Earl Haig's Trustees v Inland Revenue

JurisdictionScotland
Date1939
CourtSheriff Court

NO. 1120-COURT OF SESSION (FIRST DIVISION)-

(1) TRUSTEES OF EARL HAIG
and
COMMISSIONERS OF INLAND REVENUE

Income Tax, Schedule D - Receipts by trustees of estate of deceased for use of his diaries by biographer - Trustees' liability - Trading - Realization of asset of estate - Whether receipts capital or income.

The late Earl Haig, by his trust disposition and settlement, authorized his trustees to publish his War Diaries at such time or times and on such terms and conditions as they in their uncontrolled discretion might see fit. It was considered undesirable to publish the diaries in their entirety but at the request of the trustees a biography of the Field Marshal was written by Mr. Duff Cooper who made full use of the material in the diaries, so far as the public interest admitted. The trustees and the author agreed that all profits resulting from the book and from the sale of any rights connected with it were to be equally divided.

The contract between the author and the publishers provided inter alia for the payment of £10,000 as an advance on account of royalties and under another contract the serial rights in the work were granted in consideration of the sum of £10,000. The trustees treated their share of these receipts as capital receipts of the estate.

The royalties due on publishers' sales had not amounted to £10,000 and it was unlikely that they ever would.

The diaries remained the property of the trustees and it was intended to present them to some public institution for preservation.

On appeal by the trustees against assessments made upon them under Case I of Schedule D in respect of their share of the receipts, the Special Commissioners found that the trustees, in turning the diaries to account, had not carried on any trade or adventure but that the sums received by them were remuneration for the use of and for access to the diaries by Mr. Duff Cooper, and were assessable to Income Tax under Case VI of Schedule D.

Held, that the sums received by the trustees were capital payments in return for a partial realization of an asset and were not assessable.

CASE

At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts, held at Edinburgh on the 30th June, 1938, for the purpose of hearing appeals, the Trustees of the late Field Marshal Earl Haig of Bemersyde (hereinafter called "the

"Appellants") appealed against assessments to Income Tax under Schedule D of the Income Tax Act, 1918, for the year ending 5th April, 1936, on the sum of £6,965, and for the year ending 5th April, 1937, on the sum of £2,530, representing sums received by them in the circumstances hereinafter appearing.

I. The following facts were admitted or proved:-

  1. (2) Throughout his life Earl Haig had kept a diary, and the entries which he made during the Great War contained much valuable material. He died in 1928. His trust disposition and settlement contained the following direction:-"(Sixth) In respect I have written certain "diaries in connection with the recent Great War I hereby "authorise my Trustees to publish the same and any "other writings or papers which I may leave and that at "such time or times and on such terms and conditions "as they in their uncontrolled discretion may think fit".

  2. (3) As the diaries contained confidential matter, the Trustees considered it to be undesirable to publish them in their entirety, and for some years nothing was done. In 1933 the Right Honourable Alfred Duff Cooper, D.S.O., M.P., was prepared to write a biography of Earl Haig, and an agreement, evidenced by two letters dated the 6th and 14th November, 1933, was made between the Trustees and him, under which at the request of the Trustees he consented to write the biography, and all profits resulting from the book from the sale of any rights (serial, book, or otherwise) were to be equally divided. Any agreements which Mr. Duff Cooper proposed to make covering the sale of the said rights were to be submitted to the Trustees for their approval before completion. Copies of these letters are attached hereto, marked "A", and form part of this Case(1).

  3. (4) Mr. Duff Cooper thereafter entered into a contract with Faber & Faber, Limited, publishers, for the publication of the biography of Earl Haig to be written by him. The first edition of the work was to be in two volumes and was to be published at 25s. a volume, and Mr. Duff Cooper was to receive a royalty of 25 per cent. on each copy sold. The contract provided for further and cheaper editions and royalties thereon. The sum of £10,000 was to be paid to Mr. Duff Cooper by the publishers in two instalments of £5,000, one on the publication of each volume, the said £10,000 to be treated as an advance on account of royalties and not to be returnable in any event.

