Carson (HM Inspector of Taxes) v Cheyney's Executor
| Jurisdiction | England & Wales |
| Judgment Date | 25 November 1958 |
| Date | 25 November 1958 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax, Schedule D - Copyright royalties - Payable to executor of author under agreement made in his lifetime - Income Tax Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 10), Schedule D, Cases III, V and VI.
Under contracts made by an author before writing certain books (and before the making of a French translation of a book already written) copyright royalties were payable on the number of copies sold. In computing the author's liability in his lifetime to Income Tax under Case II of Schedule D royalties were consistently credited as receipts as they fell due for payment. The royalties falling due after his death were included in assessments made on his executor under Schedule D for the years 1951-52 and 1952-53.
On appeal the General Commissioners accepted the executor's contention, based on the decision in Purchase v. Stainer's Executors, 32 T.C. 367, that the sums in question were receipts of the profession of the deceased and could not be taxed under Case III or Case VI of Schedule D.
Held, that the sums in question could not be taxed under Case III, Case V or Case VI of Schedule D.
Stated under Section 64 of the Income Tax Act, 1952, by the Commissioners for the General Purposes of the Income Tax for the Division of Bromley in the County of Kent for the opinion of the High Court of Justice.
1. At a meeting of the said Commissioners held on 29th March, 1956, at the Court House, South Street, Bromley, Kent, William Alexander Roy Collins, the sole surviving executor of the will of Reginald Evelyn Peter Southouse Cheyney, deceased, (hereinafter called "the executor"), appealed against assessments to Income Tax made upon him under Schedule D of the Income Tax Acts, 1918 and 1952, for the years 1951-52 and 1952-53, the first and additional assessments totalling £10,000 for the year 1951-52 and £18,000 for the year 1952-53. The question for our determination was
whether certain sums paid to the executor after the death of Reginald Evelyn Peter Southouse Cheyney as royalties under agreements entered into by him as hereinafter mentioned were assessable to tax under Cases III or VI of Schedule D.2. The following facts were admitted or proved:
(a) Reginald Evelyn Peter Southouse Cheyney (hereinafter called Peter Cheyney) was a well-known writer of detective fiction, who died on 26th June, 1951.
(b) During his lifetime Peter Cheyney had entered into some 50 to 60 agreements with publishers to write books or for the publication of books already written. Four only of such agreements were put in evidence, and it was agreed between the parties that the decision of the Court as regards sums paid under those four agreements should apply to moneys paid under all other agreements, unless the Court should distinguish one of these four agreements from another. All the agreements made by the deceased from which royalties arose could, as regards form, be classified into one of the categories of which these four agreements are representative. There were also produced to the Commissioners lists of the titles of books to which the representative royalty agreements refer and of the amounts received. These lists are not exhibited but may, if necessary, be referred to as part of the Case.
(c) Peter Cheyney during his lifetime was assessed under Case II of Schedule D in respect of the royalties he received from his said agreements as being profits arising from the carrying on of his profession as an author after deducting therefrom all proper and allowable expenses of carrying on such profession, and the Crown admitted that he was properly so assessed. For the purpose of computing the Case II tax liability the rule consistently followed was to credit the copyright royalties as receipts on the day they fell due for payment under the agreements with the publishers.
(d) The assessments for the two years in question comprised sums received by the executor from contracts made by Peter Cheyney and also sums received by the executor from contracts which he had entered into with the publishers subsequently to Peter Cheyney's death. In respect of sums received under contracts made by the executor, the executor admitted his liability to tax under Schedule D, without prejudice as regards sums received under contracts made by Peter Cheyney to the alternative contention (a) contained in paragraph 3 below advanced on his behalf.
-
(e) The executor's actual receipts were as follows:
1951-52
1952-53
£
s.
d.
£
s.
d.
Under contracts made by Peter Cheyney
…
11,725
19
10
12,026
0
5
" " " the executor
…
598
13
0
2,195
15
1
£12,324
12
10
£14,221
15
6
3. It was contended on behalf of the executor that the sums received by him after Peter Cheyney's death arising from contracts made personally by Peter Cheyney were remuneration earned by the said Peter Cheyney during his lifetime in following his profession and, notwithstanding that his profession had ceased on his death, such payments could not be taxable as annual payments under Case III or as annual profits or gains under Case VI of Schedule D.
