DUKE of ROXBURGHE'S EXECUTORS v Commissioners of Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 17 July 1936 |
| Date | 17 July 1936 |
| Court | Sheriff Court |
NO. 1021-COURT OF SESSION (FIRST DIVISION)-
Income Tax, Schedule D, Case V - Foreign possessions - Remittances - Separate accounts with bank abroad, one comprising income from foreign possessions assessable under Rule 2 of Case V, a second consisting of capital and of income assessed under Case IV and Rule 1 of Case V - Instructions to bank to remit sum from income other than that from foreign possessions - Remittance in fact debited to first account - Whether remittance assessable as income from foreign possessions.
The Duchess of Roxburghe, who was resident in the United Kingdom, was entitled to receive income from America (a) from a share in the trust estate of her father, the income from which was assessable to Income Tax under Rule 2 of Case V of Schedule D by reference to the amounts remitted to the United Kingdom, and (b) from securities, stocks, shares and rents in her absolute ownership, the income from which was assessable to Income Tax under Case IV and Rule 1 of Case V of Schedule D on the basis of the amounts arising in America. The Duchess had in New York several accounts with the same bank, of which one dealt with income and capital receipts and payments without distinction, a second, known as the "Special Custodian Account", was opened in November, 1930, by a substantial credit from the first account, and a third was a time deposit account opened in March, 1931, by a transfer from the second account of $300,000 representing capital and income which had already borne British Income Tax. The money in the third account was not deposited for any fixed period but was at the control of the Duchess, and the rate of interest depended partly on the length of time the deposit remained; the interest thereon was transferred, as it accrued, to the second account.
On 23rd August, 1931, the Duchess instructed her bank to remit to London a certain sum to be debited to the "Special Custodian "Account" (which, it appeared, her advisers-though not the bank-regarded as including the amount on time deposit) and "to be "provided out of accumulations of income other than income from "the Goelet Trust of my Father". In fact, however, the bank left the amount on time deposit untouched and made the remittance of $200,763 on 4th September, 1931, out of the second account, whose credit balance at that date consisted of an amount transferred from
the first account, certain income from the trust estate, a tax refund from the United States Treasury, small sums of interest, and the proceeds of sale of stock (originally purchased out of income) which was realised to make up the balance of the remittance. It was agreed that $31,112 of this remittance represented income already charged to Income Tax in the United KingdomOn appeal to the Special Commissioners against an assessment to Income Tax under Case V of Schedule D for the year 1932-33 in respect of the amount so remitted, the Appellants (as executors of the Duke, who died in September, 1932) contended (inter alia) (1) that it was open to the Duchess to remit income from whatever source she saw fit and that the remittance made in September, 1931, following her instructions must be deemed to have been made from sources available already taxed or from capital, (2) that the manner in which the accounts were dealt with by the bank was not conclusive of the matter, and that the remittance was made out of capital and income already taxed, of which there was a sufficient amount available in the bank's hands, and (3) that there was no evidence upon which the Special Commissioners could competently find that the remittance in question was derived from income from foreign possessions. The Special Commissioners found as a fact that the money (i.e., the $300,000) remained on time deposit and was not available to meet the remittance in question, and that accordingly the moneys remitted were, with the exception of $31,112, income from foreign possessions assessable under Rule 2 of Case V of Schedule D, and they confirmed the assessment.
Held, (Lord Morison dissenting), that the remittance in question must be taken to have consisted of capital and income from foreign securities already subjected to tax in Great Britain.
At meetings of the Commissioners for the Special Purposes of the Income Tax Acts held at Edinburgh on 5th December, 1934, 1st March, 1935, and 28th June, 1935, for the purpose of hearing appeals, the Executors of the 8th Duke of Roxburghe, hereinafter called the Appellants, appealed (inter alia) against an assessment to Income Tax under Schedule D, Case V, Rule 2, for the year 1932-33 in respect of foreign possessions on an estimated sum of £30,000 made under the provisions of the Income Tax Acts.
I. The following facts were admitted or proved:-
(2) The 8th Duke of Roxburghe (hereinafter called the late Duke) died on 29th September, 1932. It is admitted that whatever assessment falls to be made under Schedule D upon his Executors for the year 1932-33 in respect of foreign possessions is apportionable, and should be apportioned between his Executors and his widow, the Duchess of Roxburghe.
