Garland (HM Inspector of Taxes) v Archer-Shee
| Jurisdiction | England & Wales |
| Judgment Date | 15 December 1930 |
| Date | 15 December 1930 |
| Court | King's Bench Division |
NO. 777.-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
COURT OF APPEAL.-
HOUSE OF LORDS.-
Income Tax, Schedule D - Cases IV and V - Foreign trust - British beneficiary having sole life interest - Basis of assessment.
A resident in the United Kingdom was the sole life-tenant under an American will trust the trustees of which were resident in America. The trust fund consisted entirely of foreign securities, stocks and shares. The income from the fund, after deduction of administration expenses and commission, was paid by the trustees to the beneficiary's order at a New York bank.
On an appeal against assessments to Income Tax in respect of this income, evidence was given as to the American law relating to trusts and trustees, having regard to which it was contended by the Respondent that the income arose from a foreign possession other than stocks, shares or rents and was assessable under Rule 2 of Case V of Schedule D by reference only to the amounts actually remitted to the United Kingdom.
Held, that, in the light of the evidence given as to the American law, the income of the beneficiary was to be regarded as arising from a foreign possession other than stocks, shares or rents, and was assessable under Rule 2 of Case V.
Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held at York House, Kingsway, London,
on the 27th July, 1928, for the purpose of hearing appeals, Sir Martin Archer-Shee of 5, Victoria Street, Westminster, hereinafter called the Appellant, appealed against assessments made upon him in the sum of £12,000 for each of the three years ended 5th April, 1928, under Schedule D of the Income Tax Acts by the Additional Commissioners of Income Tax for the Division of St. Margaret and St. John.2. It is agreed that the said assessments were made to include the income of Lady Archer-Shee (formerly Miss Frances Pell) the wife of the Appellant from a certain trust fund established in the State of New York the full particulars relating to which are set forth hereinafter.
3. By his will (a copy whereof is hereto annexed marked "A" and forms part of this Case(1) ) Alfred Pell, a citizen of the United States of America, directed that his residuary estate should be held in trust by his executors and trustees upon trust (inter alia) (1) during the life of his wife Mary Huntington Pell to apply two-thirds of the income and profits thereof to her use and the remaining one-third to the use of his daughter (Frances Pell) or of any issue she might leave (3) in the event that his said wife should die leaving no issue by the testator her surviving, the whole of the said income and profits should thereafter be applied to the use of his said daughter Frances during her life. It was further provided that "Such application to the use of my "said wife or my said daughter may be made by paying over the "said income and profits as the same shall accrue to them personally "or on their respective orders or receipts and free from the "debts or control of any husbands they may have, but without "power to anticipate, assign, pledge or encumber the growing "income or profits."
4. By section 9 of the said will the testator appointed the said Mary Huntington Pell and J. Pierpont Morgan, Junior, of the City of New York, to be the executors and trustees thereof and in case the said J. Pierpont Morgan, Junior, should (inter alia) die or resign, the testator thereby authorised his said wife or (in case of her death or incapacity) then his said daughter Frances Pell to nominate and appoint some trust company organised under the laws of the State of New York as executor and trustee in his place. The testator further provided that in the case of the appointment of such a trust company as aforesaid, the company so appointed should have all the powers conferred by his said will upon the executors and trustees therein named, with power to retain any investments of which he might die seized or possessed, and with power to invest and re-invest his estate in any securities which might be approved in writing by his said wife or daughter, and by the said trust company.
5. The testator, Alfred Pell, died on 13th March, 1901, and his said wife, Mary Huntington Pell, died on 30th November, 1904, leaving the said Frances Pell, but no issue by the said Alfred Pell, her surviving. Thereupon the said Frances Pell became entitled to have the said income and profits applied to her use during her life in accordance with the terms of the said will. Prior to the years relevant to this appeal the said Frances Pell married the Appellant.
6. In the year 1914 the said Pierpont Morgan, Junior, resigned the said trusteeship and under the power conferred by section 9 of the said will the Appellant's wife appointed the Trust Company of New York, being a company constituted under American law and resident in the State of New York, to be executor and trustee of the said will.
7. In all material years the trust fund constituted under the said will consisted solely of foreign securities and foreign stocks and shares, particulars of which are set out in accounts furnished by the said trust company to the Appellant's wife and put before us at the hearing, which accounts are hereto annexed marked "B" and form part of this Case.(1)
8. At the hearing of the present appeal, the Appellant tendered evidence, which was objected to (as hereinafter stated) on behalf of the Inspector, as to the effect of the law of New York State in relation to the said trust fund. We decided, subject to the objection raised, to hear such evidence.
9. Mr. Richard Powell, a member of the Bar of the State of New York and Professor of Law at Columbia University Law School in the City of New York and a person skilled in the law of the State, especially that part of that law which relates to trusts, gave the following evidence:-
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(a) He stated that the law of New York State, after a survey lasting for five years by a committee of three, was subjected to a general statutory revision under what are known as the Revised Statutes of 1830. Under these statutes the number of trusts permitted was restricted to four, and the form of trust under which the trust fund in the present case is constituted is one which by decisions of the Court since 1849 has been held to be among those not prohibited although by the words allowing the trustees "to pay the money over" to the beneficiary it went beyond the words of the statute which by its terms dealt only with the application of money.
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(b) He stated that the provision of the law which directs who shall hold and own the property of a trust was as follows:-
Every express trust valid as such in its creation, "except as herein otherwise provided, shall vest the "whole estate in the trustees in law, and in equity, "subject only to the execution of the trust period. "The persons for whose benefit the trust is created "shall take no estate or interest in the lands, but "may enforce the performance of the trust in "equity.
(c) This provision although it relates in terms only to lands had been held to be equally applicable to personal property.
(d) He stated that the words of the trust directing that the "income and profits shall be applied to the use of my "daughter" (being the Appellant's wife Lady Archer-Shee) and providing that such application may be made "by paying over the said income and profits as the "same shall accrue" to Lady Archer-Shee gave to Lady Archer-Shee merely the right to resort to a Court of Equity to compel the trustees to discharge the task imposed upon them, which was to apply the money which they receive as a net income from the trust to her use; that they have within the limits of reasonable and conscientious behaviour an absolute discretion as to the application of the income for her benefit; that if they decided to apply the money for her benefit instead of paying it over they must exercise the power to do so reasonably; that she had no right to any specific dividends or interest at all; that the trustees were vested with a discretion and that Lady Archer-Shee had not the right to call for the immediate payment or expenditure of income which they might receive, that if the trustees, say in January, received £100 for a dividend, after deduction of American Income Tax, she could not there and then and as a matter of course call upon them to pay her that £100 notwithstanding that there was nothing owing to them-but that, if they did not do so, after a lapse of time it would become a question whether they were conscientiously performing their duties although as a beneficiary she had no right either immediately or after a year or any other defined period to call them to account.
(e) He explained that, whilst it was true that under the trust in question (there being no provision for accumulation) the whole of the net income (including in the event of death any income accrued but not paid over) must ultimately be either paid over to or applied for the benefit of Lady Archer-Shee the manner and times of doing so were within the discretion of the trustees subject to judicial supervision; that if the trustees exercised their discretion unconscientiously Lady Archer-Shee had the right to ask the Court to supervise their behaviour in the matter both of the management of the income and of the capital of the trust; that whereas in a decision of the Appeal Court (Sherman v. Skuse, 166 N.Y. 346) where the trusts were similar to those in the present case, and where a doctor, employed by the beneficiary, successfully sued the trustees for payment (out of unexpended income in their hands) of his fees for professional services rendered...
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