Re Sutherland, decd
| Jurisdiction | UK Non-devolved |
| Judge | Lord Reid,Lord Tucker,Lord Birkett,Lord Hodson,Lord Guest |
| Judgment Date | 26 October 1961 |
| Judgment citation (vLex) | [1961] UKHL J1026-2 |
| Date | 26 October 1961 |
| Court | House of Lords |
[1961] UKHL J1026-2
Lord Reid
Lord Tucker
Lord Birkett
Lord Hodson
Lord Guest
House of Lords
Upon Report from the Appellate Committee, to whom was referred the Cause Winter and others (suing as Executors of Sir Arthur Munro Sutherland, Baronet, deceased) against Commissioners of Inland Revenue, that the Committee had heard Counsel as well on Thursday the 29th day of June last, as on Monday the 3d day of July last, upon the Petition and Appeal of Robert Pearson Winter, of 16 Market Street, in the City and County of Newcastle upon Tyne, Thomas Alfred Bertram Forster, of Lloyds Bank Chambers, Collingwood Street, Newcastle upon Tyne aforesaid, and Ernest Ridley, of 296 Wingrove Road, Newcastle upon Tyne aforesaid, suing as Executors of Sir Arthur Munro Sutherland, Baronet, deceased, 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 22d of July 1960, 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 Petitioners 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 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, sitting and acting after the Prorogation of Parliament for the purpose of determining Appeals pursuant to an Order of this House of the 24th instant made under and by virtue of the provisions of the Appellate Jurisdiction Act, 1876, That the said Order of Her Majesty's Court of Appeal, of the 22d day of July 1960, complained of in the said Appeal, be, and the same is hereby, Reversed: And it is further Ordered, That the Cause be, and the same is hereby, remitted back to the Chancery Division of the High Court of Justice with a Declaration, That in making the estimation required by section 50 (1) of the Finance Act, 1940, the shares of B. J. Sutherland & Co. Ltd. ought to be valued for Estate Duty at the death of the said Sir Arthur Munro Sutherland, Baronet, on the footing that at the date of death liability to pay under a balancing charge was a contingent liability within the meaning of the said section:
And it is also further Ordered, That the Respondents do pay, or cause to be paid, to the said Appellants the Costs incurred by them in the Courts below, and also the Costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments.
My Lords,
The Appellants are the executors of the deceased Sir A. M. Sutherland, who died on 29th March, 1953. He owned 98,700 shares in B. J. Sutherland & Co., and he controlled that Company. Accordingly these shares had to be valued for estate duty purposes by reference to the value of the assets of the Company and not by reference to the market value of the shares at the date of his death. The Company owned five ships of which the value at that date is agreed to have been £1,150,000. The cost of these ships had been considerably less and the Company had received large capital and annual allowances so that the expenditure unallowed within the meaning of section 297 of the Income Tax Act, 1952, was only £290,749. Accordingly, if these ships had been sold when the deceased died there would have been a balancing charge which would have given rise to liabilities for Income Tax and Profits Tax amounting to £270,079. In fact the ships were sold somewhat later and then the balancing charge gave rise to a liability of £370,000 for Income Tax and Profits Tax.
The question in this case is whether any account has to be taken of the fact that if these ships were sold for a price exceeding the unallowed expenditure the excess would be subject to a balancing charge. I need not consider Profits Tax because the argument is the same as for Income Tax with a minor difference which in my view is not material in this case. The question depends ultimately on the proper construction of the words "contingent liabilities" in section 50 (1) of the Finance Act, 1940, but before coming to that subsection I must briefly refer to certain other provisions.
Section 55 of that Act provides that, where there pass shares of a company of which the deceased had control, the principal value of the shares—
"… shall be estimated by reference to the net value of the assets of the company in accordance with the provisions of the next succeeding subsection.
(2) For the purposes of such ascertainment as aforesaid—
( a) the net value of the assets of the company shall be taken to be the principal value thereof estimated in accordance with the said subsection (5), less the like allowance for liabilities of the company as is provided by subsection (1) of section fifty of this Act in relation to the assets of a company passing on a death by virtue of section forty-six of this Act, but subject to the modification that allowance shall be made for such a liability as is mentioned in paragraph ( b) of that subsection unless it also falls within paragraph ( a) thereof …"
Section 50 (1) provides—
"In determining the value of the estate for the purpose of estate duty the provisions of subsection (1) of section seven of the Finance Act, 1894, as to making allowances for debts and incumbrances shall not have effect as respects any debt or incumbrance to which assets of the company passing on the death by virtue of section forty-six of this Act were liable, but the Commissioners shall make an allowance from the principal value of those assets for all liabilities of the company (computed, as regards liabilities which have not matured at the date of the death, by reference to the value thereof at that date, and, as regards contingent liabilities, by reference to such estimation as appears to the Commissioners to be reasonable) other than—
( a) liabilities in respect of shares in or debentures of the company; and
( b) liabilities incurred otherwise than for the purposes of the business of the company wholly and exclusively."
