Commissioners of Inland Revenue v Cook
| Jurisdiction | England & Wales |
| Judge | Lord Russell of Killowen,Viscount Maugham,Lord Simonds |
| Judgment Date | 30 July 1945 |
| Judgment citation (vLex) | [1945] UKHL J0730-3 |
| Court | House of Lords |
| Docket Number | No. 4. |
| Date | 30 July 1945 |
[1945] UKHL J0730-3
House of Lords
Viscount Maugham
Lord Thankerton
Lord Russell of Killowen
Lord Porter
Lord Simonds
After hearing Counsel, as well on Monday the 7th, as on Thursday the 10th, days of May last, upon the Petition and Appeal of the Commissioners of Inland Revenue, praying, That the matter of the Interlocutor set forth in the Schedule thereto, namely, an Interlocutor of the Lords of Session in Scotland, of the First Division, sitting as the Court of Exchequer, of of the 23d of March 1944, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Interlocutor might be reversed, varied, or altered, or that the Petitioners might have such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of Miss Minnie Cook, lodged in answer to the said Appeal, and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, in the name of the House of Lords, by the Lords of Appeal sitting in the House of Lords during the Dissolution of Parliament, by virtue of a Writing by His Majesty the King under His Sign Manual, dated the 15th day of June 1945, pursuant to the provisions of the Appellate Jurisdiction Act, 1876, That the said Interlocutor, of the 23d day of March 1944, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondent the Costs incurred by her in respect of the said Appeal, such Costs to be taxed as between Solicitor and Client, in accordance with the agreement mentioned by the Lord Advocate, and the amount thereof to be certified by the Clerk of the Parliaments: And it is also further Ordered, That unless the Costs, certified as aforesaid, shall be paid to the party entitled to the same within One Calendar Month from the date of the Certificate thereof, the Cause shall be, and the same is hereby, remitted back to the Court of Session in Scotland, or to the judge acting as Vacation Judge, to issue such Summary Process or Diligence for the recovery of such Costs as shall be lawful and necessary.
My Lords,
This Appeal arises out of a claim by the Respondent for repayment of Income Tax for the year ended 5th April, 1940. The Inspector of Taxes objected to the claim made by the Respondent. The Respondent appealed to the Commissioners for the General Purposes of the Income Tax for the Division of Edinburgh against the said objection, and the General Commissioners by a majority allowed the appeal.
The Commissioners of Inland Revenue appealed to the Court of Session as the Court of Exchequer in Scotland against the determination of the General Commissioners allowing the Respondent's claim, and their Lordships of the First Division unanimously dismissed the appeal.
The facts are fully stated in the case for the opinion of the Court of Session, and it is not necessary to repeat them at length. I may perhaps summarise them by saying that the respondent is entitled under the will of her aunt, Mrs. Margaret Jessie Cook, who died on the 24th September, 1937, to an annuity at the rate of £100 per annum, payable at Whitsunday and Martinmas after the death of her aunt, which annuity was declared to be payable "free of all deductions including income tax and government duty." Accordingly, at each term of Whitsunday and Martinmas since the death of the testatrix the trustees have paid the sum of £50 to the respondent in respect of the annuity, and, when making payments, the trustees have given to the respondent a certificate, which is set out in the case. She had during these years no other income. The annuity was paid wholly out of income that had already been brought into charge to tax, and included in the sum brought into charge for the year in question was a gross sum of £153 16s. 11d., of which £100 was paid to the annuitant and £53 16s. 11d., being income tax on the gross sum at the standard rate in force (7s. in the £) was accounted for to the Inland Revenue. The respondent, as it turned out, had no income beyond the annuity for the year ended 5th April, 1940, and the figure at which exemption from payment of income tax was fixed was £125.
