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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Inland Revenue v. Earl of Haddington [1924] ScotLR 356 (27 February 1924) URL: http://www.bailii.org/scot/cases/ScotCS/1924/61SLR0356.html Cite as: [1924] SLR 356, [1924] ScotLR 356 |
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Page: 356↓
(See Earl of Haddington, Petitioner, November 27, 1918, 1919 S.C. 727, 56 S.L.R. 460.)
The Finance (1909–10) Act 1910, sec. 66 (2) ( d), enacts—“Any income which is chargeable with income tax by way of deduction shall be deemed to be income of the year in which it is receivable, and any deductions allowable on account of any annual sums paid out of the property or profits of the individual shall be allowed as deductions in respect of the year in which they are payable notwithstanding that the income or the annual sums, as the case may be, accrued in whole or in part before that year.”
By antenuptial contract of marriage the heir-apparent of an entailed estate provided an annuity for his widow and made provisions for his younger children payable out of the entailed estate at his death. He died on 12th January 1917, and at his death it was found that, looking to the free rents of the estate, the amount of the annuity and provisions exceeded the amount competent under the Entail Acts. Accordingly by interlocutor dated 27th November 1918 the Court restricted the annuity and provisions to the appropriate amounts. On 24th December 1918 the heir in possession paid to the widow the amount of two years’ annuities and to the younger children the amount of two years’ interest on the provisions. Held that in computing the income of the heir in possession for the purpose of super tax for the year ending 5th April 1920 only one year's annuity and interest fell to be deducted, the remaining year's annuity and interest being proper deductions from his income for the previous year.
The Finance (1909–10) Act 1910 (10 Edw. VII, cap. 8), sec. 66 (2) ( d), enacts—[ Quoted In rubric].
At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts, held on 4th December 1922, for the purpose of hearing appeals, the Right Honourable George Baillie Hamilton, Earl of Haddington (here in after called the respondent), appealed against assessments to super tax in the sums of £5151 and £3368 for the years ending 5th April 1919 and 1920 respectively made upon him under the provisions of the Income Tax Acts.
In computing the total income from all sources for the purposes of super tax for the year ending 5th April 1920 the respondent claimed to be allowed to deduct, inter alia, certain sums, amounting in all to £3978, 17s.
The Special Commissioners being of opinion that the said sum of £3978, l7s. was a proper deduction for super tax for the year ending 5th April 1920, discharged the assessment for that year.
During the year ending 5th April 1919 the respondent was serving as a member of the military forces of the Crown in connection with the European War, and was entitled for super-tax purposes to the relief granted by section 19 of the Finance Act 1915. The Special Commissioners therefore discharged the assessment for the year ending 5th April 1919.
The Commissioners of Inland Revenue being dissatisfied with the determination of the Special Commissioners required them to state a Case for the opinion of the Court of Session as the Court of Exchequer in Scotland.
The Special Commissioners accordingly stated a Case.
[ The following narrative is taken from the opinion of Lord Ormidale infra]:—“The late Earl of Haddington was heir of entail in possession of certain lands and estates. He died on 11th June 1917. His eldest son Lord Binning, who was his heir-apparent, predeceased him, dying on 12th January of the same year. On the Earl's death he was succeeded as heir of entail in possession by his grandson the respondent. By antenuptial contract of marriage Lord Binning as heir-apparent, with consent of his father, in virtue of and under reference to the Entail Acts, appointed an annuity of £2125 to his wife and provisions in favour of his younger children amounting to £10,000. The deceased Earl had also made provisions in favour of his younger children, and it was found, after the rights of the parties interested had been adjusted, that the free rents would not suffice to provide for Lord Binning's widow an annuity of more than £1627, 14s. 1d., and for his younger children, of whom there were two, a larger sum than £7234, 5s., or £3617, 2s. 6d. to each. Accordingly by interlocutor of 27th November 1918 the Junior Lord Ordinary restricted the annuity and provisions to these sums, and by the same interlocutor granted authority to the respondent to execute bonds and dispositions in security over the entailed lands for the younger children's provisions.”
