Scottish Court of Session Decisions

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This was an action at the instance of the trustees acting under the deed of trust of the deceased James Baird of Auchmeddan, against the Lord Advocate, as representing the Board of Inland, Revenue, under and in terms of the Act 20 and 21 Vict. cap. 44, for repayment of £644, 18s. 8d. paid as income-tax upon the trust investments for the year 1886-87, for which the trustees claimed to be entitled to exemption.

The deed of trust proceeded upon the following narrative:—“I, James Baird of Auchmeddan, residing at Cambusdoon, in the county of Ayr, feeling deeply impressed with the extent to which spiritual destitution prevails among the poor and working population of Scotland, and being satisfied that this proceeds in a great measure from the want of properly organised and endowed territorial work; and considering also that there appears to be a tendency to a departure from the truth, and to an exclusion of religion in the teaching of the young, and that the means available by law are insufficient to provide for the faithful preaching and teaching of the Word of God, and for the exposure and refutation of error, and for the support of church and educational and other purposes of a religious character; and being satisfied that under existing circumstances the evil foresaid cannot properly be met, nor the objects before mentioned attained, without the aid of private benevolence and additional organisations and fresh influences—I have resolved, with a view to these ends, and to promote and further the objects more particularly hereinafter indicated, to provide a fund of £500,000 sterling.” The truster declared his wishes to be “that the said funds shall be expended for the support of objects and purposes in connection with the Established Church of Scotland, all of a religious character, as after described, and for the aid of institutions having the promotion of such purposes in view, my grand object being to assist in providing the means of meeting, or at least as far as possible promoting, the mitigation of spiritual destitution among the population of Scotland, through efforts for securing the godly upbringing of the young, the establishing of parochial pastoral work, and the stimulating of ministers and all agencies of the said Church of Scotland to sustained devotedness in the work of carrying the Gospel to the homes and hearts of all. And as such spiritual destitution exists to the greatest extent in populous places, it is my wish that the operation of this trust be directed in the first instance chiefly to such populous places,” &c.

The purposes of the trust were— Primo, To promote the spreading and preaching of the Gospel in connection with the said Church of Scotland—(1) by assisting to build and endow churches: (2) by assisting to augment the stipends of ministers; (3) by ascertaining “the religious condition of, and spiritual destitution in, parishes or territorial districts.” In making grants under this head the trustees were to be guided by the efficiency of churches as shown in their services, their work, and their liberality, and “should also observe from year to year the changes as to spiritual destitution, and they should consider religious improvement and the mitigation of such destitution as elements to guide them in deciding as to giving grants.” Secundo, To produce and disseminate sound literature to promote the principles and purposes, and to aid the institutions indicated. Tertio, To assist divinity students to procure their education and prepare for the ministry of the Church of Scotland. Quarto, To raise religious teaching to its former position in the schools of Scotland. Quinto, To work in connection with the mission, education, endowment, or other schemes of the Church of Scotland.

The income of the trust for 1886-87 amounted to £20,738, 5s. 6d., and from that sum £691, 5s. 6d. was deducted in name of income-tax.

The expenditure for the year was as follows:—

Grants.

1.	Toward Church Building	£14,350
2.	Toward Church Endowing	3,292
3.	Toward Augmentation of Stipends	690
4.	Miscellaneous	200
	Baird Lectures	200
	Allowance to Baird Trustees	500

The balance of the £20,738, 5s. 6d., after deduction of the tax, was applied in reducing an over-draft which had been created to make payments in former years under heads 1 and 2. In respect that the sums of £690 granted in augmentation of stipends, and £200 for the Baird lectures were paid free of income-tax, and as from the allowance of £500 to the Baird Trustees the income-tax had been deducted before payment, the pursuers did not claim repayment of the income-tax on these three sums amounting to £1390. The tax: on these three items, amounting to £46, 6s. 8d., being deducted from the total tax paid, viz., £691, £s. 4d., left the amount claimed as above stated at £644, 18s. 8d.

