1. DANCKWERTS, L. J.---This is an appeal from a judgment of Ungoed-Thomas, J. Dated July 24, 1967, dismissing an appeal of the Crown, from a decision of the general commissioners of the division of West Goscote in the county of Leicester, on May 19, 1965. The date of the case stated by the commissioners is November 30, 1966.
2. The question to be decided arises upon the provisions in the Income-tax Acts relating to children's allowances obtainable in certain circumstances.
3. [His Lordship read the Income-tax Act, 1952, S. 212(1), (1-A) and (4), and the facts set out in the case stated, and continued:] The question, therefore, is whether in the year of assessment 1965-66 the son was entitled in his own right to an income exceeding --115 within the meaning of section ? l2(4) of the Income-tax Act, 1952.
4. It must be appreciated, of course, that no part of the earnings of the son in France in the circumstances was, taxable in the United Kingdom, as no part thereof was remitted to that country.
5. The Crown claimed that the amount of the --165 allowance should be reduced by a sum of --35, being the difference between --115 and --150. Both the general commissioners and the Judge rejected the Crown's claim and held that the tax-payer was entitled to the full allowance of --165.
6. Only a sum of --35, of course, is at stake, but the Inland Revenue Commissioners objected to the decisions because they upset a practice, adopted by the commissioners, so we are told, over the last 40 years, by which, though they could not tax such foreign income, they treated the income receivable abroad, reduced only by the limited expenses allowable under Rule 7 relating to Schedule E to the Income-tax Act, as operating to produce a reduction in any children's allowance for the purposes of section 212.
7. The idea behind the provisions of section 212 no doubt is that it is not equitable or reasonable that a tax-payer should receive the allowance under the section when by reason of his son's income in his own right the parent is not being put to any expense or not the whole expense of his son's education. The real point, however, is whether income of the son which is not taxable and may be said, therefore, not to be income for the purposes of the Income-tax Act at all, should be taken into account for the purposes of any provision of the Income-tax Act in the absence of any express provision to that effect.
8. A very strong point against the contentions of the Crown is that Rule 7 of Schedule 9 and Schedule E have no application, and there was, so far as I can see, no lawful justification for the Crown to apply that schedule or that rule to the foreign income of the son in the present case.
9. There was, therefore, no method of ascertaining the relevant income of the son, and the application of the rules relating to Schedule E to such income was arbitrary and unlawful. There is no relevant provision for the purposes of this case, as there is in Schedule 5 to the Finance Act, 1957, in relation to the foreign income of British corporations. However, it is necessary to consider the arguments which were put forward for and against the claim of the Crown.
10. Our attention was called to section 458, a general provision exempting scholarship income from income-tax, and it was suggested that if income exempted from income-tax was not within the terms of section 212(4), the proviso to that subsection was otiose. I am not impressed by the argument, because it may well have been thought convenient in dealing with children's allowances to make the point clear.
11. The provisions of section 212 have their origins in the Finance Act, 1920, Ss. 21 and 28. Section 21(3) is in similar terms to subsection (4) of section 212 (though the figure then was --40), and contains a similar proviso excluding scholarship income. Section 28 contains a provision, similar to section 458, providing for exemption of scholarship income from tax. An argument was attempted to be founded on the fact that the two provisions were contemporaneous, but I could not find any relevant deduction from this occurrence. I do not find this of any help to the problem which has to be solved.
12. It is common ground that (1935 A C 398) "entitled in his own right" refers to income to which the child is legally entitled icy contradis--tinction to voluntary allowances in respect of which the child has no enforceable legal rights, (2) that "an income" covers earned income, even if that income is the earnings of short-term employment, (3) any earnings which are not remitted to this country are not chargeable with income-tax.
13. Admittedly in some cases in the Income-tax Acts "income" does mean nothing but taxable income : see Astor v. Perry (1). This case concerned the income of two settlements with New York trustees created by a British resident in respect of funds in New York, and it was held that the settler, who was entitled to the income of the settlements and had a power to revoke the settlements, was not liable to income-tax under section 20(1) of the Finance Act, 1922, except in respect of income of the settle--ment which was remitted to the United Kingdom.
