Hood Barrs v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 21 November 1946 |
| Date | 21 November 1946 |
| Court | King's Bench Division |
No. 1356-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL-
Procedure - Jurisdiction - Competence of two Special Commissioners to hear appeals, etc.-Income Tax Act, 1918 (8 & 9 Geo. V, c.40), Sections 67(2), 137(1) and 230(2).
In July, 1938, the Appellant transferred a block of shares to each of his two infant and unmarried daughters absolutely without consideration or restriction. He represented this transaction as a purchase by them out of money given to them by his sister out of her own resources, but in fact, as he subsequently admitted, he had himself provided his sister with the money.
An additional assessment to Sur-tax was made upon the Appellant for the year 1938-39 in the amount of the dividends on the shares in question as falling to be treated as his income under Section 21 of the Finance Act, 1936. On appeal to the Special Commissioners the Appellant contended that the transfers of the shares without consideration or restriction did not constitute a settlement within the meaning of the said Section, and that to constitute a settlement there must be a condition or limitation whereby capital and income have different interests. The Special Commissioners held that the two transfers were "transfers of assets" within the meaning of Sub-section (9) (b) of Section 21 of the Finance Act, 1936, and were therefore "settlements" within the definition in that Sub-section, and they confirmed the assessment.
In the Court of Appeal it was argued on behalf of the Appellant that to constitute an effective appeal tribunal all the Special Commissioners must be summoned and that two Commissioners could not form a quorum.
Held, (i) that the Special Commissioners' decision was correct;
(ii) that two Special Commissioners were competent to sit as an effective tribunal of appeal and that it was not necessary that all the Commissioners should be summoned.
Stated under the Finance Act, 1927, Section 42 (7), and 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 meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 30th July, 1941, and 15th September, 1943, H.R. Hood Barrs (hereinafter called "the Appellant") appealed against an additional assessment to Sur-tax in the sum of £4,200 made upon him for the year ended 5th April, 1939, under the provisions of the Income Tax Acts.
2. The appeal raises the question as to whether certain dividends amounting to £4,200 arising from 120,000 ordinary shares of 5s.each in The Steel
Barrel Scammell's & Associated Engineers Ltd. should be included in computing the Appellant's total income for Sur-tax purposes for the said year by reason of the matters hereinafter set out.3. The said 120,000 shares were transferred on 25th July, 1938, by the Appellant (who was managing director of the company and held 318,850 shares prior to the transfer) in equal moieties to his two infant and unmarried daughters, Christine, known as "Jill", born 22nd July, 1920, and Heather, born 10th September, 1924.
4. At the appeal meeting on 30th July, 1941, the Appellant was represented by Counsel, who opened the appeal by submitting on the facts that the shares in question were purchased out of moneys provided as a gift to the children by an aunt (Mrs. Rutland, the Appellant's sister) and were an investment of the gifts and that the transactions were not colourable or a cloak for a gift of the shares by the Appellant himself to the children. Counsel also indicated that he would as an alternative, if it became necessary, contend that a gift of shares by the Appellant himself would not constitute a settlement within Section 21 of the Finance Act, 1936, so as to render the dividends the income of the Appellant under the Section. The explanation of the transfer of the shares to the two children, as being a gift by their aunt, had previously been given by the Appellant through his accountants in correspondence with the Inspector of Taxes in support of a repayment claim for one of the children. Copies of letters and a certificate to this effect signed by the Appellant relating to the claim are contained in a bundle annexed hereto, marked "A", and form part of this Case(1). In support of the submission on the facts evidence was given on oath to the following effect by the Appellant and his wife:-
The money, amounting in all to £45,000, to purchase the said shares from the Appellant was to be provided by the Appellant's sister, Mrs. D.M. Rutland, from her own resources as a gift for her nieces. Some £25,000 of this sum has been received by the Appellant in this country from Mrs. Rutland and the balance was to follow shortly. Mrs. Rutland was the wife of F.J. Rutland, a British subject, and at all material times they resided in Los Angeles, California. Mrs. Rutland was wealthy woman and was possessed in her own rights of means amply sufficient to make the gift. Letters dated 2nd July, 1938, 10th December, 1938, and 5th April (year not stated), from Mrs. Rutland to Mrs. Hood Barrs with reference to the matter were exhibited at the hearing. These letters are annexed hereto, marked "B", "C" and "D", respectively, and form part of this Case(1).