The sections of the Income-Tax Act of 1842 founded on were the 105th and the 88th. Section 105 of that Act provides as follows—“Any corporation, fraternity, or society of persons, and any trustee for charitable purposes only, shall be entitled to the same exemption in respect of any yearly interest or other annual payment chargeable under Schedule D of this Act, in so far as the same shall be applied to charitable purposes only, as is hereinbefore granted to such corporation, fraternity, society, and trustee respectively, in respect of any stock or dividends chargeable under Schedule C of this Act, and applied to the like purposes, and such exemption shall be allowed by the commissioners for special purposes on due proof before them; and the amount of the duties which shall have been paid by such corporation, fraternity, society, or trustee, in respect of such interest or yearly payment, either by deduction from the same or otherwise, shall be repaid under the order of the said commissioners for special purposes in the manner hereinbefore provided for the repayment of sums allowed by them in pursuance of any exemption contained in the said Schedule C. The exemption under Schedule C is contained in section 88 of the same Act. The third rule is in these terms—The stock or dividends of any corporation, fraternity, or society of persons, or of any trust established for charitable purposes only, or which, according to the rules or regulations established by Act of Parliament, charter, decree, deed or trust, or will,

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shall be applicable by the said corporation, fraternity, or society, or by any trustee, to charitable purposes only, and in so far as the same shall be applied to charitable purposes only, or the stock or dividends in the names of any trustees applicable solely to the repairs of any cathedral, college, church, or chapel, or any building used solely for the purposes of divine worship, and in so far as the same shall be applied to such purposes, provided the application thereof to such purposes shall be duly proved before the said commissioners for special purposes, by any agent or factor on the behalf of any such corporation, fraternity, or society, or by any of the members or trustees.”

Reference was also made in the discussion to the following statutes—The Income-Tax Act, 1842, section 61, No. VI., where allowance is authorised to be made for the duties charged “on the rents and profits of lands, tenements, hereditaments, or heritages belonging to any hospital, public school, or almshouse, or vested in trustees for charitable purposes, so far as the same are applied to charitable purposes;” and wherein it is further provided that the said allowances are “to be granted on proof before the commissioners for special purposes of the due application of the said rents and profits to charitable purposes only, and in so far as the same shall be applied to charitable purposes only.”

The Educational Endowments (Scotland) Act, 1882 (45 and 46 Vict. cap. 59), sec. 10, which makes provision for the apportionment of mixed endowments—“Where any part of an endowment is an educational endowment within the meaning of this Act, and part of it is applicable or applied to other charitable purposes, the scheme shall be in comformity with the following provisions.”

The Customs and Inland Revenue Act, 1885 (48 and 49 Vict. cap. 51), sec. 11, imposes a duty upon property of corporate and unincorporated bodies subject to certain exemptions, one of which is, sub-sec. 3, “property which, or the income or profits whereof, shall be legally appropriated and applied for any purpose connected with any religious persuasion, or for any charitable purpose, or for the promotion of education, literature, science, or the fine arts.”

The pursuers pleaded—Upon a sound construction of the provisions of the Income-Tax Acts, the pursuers are entitled to the exemptions claimed, and decree ought to be pronounced in terms of the conclusions of the summons, with expenses.

The defenders pleaded—On a sound construction of the said trust-deed, and of the provisions of the Income-Tax Acts, the pursuers are not entitled to repayment as claimed.

The Lord Ordinary ( Fraser) on the 14th March 1888 pronounced the following interlocutor—“Assoilzies the defender from the conclusions of the action, and decerns: Finds the defender entitled to expenses, &c.

Opinion.—By the 105th section of the Income-Tax Act of 1842 (5 and 6 Vict. cap. 35), continued by subsequent Acts, it is enacted that … Any trustee for charitable purposes only shall be entitled to the same exemption in respect of any yearly interest or other annual payment chargeable under Schedule D of this Act, in so far as the same shall be applied to charitable purposes only, as is hereinbefore granted to such … trustee … in respect of any stock or dividends chargeable under Schedule C of this Act and applied to the like purposes.

Now, Schedule C, thus referred to, enacts that the stock or dividends ‘of any trust established for charitable purposes only, or which, according to the rules or regulations,’ of any deed of trust or will, shall be applicable to charitable purposes only, and in so far as the same shall be applied to charitable purposes only,’ shall be exempted from the duty. ‘The pursuers of this action aver that they are trustees holding funds for ‘charitable purposes only,’ and have paid duty upon trust funds in their hands which they have applied to charitable purposes only, viz,—

1.	Towards Church Building	£14,350
2.	Towards Church Endowing	3,292

They now claim a return of the duty paid in regard to these two sums, the same being according to their contention exempted from duty by the statute.

