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Westminister Bank, Ltd, Vs. Riches. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata
Decided On
Reported in[1947]15ITR29(Cal)
AppellantWestminister Bank, Ltd,
RespondentRiches.
Cases ReferredInland Revenue Commissioners v. Barnato
Excerpt:
- du parcq, l. j. - rule 21(1) of the general rule to all schedules under the income tax act, 1918, provides that : 'upon payment of any; interest of money... charged with tax under schedule d... the person by through whom any such payment is made shall deduct thereat a sum representing the amount of the tax thereon at the rate of tax in force at the time of payment.' under paragraph 2 of the rule provision is made for assessment to tax of the person who is bound to deduct under paragraph 1. under schedule d tax is to be charged on 'all interest of money... not specially exempted from tax.' for the purposes of the present case, at any rate, there is nothing in the relevant legislation to qualify the generality of this provision.in an action brought by mr., riches, the present defendant,.....
Judgment:
DU PARCQ, L. J. - Rule 21(1) of the General Rule to All Schedules under the Income Tax Act, 1918, provides that : 'Upon payment of any; interest of money... charged with tax under Schedule D... the person by through whom any such payment is made shall deduct thereat a sum representing the amount of the tax thereon at the rate of tax in force at the time of payment.' Under paragraph 2 of the rule provision is made for assessment to tax of the person who is bound to deduct under paragraph 1. Under schedule D tax is to be charged on 'all interest of money... not specially exempted from tax.' For the purposes of the present case, at any rate, there is nothing in the relevant legislation to qualify the generality of this provision.

In an action brought by Mr., Riches, the present defendant, against the Westminister Bank, Ltd. (the present plaintiffs), in their capacity of judicial trustees of the will of Mr. Ridsdel, deceases, Mr. Riches established a claim to a sum of Pound 36,255. He had justly claimed to be entitled to a half share of the profits realised by Mr. Ridsdel in a certain transaction. Mr. Ridsdel had paid him a sum much less than that to which he was entitled, and Pound 32,255 was the balance which remained due. A plea of accord and satisfaction failed, because, as the judge found, Mr. Riches' consent to take the smaller sum had been induced by the fraudulent misrepresentations of Mr. Ridsdel. After giving judgment, the learned Judge exercised in favour of Mr. Riches the discretion given to him by Section 3(1) of the Law Reform (Miscellaneous Provisions) Act, 1934, which is as follows : 'In any proceedings tried in lay Court of record for the recovery of any debt or damages, the Court may, if it thinks fit, order that there shall included in the sum for which judgment is given interest at such rate as it thinks fit on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the judgment.' The learned Judge awarded interest at 4 per cent. per annum from June 14, 1936, to May 14, 1943. The formal judgment, as it was finally drawn up after some discussion at the bar, expressed the decision of the Judge as follows : 'It is... adjudged that the plaintiff recover from the defendant Pound 36,255 with Pound 10,028 interest, making together the sum of Pound 46,283.' An appeal from the judgment now under appeal was given was brought by the bank for (1) a declaration that the bank had satisfied the judgment in the earlier action by paying the amount adjudged to be due less Pound 5.014, the latter sum representing the income-tax on the interest awarded; (2) an injection to restrain Mr. Riches from levying execution., Evershed, J., made the declaration, and the bank did not insist on lit prayer for an injection. Two questions of importance now arise for our decision. First, is the sum of Pound 10,028, which was awarded as interest, 'interest' on which tax is chargeable under Schedule D Secondly, if the answer to the first question is in the affirmative, was the bank bound to entitled to deduct from that sum the tax due on it at the time of payment It may be stated here that it was agreed that rule 19 of the General Rules had no application to the present case, since the interest in question was not payable wholly out of profits or gains brought into charge to tax.

