Commissioners of Inland Revenue v G. B. Bates
| Jurisdiction | England & Wales |
| Judgment Date | 08 December 1966 |
| Date | 08 December 1966 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Surtax - Settlement - Capital sums paid to settlor - Whether paid by "body corporate connected with the settlement" - Meaning of "relevant year of assessment" - Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), ss. 408 and 411(4).
The Respondent in the first case was a director of a company to which at all material times s. 245, Income Tax Act 1952, applied, but in respect of which no direction was given under that section. In 1948 and 1950 he had settled shares in the company on trusts for the benefit of his children. No income arose from the shares before 1953-54. The income for the years 1953-54, 1954-55 and 1955-56 was £3,610, £3,158 and £3,201 respectively, all of which was accumulated. In April of each of the years 1950 to 1954 the company paid sums in the region of £8,000 to £10,000 to the Respondent or, when his current account at his bank was overdrawn, to his bank for his credit; in particular, it paid him £9,100 on 5th April 1954. These sums were debited to the Respondent's current account with the company, which in consequence until June 1954 was overdrawn each year, for most of the company's accounting year to 31st March, to the approximate extent of the sum debited in the preceding April, but was brought into credit each year by a cheque from the Respondent shortly before 31st March.
The Respondent was assessed to surtax for the years 1953-54 to 1955-56 on the footing that the sums paid to him as aforesaid by the company in 1953-54 were capital sums paid by a body corporate connected with the settlements and under s. 408, Income Tax Act 1952, the grossed-up equivalent fell to be treated as his income to the extent of the undistributed income of the settlements. On appeal, it was contended for the Respondent (a) that, since a direction under s. 245 had neither been given nor precluded by the distribution of the whole of its income, the company was not a body corporate connected with the settlements as defined in s. 411(4), Income Tax Act 1952; (b) that the sums paid by the company were not "capital sums" within the meaning of s. 408, Income Tax Act 1952; (c) that "relevant year" in s. 408(2)(a) was, but "relevant year of assessment" in s. 408(1) was not, to be construed by reference to s. 408(7), so that, after deducting under s. 408(2)(a) the capital sum paid to the Respondent on 4th April 1952, there was within the meaning of s. 408 no "income available up to the end of" 1953-54, 1954-55 or 1955-56. The Special Commissioners accepted the Respondent's first contention.
In the other case the facts, the contentions and the findings of the Commissioners were similar to those in the first case.
In the Court of Appeal and the House of Lords it was further contended for the Crown that the sum paid to the Respondent on 4th April 1952 could not be taken into account because the company was not shown to have been a body corporate connected with the settlement in 1951-52.
Held, in the House of Lords, (1) that, since but for the distribution made out of the company's income for 1953-54 some of that income could have been apportioned to the trustees of the settlements, the company was a body corporate connected with the settlements for that year; (2) that the payment of £9,100 was a "capital sum" within s. 408; (3) that the company was not shown to have been a body corporate connected with the settlement in 1951-52.
Held, in the Court of Appeal, and by Lords Reid and Morris in the House of Lords, that "relevant year of assessment" in s. 408(1) was to be construed by reference to s. 408(7).
(1) Commissioners of Inland Revenue v. G. B. Bates
Stated under the Income Tax Act 1952, ss. 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 23rd January 1962 and thence adjourned to 24th January 1962 Geoffrey Booth Bates (hereinafter called "the Respondent") appealed against the undermentioned assessments to surtax.
The assessments purported to be laid under the provisions of Part XVIII, Income Tax Act 1952, and in particular s. 408 thereof. The grounds of the appeal were that, in computing for surtax purposes the total income from all sources of the Respondent for the periods relevant to the assessments under appeal, certain sums paid to or into the account of the Respondent with the National Provincial Bank Ltd., Bradford (hereinafter referred to as "the bank"), by Thomas Ambler & Sons Ltd. (hereinafter referred to as "the company"), as hereinafter appeareth, have been included contrary to the provisions of the Income Tax Acts.
