December 20. The following judgments were read.
LORD EVERSHED M.R. In this case I have had the advantage of reading in advance the judgment to be delivered by Donovan L. J. I agree with my brothers conclusions and with his reasons for them. Out of respect, however, for the opposite conclusion which Harman L. J. has reached, and for the argument of the counsel for the appellants, I state shortly my own reasons for thinking that this appeal should be dismissed.
The case is, indeed, a remarkable one. The appellants granted to the National Coal Board a long lease (as that phrase is defined by section 172 of the Income-tax Act, 1952) of premises known as Hobart House, the lease being for a term of 81 years from March 25, 1955, at an annual rent of Pounds 96,177. The National Coal Board proceeded to pay to the appellants, in respect of each of the first six quarters under their lease, the rent in full, i.e., sums on each occasion of Pounds 24,044 5s., without any deduction in respect of income-tax. Why the Coal Board omitted to make the deductions which it was their duty under section 170 of the Act to make, is not explained and is irrelevant for present purposes. The appellants appear to have accepted these quarterly payments - perhaps naturally enough - without demur. The Additional Commissioners for Income-tax have now proceeded to assess the appellants in respect of these quarterly sums of rent, as being profits or gains liable to tax under Schedule D of the income-tax legislation. That they are such profits and gains was not disputed by Mr. Heyworth Talbot, but it is contended by him that the inevitable effect of the statutory language, in the relevant sections of the Act, is such that the appellants cannot now be assessed for income-tax in respect of them. Mr. Heyworth Talbot also submitted, in opening his case, that the Coal Board remained liable to assessment in respect of their various payments, that it was indeed the duty of the special commissioners so to assess the board, by that the board could not now claim to deduct from any future payment of rent any tax which they would be made liable to pay upon such assessments. I am glad to say that, for the purposes of this appeal, it is unnecessary for the court to express any view upon any part of this submission.
That the sums of rent in question are profits and gains in the hands of the appellants is not in doubt : and Mr. Heyworth Talbot also conceded that, if the appellants were surtax payers, they would have to pay such tax in respect of the total sums so received by them. It was, however, the main burden of Mr. Heyworth Talbots argument that the effect of the amendment made in 1927 to what is now section 170 of the Income-tax Act, 1952 (formerly rule 21 of the All Schedules Rules) has been inevitably to liberate persons in the position of the appellants from any liability to assessment for income-tax in such circumstances as have occurred in the present case. In the end of all, the question turns, as I think, upon the short and single question : are the words of sub-section (1) of section 36 of the present Act - 'Statements of profits or gains under Schedule D shall, unless an assessment thereon is required to be made by the Special commissioners, be laid before the Additional Commissioners' - such as to produce the effect, when read in conjunction with section 170 of the Act, that the only assessment which may now lawfully be made in respect of rent payable under a long lease is an assessment to be made by the special commissioners form themselves making any assessment in any circumstances upon the recipient A similar point arises from the effect of section 170 upon section 6 of the Act; but the main argument has revolved round section 36, and I do not desire to add anything to what Donovan L. J. says in his judgment in regard to section 6.
If such is the effect of section 170, it was not suggested by Mr. Heyworth Talbot that the result was other than an oblique effect of a amendment to the law intended only to relate to the mechanics of income tax collection. Donovan L. J. has, in his judgment, traced the history of the relevant sections. Prior to the year 1888 liability for assessment to income-tax in respect of annual payments made otherwise than out of the profits or gains of the payer rested exclusively upon the recipient as being part of his profits or gains subject to the general charge for income-tax. In the year 1888, what later became rule 21 of the All Schedules Rules, was introduced in terms which corresponded to the first part of the first sub-section of the present section 170. In the year 1927 it emerged, as a result of In re Lang Propeller Ltd., that the debt to the Crown thereby created, not being an assessed tax, gave to the Crown no priority in a winding up of the debtor. As a result rule 21 was, by the Finance Act, 1927, amended, and has since been in the form now represented by section 170. It will be observed that Parliament, in making this amendment, though it had before them the language of rule 19 of the All Schedule Rules (now section 169 of the Act of 1952) did not thinks fit to introduce into the amended rule 21 the language of the sub-section 1(a) of section 169 : 'No assessment shall be made on the person entitled to the interest, annuity or annual payment.' It has been consistently held by the courts that the amendments introduced by the Acts of 1888 and 1927 were intended as changes only in the machinery of collection - see, for example, the judgment of Finlay J. in the case of Rye and Eyre v. Inland Revenue Commissioners, and the observations of Upjohn J. in Stokes v. Bennett (Inspector of Taxes). It is also not in doubt, as a result of the case of Glamorgan Quarter Sessions v. Wilson, that under the law as it then stood (in 1910) failure on the part of a lessee to make the deduction in respect of tax required by the terms of rule 21 (now found in section 170(1)) did not have the effect that the lessor was not himself liable to be assessed in respect of the gross sum of rent which he had received. It is, however, now contended - and I return to the fundamental question in the case to which I have already adverted - that the references to assessment by the special commissioners introduced into what are now the later sub-sections of section 170 have, when read in conjunction with the terms of section 36 of the present Act, not only altered the machinery of tax collection by getting rid of the difficulty encountered in the Lang Propeller case, but have materially altered the policy and substance of the law itself by making no longer possible, in circumstances such as the present, assessment of the lessor in respect of rents received by him without deduction by the lessee.
