Kenmare (Countess of) v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | Viscount Simonds,Lord Reid,Lord Cohen,Lord Keith of Avonholm,Lord Somervell of Harrow |
| Judgment Date | 25 July 1957 |
| Judgment citation (vLex) | [1957] UKHL J0725-3 |
| Date | 25 July 1957 |
| Court | House of Lords |
[1957] UKHL J0725-3
House of Lords
Viscount Simonds
Lord Reid
Lord Cohen
Lord Keith of Avonholm
Lord Somervell of Harrow
Upon Report from the Appellate Committee, to whom was referred the Cause Countess of Kenmare against Commissioners of Inland Revenue, that the Committee had heard Counsel, as well on Monday the 1st, as on Tuesday the 2d and Wednesday the 3d, days of this instant July, upon the Petition and Appeal of the Right Honourable Enid Countess of Kenmare, of c/o Mrs. Charles Munroe, P.O. Box No. 1251, Nassau, Bahamas, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 2d of July 1956, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the printed Case of the Commissioners of Inland Revenue, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 2d day of July 1956, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellant do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
On the 24th September, 1947, the Appellant, the Countess of Kenmare, being then neither resident nor ordinarily resident in the United Kingdom, made in Bermuda, in accordance with the law of that Island, a settlement of certain United Kingdom stocks, shares and securities of the value of about £700,000. The trustees of the settlement were Nicholas Conyers Dili and the Bank of N.T. Butterfield & Son Ltd., both of them resident in Bermuda. The beneficial trusts of the settlement were ( a) for the trustees in their absolute discretion to pay the whole or any part of the income of the trust to the Appellant during her life and to hold the balance of such income as should not be paid to her on income account and to pay the whole or any part of such balance to her from time to time during her life with the proviso that any balance remaining at her death should be added to the trust fund and devolve accordingly, and ( b) after the death of the Appellant to stand possessed of the capital of the trust fund upon the trusts for the benefit of the children or remoter issue of the settlor which are usually found in such a settlement. So far the settlement followed the common form, but it contained also the following clause 5, which has given rise to the question which your Lordships have now to determine:—
"5. (A) Notwithstanding the trusts hereinbefore declared the Trustees if they in their absolute discretion think fit may at any time and from time to time during the lifetime of the Settlor by writing under their hands declare that any part of the Trust Fund not exceeding the amount hereinafter mentioned shall thenceforth be held IN TRUST for the Settlor absolutely and thereupon the trusts hereinbefore declared concerning the part of the Trust Fund or the property to which such declaration relates shall forthwith determine and the Trustees shall thereupon transfer such part of the Trust Fund or the property to which such declaration relates to the Settlor absolutely PROVIDED ALWAYS that the foregoing power shall not be exercisable by the Trustees so as to vest in the Settlor in any period of three years the first of which shall commence on the date hereof and end on the same date in the year 1950 the second of which shall end on the same date in the year 1953 and so on in every third year a part or parts of the Trust Fund or property of a value or aggregate value exceeding £60,000 of the currency of the Islands of Bermuda.
(B) If in any such period of three years the foregoing powers shall not be exercised to the full extent of the said sum of £60,000 the deficiency may be carried forward so as to increase the amount in respect of which the said power may be exercised in any succeeding period of three years."
The income arising from the trust fund for the period from the 24th September, 1947, to the 5th April, 1948, amounted, before deduction of United Kingdom tax and expenses, £24,127 6s. 7d., and this sum was included in the assessment of the Appellant to surtax for the year 1947–48 upon the footing that it was caught by section 38 (2) of the Finance Act, 1938. The net income was in fact paid to the Appellant or placed at her disposal by the trustees. Section 38 (2) is as follows:—
"38. (2) If and so long as the terms of any settlement are such that—
( a) any person has or may have power, whether immediately or in the future, and whether with or without the consent of any other person, to revoke or otherwise determine the settlement or any provision thereof; and
( b) in the event of the exercise of the power, the settlor or the wife or husband of the settlor will or may become beneficially entitled to the whole or any part of the property then comprised in the settlement or of the income arising from the whole or any part of the property so comprised;
any income arising under the settlement from the property comprised in the settlement in any year of assessment or from a corresponding part of that property, or a corresponding part of any such income, as the case may be, shall be treated as the income of the settlor for that year and not as the income of any other person:
Provided that, where any such power as aforesaid cannot be exercised within six years from the time when any particular property first becomes comprised in the settlement, this subsection shall not apply to income arising under the settlement from that property, or from property representing that property, so long as the power cannot be exercised."
Reference must also be made to subsection (5) of the same section, which provides that the provisions of Part I of the Third Schedule to the Act shall have effect as respects the recovery by a settlor of tax with which he becomes chargeable and the recovery from a settlor of any additional relief to which he becomes entitled by virtue of that section, and to subsection (7), which provides that the provisions of that section shall apply for the purposes of assessment to income tax for the year 1937–38 and subsequent years and shall apply in relation to any settlement wherever made and whether made before or after the passing of the Act. I must also mention that by section 41 (4) the expression "income arising under a settlement" is defined as including any income chargeable to income tax by deduction or otherwise, and any income which would have been so chargeable if it had been received in the United Kingdom by a person domiciled, resident and ordinarily resident in the United Kingdom; and the expression "settlement" is defined as including any disposition, trust, covenant, agreement or arrangement; and the expression "settlor" in relation to a settlement as meaning any person by whom the settlement was made. Finally, reference must be made to Part I of the Third Schedule to the Act, which provides, by paragraph 1, that where by virtue of any provision of section 38 of the Act any income tax becomes chargeable on and is paid by a settlor, he shall be entitled ( a) to recover from any trustee, or other person to whom income arises under the settlement, the amount of the tax so paid; and ( b) for that purpose to require the Commissioners concerned to furnish to him a certificate specifying the amount of income in respect of which he has so paid tax and the amount of tax so paid.
The Appellant, submitting to the jurisdiction, appealed against this assessment to the Special Commissioners on two grounds which, stated shortly, were ( a) that the settlement by reason of what I may call its foreign character was not a settlement to which upon its true construction section 38 applied, and ( b) that the power conferred by clause 5 upon the trustees was not a power to revoke or determine the settlement or any provision thereof within the meaning of the section. The Special Commissioners upheld her appeal on the first ground, and therefore thought it unnecessary to express any view on the second. Upon appeal by way of Case Stated to the Court Mr. Justice Danckwerts reversed the decision of the Special Commissioners, and his judgment was upheld by the Court of Appeal. Upon what I have called the first ground there was no difference of opinion between any of the learned Judges, and there was, in my view, little room for any difference. The language of section 38, and particularly of subsection (7), and of section 41, makes it clear beyond all doubt that any settlement, wherever made and whatever foreign element might be imported by the residence of settlor or trustees or the forum of administration, is caught by its provisions if the income arises in the United Kingdom. It is conceivable that there might be other provisions of the Act which read with section 38 would enforce a narrower meaning upon the word "settlement" where it occurs in section 38. In Astor v. Perry [1935] A.C. 398 this House by a majority was constrained as a matter of construction to limit the prima facie generality of certain words appearing in section 20 of the Finance Act, 1922, and the Special Commissioners were led or misled by this decision, and particularly by the...
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