14. Lord Macmillan (1935 A C 398) said: ---------. He pays on the amount actually brought home. It is with this existing scheme that section 20, which is to be read along with it, has to be reconciled. I have shown how on the Crown's reading these enactments come into conflict. The reconciliation is, I suggest, to be effected by reading section 20 as designed to effect a notional amalgamation of two existing incomes both charged to income-tax by the existing law. If the words `any income' are construed, as they reasonably may be, to mean any income chargeable with tax under the British Finance Act of the year, the difficulties of the Crown'sinterpretation to a large extent disappear. For the income of the American trustee, being the income of a foreign non-resident, is not brought into charge, while the income so far as received by the resident in this country is, consistently with the scheme of the Income-tax Acts, brought into charge under its appropriate head, in the present instance Rule2, and is by force of section 20 amalgamated with the resident's income derived from sources within the United Kingdom."
15. Of course, the facts of that case in the House of Lords were different from those of the present case, but I find Lord Macmillan's words very helpful, because when it is found that there are no schedules of the Income-tax Act, Schedule "---.Or Schedule "D", or any other schedule, that are applicable, because the foreign income is not subject to tax under the Income-tax Acts, so that it is impossible for the Crown to establish what proportion of the gross income should be assessable, then the difficulty disappears if, as Lord, Macmillan says, the "income" referred to in the relevant section or sub--section is construed to mean income chargeable with tax under the British Income-tax or Finance Acts.
16. Again, in Whitney v. Inland Revenue Commissioners (1926 A C 37), it was said in the House of Lords, in the case of a non-resident American who received income from the United Kingdom, that the word "income," in the Income-tax Acts, means "such income as is within the Act taxable under the Act"; see Lord Wrenbury (1926 A C 37).
17. This makes sense to me. As I have already indicated, if the Inspector cannot lawfully assess the income for tax, he cannot apply the rules of Schedule E or any other schedule, and he cannot compute the income for the purposes of the Income-tax Acts. In my view, it is not admissible by speculatively attributing to Parliament an intention on the ground that it might be fair and reasonable to bring into a statute provisions which are not to be found in the statute. The provisions of the statute must be taken as they are and the Court is not at liberty to improve them because a situation which might be anticipated is not provided for.
18. We were referred in argument to a number of sections where special words occurred, either in regard to other exemptions or reliefs or allowances, or in regard to cases where there are special provisions with the object of bringing the income of non-residents within the ambit of the Income- tax Acts.
19. A reference was also made to section 26(1) where there is a reference to "total income from all sources estimated in accordance with the provisions of the Income-tax Acts." It was said that "income" in section 21 of the Act of 1920 denotes income which has certain well-known characteristics -a receipt or incoming-a not profit as distinguished from a gross income, and not of a capital nature, and receivable as a matter of right and not bounty. Well, of course, all that is very true-capital is not income-and I should have thought that taxation in the Income-tax Acts was directed to profits and not to gross income. But I am unable to see how this solves the problem in the present case.
20. We were referred to section 412, which is designed to prevent persons residing in this country evading income-tax by transferring assets to persons resident abroad. But this is a very special provision dealing with a particular situation which involved special foreign income, and I do not find it in the least material to the problem which we have to consider.
21. Mr. Heyworth Talbot pointed out to us that since 1927 there has been a change by which allowances in respect of children are no longer given by way of deduction in assessing income but are instead given by way of claims for relief against taxation. I do not find that this makes any difference to the result of this case.
22. A further point was discussed. It was said that in any event if the French income of the son was material for the purposes of section 212, expenses were incurred such as travel expenses and other allowable expenses which would reduce the --150 earned below --115. There was a finding by the commissioners in paragraph 6 (iii) of the case stated in these terms "Thus in the present case the son had incurred travelling expenses and the excess cost of his living at the place of his employment (which is notoriously high in France) both incurred essentially and manifestly totalling more than --35."
