Commissioners of Inland Revenue v Oswald
| Jurisdiction | England & Wales |
| Judge | Lord Thankerton,Lord Russell of Killowen,Lord Macmillan,Lord Porter,Lord Simonds |
| Judgment Date | 19 April 1945 |
| Judgment citation (vLex) | [1945] UKHL J0419-2 |
| Date | 19 April 1945 |
| Court | House of Lords |
[1945] UKHL J0419-2
Lord Thankerton
Lord Russell of Killowen
Lord Macmillan
Lord Porter
Lord Simonds
House of Lords
After hearing Counsel as well on Monday the 12th, as on Tuesday the 13th and Wednesday the 14th, days of March last, upon the Petition and Appeal of the Commissioners of Inland Revenue, of Somerset House, Strand, London, 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 16th of March 1944, except so far as it relates to costs, might be reviewed before His Majesty the King, in his Court of Parliament, and that the said Order, except so far as aforesaid, 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 Major K. A. Oswald, D.S.O. (the Trustee of the Cosier Settlement), 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 16th day of March, 1944, complained of in the said Appeal, except so far as aforesaid, be, and the same is hereby, Reversed, and that the Assessment be, and the same is hereby, upheld: And it is further Ordered, That the Cause be, and the same is hereby, remitted back to the Commissioners for the Special Purposes of the Income Tax Acts, to adjust the amount of the said Assessment, in accordance with the decision of this House: And it is further Ordered, That in pursuance of the undertaking given on behalf of the Appellants, the Appellants do pay, or cause to be paid, to the said Respondent the Costs incurred by him in respect of the said Appeal to this House, such Costs to be taxed as between Solicitor and Client, and the amount thereof to be certified by the Clerk of the Parliaments: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the King's Bench Division of the High Court of Justice, to do therein as shall be just and consistent with this Judgment.
Lord Thankerton (READ BY LORD MACMILLAN)
My Lords,
This Appeal arises on a case stated by the Special Commissioners, who had discharged an assessment to Income Tax for the year ended 5th April, 1940, on the Respondent, as sole surviving trustee of the Cosier Settlement, in the sum of £6,500, made under Rule 21 of the General Rules applicable to Schedules A, B, C, D and E of the Income Tax Act, 1918. The decision of the Special Commissioners has been affirmed in both Courts below.
While the facts are fully set out in the case, and the relevant documents are printed in the appendix thereto, the facts material to the decision of this Appeal may be stated as follows:—In 1899 Mrs. Elfrida Beyfus, who may be referred to as the borrower, mortgaged a reversionary interest to which she was entitled under a deed of settlement dated 8th June, 1885, which may be referred to as the Cosier Settlement, to Mrs. Emma Louise Liberty, who may be referred to as the mortgagee, to secure the sum of £2,300 with interest at 5 per cent. per annum. In 1901 the borrower further charged her reversionary interest to the mortgagee to secure a further advance of £500 with interest at 5 per cent. In 1905 the borrower assigned to Jonas Wolfe and certain other parties the sum of £500, part of her reversionary interest, but subject to the mortgages of 1899 and 1901.
On the 18th May, 1905, the borrower executed a further charge of her reversionary interest to the mortgagee to secure a further advance of £300, and it was thereby provided that interest on the three sums of £2,300, £500 and £300 should thenceforth be paid at the rate of 5 1/2 per cent., subject to a proviso for the reduction of the rate to 5 per cent. on punctual payment. This further charge contained the following provision:—
"And it is hereby further agreed and declared that all interest which shall fall due on the said sums of £2,300 £500 and £300 whether by virtue of the foregoing covenants or the covenants contained in the hereinbefore recited indentures and shall not be paid within twenty-one days after the dates thereby and hereby appointed for payment thereof may at the option of the mortgagee be capitalised as from such last mentioned appointed date and be added to the principal moneys hereby secured so as to form one aggregate sum charged on the property hereby mortgaged and carrying interest at the rate aforesaid and the mortgagor doth hereby covenant with the mortgagee to pay to the mortgagee the interest on such capitalised interest at the rate aforesaid on the aforesaid days therein before and herein appointed for payment of interest and nothing in this proviso contained shall prevent the mortgagee notwithstanding the capitalisation of the interest from subsequently exercising all the rights powers and privileges of a mortgagee as if the interest had not been paid or capitalised and it shall be lawful for the mortgagee to treat a portion of the interest as capitalised and a portion as if no option as aforesaid had been expressed by the mortgagee."