If the purpose of the amendments to the statute was to alter only the machinery for collection, then I apprehend that the court should not give to such amendment the much wider effect now contended for, unless such conclusion is inevitable according to the strict construction of the material language of the statute. As Lord Dunedin observed in Whitney v. Inland Revenue Commissioners : 'A statute is designed to be workable, and the interpretation thereof..... should be to secure that object, unless crucial omission or clear direction makes that end unattainable.'
The general scheme or policy of income-tax may be discerned, so far as relevant to this appeal, from sections 1, 122 and 148 of the Act of 1952. By the first of those sections tax is charged in respect of 'all property profits or gains' described in section 122 (that is, Schedule D), including (by paragraph 1(a)(i)) 'the annual profits or gains arising or accruing - (i) to any person residing in the United Kingdom from any kind of property whatever.....' By section 148 the tax under Schedule D 'shall be charged on and paid by the persons receiving or entitled to the income in respect of which tax under' the schedule is directed to be charged. Rents under long leases are brought within the scope of Schedule D by section 177 of the Act. To such rents, if paid by a lessee wholly out of profits or gains brought by him into tax, section 169 of the Act (formerly rule 19 of the All Schedules Rules) is applicable. Where, however, and to the extent that such rents are not payable out of profits or gains brought into charge, sub-section (1) of section 170 requires the lessee, on making the payment, to deduct out of it a sum representing the amount of the tax thereon at the standard rate in force a the time of the payment. Sub-sections (2) and (3) of the section, so far as relevant, provide : 'Where any such payment as aforesaid is made by or through any person, that person shall forthwith deliver to the Commissioners of Inland Revenue, for the use of the Special Commissioners, an account of the payment,..... and of the tax deducted out of the payment..... and the Special Commissioners shall assess and charge the payment for which an account is so delivered on that person. (3) The Special Commissioners may, where any persons has made default in delivering an account required by this section,..... make an assessment according to the best of their judgment.....'
Section 36 of the Act - the vital section for the purposes of this appeal occurs in Chapter II of Part II of the Act, a chapter concerned, according to its heading, with 'Returns and Assessments.' I, therefore, agree with Donovan L. J. that, according to the scheme and policy of the Act, a person in receipt of profits or gains of the nature of the rent here in question would, prima facie, be taxable in respect thereof and bound, accordingly, to make a return relating thereto. But the machinery of Part VII of the Act (and of sections 170 and 177 in particular) provides that in the case of a rent paid otherwise than out of the profits or gains of the lessee, the duty of the lessee is to deduct the appropriate tax out of his 'payment' of the rent and to render an account accordingly for the use of the special commissioners, who will assess him in respect of such 'payment' of rent. Thus the ordinary liability of the recipient of the rent (as his profits or gains) is discharged on his behalf by the lessee, so that the lessor is regarded for income-tax (though not for surtax) purposes as having accounted for tax in respect of the rent.
We are only in this appeal concerned with the case where the lessee has paid the contractual rent in full, without making any deduction or rendering any account, as he should have done according to the terms of sub-section (1) of section 170. What the position might be (or, indeed, might have been prior to 1927) where a lessee, having made the deduction, then failed to account therefore to the Commissioners of Inland Revenue (whether or not after assessment by the special commissioners under the existing Act) it is unnecessary for us to decide. I observe only that, since the rent in the case supposed are profits or gains of the lessor and of no other person, any attempt to assess both the lessor and the lessee in respect thereof would appear at least to be open to the objection that an attempt was being made to tax the same person twice in respect of the same taxable income.
