Commissioners of Inland Revenue v Countess of Kenmare
| Jurisdiction | England & Wales |
| Judgment Date | 25 July 1957 |
| Date | 25 July 1957 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Surtax - Foreign settlement of property in United Kingdom - Settlor and trustees non-resident - Power to revoke or determine - Finance Act, 1938 (1 & 2 Geo. VI, c. 46), Sections 38 (2) and 41 (4) (a).
By a settlement dated 24th September, 1947, executed in Bermuda andy expressed to be governed by the law thereof, the Respondent, who at the material times was not resident or ordinarily resident in the United Kingdom, transferred securities in the United Kingdom of the value of £700,000 to non-resident trustees. The trustees were directed during the Respondent's life to pay the trust income to her or accumulate it in their discretion and after her death to hold the fund on trusts for her issue. The settlement further provided that the trustees might at any time and from time to time during the Respondent's lifetime declare in writing that any part of the fund, not exceeding an aggregate of £60,000 in value in any triennial period, should thenceforth be held in trust for her absolutely, and that thereupon the trusts thereinbefore declared concerning that part should forthwith determine. The whole income of the fund for the period from 24th September, 1947, to 5th April, 1948, was within that period distributed to the Respondent in the exercise of the trustees' discretion.
The Respondent was assessed to Surtax for the year 1947-48 on the footing that the trust income fell to be treated as her income under Section 38 (2) of the Finance Act, 1938. On appeal to the Special Commissioners the Respondent contended (a) that the United Kingdom Legislature had no jurisdiction to impose a charge to Surtax on her in respect of income which did not arise to her, she being a non-resident; (b) that the provisions of Section 38 did not apply to the settlement because the trustees were not resident, and (c) that the settlement was not revocable, the powers given to the trustees being exercisable only within its framework. For the Crown it was contended that the jurisdiction of the United Kingdom Legislature could not be called in question, and that the settlement was revocable in view of the trustees' power to take out the funds by successive stages. The Special Commissioners, while rejecting the Respondent's contention (b) and without deciding whether the settlement was revocable, allowed the appeal on the ground that, being outside the jurisdiction of the United Kingdom
Legislature at the material time, the Respondent was not liable to Surtax in respect of income her title to which depended on the trustees' discretionHeld, (1) that in regard to income from property in the United Kingdom no limits could be put on the provisions of Section 38;
(2) that the power given to the trustees might enable them to determine the settlement by exhausting the trust fund during the settlor's lifetime.
Stated under the Income Tax Act, 1952, Sections 229 (4) and 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 21st January, 1954, the Rt. Hon. Enid Countess of Kenmare (hereinafter called "the Respondent") appealed against an assessment to Surtax made upon her in the sum of £47,190 for the year 1947-48. The sole question for our determination was whether the income on certain trust funds settled by the Respondent under a settlement dated 24th September, 1947, fell to be treated as the Respondent's income for the purposes of Surtax under the provisions of Section 38 (2), Finance Act, 1938.
2. The said deed of settlement dated 24th September, 1947 (hereinafter called the "Bermudan settlement") (exhibit K(1) ), and an income account for the period 24th September, 1947, to 5th April, 1948 (exhibit L(1) ) were produced in evidence before us.
The facts agreed between the parties and as found by us are stated in the following paragraph 3.
(i) The Respondent was neither resident nor ordinarily resident in the United Kingdom after 7th August, 1947. The Bermudan settlement was made after the Respondent had ceased to be resident or ordinarily resident in the United Kingdom and the trustees of that settlement were not at any material time resident in the United Kingdom.
(ii) Immediately prior to 24th September, 1947, the Respondent was absolutely and beneficially entitled to certain stocks, shares and securities in the United Kingdom the income from which was liable to United Kingdom Income Tax and Surtax in her hands. By the Bermudan settlement, which was executed in Bermuda and expressed to be governed by the law thereof, the Respondent transferred the said stocks, shares and securities (which are more particularly mentioned in the schedule thereto) to trustees and directed that they should
in their absolute discretion pay the income (or such part thereof in their absolute discretion as aforesaid) of the Scheduled investments and of the property for the time being representing the same (hereinafter called "the Trust Fund")
(iii) to the Respondent during her life. Under Clause 3
After the death of the Settlor [the Respondent] the Trustees shall stand possessed of the capital…and future income of the Trust Fund In Trust for all or such one or more exclusively of the others or other of the children or remoter issue of the Settlor
(iv) in the manner therein indicated.
