I have had the advantage of reading the Opinion about to be delivered by my noble and learned friend, Lord Morton of Henryton, and I agree with him that this appeal must be dismissed for the reasons given by him. He has quoted and commented upon certain observations made by me in St. Aubyn v. Attorney-General  A.C., 15. I must confess that I there used language of a breadth which lends itself to misunderstanding and that I ought to have expressly qualified my words in the manner which my noble and learned friend indicates.
Lord Morton of Henryton
My noble and learned friend, Lord Oaksey, has asked me to say that he concurs in the Opinion which I am about to deliver.
Lord Morton of Henryton
The question which arises on this appeal is whether interest upon two Post Office Savings Bank accounts, one in the name of the Appellant's son Michael, and the other in the name of the Appellant's daughter Heather, and interest upon two holdings of Â£1,000 3 per cent. Defence Bonds, in the names of Michael and Heather respectively, ought to be treated, for all the purposes of the Income Tax Acts, as the income of the Appellant.
The relevant facts are fully set out in the Case Stated and may be summarised as follows: —
On the 20th December, 1933, a Post Office Savings Bank account was opened by or on behalf of the Appellant in the name of Michael (born 8th September, 1933) with a deposit of Â£50, and on the 28th May, 1936, another Post Office Savings Bank account was opened by or on behalf of the Appellant in the name of Heather (born 1st February, 1936) with a deposit of Â£50. Thereafter the Appellant paid further sums into the same bank for each of his children. Various sums were drawn from the accounts from time to time and were expended for the children's benefit. On 31st December, 1948, Michael's account was in credit Â£844 9s. 0d. and Heather's account was in credit Â£844 8s. 3d. In the year 1945 the Appellant bought Â£1,000 3 per cent. Defence Bonds for each of the two children. All the sums paid into the children's bank accounts, and the said Defence Bonds, were absolute and unconditional gifts made by the Appellant to his children.
The Inspector of Taxes treated the interest upon the two Savings Bank accounts, exclusive of interest upon interest, and the interest upon the twoholdings of Defence Bonds as being income of the settlor for the purposes of the Income Tax Acts. This he did in reliance upon the terms of section 21 of the Finance Act, 1936. That section provides as follows: —
By subsection (1)— Where, by virtue or in consequence of any settlement to which this section applies and during the life of the settlor, any income is paid to or for the benefit of a child of the settlor in any year of assessment, the income shall, if at the commencement of that year the child was an infant and unmarried, be treated for all the purposes of the Income Tax Acts as the income of the settlor for that year and not as the income of any other person.
By subsection (9): —
In this section—
(b) the expression 'settlement' includes any disposition, trust. covenant, agreement, arrangement or transfer of assets;
(c) the expression ' settlor', in relation to a settlement, includes any person by whom the settlement was made or entered into directly or indirectly. ..."
Counsel for the Appellant sought to rely upon certain other subsections in the course of his argument, but I think it is unnecessary to set them out, as I understand that all your Lordships are of opinion that they throw no light upon the question which arises for decision.
For the sake of simplicity, I shall consider only the gifts to Michael, as the gifts to Heather stand on precisely the same footing.
Counsel for the Appellant does not seek to draw any distinction between the interest on the Bank account in Michael's name and the interest on the Defence Bonds bought in Michael's name, and it is common ground that if the gifts of money and Defence Bonds were settlements within the meaning of section 21 of the Finance Act, 1936, the Appellant was the settlor. It is also common ground that income was paid to Michael by virtue or in consequence of these gifts. Thus the only point for determination is—Were the absolute gifts in question settlements within the meaning of section 21 of the Finance Act, 1936? This question has been answered in the affirmative successively by the Commissioners, by Donovan, J. and by the Court of Appeal.
My Lords, I too would answer this question in the affirmative. It is true that an absolute gift of money or of an investment would not ordinarily be described as a settlement, but it is expressly enacted that in section 21 the expression settlement includes, inter alia, Any . . . transfer of assets. For my part, I see no escape from the conclusion that the Appellant made a transfer of assets, in the ordinary meaning of that phrase, when he used his own money to make a payment into Michael's bank account and to purchase Defence Bonds in Michael's name. Sir Andrew Clark, for the Appellant, invited your Lordships to put a limited and special meaning upon this phrase. I shall shortly examine his arguments, but it should be said at once that the matter is by no means free from authority.
