Schaffer v Cattermole
| Jurisdiction | England & Wales |
| Date | 1975 |
| Year | 1975 |
| Court | Court of Appeal (Civil Division) |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)
COURT OF APPEAL-
Income tax - Schedule D, Case III - Purchase of Government securities on the National Savings Stock Register - Interest accrued to date of purchase included in purchase price - Whether whole of subsequent payment of half-yearly interest income of purchaser - Income and Corporation Taxes Act 1970, ss 119 and 120.
During 1974 the taxpayer purchased, cum dividend, holdings in various Government Stocks on the National Savings Stock Register, the interest on which was payable half-yearly without deduction of tax. The total sum paid for each of the said holdings included, as well as the market cost and commission, an additional amount representing interest which had accrued since the last half-yearly interest date. Following his purchase the taxpayer received, at each half-yearly interest date, a full half-year's interest without deduction of tax on each holding. An assessment to income tax was made upon the taxpayer for the year 1974-75 in respect of the gross amount of interest received by him in that year on his holdings of Government Stock. On appeal to General Commissioners the taxpayer contended that, in respect of the first payment of half-yearly interest following the purchase of each holding, the proportion attributable to a period prior to the purchase was not his income for tax purposes. The Commissioners rejected the taxpayer's contention, on the authority of Wigmore v. Thomas Summerson and Sons, Ltd. 9 TC 577; [1926] 1 KB 131, and determined the assessment accordingly. The taxpayer appealed.
The Chancery Division, dismissing the taxpayer's appeal, held that the decision of the General Commissioners should be upheld.
The Court of Appeal, unanimously dismissing the taxpayer's appeal, held that the decision of the Chancery Division was correct.
Stated under s 56 of the Taxes Management Act 1970 by the Commissioners for the General Purposes of the Income Tax for the Division of Reigate in the County of Surrey for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax acting in and for the Division of Reigate in the County of Surrey held at the Law Courts, Redhill, on 1 December 1976, Frank Schaffer (hereinafter called "the Appellant") appealed against an assessment to income tax under Case III of Schedule D in respect of interest from Government securities made on him in the financial year 1974-75.
2. Shortly stated, the question for our decision was whether the whole of the interest received by the Appellant in the year ended 5 April 1975 on Government Stock purchased by him in that year was chargeable to income tax as income of the Appellant for 1974-75, or whether only that part of the said interest accruing from the date of such purchase was so chargeable.
3. It was agreed between the parties that we should determine the issue before us by reference to the Appellant's holding of £2,000 61/2 per cent. Treasury Loan Stock 1976, and that our determination thereon would establish the principle to be applied in respect of the other holdings of Government Stock on the National Savings Stock Register purchased by the Appellant in the year. The Appellant gave evidence before us.
4. The following documents were proved or admitted before us:
(2) Particulars of the eight holdings of Government Stock on the National Savings Stock Register purchased by the Appellant in 1974 showing dividends and apportionments of interest as at the date of purchase or thereabouts.
(3) Form of application to purchase stock and bonds on the National Savings Stock Register with explanatory notes.
(4) Letter addressed by the Director of Savings to the Appellant dated 7 June 1974 showing details of the total cost of 61/2 per cent. Treasury Loan stock 1976 purchased by the Appellant and his wife on 24 May 1974.
(5) Letter addressed by the Director of Savings to the Appellant dated 18 May 1976.
(6) Form of application to sell stock on the National Savings Stock Register with explanatory notes.
(7) Extract of Stock Exchange quotations of Government gilt edged securities dated 14 May 1974.
Copies of the above documents are annexed hereto as exhibits and numbered 1 to 6 respectively(1).
5. As a result of the evidence, both oral and documentary, adduced before us we found the following facts admitted or proved:
(a) The Appellant, for himself and his wife, made an application for the purchase of £2,000 (61/2 per cent. Treasury Loan Stock 1976) by completing and lodging an application form similar to exhibit 2.
(b) The Appellant, out of his moneys on deposit at the bank paid the purchase price, namely £1,852.23, which comprised the market cost (£1,813.75), commission (£2.15) and accrued interest (£36.33) being interest from 15 February 1974 to the date of purchase. The Appellant was issued with a certificate for the said stock, the date of purchase being 24 May 1974.
(c) The dividend was payable on this Loan Stock half-yearly, on 15 February and 15 August termed the "Dividend Dates". The Appellant received a dividend amounting to £65 in respect of this investment on or about 15 August 1974 and a further dividend amounting to £65 on or about 15 February 1975.