  4. (5) The right to publish the work in book form in the United States of America, the rights of translation, serial, and other rights were reserved by Mr. Duff Cooper, and the copyright in the work remained his property.

  5. (6) The contract also provided for the publishers preparing every half-year a statement of account showing the sales for the period, and thereafter paying to Mr. Duff Cooper such amount as might be due to him under the contract. A copy of this contract is attached hereto, marked "B", and forms part of this Case(1).

  6. (7) Mr. Duff Cooper also granted the British serial rights in the work to Sunday Pictorial Newspapers (1920), Limited upon the terms of a contract, a copy of which is attached hereto, marked "C", and forms part of this Case(1). Under this contract the sum of £10,000 was payable to Mr. Duff Cooper in four instalments of £2,500.

  7. (8) Mr. Duff Cooper duly completed the biography, making full use of the material contained in the said diaries so far as the public interest permitted. The biography was published as arranged, and Mr. Duff Cooper received payment of the said two sums of £10,000 and of various sums in respect of foreign serial rights during the years under appeal. The assessments in question are made on the one half share which was received by the Trustees under deduction of the expenses. Mr. Duff Cooper is assessable as an author under Case II of Schedule D, and has been assessed to Income Tax on the sums received by him under deduction of the sums paid to the Trustees. The amount of the royalties due on Messrs. Faber & Faber's sales has not come up to the sum of £10,000 advanced against royalties, and it is not likely that it ever will. The said receipts have been treated by the Trustees as capital receipts of the trust estate. Since 5th April, 1937, the Trustees have received further small sums to account of their share of the profits. Messrs. Faber & Faber, Limited have not yet issued a cheaper edition of the biography, and have no such issue in contemplation.

  8. (9) The diaries remain the property of the Trustees, and while the question of their ultimate destination has not yet been decided, it is the intention of Earl Haig's family that they should be preserved for their historic interest-probably in the hands of some public institution to which they will be presented. For Estate Duty purposes the question of the value of the diaries as an asset of Earl Haig's estate

    was left over under Section 6(3) of the Finance Act, 1894, until the Trustees were able to ascertain a value after publication. The value for Estate Duty purposes has not yet been agreed. Copies of letters dated 19th August, 1936, and 20th and 22nd July, 1937, passing between the Estate Duty Office and the Agents of the Trustees are attached hereto, marked "D", and form part of this Case(1).

II. It was contended on behalf of the Appellants:-

  1. (2) That the contract with Mr. Duff Cooper was a method of realising an asset of Earl Haig's estate, and that by the publication of the biography the literary value of the diaries was exhausted.

  2. (3) That the Trustees in turning the diaries to account had not carried on any trade or adventure.

  3. (4) That the sums received by the Trustees under the contract with Mr. Duff Cooper were capital.

  4. (5) That, in any event, since the diaries after publication have now no value, the sums received so far as liable to Estate Duty were not taxable as income.

III. It was contended on behalf of the Respondents:-

  1. (2) That the Trustees had not sold the diaries but had exploited the use of them.

  2. (3) That the Trustees had embarked upon a trade or adventure, and that the sums received by them were profits assessable under Case I of Schedule D.

  3. (4) Alternatively, that the said sums were income assessable under Case VI of Schedule D.

IV. We, the Commissioners who heard the appeal, found that no trade or adventure had been carried on by the Trustees either solely or jointly with Mr. Duff Cooper. We held that the sums received by the Trustees were remuneration for the use of and for access to the diaries by Mr. Duff Cooper and were assessable to Income Tax under Case VI of Schedule D. We confirmed the assessments.

V. The Appellants, immediately after the determination of the appeal, declared to us their dissatisfaction therewith as being erroneous in point of law, and having duly required us to state and sign a Case for the opinion of the Court of Session as the Court of Exchequer in Scotland, this Case is stated and signed accordingly.

VI. The question of law for the opinion of the Court is whether the Appellants are assessable to Income Tax in respect of the sums received by them as...

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