THE COURTS.

New Zealand Mail, Issue 1107, 19 May 1893, Page 20

THE COURTS.

COURT OF APPEAL

Wellington and Manawatu Railway Company v. The Commissioner of Taxes. The following is the judgment of the Court of Appeal of New Zealand upon a special case, staged by consent, in an action brought by the Wellington and Manawatu Railway Company against the Commissioner of Taxes of New Zealand, in order to ascertain the character and extent of the taxation to which the Company and its debenture-holders are liable under the provisions of The Land and Incometax Assessment Acts, 1891-1892. The judgment was that of their Honors the Chief Justice, and Richmond, Connolly, and Denniston (Justices), and was delivered on the 12th May, 1893. The case was argued by Mr Edwards, on behalf of the debenture-holders. Mr Travers appeared for the Company, and the Commissioner was represented by Mr Gully. The argument occupied nearly two days. This is a case stated in an action brought to determine questions which have arisen between the Commissioner of Taxes under *' The Land and Income Assessment Acts of 1891 and 1892" and the Wellington and Manawatu Railway Company, as to what taxes are payable under the said Acts by the Company on behalf of the holders of certain debentures issued by the Company, and also as to taxes under the said Acts payable by the Company on its own account. Debentures of £IOO each, bearing interest at £5 per cent., were, prior to the passing of the said Acts, issued by the Company to the amount of £680,000; they are made payable in London in the year 1908; are issued under the authority of the Company's Memorandum and Articles of Association, and also under the authority of the " Railways Construction and Land Act, 1881." That Act enables a Company having the powers and privileges conferred by that Act, as is the case with the Wellington and Manawatu Bailway Company, to give to debentures issued by the Company the effect of a charge upon its railway, including its rolling stock and other plant. The Company may, in addition to the land on which the railway is constructed, charge also other lands to which the Company might become entitled under the contract entered into between it and the Crown, for the construction and working of the Railway. The Act defines the mode in which the security is to be made available in the event of non-payment of the moneys secured ; the mode is by application to the Supreme Court for a sale and the appointment of a Receiver. The Company did not avail itself of the powers conferred by " The Railways Construction and Land Act" of charging the debentures on any of its lands other than the land on which the Railway is constructed; under that Act it only charged the debentures on its railway, including rolling stock and plant. The debentures in question, however, purport to be charged also upon the lands and other assets of the Company and on its uncalled capital, but this, as stated on the face of the debentures, j is by virtue of powers contained in the Articles of Association. The statement in the debentures is that this latter charge is "by way of floating security and so as to attach upon the property of the Company for the time being." The Company received grants of land from the Crown in considers,: tion of its undertaking the construction and working the Railway. These lands, and other lands acquired by the Company, it from time to time sells, and in many cases takes mortgages of land so sold as security for unpaid purchase money. At the time when the questions in this case arose the Company was possessed of unsold land, not being the site of its railway, including stations and other buildings, the value of which unsold lands was £92,497, it was also possessed of mortgages of lands sold by it to the amount of £79,771, such' mortgages being by purchasers of such lands to secure balance of unpaid purchase money. The Company was also possessed of much property, being neither land nor mortgages of land, for instance, its rolling stock. The Debentures being charged on all three different kinds of property, the question arises to what taxes under "The Land and Income Tax Acts " are the Deben-ture-holders liable in respect of such Debentures. For the Debenture-holders it is contended that they are liable only to Income Tax on the annual interest on the whole amount of the Debentures, and that they are not liable in respect of any part of the Debentures debt to the tax of one penny in the pound, which, by the said Acts, is imposed on landed property and mortgages of land : that, if liable to the penny in the pound, it is only in respect of £92,497, part of the Debenture debt; that being, as contended, the only part of the Debenture debt which is charged on land. For the Commissioner of Taxes it is contended that the whole amount of each Debenture is liable to the penny in the pound tax on the ground that, as contended, the whole amount of each Debenture is charged on land. In support of _ this contention it is argued that, even if by the principal Act—" The Land and Income Tax Assessment Act of 1891 "—the Debentures were not mortgages of. land within the meaning of that Act: they became so by the second proviso introduced by the Amending Act of 1892 into section 2 of Schedule C of ' the principal Act. For the Debenture-holders it was contended that the proviso gave an I option to the Company as to whether the i Debentures should have the effect of mortgages of land, and that if the Company did not choose to avail itself of the option the Debentures would remain under the principal Act, and the holders thereof chargeable only with income tax on the income from the debentures, as being loans other than "investments made upon mortgages of land in the colony," within the exception in clause (c) in section 4 in Schedule D of the principal Act; and that if the Company elected not to treat the Debentures as mortgages of land the Company would, under section 2 of Schedule C as agents on behalf of the Debentureholders, deduct the Debenture-holders income tax from the interest yable to thera on the