5. As a result of the cross-examination of the Appellant it was established that F.J. Rutland, in making returns of total income of himself and his wife for the purpose of claiming certain allowances, had at all material times returned his wife's income as nil, and neither the Appellant nor his wife were able to give a satisfactory account of the resources of Mrs. Rutland which enabled her to make such large gifts to her nieces.
6. In the above circumstances, we, the Commissioners, were not satisfied that, on the evidence as a whole, the Appellant had proved that Mrs. Rutland was possessed of sufficient means to provide the sum of £45,000 as a gift out of her own resources to her nieces. We adjourned the appeal in order that further evidence might be placed before us as to the financial position of Mrs. Rutland at the material time.
7. The appeal was relisted for further hearing on 15th September, 1943.
At this meeting no further evidence was called on behalf of the Appellant, and Counsel for the Appellant stated that he would leave the Appellant's case
where it stood, except that he formally took a new point (mentioned below) as to the jurisdiction of the Special Commissioners.On the alternative point that, whatever view was taken of the facts, the transaction could not be a settlement within Section 21 of the Finance Act, 1936, he wished to reply to the submission for the Crown.
The Solicitor-General, who appeared for the Respondents at the resumed hearing, then opened the case for the Respondents and stated with regard to the facts alleged that, as a result of further investigations, it had been discovered that there has been a deliberate attempt at the previous hearing to mislead the tribunal; that in addition to the sworn evidence then given, the Appellant had, in previous negotiations with the Revenue authorities, repeatedly represented that the shares in question were a gift to the children by their aunt, but that in fact he himself had provided money, which by previous arrangement with Mrs. Rutland he had caused to be sent out to her to the United States and caused to be remitted by her to England, to give the appearance of a gift to the children by their aunt; that the sworn evidence given by the Appellant at the previous hearing was false. With regard to the adjournment ordered by the Special Commissioners with a view to evidence being got as to the means of Mrs. Rutland, after the Appellant had been notified through his solicitor that the hearing would be resumed on 9th January, 1942, it was represented to the Special Commissioners on his behalf that evidence from Mr. Rutland, who had recently left America, could not be made readily available and that in consequence the Appellant was prepared to pay the amount of tax in dispute on the dividends in question upon the footing that the appeal should be adjourned indefinitely until the evidence of Mr. Rutland or his wife was available. The fact, however, was that Mr. Rutland had arrived in England and had been staying with the Appellant at the end of 1941 and had been available to give evidence. The Solicitor-General tendered documents and evidence in support of his openings, and Counsel on behalf of the Appellant then stated to the Commissioners that the facts as alleged for the Respondents were not disputed.
8. It was thus admitted on behalf of the Appellant that the evidence given at the previous hearing as to the sum of £45,000 provided, or to be provided, out of Mrs. Rutland's own resources as a gift to her nieces was entirely untrue. It was further so admitted that the sum in question had been provided by the Appellant, in this country, through the medium of various companies; that it had been remitted on his behalf to Mrs. Rutland in America and immediately remitted by her to the Appellant; that in effect the Appellant took the money out of one pocket and replaced the same amount into another. The letters from Mrs. Rutland to Mrs. Hood Barrs above-mentioned were a cloak intended to conceal the real transaction.
The said shares were transferred by the Appellant without consideration or restriction.
9. With regard to the other grounds of appeal, at the resumed hearing of the appeal on 15th September, 1943, it was contended on behalf of the Appellant:-
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(2) that two Special Commissioners did not constitute a quorum and were not competent to try an appeal;
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(3) that the transfers of the shares without consideration or restriction did not constitute a settlement within the meaning of the Finance Act, 1936, Section 21, and that to constitute a...
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