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(d) In addition to the said holding of £2,000 61/2per cent. Treasury Loan Stock 1976, the Appellant purchased seven other holdings of Government Stock on the National Savings Stock Register during the year to 5 April 1975 and received certain dividends on those holdings during that year. Full particulars of the Stock purchased and dividends received are shown in exhibit 1.
(e) The Appellant duly made a return of his income to H.M. Inspector of Taxes with full disclosure of all the aforementioned transactions.
(f) In respect of the said holding of £2,000 61/2per cent. Treasury Loan Stock, the Appellant had claimed in correspondence with H.M. Inspector of Taxes, that of the total dividend of £130 arising from this Stock in the year to 5 April 1975, he was liable to pay income tax only on that proportion of the dividend that he had received attributable on apportionment to the period from the date of purchase, namely, £93.67.
(g) H.M. Inspector of Taxes had rejected the Appellant's claim and raised an assessment for income tax which included the whole of the dividend received amounting to £130.
6. It was contended by the Appellant that:
(2) interest on Government Securities is subject to the Apportionment Act 1870 and accrues from day to day. A vendor of stock is thus entitled to interest up to the date of sale; a purchaser becomes entitled to interest from the date of purchase only;
(3) the standard form of contract with the Department for National Savings for purchase or sale of Government Stock on the National Savings Stock Register are contained in the forms at exhibit 2 and exhibit 5 respectively. In the case of stock within five years of redemption (of which at the time of purchase the 61/2 per cent. Treasury Loan Stock 1976 was one) these contracts dealt with the rights to apportioned interest in the following way: (a) on a sale of stock the apportioned interest due to the vendor is added to the sale proceeds and is paid to him immediately (exhibit 5); (b) on a purchase of stock the purchaser is required to pay to the Department for National Savings an amount equal to the apportioned interest accrued since the last dividend date (exhibit 2); (c) on the next dividend date the purchaser then becomes entitled to a payment equal to a full six months' interest;
(4) the Appellant's contract for purchase was in the terms of exhibit 2 and accordingly a sum of £36.33 was included in the account (document 3) being interest for the period from 16 February to 24 May;
(5) in consequence of this transaction and in pursuance of the terms of the contract, the Appellant received from the Department for National Savings on 15 August a payment of £65 representing in fact (i) a repayment of the sum of £36.33 already paid to the Department, and (ii) the apportioned interest of £28.67 being the amount due to him by virtue of his ownership of the Stock;
(6) the sum of £36.33 accordingly never became profits of the Appellant and was not therefore his taxable income. The money was received by some other person and the same sum cannot go beneficially to two persons;
(7) the inclusion of the said sum of £36.33 in the assessment under appeal involves double taxation, in that the money for the purchase of the Stock was, prior to the purchase, on deposit at the bank and the interest thereon is included for tax in the same assessment. The same sum of money cannot yield taxable income from two separate sources at the same time;
(8) the Appellant's contract for purchase was solely with the Department for National Savings. He had no knowledge of, or privity of contract with, any identifiable vendor. He had no knowledge of the tax liabilities of any vendor nor was he entitled to such information; and the question whether a vendor is taxable on the payment he receives is not relevant for the purpose of computing the income of a purchaser;
(9) the Appellant accordingly rejected the Inspector's claim in correspondence: (a)that the assessment was in accordance with s 119 of the Income and Corporation Taxes Act 1970; (b)that the assessment was supported by the decision in Wigmore v. Thomas Summerson and Sons, Ltd.(1) 9 TC 577; (c)that the onus was on the Appellant to show that the apportioned interest prior to the purchase was the income of some other person;
(10) the Appellant also referred to the judgment in Wood v.Owen(2) 23 TC 541 which established the liability to tax of moneys received solely by virtue of the doctrine of apportionment.
7. It was contended by H.M. Inspector of Taxes that:
(2) the total amount of the interest on Government Stocks received as dividends by the Appellant in the year ended 5...
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HM Revenue and Customs v DCC Holdings (UK) Ltd
...payment, even if he had paid an extra sum expressed to be for the accrued interest, as an aggrieved litigant in person discovered in Schaffer v Cattermole [1980] STC 4 The traditional rule opened up opportunities for tax avoidance. In Wigmore v Thomas Summerson & Sons Ltd [1926] 1 KB 131, ......