Carver v Duncan
| Jurisdiction | England & Wales |
| Judge | Lord Fraser of Tullybelton,Lord Diplock,Lord Roskill,Lord Brandon of Oakbrook,Lord Templeman |
| Judgment Date | 16 May 1985 |
| Judgment citation (vLex) | [1985] UKHL J0516-1 |
| Date | 16 May 1985 |
| Court | House of Lords |
[1985] UKHL J0516-1
House of Lords
Lord Fraser of Tullybelton
Lord Diplock
Lord Roskill
Lord Brandon of Oakbrook
Lord Templeman
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Templeman, and I agree with it.
I wish to add only two comments. First, like my noble and learned friends, Lord Diplock and Lord Roskill, I express no opinion whether the Crown's concession that the premiums on the gift protection policies in the Paul family settlement was rightly made. Secondly, I do not wish to be taken as impliedly deciding that the expenses "properly chargeable" (in the sense explained by Lord Templeman) to income under section 16(2)( d) of the Finance Act 1973 in a Scottish trust would fall to be regulated by English trust law, if there were a relevant difference between the laws of England and Scotland.
I would dismiss both appeals.
My Lords,
It is with unaffected diffidence that I find myself constrained to differ from my noble and learned friend, Lord Templeman, upon the true construction of section 16 of the Finance Act 1973 of which the subject-matter is the law of trusts — a field of English law with which I cannot lay claim to any special familiarity. My disagreement with the conclusion that he reached is limited to the chargeability to income tax at the additional rate of expenditure made out of income arising to trustees of trusts of the kind described in paragraph ( a) of section 16(2) (which for brevity I will refer to as "discretionary trusts") when that expenditure falls within the meaning of the word "expenses" as used in paragraph ( d) of the same subsection.
As Lord Templeman's speech embodies the conclusion reached by the majority of your Lordships and my own consists of a dissent to what is only a part of it, it would be wasteful for me to duplicate his narration of the relevant facts which give rise to the two appeals. Accordingly, my own speech has been drafted as if it were coming after his and did not, in deference to mere convention, precede it. I will, however, set out in full subsection ( 1) and (2) of the Finance Act 1973, upon the construction of which I differ from the rest of your Lordships:
"16. (1) So far as income arising to trustees is income to which this section applies it shall, in addition to being chargeable to income tax at the basic rate, be chargeable at the additional rate. (2) This section applies to income arising to trustees in any year of assessment so far as it — ( a) is income which is to be accumulated or which is payable at the discretion of the trustees or any other person (whether or not the trustees have power to accumulate it); and ( b) is neither (before being distributed) the income of any person other than the trustees nor treated for any of the purposes of the Income Tax Acts as the income of a settlor; and ( c) is not income arising under a trust established for charitable purposes only or income from investments, deposits or other property held for the purposes of a fund or scheme established for the sole purpose of providing relevant benefits within the meaning of section 26 of the Finance Act 1970; and ( d) exceeds the income applied in defraying the expenses of the trustees in that year which are properly chargeable to income (or would be so chargeable but for any express provisions of the trust)."
I start by observing that these appeals do not involve any tax avoidance scheme capable of attracting the new approach to the application of taxing statutes to business transactions which was initiated in Ramsay (W.T.) Ltd. v. Inland Revenue Commissioners [1982] A.C. 300 and developed in Inland Revenue Commissioners v. Burmah Oil Co. Ltd. [1982] S.T.C. 30 and Furniss v. Dawson [1984] A.C. 474. On the contrary, the trust instruments with which these two conjoined appeals are concerned were perfectly normal family settlements entered into long before income tax at an additional rate upon investment income was introduced into our fiscal system. So, for the purpose of deciding the instant appeals, only the ordinary principles of construction of taxing statutes are applicable to section 16 of the Finance Act 1973. Those principles are succinctly set out in the opinion of the Privy Council delivered by Lord Donovan in Mangin v. Inland Revenue Commissioners [1971] A.C. 739 [1971] A.C. 739, 746. For ease of reference I have labelled them A to D:
A. "First, the words are to be given their ordinary meaning. They are not to be given some other meaning simply because their object is to frustrate legitimate tax avoidance devices. As Turner 3. says in his (albeit dissenting) judgment in Marx v. Inland Revenue Commissioner [1970] N.Z.L.R. 182 [1970] N.Z.L.R. 182, 208, moral precepts are not applicable to the interpretation of revenue statutes."
