Saunders v Commissioners of Inland Revenue

Stated under the Income Tax Act, 1952, Sections 229(4) and 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the Chancery Division of the High Court of Justice.

1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 9th November, 1953, Henry Arthur Waldron Saunders, hereinafter called "the Appellant", appealed against an additional

2. The question for determination before us was the application of the provisions of Section 38(2), Finance Act, 1938, to a settlement made by the Appellant on 25th July, 1951.

3. A copy of the deed of settlement, marked "A", is attached to and forms part of this Case(1).

The trustees of the settlement are Gordon Waldron Saunders, Ethel Grace Saunders (the wife of the Appellant) and Raymond Henry Pumfrey.

Clause 1 of the deed provides that the trustees shall invest the sum of £100 (which was transferred to the trustees by the Appellant on 25th July, 1951), and any further sum or sums which the Appellant may thereafter transfer or cause to be transferred to the trustees, in or upon authorised investments with power to vary the investments.

Clause 2 defines the term "the trust funds" as including the said sum of £100 and any further sum or sums which the settlor may transfer to the trustees, and provides that the trustees shall hold the trust funds upon the trusts and subject to the powers and provisions thereinafter declared and contained.

Clause 3 provides that during an "appointed period" the trustees shall pay, divide or apply the income of the trust funds (less any portion thereof the capital whereof shall have been appointed under clause 4 of the deed) to or between or for the maintenance, support or benefit of any one or more to the exclusion of the other or others of the specified class as the trustees shall in their absolute discretion determine.

Clause 4 of the deed is as follows:-

1. 4. It shall be lawful for the Trustees at any time or times during the appointed period but subject to the consent in writing of the Settlor during his life and thereafter at their absolute discretion to pay or apply any part or parts of the capital of the Trust Funds to or for the benefit of all or any one or more to the exclusion of the other or others of the specified class freed and released from the trusts concerning the same Provided Always that during the life of the Settlor any exercise by the Trustees with such consent as aforesaid of the power in this clause contained shall be subject to the limitation that the capital of the Trust Funds remaining subject to the trusts of this Settlement immediately after such exercise shall be of a value of not less than one hundred pounds.

The members of the specified class of persons are set out in the schedule to the deed and included therein is Ethel Grace Saunders, the wife of the Appellant.

4. As stated above, £100 was transferred by the Appellant to the trustees of the settlement on 25th July, 1951. A further sum of £25,000 was so transferred on 13th August, 1951, making a total cash sum of £25,100 as then comprising the trust funds and as subject to the trusts of the settlement. The trustees invested a sum of £25,000 in 250,000 2s. ordinary shares in II A. Saunders, Ltd. A sum of £100 was left uninvested.

In the year ended 5th April, 1952, the gross income arising under the settlement was £4,166 13s. 4d.

5. It was contended on behalf of the Appellant that:

1. (a) the aforementioned sums of £100 and £25,000 together constitute one settlement for the purposes of Part IV of the Finance Act, 1938;

2. (b) the property comprising for the time being the trust funds is not itself a provision of the settlement, within the meaning of Section 38(2) of the Finance Act, 1938;

3. (c) in any event, there is no power in the aforementioned clause 4 or elsewhere in the said deed to determine a provision of the settlement, within the meaning of the said Section 38(2);

4. (d) the provisions of the said Section 38(2) do not apply to the said settlement;

5. (e) alternatively, if the two transfers of the sums of £100 and £25,000 respectively each constitutes a settlement for the aforesaid purposes, then neither is one the provisions of which are such that the said Section 38(2) applies thereto; and

6. (f) the assessment appealed against should be discharged.

6. It was contended on behalf of the Crown that:

1. (a) each of the transfers of £100 and £25,000 to the trustees is a settlement as being a disposition or arrangement within the meaning of Section 41(4) (b), Finance Act, 1938;

2. (b) the terms of the settlement of £25,000 are such that the income arising thereunder is to be treated as income of the settlor under Section 38(2) of that Act;

3. (c) even if the aforesaid transfers were comprised in one settlement, the terms of that settlement are such as to bring it within the provisions of the aforementioned Section 38(2); and

4. (d) the appeal should be dismissed.

7. We, the Commissioners who heard the appeal, gave our decision in writing as follows.

1. (2) Having considered the evidence before us and the arguments addressed to us we are of opinion that the sums of £100 and £25,000 are comprised in one settlement the terms of which are set out in the deed of 25th July, 1951.

2. (3) It being accepted by the Crown that the deed of settlement contains no power to revoke or otherwise determine the whole of the settlement made thereunder, the issue before us resolves itself into the question whether the terms of that settlement are such that the trustees have power to revoke or otherwise determine "any provision thereof".

3. (4) Lord Simonds pointed out in Berkeley v. Berkeley,[1946] A.C. 555, at page 580, that the word "provision"

is a word of diverse meanings which slide easily into each other. It may mean a clause or proviso, a defined part of a written instrument. Or it may mean the result ensuing from, that which is provided by, a written instrument or part of it.

(5) We have come to the conclusion that there is nothing in the terms of the statutory provisions of which the phrase in question forms part to constrain us to adopt a limited meaning of the word "provision". The word being wide enough to embrace the result ensuing from a written instrument, we do not feel justified in excluding that meaning.

(6) By virtue of clause 4 of the deed of settlement the trustees have power, subject to certain conditions, to pay or apply any part or parts of the capital of the trust funds to or for the benefit of all or any one or more of the specified class as defined in the schedule to the deed, with the limitation that the capital of the trust funds shall not be reduced below £100. This power of the trustees to remove from the settlement the whole of the property save £100 seems to us quite clearly to be a power to determine a provision of the settlement in the sense of the second of the two meanings given by Lord Simonds.

(7) The settlor's wife is a member of the specified class referred to and in the event of the exercise of the discretionary power of the trustees she may become entitled to part of the property comprised in the settlement.

(8) For these reasons we hold that the appeal fails. We leave figures to be agreed.

We subsequently determined the appeal by reducing the additional assessment for the year 1951-52 to £4,153.

8. The Appellant immediately after the determination of the appeal declared to us his dissatisfaction therewith as being erroneous in point of law and in due course required us to state a Case for the opinion of the High Court pursuant to the Income Tax Act, 1952, Sections 229(4) and 64, which Case we have stated and do sign accordingly.

W.E. Bradley, F. Gilbert, Commissioners for the Special Purposes of the Income Tax Acts.

Turnstile House,

94-99, High Holborn,

London, W.C.1.

14th April, 1954.

The case came before Wynn-Parry, J., on 27th July, 1955, when judgment was given in favour of the Crown, with costs.

Wynn-Parry, J.-In the Case stated by the Special Commissioners they expressed the view that the two sums of £100 and £25,000 were comprised in one settlement, the terms of...