I need not set out the section of the Income Tax Act dealing with balancing charges because there was no dispute about their nature. If a trader claims and receives an initial allowance or annual allowances in respect of anything which he uses in his trade there must be a reckoning with the Revenue when for any reason he ceases to use it in his trade. He may sell or scrap it: it may perish: or he may cease to carry on his trade. In any of these events the expenditure unallowed must be compared with any "sale, insurance, salvage or compensation moneys" received. If the latter exceed the former that shews that he has been allowed too much and a balancing charge will be made. If the former exceeds the latter he has been allowed too little and he will get a balancing allowance.
So the position of the Company at the date of the deceased's death was that, by applying for and accepting allowances in respect of these ships, it had become bound by the statute to pay tax under a balancing charge when it ceased to use these ships in its trade, if the moneys which it received for them exceeded any expenditure on them which was still unallowed. And I should add, because importance was attached to this in argument, the Company would only have to pay tax if the law had not been altered, and If when the question arose there was in existence a Finance Act determining the rate of Income Tax. So there were two contingencies which had to be fulfilled or conditions which had to be purified before tax could be demanded from the Company: the sums received for the ships must exceed the unallowed expenditure, and there must be no relevant change in the law and no failure to enact a Finance Act. The question is whether in these circumstances there was a contingent liability of the Company to pay tax.
No doubt the words "liability" and "contingent liability" are more often used in connection with obligations arising from contract than with statutory obligations. But I cannot doubt that if a statute says that a person who has done something must pay tax, that tax is a "liability" of that person. If the amount of tax has been ascertained and it is immediately payable it is clearly a liability; if it is only payable on a certain future date it must be a liability which has "not matured at the date of the death" within the meaning of section 50 (1). If it is not yet certain whether or when tax will be payable or how much will be payable why should it not be a contingent liability under the same section?
It is said that where there is a contract there is an existing obligation even if you must await events to see if anything ever becomes payable, but that there is no comparable obligation in a case like the present. But there appears to me to be a close similarity. To take the first stage, if I see a watch in a shop window and think of buying it, I am not under a contingent liability to pay the price if I buy it: similarly if an Act says I must pay tax if I trade and make a profit, I am not before I begin trading under a contingent liability to pay tax in the event of my starting trading. In neither case have I committed myself to anything. But if I agree by contract to accept allowances on the footing that I will pay a sum if I later sell something above a certain price I have committed myself and I come under a contingent liability to pay in that event. This Company did precisely that, but its obligation to pay arose not from...
To continue reading
Request your trial
-
Re Bristol Fund
...applied. (20) Transnational Ins. Co. Ltd., In re, 1998 CILR 114; on appeal, 2001 CILR 34, followed. (21) Winter v. Inland Rev. Commrs., [1963] A.C. 235; [1961] 3 W.L.R. 1062; [1961] 3 All E.R. 855; [1961] T.R. 349; (1961), 40 A.T.C. 361; 105 Sol. Jo. 929, dictum of Lord Reid followed. Legis......
- Integral Memory Plc v Watts
-
Day v Haine and Another
...method of enforcement that were to be determined. 84 In her concurring judgment, Arden LJ made it clear, in a brief discussion of In re Sutherland, deceased [1963] AC 235; (1) that she favoured a narrow construction of the term “contingent liability”; (2) that it was not a term of art, and......
-
T. Burton For Direction Of Assets Re Ben Line Steamers For Directions As To The Distribution Of Its Surplus Assets
...so far obliged, that he hath no right to revoke or withdraw that hope from the creditor which he had once given him". In Re Sutherland, [1963] AC 235, an English tax appeal, both Lord Reid and Lord Guest stated that that passage represented an accurate description of the concept of a contin......
-
Supreme Court Rules Against Super Priority Status of Pension Regulator’s Claims in Insolvency
...is imposed to conclude that the step or combination of steps gave rise to an obligation.” The Supreme Court relied on Re Sutherland [1963] AC 235 and other cases that were concerned with the meaning of “contingent liabilities”. The court reasoned that the two concepts are closely related: a......
-
Supreme Court Rules Against Super Priority Status Of Pension Regulators Claims In Insolvency
...is imposed to conclude that the step or combination of steps gave rise to an obligation. The Supreme Court relied on Re Sutherland [1963] AC 235 and other cases that were concerned with the meaning of contingent liabilities. The court reasoned that the two concepts are closely related: a......