B. "Secondly, ' … one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used': per Rowlatt J. in Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 K.B. 64 [1921] 1 K.B. 64, 71, approved by Viscount Simons L.C. in Canadian Eagle Oil Co. Ltd. v. The King [1946] A.C. 119 [1946] A.C. 119, 140."
C. "Thirdly, the object of the construction of a statute being to ascertain the will of the legislature it may be presumed that neither injustice nor absurdity was intended. If therefore a literal interpretation would produce such a result, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted."
D. "Fourthly, the history of an enactment and the reasons which led to its being passed may be used as an aid to its construction."
Principles A and B are sufficient in themselves to solve most disputed questions of construction of provisions contained in taxing statutes. Two conditions precedent must be satisfied before recourse may also be had to the principle C. The first of those conditions precedent is that the application of the actual language of the provision to the kind of factual circumstances with which the provision purports to deal, would lead to results so unjust or absurd that the court is driven inexorably to the conclusion that no parliament, whatever its political complexion, could have intended to bring them about. Parliament's long record of disparity of treatment of expenses in assessing the liability of various categories of taxpayers to taxes upon income makes the subject-matter of the words, as to whose meaning I differ from your Lordships, a weak candidate for satisfying the first condition precedent to having recourse to Lord Donovan's principle C.
The second condition precedent to having recourse to principle C is that the actual language used in the provision to be construed admits of an interpretation that would avoid the injustice or absurdity relied upon. For my part, for reasons that I shall elaborate, I think that to give to section 16(2)( d) the meaning for which the Revenue contend would involve so much distortion of the ordinary meaning of the actual words the draftsman used and so substantial an interpolation of other words as to be impermissible under the guise of judicial construction.
So too, if the problem of construction can be resolved by the application of principles A and B there is no room for resort to principle D, legislative history. The legislative history of sections 16, 17 and 18 of the Finance Act 1973 is referred to by Vinelott J. in his judgment in the instant cases [1983] 1 W.L.R. 494, 505, and had been subjected to more detailed examination by the same judge in Inland Revenue Commissioners v. Berrill [1981] 1 W.L.R. 1449 [1981] 1 W.L.R. 1449, 1459. Those sections form a subsidiary part of a radical change in the tax structure effected by the Finance Acts 1972 and 1973, which involved the abolition of earned income allowance and surtax and the substitution of a basic rate of income tax, lower than the former standard rate, progressive higher rates on higher incomes and additional rate tax on investment income, i.e. income other than earned income. In a comparison of the way in which the expenses of trustees would be dealt with for the purpose of assessing additional rate tax under a trust falling outside section 16 because it vested a life interest in a beneficiary the payment of which the trustees had no discretion to withold, Vinelott J. was able to discern in the application of the actual words of paragraph ( b) in their literal sense a legislative policy that was neither unjust nor unfair. Since, for my part, I think the meaning of the actual words in paragraph ( d) are in themselves too clear to justify resort to legislative history as an aid to their interpretation, the significance of Vinelott J.'s analysis is that it shows that legal minds experienced in the law of tax and trusts may form different views as to the policy which the paragraph was meant to serve.
The structure of section 16 is that the charge to income tax at the additional rate ("additional rate tax") upon some kinds of income arising to trustees is imposed by subsection (1). Subsection (2) defines the characteristics of the income upon which the change to additional rate tax is so imposed. The definition of those characteristics is to be found in paragraphs ( a) to ( d), and the definition contemplates that some of the income arising to trustees under a single trust instrument (other than a trust for charitable...
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