COMMISSIONERS OF INLAND REVENUE v. GARDNER, MOUNTAIN & D'AMBRUMENIL, LTD.

(1946) 80 Ll.L.Rep. 297

HOUSE OF LORDS.

Before Viscount Simon, Lord Wright, Lord Porter, Lord Simonds and Lord Normand.

Revenue - National Defence Contribution - Accounting period - Assessment - Underwriting agents - Computation of profits - Basis of liability - Chargeable accounting period - Practice of Lloyd's - Company acting as agents for various Lloyd's underwriting syndicates - Company to receive as remuneration fixed salary and expenses and commission on net profits on each year's underwriting - Tax returns for accounting period Apr. 1, 1938/Mar. 31, 1939, showing commission relating to transactions initiated in 1936 - Commission relating to transactions initiated in 1938 included in returns for 1941 (when commission finally ascertained) - Additional assessment to National Defence Contribution for 1938/1939 period made in respect of commission on 1938 transactions - Agency agreement providing: 8. The underwriter shall pay to the company as remuneration for its services in conducting the agency a fixed salary [at the rate of so many pounds per annum, so many pounds expenses] and a commission of [so much] per cent. on the net profits on each year's underwriting. . . . The said fixed salary and expenses shall be paid quarterly and shall be treated as an outgoing of the underwriting. 9. The said fixed salary and expenses shall cease at the termination of the agency but after such termination (whether by death of the underwriter or otherwise) the company shall be entitled to wind up the underwriting and the accounts in connection therewith and shall be paid for its services in connection therewith a remuneration of not less than one hundred guineas. 10. An account shall be kept for the period ending the thirty-first day of December [next after the agency commences] and for each subsequent year of the agency . . . and each such account shall be made up and balanced at the end of the second clear year from the expiration of the period or year to which it relates and the amount then remaining to the credit of the account shall be taken to represent the amount of the net profit of the period or year to which it relates and the commission payable to the company shall be calculated and paid thereon. Provided always that for the purpose of ascertaining the commission payable to the company the account for each period or year shall be treated as a separate account and the profits of any one period or year shall not be affected by the result of the underwriting done in any other period or year. 12. In the event of any transaction relating to the underwriting carried on in any period or year being left outstanding when the account for such period or year is made up and balanced any payments or receipts which may afterwards result from such transaction shall be carried to the debit or credit as the case may be of the account for the next year as if the transactions giving rise thereto had occurred in that year. Provided always that in the event of the termination of this agreement the account may at the discretion of the company remain open until all risks have run off and the business shall have been completely wound up. 14. Either of the parties may terminate the agency on the thirty-first day of December [in a particular year] or on the thirty-first day of December of any succeeding year by giving to the other party six months' previous notice in writing of his or its intention to do so. Commissioners of Inland Revenue v. Gardner, Mountain & D'Ambrumenil, Ltd. H.L. 298

Construction of agreement - Evidence as to Lloyd's practice - Underwriting accounts drawn up by reference to calendar year but kept open for certain time (usually three years) to allow for calculation of losses and expenses and ascertainment of profits - Whether commissions proper to be brought into assessment for chargeable accounting period to Mar. 31, 1939, were, as company contended, those relating to policies underwritten in 1936, or, as Crown contended, those relating to policies underwritten in 1938.