Reid's Trustees v IRC
| Jurisdiction | Scotland |
| Judgment Date | 20 March 1929 |
| Date | 20 March 1929 |
| Docket Number | No. 59. |
| Court | Court of Session |
Lord President (Clyde), Lord Sands, Lord Blackburn, Lord Morison.
Et e Contra.
RevenueIncome taxPersons assessableTrusteesAccrued interest received by trustees after truster's deathInterest treated by trustees as capitalWhether trustees assessable to income taxPersons receiving or entitled to incomeIncome Tax Act, 1918 (8 and 9 Geo. V. cap. 40), Sched. D., Rule 1 of Miscellaneous Rules.
The Income Tax Act, 1918, enacts, by Rule 1 of the Miscellaneous Rules applicable to Schedule D, that tax under the Schedule shall be charged upon and paid by the persons or bodies of persons receiving or entitled to the income in respect of which the tax is charged.
A testator left a liferent of 20,000 and of one-third of the residue of his estate to each of his wife and daughter, and 20,000 and one-third of the residue to his son absolutely. The beneficiaries were all capaces and resident in this country. The testator held 40,000 5 per cent War Stock, the interest on which was payable without deduction of tax. He died on 25th April 1925. The interest due on 1st June, and paid to the trustees on that date, amounting to 1000, was treated by them as capital, and estate-duty was paid thereon.
The trustees, having been assessed to income tax on the 1000 of interest, contended that trustees acting for behoof of a British resident who was capax were not assessable to income tax. The Commissioners decided that the trustees were assessable as regarded the two-thirds of the interest effeiring to the portions destined to the testator's wife and daughter in liferent, but not as regarded the one-third payable by them to the son.
Held that the trustees were assessable to tax on the whole interest, under Rule 1 of the Miscellaneous Rules applicable to Schedule D.
Williams v. Singer, [1921] 1 A. C. 65, and Baker v. Archer-SheeELR, [1927] A. C. 844, commented on.
The trustees of the late Alexander Reid appealed to the Commissioners for the General Purposes of the Income Tax Acts for the Upper Ward of Renfrewshire against an assessment for the year 19251926 made on them under Schedule D* of the Income Tax
Act, 1918, in respect of War Stock interest amounting to 2000. At the hearing before the Commissioners the trustees, for convenience' sake, did not dispute the assessment as regarded 1000 of the interest which was receivable on 1st December 1925, and the question at issue concerned their assessability in respect of the remaining 1000 receivable on 1st June 1925. The Commissioners refused the appeal as regarded the assessment in respect of two-thirds of this 1000, and allowed it as regarded the other third. At the request of the trustees and of the Inland Revenue, they stated cases for the opinion of the Court of Session as the Court of Exchequer in Scotland.
The cases, which were in identical terms, set forth that the following facts were admitted or proved:(1) Alexander Reid of Old Bishopton, Renfrewshire, died on 25th April 1925. His will provided for a liferent of 20,000 plus one-third of the residue of his estate to each of his wife, Mrs Reid, and his daughter, Mrs Bucher, and an absolute payment of 20,000 plus the remaining one-third of the residue to his son, Alexander Reid junior. (2) The deceased held 40,000 5 per cent War Stock, 1929-1947, which, with interest accrued due thereon, was valued for estate-duty purposes at the rates ruling on the Glasgow Stock Exchange at the date of his death on 25th April 1925 at 40,950, and estate-duty was paid thereon. The date of deceased's death was the last day of dealings in the said War Stock upon a cum-dividend basis, and a purchaser at that date secured payment to himself of the whole interest payable on 1st June; thus a purchaser on 26th April would receive no part of the June interest. The value at the date of death, therefore, included the whole interest payable on the next interest date, 1st June 1925. (3) The deceased had paid all income tax due by him on the interest on this holding of 5 per cent War Stock up to 5th April 1925. (4) The interest received by the trustees on this holding on 1st June 1925, amounting to 1000, was treated by them as being capital of the estate. The said Mrs Reid and Mrs Bucher have not received, and can never receive, any portion of the June interest, either as income or capital, but Alexander Reid junior will, along with his share of the capital residue of this estate, receive a one-third of said interest. (5) All three beneficiaries are resident in this country, Mrs Reid and Mr Reid at Old Bishopton, and Mrs Bucher with her husband in Camberley, Surrey.