The question whether interest awarded under the Act of 1934 is subject to tax has never been judicial decided. There is, therefore, no authority which is precisely in point. On principle, and apart from authority, I see no reason why it should not fall within the words of Schedule D. When the Legislature authorizes the Court to award interest, it is a reasonable assumption that it intends what it calls interest to be regarded as interest for the purposes of taxation. If, indeed, there were something in the context of the statutes to show that the word was used with one meaning in the 1934 Act, and with another in the taxing Acts, such an assumption would be negatived I can find nothing to suggest that in the Act of 1934 the word 'interest' has so special a meaning that it falls outside the description 'all interest of money.' If the Act provided that damages high be awarded to the plaintiff and should be based on the language of the Act. The provisions that the interest awarded to the plaintiff and should be based on a calculation of interest, a different result might follow, but that is not the language of the Act. The provision that the interest awarded is to be 'included in the sum for which judgment is given' seems to me to carry the matter no further. Nor can I attach importance to the fact that the interest awarded to compensate the plaintiff for what age has lost thought the defendants delay in paying a just debt. Finally, I am by no means persuaded that this interest is excluded from the wide words of the taxing Act because, as was said, it is non-recurrent. What the judge does in a case like this is, first to him to say, if he thinks fit, that, as the sum ought to have been paid at that date, it is right that it should bear interest as from that date. The order is retrospective, but I see no reason to think that a right to receive interest, in the sense in which that word is used in Schedule D, may not come into being as the result of a retrospective order. If we were dealing, not with a statute, but with a contract with resulted in an analogous position, I think that there could be little doubt about the matter. Suppose, for instance, that A lends Pound 1,000 to be repaid at the end of three years with such interest, if any, as C (an impartial friend acting as arbitrator) may in this discretion think it fair and just, in all the circumstances, that B should pay. If A received interest under Cs award, it could hardly be doubted, I think, that it would be interest subject to tax. So far as this particular point is concerned. I see no distinction in principle between that case and the one before us.

So far a have dealt with the matter apart from authority, but I believe that I have said nothing which conflicts with the many authorities cited to us in so far as they afford us giddiness. Citations from cases referring to Sections 28 and 29 of the Civil Procedure Act, 1833, are, in may opinion, of doubtful assistance. Indeed, I am of opinion that when the legislature has repealed a statute and has not re-enacted it, but replaced it with a new enactment in different terms, it is in general a salutary rule that such case law as has accumulated round the repealed statute should be regarded as having expired with it. With regard to the other authorities cited, there is little that I wish to say. The two which seemed to me most helpful to appellants counsels argument were National Bank of Wales, Ltd., In re, and Simpson v. Maurices Executors. The latter case is, in may opinion, distinguishable from the present. The sum awarded by the Mixed Arbitral Tribunal had been reached by a calculation of interest, but, under the relevant article of the Treaty, that Tribunal had no power to award interest as such. If that article had provided in terms for the payment of interest, the decision of the Court might will, I think, have been in favour of the Crown. The view expressed by Wright, J., in the case of National Bank of Wales, Ltd., In re, seems to have been approved by Lawrence, L. J., in Simpson v. Mourices Executors (see 14 Tax Cas., at p. 606), although other judges have somewhat pointedly declined to express approval of it. As I have said, neither it, nor indeed any reported decision; is directly in point, because the precise question before us comes up for decision for the first time. I propose to express no opinion on any but that precise question, and I don not find it necessary on this occasion to approve or disapprove the view expressed by Wright, J. For the reason which I have given, I am of opinion that the interest awarded to Mr. Riches was subject to tax.

The second question seems to me to be one of some difficulty. It follows necessarily from the language of Section 3 of the Act of 1934 that the sum awarded by way of interest is included in the judgment debt. Throughout the argument I felt, and I fear that I too often expressed, a doubt whether a defendant who is required by the order of the Court to pay a judgment debt for a fixed sum (which includes interest) can be said to be making a payment of interest when he pays that sum. As between himself and the judgment creditor, there is no longer a liability to pay the interest which is included in the judgment debt. That liability to lay the interest which is included in the judgment. debt. That liability is superseded by, or merged in, the judgment debt. If the judgment debtor fails to pay the judgment debt, he cannot be made liable in a further action for interest, but he is technically liable to be sued on the judgment. This is trite law, and no authority need be cited for it. Suffice it to say that the principle was stated by B., in King v. Hoare, and that some of the relevant cases are collected in Bullet and Leakes Precedents of Pleading (9th ed.), at P. 212.

