Dunmore v McGowan (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 08 February 1978 |
| Date | 08 February 1978 |
| Court | County Court |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income tax, Schedule D, Case III - Bank deposit interest - Deposit supplementing personal guarantee of bank loan to a company - On whom interest assessable - Income Tax Act 1952 (15 &16 Geo 6 &1 Eliz 2, c 10), ss 123 and 148.
In 1965 the Appellant, a solicitor, who had been concerned in property transactions through the media of limited liability companies, entered into a written guarantee with Lloyds Bank Europe Ltd., under which he personally guaranteed to pay on demand all moneys owing to the bank by B. Ltd. (one of those companies) up to a limit of £50,000 with interest. The bank having required the guarantee to be supplemented by a cash deposit, the Appellant wrote to the bank on 5 June 1967 authorising it (a) to transfer to a deposit account in the name of the bank sums totalling £29,000 which he would be receiving, (b) to retain the same whilst he was under any liability under the guarantee, and (c) to apply at any time the amount standing to the credit of that account towards payment of any moneys payable under the guarantee. In fact, a sum of £28,190 was transferred by the bank on 4 July 1967 to an account opened therewith entitled "Lloyds Bank Europe Limited. Re liability of W.S. Dunmore on behalf of" B. Ltd. That sum comprised sums totalling £28,000 and interest of £190 previously accrued thereon and credited at 20 June 1967. Thereafter interest was credited to that account from time to time until the bank loan to B. Ltd. was repaid in July 1969 and the total of the sum deposited and interest thereon was transferred to a personal deposit account of the Appellant or was withdrawn by him. The Appellant appealed to the General Commissioners against further assessments to income tax under Case III of Schedule D for the years 1967-68 to 1969-70 in respect of all of the aforesaid sums of interest. He contended that he was not assessable in respect of any of the interest because (i) the letter of 5 June 1967 and ensuing arrangement created a trust of which the bank was trustee and in which he was only a contingent beneficiary; alternatively, (ii) the letter and ensuing arrangement precluded him from demanding the interest credited to the account and therefore he could not be said to be a person "receiving or entitled to" the interest within the meaning of s 148(1), Income Tax Act 1952. The Commissioners, rejecting the Appellant's contentions, found that the interest was properly assessable on him as his income for the years in which it was credited.
The Chancery Division, dismissing the taxpayer's appeal, held that the interest of £190 credited on 20 June 1967 was clearly assessable on the Appellant; that the money held in the deposit account in the bank's name was not the subject-matter of any trust; that, notwithstanding the fact that the Appellant was precluded from demanding the interest credited to that account while the guarantee subsisted, the Appellant received or was entitled to that interest
since it inured to his benefit immediately, either as money coming into his hands or as money reducing his liability; and that accordingly that interest was also properly assessable on the Appellant. The taxpayer appealedHeld, in the Court of Appeal, unanimously dismissing the appeal, that for the reasons given by Brightman J. the interest was properly assessed as income of the Appellant.
In both the Court of Appeal and the House of Lords the Appellant was refused leave to appeal.
Stated under s 56 of the Taxes Management Act 1970 by the Commissioners for the General Purposes of the Income Tax for the Division of Croydon for the opinion of the High Court of Justice.
1. At meetings of the said Commissioners held at 1A Katharine Street, Croydon on 6 May 1974 and 10 January 1975 William Sydney Dunmore (hereinafter called "the Appellant") appealed against further assessments to income tax under Schedule D Case III for the three years 1967-68, 1968-69 and 1969-70 in the sums of £200 each in respect of bank interest.
2. The sole question for our decision was whether the Appellant was properly assessable to income tax in respect of bank interest credited to certain deposit accounts with Lloyds Bank Europe Ltd. (hereinafter called "the Bank") during the above-mentioned years of assessment.
3. Mr. Marcus Jones of Counsel appeared for the Appellant.
4. The Appellant gave evidence before us.
5. The following documents were admitted before us. They are not appended to the Stated Case but are available for inspection if required.
(2) Guarantee of 30 September 1965 by the Appellant to Lloyds Bank Europe Ltd. in respect of money and liabilities owing or incurred by Belmound Investments Ltd. up to a limit of £50,000.
(3) Letter of 5 June 1967 from the Appellant to Lloyds Bank Europe Ltd.
(4) Bank statements of deposit accounts with Lloyds Bank Europe Ltd., 100 Pall Mall, London, S.W.1. as follows: "W.S. Dunmore, Deposit Account at 7 days' notice" from 1 April to 4 July 1967 (first sheet). "Lloyds Bank Europe Limited. Re liability of W. S. Dunmore on behalf of Belmound Investments Limited" from 4 July 1967 to 31 July 1969 (second and third sheets). "W.S. Dunmore, Deposit Account" from 31 July 1969 to 5 May 1970 (fourth sheet).
(5) Letter of 3 May 1973 from the Appellant to the Inspector of Taxes.
(6) Letter of 16 October 1973 from Messrs. Boty, Cox, Crawford & Ridley, the Appellant's accountants, to the Inspector of Taxes.
6. The following facts were admitted or proved before us:
(i) During the relevant period the Appellant was a solicitor practising in Croydon who had been concerned in property transactions through the media of limited liability companies one of which was Belmound Investments Ltd. (hereinafter called "Belmound"). For this purpose finance had been procured by Belmound from the Bank with the aid of the guarantee (document 1) given by the Appellant.
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(ii) In 1967 the Bank required this guarantee to be supplemented by a cash deposit of £29,000 by the Appellant on the terms contained in a letter of 5 June 1967 from him to the Bank (document 2) which stated as follows:
75, Park Lane
Croydon, Surrey.
5th June 1967
To Lloyds Bank Europe Limited,
100, Pall Mall,
London, S.W.1.
Dear Sirs,
Belmound Investments Limited
With reference to my guarantee in favour of the Bank on behalf of the above-mentioned Company dated the 30th September 1965, for the sum of £50,000, I authorise you to transfer to a Deposit Account in your name the sum of £4,000 plus £25,000 which you will be receiving from the Liquidator of Bardimore Investments Limited, representing my share of the proceeds of sale of Bardimore Investments Plot 4 of the Golden Valley Estate. These sums are to be retained by you whilst I remain under any liability under the aforementioned guarantee. You may at any time apply the amount for the time being standing to the credit of the said Deposit Account in or towards payment of any monies payable by me to you under the aforementioned guarantee.
Yours faithfully,
W. S. Dunmore
(iii) Soon after 5 June 1967 sums of £4,000 and £24,000 (not £25,000 as promised in the letter) were in fact received in the account entitled "W.S. Dunmore, Deposit Account at 7 days' notice" from Bardimore Investments Ltd. On 4 July 1967 a sum of £28,190 18s. 6d. comprising these two sums of £4,000 and £24,000 together with interest of £190 18s.6d. thereon was transferred from that account to the account entitled "Lloyds Bank Europe Limited. Re liability of W. S. Dunmore on behalf of Belmound Investments Limited", where it continued to be credited with interest up to 31 July 1969. On 31 July 1969 when the loan by the Bank to...
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Bashir UD Peracha (Appellant v Anthony Reginald Miley (Respondent
...... on the basis that it was indistinguishable from the decision in Dunmore v. McGowan, 52 Tax Cases 307. That was decided by Mr. Justice Brightman ......