These problems do not, however, arise in the present case. The question on the facts of the present case remains; the lessor having received 'profits or gains from..... property' is he, according to the general scheme and policy of the Act, liable to make a return in respect thereof Or is he exempted from so doing by the language of sub-section (1) of section 36 I agree with Donovan L. J. that, upon the facts of the present case, the exemption of that sub-section is inapplicable. According to its strict language and in the context of Chapter II of Part II of the Act, the sub-section is related to profits or gains under Schedule D, and the exemption is similarly limited to cases where assessment of such profits or gains is 'required' to be made by the special commissioners -for example, upon the request, as provided by section 38, of the person chargeable. As a matter of strict language, section 170 is concerned with the assessment of the 'payment' of rent by the lessee. True the 'payment' is, by the section, identified with what would in the lessors hands be profits or gains. Still, in the hands of the lessee, the subject-matter charged is the rent payment, which in his hands is not profits or gains, nor is it paid out of profits or gains for which he is chargeable. I refer again to the divergence in language in this respect between sections 169 and 170, the former of which (but not the latter) states expressly that no assessment shall be made upon the recipient of the payment.
But if this be too narrow a view, it is still, as I conceive, necessary to construe the word 'required' in sub-section (1) of section 36. True it is that, where the lessee has made the deduction when paying his rent and has accounted accordingly to the commissioners, then by the terms of sub-section (2) of section 170 the special commissioners 'shall' assess him. In such case, I will now assume that the assessment upon the lessee is 'required' to be made by the special commissioners within the terms of section 36(1) of the Act. But in the present case no deduction was made and no account delivered by the National Coal Board. It is therefore conceded by Mr. Heyworth Talbot that sub-section (3) and not sub-section (2) of section 170 is applicable, and the relevant words of sub-section (3) are 'The Special Commissioners may ... make an assessment.' Though Mr. Heyworth Talbot was at first disposed to contend that 'may' meant 'shall', he later conceded that the powers of assessment conferred by sub-section (3) are discretionary and not obligatory. If this is right, then special commissioners are 'required' to make an assessment within the terms of sub-section (1) of section 36 of the Act In my judgment it cannot. In my judgment, if it is contended that the amendment of the machinery provisions of what is now section 170 have the oblique but wide effect upon the general scheme of the Act so as, in a case such as the present, to absolve the lessor from his previously-existing tax liability, such result must be justified by a strict construction of the Act, that is of section 36(1); and in my judgment, the word 'required' is not satisfied by a mere discretion.
It was said by Mr. Heyworth Talbot that this view had been dismissed as 'preposterous' by Lord Dunedin, when Lord President of the Court of Session in the Scottish case of Lord Advocate v. Edinburgh Corporation in the year 1905. That case was, however, decided long before the amendment introduced by the Act of 1927, and the argument characterized as 'preposterous' was different from that which has appealed to me. The Corporation of Edinburgh, having failed to deduct tax from certain interest payments on money borrowed by the corporation (as it should have done under the Act of 1888), was nonetheless assessed to tax upon the interest payments. It was contended by the corporation that since it had, in breach of its statutory duty, failed to deduct the tax, therefore, no debt was due to the Crown; that, accordingly the only remedy of the Crown was for damages at common law; and that the Crown had failed to prove any such damage, since (as was then admittedly the law) it could assess and recover the tax from the recipient of the interest. It was this convention which Lord Dunedin described as 'preposterous.' In my judgment, the case provides no authority for the view that the epithet is applicable to the construction which I would give to the word 'required' in what is now section 36(1) of the Income-tax Act, 1952.
For these reasons, as for the reasons stated by Donovan I. J., I think this appeal fails and should be dismissed.
HARMAN L. J. Under rule 21 of the All Schedules Rules of the Income-tax Act, 1918, and, indeed, as far back as 1888, it was provided that on payment of such a sum as the rent here in question, if not paid out of profits or gains already brought into charge to tax, the payer must deduct a sum equal to the tax in force at the time of payment. By rule 21(2) ibid., the payer must account for this sum to the Commissioners of Inland Revenue, and the sum became a debt due from him to the Crown and recoverable accordingly.