Counsel for the respondents did his best on dispel my doubts, and counsel for the appellant said nothing to encourage them. Both learned counsel contended that if indeed the interest merged in the judgment debt, the result would be that the Crown would lose its right to income tax, since the interest debt would be merged for all purposes. I do not agree with this contention. The doctrine of merger, though it has many important consequences, does not operate to effect a musical metamorphosis, binding on all the world, of all debts which together constitute the judgment debt. No one would suggest that a plaintiff who obtains a judgment against his debtor for arrears of interest (no allowance having been made for deduction of tax in the statement of claim or claimed in the defence) could defeat the right of the Crown by a plea that his debtor had paid him, not interest, but a judgment debt. It is only as between plaintiff and defendant that there is a merger, and the rights of third parties are not affected. My doubts was not as to the right of the Crown to demand tax, but as to the duty of the debtor to deduct it. A similar doubt was entertained by this Court in the case of Cooper, In re, but unfortunately it was not then necessary to resolve it. The relevant sections at that time were Sections 102 and 103 of the Income Tax Act, 1842. The Court held that tax was not deductible at all, because the interest payable was not 'yearly interest,' and only touched upon the question whether, if it had been deductible, it could have been deducted from a judgment debt [see per Cozens-Hardy, M. R. (80 L. J. K. B., at p. 991; [1911] 2 K. B., at p. 554 and per Buckley, L. J. (80 L. J. K. B. at p. 992; [1911] 2 K. B., at p. 555)]. Although that question was left in doubt, it may be said that the Master of the rolls and the Lords Justices did not rule out the possibility of deducting tax from a judgment debt, if certain conditions were fulfilled. I must add that while I was considering this judgment I learned that Casuals, J., sitting as Vacation Judge during the Long Vacation of 1944, had held that a judgment for an amount which included interest (payable or money for which persons acting; in a fiduciary capacity were accountable) was satisfied by payment of the total amount of the judgment was given on the hearing of a summons which was adjourned into court, but it apparently escaped the notice of the reporters. The judgment debt in question was that which the House of Lords decreed to be due in Regal (Hastings), Ltd. v. Gulliver. We are obliged to Cassels, J., for furnishing us with a copy of his written judgment.

After full consideration, I am bound to say that the doubt which I have expressed seems to me to have a sound logical foundation and has not been wholly removed. When Oliver, J., awarded interest he, at the same time, uno flatu, included it in the judgment debt. It cease, therefore, to be due as interest, and I find some difficulty in saying that payment of a judgment debt is payment of interest, even when an examination of the record shows that the debt includes interest. Since interest as such is not due and owing, it is difficult to see how what the doubter pays can be called interest. I confess that I was the more attracted by this view of the matter because of the inconvenience of deciding a question of liability to income tax in proceedings in which the Crown is not a party, and the desirability of the determination of such a question by the tribunals descend for the purpose by the Legislature. In the end, however, I have come to the conclusion that the view which at first attracted me is too technical. The law is not always completely logical. It is our duty to give effect to the intention of Parliament, as expressed in the relevant statutes, and, on the whole, I am prepared to concur in the opinion that Parliament intended the deduction of tax to be obligatory on the payer under rule 21, even when the interest payable was included in a judgment debt. That rule is mandatory, and it seems plain that its object is to ensure the collection of income tax, and so to protect the interest of the Crown. The judgment, on its face, orders the payment of Pound 10,028 as interest, and the first, and indeed the only, opportunity which the bank has of obeying the direction contained in rule 21 came when it satisfied the judgment debt. It is not, I think, in doubt that the bank complied with rule 21(2) and has been, or will be, duly assessed.

On the whole, therefore, I don not dissent from the view which my brethren are, I know, about to express, that the bank must be regarded as having paid the total amount of the interest and of the judgment debt to Mr. Riches. I would add that I am clearly of opinion that if no part of the judgment debt had been paid; execution could, and should, have been levied for the total amount of the judgment, though the right of the Crown to tax would not, of course, have been affected thereby. I am confirmed in this view (which, indeed, was not contested at the bar) by the judgment of Cozens-Hardy, M. R., In Cooper, In re. In the action against the bank the learned judge directed that the final, judgment should be so drawn as to make it clear that a specific sum was awarded as interest. In similar cases I think it will be well that this precedent should be followed.

I only desire to add that nothing nothing that I have said in this judgment is intended as a criticism of the arguments addressed to us and that I wish to express my personal indebtedness to the counsel for their assistance.

The appeal must be dismissed with costs.

MORTON, L. J. - The facts of this case have been so fully and clearly stated by the learned judge that I need not restate them.