23. But Prince v. Phillips ((1961) 39 Tax Cas. 477) shows (in a case that did not involve foreign income) that for the purposes of section 212(4) no more deductions can be claimed than those allowable to an ordinary tax-payer.
24. It was not clear, therefore, in the finding of the commissioners what particular expenses they were referring to. In relation to the view which I have formed on the case, this point does not arise. If it did, it would be necessary to refer the case back to the general commissioners to specify the details of the expenses to which they were referring.
25. SALMON, L. J.--For the purpose of the Income-tax Acts, income has three essential characteristics.
1. It represents not gains and not, for example, gross takings.
2. It is received as of right and not as bounty.
3. It is received by way of revenue and not as capital. In the Income-tax Acts the word "income" is used sometimes to denote only income which is chargeable to tax and sometimes to include income which is not so chargeable. Undoubtedly it is used far more often in the former than in the latter sense, for, alas, in most cases income is chargeable to tax.
26. The word "income" is certainly wide enough in its ordinary and natural meaning to cover non- taxable income. The context in which it is used may, however, require that word to be given a restricted meaning.
27. The problem which arises in this case is. What does the word "income" mean as used in subsection
(4) of section 212 of the Income-tax Act, 1952? The tax-payer contends that it must be given a restricted meaning, that is to say income chargeable to tax. The Crown contends that it must be given its ordinary and natural meaning, that is to say any income whether or not chargeable to tax.
28. In order to solve this problem I think that the Courts are entitled, and indeed bound, to look for the legislative purpose behind section 212 and its precursor, section 21 of the Finance Act, 1920.
29. This purpose must be ascertained from the language of the statutes themselves. If this language does not reveal the purpose of the Legislature, the Courts are not entitled to guess at it or to assume some purpose which seems to them reasonable. Sometimes it is very difficult, if not impossible, to discover the purpose of the Legislature, and the Courts must then construe the language of the section concerned without this aid. In the present case, however, there is no difficulty in discovering the legislative purpose-and indeed it is not disputed by the taxpayer.
30. Parliament recognised that the maintenance. Of children imposes some financial burden upon parents and, accordingly, allowed deductions for children from the income-tax with which parents are chargeable. In the present case the deduction to which the tax-payer would admittedly be entitled but for subsection (4) is a sum equal to the tax chargeable at the standard rate on -- 165.
31. (See section 2120) and (1-A) of the Act 1952.) Parliament, however, also recognised that if a child had an income of its own, at any rate, above a certain figure, its maintenance would be less of a financial burden to its parents than otherwise ; the higher the child's income, the less the financial burden would be. Parliament, accordingly, provided for a reduction of the amount which the parent might deduct from his tax in respect of the child without an income. Apparently it was thought that if the child's income did not exceed -- t 15 a year this should not affect the parent's right to make a deduction from tax under section 212(1), but that "in the case of a child who entitled in his own right to an income exceeding --115 a year" the deduction for the child should be reduced by the amount of the excess. (See section 212 (4).)
32. It would, in my view, be very strange that a father whose son earns, say, --150 a year subject to tax is obliged to make a reduction in the amount he is entitled to deduct for his son's maintenance, yet a father whose son earns --150 a year tax-free is not obliged to make any such reduction. This would make no sense to me for the father whose son has a tax-free income is presumably better placed qua his son's maintenance than the father whose son's income is chargeable to tax.
33. Certainly I cannot understand why any distinction should be made in favour of the former.
34. I hope that I am not importing into the statute any provisions that are not there nor altering any words used in subsection (4)--nor adding to them. On the contrary, I think that the tax-payer's contention involves adding the words "and which is chargeable to tax" after the words "an income exceeding --115 a year" in the subsection. I am not prepared to do this. In my view the word "income" in subsection (4) bears its ordinary and natural meaning, that is to say income, whether or not chargeable to tax. In my judgment it is not permissible to give the word the restricted meaning for which the tax-payer contends, particularly as in my view such a meaning is entirely out of harmony with the manifest intention of the Legislature. It is upon this ground that I base my judgment.
