Owen v Sassoon
| Jurisdiction | England & Wales |
| Judgment Date | 06 March 1951 |
| Date | 06 March 1951 |
| Court | Chancery Division |
No. 1457-HIGH COURT OF JUSTICE-
Income Tax, Schedule D - Securities deposited with Lloyd's by underwriter as security against default - Interest thereon payable to underwriter - Whether part of business profits.
The Respondent was an underwriter and in accordance with the conditions of admission as a member of Lloyd's he had deposited with the Society of Lloyd's, as security against his default, certain securities, the interest on which he was entitled to receive until such default occurred. The Respondent, who was treated as being at all material times not resident and not ordinarily resident in the United Kingdom, had been allowed exemption from United Kingdom Income Tax, under Rule 2 (d) of the Rules applicable to Schedule C and under Section 60 (1) of the Finance Act, 1940, respectively, in respect of certain stocks of colonial governments and in respect of 3% Savings Bonds, which were included amongst the securities so deposited.
On appeal to the General Commissioners against assessments under Case I of Schedule D, the Respondent contended (i) that the securities were deposited as a guarantee against his personal default and were neither available for day to day use in his business nor subject to business risks until his default, and (ii) that the interest on the securities did not fall, under Sections 21 and 60 of the Finance Act, 1940, to be included in the computation of his business profits as an underwriter. For the Crown it was contended (i) that the deposit of the securities was an essential part of the Respondent's business and that the securities and interest thereon were funds employed and risked in the business, and accordingly, (ii) that the interest on the securities should be included in the computation of the Respondent's business profits. The Commissioners allowed the appeal.
Held, that the interest formed part of the Respondent's business profits.
Stated by the Commissioners for the General Purposes of the Income Tax for the City of London pursuant to the provisions of Section 149 (1) of the Income Tax Act, 1918, for the opinion of the High Court of Justice.
1. At a meeting of the said Commissioners held at Gresham College, Basinghall Street, in the City of London, on 6th March, 1950, Edward Sassoon, of Lloyd's, E.C.3, in the City of London, Lloyd's underwriter (hereinafter called "the Respondent") appealed against additional assessments to Income Tax made upon him under the Rules applicable to Schedule D of the Income Tax Act, 1918, in respect of underwriting profits as follows:-
for the year ended 5th April, 1943, |
in the sum of |
£515 |
" " " " " " 1944 |
" " " " |
£509 |
" " " " " " 1945 |
" " " " |
£508 |
" " " " " " 1946 |
" " " " |
£505. |
2. The sole question for the determination of the Commissioners was whether the interest on certain securities paid to the Respondent under the circumstances hereinafter set out should or should not be included in computing the profits of his underwriting business, having regard to the provisions of Sections 21 and 60 of the Finance Act, 1940.
3. The securities in question consisted of the following:-
(a) £2,050 10s. 7d. Australia 4% Stock 1955-70
(b) £2,168 8s. 9d. New Zealand 31/2%Stock 1949-54
(c) £706 9s. 4d. Kenya Government 23/4% Stock 1971-76
(d) hereinafter referred to as "the Colonial stock," and
(e) £3,051 0s. 3d. 3% Savings Bonds 1955-65
(f) hereinafter referred to as "the Savings Bonds."
4. The Respondent, who resides in France and was treated at all material times as not resident and not ordinarily resident in the United Kingdom, had claimed and been granted exemption from United Kingdom Income Tax in respect of the interest on the Colonial stock under Rule 2 (d)of the Rules applicable to Schedule C of the Income Tax Act, 1918, and in respect of the interest on the Savings Bonds by reason of the conditions as to exemption from taxation of their issue under the powers contained in Section 60 (1) of the Finance Act, 1940, referred to more particularly in paragraph 8 below.
5. The said underwriting business had been carried on by the Respondent since 1923 as a member of a Lloyd's underwriting syndicate dealing with both marine and non-marine insurance. The members of such a syndicate must be underwriting members of Lloyd's (where they are known as "names") and as a condition precedent to admission as such a member of Lloyd's and commencing business the applicant for admission is required to deposit with the Society of Lloyd's securities of a value fixed by the Committee and approved by it to be held by the Society as security in case of default either in paying claims upon policies underwritten by him or on his account at Lloyd's.
Both the Colonial stock and the Savings Bonds had been, or represented securities which had been, deposited by the Respondent with Lloyd's before he commenced business in fulfilment of the said requirement. At a later stage, i.e., after he had joined the syndicate, the Respondent had made the further customary arrangements with the other names in agreement with Lloyd's for carrying on the underwriting business of the syndicate.
6. The documents by means of which the various arrangements referred to in the last preceding paragraph were given legal effect were the following:-
(a) A deed dated 22nd May, 1923, under which the Colonial stock was held by Lloyd's (hereinafter called "the marine deed") made between the Respondent of the one part and the Society incorporated by Lloyd's Act, 1871 (thereinafter sometimes called "the "Society") of the other part whereby, after reciting that the Respondent with a view to and in consideration of being admitted an underwriting member of Lloyd's had transferred or procured to be transferred to or into the name of the Society the stocks, funds, shares or securities mentioned in the schedule thereunder written (which stocks, funds, shares or securities and any others which might be substituted therefor by reinvestment as thereinafter provided and the proceeds thereof respectively are thereinafter called "the Trust Fund") it was witnessed and declared that the trust fund was to be held by the Society upon the trusts therein mentioned namely...
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