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Farmer (Surveyor of Taxes) v Cotton's Trustee
Factual and Procedural Background
A multi-storey former hotel on The Street in The City was converted into a mixed-use building containing:
- One self-contained flat let to Tenant A for residential purposes;
- Numerous single rooms or suites let to separate occupiers as offices, studios, warehouses or other business premises; and
- A caretaker’s flat and ancillary areas (wash-house, drying room, coal cellar, lift machinery and common lavatories).
The Respondent-owners were assessed for Inhabited House Duty on the whole building. They contended before the local Commissioners that only the residential flat should be assessed. The Commissioners rejected the contention. On appeal, the First Division of the Court of Session reversed the Commissioners, holding that liability was limited to the dwelling-house. The Crown (acting through the Surveyor of Taxes) appealed to the House of Lords.
Legal Issues Presented
- Whether the building was “divided into and let in different tenements” within the meaning of Section 13(1) of the Customs and Inland Revenue Act 1878.
- If so, whether the non-residential tenements were “occupied solely for the purposes of any trade, business, profession or calling,” thereby exempting them from Inhabited House Duty.
- The effect of the caretaker’s flat on the availability of the exemption.
Arguments of the Parties
Appellant’s Arguments (the Crown)
- The house was assessed as a single subject under Rule 6 of Schedule B to 48 Geo III c.55; the structure lacked sufficient physical division to qualify as “different tenements.”
- Because parts were residential (caretaker’s flat and one dwelling) the premises were not “occupied solely” for business, defeating any claim under Section 13(1) or 13(2) of the 1878 Act.
- Section 11 of the Revenue Act 1903 (caretaker relief) was inapplicable because the building was not used “for the purpose of providing separate dwellings.”
Respondent’s Arguments (Building Owners)
- Each room or suite was structurally and functionally separate; the house was therefore “divided into and let in different tenements.”
- All tenements, except the single dwelling, were used exclusively for business, engaging the exemption in Section 13(1).
- The caretaker’s accommodation, valued at £12, was excluded by Section 11(1)(a) of the 1903 Act.
- Duty on the sole dwelling should, in any event, be recovered directly from Tenant A under Schedule B of 48 Geo III c.55.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Attorney-General v. Mutual Tontine Westminster Chambers Association | Earlier rule that presence of any habitation made whole building liable | Explained as the hardship Parliament intended to cure by the 1878 Act |
| Yorkshire Fire & Life Assurance Co. v. Clayton | Meaning of “tenement” and necessity of structural division | Discussed; majority distinguished its facts, minority relied on it |
| Russell v. Coutts | Test of physical separation sufficient to create a distinct tenement | Majority adopted its approach to determine adequacy of division |
| Corke v. Brims | Contrast between ordinary rooms and structurally separate tenements | Used by majority in Court of Session to support exemption |
| Clerk v. British Linen Company | Requirement that owner not retain unrestricted access | Cited in arguments; not determinative |
| Grant v. Langston | Approval of definition of “tenement” as a potential separate property | Relied upon by House majority |
| London & Westminster Bank v. Smith | Need for consistent interpretation given prior authority | Mentioned in dissent on stare decisis |
| Smiles v. Crooke | Single lease covering more than one tenement does not defeat exemption | Cited by majority to dismiss Crown objection |
| Walsingham v. Styles | Rooms opening off common corridor insufficient separation | Relied on by dissenting Judge Sumner |
| Chapman v. Royal Bank of Scotland | Need for structural division beyond ordinary rooms | Invoked in dissent |
| Hillman v. Ankerson; London County Council v. Owen Cook | Single cubicles/rooms not “dwelling places” for similar exemptions | Supported dissent’s narrow reading of “tenement” |
Court's Reasoning and Analysis
The House of Lords delivered a majority (three-to-one) judgment affirming the Court of Session.
- Majority (Judges Loreburn, Atkinson and Parker):
- A tenement exists wherever a room or group of rooms is physically separated (even by a single lockable door) and capable of separate letting.
- The statutory phrase “divided into and let in different tenements” is satisfied by the present configuration; each occupier has exclusive control over his or her space, analogous to flats with a common stair.
- All non-residential occupiers use their premises solely for business; therefore Section 13(1) exempts those portions from duty.
- The caretaker’s flat, though residential, is insignificant and can be disregarded or separately relieved under the 1903 Act.
- The Commissioners’ contrary conclusion lacked any evidence and thus involved an error of law.
- Dissent (Judge Sumner):
- Historically, “tenement” in the duty statutes never covered a single room; only groups of rooms comparable to a small house qualify.
- Adopting a broader meaning contradicts established case law and undermines the requirement that the entire house be “wholly divided” into different tenements.
- The caretaker’s occupation prevents the house from satisfying the “solely for business purposes” requirement.
Holding and Implications
HELD: The appeal was dismissed; the First Division’s order was largely affirmed. The building is divided into different tenements, and all business tenements are exempt from Inhabited House Duty. Only the residential flat remains assessable, and duty already repaid was ordered to be retained by the Crown solely in respect of that dwelling.
Implications: The decision broadens the concept of “tenement” for duty purposes, confirming that even single rooms separated by a lockable door can qualify. It limits Inhabited House Duty on mixed-use buildings predominantly occupied for business, signalling a taxpayer-friendly interpretation where structural separation and exclusive occupation are shown. No new statutory test was created, but existing precedent now favours a more liberal exemption in analogous situations.
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