- (1.) THE taxpayer company was assessed to Income Tax under Case I of Schedule D in a sum of pound 21,404 for the final year 1955 -56 in respect of profits of its business as a what owner. The company appealed to the special commissioners against this assessment; the special commissioners dismissed the appeal, and the company now appeals fork their decision to this court. The company owns and operates one of the largest oil storage installations in Europe. Part of its undertaking consisted at the relevant time of five deep -water jetties at Thames Haven, including one which was completed in the year 1952 at a cost of pound 346,323 to accommodate what are described as supertankers drawing up to 34 feet of water. In April, 1953, owing to the negligent handling of a ship, this jetty was seriously damaged. Its repair cost pound 83,167, and it was out of use for 380 days. The company consequently suffered damage which exceeded pound 83,167 by the amount of the loss resulting from the fact that the jetty was out for 380 days. I shall refer to the damage suffered by loss of use as "consequential damage." This consequential damage was agreed by the company and its insurers (to whom I will refer as the underwriters) to amount to pound 32,450. The total amount of the damage suffered by the company, as agreed between the company and the underwriters, was accordingly pound 115,617.
(2.) THE owners of the ship were entitled under the Merchant Shipping Act, 1894, s. 503, as extended by the Merchant Shipping (Liability of Ship -owners an Others) Act, 1900, s. 1, to limit, and did limit, their liability to a sum of pound 77,875 - a sum less than the cost of repairing the physical damage to the jetty. The company was incurred with the underwriters against physical damage to the companys property, but not against consequential damage. The underwriters agreed that, for the purpose of ascertaining the extent of their liability to indemnify the company in respect of physical damage to the jetty, the amount received from the owners should be apportioned ratably to the physical damage and the agreed amount of consequential damage.
(3.) THE pound 77,875 was accordingly treated by the company and the underwriters as received as to pound 55,083 in respect of physical damage and as to pound 22,792 in respect of consequential damage. The underwriters therefore paid to company pound 26,696 in respect of physical damage plus pound 42 in respect of legal expenses relating to the claim in respect of physical damage, making together pound 26,738. The company consequently received from the owners and the underwriters an aggregate amount of pound 104,614, which exceeded the amount of the physical damage, including the legal costs, by pound 21,404. It was in respect of this sum that the assessment in question was made. The estimate of the consequential damage - that is to say, of the value of 380 days profitable working of the jetty in an undamaged state - was arrived at in an artificial manner. It was not related to any profit which the company had earned by the use of the jetty or to any profit which the company expected or hoped to earn by its use. By agreement between the company and the underwriters, the estimate was made by adding to the figure for depreciation of the jetty for 380 days, calculated on its cost price of pound 346,323 at 4 per cent per annum (the companys normal rate of depreciation), a further 5 per cent per annum on the same capital sum for the same period. Thus the total claim for loss of use of the jetty for 380 days was quantified at 9 per cent per annum for that period upon its capital cost; i.e., at pound 32,450. The possibility of the company being liable to tax on any compensation received for loss of profit did not figure in the calculation.;