Scottish Court of Session Decisions

The Act 6 Anne, c. 53, established in Scotland a Court of Exchequer similar to that in England. By section 23 it enacted—“Provided nevertheless that in case any person or persons, bodies politic or corporate, his heir or their heirs, successors, executors, or administrators, shall alledge, plead, declare, or show in the said Court of Exchequer in Scotland, good perfect sufficient cause and matter in law, reason or good conscience in bar or discharge of any fines, issues, amerciaments, forfeited recognizances, or any other forfeitures, debts, or duties due or payable to the Crown, or why such person or persons ought not to be charged or be chargeable to or with the same, and the same cause and matter so alledged, pleaded, declared, or showed sufficiently proved in the said Court of Exchequer in Scotland, that then the said Court shall have full power and authority to accept, adjudge, and allow the same, and wholly and clearly to acquit and discharge all and every the said persons which shall be impleaded or sued for the same, or to make and take any fitting and reasonable composition for the same, as in the judgments and discretions of the Barons of the said Court of Exchequer upon hearing of the attorney or advocate-general or other learned council of Her Majesty, her heirs and successors, shall be found just and reasonable, and to proceed and act therein and give discharges thereupon in such sort and manner as hath been and is used and practised in the like cases in and by the Court of Exchequer in England, anything herein contained to the contrary notwithstanding.”

The Court of Exchequer (Scotland) Act 1856 (19 and 20 Vict. c. 56) transferred the whole jurisdiction of the Court of Exchequer to the Court of Session.

The Act 16 and 17 Vict c. 34 (Income-Tax Act 1853) in section 28 alters the amount of income at which exemption may be claimed from the amount fixed by the Income-Tax Act 1842, allowing an abatement on the income between the old and new figure, and it makes applicable to such abatements the provisions of the latter Act dealing with exemptions on the ground of smallness of income.

On 29th June 1904 the Lord Advocate, for and on behalf of His Majesty, presented an information against George M'Laren, plumber, 15 Howe Street, Edinburgh, on two counts—(1) that M'Laren, being liable to income-tax, did by notice and declaration dated 30th June 1902 untruly declare that the whole of his income from every source whatsoever for the year ending 5th April 1903 amounted to the sum of £150, and did this in making a claim for exemption, or the relief to which he was entitled in respect of his income as so declared, contrary to the statutes in that case provided, and in particular to the provisions of sections 164 and 166 of the Act 5 and 6 Vict. c. 35, and section 28 of the Act 16 and 17 Vict. c. 34, whereby he had forfeited the sum of £20 and also a sum of £187, 3s. 3d., or such other sum as might be found to be treble the duty chargeable in respect of all the sources of his income; (2) that M'Laren being liable to income-tax, did by notice and declaration dated 3rd July 1903 untruly declare that the whole of his income from every source whatsoever for the year ending 5th April 1904 amounted to the sum of £230, and did this in making a claim for abatement, or the relief to which he was entitled in respect of his income as so declared, contrary to the statutes as in the preceding count, whereby he had forfeited the sum of £20 and also a sum of £137, 12s. 5d., or such other sum as might be found to be treble the duty chargeable in respect of all the sources of his income.

It was admitted by M'Laren that his income (and that of his wife) exceeded the amount up to which exemption or abatement was allowed, and that for the year 1903–1904 it was—rents £249, 8s., and interests £411, 14s. 3d., less insurance premium £10, 2s. 6d., giving a total of £650, 17s. 9d., in addition to the profits of his business which he estimated at £150, but which had been assessed for some years without appeal as amounting to £350. The £650, 17s. 9d. of other income and the £350 of business income together gave a total income of £1000, 17s. 9d., and the penalties now claimed, in addition to the £20 penalties, viz., £187, 3s. 3d. and £137, 12s. 5d. were treble the duty for the years 1902–3 and 1903–4 from an income of that amount.

The facts of the case are given in the Lord Ordinary's opinion.

