Muir v Commissioners of Inland Revenue

The appellant in this case was in November, 1963, assessed to surtax over the years from 1953 to 1958 inclusive in respect of income arising under a settlement which he had made in May, 1947. The assessments were made on the footing that the income arising from this settlement during the years in question ought to be treated as the appellant's income notwithstanding the settlement and a variation of it made in the year 1952.

The settlement is an odd and extremely ill-drawn document. It is dated the 31st May, 1947, and made between the appellant of the one part and the appellant and his son-in-law as trustees of the other part. The trust fund was started by payment of £100 to the trustees but is now a large sum with an income of some £20,000 a year.

By clause 3 of the settlement the trust fund was to be held on trust for the children and descendants of the settler living at the end of the "appointed period" defined in clause 4, issue taking per stirpes such interest as a parent should appoint and in default equally. There was an ultimate trust for a class which admittedly is void.

Clause 4 is in these words: "The appointed period herein referred to is the period beginning at the date hereof and expiring at the end of ninety years from the date hereof or of twenty one years from the death of the lest survivor of such of the beneficiaries as were born before the date of these presents (whichever shall be the shorter period) 'The Beneficiaries' herein referred to are and include: (a) The descendants of the Settlor (b) The persons for the time being having interests or expectancies under or by virtue of the last trust declared by clause 3 hereof (c) All persons who have married or may marry any of the descendants referred to in (a) above". Sub-clause (b), which I have just read, can be ignored, because, that trust being void, there can be no persons interested under it.

Clause 5 empowers the trustees to put an end to the appointed period at any time.

Clause 6 provides that the income during the appointed period is to be applied as the trustees think fit for the benefit of all or any one or more of the beneficiaries.

Clause 8 is in these terms: "Provided Always that the Trustees shall have power from time to time during the said appointed period in their discretion to capitalise the said net income or any part thereof either by investing the same and treating such investments as part of the capital of the Trust Fund or by applying the same in or towards payment of the premiums on any policy or policies of assurance in which any beneficiary shall (whether under this Settlement or under any other Settlement or otherwise) have any beneficial interest whether vested or contingent and whether indefeasible or defeasible (and so that the Trustees shall have power if they think fit to effect such assurances on any life or lives in which any beneficiary shall have an insurable interest or by way of endowment or sinking fund policies) or in any other mode of capitalization which may appear to the Trustees to be expedient".

Clause 10 is in these terms: "The Trustees shall also have power during the said appointed period to apply transfer appropriate or by deed appoint the whole or any part or parts of the capital of the Trust Fund to or for the benefit of all or such one or more to the exclusion of the other or others of the beneficiaries if more than one in such shares and in such manner generally as the Trustees shall from time to time in theirabsolute discretion think proper and in appointing under this clause may settle the property appointed in such manner as may "be thought fit (due regard "being had to the rule against perpetuities) for the benefit of any person mainly or partly intended to be benefited by the appointment and the spouse and issue of such person with such discretionary trusts or powers and such powers of appointment exercisable by such person or persons as the Trustees may think fit".

In 1952 the appellant retired from the trust and appointed his wife trustee in his place and on the next day, for reasons not stated, the new trustees executed a document called a Deed of Appointment expressed to be supplemental to the 1947 settlement and whereby "in exercise of the power in that behalf given to them by the Settlement and of every or any other power enabling them the Trustees hereby appoint and it is hereby agreed and declared as follows". Then after a definition clause the new document by clauses 2, 3, 4, 5, 7 and 8 repeats exactly clauses 3, 4, 5, 6, 10 and 11 of the 1947 settlement. If valid this document thus appoints both the corpus of the fund at the end of the appointed period and the income daring that period to the same persons as took under the 1947 settlement. The significant change consists in the omission to repeat clause 8 of the earlier instrument and the effect is to deprive the descendants interested in capital of the chance that the trustees may during the appointed period capitalise all or any part of the income so as to add it to capital to the detriment of income beneficiaries. It was no doubt for that purpose that the 1952 deed was executed. It is part of the Crown's case as now presented that this document is invalid, for reasons which I will go into later, and that clause 8 of the 1947 deed is still subsisting and its powers exercisable by the trustees.

Before the Special Commissioners the Crown relied on two points, first that the income trusts were wholly void for uncertainty and that there was a resulting trust accordingly to the settlor, and secondly by way of alternative that the income of the settlement, which had not been distributed, ought to be treated as being the settlor's income on the ground that he had an interest in that income within the meaning of section 405 (l) of the Income Tax Act, 1952.

The Special Commissioners rejected the first contention of the Crown, holding that there was no uncertainty in the appointed period created by clause 4 of the settlement to regulate the duration of the income trusts. The alternative contention of the Crown rested on the fact that in 1956 the settlor or his advisers seemed to have conceived doubts about the validity of the settlement either on the ground of uncertainty or perpetuity, that proceedings were taken in the Chancery Division to set these doubts at rest, and that £20,000 was with the sanction of the Court paid to the settlor as the price of abandoning any claims he might have to set aside the settlement as invalid. The Special Commissioners considered that the doubt must have been a real one or the compromise would not have been sanctioned by the Court and that therefore it could not be said that during the years in question the settlor had no interest in the income as it might have become payable to him if the doubts had proved wellfounded. The words of sub-section 2 of section 405 provide that the undistributed income is to be taken to be the income of the settlor if "it may become payable to him under any circumstances whatsoever".

The result was that the Crown succeeded on their second point though they had lost on the first, and the assessment was confirmed. The appellant was dissatisfied with this result and he required the Commissioners to state a Case, which they did, stating as the question of law for the High Court whether their decision under section 405 of the Act was correct. The Caseraised no point about the resulting trust (that is to say the uncertainty point) on which the appellant had been successful and did not appeal. There was no expression of dissatisfaction by the Crown upon the uncertainty point, but on the 19th July, 1965, the Crown gave notice of its intention to raise the issue of uncertainty decided against it by the Special Commissioners, and also put forward for the first time a new submission under section 405 of the Income Tax Act.

When the case came before the learned judge the appellant took by way of preliminary point the objection that the Crown ought not to be allowed to raise the issue of uncertainty first because it had expressed no dissatisfaction in accordance with section 54 of the Act and secondly because the Court should not in its discretion entertain any issue not raised in the Case Stated. The learned judge rejected this preliminary point and for myself I think that there is no substance in it whatever. It was the taxpayer who was dissatisfied with the "determination", that is to say the result of his application to the Special Commissioners, and it was therefore for him to declare his dissatisfaction and require the Commissioners to state a Case. It was not for the Crown to do anything of the sort for it was not dissatisfied. It was in my judgment none-the-less open to the Crown to seek to uphold the decision in its favour on any ground of law available, including a ground decided against it by the Commissioners. It is true that the Court has a discretion to decline to entertain points not taken in the Case Stated, for instance the ( Aramayo case 1925 1 King's Bench 86 at page 109), but I cannot think it would be right in the exercise of that discretion to shut the Crown out from a point of which it had duly given notice to the taxpayer and in which there was no element of surprise. Accordingly I see every...