Was the further sum of Pound 10,028 awarded by Oliver, J., 'interest of money' within paragraph 1(b) of Schedule D to the Income Tax Act, answer would seem to be 'Yes.' Judgment was given for this sum under empowers the court, in any proceedings for the recovery of any debt or damages, to give 'interest at such rate as it thinks find on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the judgment.' Thus, that which the statute empowers is the giving of interest, and the sum in question was rightly described as 'interest' in the order of Oliver, J. Again, if on asks the question 'On what was it interest' or, to use a ore modern expression, 'On what was it interest' ?, the answer would seem to be : 'It was interest on money, that is, on the debt of Pound 36,255 which Ridsdel; owed to Riches and ought to have paid to Riches in 1936. More particularly described, it was interest on that debt at the rate of 4 per cent per annum from June 14, 1936, to May 14, 1943.' It may be neither the use of the works 'interest' in the Act, nor the use of the same word in the order, is conclusive of the matter, but it is difficult to see how the sum in question could be more accurately described than by calling it 'interest on money' or 'interest of money.' I may add that if a sum awarded under this section as interest on a debt is not liable to income-tax certain curious results would follow. For instance, if the debt for which judgment was given happened of be instalments of an annuity payable to the plaintiff, and the judge awarded interest at 4 per cent. on each instalment from the date on which it become payable, the debt itself would be subject to income tax, and yet interest on the debt would not. I have limited my observations to case, such as the present case, where interest is awarded upon a debt, but I doubt whether any distinction can be drawn, as regards the liability to tax, between such interest and interest awarded under the same section, or damages for which judgment is given.

On these short and simple grounds I agree with Evershed, J., that this am of Pound 10,028 was subject to income tax, but I think I ought to explain, briefly, why I rejects the able argument of counsel for the appellant. Counsels first point was that this sum is not interest of money because it is a payment of damages, or in the nature of damages. He asks us to arrive at this conclusion by three states : (a) Sums awarded under Section 28 or Section 29 of the Civil Procedure Act, 1833, were awarded as damages, and not as interest; (b) The quality of sums awarded under Section 3 of the Act of 1934 is the same as the quantity of sums awarded under Section 28 or Section 29 of the Act of 1833; (c) There are cases which show that when a sum is awarded as damages, or as a payment in the nature of damages, it is not 'interest of money' within the Income Tax Act, 1918, even if the award described it as 'interest.' As to (a), in may view, sums awarded under Section 28 of 1833 Act were interest. I do not think it is necessary to discuss this matter at length, as the court is not construing that section, but there is, to my mind, a very clear and significant contrast of language between Section 28, which is concerned with 'debt or sums certain' and gives power to allow 'interest to the creditor', and Section 29, which is concerned with actions of 'trover or trespass de bonis asportatis', and speaks of 'damages in the nature of interest.'

A careful study of all the cases which wear cited to us by counsel for the appellant leads me to the conclusion that is none of them was it decided that interest awarded under Section 28 was not interest properly so called. As to (b), I agree that the quality of sums awarded under Section 3 of the Act of 1934 is the same as three quality of sums awarded under Section 28 of the Act of 1833, but, in my view, sums awarded under Section 29 of the earlier Act are on a different footing. As to (c), I think the true view is that a sum awarded as interest does not loses its quality of interest because that sum awarded as interest does not lose its quality of interest because it is awarded as compensation to the plaintiff for being deprived of the use of his money. On the other hand, a sum awarded as damages does not cease to be damages because it is arrived at by calculation of interest on a particular sum at a particular rate for a particular period. As Lord Buckmaster said in Glenboig Union Fireclay Co. v. Inland Revenue commissioners (12 Tax Cas., at p. 464) : 'There is no relation between the measure toast is used for the purpose of calculating a particular result and the quality to the figure that is arrived at by means of the application of that test.'

