The King v The Commissioners for The Special Purposes of The Income Tax Acts
| Jurisdiction | England & Wales |
| Judgment Date | 14 March 1921 |
| Date | 14 March 1921 |
| Court | King's Bench Division |
No. 430.-IN THE HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
COURT OF APPEAL.-
HOUSE OF LORDS.-
Income Tax. - Residuary bequest to Charity. - Will disputed. - Income of testator's estate prior to distribution received under deduction of Income Tax. Claim by Charity for repayment of Income Tax deducted from accrued income of residue. - Rule Nisi for Mandamus. - Income Tax Act, 1842 (5 & 6 Vict. c. 35), Section 88, Sch. C, Rule 3, and Section 105.
Mr. Denzil Thomson died on the 15th November, 1914, leaving the residue of his estate to Dr. Barnardo's Homes National Incorporated Association. The Testator's next-of-skin contested the will and the proceedings were compromised by the Association making over to the next-of-kin one-third of the residuary estate. The proceedings delayed the division of the residuary estate, and the investments constituting or representing the same remained under the control of the Executors until May, 1916, between which date and December, 1916, two-thirds of the investments
were transferred to the Association and one-third to the Testator's next-of-kin. The income arising from the investments was received under deduction of Income Tax and the total amount of tax deducted from such income during the period between the date of the Testator's death and the dates of transfer by the Executors amounted to £498 0s. 11dThe Association applied, under Section 105 of the Income Tax Act, 1842, to the Special Commissioners of Income Tax for repayment of two-thirds of that sum, viz., £332 0s. 7d., as being Income Tax on income payable to the Association and applicable, and in fact applied, by it solely for charitable purposes. The application being unsuccessful, the Secretary of the Association applied for and obtained a rule nisi calling upon the Special Commissioners of Income Tax to show cause why a writ of mandamus should not issue to them commanding them to allow exemption from Income Tax on the income in question and to repay the sum of £332 0s. 7d.
Held, discharging the rule nisi,
(i) that the assent of the Executors to the bequest to the Association of the residue of the estate did not relate back to the date of the Testator's death;
(ii) (following the decision in Lord Sudeley v. Attorney-General(1) ) that, prior to the ascertainment of the residue, the Association as residuary legatee had no interest in the Testator's property, that the taxed income of the estate prior to such ascertainment was income of the Executors, and that it was not received by them as trustees on behalf of the Association; and
(iii) that the Association was, therefore, not entitled to claim repayment of the Income Tax deducted from such income.
Judgment was given unanimously against the Special Commissioners, and the rule nisi for the mandamus against them was made absolute.
The Lord Chief Justice.-A rule nisi for a mandamus was granted calling upon the Commissioners for Special Purposes of the Income Tax Acts to show cause why a writ of mandamus should not issue to them commanding them to allow exemption from Income Tax on the income of trust funds held under the will of one, Denzil Thomson, and to repay the sum of £332 0s. 7d. deducted for such Income Tax. The question which arises before us is whether or not the Commissioners for Special Purposes ought to have allowed the exemption, and, consequently, if they ought to have allowed it, we are asked to order that they should
return the sum of money which has been deducted at the source in the ordinary way.The facts, so far as they are material, are really very short. Mr. Denzil Thomson, the testator, died in November 1914. His will was proved in December 1914 in common form. Then a question arose as to the will, which it is unnecessary to consider save to say that the Executors issued a writ in the Probate Division to establish the will in solemn form. Eventually a compromise was arrived at on the 9th March 1916, and under the compromise Dr. Barnardo's Homes became entitled to two-thirds of the residuary estate of Mr. Denzil Thomson. During the months from September 1916 to December 1916 certain payments were made relating to the Executors' costs of the suit, which were paid by December 4th, 1916, and thereupon a sum was left in the hands of the Executors which was paid over and distributed in due course as to two-thirds to Dr. Barnardo's Homes. During the interval, that is up to the date of December 1916, monies had been in the Executors' hands which were waiting the final determination of the Court, which took place in March 1916 by the settlement, and then the ascertainment of certain costs which they had to pay. On behalf of Dr. Barnardo's Homes it was contended that once the Executors have assented to the bequest of a residuary estate-which they did undoubtedly by December 1916- the effect is that they must be taken to have assented at least to the application and dedication of so much of the monies which remained in their hands, after payment of the Executors' costs of administration and costs of the suit, and debts, and so forth, to Dr. Barnardo's Homes-that is to say, as to two-thirds to Dr. Barnardo's Homes.