In Hood-Barrs v. C.I.R. 27 T.C., 385 the Court of Appeal had to decide whether a gift of shares by a father to each of his two infant and unmarried daughters was a "settlement" within section 21 of the Act of 1936. The Court uanimously held that it was, because it was a transfer of assets, and declined to give that phrase a limited meaning. That decision is not, of course, binding upon your Lordships' House, but in my view it was correct and is indistinguishable from the present case. It is, I think, unnecessary to consider the decision in Yates v. Starkey  Ch. p. 465 as the facts differed widely from the facts of the present case, but Jenkins, L.J. observed: For their meaning —i.e. for the meaning of the words settlement and settlor in section 21— I must go to the definitions provided by subsection (9), construe those definitions, and apply them according to their true construction, however remote from the ordinary conceptions of ' settlement' or ' settlor' the content of the definitions may in any given instance appear to be. This observation, with which I agree, is particularly relevant to the argument presented by Sir Andrew Clark in the present case.
Sir Andrew, while conceding that each of the gifts now in question might be described as a transfer of assets, if this phrase were to be given its ordinary meaning, contended that as the word " settlement" was the only word used in the charging subsection (1), it was " the dominant word "; and that a transaction did not come within section 21 unless it was " something in the nature of a settlement". It follows, he said, that a transaction which might ordinarily be described as a transfer of assets did not come within section 21 unless (a) it was accompanied by some restraint on alienation, such as would subject the transferee to some action at law or in equity if he attempted to alienate the subject of the gift, or (b) the income and the capital of the subject of the gift were given to different persons, or (c) the legal title and the equitable interest in the subject of the gift were conferred on different persons. In any one of these three cases, he said, and it may be in other cases, a transfer of assets would be something in the nature of a settlement, but an absolute and unconditional gift is the antithesis of a settlement and cannot be a transfer of assets" within the meaning of section 21.
My Lords, in the words used by Lord Greene, M.R. in Hood-Bans v. C.I.R. 27 T.C. at p. 402, this is a subversive suggestion as to the meaning and operation of such an interpretation clause as subsection (9) (b) and I cannot accept it. The object of the subsection is, surely, to make it plain that in section 21 the word "settlement" is to be enlarged to include other transactions which would not be regarded as "settlements" within the meaning which that word ordinarily bears. Its effect is that wherever the word " settlement" occurs in section 21 one must read it as " settlement, " disposition, trust, covenant, agreement, arrangement or transfer of assets ", and if " by virtue or in consequence of" any of these transactions or deeds income is paid to or for the benefit of a child of the settlor, section 21 comes into operation.
I can find no context here which should lead your Lordships to give, for instance, the words " transfer of assets " any meaning other than that which they ordinarily bear, or to infuse into them some flavour of the meaning ordinarily given to the word " settlement". Further, Sir Andrew's contention, if it were accepted, would create grave uncertainty as to the precise content of each of the words used in subsection (9) (b). What, for instance, is a covenant " in the nature of a settlement"? And what is the difference between a " settlement", in the ordinary meaning of that word and a trust " in the nature of a settlement". Sir Andrew submits that uncertainty also results if an absolute gift is held to fall within section 21, for it may be a matter of great difficulty to determine, in certain cases, whether income is paid to or for the benefit of a child of the settlor " by virtue or in consequence of " such a gift. For example, said counsel, if a father gives his child a motor-car or jewellery, and the child sells the gift and invests the proceeds, is the income from the investment paid to the child " by virtue or in consequence of" the gift, or is it paid to him or her in consequence of the sale of an asset which belonged absolutely to the child?
My Lords, I can find no force in this argument. It is true that difficulties may arise of the kind suggested by counsel. In each case it will be for the Commissioners to make a finding as to whether the income in question was or was not paid to or for the benefit of the child " by virtue or in consequence " of" the settlement. These are not difficulties in construing the section but difficulties in applying it to the facts of particular cases. Their existence affords no reason for imparting uncertainty into the meaning of the words used in subsection (9) (b).
I must, however, refer to certain authorities relied on by Sir Andrew Clark as supporting his argument. He first referred to the cases of C.I.R. v. Morton 1941 S.C., 467, Chamberlain v. C.I.R. (1943) 25 T.C., 317 and Lord Vestey's Executors v. C.I.R. (1949) 31 T.C., 1. These were all decisions as to the effect of section 38 (2) of the Finance Act, 1938. That section provided that if and so long as the terms of any settlement answered a particulardescription, any income arising under the settlement "from the property" comprised in the settlement" should be treated as the income of the settlor, and the definition subsection—section 41 (4) (b)—is in substance the same as section 21 (9) (b) of the Act of 1936, except that the words " or transfer of assets " are omitted. Sir Andrew does not rely upon the decisions in these cases, but he does rely upon certain observations which appear in the judgments.