Counsels second point is that it is one of the essential characteristics of 'interest of money' that it should have the quality of being recurrent or of being capable of recurrence. This sum of Pound 10,028, he says, has not got this quality; there was no right to it until judgment was given by Oliver, J., and that judgment was the beginning land the end of it. Counsel bases this argument upon a dictum of Lord Maugham in the case of Moss Empires, Ltd. v. Inland Revenue Commissioners (106 L. J. P. C., at p. 142 : [1937] A. C., at p. 795). Lord Maugham, referring to rule 21 of the General Rules of the Income Tax Act of 1918, which refers to 'any interest of money, annuity or other annual payment,' said this : 'In rule 21 annual must be taken to have, like interest on money or an annuity, the quality of being recurrent or being capable of recurrence.' I do no understand Lord Maugham as saying that nothing can be interest on money unless it is in fact recurrent or capable of recurrence. No doubt interest on money ordinarily; has the quality of being recurrent, but I cannot see say a sum of money should be excluded from the description of 'interest of money' or 'interest on money' merely because it comes into existence for the first time under an order to the Court and is interest on money in respect of a period up to date of the order, and no further.

Finally, counsel argues that as there is a judgment for Pound 46,283, that judgment cannot be satisfied by payment of a lesser sum. He relies upon the words on the order of Oliver, J., 'such sum money and costs to be levied on the goods and chattels, etc.,' and says that if execution were to be levied the sheriff would be right in training the whole of the sum of Pound 46,283. I think it is true to say that if execution were levied the sheriff would be free to retain Pound 48,283, but I am far from thinking that by these means Mr. Riches could escape by payment of tax. However that may be, the answer to counsels argument lies in the concluding sentence of General Rule 19(1) : 'The person to whom such payment is made shall allow such deduction upon the receipt of the reissue of the sum had been actually paid.' In the present case the deduction was made under General Rule 21, in which this sentence must be implied in rule 21 also. This concession was rightly made in view of the observation of Viscount Simon, L. C., in Allchin v. Coulthard (112 L. J. K. B. at p. 542; [1943] A. C. at p. 619) : 'The requirement that the recipient must allow the deduction and treat the payer as acquitted of liability in respect of this amount is not repeated in rule 21, but must be implied.' Thus the plaintiff bank, having made the deduction in respect of tax, is in the same position as if the whole sum had been actually paid.

The result is that, in may view, the decision of the learned Judge was correct in all respects, and this appeal must be dismissed with cost.

Since writing this judgment I have had the advantage of reading the written judgments of my brethren. As we are in agreement, I need only in regard to the case of National, Bank of Wales, Ltd., In re.

COHEN, J. - Like Morton, L. J., I find it necessary to add to the full and clear statement of the facts contained in the judgment in the court below. Evershed, J., heard arguments from the parties, and also grin the Attorney-General and Mr. Hills as amici curia, and by a reserved judgment delivered that the judgment obtained against them in the Kings Bench action as judicial trustees of the will of the late Mr. Ridsdel had been satisfied. From this judgment the defendant now appeals.

Before considering the arguments addressed to us it will be convenient to refer to the relevant provisions of the Income Tax Acts. I need not read them in full, as they have been stated by du Parcq, L. J. Suffice it to say that although rule 19(1) of the General Rules is not directly applicable to the present case, since it is common ground between the parties that the judgment debt was not satisfied out of profits or gains bright into charge to tax, it has been held that, although the second paragraph; thereof is not included in rule 21, a similar provision binding the recipient to treat the payer as acquitted of liability in respect of the amount deducted must be implied. See Allchin v. Coulthard, per Viscount Simon, L. C. L. C. (112 L. J. K. B., at p. 542; [1943] A. C., at p. 619). The question, therefore, on which the decision of this appeal rest is whether the sum of Pound 10,028 included by Oliver, J., in the order of the Kings Bench Division under the discretion vested in him by Section 3 of the Law Reform (Miscellaneous Provisions) Act, 1934, is 'interest of money' within paragraph 1(b) of Schedule D of the Income Tax Act, and rule 21 of the All Schedule Rules. The material portions of Section 3 of the 1934 Act have been stated by my brethren. I shall, therefore, not re-read them, but I would say that I agree with Evershed, J., that : 'If the matter rested merely; upon the language of Section 3 of the Act of 1934, I confess I should fee no difficulty in concluding that the language used meant what it said, that interest meant interest and that the sum awarded, being interest on the principal sum of Pound 35,255 at 4 per cent. per annum from June, 1936, to May, 1943, was interest of money within the meaning of paragraph; 1(b) of Schedule D to the Income Tax Act, and rule 21 of the all Schedules Rules.'

