Commissioners of Inland Revenue v The Helen Slater Charitable Trust Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 19 May 1981 |
| Date | 19 May 1981 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)
COURT OF APPEAL
Charity - Income tax and capital gains tax - Claim to exemption - Donation of sums by first charitable corporation to second charitable corporation - Second charitable corporation adding sums to its own funds and not distributing them in year of receipt - Whether sums applied for charitable purposes - Income and Corporation Taxes Act 1970 (c 10), s 360(1) and Finance Act 1965 (c 25), s 35(1).
The Respondent trust company ("the Trust") and the Slater Foundation Ltd. ("the foundation") were set up during 1970 by a wife and husband respectively. Both bodies were registered charities and they were set up to operate in tandem. The Trust made donations out of its income and gains to the foundation. The foundation distributed some of the sums that it received from the Trust; but other sums were added to the foundation's own funds and were not distributed in the year of receipt. The Board of Inland Revenue refused a claim by the Trust to exemption from tax under s 360(1), Income and Corporation Taxes Act 1970, and s 35(1), Finance Act 1965, ("the two subsections"), in respect of the sums donated by it to the foundation, but which the foundation had added to its own funds and had not distributed in the year of receipt.
On appeal to the Special Commissioners the Trust contended (i) that by giving sums to another registered charity whose bona fides had not been challenged it had applied its income and gains for charitable purposes; and (ii) that the addition of money to a charity's general endowment fund, provided that it was appropriated to charitable purposes only, was itself the application of money for charitable purposes. The Special Commissioners accepted the Trust's arguments and allowed its appeal.
On appeal to the High Court the Crown contended (i) that if funds of a charity were to qualify for exemption under the two subsections it was not enough that those funds should simply belong to the charity in question: there had to be a positive "application" of the funds within the meaning of the two subsections; (ii) that the simple addition of income to capital did not amount to such an "application" unless the accumulation was made for a specific charitable purpose; and (iii) that if such simple accumulation did not amount to such an application then no more did the addition of income to capital through the use of a parallel body.
The Chancery Division, dismissing the Crown's appeal, held (1) that for income or gains of a charity to obtain exemption within the two subsections the funds in question had to be both "applicable" and "applied" for charitable purposes within the meaning of the two subsections; (2) that it was not
necessary to express a view on the Crown's submission that the simple addition of income to capital did not amount to an "application" within the two subsections unless the accumulation was made for a specific charitable purpose because (3) any charitable corporation which, acting intra vires, made an outright transfer of money applicable for charitable purposes to any other corporation established exclusively for charitable purposes in such manner as to pass to the transferee full title to the money must be said, by the transfer itself, to have "applied" such money for "charitable purposes" within the meaning of the two subsections unless the transferor knew, or ought to have known, that the money would be misapplied by the transfereePer curiam: the difference in language of the two sections was immaterial.
The Crown appealed.
In the Court of Appeal the Crown contended (i) contrary to what had been conceded below, that income and gains of charitable trusts are not "applied" for the purposes of the two subsections unless actually expended upon the expenses of managing the charity and distributions for the attainment of particular charitable objects; and (ii) that if, contrary to the first contention, a payment by charity A to charity B pursuant to the objects of charity A, might, in general, be an "application" within the two subsections, in order to qualify as such, there must be some mental element of dedication to a particular charitable purpose beyond the mere retention of funds generally subject to the applicable charitable trusts.
Held, in the Court of Appeal, unanimously dismissing the Crown's appeal that,
(1) as a general proposition, funds which are donated by charity A pursuant to its trust deed or constitution to charity B, are funds which are "applied" by charity A for charitable purposes; and
(2) the learned Judge was correct in holding as he did in
(3) above.
Stated under s 56 of the Taxes Management Act 1970 by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a hearing before the Commissioners for the Special Purposes of the Income Tax Acts held on 11 October 1978 The Helen Slater Charitable Trust Ltd. ("the Trust") appealed against the decision of the Board of Inland Revenue on its claim to exemption from tax under s 360(1), Income and Corporation Taxes Act 1970, and s 35(1), Finance Act 1965, in respect of income and gains for the accounting periods ended 31 March 1973 to 1975 inclusive.
