LORD GODDARD C.J. - This is an appeal from judgment of Vaisey J., who reserved the decision of the special commissioners, who adjusted certain assessments for the years 1951-1952 and 1952-53 made upon Sangster in respect of certain interest which he received on a deposit account which he received on a deposit account which he kept at Barclays Bank.
Sangster, who evidently had the handling of very large sums of money, had kept a deposit account at Barclays Bank for some years, and there was no special arrangement at the time when he opened his deposit account entered into between him and the banker. The commissioners have found, therefore, that the contract between them was the ordinary contract common between English bankers and their customers in respect of deposit accounts. They have set their reasons out in the case, and they find that 'Interest on deposit accounts was calculated on the principal on a day-to-day basis and was credited on half-yearly rest dates, June 20 and December 20 in each year. When it was so credited, the interest became principal and then (and no before) began itself to earn interest. It was not the practice to allow accruing interest to be withdrawn between the half-yearly rest dates, save that if an account was closed at any time, interest was calculated up to the date of closure, credited and withdrawn as principal. The rate of interest allowed varied from time to time.'
It happened that in 1951 a very large sum of money amounting to pounds 2,000,000 was paid into the deposit account, which even then had a substantial sum of money in it, and it is in respect of interest earned by this very largely increased amount of money paid in that this appeal arises.
The point which the court has to decide is one which is exceedingly simple in statement. It is, what was the source of the income The special commissioners held that the contract was the source of the income. Vaisey J. took a different view, and I think held that the source of income was the deposit of the money coupled with a contract. I say at once that I cannot agree that where a deposit account is kept between a customer and a banker there is a new contract every time money is paid in; I think that it is one continuing contract, but the contract itself yields no income at all. The deposit of money would yield to income at all unless there was an agreement, express or implied , to pay income. The source of the income seems to me to be the deposit of money upon certain terms. Unless the money has been deposited there will be no income; that is to say, there can be no income because there would be nothing which would produce interest. Just as if there were only a contract to pay interest on money no interest would be payable until money was deposited, so it follows that if there were a deposit of money without an agreement to pay interest there would be no interest arising from it. There is no difference between a deposit account and a current account so far as the relationship of banker and customer is concerned. The relationship is perfectly clear. The leading case, of course, is Foley v. Hill ( 2 H. L. Cas. 28.), mentioned in Atkin L. J.s judgment in Joachimson v. Swiss Bank Corporation. It is that of debtor and creditor; the banker borrows the money from the customer under terms to repay it. As a general rule he does not pay interest on a current account, although bankers do at times agree to allow interest on a current account if a certain credit balance is maintained. We need not consider current accounts in this case at all. We are only concerned with deposit accounts under which money is paid in at 14 days notice; that is to say, that the customer cannot withdraw the money without giving 14 days notice, though he may be allowed to do so if he gives up interest. Interest at the current rate is allowed by the banker, and the current rate generally is regulated by the Bank rate.
Sangster had been assessed under Case III of Schedule D in respect of this interest which he had been receiving, and I think that it is necessary in considering this matter to refer to section 21 of the Finance Act, 1951. [His Lordship read part of subsection (1) and continued :] It was argued in the present case that the source of income was the contract. I think that the source of income here was the deposit of money upon the terms of the contract. In my opinion, if an addition is made to the amount which is deposited, the words of section 21 are quite wide enough to catch it. I quite agree that certain difficulties might be imposed on the Inland Revenue if they were to pursue every deposit account and find whether or not there had been an addition to the account during the course of the year. That is a matter for the inspector of taxes or those responsible for the assessment to decide as to how they will deal; with those matters. I do not suppose that in every case it would be worth the trouble that would be caused to the taxing authorities if they were to inquire into every deposit account and find if the interest had been increased, unless it had been increased by a large amount.
Here, of course, the increase of pounds 2,000,000 is very great. In my judgment there is no question but that there has been a source of income or at any rate there has been an addition to a source of income in the deposit of this money and payment of interest on it.
For these reasons, which are not quite the same as those given by Vaisey J., I think that the appeal should be dismissed.
JENKINS L. J. I agree, and I cannot usefully add anything.
SELLERS L. J. I also agree.
Leave to appeal to the House of Lords refused.
Solicitors : Hale, Ringross & Morrow for Gllaisyer, Porter & Manson, Birmingham; Solicitor of Inland Revenue.