Hearn (HM Inspector of Taxes) v Morgan
| Jurisdiction | England & Wales |
| Judgment Date | 17 July 1945 |
| Date | 17 July 1945 |
| Court | King's Bench Division |
NO. 1324-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
Income Tax, Schedules D and E - Office or employment - Annual payment-Remuneration of settlement trustees paid under Order of Court and deed of covenant by life tenant - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), General Rule 19.
The Respondents in these two cases were trustees, but not original trustees, of a marriage settlement. Under the settlement there was no power to pay remuneration to the trustees, but by two Orders of Court, made on the application of the life tenant, the Respondent in the first case was allowed as remuneration out of the income of the trust funds such an annual sum as after deduction of Income Tax (at the current rate for the time being) would leave the net annual sum of £600, and by the deed made by the life tenant appointing the Respondent in the second case as trustee, she covenanted to pay him as remuneration out of the trust income such a sum as after deduction of Income Tax (at the standard rate for the time being) would leave a clear yearly sum of £400.
The amounts actually paid to the Respondents were the grossed-up sums corresponding to £600 and £400 per annum, and they were paid without deduction of tax, since the trustees assumed, as was in fact the case, that they would be assessed to Income Tax under Schedule E in respect of the gross amounts.
On appeal to the Special Commissioners against the Schedule E assessments made upon them for the year 1941-42, the Respondents contended that they did not hold any office or employment of profit falling within Schedule E, and that the payments were annual payments out of profits and gains brought into charge falling within General Rule 19. The Special Commissioners held that a trustee under a private will or settlement is not the holder of an office, or engaged in the employment of his co-trustees or any beneficiary, so as to be assessable to Income Tax under Schedule E in respect of any remuneration paid to him as trustee, nor was the remuneration in these cases assessable under Case II or Case VI of Schedule D. They considered that a person who agrees to become a trustee performing nonprofessional or non-commercial services may be recompensed by an "annual "payment", and that that was the true form and quality of the payments in the present cases. They accordingly discharged the assessments in question.
Held, that the Special Commissioners' decision was correct.
(1) Hearn (H.M. Inspector of Taxes) v. Morgan
CASE
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 on 4th June, 1943, T.H. Morgan (hereinafter referred to as "Mr. Morgan") appealed against an assessment in the sum of £1,043 made upon him under Schedule E of the Income Tax Acts for the year 1941-42.
2. The said assessment was made on Mr. Morgan in respect of remuneration received by him as a trustee of a settlement hereinafter referred to. Mr. Morgan is, and was during the relevant year, one of three trustees of the said settlement. The two other trustees were also assessed to Income Tax in respect of sums received by them, and appealed to us on the same day and at the same time as Mr. Morgan. The facts relating to their appeals, so far as differing from those relating to Mr. Morgan's appeal, are set forth in Cases stated and signed by us on the same day as this Case. The authority under which payment was made to the two other trustees is, as will appear, different from that under which payment was made to Mr. Morgan.
3. On 15th September, 1892, a settlement (hereinafter referred to as "the "marriage settlement") was made in contemplation of the marriage which shortly afterwards took place between Lord Binning and Miss Katharine Salting. A copy of the marriage settlement is annexed hereto, marked "A", and forms part of this Case(1).
Under the marriage settlement William Salting, the father of the said Katharine Salting, covenanted to pay to trustees the sum of £100,000 on trusts for the benefit of Lord and Lady Binning and their issue, Lady Binning having a life interest in the whole of the income of the trust funds. It was also provided that the property to which Lady Binning should be or become entitled should, subject to certain exceptions, be brought into the marriage settlement.
The original trustees of the marriage settlement were Sir Charles Hall and Wickham Flower. The power to appoint new trustees were vested in Lord and Lady Binning and in the survivor of them, and the power extended to the appointment of a third trustee, subject to the consent during his lifetime of William Salting. William Salting died on 23rd June, 1905.
Provision was made for the trustees to reimburse themselves for expenses. They were to be at liberty to employ a solicitor or other agent, and were to be entitled to allowance of all charges and expenses so incurred. No provision whatever was made in the marriage settlement for giving to the trustees any remuneration or annual payment for their services as such trustees.
4. The first original trustee, Sir Charles Hall, died on 9th March, 1900, and George Salting was appointed in his place by deed of appointment on 25th May, 1900. Wickham Flower, the second original trustee, died on 19th September, 1904, and George Salting died on 12th December, 1909. The marriage settlement was then left without trustees until an application was made to the Chancery Court by Lord and Lady Binning, and by an Order of that Court, dated 24th July, 1911, and hereinafter referred to as "the 1911 Order", W.J. Adams, the Rev. R.C. Lathom-Browne and Lord Binning were appointed trustees. A copy of the 1911 Order is annexed hereto, marked "B", and forms part of this Case(1).
Under the terms of the 1911 Order it was ordered "that the said William "James Adams be allowed Six hundred pounds per annum and the Reverend "Robert Charles Lathom-Browne Four hundred pounds per annum out of the "income of the Trust Estate (in addition to their costs charges and expenses) "as remuneration for their acting as Trustees so long as they shall respectively "continue so to act".
There had previously been no authority for the payment of any remuneration to trustees, and there is no trace of any such remuneration having in fact been previously paid.
The Order also provided that the costs, charges and expenses of the trustees of acting as such trustees be paid out of the capital of the estate.
5. W.J. Adams died on 23rd August, 1913. Lord Binning, in accordance with his obligation so to do under the 1911 Order, applied together with Lady Binning to the Chancery Court, and the Court made an Order, dated 26th January, 1914, and hereinafter referred to as "the 1914 Order", appointing T.H. Morgan (the Respondent in the present case) a trustee in place of the said W.J. Adams, deceased. A copy of the 1914 Order is annexed hereto, marked "C", and forms part of this Case (1).
Under the terms of the 1914 Order it was ordered "that the said Thomas Henry Morgan so long as he shall act as such Trustee be allowed Six hundred "pounds a year out of the income of the Funds subject to the Trusts of the "said Settlement (in addition to his costs charges and expenses) as remuneration "for his acting as such Trustee."
6. Lord Binning died on 12th January, 1917. The then surviving trustees of the marriage settlement were the Rev. R.C. Lathom-Browne and Mr. Morgan, the...
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