My Lords, 1 can derive no assistance from any of these observations. They were very fully analysed by Sir Raymond Evershed, M.R., in his judgment in the present case. I agree with that analysis and I need not repeat it.
It is to be noted that the observations in question were not directed to the section now under consideration ; further, in each of these cases it was unanimously held that there was a " settlement," within the meaning of sections 38 and 41 (4) (b) of the Act of 1938, and the attention of the Court of Session in Morton's case, and of this House in the cases of Chamberlain and Vestey, was directed to determining what was " the property comprised in the "settlement ".
Sir Andrew next sought support from the case of St. Aubyn v. A.G. [1952J A.C., 15 and particularly from observations of Lord Simonds and Lord Normand as to the meaning of the words Where a person dying after the commencement of this Act has made to a company to which this section applies a transfer of any property in section 46 of the Finance Act, 1940. The majority of this House decided that in paying cash for 100,000 preference shares, for which he subscribed, the second Baron St. Levan did not make a transfer of any property to St. Aubyn Estates Limited within the meaning of section 46.
Lord Simonds said, at page 32: The first point arises on the subscription by Lord St. Levan for 100,000 preference shares. For these he paid cash according to the ordinary use of language. Did he then 'transfer property' "to the company within the meaning of section 46? My Lords, I have no "hesitation in saying that the payment of cash to a company upon a subscription for shares is not a transfer of property to the company. No one, lawyer, business man or man in the street, was ever heard to use such language to describe such an act and I decline to stretch the plain meaning of words in an Act of Parliament in order to comply with what is said to be its purpose. . . . The question is not at what transaction the section is, according to some alleged general purpose, aimed but what transaction its language, according to its natural meaning, fairly and squarely hits. Applying this, the one and only proper test, I say that when Lord St. Levan paid for his shares he did not transfer property to the company.
Lord Normand said, at page 43: The first point is whether Lord St. Levan, when he paid Â£100,000 for the preference shares in the company, made a transfer of property within the meaning of section 46. My opinion is that ' transfer of property' are not the usual words which would be naturally selected to describe a payment of money, though it cannot be denied that money is property or that payment is a transfer. I think that if it had been intended to strike at money payments the simple words necessary to make that intention clear would have been added.
The observations of Lord Simonds were clearly directed only to the section then under consideration and to the meaning of the words transfer of any property in the context wherein they then appeared. In my view they do not assist the appellant in the present case. On the contrary, I think that the transaction in the present case is one which the phrase transfer of assets in the section now under consideration fairly and squarely hits. It is no doubt possible to read Lord Normand's observations as referring generally to the meaning of the phrase transfer of property ", but I feel sure that my noble and learned friend intended to deal only with the meaning and effect of the words transfer of property in section 46 of the Finance Act, 1940, and to concur with the view of Lord Simonds that Lord St. Levan, in paying cash for preference shares, did not transfer property to the company within the meaning of the section.
Finally, Sir Andrew referred to a series of decisions upon the meaning of the word "settlement" in section 47 of the Bankruptcy Act, 1883. That section provides as follows: —
47.--(1) Any settlement of property not being a settlement made before and in consideration of marriage, or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration, or a settlement made on or for the wife or children of the settler of property which has accrued to the settlor after marriage in right of his wife, shall, if the settlor becomes bankrupt within two years after the date of the settlement, be void against the trustee in the bankruptcy, and shall, if the settlor 'becomes bankrupt at any subsequent time within ten years after the date of the settlement, be void against the trustee in the bankruptcy, unless the parties claiming under the settlement can prove that the settlor was at the time of making the settlement able to pay all his debts without the aid of the property comprised in the settlement, and that the interest of the settlor in such property had passed to the trustee of such settlement on the execution thereof.
(3) 'Settlement' shall for the purposes of this section include any "conveyance or transfer of property."
Section 168 provides—
In this Act, unless the context otherwise requires—
‘Property' includes money, goods, things in action, land, and every "description of property, whether real or personal and whether situate " in England or elsewhere; also, obligations, easements, and every description of estate, interest and profit, present or future, vested or contingent, arising out of or incident to property as above defined."