Debentures. If this contention were well founded, the result would, no doubt, be beneficial to the Debenture-holders, for instead of having to pay the mortgage tax of one penny in the pound on each hundred—which would be equivalent to 8s 4d in the pound of the income, they would pay only the _ income tax on the 5 per cent, annual interest. We are, however, of opinion that the true construction of the proviso does not give an option! but that so far as the Debentures are charges on land owned by the Company they became by this section, in effect, for the purposes of the Taxing Acts, mortgages of land. The first part of this proviso enacts that such amount as is charged on land of such Debentures as those now in question shall be deemed to be a mortgage of land, and further on provides that such amount "shall be returned by the Company as agents for the Debenture-holders; " meaning that those returns, which agents of Mortgagees of land have to make of the mortgages, " shall be made of the amount so charged as of a mortgage." As to the language in this proviso which, it is contended, gives the Company an option, the meaning of the provision is that as the effect of the proviso in treating the Debentures as mortgages is to relieve the Company—it may take the necessary steps for getting the allowance of the relief; this is quite consistent with the proviso being imperative and absolute as between the revenue and the Debenture-holder. We conclude, therefore, that the Debenture-holder's liability to the mortgage-tax does not depend upon the option of the Company, and that the Commissioner is so far right in contending that the Debentures are mortgages of land. As to the contention on behalf of the Debenture-holders, that the word ' land' in the proviso means only such land as is subject to the land tax, and does not include land that is exempted from tax, we think that the contention is not supported. We have dealt with that further on. The Commissioner contends that as the Debentures are therefore in effect mortgages, they are mortgages of the value of the amount ef the Debentures, though the land on which the Debentures are charged does not equal in value the amount of the Debentures: that as the Debentures are undoubtedly charged on land they are therefore, by virtue of the second pro'vison, added by the amending Act of 1882, to the second section of schedule C in the principal Act, to be deemed mortgages of land; and that being mortgages of land they are, within the meaning of Section 1 of Part 2 of Schedule A of the Principal Act, of the actual value of the amount of the debt it is contended that the Debentures being really of their full value by reason of the other property on which the Debentures are charged and the solvency of the Company, they are, therefore, of that value as " mortgages of land." Now it is clear that, as to land, the leading idea in the Principal Act is, that where land is mortgaged or subject to a registered charge, the tax is to be apportioned between the land owner and the owner of the mortgage or charge; it is also clear that the owners of loans of money, secured otherwise than by mortgages or registered charges, are to pay, in respect of the annual income therefrom, the Income Tax. The Acts do not expressly provide for the apportionment of the tax where the same loan is charged on land and also on property other than land. It is, however, only reasonable to suppose that where a loan is so secured that the Legislature did not intend that the, owner of the loan was both liable to both Mortgage Tax and Income Tax. It is equally reasonable to suppose that it was not intended, where, in the case of a loan so secured, only a small portion of the security was a mortgage of or a registered charge on land, and the rest personal or other property, that the mortgage tax was to be paid in respect of the whole loan; ' This would be contrary to what seems to be the leading idea of the tax on land, which is, as already remarked, to base the tax on the value of the land, but to apportion it between the land owner and the owner of the charge on the land. If the value of a charge on land is to be swelled by the value of other property included in the charge, this would really be not to apportion the Land Tax between the land owner and the owner- of the charge, but to put a fictitious value on the land, and to charge personal property as if it were land. We conclude, therefore, first, that where a loan is secured by a mortgage or registered charge on land and also on other property, there is to be an apportionment of the loan, in the proportion which the value of the mortgage or registered charge bears to the rest of the security. We also conclude that where there is a mortgage of land or registered charge on land the actual value of the mortgage or charge for the purposes of the mortgage tax is to be determined by the actual value of the mortgage or charge, without reference to the solvency of the debtor, or to the value of other property included in the security held by the mortgagee, and that such value can in no case exceed the value of the land mortgaged or charged. If, therefore, the Debentures are charged on no other land than the land of the value of £92,497, the Debenture holders are chargeable with the mortgage tax of a penny in the pound on that amount of the Debentures and no more, and as to the remainder of the £680,000 they are chargeable with the income tax on the annual interest. It was contended, however, on behalf of the Commissioner of Taxes, that as the Debentures are charged on the " railway," therefore the land on which the permanent way is constructed, and the yards, stations, and sites of other buildings, the Debentures are to be deemed to be mortgages to the extent of the value of such land. For the Debenture-holders it was contended that the word "land" where used in the first part of the second proviso, already referred to, means " land subject to land tax," and therefore docs not include " land " which is exempt from taxation; and consequently does not include land which is the site of the permanent way, etc., inasmuch as that land is by section 1(5 subsection 1 clause J of the principal Act exempt from taxation. To that, however, for the Commissioner it is answered that the word " land " is not, by the words of the second proviso introduced by the Act of 1892, limited to land subject to tax, and that tho intention of the Legislature as shewn by section 2 in part 2 of Schedule A in the principal Act, which part deals with the tax

