Thomson (HM Inspector of Taxes) v Moyse
| Jurisdiction | England & Wales |
| Judgment Date | 22 November 1960 |
| Date | 22 November 1960 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL -
HOUSE OF LORDS-
Income Tax, Schedule D - Foreign securities and possessions - Remittances - United States trust income paid into account with United States bank - Cheques drawn in dollars on United States bank in favour of United Kingdom banks - Sterling equivalent credited to accounts with United Kingdom banks - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Schedule D, Case IV, Rule 2, and Case V, Rule 2.
The Respondent, a British subject resident in the United Kingdom but domiciled in the United States, was entitled to life interests in the United States in a trust under the will of his late father and in the residuary estate of his late mother. The income from the two life interests was paid in dollars by the executors and trustees into a New York bank.
During the years 1948 to 1952, the Respondent asked one or other of two United Kingdom banks to purchase or convert into sterling the proceeds of certain cheques which he had drawn in their favour in dollars on his New York bank. The particular United Kingdom bank then sold the dollars to the Bank of England or to a person authorised by the Bank of England to purchase the dollars, and the Respondent's account at the United Kingdom bank was credited with the sterling equivalent, less charges. The cheques were cleared on the New York bank and the proceeds credited to the account of the Bank of England with the Federal Reserve Bank.
On appeal to the Special Commissioners against assessments to Income Tax under both Cases IV and V of Schedule D for the years 1949-50 to 1951-52, the Respondent contended (a) that the sterling sums received by him in the United Kingdom were not remittances of United States income but arose from contracts concluded by him in the United Kingdom with the United Kingdom banks, and (b) that his United States income was not received by him in the United Kingdom within the meaning of Case IV and Rule 2 of Case V. The Commissioners held that there had been no remittances of American income into the United Kingdom and that, following Commissioners of Inland Revenue v. Gordon, 33 T.C. 226, there had been no constructive remittance.
Held, that the transactions in question fell within Case IV and Case V of Schedule D.
Stated under the Income Tax Act, 1952, Section 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At meetings of the Commissioners for the Special Purposes of the Income Tax Acts held on 23rd and 24th January, and 1st February, 1957, Stephen Dickson Moyse (hereinafter called "the Respondent") appealed against the following assessments to Income Tax made upon him under Cases IV and V of Schedule D of the Income Tax Act, 1918:
(a) Under Case IV for the year 1949-50 in the sum of £2,335 and for the years 1950-51 and 1951-52 in the sum of £2,500 for each year.
(b) Under Case V for the year 1949-50 in the sum of £3,457 and for the years 1950-51 and 1951-52 in the sum of £3,500 each year.
The question for determination was whether, in the circumstances hereinafter set out, the Respondent was liable to assessment to Income Tax under Case IV in respect of income from securities in the United States of America and under Case V in respect of income from possessions in that country.
2. At the hearing of the appeal evidence was given by the Respondent and also by the following: Mr. Fritz Brandenburger, the general manager of the banking firm of Seligman Bros., Mr. A.T. Garwood, deputy assistant manager of the overseas branch of the Midland Bank, Ltd., Mr. K.E. Winterburn, a member of the staff of the Kingsway branch of the Midland Bank, Ltd.
The following documents were produced and admitted or proved:
1. Copy of a schedule of U.S.A. cheques.
2. Specimen cheque dated 6th April, 1955, and drawn by the Respondent on the Bank of New York for $6,000 and payable to the order of the Midland Bank, Ltd.
3. The Respondent's original cheque book with the Bank of New York containing counterfoils of cheques drawn by the Respondent from 30th October, 1945, to 22nd May, 1952.
4. Copy of letter of 29th January, 1952, from the Respondent to the Midland Bank, Ltd., and the reply dated 30th January, 1952, from the Midland Bank, Ltd., to the Respondent.
5. Copy of a specimen letter of 17th February, 1949, from Seligman Bros. to the Respondent.
6. Copy of the will of Mrs. Leon Moyse dated 7th June, 1941.
7. Copies of statements of the Respondent's account with the Bank of New York from 1st April, 1948, to 1st December, 1950, and from 1st January, 1951, to 1st March, 1952.
