the assessment should remain discharged.

Though not incorporated with or referred to in the Case, it was admitted in argument that the learned County Court Judge had in evidence before him the balance sheet of the Society for the accounting period and the auditor's certificate thereon. On this balance sheet there was a sum of £9 1s. 8d. of receipts which Counsel for the Society admitted could not represent creamery sales.

The Rules of the Society, incorporated in the Case Stated, consisted of (a) General Rules framed by the Co-operative Union, Limited, for Industrial and Provident Societies, registered...