This raises simply the question, What is the construction to be put upon the words charitable purposes only? According to the pursuers these words have the wide interpretation given to them by the Court of Chancery in England, in interpreting the statute of 43 Elizabeth, cap. 4 (commonly called the Statute of Charitable Uses), and the Statutes of Mortmain. In the case of Morice v. Bishop of Durham, (9 Vesey 405), Sir William Grant, Master of the Rolls, stated that the word ‘charity’ in the Court of Chancery in England derived its signification chiefly from this statute of Elizabeth. The title of this statute is ‘an Act to redress the misemployment of lands, goods, and stocks of money thereto given to charitable uses,’ and the preamble of the Act is in the following terms:—‘Whereas lands, tenements, rents, annuities, profits, hereditaments, goods, chattels, money, and stocks of money, have been heretofore given, limited, appointed, and assigned, as by the Queen's Most Excellent Majesty, and her most noble progenitors, as by sundry other well-disposed persons, some for relief of aged, impotent, and poor people, some for maintenance of sick and maimed soldiers and mariners, schools of learning, free schools, and scholars in universities, some for repair of bridges, ports, havens, causeways, churches, sea-banks, and highways, some for education and preferment of orphans, some for or towards relief, stock, or maintenance for houses of correction, some for marriages of poor maids, some for supportation, aid, and help of young tradesman, handicraftmen, and persons decayed, and others for relief or redemption of prisoners or captives, and for aid or ease of any poor inhabitants, concerning payments of fifteens, setting out of soldiers, and other taxes; which lands, tenements, rents, annuities, profits, hereditaments, goods, chattels, money, and stocks of money, nevertheless have not been employed according to the charitable intent of the givers and founders thereof, by reason of frauds, breaches of trust, and negligence in those that should pay, deliver, and employ the same: For redress and remedy whereof, be it enacted by authority of this present parliament,’ &c. Enactments are then made, authorising the courts to give redress against the frauds,

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&c., which called for repression. The Court of Chancery extended very much the list of charitable purposes contained in this preamble. Mr Jarman (Treatise on Wills, vol. i. p. 208) says—‘Charity is not confined to the objects comprised in this enumeration; it extends to all cases within the spirit and intendment of the statutes.’ And he enumerates a vast number of cases (all established by decision of the Court) which have been held to be charitable uses, and of which these are examples—Gifts for the erection of water-works; for the general improvement of a town; for the establishment of a lifeboat; or of a botanical garden; to the trustees, and for the benefit of the British Museum; to the Royal, the Geographical, and Humane Societies; keeping the chimes of a church in repair; for building an organ gallery in a church; founding prizes for essays; for deserving literary men who have been unsuccessful; for the increase and encouragement of good servants; for establishing and upholding an institution for the investigation and cure of diseases of quadrupeds and birds useful to man. The Statute of Mortmain (9 Geo. II. c. 36), which restricted the power of persons to make bequests to ‘charitable uses,’ adopted the wide definition of these words already recognised in the Court of Chancery in the interpretation of the statute of Elizabeth.

Now, the question arises whether these decisions have any application to the exemptions given by the Income-Tax Act, which is an Imperial Statute, and the Lord Ordinary thinks that they have not. His opinion is that the words ‘charitable purposes’ in the ‘Income-Tax Act’ (intensified by the addition of the word ‘only’) must be interpreted according to their ordinary and everyday familiar use. Charity in this sense does not mean ‘goodwill’ or ‘benevolence,’ or ‘the application of funds to public utility,’ or for the promotion of learning. It has the restricted sense of ‘liberality to the poor,’ ‘alms,’ as given by Dr Johnson. In one sense it may be regarded as charity to devote a sum of money to paying ministers' salaries, and building churches for the spread of religion, even although wealthy agnostics may obtain the benefit of such spiritual instruction. But how is this teaching of religion anywise different from the granting funds in trust for the purpose of teaching science by means of a mechanics' institute, or giving literary instruction by hired lecturers? The income-tax plainly was not intended to be diminished by payments such as these. It is a tax upon everyone having a certain income, and it is only when the clamant calls of poverty and distress render it expedient to relax the incidence of the duty that such relaxation will be given. It was perfectly right to give a wide interpretation to the words ‘charitable uses’ in the statute of Elizabeth, looking at the object of that statute—to repress frauds that had grown very much in the application of trust funds left for the purposes of public utility. But the very opposite mode of interpretation ought to be given in regard to an exemption contained in a statute imposing a general tax borne by the whole community who are able to bear it.