35. Some additional grounds were relied upon by the Crown and I will deal with them shortly. It was said quite rightly that the word income in section 212(4) must have the same meaning as that which it bears in section 21 of the Finance Act, 1920. The proviso to subsection (3) of section 21 is substantially in the same terms as the proviso to subsection (4) of section 212 of the Act of 1952.
36. "Provided that in calculating the income of the child for purposes of the foregoing provisions no account shall be taken of any income to which the child is entitled as the holder of a scholarship, bursary, or other similar educational endowment."
37. For the first time income from scholarships and the like was exempted from income-tax by section 28 of the Act of 1920 which is reproduced in section 458 of the Act of 1952. It was argued on behalf of the Crown that unless income in section 21 covered income which was not chargeable to tax, the proviso would be otiose. I agree. I do not think, however, that this argument lends much support to the Crown's case. Otiose provisions are not uncommon in statutes, and it may well be that this proviso was inserted ex abundanti cautela. Its existence has not influenced me in the conclusion at which I have arrived. The most that I can say about it is that it is not inconsistent with my construction of the section.
38. Another subsidiary point made by the Crown is that in section 22 of the Act of 1920 (dealing with deductions in respect of dependent relatives) the Legislature uses the words "total income from all sources" which is well recognised as a term of art for income chargeable to tax. The argument is that as in the immediately preceding section the Legislature used the words "an income," it must there have meant something different from what it meant in section 22-otherwise the Legislature would have used the same words. I do not think, however, that any real importance can be attached to these verbal variations.
39. Then there is the third and certainly the most persuasive subsidiary point taken by the Crown.
40. Sections 17 and 18 of the Act of 1920 clearly contemplate an income which may not be chargeable to tax. Section 17 provides that "An individual who makes a return in the prescribed form of his total income shall be entitled for the purpose of ascertaining the amount of the income on which he is to be charged to income-tax to have (certain) deductions . . . . Made from his assessable income."
41. Section 18 provides that one of these deductions to which any individual (including a child) was entitled was a deduction of --135. Section 21(1) provides, amongst other things, for a deduction of - -36 in respect of one child over 16 years receiving full-time instruction at any university. Section 21(3) provides that no such deduction should be allowed in respect of any child who is entitled in his own right to an income exceeding --40. If income in subsection (3) means taxable income, it would follow that a parent could claim a reduction in respect of a child with a total income of --175, for no more than --40 of it would be taxable ; and this, it is suggested, cannot have been the intention of Parliament. If the words "an income" in subsection (3) mean an income whether or not chargeable to tax, certainly the words "an income" in sub3ection (4) of section 212 of the Act of 1952 must have the same meaning. There may be an answer to this argument, but none was advanced, perhaps because the point was taken only in reply. It might have been suggested by the tax-payer that the true test is not "is the income taxable?" but "may the income be taxable if it is sufficiently large and does it, therefore, fall to be assessed under the Income-tax Acts?"
42. Accordingly, I prefer to rest my conclusion on the ground stated earlier in this judgment which seems to me equally valid whichever test is sought to be applied.
43. The tax-payer relied strongly upon two authorities, Whitney v. Inland Revenue Commissioners and Astor v. Perry. I confess that I have been unable to gain any assistance from either of these two cases. In the first case the tax-payer relied on following passage in the speach of Lord Wrenbury : "As regards the word `income' . . . It means such income as is within the Act taxable under the Act."
44. In order, however, to appreciate the significance of this passage it is important to remember that the House was considering the meaning of the word "income"-in section 4 of the Income-tax Act, 1918, which charged, I quote "an additional duty of income-tax (in this Act referred to as super tax) . . . In respect of the income of any individual the total of which from all sources exceeds" a certain sum. The question was whether an American citizen resident in the United States was chargeable to super tax in respect of income accruing to him from property in this country. Obviously, I think, super tax would not be chargeable upon any income which was not chargeable to ordinary income-tax. Schedule D provided that ordinary income-tax should be charged "in respect of the annual profits or gains arising or accruing . . . To any person whether a British subject or not although not resident in the United Kingdom from any property whatever in the United Kingdom." In my view, all that Lord Wrenbury was saying in the passage to which I have referred was that income chargeable to ordinary income-tax was also chargeable to super tax if it exceeds a certain amount.