Interest was paid on the advances up to 18th August, 1906, but after that date no interest was paid at least up to 9th August, 1935.
The mortgagee died on 2nd May, 1920, and the borrower died on 11th January, 1933. No representation was taken out to the borrower's estate, but the will and codicils of the mortgagee were duly proved by H. C. Blackmore and V. W. G. Ranger, the surviving executors nominate. On 9th August, 1935, Messrs. Blackmore and Ranger, who may be referred to as Lady Liberty's trustees, executed an instrument whereby, in exercise of the power conferred by the indenture of further charge dated 18th May, 1905, they capitalised as from 18th May, 1935, so much of the interest fallen due on the principal sums of £2,300, £500 and £300 as was then capable of being capitalised and added the interest so capitalised to the principal sums so as to form one aggregate sum charged on the property mortgaged by the said indenture of further charge and carrying interest at the rate thereby provided.
On 29th June, 1938, the borrower's reversionary interest under the Cosier Settlement fell into possession.
On 13th September, 1938, Lady Liberty's trustees executed a further instrument under which they capitalised in similar terms as from 18th August, 1938, so much of the interest fallen due on ( a) the principal sums of £2,300, £500 and £300, and ( b) the interest previously capitalised as was then capable of being capitalised by virtue of the provisions of the further charge dated 18th May, 1905.
Following negotiations, an agreement was arrived at and was embodied in heads of agreement dated 20th July, 1939, between Lady Liberty's trustees and the Cosier trustees, of whom the Respondent was one. It will be necessary to refer to the provisions of these heads of agreement in relation to a minor contention of the Respondent.
The main question is whether by virtue of the two instruments dated 9th August, 1935, and 13th September, 1938, whereby the Liberty trustees exercised the option conferred by the indenture of further charge dated 18th May, 1905, the unpaid interest so capitalised was paid within the meaning of Rule 21 of the General Rules applicable to all Schedules, the material part of which provides as follows,
"21.—(1) Upon payment of any interest of money, annuity or other annual payment charged with tax under Schedule D, or of any royalty or other sum paid in respect of the user of a patent, not payable, or not wholly payable out of profits or gains brought into charge, the person by or through whom any such payment is made shall deduct thereout a sum representing the amount of the tax thereon at the rate of tax in force at the time of the payment."
The Special Commissioners, Lawrence J. and the Court of Appeal have all held that the present case is ruled by the decision of the Court of Appeal in Commissioners of Inland Revenue v. Lawrence, Graham & Company [1937] 2 K.B. 179, 21 T.C. 158, which has not been previously considered by this House. The Crown challenge the correctness of that decision, and I shall now deal with it. That case related to a mortgage and two further charges on the security of a reversionary interest; the mortgage contained a provision for the automatic conversion of unpaid half-yearly interest into principal money, carrying interest. Except that the clause operated automatically instead of resting on the optional exercise of a power, as in the present case, I find no material difference between the cases as regards the present question, nor can I see that that difference affects the decision of the present question. In both cases the Court of Appeal considered on construction whether the sum to be capitalised was the gross amount of interest or the net sum—i.e. after deduction of Income Tax, and in both cases the Court of Appeal has held that it was the net sum. But, my Lords, it seems to me, with all respect to the learned Judges, to be idle to consider that question until and unless you have found that there was a payment of interest within the meaning of Rule 21 at the time of the capitalisation, as otherwise you cannot find "the amount of the tax thereon at the rate of tax in force at the time of the payment." In Lawrence, Graham & Company's case the judgment of the Court (Lord Wright M.R., Romer and Greene LL.J.) was delivered by Romer L.J., and it will suffice to quote one passage from the judgment, at page 195,
"Turning once more to the Rule it will be seen that it imposes on every such person an obligation to deduct out of the...
To continue reading
Request your trial
-
National Bank of Greece S.A. (Appellants) v Pinios Shipping Company No. 1 and Another (Respondents)
...with the usual practice of banks in the United Kingdom in relation to short loans and overdrafts." 41 Subsequently, in Inland Revenue Commissioners v. Oswald [1945] A.C. 360, 379, Lord Porter referred to Paton v. Inland Revenue Commissioners. as being a case in which the contract, under whi......
- UMBC v Pekeliling Triangle Sdn. Bhd
- Federal Commissioner of Taxation v the Midland Railway Company of Western Australia Ltd (No 1)
- Malayan Banking Bhd; Tan Fong Guan and Others