8. Copies of correspondence between the Respondent and Seligman Bros. comprised in the following letters: 31st October, 1945, 23rd November, 1945, 12th June, 1947, 3rd December, 1947, 25th November, 1946, 24th August, 1948, 16th February, 1949, and 8th December, 1948.
9. Copy of the Respondent's account with Seligman Bros. from 30th June, 1948, to 1st January, 1950.
10. Copy of memorandum from the Foreign Exchange Committee of the Bank of England dated 15th December, 1951.
11. Specimen copy of Bank of England form T.C.8.
12. Copy of the Bank of New York statement of the Respondent's account from 1st to 16th February, 1950.
Such of the above documents as are not attached to and do not form part of this Case or are not produced in this Case are available for the use of the High Court if required.
3. The following facts were admitted or proved:
(a) The Respondent was born an American citizen and was and remains domiciled in the United States. At all material times the Respondent was a British subject resident in the United Kingdom.
(b) At all material times the Respondent was entitled to a life interest in a trust in the United States of America under the will of his father, the late Leon Moyse. He was also entitled to a life interest in the residuary estate of his mother, the late Mrs. A.D. Schmucker (widow of the said Leon Moyse), also in the United States of America. This estate was in course of administration from 19th August, 1943, until 18th April, 1951. The income from these two life interests was paid in dollars by the executors and trustees into the Respondent's account at the Wall Street, New York, branch of the Bank of New York.
(c) It was common ground that this income, in so far as it arose in the course of the administration of the Schmucker estate, was income arising from securities out of the United Kingdom and that, in so far as it arose from that estate after the completion of the administration and from the Leon Moyse trust, it was income arising from possessions out of the United Kingdom.
(d) Under Section 1 (1) of the Exchange Control Act, 1947, the Respondent was prohibited from selling, without Treasury permission, the said dollars to any person other than an authorised dealer as defined by Section 42 of the Act. By Section 2 (1) of the Act, in default of Treasury permission to retain them, he was compelled to offer the said dollars for sale to such a dealer. At no time during the material period did the Respondent have permission to sell (otherwise than to an authorised dealer) or to retain the said dollar income, the subject of these appeals. Both Seligman Bros., merchant bankers, of Austin Friars in the City of London, and the Midland Bank, Ltd., are authorised dealers.
(e) Between 1924 and 1926 the Respondent trained as a volunteer with Seligman Bros. From his experience in banking the Respondent was aware that a practice existed whereby a banker, provided he knew the particular customer, might be willing to purchase outright cheques in foreign currencies drawn on foreign banks. This practice of buying and selling cheques drawn in foreign currencies is a very old established one in the City of London and is part of the normal banking business of Seligman Bros. A banker might be willing to act as a principal in this manner even though he had no knowledge of the state of the customer's account at the foreign bank, provided that he was satisfied as to the customer's integrity. Otherwise he would follow the normal method used, for example, in the case of cheques drawn in this country on banks in the United Kingdom, and collect the money from the drawer's foreign bank as an agent and credit the customer's account in due course.
(f) Nothing, except as shown in sub-paragraph (i) below, was paid into the Respondent's New York bank account other than his income from the aforesaid life interests. For the period relevant to the assessments which are the subject of the appeal the Respondent drew certain cheques in dollars on his New York bank account in favour of either Seligman Bros. or Midland Bank, Ltd. (of London). A list of the said cheques, on which the dollars in question are also allocated between the two trust estates, is set forth and attached hereto marked "A" and forms part of this Case(1).
(g) With each of the four cheques drawn in favour of Seligman Bros. in June, August and December, 1948, and February, 1949, the Respondent sent Seligman Bros. a letter asking them to purchase the cheque and to credit his account with the proceeds in sterling and subsequently to transfer part of the proceeds to the credit of his bank account with Midland Bank, Ltd., Kingsway. The letter sent to Seligman Bros. on 24th August, 1948 (for example), stated as follows:
I enclose herewith my cheque on New York in the amount of $6,144.04. Would you kindly purchase this and credit my sterling account correspondingly, under the usual advice. Upon completion of the above, kindly arrange to credit my Account with the Midland Bank Ltd Kingsway Branch, with the amount of £1,750.0.0, debiting my Account with your goodselves correspondingly. Thanking you.
(h) The cheque dated 16th February, 1949, was enclosed with the following letter to Seligman Bros.:
I enclose herewith my cheque on...
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