Earl Haig's Trustees v Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 13 July 1939 |
| Docket Number | No.65. |
| Date | 13 July 1939 |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION.
RevenueIncome taxCapital or incomeMoney received by testamentary trustees in consideration of permitting publication of portions of testator's diariesDiaries remaining property of trustees and further portions available for future publicationWhether money received the realisation of an asset or annual profits assessable to income taxIncome Tax Act, 1918 (8 and 9 Geo. V, cap. 40), Sched. D, Case VI.
A testator authorised his trustees to publish his diaries, which contained valuable historical records, at such times and on such terms and conditions as they might think fit. The trustees, in pursuance of this power, gave the use of the diaries to the writer of a biography of the testator, under an agreement that all profits resulting from the biography should be shared equally between them and him. The biography was duly completed, full use having been made of material contained in the diaries. The trustees thereafter received payment of their one-half share of sums received in respect of royalties and serial rights of publication. The diaries remained the property of the trustees, and further portions were available for future publication.
The Commissioners for the Special Purposes of the Income Tax Acts, while finding in fact that no trade or adventure had been carried on by the trustees, held that the sums received by the trustees were remuneration for the use of, and for access to, the diaries, and were assessable to income tax under Case VI of Sched. D as "annual profits or gains."
Held that the receipts were not profits made by the trustees but capital payments in return for the partial realisation of an asset of the trust-estate, and were not assessable to income tax.
At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts, the trustees of the late Field-Marshal Earl Haig of Bemersyde 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 6965, and for the year ending 5th April 1937 on the sum of 2530, being sums received by them in respect of their share of profits accruing from a biography of Earl Haig. The Special Commissioners confirmed the assessments, and, at the request of the appellants, stated a case for appeal to the Court of Session.
The case set forth:"The following facts were admitted or proved:(1) 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 connexion 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) 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 and 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. (3) 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 5000, 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) 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) 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. (6) Mr Duff Cooper also granted the British serial rights in the work to Sunday Pictorial Newspapers (1920), Limited. Under this contract the sum of 10,000 was payable to Mr Duff Cooper in four instalments of 2500. (7) 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) 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 interestprobably 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."
The contentions of the parties were stated as follows:
"It was contended on behalf of the appellants:(1) 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) That the trustees in turning the diaries to account had not carried on any trade or adventure. (3) That the sums received by the trustees under the contract with Mr Duff Cooper were capital. (4) 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.
"It was contended on behalf of the respondents:(1) That the trustees had not sold the diaries but had exploited the use of them. (2) 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.1 (3) Alternatively, that the said sums were income assessable under Case VI of Schedule D."
The decision of the Special Commissioners was stated as follows:"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."
The question of law for the opinion of the Court was:"Whether the appellants are assessable to income tax in respect of the sums received by them as above mentioned."
The case was heard before the First Division on 15th and 16th June 1939.
At advising on 13th July 1939,
LORD PRESIDENT (Normand).This appeal raises a question of considerable interest, partly because the circumstances which give rise to it seem to be novel in income tax law, and partly because it concerns the war diaries of Earl Haig.
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