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(3) The late Duke had married in 1903 Mary, daughter of the late Ogden Goelet of New York, U.S.A. She is hereinafter called the Duchess. In the year 1931-32 the Duchess was entitled to receive income from the following sources in the United States of America:-
(i) The trust estate of the said Ogden Goelet, to one-half of the income of which the Duchess is entitled. It is agreed that in consequence of the decision in the second Archer-Shee case (Garlandv. Archer-Shee, [1931] A.C. 212, 15 T.C. 693) the Duchess' share of the income was assessable to British Income Tax under Rule 2 of Case V of Schedule D, and that accordingly no liability arose in respect of such income except so far as it was remitted to the United Kingdom.
(ii) The Duchess' own private estate.
(iii) Property and investments inherited from her mother and from R. T. Wilson to which she had become absolutely entitled on the death of her mother on 23rd February, 1929.
(4) At the hearing of the appeal the arrangements made for the management and control of these sources of income were explained to us in detail. In past years income from foreign possessions had been regularly remitted to the Duchess from the United States of America from the Ogden Goelet estate, and it was explained to us that with a view to avoidance of tax these regular remittances were stopped, the last regular remittance having been made on 29th May, 1929. The present appeal relates to one remittance of $200,763.93 made on 4th September, 1931, which the Executors contended was of a capital nature to the extent of $43,812.50 as representing the proceeds of sale of real estate in New York, and as to the balance was made out of income which had arisen to the Duchess from source (iii) above mentioned in 1929 and 1930 and had already been assessed under Case IV or under Rule 1 of Case V for these years, but not remitted to the United Kingdom. No question arises as to the liability upon the income accruing directly to the Duchess from securities under Case IV or from stocks, shares or rents under Rule 1 of Case V. Such income is that arising under headings (2) (ii) and (iii) above, and tax has been paid on such income for all years.
(5) At the hearing of the appeal we were furnished with copies of all bank accounts kept in New York in name of the Duchess covering the period from 1st January, 1927, to 5th April, 1933. These accounts were seven in number, as follows:-
A. -An ordinary current account dealing with income and capital receipts and payments without distinction and, apart from certain credits of interest, without any markings to identify the various entries. This account was in operation before 1927 and after 5th April, 1933.
B. -A "Time-Deposit Account", which commenced on 5th March, 1931, with a transfer from Account "C" of $300,000.00. That sum remained on deposit at 5th April, 1933, and apart from the opening entry the Account consisted only of credit entries each quarter of the interest on the deposit and corresponding debit entries of the interest which was transferred to Account "C". We were informed that money on deposit in such an account as Account "B" was not deposited for any fixed period but was at the control of the depositor, the rate of interest, however, depending partly on the length of time a deposit is allowed to remain.
C. -An account called "Custodian-Special Account". This Account commenced on 6th November, 1930, with a credit of $61,128.15, which was transferred from Account "A", and it continued after 5th April, 1933. This Account contains information as to the entries appearing in it, and is the principal account now in question.
D. -An account called "M. R. G. Custodian", which commenced on 27th April, 1929, and closed on 14th January, 1933, when the credit balance was transferred to Account "C". The initials "M. R. G." in the title of the Account are those of the Duchess' mother, and the Account dealt with funds derived from the mother's estate.
E. -An account which opened on 28th October, 1927, and was still open at 5th April, 1933. The credits represented sums furnished by the Duchess' mother to defray the expenses of visits of the Duchess to the United States, and the Account deals exclusively with these.
F. -A special account opened on 11th April, 1929, by a transfer of $5,737.50 from Account "A", and closed on 27th April, 1929.
G. -An account called "Amortization Account", which opened on 2nd June, 1931, and was still open at 5th April, 1933. This Account refers exclusively to sums provided by the Duchess towards the redemption of mortgages on real estate belonging to the Ogden Goelet estate.
(6) Copies of Accounts "A", "B" and "C" are attached to and form part of this Case(1). Accounts "D", "E", "F" and "G" may also...
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