SLESSOR, L.J. - In this case a company, the Trinidad Petroleum Development Co., appeal against an assessment which has been made upon them under rule 21 of the General Rules, All Schedules, Income-tax Act, 1918, as amended by Sec. 26 of the Finance Act, 1927, in the sum of Pounds 46,032 odd in respect of interest paid under deduction of tax to another company, the British Controlled Oil fields, Ltd. The question which has to be decided in this case is whether this payment comes under rule 21 or 19 of the General Rules to which I have referred. It is argued by counsel for the appellants that the proper view is that rule 19 applies to this case, which, so far as material, is as follows : (1) 'Where any yearly interest of money, annuity, or any other annual payment...... is payable wholly out of profits or gains brought into charge to tax, no assessment shall be made upon the person entitled to such interest, annuity, or annual payment, but the whole of those profits or gains shall be assessed and charged with tax on the person liable to interest, annuity or annual payment, without distinguishing the same, and the person liable to make such payment, whether out of the profits or gains charged with tax or out of any annual payment liable to deduction, or from which a deduction has been made, shall be entitled, on making such payment to deduct and retain there out a sum representing the amount of the tax thereon at the rate or relates of tax in force during the period through which the said payment was accruing due.' It will be observed that rule 19 (1) is dealing with a yearly interest of money payable wholly out of profits or gains brought into charge to tax, and the first question which has to be considered is meaning of the words 'brought into charge' in that connection. In my view, having regard to the decision of this Court in Attorney-General v. Metropolitan Water Board and to the opinion expressed by all the learned Judges in that case, to which I shall presently refer, it is not possible for us to take any view but one as to the meaning of that language. Thus, Lord Hanworth, M.R. (97 L.J.K.B., at p. 217;  1 K.B., at p. 843; 13 Tax Cas. at p. 304), considering the meaning of the words in rule 19 'payable wholly out of profits or gains brought into charge to tax' said that they 'do not mean payment out of a fund that may be brought into charge, or is, or will be, a factor for the purpose of charge, but refer to a fund brought into charge out of which tax is payable and to be paid.' And Sergeant, L.J. (97 L.J.K.B., at p. 218;  1 K.B., at p. 847; 13 Tax Cas. at p. 307) says this : 'In my opinion the words brought into charge are more naturally and satisfactorily satisfied by the meaning placed on them by the Crown. The past principle brought naturally refers to something that has been completed in the year in question, if not by actual payment at any rate by accrued liability to pay. It is only in a looser sense that it can be applied to a payment or liability to pay in respect of a succeeding year.' Lawrence, L.J., deals more particularly perhaps with the matter we have here to consider, and be, following Lord Hanworth, said (97 L.J.K.B., at p. 221;  1 K.B., at p. 852; 13 Tax Cas., at p. 311) : 'I have arrived at the conclusion that the expression profits or gains brought into charge to tax in rule 19 means the taxable, and not the actual, profits or gains in the year of assessment.'
If that view, so expressed, is applied to the present case and, as I have said, I think it must be applied, we must have regard to its effect on Section 33 of the Finance Act, 1926, which has brought the present problem before the Court. The fact is that though the profits of the company during the year 1932 amounted to Pounds 69,908, the assessable profits in 1933-34 there had been as regards the years 1927-28 and 1928-29 loss to the extent of Pounds 82,085 : so that the balance loss attributable to 1928-29 was Pounds 12,177. Now under Section 33(1) of the Finance Act, 1926, it is provided that : 'Where a person has in any trade. . . sustained as loss. . . he may claim that any portion of the loss for which relief has not been so given shall be carried forward and, as far as may be, deducted from or set off against the amount of profits or gains on which he is assessed under Schedule D in respect of that trade. . .' Therefore it follows from Section 33 that when the losses are taken into consideration as provided in Section 33, that difference is a balance loss of Pounds 12,177, and, applying the test which, as I say, has to be applied in the present case, I think it is impossible to say that there was during the year of assessment any sum at all of profits to be brought into charge to tax. In fact the result is that the profits computed on the basis of Section 33 amount to nothing, and when regard is had to the language of this Court to the effect that the profits brought into charge to tax refer to the fund brought into charge to tax out of which tax is payable and to be paid, the result is that there is no such tax. Therefore, applying rule 19 in this way there is here no yearly interest of money payable wholly out of money brought into charge to tax, because, in my view, there were no profits.
That, in my opinion, is sufficient to determine this case in favour of the Crown. Counsel for the appellants argues, as I understand, that whatever has been said in the Metropolitan Water Board Case, which was dealing with a liability for the year of assessment, cannot apply to Section 33, of the Finance Act, 1926, assumes an assessment which, in this case, would show an assessment on the profit of Pounds 69,908, and that it is only after that assessment has been ascertained and - he says and, indeed, must say - brought into charge to tax, that the later limb of that section requires that the person assessed may claim that the portion of the loss may be deducted therefrom. In my view, it is impossible to apply that requirement to the judgment in the Metropolitan Water Board Case, because I think, as I have already said, that they are of general application. It is true that we have been referred to a case in the House of Lords, the case of Central London Railway v. Inland Revenue Commissioners, in which Lord Macmillan in his speech pointed out the very many difficulties and distinctions which might have to be met in dealing with this rule. But, in my view, it is not necessary here for me to consider how far that case may or may not have thrown light upon the decision of that Court. It is sufficient for me to say that I can find nothing in the speech of Lord Macmillan which in any way exonerates me from feeling bound by what has been said directly in interpreting rule 19 in this Court, and therefore I think that, important as that case may be, it would not be right to allow it to deflect ones judgment as derived from the positive decision referred to. For those reasons I think that this appeal fails.
