The Commissioners of Inland Revenue v Sir H.C. Holder, Bart., and J.A. Holder
| Jurisdiction | England & Wales |
| Judgment Date | 15 April 1932 |
| Date | 15 April 1932 |
| Court | King's Bench Division |
NO. 816.-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
COURT OF APPEAL.-
HOUSE OF LORDS.-
Income Tax - Interest payable on advance from bank - Claim for repayment of tax by guarantor - Income Tax Act, 1918 (8 & 9, Geo. V, c. 40) Section 36.
The Respondents guaranteed the indebtedness to its bankers of a company in which they were interested. For a number of years the company was indebted to the bank continuously. Interest on the amounts owing to the bank was debited half-yearly in the company's account with the bank and, except in one, instance, the amount due to the bank increased each half-year.
The Respondents finally satisfied the whole indebtedness of the company to the bank by a single payment, and they claimed repayment under Section 36 of the Income Tax Act, 1918, in respect of so much of the amount paid by them to the bank as represented the interest which had been debited to the company's account.
Held, that the Respondents were not entitled to the repayment claimed.
Stated under the Finance Act, 1925, Section 19(3), and the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench 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 the 24th June, 1929, and an adjourned meeting held on the 9th July, 1929, we heard the claim of Sir Henry C. Holder, Bart., and Mr. J.A. Holder, hereinafter called the Respondents, who were aggrieved by the decision of the Commissioners of Inland Revenue (hereinafter called the Appellants) in respect of a claim made by the Respondents for repayment of Income Tax under Section 36 of the Income Tax Act, 1918 (which provides for the repayment in certain cases of Income Tax in respect of interest paid to banks without deduction of tax out of taxed profits).
2. The Respondents were interested in a company called Blumfield, Limited, hereinafter referred to as "the company". The company had been indebted for many years to its bankers, the London City and Midland Bank, Limited, which changed its name to the Midland Bank, Limited, and is hereinafter referred to as "the bank". To secure the company's indebtedness to the bank, guarantees were given from time to time by the Respondents to the bank. In some cases the guarantees were given by the Respondents individually, and in the other cases by the Respondents jointly and severally.
3. Under these guarantees, all of which were in similar form, the guarantor (or guarantors) undertook, in consideration of the bank allowing the company (therein called "the principal") to keep an account with the bank or otherwise granting the company banking facilities or accommodation, "to pay and satisfy to the "bank all and every the sum or sums of money which shall at any "time be owing to the bank .... anywhere on any account ".... for notes or bills discounted or paid or for other loans "credits or advances made to or for the accommodation or at the "request .... of the principal .... or for any moneys for "which the principal may be liable as surety or in any other way "whatsoever, together with in all the cases aforesaid all interest "discount and other bankers' charges including legal charges "occasioned by or incident to this or any other security held by "or offered to the bank for the same indebtedness or by or to the "enforcement of any such security."
The total liability ultimately enforceable against the guarantor (or guarantors) under each guarantee was limited to a definite sum.
A copy, marked "A", of a specimen of the guarantees is annexed hereto and forms part of this Case.
4. From the year 1920 onwards, the company was indebted to the bank continuously in large amounts. The interest on the amounts owing from time to time to the bank was debited half-yearly in the company's account with the bank. Payments into the account were made by the company from time to time, but the amount due to the bank, with the exception of the half-year to 31st December, 1924, increased each half-year.
The bank pressed the Respondents from time to time for payment, and the whole indebtedness of the company to the bank was finally satisfied by the Respondents on the 17th November, 1926, by means of a loan made by the bank to the Respondents personally.
The company is completely insolvent and there is no chance of the Respondents obtaining any reimbursement from the company of the amount paid by them to the bank under the guarantees.
A copy, marked "B", of a summary of the company's account with the bank from the 31st December, 1919, to the 17th November, 1926, and a copy, marked "C", of a summary of the Respondent's personal joint loan account with the bank from the 17th November, 1926, to the 15th May, 1929, are annexed hereto and form part of this Case.
