Scottish Court of Session Decisions

In this action, which was raised by a ward for reduction of the sale of part of her estate by her curator bonis, the Court on December 3, 1897, pronounced the following interlocutor:—“Find that on payment to the defenders first named in the summons, or to Messrs W. & R. Chambers, Limited, of £15,000, being the price of the shares in dispute with interest thereon at the rate of live per cent. from 31st March 1896, the date of the transfer of said shares, the pursuers will be entitled to obtain a decree of reduction of said transfer … and continue the cause.”

On 3rd February 1898 the Court appointed the defenders to lodge a minute stating the amount of the dividends declared and paid to the defenders first named in the summons in respect of the shares in dispute since said shares were transferred, and the date or dates when said dividends were paid.

The pursuers subsequently made up to 1st March a state of the amount due by them in respect of the £15,000 with interest thereon, under deduction of the amount of the dividends as set forth by the defenders in their minute. This state showed the sum due by them on 1st March to be £14,061, 1s. 8d.; but this sum was arrived at after deduction not only of the dividends on the shares, but also of income-tax on the interest of the capital sum.

The defenders' agent having declined to receive the sum of £14,061, 1s. 8d., the pursuers consigned the money in bank, and presented a note in which they set forth the facts as above stated, and craved the Court to grant the decree of reduction mentioned in the foresaid interlocutor of 3rd December 1897, and to ordain the defenders W. & R. Chambers, Limited, to issue in favour of the pursuer a certificate in her favour of 100 shares of said company.

The Income-Tax Act 1853 (16 and 17 Vict, cap. 34), sec. 1, imposes income-tax for and in respect of, inter alia, “all interest of money, annuities, dividends, and shares of annuities payable to any person or persons.”

Sec. 40—“Every person who shall be liable to the payment of any rent or any yearly interest of money, or any annuity or other annual payment, either as a charge on any property or as a personal debt or obligation, by virtue of any contract, whether the same shall be received or payable half—yearly or at any shorter or more distant periods, shall be entitled and is hereby authorised, on making such payment, to deduct and retain thereout the amount of the rate of duty which at the time when such payment becomes due shall be payable under this Act … and the person liable to such payment shall be acquitted and discharged of so much money as such deduction shall amount unto, as if the amount thereof had been actually paid unto the person to whom such payment shall have been due and payable.”

Argued for the defenders—The note should be refused. The debt here due arose out of no contract, nor was the interest “yearly interest of money,” which was what sec. 40 had in view. It was a single and exceptional payment of interest which would not be repeated.

Argued for the pursuer—Income-tax was due on the interest. Sec. 1 of the Income-Tax Act of 1853 was very sweeping, and expressly said “all interest of money.” The Income-Tax Act of 1842 (5 and 6 Vict. cap. 35), sec. 1, was couched in more restricted language, and referred only to “all profits arising from annuities, dividends, and shares of annuities.” If income-tax was due, the pursuer was entitled to make the deduction under sec. 40. This was unquestionably “a personal debt.”— Bebb v. Bunny, 1 K. & J. 216, referred to.