Sinclair v Commissioners of Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 12 March 1942 |
| Date | 12 March 1942 |
| Court | Court of Session |
No. 1219-COURT OF SESSION (FIRST DIVISION)-
Sur-tax - Total income - Investments and properties in name of taxpayer's son - Son's ex-facie title displaced by evidence that he was a mere nominee of taxpayer.
From 1924 onwards the Appellant on various occasions purchased with his own money, but in the name of his son (born 30th June, 1905), certain shares and heritable properties, the dividends and rents being received by the son and handed by him to the Appellant. In 1933 and 1934 the Appellant obtained from his son (1) an acknowledgment of indebtedness for a sum of money obtained on loan from his father for the purchase of the shares and properties in question; (2) transfers to himself of all the shares, executed by the son as transferor with an endorsement that the transfer was for a nominal consideration by a mere nominee, and (3) an undertaking to transfer the properties to the Appellant without price when called upon; but no action was taken by the Appellant on any of these documents. In addition, in 1919 the Appellant had lent a sum of £500, bearing interest at seven per cent. per annum, to a limited company: it was claimed that this loan belonged to an aunt, but on her death in 1935 (the Appellant being her sole executor and universal legatee) the loan was not shewn in the inventory of her estate.
On appeal against additional assessments to Sur-tax for the years 1931-32 to 1938-39 inclusive, in amounts which included the dividends and rents from the shares and properties in the son's name, and the interest on the loan, the Appellant contended that the shares and properties were legally vested in his son and that his attempts to recover them were incomplete and ineffective; and that the interest on the loan prior to his aunt's death was not his income. The Special Commissioners found on the evidence that, as regards the shares and properties, the son was a mere nominee, and that the dividends, rents and interest were all assessable upon the Appellant.
Held, that there was evidence to support the Commissioners' decision.
At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 24th June, 1941, Mr. Hugh Sinclair (hereinafter called "the Appellant") appealed against the following additional assessments to Sur-tax:-
1931-32 in the sum of £1,000. |
1935-36 in the sum of £1,552. |
1932-33 ,, ,, ,, ,, £2,500. |
1936-37 ,, ,, ,, ,, £1,273. |
1933-34 ,, ,, ,, ,, £1,500. |
1937-38 ,, ,, ,, ,, £1,269. |
1934-35 ,, ,, ,, ,, £1,304. |
1938-39 ,, ,, ,, ,, £1,269. |
At the said appeal meeting the Appellant and his son, Hugh Roy Sinclair, and Mr. C.W.W. Smillie, C.A., Edinburgh, gave evidence for the Appellant. No evidence was led for the Inland Revenue.
I. The following facts were admitted or proved:-
(2) The Appellant is managing director of Lawrie Bros., Ltd., which carries on business as dealers in motor accessories.
(3) Of the issued share capital of the company-
(4) 4576 shares of £1 each are now registered in the name of the Appellant, 500 shares of £1 each were registered in the name of his wife, who died on 30th November, 1939, and
(5) 5000 shares of £1 each are now registered in the name of his son, Hugh Roy Sinclair.
(6) The son is an employee of the company at a salary of £250 a year.
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(7) The son was born on 30th June, 1905. At the respective dates shown below the Appellant purchased with his own money but in name of his son, who was his only child, the following investments:-
February, 1924
…
400
£1 8 per cent. preference shares of Anglo-
Persian Oil Co., Ltd.
August, 1924
…
200
£1 7 per cent. preference shares of Lever
Bros., Ltd.
March, 1925
…
200
£1 9 per cent. preference shares of Jute
Industries, Ltd.
February, 1927
…
300
£1 preference shares of Scottish Drapery
Corporation.
38
ordinary shares of Scottish Drapery
Corporation.
October, 1931
…
4000
£1 shares of Lawrie Bros., Ltd.
January and
December, 1932
…
1000
£1 shares of Lawrie Bros., Ltd.
(8) Also at some date earlier than the year 1936-
(9) 300 £1 5 per cent. non-cumulative shares and
(10) 900 2s. ordinary shares in Campbells and Stewart & McDonald, Ltd.
(11) The shares were in each case registered in name of the son alone. The share certificates were issued in favour of the son alone, and he has remained the registered proprietor of the shares throughout.
(12) The certificates for the shares were kept in a safe in the dwelling-house occupied by the Appellant and his son. A copy of a specimen certificate is annexed, marked "A", and forms part of this Case(1).
(13) The Appellant also purchased with his own money but in name of his son three heritable properties of the value of £1,300 in 1928, £650 in 1930 and £1,400 in 1933, respectively. The dispositions were in favour of the son alone and were duly recorded with warrants of registration on behalf of the son in the appropriate divisions of the Register of Sasines. The titles to the properties have since that time remained wholly in the son. At the dates of the dispositions the son was major. Copies of the dispositions are annexed, marked "B", and form part of this Case(1).