5. The Respondents, in terms of Section 19 of the Finance Act, 1925, claimed repayment of Income Tax under Section 36 of the Income Tax Act, 1918, on the interest amounting to £17,861 16s. 5d.debited half-yearly to the company's account with the bank from the 1st January, 1920, to the 17th November, 1926, which the Respondents contended was paid by them on 17th November, 1926, when the company's indebtedness to the bank was satisfied by them as aforesaid. The Appellants refused the claim in toto and also contended at the hearing of the appeal that, as regards the interest debited for the first three of the half-years, this had been satisfied under the rule inClayton's case(1) by the subsequent payments by the company into their account with the bank.
6. It was contended on behalf of the Respondents:
(2) That the payment made by the Respondents to the bank on the 17th November, 1926, was a payment of principal and interest due to the bank, and included a payment of interest as such;
(3) That the debiting of the interest in the account did not amount to payment of the interest (Re Morris, Mayhew v. Halton,[1921] 1 Ch. 172, Re Jauncey, Bird v. Arnold, [1926] Ch. 471);
(4) That the rule in Clayton's case did not apply; and
(5) That repayment of Income Tax should be made for the year 1926-27 in respect of the whole of the interest amounting to £17,861 16s.5d.
7. It was contended on behalf of the Commissioners of Inland Revenue (inter alia):
(2) That the whole of the payment made by the Respondents to the bank was in satisfaction of the debt due under the guarantee, and that no part of the payment was interest as such (Bradford Old Bank v.Sutcliffe, [1918] 2 K.B. 833).
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(3) That, in view of the bank's practice of adding the interest each half-year to the amount advanced, the interest was, in effect, paid each half-year, and that for this reason also no part of the payment made by the Respondent (except the amount of interest charged from the 1st July, 1926, to the 17th November, 1926) was interest.
(4) The following cases were referred to in support:- Bradford Old Bank v. Sutcliffe, [1918] 2 K.B. 833. Eaton v.Bell, [1821] 5 B. & Al. 34. Crosskill v.Bower, 32 L.J. (Ch.) 540. Parr's Banking Co. v.Yates, [1898] 2 Q.B. 460. Provincial Bank of Irelandv. O'Reilly, 26 I.R. 313. Reddie v.Williamson, [1863] 1 Macpherson 228.
(5) That alternatively the interest for the first three of the half-years had under the rule in Clayton's case been satisfied by the subsequent payments by the Company into the account (Deeley v. Lloyds Bank, [1912] A.C. 756).
(6) That the Respondents were not entitled to the relief claimed.
8. We held, following previous decisions of the Special Commissioners on this point, that having regard to the decision in the case of Parr's Banking Company v. Yates, the payment made by the Respondents on the 17th November, 1926, included interest paid as interest.
We further held that the interest was not in effect paid each half-year by being added to the amount of the advance.
We accordingly admitted the claim for repayment for the year 1926-27 under Section 36 of the Income Tax Act, 1918, but we decided that under the rule in Clayton's case the interest debited in the account for the first three half-years to 30th June, 1921, must be regarded as having been paid by the Company, and that accordingly the Respondents claim must be restricted to the interest charged from the 1st July, 1921.
9. The Appellants, immediately after the determination of the appeal, declared to us their 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 Finance Act, 1925, Section 19(3), and the Income Tax Act, 1918, Section 149, which Case we have stated and do sign accordingly.
10. The question of law for the opinion of the Court is whether any, and if so what, portion of the payment made by the Respondents to the bank under their guarantees was interest, so as to entitle them to repayment of Income Tax thereon under Section 36 of the Income Tax Act, 1918.
J. JACOBS, H.M. SANDERS, Commissioners for the Special Purposes of the Income Tax Acts.
York House,
23, Kingsway,
London, W.C.2.
7th January, 1930.
"A"
751/S.1. (Individual Guarantee).
To:
THE LONDON CITY & MIDLAND BANK, LIMITED.
IN consideration of The London City and Midland Bank Limited (hereinafter called "the Bank") allowing Messrs. Blumfield Limited of 70, Lower Essex Street, Birmingham (hereinafter called "the Principal") to keep an account with them or otherwise granting him banking facilities or accommodation upon the terms that the Bank should be secured as hereinafter appearing I HEREBY AGREE to pay and satisfy to the Bank their successors or assigns all and every the sum and sums of money which shall at any time be owing to the Bank their successors or assigns anywhere on any account whether from the Principal solely or from the Principal jointly with any other person or persons or from...
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