On 29th December 1904 the Lord Ordinary ( Stormonth Darling) pronounced this interlocutor—“Finds for the pursuer on both counts of the information to the extent that the defender has forfeited the the sum of £20 sterling under each count, but finds that the defender has not forfeited any other sum under said counts: Adjudges the defender to pay to the pursuer

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the two sums of £20 sterling, and decerns against the defender accordingly,” &c.

Opinion.—“This is an information at the instance of the Lord Advocate on behalf of the Crown, claiming penalties against the defender, a plumber in Edinburgh, in respect of two income-tax returns which he made for the years ending 5th April 1903 and 1904 respectively. The allegation is that by the first of these returns, in making a claim of exemption for the financial year 1902–1903 the defender ‘untruly declared’ that the whole of his income from every source was £150. That is the first count of the information. The second count is that, in making a claim of abatement for the year 1903–1904 the defender untruly declared that the whole of his income from every source amounted £230. The information is founded on sec. 166 of the Income-Tax Act 1842, which relates to claims for exemption, and is made applicable to claims for abatement by sec. 28 of the Act 1853.

“It is not disputed by the defender that in each of these years his total income from all sources was much larger than what he returned, and, indeed, that it was larger than any figure up to which abatement is allowed. Nor can it be disputed that he signed the declaration on the fourth page of the familiar return on yellow paper, which is headed ‘Notice and declaration of Claim of Exemption or Abatement,’ or that thereby, having filled in £150 in the one year and £230 in the other as the total amount of his income from all sources, he claimed the relief to which he was entitled in respect of such income. That was the only part of the yellow paper which he did fill in, and in particular he made no return of the profits of his trade. But he says that all this was a blunder, that he intended to return £150 in the one case and £230 in the other as the profits of his trade, that he though he was doing so, and that he had no intention to claim either exemption or abatement.

“When the return came into the hands of the Surveyor of Taxes that officer happened to know that the defender had heritable property worth £130 a-year. He also knew that for a number of years the defender had been assessed on £350 as the profits of his business, without appeal. Being thus satisfied that neither £150 nor £230 could possibly be the whole of the defender's income from every source, he thought it probable that the defender had intended the return to represent the profits of his business, but even on that assumption he discarded the return altogether, and treated the defender as having an income of £480, which entitled him to an abatement of £150. Accordingly he sent the defender assessment notices in each year showing the amount of assessment as £350, and the deduction as £150, and bringing out the net amount chargeable as £200. In these assessment notices the defender acquiesced, and paid duty accordingly. It now appears from the defender's admissions, to which I have referred, that he was not entitled to any abatement for either year, and that he ought to have paid tax on the full amount of his business profits, whatever these were.

“That the defender's conduct in making the returns as he did was careless in the extreme he admits—indeed, that is the gist of his defence. For his defence is that he failed to fill in his business profits at the right place, and that he returned what he intended to represent business profits at the wrong place and under a wrong description, signing at the same time a claim for relief which he never meant to make. If he had no intention of claiming abatement it is rather remarkable that he should have accepted and paid on a return which set out that he was receiving an abatement of £150. But, according to the view which I take of the statute, I think I am relieved from the duty of considering whether the defender's conduct was morally culpable or not. Section 166 no doubt contains the word ‘fraudulently’ as qualifying some of the acts which it strikes at. Thus concealment of any income in making a claim for exemption must be fraudulent if it is to incur a penalty. But when the statute speaks of ‘declaring’ the amount of any income it merely uses the adverb ‘untruly.’ The difference in language is, I think, intelligible. At all events, I find it there, and therefore if a positive statement as to the amount of a man's income is untrue in the sense of being contrary to fact (of course, in some material respect), although it may not be fraudulent but only inexcusably careless, I think the statute intends to make it, and does make it, an offence to which a penalty is attached. I quite admit that each penal section of a statute must be construed according to its own terms, but when I turn to section 178, which deals with the case of a false return of income as distinguished from a false claim for abatement, I find that the section strikes at ‘wilful neglect’ as well as at falsehood and fraud, and I see in that an instructive guide to the general policy of the statute.