This continued to be the law until the year 1926, when the point emerged that in a case where bankruptcy principles applied (Langs case) the Crown had no priority for what was merely a debt having regard to rule 21(2), and not an assessed tax, priority being confined to the latter.
Accordingly, by section 26 of the Finance Act, 1927, the law was altered and rule 21(2) was replaced by the provision which is now section 170(2) of the statute of 1952. The new sub-section obliges the payer to deliver his account to the Commissioners of Inland Revenue 'for the use of the Special Commissioners,' who are directed to assess and charge 'the payment of which an account is so delivered.' Sub-section (3) authorises, but does not require, the special commissioners to make an assessment on the payer, who has made default in delivering an account under the rule, and he is liable to forfeit Pounds 100.
Now it is conceded that, under the law as it stood till the alteration of 1927, the Crown could, having regard to Miscellaneous Rule 1 of Schedule D to the Act of 1918, charge the payee of the rent who had received it without deduction. The ordinary process would apply, that is to say, the additional commissioners would make the assessment under section 121 of the Act of 1918, now section 36 of the Act of 1952. This was so held in Glamorgan Quarter Sessions v. Wilson, with which I see no cause to quarrel; but the Act of 1927, which turned the retained sum from a debt due to Crown into an assessed tax, also directed the assessment of it to be made by the special commissioners, and it is said here that the result is that these alone have the power to make an assessment under section 170(2) as the law now stands, and therefore there is no power in the additional commissioners which enables them to assess the payee.
The grounds for this argument are section 6 and section 36 of the Act of 1952 which, so far as relevant, are in these terms : '6 - (1) All matters relating to the income-tax under Schedules...D, so far as they are not directed by this Act to be executed by any other Commissioners,... shall be executed, as heretofore, by the Commissioners for the general purposes of the income-tax (in this Act referred to as General Commissioners).' Section 36(1) : 'Statements of profits or gains under Schedule D shall, unless an assessment thereon is required to be made by the Special Commissioners, be laid before the Additional Commissioners' who 'shall direct an assessment to be made in accordance with the statement.'
Now by reason of the alteration of the law in 1927, it is said that the latter section does not apply by reason of the exception, and, if these payments can properly be said to be 'profit or grains,' I can see no answer to this argument that the assessing power of the general commissioners is now excluded. It is objected that the exception only applies to 'profits or gains,' and that these deductions from rents are not the lessees profits or gains, but are payments, and it is pointed out that section 170 they are so called, and that it is payment and not profits or gains which the special commissioners are there directed to assess and charge. This portion of the rents, however, if not deducted (as here), but paid over to the lessor, is undoubtedly a profit or gain in his hands and must be included under those words in order to be taxable subject-matter under Schedule D : for it is under that schedule alone that it can be taxed. It seems to me, therefore, that the exception in section 36 does extend to these payments, even though they are looked at from the payees end and, therefore, so styled.
If this be right, the position is confused by the fact that section 148 of the Act of 1952 provides that tax under Schedule D shall be charged on and paid by the recipient. These money are, as I have said, part of his profits or gains. Section 177, however, which is the charging section for rents under long leases, provides by sub-section (2) that any payment under that section shall be subject to deduction of tax under Chapter 1 of this part, a reference back to section 170, which enjoins the payer and not the recipient to account for the tax, thus being an exception to the generality of section 148.
If I am right so far, it would look as though the Crown, like the dog in the fable, in reaching for the reflected done in the water - that is for a tax assessed on the lessee and having priority in bankruptcy - has dropped the bone in its much represented by the power to assess the lessor. No doubt this is a casus omissus which can be remedied in due course.
It is, in my judgment, an additional argument against the Crowns view that it may result in two assessments, one on lessee and the other on lessor, which are both equally valid in law and both in respect of the same sum of money, first in hands of the payer and second in those of the payee. This is contrary to the general principle that tax on one sum is not to be charged twice.
