Commissioners of Inland Revenue v Frere
| Jurisdiction | England & Wales |
| Judgment Date | 19 November 1964 |
| Date | 19 November 1964 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Surtax - Total income - Deduction - Interest other than annual interest.
On 28th March, 1957, F borrowed £50,000 repayable with interest not later than 31st January, 1958, and on 14th August, 1958, he borrowed £40,000 repayable with interest within approximately one month. The first loan was repaid on 3rd December, 1957, with interest of £2,211, and the second on 17th September, 1958, with interest of £186. In neither case did the lender carry on business as a bank, discount house or member of a stock exchange in the United Kingdom.
On appeal against the rejection by the Commissioners of Inland Revenue of a claim to relief from Surtax in respect of an error or mistake in his return for the year 1957-58, and against an assessment to Surtax for the year 1958-59, F contended that the interest was deductible in computing his total income. The Special Commissioners allowed the appeal.
Held, that the deduction claimed was inadmissible.
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.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 20th March, 1962, Mr. Philip B. Frere appealed against:
(2) the refusal of the Commissioners of Inland Revenue to allow his claim for relief from Surtax for the year 1957-58, under Section 66 of the Income Tax Act, 1952, as extended by Section 229(5) of the same Act; and
(3) an assessment to Surtax made upon him for the year 1958-59 in the sum of £11,000.
The only question for our determination in the case of both appeals was the same, viz, whether certain "short" loan interest paid by Mr. Frere to Model Roland and Stone Co. was an admissible deduction from Mr. Frere's total income for Surtax purposes.
2. The following facts were agreed or proved:
(2) Mr. Frere was at all material times a partner in the firm of Wigram & Co., solicitors.
(3) On 28th March, 1957, Mr. Frere borrowed a sum of £50,000 from an unlimited company called Model Roland and Stone Co., under an oral agreement that the money should be repaid not later than 31st January, 1958, together with interest thereon from the date of borrowing to the date of repayment, at a rate equal to 1/2% per annum above bank rate, with a minimum rate of 6% per annum.
(4) On 3rd December, 1957, Mr. Frere repaid the said sum of £50,000. Interest at the agreed rate, amounting to £2,210 19s. 2d., was paid by him to Model Roland and Stone Co., without deduction of Income Tax, on 17th December, 1957.
(5) On 11th July, 1958, Model Roland and Stone Co., having been informed by the Inspector of Taxes that they were not carrying on a banking business within the meaning of Section 200 of the Income Tax Act, 1952, paid Mr. Frere a sum of £939 13s. 2d.representing Income Tax at 8s. 6d. in the £ computed on the said sum of £2,210 19s. 2d.
(6) On 23rd December, 1958, Mr. Frere made a return of income for the year ended 5th April, 1958. By inadvertence he omitted to include the said interest paid, amounting to £2,210 19s.2d., in the charges on income shown in that return. For the year 1957-58 he was assessed to, and paid, Surtax on a total income of £17,020 computed without deducting the said sum of £2,210 19s. 2d.
(7) On 28th April, 1961, Mr. Frere applied to the Commissioners of Inland Revenue (under Sections 66 and 229(5) of the Income Tax Act, 1952) for relief in respect of such Surtax paid, on the ground that the assessment was excessive by reason of an error or mistake in the said return of income made by him, in that he omitted to show the said sum of £2,210 19s. 2d. as a charge on his income. The Commissioners of Inland Revenue refused to grant relief.
(8) On 14th August, 1958, Mr. Frere borrowed a sum of £40,000 from Model Roland and Stone Co., under an oral agreement that the money should be repaid within approximately one month together with interest thereon from the date of borrowing to the date of repayment, at a rate equal to 1/2% per annum above bank rate.
(9) On 17th September, 1958, he repaid the said sum of £40,000. Interest at the agreed rate, amounting to £186 2s.9d., was paid by him to Model Roland and Stone Co., on 23rd September, 1958, less Income Tax at 8s. 6d. in the £.
(10) Mr. Frere immediately after borrowing the said sum of £40,000 lent the sum of £40,000 to a valued client of his firm of Wigram & Co., and received repayment from that client within one month, together with interest at 6% computed for one month, amounting to £200 less tax.
(11) It was common ground between the parties that neither Section 169 nor Section 170 of the Income Tax Act, 1952, applied to the two payments of interest mentioned in sub-paragraphs (3) and (8) above.
