Yates (Inspector of Taxes) v Starkey
| Jurisdiction | England & Wales |
| Year | 1951 |
| Date | 1951 |
| Court | Court of Appeal |
No. 1454-HIGH COURT OF JUSTICE-
COURT OF APPEAL-
Income Tax-Child allowance-Court Order providing for sums to be payable by taxpayer to his former wife "in trust" for children of the marriage-Whether an effective trust created, and if so whether sums paid under the Order are income under a "settlement" of which the taxpayer is the "settlor" - Finance Act, 1920 (10 & 11 Geo. V. c. 18), Section 21; Supreme Court of Judicature (Consolidation) Act, 1925 (15 & 16 Geo. V., c. 49),Section 193 (3); Finance Act, 1936 (26 Geo. V & 1 Edw. VIII, c. 34), Section 21.
Under a Court Order dated 16th July, 1946, the Respondent was ordered to pay to his former wife "the annual sum of £100 less tax in trust "for each of the three children issue of the marriage…Respondent to "claim child allowances"
On appeal to the General Commissioners against his coding for Income Tax purposes, the Respondent claimed that he was entitled to child allowances in respect of the three children. He contended (i) that under Sections 190 and 193 of the Supreme Court of Judicature (Consolidation) Act, 1925, as amended by Section 10 (4) of the Matrimonial Causes Act, 1937, the Court had no power to create a trust in favour of the children and that accordingly the children had no income in their own right; or, alternatively, (ii) that if the Court Order did create a trust then the sums payable under the Order must, by virtue of Section 21 of the Finance Act, 1936, be treated for Income Tax purposes as his income; and (iii) that in either event he was entitled to claim child allowances. The Crown resisted these contentions and further argued that the expression in the Court Order "Respondent "to claim child allowances" meant no more than that if at any time a claim for child allowances should become competent the Respondent was designated by the Order as the person entitled to claim the benefit of the relief.
The Commissioners held that the Order created a trust in favour of the children, that the sums payable under the Order must, by virtue of Section 21 of the Finance Act, 1936, be treated as income of the Respondent and that he was therefore entitled to the child allowances.
Held, that the decision of the Commissioners was correct.
Stated under Section 149 of the Income Tax Act, 1918, by the Commissioners for the General Purposes of the Income Tax for the Division of Dartford in the County of Kent, for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the above named Commissioners held at the County Court, Dartford, in the said County, on 16th March, 1949, Dennis William Frederick Starkey of 57, Swaisland Road, Dartford aforesaid (hereinafter called "the Respondent") appealed against his coding for Income Tax purposes as determined by the Inspector of Taxes for Gravesend District (being the above-named Appellant) under Part II of the Income Tax (Employments) Regulations, 1944 (S.R. & O. 1944, No. 251) as amended for the years ended 5th April, 1947, 5th April, 1948 and 5th April, 1949. The ground of his objection was that further allowances were due to him in respect of three children in the circumstances set out below.
2. The facts material to the appeal were agreed.
3. On 12th September, 1931, the Respondent married Barbara Mary Starkey (née Penman) (hereinafter called "Mrs. Starkey").
4. There were three children of that marriage, namely:-
Jane Katherine Starkey, born 29th August, 1933;
Susan Mary Starkey, born 22nd October, 1935;
William George Starkey, born 3rd January, 1937;
All the above-named children were living at the date of the appeal hearing.
5. In the year 1945 the Respondent was divorced by Mrs. Starkey and she was given the custody of the said three children. The date of the decree absolute in the divorce proceedings was 10th December, 1945.
6. By an Order of the High Court of Justice dated 16th July, 1946 (a copy of which is annexed hereto and forms part of this Case(1)) the Respondent was ordered (inter alia) to pay to Mrs. Starkey as an interim provision until further Order as from the said 10th December, 1945, the annual sum of £100 less tax in trust for each of the three children, the Respondent to claim child allowances.
7. The Respondent had duly paid Mrs. Starkey the above sums mentioned in the Order (less tax) and she, as guardian of the three children, had preferred repayment claims on their behalf (on the basis that the said sums were income of the respective children) which claims had been allowed by the Revenue.
