1971 PTD 731 (PLP)

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. 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. In my view, the income received by the son in France and not remitted to the United Kingdom is not relevant for the purposes of section 212 of the Act. I think that the general commissioners and the Judge reached the correct decision and the appeal should fail. 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." 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. 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. SALMON, L. J.‑-For the purpose of the Income‑tax Acts, income has three essential characteristics.

1. It represents net 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. 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. 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. 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. 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. 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. (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).) In the present case the tax‑payer's son received 150 in the year of assessment from earnings as a temporary teacher in a French Iycee. He had gone there in order to perfect his French on the advice of his tutor at St. Andrew's University. He managed, I imagine, with little difficulty, to spend the whole of the 150 during his sojourn in France. Since this sum had been earned wholly outside the United Kingdom and none of it had been remitted to the United Kingdom, it was clearly not chargeable to income‑tax. The tax‑payer claims and the Judge and the commissioners have decided that because these earnings were not chargeable to tax they cannot be "income" within the meaning of that word in subsection (4). I am afraid that I am unable to agree. I can see no reason for giving the word "income" such a restricted meaning in this subsection, particularly when in other parts of the Act it is clearly used in its wider sense. 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. Certainly I cannot understand why any distinction should be made in favour of the former. 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. 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. "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." 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. 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. Then there is the third and certainly the most persuasive subsidiary point taken by the Crown. 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." 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?" 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. 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." 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. 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." 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 net 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 net 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. For the above reasons, reluctant and diffident though I am to differ from my brother Danckwerts, L. J. and the Judge, I would allow the appeal. 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. 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 net income exceeded l

15. FBNTON ATKINSON L. J.‑The first question in this appeal is whether in the relevant year of assessment 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. 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. 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 net 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. 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. 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. 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. 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. 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. 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. 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. 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 net 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 assessment have no applica tion, 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. In my view this argument has great force, but I cannot regard it as decisive of the question of construction posed by section 212(4). In the comparatively rare cases of a child entitled to an income earned abroad, none of which is brought into this country, I cannot see any insuperable difficulty in deciding what expenses have necessarily been incurred in earning the income so as to arrive at a net figure of income for the purpose of section 212(4). In my view both meanings of "an income" contended for are possible as a matter of construction. I fall back therefore on the manifest intention of the subsection and look interpretation is most consonant with and best calculated to give effect to that intention. Approaching it in that way, I feel satisfied that the Crown's contention must be preferred, and I would allow the appeal on the first point. I need hardly state that I, at any rate, reach this conclusion with very real diffidence, as it means differing from my Lord Danckwerts L. J. and the Judge, with their great experience of the Income‑tax Acts. On the second point which then arises, namely, whether the son's net 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. Appeal allowed. Agreement that Crown pay costs of the tax payer on common fund basis. Leave to appeal by Crown against order formulating basis of deduction refused. [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.]