The Case set forth, inter alia—“13. On 4th December 1917 the respondent presented a petition to the Court of Session in which he craved the Court to declare that—(1) The said annuity of £2125 to Lady Binning should be restricted to £1627, 14s. 1d.; (2) the said provision of £10,000 for the younger children of Lord Binning (namely, the said Helen Baillie Hamilton and the said Charles William Baillie Hamilton) should be restricted to £7234, 5s.—that is to say, £3617, 2s. 6d. to each of the said two children. The respondent also craved the Court to authorise him to make and execute a bond and disposition in security in favour of each of the said Charles William Baillie Hamilton and Helen Baillie Hamilton for the sum of £3617, 2s. 6d., with interest and corresponding penalties in ordinary form
Page: 357↓
over the said entailed lands and estates of Tynninghame and others. 14. The said petition was heard by the Junior Lord Ordinary and was advised (by Lord Sands) on 12th September and (by Lord Blackburn) on 27th November 1918, on which latter date an interlocutor was pronounced in terms of the said petition. The interlocutor of 27th November 1918, so far as applicable to the present case, is in the following terms:—‘… Finds and declares (1) that the annuity of £2125 provided to the said Lady Binning furth of the said entailed lands and estates and rents, profits, and duties thereof under and in terms of the antenuptial contract of marriage entered into between the said Lord and Lady Binning with consents therein mentioned, dated 15th and 20th September and recorded in the Divisions of the General Register of Sasines applicable to the counties of Haddington and Berwick for publication, and also as in the Books of Council and Session for preservation, on 5th October 1892, be and is hereby restricted to the said sum of £1627, 14s. 1d. per annum; and (2) that the provision of £10,000 provided under and in terms of said antenuptial contract of marriage to the said Lord Binning's younger children out of the rent and proceeds of the said entailed lands and estates shall be and is hereby restricted to the said sum of £7234, 5s.: Also finds and declares that in so far as the said annuity of £2125 exceeds the said sum of £1627, 14s. 1d. per annum, and in so far as the said provision of £10,000 in favour of the said Lord Binning's younger children exceeds the said sum of £7234, 5s., the same respectively are null and void and of no force or effect as affecting the said entailed lands and estates or any part thereof, or the petitioner or the heirs of entail succeeding to him therein: Grants warrant to and authorises the petitioner to make and execute … (2) a bond and disposition in security or bonds and dispositions in security in favour of the said Charles William Baillie Hamilton and Lady Helen Baillie Hamilton for the sums of £3617, 2s. 6d. each, together amounting to the sum of £7234, 5s., with interest and corresponding penalties in ordinary form over the said entailed lands and estates of Tynninghame and others, other than the mansionhouse, offices, and policies thereof.…’ 15. On 24th December 1918 the respondent made the following payments:—
To Lady Binning in respect of the said annuity of £1627, 14s. 1d. for two years.
£3255 8 4 Two years’ interest at 5 per cent. on £3617, 2s. 6d. to the Honourable Charles William Baillie Hamilton
361 14 4 Two years’ interest at 5 per cent. on £3617, 2s. 6d. to the Honourable Helen Baillie Hamilton
361 14 4 £3978 17 0 It was contended on behalf of the respondent—(1) That the said sum of £3978, 17s. was not payable until 27th November 1918, when the interlocutor on the petition of the respondent was pronounced by the Court of Session; (2) that the said sum of £3978, 17s. was a proper deduction for super tax for the year ending 5th April 1920; and (3) that the assessment for the year ending 5th April 1920 should be discharged. It was contended on behalf of the appellants—(1) That the annuity of £2125 and the provision of £10,000 were obligations undertaken by Lord Binning in his marriage contract, and that the interlocutor of 27th November 1918 merely restricted these sums in conformity with section 7 of the Entail Provisions Act 1824; (2) that in terms of section 6 of the Entail Amendment (Scotland) Act 1868 the annuity of £1627, 14s. 1d. to Lady Binning and the provision of £7234, 5s. in favour of the younger children became payable at the death of Lord Binning on 12th January 1917, and that interest on the said sum of £7234, 5s. became payable as from the said date; (3) that the sum of £1989, 8s. 6d., being one-half of the said sum £3978, 17s., was payable in the year ending 5th April 1918 and was a proper deduction for super tax for the year ending 5th April 1919; and (4) that the sum of £1989, 8s. 6d., being the remaining half of the said sum of £3978, 17s., was payable in the year ending 5th April 1919 and was a proper deduction for super tax for the year ending 5th April 1920.”
The question of law for the opinion of the Court was—“Whether the respondent is entitled to deduction of the sum of £3978, 17s. for the year ending 5th April 1920.”
Argued for the appellants (Commissioners of Inland Revenue)—The words “of the year in which they are payable” occurring in sec. 66 (2) (d) of the Finance (1909–10) Act 1910 (10 Edw. VII, cap. 8) meant the particular year in which the annual sums ought to have been paid, not the year in which they actually were paid. The question in the case was really settled by these authorities— Paul v. Anstruther, 1864, 2 Macph. (H.L.) 1; Hard v. Anstruther, 1862, 1 Macph. 14, Ersk. iii, 6, 8. The following Acts were also referred to—Entail Provisions Act 1824 (5 Geo. IV, cap. 87), sec. 7; Entail Amendment (Scotland) Act 1868 (31 and 32 Vict. cap. 84), sec. 6; Finance (1909–10) Act 1910, sec. 66 (2) ( d); Income Tax Act 1918 (8 and 9 Geo. V, cap. 40), sec. 5 (3) (c).