In Re Player 5 Q.B.D. 682 it was held by a Divisional Court (Mathew, Cave and Wills JJ.) that a gift of Â£650 made by the bankrupt to his son, in order to pay for the stock in trade necessary to enable the son to commence a business, was not a " settlement" within section 47. Cave, J. after setting out the history of the earlier statutes dealing with this matter, said at p. 686:-
It is contended that by virtue of the interpretation clause in the Act of 1883, when applied to s. 47, every gift by a father to children, if followed within two years by the father's bankruptcy, is within that section, and that a son can be compelled to refund all moneys given to him within that period for his maintenance or advancement in life. It seems to me a very strong thing to say that a definition of ' property 'not to be found in the section itself which deals with this matter, but found in the interpretation clause applying to the whole Act, should have an effect going so much further than the legislature has gone before. I do not think it was intended that s. 47 should have that effect. One must look at the whole of the language of the section in applying that definition, and consider what is meant by ' settlement'. Although ' settlement', by the 3rd subsection ' shall for the purposes of this section include any conveyance or transfer of property', yet I think the view of my brother Mathew is well founded, and that a settlement in the ordinary sense of the word is intended. The transaction must be in the nature of a settlement, though it may be effected by a conveyance or transfer. The end and purpose of the thing must be a settlement, that is, a disposition of property to be held for the enjoyment of some other person. Thus a purchase by the father of shares, which are registered in the son's name, and upon which the son receives the dividends, is within the statute. But where the gift is of money to be expended at once, the transaction is not, in my opinion, within s. 47 of the Act of 1883. It would not have been within the Act of 1849, and I do not feel bound by reason of the interpretation clause in the Act of 1883, the effect of which is, I think, restricted toy the terms of s. 47 itself, to put a construction upon the words of that section which has never been put upon similar wordsbefore the Act of 1883 was passed, and which would bring about such serious and far-reaching consequences.
In Re Vansittart  1 Q.B., 181 Vaughan Williams, J. adopted the reasoning just quoted, and held that a gift of jewellery by the bankrupt to his wife within two years of his bankruptcy was a " settlement" within s. 47 and therefore void against the trustee in the bankruptcy, because the donor contemplated the retention by his wife of the present which "he gave her." In Re Tankard  2 Q.B., 57 Wright J. followed the two cases just cited, and in Re Plummer  2 Q.B., 790 the Court of Appeal approved of all three cases. In the last-mentioned case Lord Alverstone M.R. observed: "There are two lines of cases bearing upon "the subject, which I will indicate as follows. If there is a gift by a "father to a son of money or proceeds of property which can be traced," and the money or proceeds is or are intended to be retained or preserved as the property of the donee, that money or those proceeds will be property in ' settlement'. On the other hand, if there is a gift of money or proceeds, but it is not intended that the money or the proceeds shall be retained by the donee in the form of money, but shall be expended at once, that will not be a ' settlement'."
My Lords, I give full weight to the fact that in s. 47 of the Bankruptcy Act, 1883, the Legislature first used the word "settlement" and then defined it, in the same section, as including any transfer of property, and I would not seek to draw any distinction between the phrase " transfer "of property " and the phrase " transfer of assets " which occurs in s. 21 (9) of the Finance Act, 1936. To this extent, the two sections resemble one another, and Sir Andrew Clark relies strongly upon the observation of Cave J. in Re Player, that to come within s. 47 " the transaction must be " in the nature of a settlement, though it may be effected by a conveyance " or transfer." I am content to assume in favour of the Appellant that the four cases on s. 47 just cited were all rightly decided, and that the observation just quoted puts a correct construction on s. 47. In my opinion, however, these cases do not help the Appellant. In none of them was it doubted that an absolute gift could be a "settlement" within s. 47, and in two of them such a gift was held to be a settlement. The Court, however, felt able to put some restriction upon the ordinary meaning of the words " transfer of property " by reason of the fact that the whole object of the section, as appeared from its terms, was to make certain transactions void as against the trustee in bankruptcy; and it was thought that a transfer of money, which was to be at once expended and could not be traced, was not within the intendment of the section. I can find no words in s. 21 of the Finance Act, 1936, which should lead your Lordships to put a limited meaning upon the words " transfer of assets," and if and so far as one can gather the intendment of s. 21 from its wording, I think it was intended to throw the net as widely as possible, and to sweep in all kinds of transactions which would not ordinarily be regarded as settlements, provided only that " by virtue or in consequence" thereof any income is paid to or for the benefit of a child of the settlor.
In my judgment the argument for the Appellant receives no countenance from the wording of section 21 or from any of the authorities relied upon by Counsel. I would dismiss the Appeal with costs.
I also concur.