2. Evidence was given at the hearing of the appeal by the Respondent and Ernest Bates, his brother (hereinafter referred to as "Mr. Ernest Bates"), and the following documents were produced and admitted or proved:
(i) memorandum and articles of association of the company;
(ii) deed of settlement made 7th August 1948 between the Respondent and William Herbert Mosley Isle, Mary Bates and the Respondent (hereinafter referred to as "the principal deed"); and a further deed of settlement made 4th October 1948 between the same parties (hereinafter referred to as "the further deed") endorsed thereon;
(iii) deed of settlement made 10th November 1950 between the same parties (hereinafter referred to as "the supplemental deed");
(iv) accounts of the company for the period 12th April 1948 to 31st March 1956;
(v) copy of the ledger account of the Respondent in the books of the company;
(vi) cheque dated 6th April 1950 drawn by the company in favour of the bank for £17,190 6s. 7d.;
(vii) cheque dated 28th April 1951 drawn by the company in favour of the bank for £15,600;
(viii) cheque dated 4th April 1952 drawn by the company on the bank in favour of the Respondent for £10,158 6s. 11d.;
(ix) cheque dated 8th April 1953 drawn by the company on the bank in favour of the bank for the credit of the account of the Respondent for £10,100;
(x) cheque dated 5th April 1954 drawn by the company on the bank in favour of the Respondent for £9,100;
(xi) letter dated 16th January 1962 from the manager of the bank to Messrs. Claridge Turner & Co. (hereinafter referred to as "the auditors");
(xii) a schedule giving particulars of settlements made by the Respondent and Mr. Ernest Bates;
(xiii) letter dated 14th September 1959 from the Special Commissioners of Income Tax to the auditors;
(xiv) a schedule showing alternative calculations of income available to the Respondent.
Apart from the copy of the ledger account of the Respondent in the books of the company (no. (v) above(1) ), the above documents are not attached to and do not form part of this Case, except to the extent that they are hereinafter incorporated.
3. We found the following facts admitted or proved on the evidence adduced at the hearing of the appeal.
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(2) At all times material to this appeal the Respondent was a director of the company, which was incorporated on 2nd April 1948, having as its objects, inter alia,
(a) To acquire and take over as a going concern the business of Worsted Spinners now carried on at East Ardsley, near Wakefield in the County of York, under the style or firm of Thomas Ambler & Sons, and all or any of the assets and liabilities of the proprietors of that business in connection therewith.
(3) Under clause 5 of the memorandum of association of the company the share capital was £300,000, divided into 600,000 ordinary shares of 5s. each and 150,000 preference shares of £1 each.
(4) On 7th August 1948 the Respondent executed the principal deed in favour of his children, which recited, inter alia, as follows:
Whereas:
(2) The said Geoffrey Booth Bates (hereinafter called "the Settlor") is desirous of making such provision as hereinafter appears for the benefit of his three daughters Hazel Bates Joan Margaret Bates and Elaine Mary Bates now aged 15 years 12 years and 10 years respectively
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(3) With a view to the Settlement intended to be hereby created the Settlor on the 11th day of June 1948 caused to be allotted to and registered in the joint names of the Trustees 60,000 Ordinary Shares of 5/- each fully
paid Numbered 392,001 to 452,000 inclusive of and in the Capital of Thomas Ambler & Sons Limited of Ardsley Mills East Ardsley near Wakefield in the said County of York Worsted Spinners and Manufacturers (for the purchase of which said Shares the Settlor had on that day paid to the said Company in cash the sum of £15,000) to the intent that the same shall be held upon the Trusts and with and Subject to the powers and provisions hereinafter declared and contained (4) The Settlor intends that this Settlement shall be absolutely irrevocable in all circumstances
(5) and provided, inter alia, as follows:
Witnesseth as follows:
(2) The Trustees shall and will stand possessed of the said investment so registered in their joint names as aforesaid Upon Trust that they may either allow the said investment to remain so long as the Trustees shall think fit or may at the discretion of the Trustees sell the same or any part thereof and shall at the like discretion invest all monies produced thereby in or upon any investments hereby authorised with power at such discretion as aforesaid to vary or transpose any investments for or into others of any nature hereby authorised
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(3) The Trustees shall hold the said investment registered in their joint names as aforesaid and the investments for the time being representing the same (hereinafter called "the Trust Fund") and the income thereof from the said 11th day of June 1948 Upon The Following Trusts namely:
(a) As to one equal third part or share of the Trust Fund to accumulate the income therefrom by way of...
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