2. The question for our decision was whether the Trust was entitled to exemption under those sections in respect of income or gains which it paid to another charitable body, the Slater Foundation Ltd. ("the foundation"), and which the foundation had not itself distributed by the end of the year in which the payments were received.
3. We heard no oral evidence.
4. The following agreed documents were put before us:
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(2) Agreed statement of facts with documents (a) to (g) attached
(a) Memorandum and articles of association of the Trust
(b) Memorandum and articles of association of the foundation
(c) Letter of 21 October 1977 from the Revenue to the Trust
(d) Letter of 26 October 1977 in reply to (c)
(e) Report and accounts of the Trust for the three years ended 31 March 1973, 1974 and 1975
(f) Report and accounts of the foundation for the three years ended 31 March 1973, 1974 and 1975
(g) Letter of 26 September 1978 from Charity Commission to Messrs. Clifford-Turner
(3) List of donations made by the foundation in the year to 31 March 1977
The agreed statement of facts is annexed to and forms part of this Case(1). Copies of the other documents listed above are available for inspection by the Court if required.
5. The salient facts taken from the agreed statement of facts and the other documents which were put before us, are set out in para 8(1) to (9) below.
6. The contentions advanced on behalf of the Trust are summarised in para 8(10) below.
7. The contentions advanced on behalf of the Board of Inland Revenue are summarised in para 8(11) below.
8. We the Commissioners who heard the appeal took time to consider our decision and gave it in writing on 9 November 1978 as follows:
(2) The appellant Company ("the Trust"), being a registered charity, is entitled to exemption from income tax under s 360 of the Income and Corporation Taxes Act 1970 and from capital gains tax under s 35 of the Finance Act 1965 in so far as its income and gains are "applied to charitable purposes only".
(3) The trustees maintain that the whole of the Trust's income and capital gains for the three years under appeal was so applied. The Board of Inland Revenue have rejected that claim in respect of certain sums which the Trust paid over to another registered charity, the Slater Foundation Ltd. ("the foundation"), and which, by the end of the year in question, the foundation had not disbursed in furtherance of charitable objects but had added to its own funds.
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(4) The sums in dispute are £578,479 for the Trust's accounting year to 31 March 1973, £5,050 for the year to 31 March 1974 and £12,225 for the year to 31 March 1975. The question for our determination is whether those sums, being part of the Trust's income or gains, were applied to charitable purposes only.
(5) The Trust and the foundation were both incorporated in February 1970 as companies limited by guarantee with no share capital. Each had then a different name (the Trust having been incorporated as Univale Ltd. and the foundation as Basilicon Ltd.) which was changed to its present name on 6 July 1970. The three general objects of each company are similar (although not identical in all respects):-(i) (in both cases) to relieve suffering amongst the aged, impotent or poor; (ii) (in both cases) to advance education; (iii) (in the case of the foundation) to further such other charitable objects as the company may think fit; (in the case of the Trust) to further such other charitable objects as the company may think fit and in particular but without prejudice to the generality of the foregoing to make grants to such associations, trusts, societies or corporations as are established for charitable purposes only.
(6) In the memorandum of each company those three general objects are followed by a number of specific objects and powers of a detailed kind, subject in each case to a proviso that the company is established for charitable purposes only and that all its objects and powers are to be construed in the light of that limitation.
(7) It is an agreed fact that the Trust and the foundation were established as a joint operation whereby money would, from time to time, pass from the Trust to the foundation. They were intended to operate in tandem and the trustee/directors have, in practice, at all material times been common to both companies. Mr. and Mrs. Slater have been directors throughout the companies' existence: there have been some changes among the other directors.
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(8) The Trust's accounts show that its net income for the three-year period (i.e. the balance of its income from dividends, interest, rents, convenanted payments...
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