The clause in Schedule C itself affords conclusive evidence that the words ‘charitable purposes’ have not the wide meaning given to the words ‘charitable uses’ by the Chancery decisions; for, besides giving the exemption to moneys applied for charitable purposes, the clause goes on to specify that there shall also be exempted from the duty ‘the stock or dividends in the names of any trustees, applicable solely to the repairs of any cathedral, college, church, or chapel, or any building used solely for the purpose of divine worship.’ Now, such expenditure was not regarded as a charitable purpose, otherwise there would be no necessity for this special clause, and yet such expenditure for repairs upon a church is specially mentioned in the Act of Elizabeth as the application of money to a charitable use. Furthermore, by section 149 it is provided that the trustees of the British Museum shall be allowed the like exemptions ‘in respect of any dividends of stock vested in such trustees, or any of them, or in any other for their use, as are granted to charitable institutions by this Act.’ Therefore money given to the British Museum was not a ‘charitable purpose’ falling under the clause in Schedule C, and would not have been exempt from duty but for this special clause; and yet it has been decided by the Court of Chancery that a gift ‘to the trustees, and for the benefit of the British Museum,’ was a charitable use within the meaning of the English statutes ( British Museum v. White, 2 S. and St. 595).”

The pursuers reclaimed, and argued—The trust here was one for “charitable purposes only,” and they were entitled to the exemption claimed. The Statute of Charitable Uses (42 Eliz. cap. 4) and the Statute of Mortmain (9 Geo. II. cap. 36) were useful for purposes of comparison, though it was not contended that “charitable purposes” in the Income-Tax Act had as wide a scope as “charitable uses” under these Acts. [Lord President—The term in Scotch law applicable to the support of benevolent institutions is “pious uses,” not “charitable purposes.”] It was to restrict unduly the meaning of charity to confine it absolutely to the relief of physical destitution— Hamilton v. Minister of Cambuslang, M. 10,570; Grant v. Macqueen, 4 R. 734. To do so would make it necessary to draw distinctions between the feeding and educating of orphans in an orphan institution. The Educational Endowments Act of 1882, sec. 10, and the cases upon the construction of that Act, showed that helping religious education was a charitable purpose within the meaning of the Act— Ferguson Bequest Fund v. Educational Endowments Commissioners, 14 R. 624. The apparent distinction between “charitable purposes” and the “repairs of churches” in section 88, Schedule C, Third Rule, of the Income-Tax Act need not be held to apply to the building and endowing of churches. At all events churches might be built for the poor; and so would fall under the first part of that rule. The argument founded on the distinction in the Customs Act between religious, educational, and charitable purposes was not well founded, because in that Act the terms employed were defined and elaborated by instances; in the Income-Tax Act they were general.

The defenders and respondents argued—The building of churches was not a “charitable purpose” any more than the repair of churches. In the ordinary sense charitable was equivalent to eleemosynary The giving must be in relief of physical want. It was here attempted to confound charitable and public purposes. The analogy

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of the Statute of Elizabeth and the Statute of Mortmain was misleading. “Charitable uses” had been held under these Acts to include a wide range of benevolent purposes— in re Douglas Overt v. Barrow, 35 Chan. Div. 472; Beaumont v. Oliveira, 4 L.R., Chan. 309. In the taxing Acts “charitable” had a much more limited sense—Customs and Inland Revenue Act, 1885, sec. 11, No. 3; Income-Tax Act, 1842, sec. 61, No. 6. Under the Statute of Elizabeth the “repair of churches” was included in, but in the Income-Tax Act distinguished from, “charitable purposes.” So also with a gift to the British Museum—Income-Tax Act, sec. 149; British Museum v. White, 2 S. & St. 595. There was no decision upon the meaning of the word “charitable” in the case of the Ferguson Bequest Fund, nor would the meaning of that word in the Educational Endowments Act be a test of its meaning in the taxing Acts. Nor was it possible to get for the purposes of this case a definition of charity from older cases decided in virtue of the jurisdiction of the Court over charities— Ross v. Governors of Heriot's Hospital, 5 D. 589, 5 Sydney Bell's App. 37; Dundas, Petitioner, 7 Macph. 675. Charity, in its general sense, implied the relief of physical want. This was an Imperial statute, and its terms must be construed in their catholic and general sense. If the exemption were extended to religious, why not to educational and scientific purposes? Even under the deed the funds were not applicable “only” to relieve the spiritual wants of the poor, and were not to be withdrawn if a poor congregation became wealthy.

At advising—