Ostime v Australian Mutual Provident Society

JurisdictionEngland & Wales
JudgeLord Radcliffe,Lord Tucker,Lord Denning
Judgment Date16 July 1959
Judgment citation (vLex)[1959] UKHL J0716-3
Date16 July 1959
CourtHouse of Lords
Ostime (Inspector of Taxes)
and
Australian Mutual Provident Society

[1959] UKHL J0716-3

Lord Radcliffe

Lord Tucker

Lord Somervell of Harrow

Lord Denning

Lord Birkett

House of Lords

Upon Report from the Appellate Committee, to whom was referred the Cause Ostime (Inspector of Taxes) against Australian Mutual Provident Society, that the Committee had heard Counsel, as well on Thursday the 4th, as on Monday the 8th and Tuesday the 9th, days of June last, upon the Petition and Appeal of Francis Harry Ostime, of City 5 District, 346 Strand, London, W.C.2 (one of Her Majesty's Inspectors of Taxes), 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 4th of June 1958, 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 Australian Mutual Provident Society, 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 4th day of June 1958, 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.

Lord Radcliffe

My Lords,

1

The sole question raised by this appeal is whether the Respondent, an Australian life assurance company, can be lawfully assessed to income tax in this country under Rule 3 of Case III of Schedule D to the Income Tax Act, 1918 (or, as the rule has become, section 430 of the Income Tax Act, 1952) having regard to the obligations undertaken by the Government of the United Kingdom in the Double Taxation Relief Agreement entered into with the Government of the Commonwealth of Australia on the 29th October, 1946. The question itself is said to be a short one, as in one sense it is: but it is not so easy to state it shortly, and, since its solution requires a certain amount of introductory matter, I must ask leave to take a rather longer time than I should have wished in setting my opinion before your Lordships.

2

The relevant facts are these. The Respondent is a mutual insurance society incorporated in the State of New South Wales. It has its head office in Sydney and a branch office in London: from these offices it carries on a business of life assurance. It is not in dispute that for the purposes of taxation in this country its life assurance business is to be treated as a business separate from any other class of business carried on by it and the assessments which are the subject of appeal are confined to the income or profits of that business.

3

These assessments relate to a number of years, beginning with the revenue year 1947/8 and ending with the year 1953/4. Those for the first five years were made under Rule 3 of Case III of Schedule D, Income Tax Act, 1918, those for the last two under section 430 of the Income Tax Act, 1952, which Act replaced the earlier Act in the process of consolidation. As the provisions of the two Acts do not differ in any relevant particular I shall speak throughout of Rule 3 as the governing statutory provision. The course that the case has taken in the Courts below is that the assessments raised by the Appellant were discharged by the Special Commissioners on the Respondent's appeal and the order of the Special Commissioners has been upheld in the High Court (Upjohn, J.) and in the Court of Appeal (Jenkins, Parker and Pearce, L.JJ.). In all Courts hitherto the same view has prevailed, that there is a conflict between the provisions of Rule 3 and those provisions of the Double Taxation Relief Agreement which deal with the taxation of industrial or commercial profits and that this conflict precludes for the future an effective assessment under the Rule. I should add at this point that the Agreement became municipal law of this country by virtue of an Order in Council made on the 23rd April, 1947, under the authority given by section 51 (1) of the Finance (No. 2) Act, 1945, which allows the enactment by such Orders of the arrangements contained in double taxation relief agreements, and prescribes further that the arrangements covered by an Order shall have effect in relation to income tax notwithstanding anything in any enactment "so far as they provide for relief from tax, or for charging the income arising from sources in the United Kingdom to persons not resident in the United Kingdom, determining the income to be attributed to such persons and their agencies, branches or establishments in the United Kingdom …". It is plain, therefore, that, if there is a conflict, the unilateral legislation of the United Kingdom must give way.

4

The decisions in the High Court and the Court of Appeal were dominated by the view taken in those Courts as to the effect of the opinions delivered in this House in an earlier case involving the present Respondent, which is reported as Inland Revenue Commissioners v. Australian Mutual Provident Society [1947] A.C. 605. Both Courts treated that case as deciding that the Rule 3 assessment was an assessment and therefore a tax upon the profits of the business of life assurance and as such was a tax upon commercial profits within the meaning of the Double Taxation Relief Agreement. I do not think that the first part of this proposition has been denied at any stage by the argument for the Crown, though it challenges the deduction to be drawn from it as to the interpretation of the Agreement. However that may be, I am reluctant that the issue of this appeal should be determined by any exclusive reliance upon what was said by Members of this House in the earlier case, since the point that had then to be decided, relating as it did to the applicability of certain provisions about tax-free interest to a Rule 3 assessment, has no direct bearing upon the present dispute and in any event nothing said by the House in 1947 could amount to an interpretation of the words "commercial or industrial profits" in the Agreement, which was not then before them. I therefore defer until later any further reference to this case.

5

My Lords, I think that what has to be done is first to ascertain what was the nature of the taxation imposed by Rule 3, so far as that very special enactment admits of any clear categorisation, and then to ask whether or not taxation on that basis can still be imposed consistently with the obligations undertaken by the United Kingdom under the Double Taxation Relief Agreement. I will set out Rule 3 in the form in which it appears in the 1918 Income Tax Act, but before I do so I must make one cautionary remark. The framers of the Rule were concerned to extract what seemed to them a fair quantum of tax from what had hitherto been an unsatisfactory situation. They were not concerned with precise distinctions between commercial and investment income, which in any event do not always admit of such distinction: nor could they be expected to foresee either the contents or the wording of the Double Taxation Relief Agreements which have become a feature of post-1946 tax administration.

"3.—(1) Where an assurance company not having its head office in the United Kingdom carries on life assurance business through any branch or agency in the United Kingdom, any income of the company from the investments of its life assurance fund (excluding the annuity fund, if any), wherever received, shall, to the extent provided in this rule, be deemed to be profits comprised in this Schedule and shall be charged under this Case.

(2) Such portion only of the income from the investments of the life assurance fund for the year preceding the year of assessment shall be so charged as bears the same proportion to the total income from those investments as the amount of premiums received in that year from policy holders resident in the United Kingdom and from policy holders resident abroad whose proposals were made to the company at or through its office or agency in the United Kingdom bears to the total amount of the premiums received by the company:

Provided that in the case of an assurance company having its head office in any British possession, the Commissioners of Inland Revenue may, by regulation, substitute some basis other than that herein prescribed for the purpose of ascertaining the portion of the income from investments to be so charged as being income derived from business carried on in the United Kingdom.

(3) Every such charge shall be made by the special commissioners as though the company under the provisions of this Act had required the proceedings relating to the charge to be had and taken before those commissioners.

(4) Where a company has already been charged to tax, by deduction or otherwise, in respect of its life assurance business, to an amount equal to or exceeding the charge under this rule, no further charge shall be made under this rule, and where a company has already been so charged, but to a less amount, the charge shall be proportionately reduced."

6

Rule 3 first became law in 1915, being introduced by section 15 of the Finance Act of that year. The situation that it was framed to deal with needs to be shortly stated: it arose from a combination of the special difficulties of establishing the true annual profit of life assurance business with the special difficulties of determining...

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