In the alternative it was contended on behalf of the executor:
(a) that if the royalties were annual payments falling within Case III of Schedule D then insofar as they were payable wholly out of profits or gains brought into charge to tax no assessment could be made upon the executor;
(b) that if the royalties were annual profits or gains falling within Case VI of Schedule D they must be considered as accruing from day to day and be computed so far as concerned the year 1951-52 by excluding such portions of the royalties as had accrued to the date of Peter Cheyney's death.
4. It was contended on behalf of the Inspector of Taxes that the sums in question received by the executor which arose from agreements entered into by Peter Cheyney were annual payments assessable under Case III of Schedule D, or in the alternative that these sums were assessable under Case VI of Schedule D.
5. The following cases were referred to:
Purchase v. Stainer's Executors, TAXELR32 T.C. 367; [1952] A.C. 280.
Bennett v. Ogston, TAX15 T.C. 374
6. Particulars of the four agreements referred to in paragraph 2 (b) hereof and forming exhibit A to this Case(1) are as follows:
Memorandum of agreement made 9th September, 1942, between Peter Cheyney and Faber and Faber, Ltd.
Memorandum of agreement made 19th September, 1950, between Peter Cheyney and William Collins, Sons & Co., Ltd.
Memorandum of agreement made 12th March, 1946, between Peter Cheyney and Dodd Mead and Co., Inc.
Memorandum of agreement made 4th November, 1947, between Peter Cheyney and Les Presses de la Cité.
7. We, the Commissioners who heard the appeal, adjourned the same for consideration and on 19th April, 1956, gave our decision as follows.
This is an appeal brought by the executor of R.E.P.S. Cheyney, who died on 26th June, 1951, concerning assessments raised against him under Schedule D, Case VI, on certain royalties received by him after the date of death. The assessments totalled £10,000 for the year 1951-52 and £18,000 for the year 1952-53.
The deceased was an author who in the course of his profession had entered into some 50 or 60 contracts with publishers to write books and the royalties were received by the executor as a result of those contracts. It was agreed that four only of such contracts should be used in evidence. The actual sums were £11,725 19s. 10d.for the year 1951-52 and £12,026 0s. 5d. for the year 1952-53.
There is no dispute between the Inland Revenue and the executor about the facts of this appeal or as to the sums mentioned above and no witnesses have been called to give evidence.
It is the executor's case that these royalties are not subject to tax because they were solely remuneration earned by the deceased in his lifetime in following his profession as an author; and that, his profession having come to an end with his death, they cease to be taxable under Case II or any other
Case of Schedule D. The executor relied entirely on the case ofPurchase v. Stainer's Executors, 32 T.C. 367, reported as Gospel v. Purchase, [1951] 2 All E.R. 1071.For the Crown it was contended that there was a difference between that case and the case now under appeal, and that a distinction could be drawn although there was a surprising similarity of facts. We were told that if the executor was right there would have been created a fount of untaxed income for a period of 50 years after the deceased's death. It was also argued that an author is not paid for writing but for producing an asset in the form of a copyright which is exploited by agreements producing royalties.
We were referred to Bennett v. Ogston, 15 T.C. 374, which concerned assessments to tax on the interest carried by certain promissory notes taken by a moneylender in the course of his business, the interest being subsequently received by his executors. The Crown invited us to say that a parallel could be drawn in this case; that just as the promissory notes continued to produce interest or income, so do the copyrights created by an author, and that the copyrights themselves were income-bearing assets. In view of the decision inStainer's case the Crown were unable to argue that the deceased's contracts were themselves income-bearing assets. If we accept the Crown's contention, then the royalties would fall to be taxed under Cases III or VI as being receipts arising from a different source from those under Case II.
In our opinion Peter Cheyney derived his remuneration during his lifetime from his professional activities as an author in writing books, whether pursuant to agreements or otherwise. When he wrote them, either before or after entering into contracts, he created copyrights. It is our view that a copyright, whether in the manuscript of a book or a piece of music, has only...
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