8. It was contended on behalf of the Respondent:-
(a) that under Sections 190 and 193 of the Supreme Court of Judicature (Consolidation) Act, 1925, as amended by Section 10 (4) of the Matrimonial Causes Act, 1937, the Court had no power to create a trust in favour of the children;
(b) that therefore no such trust had been created, and
(c) that the children had therefore no income in their own right and that the Respondent was entitled to child allowance in respect of the three children under Section 21 of the Finance Act, 1920 as amended by Section 24 of the Finance Act, 1940.
(d) Alternatively, it was contended:-
(e) that if in fact the Order created a trust in favour of the children the sums so payable under the Order must by virtue of Section 21 of the Finance Act, 1936, be treated as the income of the Respondent, who was therefore entitled to child allowances as claimed.
9. It was contended on behalf of the Inspector of Taxes:-
(i) that the effect of the Order dated 16th July, 1946, was to create a trust in favour of the children;
(ii) that the words of Section 193 (1) of the Supreme Court of Judicature (Consolidation) Act, 1925, especially when considered with Section 10 (4) of the Matrimonial Causes Act, 1937, were sufficiently wide to authorise an Order creating such a trust;
(iii) that even if the Order were not properly made it was effective to create a trust in favour of the children until set aside;
(iv) that the payments made under the Order for the maintenance of the Respondent's children were the income of the respective children in their own right notwithstanding Section 21 of the Finance Act, 1936;
(v) that the Respondent was not entitled to child allowances in respect of the three children under Section 21 of the Finance Act, 1920; and
(vi) that the words "Respondent to claim child allowances" in the Order meant no more than that if at any time a claim for child allowance should become competent the Respondent was designated in the Order as the person who would be entitled to claim the benefit of the relief.
10. We, the Commissioners, gave our decision in the following terms:-
We have to come to the conclusion that the Order of the Court dated 16th July, 1946, created a trust in favour of the three children but under Section 21 of the Finance Act, 1936, the income of each child under the trust must for Income Tax purposes be treated as the income of the Appellant who is in consequence entitled to the child allowances.
11. On behalf of the Inspector of Taxes dissatisfaction was immediately expressed with our decision as being erroneous in point of law, and in due course we were required to state a Case for the opinion of the High Court pursuant to Section 149 of the Income Tax Act, 1918, which Case we have stated and do sign accordingly.
Dated this 25th day of October, 1949.
W.L. PARRY, CYRIL HEDDLE, F.H. SEAGER, L.R. STRICKLAND Commissioners for the General Purposes of the, Income Tax acting in and for the Division of, Dartford in the County of Kent.
The case came before Vaisey, J., in the High Court on 17th and 18th July, 1950, and on the latter date judgment was given against the Crown, with costs.
Vaisey, J.-This is indeed a short point, but in my judgment it is one of considerable difficulty. The Case, which has been stated by the Income Tax Commissioners for the Dartford Division of Kent, refers to the appeal which was before them as being an appeal against the then Appellant's coding for Income Tax Purposes, but in point of fact, as is made clear at the end of the first paragraph of the Case, the ground of the appeal was that the then Appellant was not allowed the relief which he claimed under Section 27 of the Income Tax Act of 1918. I have said that the point here to my mind is one of difficulty, but having come to a certain conclusion upon it, I do not see what good purpose would be served by me reserving my judgment. The first matter which has to be decided arises under Section 193, Sub-section (3) of the Supreme Court of Judicature (Consolidation) Act of 1925, and the second point which arises lies within the ambit of the relevant section of the Finance Act of 1936, namely, Section 21.
The Respondent, Mr. Starkey, was the respondent in divorce proceedings brought against him by his wife, and an Order of the Probate, Divorce and Admiralty Division was made on 16th July, 1946, by which Mr. Starkey was ordered to pay or cause to be paid to his former wife, the petitioner in that suit, as an interim provision until further Order, as from the date of the decree absolute, an annual sum of £100 less tax in trust for each of the three children, the issue of the marriage. Their names are given and then it says: "All the said sums to be payable monthly; credit to be given for any "sums paid since the said date" -that is, since the date of the decree.
Now the first question which was raised before the Commissioners was whether it was within the powers of the Court to make the provision for the children in the form of a trust, but when I look at Sub-section (3) of Section 193 of the Act of 1925, as amended by Section 10 (4) of the Matrimonial Causes Act, 1937, I myself feel no doubt that such an Order was within the competence of the Court and that no exception can be taken to it either in point of substance or in point of form. The Section, omitting irrelevant words, says this: "The...
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Thomas v Marshall (Inspector of Taxes)
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Mills v Commissioners of Inland Revenue
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