On behalf of the trustees it was contended:(1) That trustees acting for a British resident who is not an incapacitated person are not charged to tax under the Income Tax Acts, either as such trustees or as individuals, and the assessment cannot be upheld against the appellants. (2) That the three people interested in the estate are not incapacitated and are resident in the United Kingdom. (3) That Rule 14 of the General Rules provides that any
person who has been charged under this Act in respect of any incapacitated or non-resident person may retain out of the money coming into his hands on behalf of any such person so much thereof as is sufficient to pay the tax charged, and shall be indemnified for all such payments in pursuance of this Act. (4) That there is no corresponding section to indemnify trustees who pay for a resident and non-incapacitated person, which supports the view that trustees representing resident and capable people in the United Kingdom are not chargeable to tax at all. (5) That the determining factor in ascertaining the liability to tax of income received or receivable by trustees is the taxable position of the beneficiary whom they representWilliams v. SingerTAX, [1921] 1 A. C. 65, 7 T. C. 387; Baker v. Archer-SheeELRTAX, [1927] A. C. 844, 11 T. C. 749. (6) That section 2 of the Apportionment Act, 1870, directs that, in the case of interest in which there are two parties interested, it is to be apportioned in accordance with the period respectively in which they are each interested. (7) That the appellants were bound to allocate the 1000 interest to the residuary legatees as capitalMacpherson's Trustees v. Macpherson, 1907 S. C. 1067; OppenheimerELR, [1907] 1 Ch. 399. (8) That, income tax being necessarily a charge upon income, it would be abnormal and quite illegal to charge income tax for a period subsequent to the death of the testator, i.e., the year 1925-1926, against the capital of the estate. (9) That it would be equally anomalous to charge income tax against the liferentrices of the estate upon income which they can never receiveAttorney-General v. London County CouncilELR, [1901] A. C 26, at p. 35; National Provident Institution v. BrownTAX, [1921] 2 A. C. 222, 8 T. C. 57. (10) That, there being no income received or receivable byor in a different view of the case at least two ofthe beneficiaries, no assessment can be made on the trustees, because they are nonexistent as a separate taxable entity. (11) That as this War Loan interest, as regards Mrs Reid, has not been paid to her, cannot legally be paid to her, and will never be paid to her, she has no interest in it. As regards Mrs Bucher the same applies, and as regards Alexander Reid junior, while he is entitled to one-third of both capital and income, and therefore in some shape or form gets this money, it is not taxable income in his hands, or alternatively, his assessment for 19251926 is based, not upon his actual receipts in that year, but in accordance with Rule 2 of Case III., Schedule D, 1918 Act. (12) That all income is not necessarily charged to tax, and that, in any event, it is not for the appellants to explain why a particular sum of what is superficially income is untaxed, the legal position being that the Crown must justify the charge upon the appellants. (13) That for convenience' sake the appellants would not dispute that portion of the assessment referable to the 1000 receivable on the 1st December 1925.
On behalf of the Crown it was contended:(1) That the person chargeable with tax was neither the trustee nor the beneficiary as such, but the person in actual receipt and control of the income which it was sought to reachWilliams v. SingerTAX, [1921] 1 A. C. 65, 7 T. C. 387, per Viscount Cave, L.C., at p. 411. (2) That War Loan interest was assessable on the person entitled to receive itInland Revenue v. ForrestTAX, 1924 S. C. 450, 8 T. C. 704; Wigmore v. SummersonELRTAX, [1926] 1 K. B. 131, 9 T. C. 577. (3) That, as the appellants were entitled to receive and did receive the War Loan interest on 1st June 1925, the assessment was properly made on them. (4) That neither the valuation of the War Stock for death-duty purposes, nor the Apportionment Act, had any bearing on the question; and (5) That, as the appellants received the said interest as income, it was immaterial how that income was appliedMersey Docks and Harbour Board v. LucasELRTAX, (1883) 8 App. Cas. 891, 2 T. C. 25.
The cases further stated:The Commissioners, on consideration of the facts and arguments submitted to them, were of opinion that the sum of 1000 in question was received by the trustees as part of the income of the trust, and that as regards two-thirds thereof, viz., the portions destined to Mrs Bucher and Mrs Reid in liferent, the trustees received the same under an implied direction to accumulate the income with capital. The Commissioners therefore were of opinion that, subject to certain contingent rights of recoverysee Inland Revenue v. BoneTAX, 1927 S. C. 698, 13 T. C. 20; Dale v. MitcalfeELRTAX, [1928] 1 K. B. 383, 13 T. C. 41; White v. WhitcherUNK, 138 L. T. 205income tax was payable upon the said two-thirds by the trustees who received and controlled the funds to that extentsee Williams v. Singer, [1921] 1 A. C. 65, Viscount Cave, L.C., 72. But, as...
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