on mortgages, is that mortgages are not to be exempt from tax by reason only that the land mortgaged is exempt from taxation. In our opinion the Commissioner's answer is complete, and that, notwithstanding the exemption of the Company from land tax in respect of the site of the railway stations, etc., the Debenture-holders are, to the extent of the value of the land, liable to the mortgage tax as mortgagees of that property. The value of that mortgage as a mortgage will have to be ascertained if there is a difference between the Commissioner and the Debenture-holders or their agent the Company. Regulations have not yet been made under the Acts for the manner in which such difference as to the value is to be decided ; such regulation ought to be made so that the direction in Section 1 Part 2, of Schedule A, may be complied with. In our opinion the contention made on behalf of the Commissioner that such value for the purposes of the mortgage tax is more than the mere value of the land and the perma nent-way thereon, and yards, stations' and buildings ; that in estimating such value account ought to be taken of the value which the land has asa railway, is not well founded. We think that for the purposes of the mortgage tax the actual value of the land, per-manent-way, and buildings, etc., is only to be taken into account without the increased value of- the use or the right to use it as a railway. The Company has to pay income tax on its profits, these are made by the use of the railway. The Debenture-holders are not as mortgagees to have the value of the land swelled by taking into account anything but the value of all that is permanently affixed to it. This includes permanent-way. It is not suggested that there has been any depreciation in value from the original cost of, the work; there seems, therefore, no sufficient reason for not putting the present value at that cost, as we understand this has been taken to be about £330,000.

It has been stated above that part of the property of the Company is mortgages of land of the value of £79,771, and that the Debentures are by the terms of the Debentures charged on these. If this charge is " a charge on land owned by the Company" within the meaning of the proviso introduced by the Act of 1892, or if the Debentures are as to this £79,771 mortgages of land or registered charges on land within the "meaning of the Principal Act, then the Debenture-holders will be mortgagees to that extent also as well as mortgagees of the Railway site and of the land valued at £92,497, and would have to pay a penny in the pound Mortgage Tax on the £79,771 instead of Income Tax.on the annual interest on an equal sum, while the Company would be relieved of the Mortgage Tax on these mortgages. If, on the other hand, this part of the security is not "a charge on land owned by the Company " nor "a mortgage of lands nor a registered charge on lands," Debenture-holders will have to pay Income Tax on the interest on an equal amount of their Debentures, and the Company will not be relieved, but will have to pay the Mortgage Tax on £79,771 as mortgagees to that amount. The land, the subject of these mortgages, is clearly not land owned by the Company; the land is owned by the mortgagors ; nor are the Debentures in respect of these mortgages, either mortgages of land or registered charges on land. They are certainly not registered charges, and the only question is whether they are, within the meaning of the Principal Act, " Mortgages of Land." At the time when the Debentures were created these mortgages did not exist. Since the Debentures were issued the Company has sold portions of its land and taken mortgages as securities for portions of the purchase money. The mortgages are no doubt registered in the Land Transfer Office. There is no doubt, therefore, that but for the Debentures the Company is as mortgagee liable to the Mortgage Tax in respect of these mortgages. Now, as the Legislature, in defining that the term "mortgage" shall include any charge on land or any interest therein, limits the definition to such charges as are capable of being registered and are registered, it is to be inferred that the Legislature meant by mortgages of land mortgages of land strictly—such as are capable of registration. The 4th section of part 2, Schedule A, empowers the land owner, who is required to pay land tax on the full value of his Jand to require any mortgagee to register his mortgage, and if the mortgagee neglects for thirty-one days to do so, the mortgagee is to be liable to pay the mortgagor the tax as "if such mortgage had been duly registered." This provision also leads to the inference that by mortgages of land the Legislature meant registrable mortgages of land. These debentures so far as they are charges upon the £79,771, are not such mortgages as could be registered under the Land Transfer Act; they are charges perhaps on land or an interest in land, but not being registered or registrable do not come within the interpretation. We therefore conclude that the Company has to pay the mortgage tax upon them ; and that this liability of the Company does not relieve the Debenture-holders, for they must, nevertheless, pay income tax on Debentures to the amount of these mortgages. The only question remaining is the liability of the Company to income tax. It has to pay on its " dividends earned, sums carried to reserve fund, and any other profits made or income derived during the year." But an allowance from this income must be made in respect of so much as is derived from property upon which it pays mortgage tax, that is the £79,771; and upon so much of the income as is derived from the £92,497, upon which the Debenture-holders pay Mortgage Tax, this land is apparently not used by the Company; it is open for sale ; it is, by the proviso above mentioned, to be deemed to be mortgaged, and by this it must be understood that it is mortgaged to its full value; that there is nothing in value left for taxation against the Company; even if the land were used by the Company it would, by reason of its being taxed already to its value in the hands of the Debenture-holders, be free from other tax. The Company, then, has to-pay Income Tax on its profits derived from its business, but an allowance has to be made in respect of the railway which is exempt from tax. In ascertaining the profits of the Company a reduction must be made in respect of so much of the capital of the Company as is represented by that which is exempt from taxation—namely, the rail-.

