Riches v Westminster Bank
| Jurisdiction | England & Wales |
| Date | 1943 |
| Year | 1943 |
| Court | Court of Appeal |
Revenue - Interest awarded in proceedings for recovery of debt - Income tax - Deduction -
A judgment for the amount of a debt with interest awarded in exercise of the power conferred by the Law Reform (Miscellaneous Provisions) Act, 1934, is satisfied by payment of the amount of the debt and of the interest less income tax.
A sum so awarded as interest is “interest of money” within para. 1 (b) of sch. D. to the Income Tax Act, 1918, notwithstanding that (a) it is awarded as compensation, (b) it is not a recurrent payment, and (c) the judgment is under s. 3, sub-s. 1, of the Act of 1934 for a single sum consisting of the debt and interest: and accordingly where it is not paid out of profits otherwise brought into charge to income tax, the debtor is bound under r. 21 of the All Schedules Rules to deduct the amount of income tax therefrom and account for it to the Crown.
Secus in the case of an award of damages, where the damages are ascertained as a matter of convenience by an interest calculation. No income tax is chargeable on the sum so awarded as damages.
APPEAL from Evershed J.
The plaintiffs, the Westminster Bank, Ld. (hereinafter called the bank), were the judicial trustees of the will of Ernest Bramwell Ridsdel (hereafter called the deceased). In his lifetime the deceased had for many years employed the defendant, Edward Harold Riches, as his solicitor to handle many of his affairs. In April, 1936, an agreement was come to between them that in consideration of the defendant's introducing to the deceased a transaction in regard to the purchase and resale of shares in J. C. & J. Field, Ld., the deceased would pay him a half-share of the profits. There was a net profit of 93,350l., but the deceased concealed this from the defendant and only paid him a much smaller amount than his proper share of the profits. After the death of the deceased the defendant became aware of the real profits of the transaction and in 1942 brought proceedings against the bank for an account of his share of the profits, and consequential relief. On May 17, 1943, Oliver J. gave judgment in favour of the defendant for 36,255l., with 10,028l. interest, being interest at four per cent. from June 14, 1936, to date of judgment. He awarded this interest in exercise of his power under s. 3, sub-s. 1, of the Law Reform (Miscellaneous Provisions) Act, 1934, on the ground that this sum of 36,255l. had been kept from the defendant by the fraud of the deceased. The order as drawn up was for the recovery of “36,255l. with 10,028l. interest making together the sum of 46,283&L,” and power was given to levy execution for “such sum of money and costs.” The bank paid the sum of 41,269l., made up of the sum of 36,255&L and of 5,014l. only in respect of the interest, on the ground that the sum of 10,028l. was “interest of money” within the meaning of para. 1 (b) of sch. D. to the Income Tax Act, 1918, and that the bank was bound under r. 21 of the All Schedules Rules to deduct income tax at the rate of 10s. in the £ and account for it to the Crown. The defendant having threatened to levy execution for the sum of 5,014l., the bank began proceedings on June 14, 1944, for a declaration that the judgment had been satisfied and that it was under no further obligation to the defendant in respect thereof.
Evershed J. said that if the matter rested solely on the language of s. 3 of the Law Reform (Miscellaneous Provisions) Act, 1934F1 he would have no difficulty in holding that the sum of 10,028l. was interest of money within para. 1 (b) of sch. D. to the Income Tax Act, 1918, and r. 21 of the All Schedules Rules. But it had been argued that this sum was damages, or in the nature of damages, and not interest of money so as to be subject to income tax. After reviewing a number of authorities he added that in his judgment there was no rule or principle referable to the fact that the interest awarded was by way of compensation, or to the fact that the deceased had been guilty of fraud which compelled him to hold that the interest awarded was not in reality interest. He could not accept the view that “interest” in s. 3 of the Act of 1934 meant anything different from the word “interest” as used in the Income Tax Act, 1918. Nor did the phrase there shall be included in the sum for which judgment is given” in s. 3 so merge the subject-matter of the award under the section with the debts that the former lost its individuality and quality. It followed that the judgment obtained against the bank by the defendant had been satisfied. The defendant appealed.
Grant K.C. and Mustoe for the defendant. The interest awarded was in the nature of damages for wrongful detention of the defendant's money. The essential characteristic of “interest of money” within sch. D. to the Income Tax Act, 1918, is that it should have the quality or possibility of recurrence. This sum was never accruing; it had no existence till judgment was pronounced, and it can never recur. How essential this characteristic is appears from Moss' Empires, Ld. v. Inland Revenue CommissionersF2: see also Bond v. Barrow Hæmatite Steel Co.F3 and In re National Bank of WalesF4. If nothing had been paid under the judgment and a writ of fi. fa. had been issued, the sheriff would have levied for the full amount of the judgment. Whatever the quality of this sum of “interest” it must be satisfied in full. On the main contention that the interest awarded was in reality damages it is material that amounts of interest awarded under either s. 28 or s. 29 of the
Terence Donovan for the plaintiffs. The ability of the court to make an order for payment of a sum free of tax did not arise from any presumption that the order exempted the payment from tax. An order for payment of the annual sum of 100l. “free of tax” is presumably an order for payment of such a sum as after deduction of tax will leave 100l. [DU PARCQ L.J. The early position of the Divorce Court is stated by Scrutton L.J. in Blount v. BlountF11.] The provision in the Law Reform (Miscellaneous Provisions) Act, 1934, s. 3, sub-s. 1, allowing the court to order that interest shall be “included in the sum for which judgment is given” does not give the interest a different character. Nor does it affect the matter that the judgment was for one entire sum.
The judgment is satisfied although the part of it attributable to interest is paid less income tax. A sheriff executing a judgment is in a different position because an official of the Crown is not liable to account for tax. No-one has ever suggested that it is impossible to go behind a judgment and if here, the Crown can say to the defendant that he has received interest under the judgment, it can also say to the bank that it ought to have deducted the amount of the tax under the Income Tax Act, 1918, All Schedules Rules, r. 21, and are accountable for it. The defendant claimed interest and was awarded interest under s. 3, sub-s. 1, of the Act which gave the court power to award interest, and to the extent of the deduction of tax they have satisfied the judgment; Allchin v. CoulthardF23. In Smith v. SmithF24 Warrington L.J. stated that the fact that a liability arose under the order of the...
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...does not depend on a claim therefor in the writ." Neither Rowe JA nor Carey JA disputed the authority of Riches v Westminster Bank Ltd [1943] 2 All ER 725, a case decided a mere seven years after the enactment of the LRMPA in England in 1934, in which it was held that section 3 did not req......