3. It was contended on behalf of Mr. Frere that the two amounts of interest of £2,210 19s. 2d. and £186 2s. 9d. were deductible in computing Mr. Frere's total income for the years 1957-58 and 1958-59 respectively.
4. It was contended on behalf of the Crown that the said two payments of interest were not deductible in computing Mr. Frere's total income for the purposes of Surtax.
5. We, the Commissioners who heard the appeal, having taken time to consider our decision, gave it in writing as follows:
It was admitted on behalf of Mr. Frere that the interest in question in this appeal was interest on "short" loans and, as such, did not fall within the term "yearly interest" as used in Section 169, Income Tax Act, 1952, or Paragraph 1(1) (b) of the Sixth Schedule to the said Act. The question then arises whether "short" loan interest is deductible in arriving at the payer's total income for Surtax purposes. The Act does not expressly say how total income should be computed, but it seems to us to be implicit in the definition of "total income" in Section 524(1) of the Act, that the total income estimated in accordance with the provisions of the Act, as they apply to Income Tax, may differ from the total income estimated in accordance with these provisions as they apply to Surtax.
Section 524(2) specifically refers to the Twenty-fourth Schedule to the Act, and in our view the third paragraph of this Schedule indicates that in estimating a person's total income all interest (whether "short" or "yearly") may be deducted. In contradistinction to Section 169 and the Sixth Schedule, the said third paragraph refers to "interest" without the qualification of the word "yearly", and we consider that the words "other annual payments" in that paragraph should not, in these circumstances, govern the word "interest" under theejusdem generis rule. The phrase in the third paragraph is substantially the same as in Section 170 of the Act which admittedly includes "short" loan interest (see The Lord Advocate v.The Lord Provost, Magistrates & Council of the City of Edinburgh, 4 T.C. 627). In Section 122 the words "interest of money" are used and in Section 123 the words are "interest of money, whether yearly or otherwise" and accordingly the recipient of loan interest, whether "short" or "yearly", is clearly liable to Income Tax and Surtax in respect of the amount received (see Leeds Permanent Benefit Building Society v. Mallandaine, 3 T.C. 577). It appears to us, therefore, that it would be contrary to principle to charge Surtax, in effect, on two persons in respect of the same "short" loan interest. Some guidance on this aspect of the case is to be found in the judgment of Lawrence, L.J., in Solomon v.Commissioners of Inland Revenue, 18 T.C. 227, at pages 233-4, where emphasis is laid on the fact that the payment in both that case and the case of Earl Howe v. Commissioners of Inland Revenue, 7 T.C. 289, was not treated for taxation purposes as income of the recipient.
In our view, the interest in the present case is deductible in arriving at the Appellant's total income for Surtax purposes, and accordingly the appeal succeeds for both years. We leave the figures to be agreed.
Agreement of the figures having been later reported to us, we determined the appeal by:
(2) Allowing relief under Section 66 of the Income Tax Act, 1952, for the year 1957-58 in the amount of £1,091 7s. 0d.tax.
(3) Increasing the assessment for 1958-59 to £12,374.
6. After our decision had been given, our attention was drawn, on behalf of the Respondent, to the statement in the first sentence of our written decision that it was admitted that the interest in question did not fall within paragraph 1(1)(b) of the Sixth Schedule to the Act. On referring to our notes we find that no such admission was expressly made at the hearing of the appeal.
7. The Crown immediately after the determination of the appeal expressed to us their dissatisfaction therewith as being erroneous in point of law, and in due course required us to state a Case for the opinion of the High Court pursuant to the Income Tax Act, 1952, Sections 229(4) and 64, which Case I have stated and do sign accordingly. Mr. N.S. Spendlow, with whom I heard and determined this appeal, has since retired from the public service.
8. The question of law for the opinion of the High Court is whether, on the facts herein set out, the decision set out in paragraph 5 was correct in law.
R.A. Furtado, Commissioner for the Special Purposes of the Income Tax Acts
Turnstile House,
94-99, High Holborn,
London, W.C.1.
31st January, 1963.
The case came before Wilberforce, J., in the Chancery Division on 9th and 10th July, 1963, when judgment was reserved. On 17th July, 1963, judgment was given in favour of the Crown, with costs.
Wilberforce, J.-This is an appeal by the Crown against a decision of the Special Commissioners that the Respondent, Mr. Frere, is entitled to deduct in the computation of his total income for Surtax purposes certain interest paid on loans for less than a year. The...
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