The Trustees of The Will of H.K. Brodie (Deceased) v The Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 18 January 1933 |
| Date | 18 January 1933 |
| Court | King's Bench Division |
No. 855.-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
Income Tax - Annual payments - Capital or income - Procedure in making assessments - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Section 125 and Rule 21 of the General Rules; Finance Act, 1927 (17 & 18 Geo. V, c. 10), Section 26.
The trustees of a will were directed, on the testator's death, which occurred in 1920, to hold on trust certain shares together with three-fourths of the residue of his estate and to pay the income thereof to his widow for her life, with the proviso that if, in any year, the income from these sources did not amount to £4,000, they were to raise and pay to her out of the capital of the estate such a sum as added to the income would make a total of £4,000, it being the testator's expressed intention that the income payable to her should not be less than £4,000 a year.
During each of the years 1923-24 to 1929-30 inclusive, the income of the shares and of the specified part of the residuary estate together fell short of £4,000 and the trustees made payments to the widow of varying amounts out of the capital of the estate to make up that sum each year.
The trustees' solicitors were informed by an officer of the Inland Revenue that no Income Tax would be claimed on these payments, but, later, assessments were made on the trustees under General Rule 21 for each of the years 1923-24 to 1929-30 inclusive in respect of the sums paid out of the capital of the estate.
On appeal, the trustees claimed (i) that these sums were not chargeable to Income Tax, and (ii) that, in the circumstances of this case, Section 26 of the Finance Act, 1927, and Section 125 of the Income Tax Act, 1918, did not authorise the making of assessments for years up to and including the year 1928-29 and that such assessments were bad in law.
The Special Commissioners decided (a) that the sums paid out of capital constituted an annuity or annual payment within the meaning of Rule 21 and fell to be assessed on the Appellants, and (b) that Section 125 did not apply to the case.
Held, that Income Tax was payable in respect of the whole of the payment of £4,000 to the widow and that the assessments had been correctly made.
Stated under the Income Tax Act, 1918, Section 149, and the Finance Act, 1927, Section 26, 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.
At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts, held on the 9th November, 1931, the trustees of the will of Hugh Kinsman Brodie (deceased) hereinafter called "the Appellants" appealed against assessments to Income Tax in the sums of £2,000, £1,760, £1,247, £2,715, £3,187, £3,280, £2,301 for the years ending 5th April, 1924, to 5th April, 1930, inclusive, made upon them respectively under the provisions of the Income Tax Acts.
1. The said assessments were made by the Special Commissioners under the provisions of Rule 21 of the General Rules applicable to Schedules A, B, C, D and E of the Income Tax Act, 1918, as amended by Section 26 of the Finance Act, 1927. No assessments other than those under appeal had been made for any of the said years in respect of the sums below mentioned.
2. Mr. Hugh Kinsman Brodie (hereinafter called "the "testator"), who was a British subject, died, in 1920, domiciled in Italy. His widow was also domiciled in Italy.
3. By his will dated 23rd July, 1913, the testator bequeathed certain shares in Norton Megaw & Co., Ltd., and the residue of his estate to trustees upon trust to pay the income of the said shares and of three-fourths of the residue of his estate to his widow during her life. It was provided that if, in any year, the amount of the income of the said three-fourths part of the residuary estate and of the said shares in Norton Megaw & Co., Ltd., or the investments for the time being representing the proceeds of the same, did not amount to £4,000, then the trustees of the will were directed to raise and pay to the testator's widow out of the capital such a sum as added to such income would amount to the total sum of £4,000 for that year. The intention, as expressed by the testator, was that the income payable to his widow during her life should in no case be less than £4,000 a year. A copy of the said will, marked "A", is annexed to and forms part of the Case(1).
4. The Appellants, the present trustees of the said will, are Mrs. Brodie, the testator's widow, and Mr. Chamberlain, a solicitor practising in London.
5. The whole of the income of the said estate is subject to Income Tax by deduction at the source, with the exception of a sum of 5 per cent. War Loan and certain foreign investments. It is
admitted, on behalf of the Respondents, that the income arising from the said War Loan and foreign investments, being paid direct to the testator's widow in Italy, is not liable to Income Tax, on the ground that she was not and is not resident or ordinarily resident in the United Kingdom.6. Doubts having arisen as to whether the said sum of £4,000 payable each year to the testator's widow was or was not subject to deduction of Income Tax by the trustees under the will, a deed of arrangement, dated 7th October, 1921, was entered into between the beneficiaries under the said will, whereby it was agreed that payment should be made free of Income Tax. A copy of this deed, marked "B", is annexed to and forms part of the Case(1).
7. The income of the said three-fourths part of the residuary estate and of the said shares and investments was not sufficient, in any of the years material to this appeal, to satisfy the said payment of £4,000 a year.
Under the provisions of the said will, the trustees had made payments of varying amounts out of the capital of the estate in order to make up the said sum of £4,000 each year from 1922 to 1929.
A statement, marked "C", which is annexed to and forms part of the Case(1) shews the sums of capital so expended each year and the computation of Income Tax under the provisions of the said Rule 21 in respect of such sums.
8. On 29th June, 1928, Messrs. Armitage, Chapple & Co., the solicitors acting for the Appellants, wrote a letter to the Clerk to the Special Commissioners setting out the above-stated facts and requesting the views of the Commissioners in regard to the question of Income Tax on the payments made out of the capital of the...
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