I am conscious that there are very formidable arguments on the other side. As I have said, it seems unlikely the parliament by granting to the Crown in 1927 the additional advantage, which the decision of 1926 showed it to require, intended by the same section to deprive it of a right which went back to the origins of the income-tax law, and which had been until 1888 the only means of collecting the tax on rents not paid out of profits or gains already charged, but this is, in my judgment, to impute too exalted a standard of consistency to the legislative patchwork embodied in the 532 section, not to mention fourteen schedules, of the Act of 1952. Any judge with experience of income-tax cases, either in this court or below, cannot fail to be conscious of the fact that there are many holes in the net, to which the work of patching is still yearly applied. The whole subject cries out for a drastic overhaul which is often promised but never so far achieved. Until the advent of that hoped-for day, I think the court should only follow the language which it finds set down. Pedetemptim, as Lucretius would say, progredientes. It seems to me dangerous to talk of 'the policy of the Act' or the 'equity of the statute.' I speak here under the great aegis of Rowlatt J., and see the observation of Lord Halsbury L. C. in Tennant v. Smith. The court should construe the sections as it finds them, and if unexpected results emerge, the cure of them is for Parliament and not for us.
Another objection is that by section 170(3) of the Act the special commissioners in case where, as here, default has been made, are not required but merely empowered to assess. My answer to that is that nonetheless tax under section 177 is one required (by section 170(2)) to be assessed by the special commissioners, and so answers to the exception found in section 36.
The strongest argument for the Crown, as it seems to me, is that in section 169, which deals with deductions where the lessee has paid his rent out of taxed income, there is an express prohibition against assessing the lessor. No such provision is to be found in section 170, and it is, therefore, argued that the formerly existing power to tax him is not taken away. The answer seems to me to be that neither rules 19 and 21 of 1918 nor their predecessors were concerned with assessment of these sums. In one case the lessee was only recouping himself tax already paid : in the other he was till 1927 left with a debt to the Crown. When the latter was converted into an assessed tax, it was not perceived that the result might be that section 36 would be involved.
Danckwerts J. was obviously impressed by the taxpayers argument and would apparently have accepted it but for the dicta of Finaly J. and Upjohn J. which he mentions. For myself I do not feel bound to accede to them, neither being necessary to the decision the judge was pronouncing.
DONOVAN L. J. This appeal raises afresh the question whether an assessment to income-tax may validly be made upon the recipient of income in a case where the payer of the income should have deducted tax at source and accounted for it to the Revenue, but has failed to make any such deduction. The problem can be stated in that general way, because it affects all annual payments charged to tax under Schedule D, although the particular payment here involved is rent.
The National Coal Board is tenant of Hobart House in Westminster at a rent of some Pounds 96,000 per annum. Between June, 1955, and September, 1956, it made six quarterly payments of rent - about Pounds 24,000 each time - to the appellants, who are the landlords. This rent is rent under a long lease as defined in section 172 of the Income Tax Act, 1952. The facts are such that the National Coal Board should have deducted tax at source from these payments and handed the tax in due course over to the Revenue. For some reason the Coal Board failed to make any such deductions, and so assessments have made upon the appellants direct as recipients of the income. The rent in question is charged to tax under Schedule D by section 177 of the Income-tax Act, 1952, and normally under Case VI of that Schedule. Section 177(2) also enacts that such rent shall be subject to deduction of tax as if it were a royalty or a sum paid for the user of a patent. This means that the machinery of collection of tax at source, which is provided by section 169 and 170 of the Act, becomes applicable. Under section 169, if the taxpayer has a found of taxed profits out of which he pays the rent, he must pay tax himself on the whole found without any deduction for the rent, though the rent is not really his income. When he comes to pay the rent, he may recoup himself by deducting tax at deduction. In this class of case, an assessment on the recipient in respect of the rent is expressly forbidden by the section. On the other hand, where, as in the present case, the rent is not paid out of a taxed fund, the Revenue clearly cannot get its tax on the rent the manner just prescribed. Section 170, therefore, provides that in such a case the payer of the income must deduct tax at source at the standard rate and send an account of the payment of the tax deducted to the Commissioners of Inland Revenue for the use of the special commissioner. The special commissioners are then to make an assessment in respect of the payment upon the payer : and, upon such assessment, he will be liable to pay over to the Revenue the tax so deducted. If the payer makes default in rendering such an account, or the special commissioners are not satisfied with the account he has delivered, then they may make an assessment upon him to the best of their judgment. They can also inflict a penalty if he neglects or refuses to deliver the account, which, up to 1960, was the sum of Pounds 100. In this class of case there is not express prohibition of an assessment direct upon the recipient of the income.