way line, stations, buildings, etc., that will be from so much in value as is assessed to the Debenture-holders, as to the rest of the income that will be subject to income tax. We think that there should be no costs to either side. , JUDGMENTS. A number of reserved judgments were given In the Court of Appeal on Friday morning. His Honor the Chief Jantice presided, and there were also on the Benoh Mr Justice Riobmond, Mr Justice Conotly, Mr Justice Ward and Mr Justice Denniston. COOK COUNTY COUNC L V. RAWHIRI AKD OTHERSsMr Justioe Richmond gave judgmpnt in this oase, to tha effect that the appeal would be allowed. Mr Justice lionnisVm concurred, and Mr Justice Ward dissented, App al allowed, with costs on the middle scale. the case of geoegi ell, This was an appeal from the decision of Mr Justice Denniston, who bad refused an application to make the bankrupt the assignee of his own estate. Mr Justice Conohy, in delivering judgment, said the discretion reposed in Mr Justice Denniston had been properly exeroised, and the appeal would be dismissed. , PUUPI TE MAARI V. MATTHRWS AND another (the Wairarapa Lake oase). Mr Justice Conolly delivered judgment in thin case. He ruled that the outlet is a natural watercourse and public drain, and that it is not a tidal water within the meaning of the River Boards Acts; that the Wairarapa South County Council had power to open and keep olsar from obatruotion the said outlet; and to dele, gate that power to the Sooth Wairarapa JKiver Board, which in turn 'had power to open and keep the outlet free from obstruction; and that the defendants were not liable in damages for trespass. Mr Justice Ward dissented, holding that tbe outlet was not a wateroourse or public drain over which tbe County Council bad juris* diction. —The appeal was dismissed, with costs on the highest scale. Mr Gray applied for leave to further appeal to the Privy Counoil. The consideration of the application was adjourned until the next sitting of the Court QUEEN V. SCOTT. Mr Justioe Denniston delivered judgment In this case, for (he plaintiff, with costs on the lowest scale. XS BE JOHN AUIRIDGE. This was an application for a writ of habeas corpus to secure the release of a man named John Aldridno, who had been Ben> tenced by Judge Kd wards to a terra, oi im prisonment at Blenheim, on the ground*'hat the Judge's appointment was invalid. The Chief Justioe in giving jodgm mt, said that at the time of the conviction Mr Edwards was a Judge de faqto, and therefore the conviction must hold'good. The application would be refused. Mr Justice Richmond conourred, remarking th»t in his opinion the oase should be deoided on the broad ground that the prisoner having been tried-at a sitting of the Supreme Court by one who was a Judge de facto, his conviction was lawful and irreversible. Mr Justice Conolly, Mr Justioe Denniston and Mr Justice Ward concurred.—Application refused.

In Chambers laßt week, before Mr Justice Richmond, Mr Chapman appeared in support., of a motiou on behalf of Hori Ropiha; and-,' others for an interim injunction (pending the; trial of an action- for damages) against Wi Matua atyl others (for whom Mr Morlson ap*. peared) to restrain them from forcibly preventing the plaintiff* from placing 6000 sheep on.the Porangahau block, in the Hawke's Bay district, now in the occupation of Messrs Price and St Hill. Both plaintiffs and defendants are the owners of the block according to Maori custom, under a Native Land Court certificate of title Jits Honor, after hearingargument, decided to refuse the injunction, mainly on the ground that the plaintiffs appeared to have acquiesced in the occupation of the block by Messrs Price and St Mill and the defendants. It also appeared that the land was held according to Maori custom and " usage, and the power of the Supreme Court to grant the relief asked for was questioned by the defendants. Messrs Price and St. Hill have been in occupation for the laßt 30 years under an arrangement with Wi Matua and his people. The plaintiffs were adjudged in 1887 to be co-owners, and since that linie they.have been seeking to assert their rights. Soma time since th«y tried to place 2000 sheep (Brst instalment of 6000) on the block, and on being prevented they started an action for damages, which will come for hearing shortly before the Supreme Court at Napier.