Philippi v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 17 May 1971 |
| Date | 17 May 1971 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income tax, Schedule D - Surtax - Avoidance of tax by transfer of assets abroad - Whether avoidance of taxation one of the purposes for which transactions effected - Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), s.412(3)(a).
On 28th September 1951, after sustaining a serious heart attack, the Appellant's father, who was then resident and ordinarily resident in the Irish Republic, transferred a fund to his wife and a Dublin solicitor in trust for the Appellant at 6th April after he became 21, with power to apply the income arising in the meantime for his maintenance, etc., or in maintaining a residence for him. The settlement recited that the settlor intended to reside abroad and was desirous of making provision for his son, including the provision and maintenance for him of a residence in Ireland. The trust fund included all but two of the issued shares of N Ltd., a company incorporated, managed and controlled in the Republic and not carrying on a trade, to which on 26th September 1951 the settlor had transferred his house in Co. Cork. On 30th April 1952 the Appellant's father sold securities worth £28,813 to N Ltd. and then assigned the debt for the purchase price to the trustees of the settlement. In April 1952, on medical advice, he went to live in Switzerland, where he had since remained apart from occasional short visits to the Republic and other countries. His wife, the Appellant's mother, continued to reside at the house in Co. Cork. For the years 1951-52 to 1954-55 the trustees of the settlement claimed repayment, under the Residence Agreement with the Republic, of United Kingdom tax deducted at source from the trust income, but the claim failed on the ground that the whole income had been applied for the maintenance and education of the Appellant, who, being a boarder at Stowe, was resident in the United Kingdom. The Appellant, who was born in London on 11th August 1938, was commissioned into the Coldstream Guards in 1958 and served in England up to and after 5th April 1964, except for a period of service abroad from July 1961 to February 1962.
The Appellant's father was born in Germany in 1879 of parents who were naturalised British subjects. He was brought to England a few months after his birth and lived there until 1920 apart from living abroad during the war of 1914-18. In 1920 he went to live in the south of France and there in 1927 he married the Appellant's mother, an American. In 1928 he took a lease of a house in Wiltshire and from 1928 to 1938 he and his wife divided their time equally between that house and the south of France. In 1947 he disposed of the house, bought the property already referred to in Co. Cork where he and his wife made their home, and took his capital to the Irish Republic.
Assessments to income tax under Case VI of Schedule D and surtax for the years 1960-61 to 1963-64 in respect of the income of N Ltd. were made on the Appellant under ss.412 and 413, Income Tax Act 1952, as a person ordinarily resident in the United Kingdom in those years who by means of transfers of assets to persons abroad and associated operations had acquired rights by virtue of which he had power to enjoy that income. On appeal, the Appellant contended, inter alia, (a) that although he was resident in the United Kingdom in the material years his residence was involuntary and uncertain from one day to another and therefore he was not ordinarily resident there; (b) that in or about 1948 his father became domiciled in the Irish Republic; (c) that, notwithstanding that his father was unable through ill health to come and give evidence, he had established on the balance of probability that avoiding liability to taxation was not a purpose for which any of the relevant transactions was effected, so that s.412 did not apply. The Special Commissioners dismissed the appeal, holding (a) that the Appellant, who was admitted to be resident in the United Kingdom in the years 1960-61 to 1963-64, was also ordinarily resident there; (b) that, so far as it was relevant, he had not established that his father had ceased to be domiciled in the United Kingdom in the relevant years; (c) that he had not satisfied them that avoiding liability to taxation was not a purpose for which any of the relevant transactions entered into by his father was effected.
In the High Court the Appellant contended that at the time of the transfers of 1951 and 1952 his father was resident, ordinarily resident and domiciled in the Republic and consequently avoidance of liability of United Kingdom taxation could not have been one of his purposes in making the transfers. In the Court of Appeal it was further contended for the Appellant that the case should be remitted to the Commissioners to hear the evidence of his mother and the Dublin solicitor as to the purpose of the transfers of 1951 and 1952.
Held, (1) that the case should not be remitted for evidence which could have been led at the hearing;
(2) that the Appellant had not discharged the burden of showing that avoidance of United Kingdom income tax or estate duty was not one of the purposes of the transfers.
Stated under the Income Tax Management Act 1964, s. 12(5), and the Income Tax Act 1952, s. 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 2nd, 3rd, 4th, 7th and 8th February 1966, and after adjournment on 3rd and 4th March 1966, and after further adjournment on 28th, 29th, 30th and 31st January 1969, Captain George Antony Philippi (hereinafter called "the Appellant") appealed against the following assessments to income tax under Case VI of Schedule D and to surtax.