ROMER, L.J., - I agree. This case is governed by the decision of the Court of Appeal in Attorney-General v. Metropolitan Water Board, a case which, in spite of the criticisms to which it has been subjected in the House of Lords in the case to which Slesser, L.J., has just referred - Central London Railway Co. v. Commissioners of Inland Revenue - has never been overruled and is binding upon this Court. As I understand the Metropolitan Water Board Case the ground of the decision is, that no one is entitled to retain income-tax which he has deducted from interest paid by him unless he is in a position to say to the Crown : 'I have already paid or become liable to pay this income-tax to you, because I have paid or become liable to pay income-tax on a sum which includes the interest which having regard to the rules for ascertaining profits under the Income-tax Act I was not allowed to deduct from any profits I say that that appears to me to have been the ground of the decision in the Metropolitan Water Board Case for this reason, that Lord Hanworth, M.R., after citing London Country Council v. Attorney-General, said this (97 L.J.K.B. at p. 248;  1 K.B., at p. 845; 13 Tax Cas. at p. 305) : 'Both Lords Macnaghten and Davey intended that the right to retain' -that is, to retain tax deducted from interest - 'was co-extensive only with the liability to tax of the fund out of which the interest is paid'. Lawrence, L.J. said (97 L.J.K.B., at p. 221;  1 K.B. at pp. 852, 853; 13 Tax Cas., at p. 311) : 'It follows that under the provisions of rules 19 and 21 no taxpayer can retain against the Crown any more income-tax deducted by him in any year of assessment than he has himself paid or become liable to pay to the Crown for that year'. It is true that Lord Macmillan in Central London Railway v. Inland Revenue Commissioners in commenting upon that authority said (105 L.J.K.B., at p. 517;  A.C., at p. 84; 20 Tax Cas., at p. 147) : 'The general principle of the Metropolitan Water Board Case may be stated thus : Whenever, in any year, the amount of interest paid by the tax-payer does not exceed the amount of his profits or gains as assessed for income-tax purposes for that year, then the interest paid in that year is within the statutory meaning, payable out of profits or gains brought into charge to tax.' It will be seen Lord Macmillan there stated the principle of the Metropolitan Water Board Case in rather different language from that in which I have ventured to state it myself. It must, however, be remembered that Lord Macmillan was contemplating a case in which income-tax would in fact be paid on the profits assessed for income-tax and was not thinking of a case like the present where the profits of the year having been assessed, no income-tax becomes payable in respect of those profits, because the taxpayer is entitled to deduct something from that assessment. For those reason I think this appeal fails.
GREENE, L.J., - I agree. Money received by a recipient of interest is treated by the Income-tax Acts as being what it in fact is - namely, his income. That is shown by the fact that, in the return of his total income which has to be made for certain purposes, the gross amount of the interest payable to him must be included as part of his income. That income the Act sets out to tax, as it sets out to tax all other incomes. The way in which it sets out to tax it is by allowing or compelling the payer to deduct the appropriate amount when he makes payment. That amount in the hands of the payer, being as it is an amount equal to the tax on that part of the recipients income, is a sum for which the payer is prima facie accountable to the Crown, but he can discharge himself of the liability so to account provided he can show that the payment of interest which he has made is referable to a fund, real or notional, in respect of which he has been charged or is liable to be charged to income-tax. The burden is upon him. In the present case, in my opinion, no such fund can be pointed to. Indeed, counsel for the appellants frankly admitted that the effect of this contention was that in the present case this piece of income which is unquestionably income of the recipient will escape payment of income-tax altogether. If that is the clear result of the legislation, effect must, of course, be given to it; but having regard to the circumstance, which I think is clearly established, that these provisions for deduction are in their essence machinery enabling the Crown to obtain payment of the tax payable in respect of the recipients income, I think that a construction which leads to that result is to be avoided, if the language fairly permits of it. Counsel for the appellants in the present case attach very great importance to the circumstances that under Sec. 33 of the Finance Act, 1926, which is the section which gives rise to the present question, the particular machinery adopted in the section had been one whereby the assessment was reduced, his argument could not have been sustained. In my opinion the distinction is much too fine a one. The substance of the matter is that whether the assessment is reduced or whether the assessment is left standing and the taxpayer is excused tax, the Crown has not been paid tax in respect of any ascertainable fund. That is the result of it, and in consequence it is impossible for the payer of the interest, in a case where Sec. 33 applies and to the extent to which it applies, to point to any fund, real or notional, out of which a real or notional payment of tax has ever taken place. The true fact is, that as the result of the provisions of the Section in the present case, no tax falls to be paid at all, and the result of that, as I have already said, is that, if the contention of counsel for the appellants is correct, this piece of income which is income of the recipient will never pay tax to the Crown at all.
The unreal nature of the distinction which he attempts to draw, based on the language of Section 33, becomes, I think, rather more apparent when one considers that there are in the Income-tax Acts two other provisions dealing with the question of losses and the machinery by which the taxpayer is entitled to relief in respect of them. I do not propose to refer at length to those provisions. One of them is Section 34 of the Income-tax Act, 1918, and the other is contained in rule 13 of the Rules to Cases I and II of Schedule D. When these provisions are examined it will be found that the language by which effect is to be given to the relief which the Legislature is minded to give to the taxpayer differs from that of Section 33, which we are now considering, and the machinery is different. The substance, nevertheless, is the same, and I for one am quite unable to draw that fine distinction based on the nature of the machinery provided when it is going to lead to a result which, in my opinion is contrary to the whole sense and object of the legislation. I agree that the Metropolitan Water Board Case is really conclusive of the question here, and conclusive for the reason that it is impossible to point to a fund, real or notional, in respect of which tax has been or will be paid. I agree that the appeal should be dismissed with costs.