A question might have arisen in this case as to the amount, but we are relieved of that, inasmuch as it could only be a small matter, and it is not disputed by the Attorney-General that the amount involved is the £332 0s. 7d. What we have to decide is a question of principle and not a question of amount.
This dispute depends upon the view we take of the sections of the Income Tax Act, 1842, and in substance it turns upon the meaning to be attributed to the Third Rule of Schedule C, Section 88; but, in truth, this question depends upon the section relating to Schedule D which comes under Section 105 of the Act. Now it is contended that three conditions must coincide before this exemption is permissible. It was stated that the first is that the income as such belongs to the charity or is held in trust for the charity. The second is that the income during the relevant period is applicable to charitable purposes only. The third is that it is applied in fact to charitable purposes only. Now in my view in this case the question depends really upon the date of the assent, because it is not disputed that Dr. Barnardo's Homes is a charitable purpose within the meaning of the Act. It is not disputed that, from the moment the Executors did in fact assent, Dr. Barnardo's Homes would be entitled to the exemption under the Income Tax Acts to which reference has been made. If the assent relates back to the earlier period, that is, September to December 1916, then this amount of £332 0s. 7d. is to be allowed as an exemption to Dr. Barnardo's Homes. If the assent of the Executors does not relate back to that period but only dates from the period of the assent in fact, then it would follow, or it is enough to say it may follow, that Dr. Barnardo's Homes would not be entitled to the exemption.
In my view the object of this Statute and of the exemption granted was to allow the exemption in respect of income which was to be used for charitable purposes only; as to that there can be no question. What was contended, and what was in fact decided by the Commissioners for Special Purposes, was that, until the Executors had in fact assented, as they had the right to pay out of capital or income, and as they had never in fact distinguished between capital or income in their hands, and as they had not in fact assented to these monies being applied to charitable purposes only, it followed from the Statute that Dr. Barnardo's Homes could not be brought within the exemption. I am unable to assent to that view. I think that the effect of the statute and the law applicable to executors is to make the assent, once it had been given, relate back and to make it applicable to all the monies that were in the Executors' hands which were applicable to charitable purposes, provided that the monies were in fact applied to charitable purposes, which is not disputed in this case. The real controversy may be thus illustrated: if the Executors-charged with the duty of applying the money in their hands, when they have assented, to the residuary legatee-in this case the Dr. Barnardo's Homes-held the monies in their hands for a period of years, during which there was litigation, the Commissioners say that, notwithstanding that it turned out in fact that that money which was in their hands has by reason of subsequent facts been determined to be exclusively applicable to charitable purposes, yet the exemption does not prevail in their favour; whereas those appearing and arguing for the residuary legatee, Dr. Barnardo's Homes, contend that, when there has been the assent, they are entitled to the full benefit of it if the other conditions, to which I have referred, apply. Once we are satisfied, as I am, that the assent when given relates back, and that the monies were applicable to charitable purposes only, and were in fact so applied, I think there is no question which remains in controversy in this case.
Our attention has been called to a passage in Williams on Executors, 10th Edition, Volume 2, at page 1108, in which it is said "The assent "of an executor shall have relation to the time of the testator's death: "hence, in the case of a devise of a term of years in tithes…if "after the testator's death, and before the executor's assent, tithes are set "out…the assent by relation shall perfect the legatee's title to "these several interests"-I exclude the references to the realty as this is dealing with personalty. In my judgment that in principle is the principle to be applied to this case. Once I have come to that conclusion the point is answered which is in dispute.
I am glad that I am able to arrive at this determination of...
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