On 2nd January, 1940, the respondent lodged with the Inspector of Taxes a claim for the repayment of Income Tax for the year to 5th April, 1940. That claim shewed the respondent's total income from all sources as follows:—
| "Source of income. | Amount of income before deduction of tax. | Amount of Income Tax deducted. |
| Annuity of £100 per annum free of tax from Mrs. M. J. Forrest's Trust. | £153 16 11 | £53 16 11" |
The repayment claim form shewed that there were no charges on the respondent's income and repayment of £47 11s. 4d. of tax was claimed. That sum was made up as follows:—
| ( a) a personal allowance of tax at the full standard rate of 7s. on £100 … … | £35 | 0 | 0 |
| ( b) an allowance of two-thirds of tax at the standard rate of £53 16s. 11d. … | 12 | 11 | 4 |
| £47 | 11 | 4 |
These allowances had nowhere been taken into account. It is this claim by the respondent which was objected to by the Inland Revenue and which forms the only subject of the Appeal before your Lordships. It is to be noted that the trustees of the will are not parties and that questions as between them and the respondent are not directly before the Court. It is, however, the fact that for the years prior to the year ended 5th April, 1940, repayment of Income Tax was allowed in accordance with the claims of the Respondent.
On 2nd January, 1940, when the respondent lodged her claim for repayment for the year ending 5th April, 1940, the Inspector of Taxes learned that the respondent in fact handed over the returned tax to the Trustees and accordingly retained for her own use only the net sum of £100. He refused to allow her claim for £47 11s. 4d.
My Lords, it is not surprising that the Inland Revenue authorities have found it difficult to state the precise grounds on which they rely in contesting the respondent's claim. Abandoning the arguments they put forward before the Commissioners, the two main contentions which they supported (as amended) in the Court of Session are thus stated by the learned President:—
"Either the respondent, being entitled to an annuity of £100 plus income tax, if any. due by her in respect thereof, and being exempted from all liability to income tax, is not entitled to any repayment; or the proper method of dealing with her annuity and income tax, so far as the trustees were concerned, was that they should have tendered to her two sums amounting together to £65 per annum, in equal parts at Whitsunday and Martinmas, and a certificate showing that £35 had been paid by way of income tax in respect of the annuity so as to enable the respondent to recover £35."
The appellants, however, have now made an ex gratia offer to repay, not the sum of £47 16s. 11d., but the sum of £35. They submitted in their case that some confusion had been introduced into the appeal by this offer, and I am tempted to agree with this view. Their explanation of the offer is as follows:—
The appellants are prepared to make this ex gratia payment because the whole of the trust income having borne tax, the total available for distribution among the beneficiaries was diminished thereby. If the Trustees had followed the procedure laid down in Rule 19 of the Income Tax Act, 1918, they would have paid the respondent, not £100 in cash but £65 in cash and given her a certificate of deduction of tax for £35. This latter sum she could have recovered from the appellants, and she would then have had £100 in her hands. The Trustees did not follow this procedure, but the appellants are prepared to treat the case as one in which that procedure had been followed and to repay her £35 on the assumption that she would hand it over to the Trustees to replace the excess of £35 formerly paid by them to her.
This, it will be noted, implicitly reasserts the proposition that the Income Tax Acts make it illegal to pay an annuitant the amount of the annuity payable free from income tax at the dates specified in the will, which in my opinion would be an unhappy conclusion. I will explain later why I think it is incorrect.
I cannot deal with the above contentions of the Inland Revenue in better language than that used by the Lord President. He said:—
"I think that the first duty which lay upon the trustees, who were not embarrassed by an insufficiency of funds, was to obey the express instructions of the will and to pay directly to the respondent £50 at Whitsunday and £50 at Martinmas, £100 per annum in all. It would have been contrary to the terms of the will, and a breach of trust, if they had paid only £65 and had accompanied that payment with a certificate that £35 had been paid by way of tax. Moreover, I think that such a proceeding would have been contrary to the provisions of the Income lax Acts, and that it would have been without legal warrant. That disposes of one of the alternative contentions of the Crown before the Commissioners, although that alternative was not the one supported before us by the counsel for the Inland Revenue."
I will give reasons for agreeing with this view. In the form of the ex gratia offer the alternative in question seems still to be supported; but for the reason given by the Lord President the course suggested in the offer seems to me to be inadmissible.
The first alternative, however, has been further amended and is now framed in these terms:—
(1) The appellants contend that the total of the...
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