(14) The dividend warrants and cheques for rents in respect of the said investments and heritable properties were all sent to and received by the son and were endorsed when received, in favour of and handed to the Appellant, who paid the proceeds either into his own banking account (the son having no banking account) or into a loan account with Lawrie Bros., Ltd. in the son's name.
(15) Policies of assurance on the son's life proceeding in each case on a proposal made by the son, were effected as follows:-
(16) 28th April, 1922-policy for £500, premium £15 1s.3d.
(17) 7th September, 1923-policy for £500, premium £15 16s.3d.
(18) 15th February, 1924-policy for £1,500, premium £37 18s.9d.
(19) 16th July, 1925-policy for £1,000, premium £26 2s.6d.
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(20) The premiums on these policies were paid by the Appellant out of the income of the said shares. A copy of one of the policies is annexed, marked "C", and forms part of this Case(1).
(21) The dividends and rents from the property in question were not included as part of the Appellant's income in his returns for Income Tax and Sur-tax purposes but were included as part of the son's income in the son's returns for the purposes of Income Tax. The son's Income Tax returns were prepared by accountants who also acted as auditors of Lawrie Bros., Ltd., but did not prepare returns nor act for the Appellant in his Income Tax matters until 1938.
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(22) Repayment of Income Tax was also claimed by the son and allowed him in respect of-
(a) the Income Tax deducted from or charged upon the dividends and rents from the investments and property in his name as aforesaid, and
(b) the premiums on the said life policies.
(23) The sums so repaid to the son were dealt with in the same way as the income received by him from the said shares and heritable properties.
(24) Prior to these proceedings there had so far not been any accounting between the Appellant and his son, but the Appellant asserted (and his son agreed) that he was bound to account to the son and a statement of accounting was produced at the hearing and accepted by the Appellant and his son. A copy is annexed, marked "D", and forms part of this Case(1).
(25) In 1933 the Appellant objected to his son associating with a certain lady whom the son subsequently married in 1936. Being aware that the shares and property in question were absolutely vested in his son and at his son's disposal and would be available for this lady if she married the son and for her legal rights if the son predeceased her, the Appellant endeavoured to devise a scheme or schemes to defeat the daughter-in-law's possible claims. The Appellant accordingly consulted a solicitor in Glasgow on the matter and by his suggestion had prepared a document in the following terms:-
"Arnprior,
"Claremont Avenue,
"Giffnock,
"13.9.33.
"I acknowledge having received from my father, Hugh Sinclair, "the loan of Fourteen thousand five hundred pounds stg.
"The said loan was for the following purchases made by me:-
"5,000 shares in Lawrie Bros., Limited.
"400 ,, ,, 8 per cent. Anglo-Persian.
"300 ,, ,, P. Scot. Draper Corp.
"38 ,, ,, O. ,, ,, ,,
"Property at Loch Street, Aberdeen.
" ,, ,, Craigton Road, Govan.
" ,, ,, King Street, Dumfries.
"100 shares Lever Bros.
"(Sgd.) Hugh Roy Sinclair.
(26) Stamp 2d.
(27) 13.9.33.
(28) The son signed the document at the Appellant's request and handed it to the Appellant who still retains it but has taken no action of any kind upon it.
(29) The Appellant also on the suggestion of the said solicitor had prepared for execution by the son transfers to himself of all the said shares registered in the son's name. These transfers were executed by the son as transferor but not by the Appellant as transferee. No action was taken upon them. The transfers were executed by the son as stated by him in evidence because although he knew the shares were his absolute property he so resented his father's objections to his fiancée that he did not desire to benefit from his father's bounty. No consideration was stated or set forth in the transfers and they were not stamped.
(30) The said transfers (which were all in the same form and a copy of one of which is annexed, marked "E", and forms part of this Case(1) ) contained a certificate in the form accepted by the Commissioners of Inland Revenue where it is claimed that a voluntary transfer is exempt from ad valorem stamp duty under Section 74, Finance (1909-10) Act, 1910.
(31) The certificate is as follows:-
We hereby certify that the transaction on which this transfer is "made, and under which the fixed duty of ten...
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Fitch Lovell Ltd v Commissioners of Inland Revenue
... ... I must refer now to another case which was cited on behalf of the appellant company in support of the proposition that a transfer not executed by the transferee is ineffective and is not such a document as could be stamped. That is a Scottish case, Sinclair v. Inland Revenue Commissioners , F22 decided by the Court of Session. That was not a stamp duty case, it was a surtax case and the question of stamp duty only arose incidentally because a stamp objection was taken, not by the court but by the taxpayer, to the introduction of certain transfers ... ...