The history of section 169 goes back to 1803, when it appeared in the Income Tax Act of that year as section 208. In the Act of 1842 it was section 102. In the Consolidation Act of 1918 it became rule 19 of the General Rules applicable to All Schedules. Its wording has remained unchanged, in any radical sense, down to the present day. The history of section 170 beings, however, in 1888. Up to that time, the only way provided for getting tax on annual payments made out of untaxed funds was an assessment direct upon the recipient. But section 24(3) of the Customs and Inland Revenue Act of 1888 introduced the system of collecting the tax at source in this case also. The payer was to deduct tax and to render an account to the Commissioners of Inland Revenue of the amount deducted. That sum was then to be a debt due from him to the Crown and recoverable as such. There was no provision for any assessment upon him.
In the Consolidating Act of 1918 section 24(3) became rule 21 of the General Rules applicable to All Schedules. Its wording remained substantially unchanged until 1927. In that year this court decided the case of In re Lang Propeller Ltd. That company was being wound up, but before the winding up began it had deducted tax under general rule 21 from mortgage interest but failed to hand it over to the Crown. The Crown proved in the liquidation as a creditor. Under the Companies Consolidation Act, 1908, then in force (section 209), the Crown was entitled to preferential payment in respect of assessed taxes. It claimed that this description applied to the tax which the company had deducted under general rule 21. This court, affirming Eve J., held that it did not, and that such tax could not be described as 'an assessed tax.' So the Crown got no preference for the debt. It then proceeded - if I may borrow the euphemism customary on these occasions - to 'put the matter right.' In the Finance Act, of the same year, section 26 was enacted requiring the payer of the income to render an account of payment made out of untaxed funds, and of the tax deducted, and requiring the special commissioners to make an assessment upon him accordingly. in short, the system was introduced which exists today, and which has been reproduced without material alteration as section 170 in the Consolidating Act of 1952. In that way the tax deducted in such circumstances became an 'assessed tax,' and so the Revenue acquired that preference in respect of it in a winding up which it had unsuccessfully sought in the Lang Propeller Ltd. case.
It is, I think, important to bear in mind the reason for the amendment of general rule 21, inasmuch as the taxpayer is contending in the present case that it has had another and more far-reaching result. It is said on his behalf that the amendment also deprived the general commissioners of the power, which they admittedly had from 1803, to assess the recipient of the income directly in such cases. It had been decided long before 1927 that an assessment could validly be made upon the recipient of an annual payment made out of untaxed funds where no tax had been deducted at source. See Glamorgan Quarter Sessions v. Wilson, which was decided in 1910. It has also been held that where the payer of the income omits to deduct the tax at source, he is still liable to account to the Crown for it. See Lord Advocate v. Edinburgh Corporation, decided in 1905; Rye & Eyre v. Inland Revenue Commissioners, that the change in rule 21 in 1927 was a change in the machinery of collection and no more. In 1953 Upjohn J. (as he then was) expressed the view in Stokes v. Bennett (Inspector of Taxes) that an assessment of tax could validly be made upon the recipient of untaxed income in a case where general rule 21 should have been operated but was not. But this expression of opinions was obiter.
In the present case both the special commissioner and Danckwerts J. have rejected the appellant argument that since 1927 no assessment to tax in what I may call a general rule 21 case can be made upon the recipient of the income. After considering the authorities, the judge though he should follow the decision in Glamorgan Quarter Sessions v. Wilson and adopt the dictum of Upjohn J. in Stokes v. Bennett.
The alteration in the law made in 1927, converting tax deducted under rule 21 into tax assessable by the special commissioners upon the payer, could hardly, itself, deprive the general commissioners of a different jurisdiction which they admittedly had before that date to make an assessment upon the payee. But it is argued that this result is brought about by the language of section 26 of the Act of 1927 - now reproduced without material change in section 170 of the Act of 1952 - when construed together with section 6 and 36 of the Act of 1952, and also in the light of the general scheme of that Act. It is also contended that a number of anomalies, which would otherwise arise, are avoided by the appellant construction. As to section 170 itself, the mandatory nature of the direction to the special commissioners is emphasised : 'The special Commissioners shall assess and charge the payment.' Then in section 6 of that Act appear these words : 'All matters relating to the income-tax under Schedules A, B and D, so far as they are not directed by this Act to be executed by any other Commissioners... shall be executed, as heretofore, by the Commissioner for the general purpose of the income-tax...' The assessment of the rent in the present case is a matter under Schedule D : and it is said that the effect of section 6 is to confine the jurisdiction to assess in cases like the present to the special commissioners. The words relied upon in section 36 are these : 'Statements of profits or gains under Schedule D shall, unless an assessment thereon is required to be made by the Special Commissioners, be laid before the Additional Commissioner.' This again indicates, it is argued, that the special commissioners have exclusive jurisdiction to assess to tax the payment here in question : and that this conclusion is reinforced by what is said to be the general scheme of the Act to allot the duty of assessment of different kinds of income to different bodies of commissioners with no overlapping.
