Commissioners of Inland Revenue v Duke of Westminster

JurisdictionEngland & Wales
JudgeLord Atkin,Lord Tomlin,Lord Russell of Killowen,Lord Macmillan,Lord Wright
Judgment Date07 May 1935
Judgment citation (vLex)[1935] UKHL J0507-1
Date07 May 1935
CourtHouse of Lords
Commissioners of Inland Revenue
Duke of Westminster

[1935] UKHL J0507-1

Lord Atkin.

Lord Tomlin.

Lord Russell of Killowen.

Lord Macmillan.

Lord wright.

House of Lords

After hearing Counsel, as well on Tuesday the 12th, as on Thursday the 14th and Wednesday the 20th, days of March last, upon the Petition and Appeal of the Commissioners of Inland Revenue, of Somerset House, Strand, W.C.2, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal, of the 2d of July 1934, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order might be reversed, varied, or altered, and that the Petitioners might have the relief prayed for in the Appeal, or 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 His Grace the Duke of Westminster, 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, by the Lords Spiritual and Temporal in the Court of Parliament of His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 2d day of July 1934, 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 him in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.

Lord Atkin .

My Lords,


In the year 1930 and in subsequent years the Respondent the Duke of Westminster executed a series of deeds in which he covenanted to pay to the several parties mentioned in the deed certain weekly sums for a period of seven years or the joint lives of the Parties. The recipients in all the cases in question were Persons then in the employ of the Respondent at fixed wages or salaries: and after the completion of the deeds continued in the employment and continued to receive such sums as with the sum payable by the deed made up the amount of the wages or salary payable before the deed and no more. The sums varied from 12s. to £2,000: the employment from gardener and laundryman to architect: and the past periods of employment from 4 years to 45. The Crown say that the payments made under the deed were made in the circumstances given in evidence as remuneration for services, and could not be deducted from the Respondent's total income for purposes of surtax. The Respondent says that the payments were annual payments which he was entitled to deduct. It is agreed between the parties that the question in this case is whether the payments were for remuneration of services or not: if the former the Respondent is chargeable: otherwise not. It is unnecessary, therefore, to trouble your Lordships with the various relevant sections and rules of the Income Tax Act, 1918, and subsequent Finance Acts. It is sufficient to say that your Lordships were satisfied that the admission was correct.


It was not, I think, denied, at any rate it is incontrovertible, that the deeds were brought into existence as a device by which the Respondent might avoid some of the burden of surtax. I do not use the word device in any sinister sense: for it has to be recognised that the subject, whether poor and humble or wealthy and noble, has the legal right so to dispose of his capital and income as to attract upon himself the least amount of tax. The only function of a court of law is to determine the legal result of his dispositions so far as they affect tax. In the present case Finlay J. affirming the Commissioners, decided in favour of the Crown: while the Court of Appeal have set aside that decision and given judgment in favour of the Respondent.


The Commissioners have taken six cases as typical in which the documents differ slightly in form, but in their opinion have the same effect. They chose for special example the case of Frank Allman, a gardener, and I will adopt the same course, though reference may have to be made later to some of the other instances.


The deed is in the following terms:—

This Deed of Covenant is made this Fourteenth day of August One thousand nine hundred and thirty between The Most Noble Hugh Richard Arthur Duke of Westminster D.S.O., (hereinafter called "the Duke") of the one part and Frank Allman of Vine Cottage Aldford near Chester Gardener in the Duke's service (hereinafter called "the Annuitant") of the other part.

Whereas in recognition of the services which for over twenty-seven years past the Annuitant has well and faithfully rendered to the Duke the Duke desires to make provision for the Annuitant in manner hereinafter expressed notwithstanding that the Annuitant may re-engage or continue in the service of the Duke in which event he will become entitled to remuneration in respect of such future service.

Now this Deed made in furtherance of the Duke's said desire and in consideration of the past services so rendered as aforesaid witnesses as follows:—

1. The Duke covenants to pay to the Annuitant as from the 2nd day of August One thousand nine hundred and thirty during the joint lives of himself and of the Annuitant or for a period of seven years the weekly sum of One pound eighteen shillings (amounting in each year to the sum of Ninety-eight pounds sixteen shillings) the first of such payments having fallen to be made on the 9th day of August 1930.

2. The said payment shall be made from time to time on such days for such periods and in such proportions as shall from time to time be mutually agreed upon by the parties hereto and in default of agreement shall be made in weekly payments on the Saturday of each week.

3. It is hereby expressly agreed that the said payments are without prejudice to such remuneration as the Annuitant will become entitled to in respect of such services (if any) as the Annuitant may hereafter render to the Duke.

In witness whereof the said parties to these presents have hereunto set their hands and seals the day and year first above written.


Counsel for the Respondent took the view that the period of the covenant was the joint lives or seven years whichever was the shorter: and that the deed was to be without prejudice to the recipient receiving full remuneration for his future services. I shall assume that this construction is correct. No contention was raised in the present case that the payments, though expressed to be weekly, were not annual payments within the Income Tax Act and Rules.


It will be convenient to consider the legal relations which would exist between the Duke and his servant on the supposition, which is that of the Respondent, that the deed came into force without any further agreement of any kind being made between the parties.


The servant was serving the Duke under a contract of employment under which he was entitled to receive an agreed monthly wage of we will suppose £3: which contract, would continue until terminated by notice or summarily or varied by agreement. On this footing when the deed came into operation the servant, remaining in the employment would be entitled to 38s. a week in addition to the 60s. wages, and it is obvious that so far from benefiting himself by avoiding income tax the Duke would be adding several thousand pounds annually to his expenditure. I conceive it to be self-evident that no single party to the transaction ever contemplated that the servant would in fact draw the full contract wages in addition to the 38s. under the deed. And in fact as we learn from the case the servant after the deed continued to receive weekly the exact former amount of his wages 60s., i.e., he received 38s. and such additional sum as made the total weekly payment the equivalent of his contractual wages. We are to assume however on the Respondent's contention that no contract was made modifying either the terms of the deed or the contract of employment. The position of the Duke therefore was that assuming the servant was content to draw only 60s. a week the Duke would remain at all times liable to pay to the servant the arrears of the contractual wages, i.e., 60s.—22s. in other words a sum equal to the payment under the deed. However long a time the service continued the servant would be entitled to this sum within the limit, if the Duke of Westminster chose to plead the Statute of Limitations, of six years arrears. The arrears would be a debt due to the servant and could be attached by any creditor of the servant, and would on death be assets of his which his personal representative would be bound to recover. It is perhaps worth mentioning that if in fact the Duke were only paying as wages 22s. peculiar results might follow if the wages were regulated by statute as by the Agricultural Wages Act or similar legislation: but as we have no evidence of such a position it is unnecessary to dwell on it. A nice question might also arise as to the amount which the Duke would be bound to tender as wages in lieu of notice.


The embarrassments however are not all on the Duke's side. One result to the servant, perhaps unexpected, would be that his total income having become 98s. a week he would incur liability to income tax, for salary or wages that he is entitled to but voluntarily forgoes must be included in his total income. And on what footing his "earnings" in his last employment would be calculated for purposes of workmen's compensation whether on 22s. or 60s. is a problem which I am glad we have not to decide.


Such being the position if the matter rested upon the deed and no more, it seems to me plain that the Duke's advisers were not prepared to leave him exposed to the liabilities I have mentioned. In every case before the deed became...

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