But leading counsel for the appellant and his junior have argued that, (a) notwithstanding the language of the section, this sum of Pound 10,028 is a payment of damages, or a payment in the nature of damages, and the decisions in the Income Tax Acts establish that where a sum, even if described as interest of money within Schedule D. Alternatively, (b) the sum in question is non-recurrent and no capable of recurrence, and, for this reason also, it is not interest of money within Schedule D.

The second point was apparently treated as subsidiary in the court below, and it will be convenient to deal with it first. It is based on a dictum of Lord Maugham in Moss Empires, Ltd. v. Inland Revenue Commissioners (106 L. J. P. C., at p. 142; [1937] A. C., at p. 795). This dictum is as follows : 'In rule 21 annual must be taken to have, like interest on money or an annuity, the quality of being recurrent or being capable of recurrence.' Now, in that case, Lord Maugham was dealing with annual payments, and had not to direct his mind to the specific point of 'interest of money,' but, assuming that he did intend to lay down that a payment must have the essential characteristic recurrence if it is to be interest of money within rule 21, I agree with Evershed, J., that an award of interest under Section 3 of the 1934 Act possesses this characteristic. In making such award the Judge has to determine the amount of the debt on which interest is to be calculated, the rate at which it is to be calculated, and the period over which it is to run. In may view, such interest must be deemed to have accrued during the whole of the period so specified, notwithstanding that it only becomes payable in one sum by reason of the exercise by the Judge of discretion conferred on him by section.

I turn to the first point. Counsel for the appellant argues that (1) the quality of sums awarded under Section 3 of the 1934 Act is the same as the quality of sums awarded under Section 28 and 29 of the Civil Procedure Act, 1833, which were repealed by sub-section (2) of Section 3 of the 1934 Act, and (2) interest awarded under Section 28 of the 1833 Act has been held to be damages, or in the nature of damages, and, accordingly, interest awarded under the 1934 Act has the same quality. Counsel for the appellant cited no authority in support of the first of these propositions, and, speaking for myself, I feel considerable doubt whether we should be justified in placing an artificial meaning was placed on the word 'interest' in the 1934 Act, because a similar artificial meaning was placed on the word 'interest' in the Section 28 of the 1833 Act, but I will assume in his favour that the work 'interest' bears the same meaning in both Acts. Now, Sections 28 and 29 of the Civil Procedure Act, 1833, are in the following terms, so far as relevant. Section 28 is : 'And be it further enacted that upon all debts or sums certain, payable at a certain time or otherwise, the jury on the trial of any issue... may, if they shall think fit, allow interest to the creditor at a rate not exceeding the current rate of interest from the time when such debts or sums certain were payable, if such debts or sums be payable by virtue of some written instrument at a certain time, or if payable otherwise, then from the time when demand of payment shall have been made in writing, so as such demand shall give notice to the debtor that interest will be claimed from the date of such demand until the term of payment : provided that interest shall be payable in all cases in which it is now payable by law.' Section 29 provides : 'And be it further enacted that the jury on the trial of any issue, or of any inquisition of damages, may, if they shall think fit, give damages in the nature of interest over and above the value of the goods at the time of the conversion or seizure, in all actions of over or trespass de bonis asportatis, and over and above the money recoverable in all actions of policies of assurance made after the passing of this Act.' Counsel for the appellant says that 'interest' in Section 28 must mean interest in the nature of damages. He says that interest in the ordinary sense is only payable under contract or by custom, and cannot be given merely for the wrongful detention of money (see per Lord Herschell, L. C., in London, Chatham and Dover Railway v. South Eastern Railway). Accordingly, when Section 28 purports to authorise a jury to award interest, it is really allowing them to award damages under the guise of interest. This argument seems to ignore the contrast between the language of Section 28 and that of Section 29, but counsel says that its correctness is established by the decision of the House of Lords in Cook v. Fowler, and of this court in Webster v. British Empire Mutual Life Assurance Co. The former case had, as Evershed, J., pointed out, nothing to do with Section 28 of the Civil Procedure Act, 1833, and I agree with him that the noble Lords in that case were stating a general principle in regard to interest not limited to the application of the Civil Procedure Act, that they were explaining that the principle on which Courts of enquiry allow interest in cases where it would not have been allowed at common law is compensation, but that they were not purporting to alter the quality of interest so awarded or to distinguish, so far as relevant to the pre-extent enquiry, interest so awarded as, for example, in the case of a mortgage silent as to interest after the redemption date, from the interest in terms stipulated in a contract, for example, stipulated interest up to the redemption date in a mortgage. I also find myself in complete agreement with Evershed, J.s, two final observations when dealing with this case, (1) that the element of 'wrongdoing' in the debtor in prima facie irrelevant to the question of the quality of the sum awarded for interest, though it may well be relevant to the question whether, in equity, the claimant is entitled to any 'interest' or'compensation', and (2) that Section 28 of the Civil Procedure Act, 1833, introduced no new principle affecting the quality of 'interest' awarded in respect of money claims, though it enlarged the class of cases in which it was competent for a jury to award interest. In Webster v. British Empire Mutual Life Assurance Co., Section 28 of the Civil Procedure Act, 1833, was relevant to the point at issue, and there are passages in the learned Judges judgments which at first sight appear to support the argument put forward by counsel or the appellant, in particular the passage in the judgment of Cotton, L. J., where he says (49 L. J. Ch., at p. 772; 15 Ch. D., at p. 175) : 'The question we have to consider is whether interest has been properly given as against the defendants. The instrument sued upon was a policy of assurance. It contained no stipulation whatever that the company should, under any circumstances, pay interest. Interest, therefore, is no part of the debt or of the sum stipulated by the contract to be paid. If it can be recovered, it must be in the nature of damages. It say so because, whether it comes under Section 29, where it is clearly to be granted, if granted at all, in the nature of damages, or under Section 28, where the language is different, in both cases it comes as damages and is referable to the principles upon which damages can be given. In the case of a policy of assurance subsequently to the Act, as much as in a case before the Act as regards other instruments, where no stipulation appears for payment of interest, but where it was left to the jury that they might grant interest or not as they thought fit, they would grant it by way of damages.' I think, however, that these observations were directed merely to showing the principle on which interest is awarded in such cases, and that their Lordships minds were not directed to the quality of the interest in the hands of the recipient. They were concerned to show that the under his principle on which the jury were to award interest under Section 28, or damages in the nature of interest under Section 29, was in each case compensation, but I do not think they were holding that, although Section 28 authorised the award of interest, what the jury awarded under that section was in fact damages. I think the true contrast is between an award of interest by way of compensation for the detention of a sum of money and an award of damages, the damages being ascertained as a matter of convenience by an interest calculation.