The payment which are assessed to tax under section 170 do, of course, become income in the hands of the recipient - which is why they are taxed. But in the context of the present problem it is, I think, both relevant and important to remember that what the special commissioners are in term told to do in section 170 is to 'assess and charge the payment,' and to do so on the payer. With this in mind, and turning back to section 6, it is strictly true to say that an assessment upon the recipient in respect of his receipt would not offend against the section, for such an assessment is not directed to be executed by commissioners other than the general commissioners.
In view of the stress laid upon section 36, I must deal with it in some greater detail. It is not a section which can properly be construed in isolation. It is one of a number section in Chapter II of the Act headed 'Returns and Assessment,' and in this chapter are found the provisions imposing an obligation on the taxpayer, who is in receipt of profits or gains, to make an income-tax return, and a duty upon the general commissioners to make an assessment of those profits and gains to income-tax. Thus, any person chargeable to income-tax for any year of assessment is to give notice to that effect to the surveyor (section 28). If required to do so by notice an individual must make a return of his total income for the preceding year (section 19) : and also a return of the profits and gains arising to him for the current year estimated according to the provisions of the Act (section 20). The form of the return is to be such as the Commissioners of Inland Revenue shall prescribe, and in prescribing such forms those commissioners re to have regard to the desirability of limiting such returns to one per annum. In addition each such return is to contain a declaration by the person making it that it is truthful an comprehensive of all his profits and gains (section 25). A penalty is imposed for neglect or refusal to make such a return, which penalty, up to 1960, was Pounds 20 and treble tax (section 25). The returns of profits under Schedule D are to be laid before the additional commissioners, they are to consider them, and if satisfied with them, are to direct an assessment to be made in accordance with the statement. This is subject to the exception, so much relied on by the appellants here, 'unless an assessment thereon is required to be made by the Special Commissioners' (section 36). Finally, a person chargeable under Schedule D may require that all the proceedings in order to have an assessment upon him under that schedule shall be taken before the special commissioners instead of before the additional commissioners (section 38).
It is, I think, quite clear that these sections, including section 36, are dealing with the annual statement of profits and gains accruing to a taxpayer and with the assessment to be made upon him in respect thereof. They are not dealing with the 'accounts' of payments required from the payer of money under section 170, which 'account' have to be made on each occasion of such a payment; for which 'account' no form is prescribed and for default in rendering which a different penalty can be imposed. Nor are the sections in Chapter II dealing with assessments upon such payer, but with assessments upon the person who has made a return of his profits and gains. It is, therefore, in my respectful opinion, fallacious to construe the words in section 36 'unless an assessment thereon is required to be made by the Special Commissioners' as including a reference to the payments assessed to tax upon the payer under section 170. Those words refer to the various cases where the Act directs an assessment on profits or gains by the Special Commissioners, e.g., where a taxpayer make an election to this effect under section 38, and (under section 430) to the income of foreign assurance companies with a head office in the United Kingdom in respect of the income of their life insurance funds, and so on.
With regard to anomalies, the example was given of mortgage interest from which tax had been deducted for some years and accounted for under section 170 until in one year no such tax deducted. If the general commissioners then made an assessment direct upon the recipient, they would under Case III of Schedule D have to base the assessment on the income of the preceding year, and if that were less than the income of the current year, a different figure of income and different amount of tax would be the result of such an assessment compared with the result of operating section 170. This indeed would be true, but such anomalies are not uncommon where, for one reason or another, the preceding year basis of computation is substituted for the actual year basis, or vice versa. I do not find the anomaly or the other which were suggested to be so startling as to compel the conclusion that the appellants contentions here must be right.
