What is Income?
| Author | O. M. Stone |
| Published date | 01 April 1952 |
| Date | 01 April 1952 |
| DOI | http://doi.org/10.1111/j.1468-2230.1952.tb00231.x |
WHAT
IS
IN,COME?
“TIIERE
can be no doubt that, in the natural and ordinary meaning of
language, the income of
a
bank
or
trade for any given year would be under-
stood to be the gain, if any, resulting from the balance of the profits and
losses of the business in that year. That alone is the income which
D
commercial business produces, and the proprietor can receive from
it.”
This is only one of many judicial definitions of income,2 apart
from innumerable definitions not by words, but by implication.
The distinction of income from capital is, ultimately, an arbitrary
one, as Lord Herschel1 saw in
Bouch
v.
SprouZe.s
In
their
attempts to make
it
the judges have referred inter alia
to
the
opinions of economists and
of
judges in other jurisdictions,
especially the United States of Ameri~a.~ The doubtful compliment
is returned, as witness Lord Keynes
6:
“
Our
definition of
net
income
comes very close to Marshall’s definition of
income,
when
he decided to take refuge in the practices of the Income Tax
Commissioners and-broadly speaking-to regard as income what-
ever they, with their experience, choose to treat as such.
For
the
fabric of their decisions can be regarded as the result of the most
careful and extensive investigation which is available, to interpret
what,
in
practice,
it
is usual to treat as net income.”
But whilst economists and others may take refuge in judicial
decisions, the judges can find
no
refuge from their function
of
1
Sir Montague
E.
Smith,
Lawless
v.
Sullivan
(1880) 6
A.C.
(J.C.) 373, 378979.
a
A
representativo assortment may be found in
Words
and Phrases Judicially
Defined,
1944
ed., by Sir ,Roland Burrows,
Vol.
111,
pp.
80-84.
J
(1885) 12
A.C.
385, 393:
The division
of
tho enjoymont of property between
tenant for life
and
remainderman is itself artificial.”
4
See,
e.g.,
Sankey
J.
in
Pool
v.
Guardian Investment Trust
Co.,
Ltd.
[1922] 1
K.B.
347, 359.
5
In
I.
R.
Comrs.
v.
Blolt
[l921]
2
A.C.
171,
Lord Pinlay at
p.
195
quoted
Pitman
J.
in the 9ited States case of
Eisner
v.
Macomber,
252
U.S.
189, 207,
1920,
as
saying: Hero we have the essential matter: not
a
gain accruing to
capital, not
a
growth or increment of value in the investment, but
a
gain, a
profit, somcthing
of
exchangeable value proceeding from tho propert;, severe:
from tho capital however invested or emp oyed,
and
coming in, being derived
that is, received or drawn by the recipient (the taxpayer) for his separate use,
benefit
and
disposal; that
is
income derived from property. Nothing else
answers that description.” In
Pool
v.
Guardian Inveslment Trust
Co.,
Ltd.
[1922] 1
X.B.
347,
Sankey
J.
at
p.
358,
after quoting various definitions by
economists, rcpcated tho words of Pitman
J.,
and particularly stressed that
“
the essential matter is that income is not
a
gain accruing to capital, but
a
gain d:fived from capital.” This is very subtle. He then enunciated what h:
called
which he concluded depends
on
two questions:
(1)
whether there has been
a
releaso
of
assets,
(2)
if
so,
whether tho assets released were 2apital.
Settled Shares
in
a
Company,”
67
L.Q.R.,
April,
1951,
p.
195.
To Professor Bailey’s detailed
discussion
of
this whole subject my debt is both real and apparent.
the true test
as
to whether
a
distribution
of
shares falls to bo taxed,
This test is criticised by Professor Bailey in his article on
See also
W.
Strachan,
46
L.Q.R.
334.
6
The
General Theory
of
Employment, Interest and Money,
1944
ed.,
p.
59.
180
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