This distinction is a fine one, but it is recognised in the tax cases to which counsel for the appellant called our attention. On the one side of the line fall Schulze v. Bensted, In Schulze v. Bensted the income on which tax was claimed was interest at the rate of 3 1/2 per cent. on a sum which a negligent trustee had failed to get in to the trust. In Sweet v. Macdiarmid it was interest on balances of jus relictae recovered by the respondent from the trustees of her deceased husbands estate. In Inland Revenue Commissioners v. Barnato it was competent interest recovered by the defendant from two gentlemen who had been trustees of two wills under which he was interested, and who had for a short time been partners with him in business, in interest being recovered as the result of an order of the court. In all these cases it was held that the interest was taxable income.

On the other side of the line fell Inland Revenue Commissioners v. Ballantine and Simpson v. Maurices Executors. In Inland Revenue Commissioners v. Ballantine a firm of contractors claimed 'additional costs and damage' against a railway company, and the arbitrators to whom the claim was referred awarded a certain sum, mainly as damages, together with interest thereon at 5 per cent. The Revenue claimed tax on the amount of such interest but the court of Sessions rejected the claim. Their reasons are conveniently summarised in a sentence from the judgment of the Lord President, where he says (8 Tax Cas. at p. 612) : 'If the decree was substantially one of damages, the interest ordered to run on it was just part of the damages and not therefore chargeable to tax.' In Simpson v. Maurices Executors the alleged income on which tax was claimed was compensation under Article 297(e) of the Treaty of Versailles, which provided for compensation being paid to nationals of the Allied and Associated Powers in respect of damage or injury inflicted upon their property, rights or interests. This compensation was awarded by the Mixed Arbitral Tribunal on the basis of interest at 5 per cent. on certain sums specified in the award. Rowlatt, J., rejected the claim for tax, and his decision was affirmed by the Court of Appeal. The reasons for the decision sufficiently appear from a passage from the judgment of Lawrence, L. J., where he says (14 Tax Cas., at p. 605) : 'Article 297 of the Treaty says nothing about the payment of interest, and the money paid under the direction the Mixed Arbitral Tribunal was paid as compensation, and not as interest.'