45. Astor v. Perry seems to me to offer even less comfort to the tax-payer than Whitney v. Inland Revenue Commissioners. The House there had to consider the meaning of the words "any income" in section 20(1) of the Finance Act, 1922. It held that they did not apply "to the income of a resident in America derived under an American disposition from American assets" because in their context they applied "only to income chargeable under the British Finance Act of the year." In reaching this conclusion on the interpretation of the statute, Lord Macmillan (1935 A C 398) invoked the principle that "So far as the intention of an enactment may be gathered from its own terms it is permissible to have regard to that intention in interpreting it, and if more than one interpretation is possible that interpretation should be adopted which is most consonant with and is best calculated to give effect to the intention of the enactment as so ascertained."
46. So far as the present case is concerned, these authorities are relevant only to illustrate that in some sections of the Income-tax Acts "income" may mean taxable income. This, however, is beyond dispute. Nor is it disputed that in some sections "income" includes non-taxable income. Its true meaning in any section depends on the context in which it is used. In the present case the tax- payer's argument was really an argument of convenience. It amounted to this-that although the Legislature may appear to have intended the words "an income" in section 212(4) of the Act of 1952 to apply to any income it cannot have had any such intention. The words should be construed so as to apply only to an income chargeable to tax however inconsistent this may be with the purpose of the section-otherwise it would be difficult to measure or ascertain the income. This is because the statutory rules laid down for measuring and ascertaining a taxable income, in particular Rule 7 contained in Schedule 9 of the Act of 1952 would not apply. Rule 7 seems to me to be both artificial and archaic. It obscures rather than reveals the tax-payer's true not income. I cannot accept that, without it, there would be any practical difficulty in ascertaining the true income of the tax-payer's son, that is to say, his not gain from his earnings of --150. By applying the ordinary principles of accountancy practice and common sense it should be fairly easy to ascertain what was the real cost of achieving these earnings. No doubt this must always ultimately be a question of fact. I do not accept the contention of the Crown that the Statutory Rules must be applied by analogy.
47. For the above reasons, reluctant and diffident though I am to differ from my brother Danckwerts, L.
48. J. And the Judge, I would allow the appeal.
49. I would expect, particularly having regard to the triviality of the amount involved, that the figures could be agreed. I should have thought that the cost of the journey to and from France alone may well have absorbed the greater part if not the whole of the --35 in dispute-and this is, in my view, clearly a deductible expense, for without it the --150 could not have been earned.
50. I would be surprised if, in the long run, the result of this appeal has any effect upon the amount of this tax-payer's liability. The principle, however, for which the Crown contends is of general application and may in other cases be of considerable practical importance. If the figures cannot be agreed, the case should be remitted to the commissioners to determine by what amount, if any, the not income exceeded --l15.
51. FBNTON ATKINSON L. J.-The first question in this appeal is whether in the relevant year of assessm ent the tax-payer's son was entitled in his own right to an income within section 212(4) of the Income-tax Act, 1952. The second question, which only arises if the answer to the first question is "Yes," is whether that income exceeded --115. It is not necessary in this judgment to repeat the facts which have already been stated.
52. On behalf of the tax-payer it is contended that the words "an income" in section 212(4) must be construed as income for income-tax purposes or income chargeable to tax, the two phrases being treated as synonymous. Therefore, as it is common ground that no part of the -- 150 earned in the relevant period was brought into this country and so never became chargeable to tax, it is said that the son was not entitled to an income for the purposes of this section.
53. On behalf of the Crown it is contended that the words "an income" in this subsection mean an income in the income-tax sense, that is to say, income possessing ceriain well-known characteristics-namely, receipts representing a not gain, received as a matter of right and not being capital receipts. Receipts, it is said, with those characteristics, which the son's --150 clearly possessed, are income in the income-tax sense whether or not in the particular circumstances they are chargeable to tax.