Argued for the respondent (Earl of Haddington)—(1) The word “payable” occurring in sec. 66 (2) ( d) of the Finance (1909–10) Act 1910 was used in a sense midway between the idea of “accruing” and the idea of “paid.” It was used in the sense of “capable of being paid,” but no claim could have been made for the sums due before the interlocutor was pronounced—Duncan's Entail Procedure, p. 37. Moreover, before payment could be made not only had the amount of the payment to be settled but questions as to competing rights between heirs of provision and the heir-apparent had to be decided. The word “payable” meant “exigible.” It meant that the creditor must have not only a jus crediti but also a jus exigendi— Hurll v. Inland Revenue, 1923 S.C. 395; Duncan v. Inland Revenue, 1923 S.C. 388, 60 S.L.R. 226. If the
Page: 358↓
appellants were right in their contention there would be no way in which the taxpayer could enforce as against the Crown a claim to have an assessment reponed. (2) The provisions of sec. 9 of the Entail Provisions Act 1824 were imported into sec. 6 of the Entail Amendment (Scotland) Act 1868, and accordingly no payment of the provisions granted by an heir-apparent fell to be made until a year after the death of the granter. At advising—
The sole question in the case accordingly is, When, in the sense of the section in question, was the sum of £3978 payable? The appellants say it became payable as at the date of Lord Binning's death, not as at the date of the interlocutor to which I have referred. In that contention I think they are right. In my view the right of Lord Binning's widow and children to the provisions which he made in his marriage contract in their favour, up to the statutory limit, became exigible on his death. It is true that Lord Binning over-estimated the amount with which the statute empowered him to endow them. But that fact did not affect, in my judgment, the existence or the quality of the right. Neither did it affect the enforceability of that right. Had an action been raised by the beneficiaries under Lord Binning's marriage contract on his death for payment of the provisions settled upon them by him, the only competent defence to that action, in my opinion, would have been enshrined in the time-honoured words “the sum sued for is excessive.” Had a creditor of Lord Binning's sought to adjudge the rents of the estate which within his statutory power he had earmarked for the benefit of his widow and children, they could have vindicated their right to these against all comers in virtue of the combined effect of the Act of Parliament and the marriage contract. The dispute as to amount was adventitious; the liability to pay the statutory amount was inherent and implacable.
The contrary view involves that a debt, even though it be statutory in its origin, if disputed, is not payable until it is constituted by decree. It involves that the quality of the right of the beneficiaries depends on the accident that Lord Binning over-estimated the amount which in virtue of that right they were entitled to recover. It involves that despite the statute and despite the marriage contract not one penny was payable to them until the interlocutor of the Court was pronounced. These consequences seem to me extravagant and unwarranted either by principle or authority. The respondent's argument, with all respect, betrays a confusion of thought as to the right to exact payment of a debt, and the adjustment of the amount of that debt which can in the exercise of the right be recovered. All that was required in order that a debt should become payable in this case at Lord Binning's death was the concurrence of the statutory and the conventional provisions. The debt as delimited by the statute, was never in dispute, and was all along exigible. In other words the ultimate amount of the debt as settled by the Court was payable from the date of Lord Binning's death, not from the date of the interlocutor. The aid of the Court was invoked, not because there was any doubt that the statutory debt was payable, but because a question had arisen as to its precise amount. These are two distinct and independent concepts. Holding as I do that the statutory debt was all along payable, and that the adjustment of its amount did not affect either its quality or exigibility, I am of opinion that the question put should be answered in the negative, and I venture to advise your Lordships to reply to it accordingly.
Page: 359↓
The justification for deduction from income with a view to determining the payment of super tax rests upon the provisions of section 66, sub-section (2) ( d), of the Finance Act 1910. That was the statute which was in operation at the time when the claim for super tax in this case emerged, and its provisions have been practically repeated in the more recent Income Tax Act of 1918. Section 66 is in these terms—[ His Lordship quoted the section]. It seems to me to be hardly open to argue that what is contemplated by section 66 is other than an annual provision. What has been allowed, however, by way of deduction by the Commissioners in this case is not an annual provision but is two annual provisions, both allowed as deductions from one year's income. For such a course I do not think the terms of the section afford any justification at all. It appears to me extremely difficult to understand how you can have an annual charge which is payable to the extent of twice its amount in one particular year. It would cease then to be an annual charge. It would be something different in its nature, and fall to be described in other language. In so far as the present case is concerned, I agree with your Lordships that it is a mere accident that theascertainmentof the precise amount of the provision was made in a year which necessitated the actual payment by the respondent of a double annuity and double interest upon the provisions in favour of the younger children of the previous heirapparent. But that does not alter the fact that so far as they are annual payments—and that is the only question with which the provision of this section is concerned—they were payable, not all in the particular year when in fact they were paid, but were payable in two different years, as regards one of the two sums in the way of annuity in the year previous to the year of calculation, and similarly as regards the interest. I find in the provisions of this section no justification whatever for the accumulation of several years’ burdens against the income of a particular year. That would appear to me to he a most illogical thing if the statute had so provided, but I find no justification for that suggestion. I therefore think that the question should be answered as your Lordships propose.
Page: 360↓
The question of law ought therefore to be answered as suggested by your Lordship.
The Court pronounced this interlocutor—
“… Answer the question of law stated in the Case in the negative: Reverse the determination of the Commissioners; and decern.…”
Counsel for the Appellants—Solicitor—General ( Fenton, K.C.)— Skelton. Agent— Stair A. Gillon Solicitor of Inland Revenue.
Counsel for the Respondent— Henderson, K.C.— Aitchison, K.C.— Thom. Agents— D.& J. Campbell, W.S.
