Viscount Dunedin(read by Lord Carson).— [After the narrative quoted supra]—By section 5 of the Income Tax Act of 1918, as amended by the Finance Act of 1920, it is provided:—5. (1) “For the, purposes of super-tax, the total income of any individual from all sources shall be taken to be the total income of that individual from all sources for the previous year, estimated in the same manner as the total income from all sources is required to be estimated in a return made in connexion with any claim for a deduction from assessable income, but subject to the provisions hereinafter contained.” And by section 19 of the Income Tax Act of 1918, as amended by the Finance Act, 1920, it is provided:—
“19. For the purpose of any claim for an allowance or deduction the income arising from the ownership of lands, tenements, hereditaments, or heritages shall, subject to any allowance, reduction, or relief granted under this Act, be deemed to be the annual value thereof estimated in accordance with the rules applicable to Schedule A.”
The whole question, therefore, is—Was the income which the respondent received during the above period an income derived from the ownership of lands? The argument of the appellants is very simple. They say that, under Sir Simon's settlement, there was vesting a morte testatoris in the respondent as a proper liferenter, and that a proper liferenter is an owner in the sense of the section quoted. Now, though there is no definition in the statute of what an owner is, it may, I think, be held as certain that the expression is not confined to the owner of the fee feudally vested, and I think a proper liferenter, either feudally vested or in such a position that he might be feudally vested, would be an owner. But what is a proper liferenter? I agree with what the learned Lord President said in the case of Inland Revenue v. Wemyss. The case itself is far too peculiar and special to form a precedent for any other, but the remarks of the learned Judges on the general law may be quoted. The Lord President, after saying, as I have said, that a proper liferenter may be an owner of lands in the sense of the statute, goes on to say of him—“He has no trust interposed between him and those lands; he is interim dominus or proprietor for life, (Ersk. Inst. II. ix. 41); and he is immediately entitled to the civil fruits of the lands, which lands he may let to tenants for the duration of his life. Like any other ‘owner’ he may be ‘occupier’ also, and uplift the natural fruits of the lands, since he is entitled, if he pleases, to possess the lands personally or by means of his own servants (Ersk, Inst. II. ix. 56).”
Now, let these tests be applied to the present case. As regards every one of them the respondent, during the period in question, fails to correspond to the indicium of the proper liferenter. She is not immediately entitled to the civil fruits of the lands; she cannot grant leases for the duration of her life. Nay, further, the trustees can grant a lease for the ordinary duration of an agricultural lease, i.e., nineteen years, which would bind the fiar, whom, at this juncture, they also represent—a thing which she could not do even after the disposition in her favour was executed, unless a clause as to long leases was inserted in the disposition, as to which the trustees are to be the sole judges. She could not be the occupier, except of what the trustees allow her to occupy; and she could not uplift the natural fruits of the lands. Besides this, the trustees had a power of sale, which she never had nor could have. It is, therefore, abundantly clear that she was not during this period a proper liferenter, and as such owner of the lands. During this period the trustees were owners of the lands—in trust, no doubt, but still owners—and in such Capacity they would, and did, settle the ordinary income tax under Schedule A as for the mansion-house, which they possessed but allowed her the occupation of in terms of the settlement. No doubt they rightly paid her the surplus income when it began to emerge, for in the early years, the rents being mostly back-hand, there was only deficiency. They did so rightly, because the beneficial right arising from the estate was hers in virtue of the fact that she was the person to whom the estate was to go in liferent, but what she received was not the direct income of lands, but was the balance of what the estate had brought as a whole.
I do not doubt that the Inland Revenue could not be defeated by the trustees simply holding on to the estate without making the disposition as directed, which disposition, when executed, would undoubtedly make her a proper liferenter. Accordingly, the Lord Advocate urged that she was all along in a position to compel the trustees to execute the disposition, and that being so, it must be held as if done; quod fieri debet infectum valet. I do not think that she was in such a position. The trustees were executors, and, under the provisions of the settlement, the whole estate was under their control, and, therefore, under section 6, subsection (2), of the Finance Act, 1894, they were in a position, if they chose, to elect to pay the estate-duty on the heritable property, and, having done so, they became accountable. They chose the alternative of settling the duty by sixteen half-yearly instalments, as is found by the stated case. In these circumstances, they were, in my opinion, entitled to keep the estates until the duties were paid off and they were free of further liability. That the course of administration was beneficial to all concerned cannot be denied. Any other course would have entailed a forced sale, which in the position of the heritable debt would have led to disastrous results. That, however, is not the question. The question is whether the respondent could have compelled a disposition at an earlier date. I am of opinion she could not.
On the whole matter, therefore, I think that the view taken by the learned Judges of the First Division was right, and I move that the appeal be dismissed with costs.
Lord Carson.—I agree in the judgment which I have just read.
Lord Chancellor (Viscount Cave).—I have had the pleasure and advantage of reading the opinion of my noble and learned friend, Lord Dunedin, on this appeal, and I concur in the conclusion at which he has arrived. I only desire to add that my opinion is founded on the terms of the trust-disposition and settlement executed by the late Sir Simon Lockhart with the codicil thereto, as applied to all the facts found in the stated case to have existed in the year 1922–23; and that this decision does not involve the consequence that in every case trustees who have elected to pay death-duties by instalments are entitled to retain the estates in their own hands until all the instalments of duty have been paid.
Lord Shaw of Dunfermline(read by Lord Warrington of Clyffe).—After further consideration of this case, I still feel much anxiety about it. I humbly agree with the conclusion reached by my noble and learned friend Lord Dunedin. My agreement is founded (1) on the very special terms of Sir Simon Lockhart's testamentary deeds, and (2) on the course of the administration legitimately pursued thereunder since his decease by his trustees. But I fully concur in, and respectfully adopt, the reservations contained in the opinion just delivered from the woolsack.
Lord Warrington of Clyffe.—For myself I have had the advantage of reading the opinions of my noble and learned friends Lord Dunedin and the Lord Chancellor, and I concur therein.