I should briefly mention section 180 of the Act of 1952, which was said to support the argument. The section deals with the taxation of rents in respect of land not separately assessed and charged under Schedule A and in respect of easements : it enacts that these shall in certain case be taxed under Schedule D and be subject to deduction of tax at source. Sub-section (2) deals specifically with rents in respect of easements enjoyed in connection with electric wires and cables : and proviso (b) to the sub-section enacts that any payment of such rent shall unless tax is assessed thereon under section 170, be chargeable to tax under Case III of Schedule D. It is said that this direction would be otiose if the rent were always so chargeable under the general provisions of the Act. In my opinion this is incorrect. The rents to which provisions (b) is referring are not the kind of annual payment normally falling within the charging provisions of Case III of Schedule D. But the proviso specially makes these provisions applicable and so specifies the head of charge under which such rents are, if need be, to be assessed. I do not think much can be spelled out of this circumstance either way : but it is interesting to observed that the very anomaly the court is asked to avoid by adopting the appellants argument is here introduced by the legislature itself. For to charge these rents under Case III will import the preceding year basis of liability, as opposed to the actual year basis, which is always a feature of taxation at source under section 170.
The Crowns argument begins with the first section of the Act of 1952 which provides that whenever any Act enacts that income-tax is to be charge any year, it is to be so charged at the prescribed rates, and in accordance with the Schedules A, B, C, D and E. Section 6 of the same Act, part of which I have already read, then enacts that the general commissioners are to execute all matter relating to income-tax under Schedules A, B and D, in so far as they are not directed by the Act to be executed by other commissioners. Section 122 of the Act provides that under Schedule D tax shall be charged, inter alia, in respect of profits and gains arising in the United Kingdom to any person from any kind of property here. And section 148 provides that tax under Schedule D shall be charged on and paid by the persons receiving or entitled to the income coming within that schedule. The rent in question in this case is charged to tax under Schedule D by virtue of section 177(2) of the Act and the appellants are the person receiving it. They must, therefore, if required, make a return of such income and the additional commissioners must then assess it to income tax under the provisions of the 1952 Act which I have already cited.
They would thus seem to be complete authority for the additional commissioners to make the assessments they have made upon the appellants. It is admitted that such authority existed before the Finance Act, 1927, back at least to 1842, in fact it goes back to 1803. The contention that this jurisdiction was taken away by the amendments to general rule 21 made in 1927 rests upon the arguments which I have already outlined. I can find nothing in them to justify the conclusion that the granting of a new jurisdiction to the special commissioners to collect tax at source in a particular way destroyed the jurisdiction of the general commissioners to collect it in some other way if need be. Had such a result been intended, then I think that an express prohibition against an assessment on the recipient would have been introduced into general rule 21 of the same kind as has always been contained in general rule 19 and its predecessors. There is sound reason for not doing this and for preserving the jurisdiction of the general commissioners. For there may be cases where for one reason or another an assessment on the payer cannot be made or made effectively. He may be elusive, or he may be a person not amenable to section 170, e.g., the Crown itself or a foreign ambassador or resident High Commissioner.
The appellants agree that in such a case the payee would be directly assessable, as indeed Lord Simon appears to indicate in Whitworth Park Coal Co. Ltd. (in Liquidation) v. Inland Revenue Commissioners. In order words, it is conceded that where section 170 cannot be operated, because the payer is not amenable to its provisions, the power of the general commissioners to assess the payee still endures. This seems to me to increase the difficulties of the argument, for one would certainly expect a partial withdrawal of the general commissioners jurisdiction to be by express enactment.
In my opinion, section 26 of the Finance Act, 1927, did not have the effect which the appellants here claim. The power and duty of the general commissioners to make assessments upon annual payment charged with tax under Schedule D where such payments are made out of profits and gains not brought into charge to tax still remains. This does not involve liability to double taxation, once by deduction at source and again by assessment upon the same income. It is true that there is nothing in the Act expressly prohibiting such an injustice, but the prohibition is implicit in its provisions, as the courts have frequently said. See for example, Lord Davey in London County Council v. Attorney-General.
I think the special commissioners and the judge came to right conclusion in this case and that this appeal fails.
Appeal dismissed with costs.
Leave to appeal to the House of Lords.
Solicitors : Stanley Attenborough & Co.; Solicitor of Inland Revenue.