54. Various sections of the Income-tax Acts were referred to and certain authorities cited in the course of argument, showing that though in certain statutory contexts "income" means, and means only, chargeable income, in certain other contexts the meaning cannot be so restricted.
55. The most cogent argument advanced by the Crown was founded on the manifest intention of the subsection, and we were referred to the well-known passage in the speech of Lord Macmillan in Astor v. Perry which Salmon, L. J. Has already read in the course of his judgment.
56. It is plain that the intention behind section 212(4) of the Act of 1952 was to secure that if the child is in fact substantially provided for in his own right, then the father's child allowance should be reduced. Mr. Monroe did not dispute that that is the manifest intention of this subsection. That being so, it would seem a somewhat strange result of section 212(4) if the father's child allowance has to be reduced when his son earns in this country an income of --150 chargeable to tax but escapes any such deduction if the son earns the same income in France which is not chargeable to tax, only because and in so far as none of it is brought into this country.
57. Certain other points taken on behalf of the Crown fall to be considered. It was pointed out that the specific inclusion of an exemption for scholarship income in the proviso to section 212(4) is otiose if the tax-payer's contention is correct because such income is not chargeable to tax by reason of section 458 of the same Act. For my part I attach little or no weight to this argument, as it seems very probable the proviso to section 212(4) was inserted ex abundanti cautela, following the example of the draftsman of section 21(3) of the Finance Act, 1920.
58. Next, attention was drawn to the different wording adopted in sections 21(3) and 22(l) of the Finance Act, 1920. It was section 21(3) of that Act which first introduced the principle of a reduction of the child allowance according to the income of the child. The point is made that whereas section 21(3) uses the words "an income," section 22(1), which deals with dependent relative allowance, provides that such allowance shall only be payable in respect of a person whose "total income from all sources" does not exceed --50 a year. The words "total income from all sources" were at that time a term of art meaning chargeable income. So, say the Crown, the use of different words in section 21(3) (namely, "an income") supports the view that the Legislature in that subsection meant to include non-- chargeable income.
59. Again, I am not prepared to attach any substantial weight to the argument that, when in the mass legislation relating to income-tax we sometimes find additional words used to give a precise meaning to the word "income," a similar meaning may not be given to the word without those additional words.
60. A third submission was that the words "an income" in section 212(4) of the Act of 1952 must mean the same as the same words in section 21(3) of the Finance Act, 1920. But if the words "an income" in the latter section meant chargeable income, then, by reason of the provisions of sections 17 and 18 of the Act of 1920, one could only arrive at the child's chargeable income after deducting the personal allowance of --135, and, therefore, the child could enjoy an income of --175 before the father lost the right to the reduction. This, it was contended, would be a startling result by the financial standards of the year 1920 and the deductions provided by the section. The point has some force, but for my part an argument which had escaped the notice of all those responsible for presenting the Crown's case until Mr. Heyworth Talbot was replying in this Court has to be regarded with some caution.
61. For the tax-payer the main argument has been that if the words "an income" are not construed as meaning chargeable income, then there are no statutory provisions by which the amount of the not income, after allowing a proper deduction for expenses, can be assessed. The Crown admit that the very rigid rules for expenses laid down in paragraph 7 of Schedule 9 to the Act as appropriate to a Schedule E assessme nt have no applica--petition, and to say that the difficulty can be resolved by the process of applying those rules by analogy, as the Crown contended, seems to me wholly unjustified.
62. On the second point which then arises, namely, whether the son's not income exceeded --115 after proper deductions for necessary expenses, counsel were, I think, agreed the matter should be remitted to the commissioners, failing agreement, but no doubt agreement can readily be achieved having regard to the trivial amount involved. costs of the tax payer on common fund basis.
63. Leave to appeal by Crown against order formulating basis of deduction refused.
64. [July 30. The Appeal Committee of the House of Lords (Lord Guest, Lord Pearce and Lord Wilbeforce) allowed a petition by the Crown for leave to appeal and a petition by the tax-payer for leave to cross-appeal.]