(v) Under clause 5
the Trustees if they in their absolute discretion think fit may at any time and from time to time during the lifetime of the Settlor…declare that any part of the Trust Fund not exceeding the amount hereinafter mentioned shall thenceforth be held In Trust for the Settlor absolutely.... Provided Always that the foregoing power shall not be exercisable by the Trustees so as to vest in the Settlor in any period of three years…a part or parts of the Trust Fund or property of a value or aggregate value exceeding £60,000 of the currency of the Islands of Bermuda.
(vi) It was further provided that, if this power should not be exercised to the full extent of £60,000 in any period of three years, the deficiency could be carried forward to increase the amount in respect of which the power might be exercised in any succeeding period of three years.
(vii) The whole of the income arising for the period from 24th September, 1947, to 5th April, 1948, from the trust fund was within that period awarded by the trustees to the Respondent in the exercise of their discretion by putting it at her disposal in an account (exhibit L) and accordingly it was not contended by the Appellants that Section 38 (3) of the Finance Act, 1938, was applicable.
4. It was contended on behalf of the Commissioners of Inland Revenue:
(i) that the income arising under the Bermudan settlement was caught by Part IV, Finance Act, 1938, and in particular by the provisions of Section 38 (2) thereof;
(ii) that the jurisdiction of the United Kingdom Legislature could not be called in question;
(iii) that the fact, which was admitted, that the Respondent was neither resident nor ordinarily resident in the United Kingdom at the material time was irrelevant;
(iv) that the fact, which was admitted, that the trustees of the Bermudan settlement were not resident in the United Kingdom was irrelevant;
(v) that the provisions of Section 38 (2) referred to the income arising under the Bermudan settlement from the trust fund comprised in the settlement, and the amount of income which the trustees might see fit to distribute and the nature of the Respondent's interest in the settlement were irrelevant;
(vi) that on a proper construction of clause 5 of the Bermudan settlement the said settlement was revocable in view of the power given to the trustees to take out of the settlement, by successive stages, the funds comprised in the settlement;
(vii) that on the exercise of the power the Respondent as settlor would become beneficially entitled to the whole or part of the trust fund then comprised in the Bermudan settlement;
(viii) that the Respondent was correctly assessable to Surtax for the year 1947-48 in respect of the income arising from the trust fund comprised in the Bermudan settlement during the period from 24th September, 1947, to 5th April, 1948, which was to be treated as her income under Section 38 (2).
5. It was contended on behalf of the Respondent:
(i) that the income arising under the Bermudan settlement was not caught by Part IV, Finance Act, 1938, and in particular by the provisions of Section 38 (2);
(ii) that the United Kingdom Legislature had no jurisdiction to impose a charge to Surtax on the Respondent in respect of income which did not arise to her, she being a non-resident;
(iii) that the provisions of Section 38 had no application to the income arising from the Bermudan settlement, the trustees of which being non-resident were outside the jurisdiction of the United Kingdom Legislature;
(iv) that on the proper interpretation of Section 38 (5) and Paragraph 1, Part I, Third Schedule, Finance Act, 1938, an effective right of recovery by the Respondent of Surtax with which she might become chargeable was a condition precedent to the imposition of a charge to Surtax;
(v) that no such right of recovery could be exercised and enforced against the trustees of the Bermudan settlement because they were outside the jurisdiction of the Courts of the United Kingdom;
(vi) that on a proper construction of clause 5 of the Bermudan settlement the said settlement was not revocable, the powers therein given to the trustees being exercisable only within the framework of the settlement;
(vii) that the Respondent was not liable to be assessed to Surtax for the year 1947-48 in respect of income arising from the trust fund comprised in the Bermudan settlement.
6. We, the Commissioners who heard this appeal, decided...
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Jamieson v Commissioners of Inland Revenue
...Judge based his decision on the ground that the present case is governed by Kenmare v. Commissioners of Inland Revenue, [1958] A.C. 267; 37 T.C. 383. In my view, however, theKenmare case is distinguishable, partly perhaps because it was decided under a different Section of the Act (Section ......
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Jamieson v Commissioners of Inland Revenue
... ... 17 Mr. Justice Plowman applies to this case the decision and reasoning of ( Kenmare v. C. I. R. 1958 A. C., 267 ), and his judgment makes the closeness of the application apparent. It is not in itself conclusive, for the nmare case ... I. R. v. Countess of Kenmare 1958 A. C., 267 ) necessarily involved a different conclusion. The rival arguments on this point are the same in each of the two appeals, ... ...
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Jamieson v Commissioners of Inland Revenue
...Judge based his decision on the ground that the present case is governed by Kenmare v. Commissioners of Inland Revenue, [1958] A.C. 267; 37 T.C. 383. In my view, however, theKenmare case is distinguishable, partly perhaps because it was decided under a different Section of the Act (Section ......