“Next comes the question of the amount of the penalty. £20 for each count is clearly due. But when the advisers of the Crown ask in addition for the sum of £187, 3s. 3d. under the first count and £137, 12s. 5d. under the second, it seems to me that they have not well considered the meaning of the section, for these sums are brought out by taking the defender's whole income, irrespective of whether it has already paid duty or not, and multiplying the duty by three. The words are ‘treble the duty chargeable in respect of all the sources of his income, and as if such claim had not been allowed.’ That can never mean that you are to take any part of the offender's income which has paid duty already and charge the duty over again, because the duty in that case would not be ‘chargeable.’ Clearly the meaning is that you are only to take the man's whole income on which duty is still chargeable, and to charge treble duty upon it, notwithstanding that it would have been otherwise (owing to its amount) entitled to exemption or abatement.

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Again let me refer to section 178 as containing a fuller exposition of what is briefly expressed in section 166 as ‘treble the duty chargeable.’

“In this case the defender's income from every source is made up for the most part of items from which tax has been deducted or paid, and the only part of his income on which duty is still chargeable is business profits. The onus of proving the amount of these business profits is on the Crown if they are to demand that part of the penalty which consists of treble the duty chargeable. They have led no proof on that point except by showing that the defender for several years acquiesced in an assessment of £350 as representing his trade profits. He has already paid tax on £200 of that sum, so that treble the duty on a balance of £150 would be a mere bagatelle compared with the large sums concluded for in the information. But in my view it is a sufficient answer to this part of the Crown's demand that the defender's claim for exemption or abatement was not ‘allowed.’ An abatement, no doubt, was allowed, but at the hand of the Revenue officers and not in terms of the defender's claim. Even if I thought otherwise on the construction of the statute, I should be of opinion that £20 under each of the two counts was a sufficient penalty for the defender's offence, and I have always held it quite within the competence of the Exchequer Court to modify a penalty where it thought proper to do so in the interests of justice. I considered and discussed that question in Stewart's case, 30th March 1899, 6 S.L.T. 405, and I respectfully refer to my opinion as there reported.

“I shall therefore find that the defender did, by notice and declaration dated 30th June 1902, untruly declare that the whole of his income from every source whatsoever for the year ending 5th April 1903 amounted to the sum of £150, and that the defender did, by notice and declaration dated 3rd July 1903, untruly declare that the whole of his income from every source whatsoever for the year ending 5th April 1904 amounted to the sum of £230, and that he has thereby forfeited the sum of £20 for each of the said offences, but that he has not forfeited any other sum for either of the said offences, and I shall find him liable in the expenses of process.”

The Lord Advocate reclaimed and argued—(1) The Lord Ordinary had put a wrong construction on the statute. The word “chargeable” must be applied as at the time when the offence was committed. It therefore had reference to the declarant's whole income from every source, and not to that part only which had been untruly declared. The penalty could not be made to depend on how much duty had been paid. (2) The Lord Ordinary had also erred in thinking the Court had a power to modify. The section was imperative that the person offending should forfeit, and no such power had ever been claimed by the Courts in England. The Court only had, under 6 Anne c. 53, the judicial functions of the old Barons of Exchequer. To modify penalties, however, was an administrative act, and was therefore not transferred to the Court. The power was undoubtedly with the Commissioners of Inland Revenue, and was not likely to be in two bodies— Lord Advocate v. Thomson, February 23, 1897, 24 R. 543, 34 S.L.R. 412; Pendreigh's Trustee v. M'Laren & Company, May 9, 1871, 9 Macph. (H.L.) 48, 8 S.L.R. 483.

Argued for the respondent—(1) This was a penal statute and was to be interpreted equitably. It would be inequitable to demand, as the pursuer here did, in every case treble the income-tax on the whole year's income, however great that income might be, and however small the error in the declaration. “Chargeable” was therefore to be restricted to the amount which the defender had attempted to avoid paying—that was, it meant still chargeable. (2) The Lord Ordinary was right in holding that he had power to modify. It was expressly conferred by 6 Anne c. 53.

At advising—