Commissioners of Inland Revenue v Coathew Investments Ltd
| Jurisdiction | England & Wales |
| Judge | Viscount Dilhorne,Lord Cohen,Lord Hodson,Lord Guest,Lord Upjohn |
| Judgment Date | 31 March 1966 |
| Judgment citation (vLex) | [1966] UKHL J0331-1 |
| Date | 31 March 1966 |
| Court | House of Lords |
[1966] UKHL J0331-1
House of Lords
Viscount Dilhorne
Lord Cohen
Lord Hodson
Lord Guest
Lord Upjohn
Upon Report from the Appellate Committee, to whom was referred the Cause Coathew Investments Limited against Commissioners of Inland Revenue, that the Committee had heard Counsel as well on Monday the 28th day of February last, as on Tuesday the 1st day of this instant March, upon the Petition and Appeal of Coathew Investments Limited, of 12 Tokenhouse Yard, London, E.C.2, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 29th of January 1965, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of the Commissioners of Inland Revenue, 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 Her Majesty the Queen under Her Sign Manual, dated the 10th day of March 1966, pursuant to the provisions of the Appellate Jurisdiction Act 1876, That the said Order of Her Majesty's Court of Appeal, of the 29th day of January 1965, 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 Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
The Appellant Company is an investment company to which section 262 of the Income Tax Act, 1952, applies. So far as material that section reads as follows:
"262.—(1) Subject to the provisions of this section with respect to companies with estate or trading income, the whole of the actual income from all sources, for every year of assessment, of every investment company to which section two hundred and forty-five of this Act applies shall, however much or however little thereof has been distributed to its members, be deemed for the purposes of assessment to surtax to be the income of the members of the company, and accordingly the Special Commissioners shall give a direction under the said section two hundred and forty-five in respect of each year of assessment in relation to every such company without considering whether or not the company has distributed a reasonable part of its said income….
Provided that—
( a) No deduction shall be allowed in computing the actual income from all sources of the company which would not be allowable in computing the total income of an individual for the purposes of this Act, other than deductions for any profits tax payable by the company or for any such sums disbursed by the company as expenses of management as the Special Commissioners consider reasonable, having regard to the requirements of the company's business and, in the case of directors' fees or other payments for services, to the actual services rendered to the company;…"
The actual income of the Appellant company had, therefore, to be deemed for the purposes of assessment to surtax to be the income of the members of the company.
On the 30th March, 1955, the Appellant company entered into a Deed of Covenant whereby it undertook to pay the Dominion Students' Hall Trust the sum of £1,450 a year less income tax for seven years commencing on the 31st March, 1955.
The only question for determination in this appeal is whether the actual income of the company included or excluded this sum of £1,450.
It was common ground that if the covenant had been made by an individual, the income received by the Dominion Students' Hall Trust would, by virtue of section 415(1) of the Income Tax Act, 1952, have had to be treated for the purposes of surtax as the income of the individual who entered into the covenant.
Section 415(1) reads as follows:
"Where, during the fife of the settlor, income arising under a settlement made on or after the tenth day of April, nineteen hundred and forty-six, is, under the settlement and in the events that occur, payable to or applicable for the benefit of any person other than the settlor, then, unless, under the settlement and in the said events, the income either
( a) is payable to an individual for his own use; or
( b) is applicable for the benefit of an individual named in that behalf in the settlement, or of two or more individuals named in that behalf therein; or
( c) is applicable for the benefit of a child or children of an individual named in that behalf in the settlement; or
( d) is income from property of which the settlor has divested himself absolutely by the settlement; or
( e) is income which, by virtue of some provision of this Act not contained in this Chapter, is to be treated for the purposes of this Act as income of the settlor,
the income shall be treated for the purposes of surtax as the income of the settlor and not as the income of any other person…."
Section 411(2) of the Act defines a settlement as including any covenant and a settlor as meaning any person by whom the settlement is made.
Mr. Heyworth Talbot for the Appellant company contended that the fact that section 415(1) required, in the cases in which it applied, that the income of the settlement should for surtax purposes be treated as the income of the individual who made it, did not mean that a deduction of the amount paid by the settlor ceased to be allowable as a deduction when computing his income. Where, he said, it was intended to prohibit a deduction, that was clearly stated. He referred to section 407(1) of the Act which states:
"Where, by virtue or in consequence of any settlement to which this section applies, the settlor pays … any sums which would, but for this subsection, be allowable as deductions in computing his total income for that year for the purposes of surtax, those sums shall not be so allowable…."
Section 415(1) did not, he argued, prohibit the deduction by an individual of the amount he had covenanted to pay when computing his income. Its effect was, he said, to nullify the deduction by requiring the amount received under the covenant to be added to his income.
He therefore maintained that as, despite the enactment of section 415(1), the amount received annually by the Dominion Students' Hall Trust would have been deductible if the covenant had been made by an individual, the proviso to section 262 did not prevent that sum being deducted in computing the actual income of the Appellant company. The words "during the life of the settlor" in that section showed, he submitted, that that section was not intended to apply where the settlor was a company, and the words "actual income" in section 262, he submitted, excluded income that was to be deemed or treated as the income of the taxpayer.
I see no reason to conclude that "actual income" was intended to exclude income required by statute to be treated as the income of the taxpayer.
As I have said, section 411(2) defines a settlor as meaning any person by whom a settlement is made. Unless a contrary intention appears, a person includes a body corporate (Interpretation Act, 1889, section 19). I doubt if the use of the words "during the life of the settler" suffices to indicate a contrary intention. If they do not, section 415(1) requires the amount received under the covenant to be treated as the income of the Appellant company.
It is not, in my opinion, necessary to reach a conclusion on this for, despite the ingenious argument advanced by Mr. Heyworth Talbot, I have come to the conclusion that although the language of sections 407 and 415(1) is different, its effect is the same, namely, to prevent certain deductions being allowable.
Willmer L.J. in the course of his judgment said:
"In the case of an individual making payments under a covenant such as that in the present case, section 415 says that such payments are to be treated for surtax purposes as his income. That means that he is not allowed to say for surtax purposes that his income is diminished by the amount of those payments. In other words, the plain meaning is that he is not allowed for surtax purposes to deduct the payments from what would otherwise be his total income for surtax purposes."
Pearson L.J., as he then was, put the matter even more succinctly when he said:
"If that income is to be treated as the income of the settlor, it must follow that it is not an allowable deduction".
I agree with them. Not being an allowable deduction in the case of an individual, the proviso to section 262 prevents it being deducted in computing the actual income of the Appellant company.
Mr. Heyworth Talbot placed some reliance on the provisions of the 24th Schedule of the Income Tax Act, 1952. Section 524(2) of that Act requires any person delivering a statement of...
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