On which side of the line does the present case fall In my opinion it is governed by the principle on which Schulze v. Bensted was decided. In that case, to quote the language of Lord Johnson (7 Tax Cas., at P. 34) : 'In these circumstances there was restored to the trust a principle sum which ought throughout to have been in the trustees hands and bearing interest, and there was also restored to the trusts a sum representing that interest at the rate of 3 1/2 per cent. But this latter sum was so restored as at November, 1911, in one sum without reference to its accrual termly between 1902 and 1911 at a modified act assumed to be the average return on the trust investments and without compound interest. When it reached the hands of the trustees it was a surrogatum for that which ought to have termly reached the hands of the trustees and have been applied by them as income, in which case it would have been subject to income tax, in the hands of the trustees when received.' So here, the principal sum of Pound 36,255, being the amount due to Mr. Riches on taking the account of profits, ought to have reached his hands by June 14, 1936, and he could have invested it at interest. Oliver, J., in is discretion, awarded interest thereon at the rate of 4 per cent., and it may, I think, be taken that such rate of interest represents his estimate of the return which the principal sum would have earned and it had been duly paid. Had the principal sum in fact been paid and earned interest, that interest would have been subject to income tax and, like Lord Johnston, I can see no sound reason for holding that the substituted sum awarded by Oliver, J., is not equally liable to tax. v. Bensted there was no element of wrongdoing, whereas in the present case there was an element of fraud. As I have already said, I agree with Evershed, J., that the element of wrongdoing is irrelevant, but, in fact, I think it is clear from thereport of the case in which the interest was recovered (Lees Trustees v. Dun) that the basis on which interest was awarded was that the late Mr. Dun had been negligent in the discharge of his duty as trustees.

For these reasons, I find myself in complete agreement with the conclusion reached by Evershed, J. But counsel for the appellant says we cannot reach this conclusion without disregarding the decision of Wright, J., in the National Bank of Wales case. That was a case of misfeasance, it being alleged that the respondent had been party to the payment of dividends out of capital. The learned Judge found against the respondent and awarded a principal sum with what the learned Judge called 'Penal interest' at 54 per cent. The respondent claimed that income tax should be deducted from the interest mentioned in the judgment, but the learned be deducted from the interest mentioned in the judgment, nut the learned Judge, notwithstanding orders in certain cases where interest had been directed to be deducted, rejected the claim. His decision on the question of misfeasance was reversed on appeal by this Court and the reversal was upheld by the House of Lords, but the point relevant to the present case was not discussed in the higher Courts. I find myself unable to agree with the conclusion reached by Wright, J., unless it can be explained on the ground suggested by Lord Wright, M. R. in Inland Revenue Commissioners v. Barnato (20 Tax Cas., at pp. 509 and 510) that Wright, J., was awarding damages for fraud and merely using interest as a convenient method of calculating the damages.

In conclusion I should say a word about a point raised by the court in the course of the hearing. It was suggested that, whatever be the rights of the Crown against Mr. Riches, the bank was not entitled to deduct tax, since any right to interest had merged in the judgment, and the bank was not paying interest but merely satisfying a judgment for a lump sum of Pound 46,283. Counsel on both sides were agreed that this point was not well founded, and I think counsel for the respondents was correct when he said that, although Mr. Riches only remedy after judgment was to enforce the judgment, the quality of the element making up that judgment was not changed, and that, at any rate for the purpose of determining whether income-tax was chargeable on the payer or was deductible by the payer, interest retained its original quality. The opposite conclusion might well deprive the Crown, who are not parties to the litigation, of a vested interest. It is true that if the judgment had not been satisfied the duty of the sheriff would have been to levy execution for the full amount of the judgment, but the only result would have been that rule 21 would never have come into operation, and the Crown would still have been able to claim tax from Mr. Riches. The principal sum and interest less tax having been paid, the judgment is, in my opinion, satisfied, since Mr. Riches is bound to acquit the bank of the amount deducted. See Allchin v.

I agree with that the appeal should be dismissed with costs.

Appeal dismissed.

Leave granted to appeal to the House of Lords


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