Income Tax |
Surtax |
|
1960-61 |
£2,424 |
£6,884 |
1961-62 |
£2,693 |
£7,151 |
1962-63 |
£6,613 |
£7,532 |
1963-64 |
£7,607 |
£8,552 |
2. Shortly stated, the question reported to us as being for determination was whether the income of Nuova Ltd., a company incorporated in the Republic of Ireland, was to be deemed to be the income of the Appellant for all the purposes of the Income Tax Acts for the years 1960-61 to 1963-64 inclusive by virtue of the provisions of s. 412, Income Tax Act 1952. The matters which were raised before us in this connection are herein divided into three parts, namely:
(a) A preliminary procedural point. This is dealt with in paras. 3 and 4 below.
(b) The main arguments and the determination of the appeals in principle. These are dealt with in paras. 5 to 11 inclusive below. Objection was taken to the admission of certain evidence tendered before us on behalf of the Crown. We overruled this objection. We have in para. 7 below departed from chronological order and set out firstly the facts found by us which were based on evidence which was not disputed (sub-paras. (a) to (m) inclusive) and secondly the facts found by us which were based on the disputed evidence (sub-para. (n)). On 21st April 1966 the solicitors to the Appellant filed a statement pursuant to R.S.C. 1883, Ord. 59, r. 3(2), seeking an order of mandamus directed to us to hear and determine the appeals against the assessments made upon the Appellant under Schedule D for the years 1960-61 to 1963-64 (inclusive) according to law. The case came before the Queen's Bench Divisional Court on 22nd November 1966, and is reported at 44 T.C. 31.
(c) Arguments as to the final determination of the assessments following the issue of our decision in principle. These are dealt with in paras. 12 to 16 inclusive below.
3. At the hearing before us a preliminary point was taken on behalf of the Appellant, and resisted on behalf of the Crown, that it was for the Crown to open the proceedings before us.
There are attached as exhibit A to this Case(1) copies of the notices of assessment relating to the income tax assessments under appeal, copies of the letters of 8th and 12th November 1965 giving notice of appeal against those assessments and copies of letters of 6th and 21st January 1966 relating to the appeals.
We heard argument on this preliminary point and were referred to the following authorities: R. v. Bloomsbury Commissioners(ex parte Hooper) 7 T.C.59; [1915] 3 K.B. 768;Commissioners of Inland Revenue v. Sneath 17 T.C.149; [1932] 2 K.B. 362; Thomas Fattorini (Lancashire) Ltd. v. Commissioners of Inland Revenue 24 T.C.328; [1942] A.C. 643; Corbett's Executrices v. Commissioners of Inland Revenue (1943) 25 T.C.305;Norman v. Golder (1944) 26 T.C.293; Dixon & Gaunt Ltd. v. Commissioners of Inland Revenue (1947) 29 T.C.289;Commissioners of Inland Revenue v. Transport Economy Ltd. (1955) 35 T.C.601; Commissioners of Inland Revenue v. White Bros. Ltd. (1956) 36 T.C.587; Amis v. Colls (1960) 39 T.C.148; Commissioners of Inland Revenue v.Verdon-Roe (1962) 40 T.C.541; Hudson v.Humbles (1965) 42 T.C.380; O'Mullan v.Walmsley (1965) 42 T.C.573; Joseph Constantine Steamship Line Ltd. v. Imperial Smelting Corporation [1942] A.C.154;A. & J. Mucklow Ltd. v. Commissioners of Inland Revenue 35 T.C.251; [1954] Ch. 615; [1954] 2 All E.R. 508.
4. On 3rd February 1966 we gave a ruling on this preliminary point as follows:
In these appeals against assessments to income tax under Case VI of Schedule D raised by virtue of s. 413, Income Tax Act 1952, and also against assessments to surtax, in each case for all the years 1960-61 to 1963-64 inclusive, the preliminary point is taken for the Appellant that the onus is upon the Crown to satisfy us that there were a transfer or transfers and associated operations within the meaning of s. 412 which gave rise to liability under Case VI assessable by virtue of s. 413 and liability to surtax, with the corollary to this proposition that it was for the Crown to open the proceedings before us.
The assessments appealed against were all made on 5th November...
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Chetwode (Lord) v Commissioners of Inland Revenue
......We are fortified in this conclusion by a similar view expressed by our colleagues in Philippi v. Commissioners of Inland Revenue , 47 Tax Cases, 75 . Accordingly we reject the submission". . 13 Lord Chetwode appealed to the High Court. The case was heard by Mr Justice Megarry, who gave a full Judgment upholding the decision of the Commissioners. I will cite a few ......