Commissioners of Inland Revenue v Holder (Sir H. C.)
| Jurisdiction | England & Wales |
| Judge | Viscount Dunedin,Lord Atkin,Lord Thankerton,Lord Macmillan,. |
| Judgment Date | 15 April 1932 |
| Judgment citation (vLex) | [1932] UKHL J0415-1 |
| Date | 15 April 1932 |
| Court | House of Lords |
[1932] UKHL J0415-1
House of Lords
Viscount Dunedin.
Lord Warrington of Clyffe.
Lord Atkin.
Lord Thankerton.
Lord Macmillan.
After hearing Counsel, as well on Monday the 7th, as on Tuesday the 8th, Thursday the 10th and Friday the 11th, days of March last, upon the Petition and Appeal of Sir Henry Charles Holder, Baronet, of Enborne Lodge, Newbury, in the County of Berks, and John Alexander Holder of Keeping, Beaulieu, in the County of Hants, 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 11th of March 1931, might be reviewed before His Majesty the King, in His 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 His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed 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, 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 11th day of March 1931, 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 Appellants were interested in a Company called Blumfield Limited (hereinafter referred to as "the Company") which had for many years been indebted to its Bankers.
The Appellants, in some cases individually and in others jointly and severally, gave Guarantees to the Bank to secure the Company's indebtedness.
The Appellants undertook thereby "to pay and satisfy to the Bank all and every the sum or sums of money which shall at any time be owing to the Bank···············on any account··············· together with···············all interest, discount and other Bankers' charges." The total liability ultimately enforceable against the Guarantor or Guarantors under each Guarantee was limited to a definite sum.
From 1920 onwards, the Company was continuously indebted to the Bank and, in accordance with the usual custom of Bankers, the interest on the amounts owing to the Bank from time to time was debited half-yearly to the Company's capital account with the Bank. Though from time to time payments were made by the Company into the account, the amount due to the Bank increased each half year save that ending 31st December, 1924.
After being pressed by the Bank to discharge the Company's indebtedness, the Appellants on the 17th November, 1926, paid to the Bank the sum due on the Company's account, this sum being covered by the Guarantees that had been given by the Appellants. The sum paid by the Appellants was £64,482 16s. 8d.
By examination of the Bank accounts the Appellants contend that it can be shown that, of this sum, £16,519 18s. 4d. represents interest added as aforesaid to the half-yearly rests and £1,341 18s. 1d. represents the interest due on the current half year in which the whole sum was paid. They accordingly made a claim against the Commissioners of Inland Revenue for that whole sum. The claim was founded on Sub-section 1 of Section 36 of the Income Tax Act, 1918, which is as follows:—
"Where interest payable in the United Kingdom on an advance from a bank carrying on a bona fide banking business in the United Kingdom is paid to the bank without deduction of tax out of profits or gains brought into charge to tax, the person by whom the interest is paid shall be entitled, on proof of the facts to the satisfaction of the Special Commissioners, to repayment of tax on the amount of the interest."
Their claim was disallowed but, on appeal to the Special Commissioners they allowed it. A stated case was asked and, upon the stated case, Rowlatt J. affirmed the judgment of the Special Commissioners. Appeal being taken to the Court of Appeal, they reversed the judgment of Rowlatt J. and of the Special Commissioners.
The Court of Appeal approached the case first of all from the point of view of whether the great bulk of the sums paid was really interest at all, or whether the half-yearly interests, as they became due and were, according to the practice of the Bank, added to the capital so that interest might run on the whole sum, did not lose their quality of interest by having become capital.
There is no question that in the case of Reddie v. Williamson, in Scotland, 3 M. 228 it was so laid down by the Lord Justice Clerk, as he then was (Inglis), better known to English Lawyers as Lord President Inglis; but it was argued by counsel for the Plaintiffs that that was not the law in England. The Court of Appeal held that it was consonant to English law. This view, although it determined the case as to the greater part of the sum paid, did not determine the question of the £1,341 odd, the current interest for the last half year. This point also the Court of Appeal decided against the Plaintiff upon the ground that Section 36 did not apply to the case in point of a guarantor paying money under his guarantee. The Court of Appeal did not accentuate the fact that, if their view on this point was right, it disposed of the whole case without the question of the first point at all.
I am of opinion that on this point, first really for consideration although taken second by the Court of Appeal, their judgment is right. I agree with the view of the Master of the Rolls. I think that interest payable on an advance from a Bank means interest on an advance made to the person paying. The guarantor does not pay on an advance made to him but pays under his guarantee. It is true that he pays a sum which pays all interest due by the person to whom the advance is made, but his debt is his debt under the guarantee, not a debt in respect of the advance made to him. That disposes of the whole case, and I think it was therefore unnecessary to decide the other and wider question, and I say so because I think it would be very advisable, if that question is to be determined, that the Bank in question should be a party to the suit. That is my only reason for thinking it better not to decide the question. It must not be inferred at all from this view that I express any doubts as to the soundness of the judgment of the Court of Appeal on this point. I move that the Appeal be dismissed with costs.
My Lords,
There are two questions of importance in this case. The first is whether when a person has had an overdraft with his bank for a number of years kept in the ordinary way by which interest at the end of each half-year is added to the total sum then due and interest charged on that total sum, the person who pays the accumulated overdraft at the end of three or four years has paid interest on the overdraft for those years. The second is whether if he has, a guarantor of the advance with interest who pays the total sum due can be said to be "the person by whom the interest is paid" within the meaning of sect. 36 (1) of the...
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