Scottish Court of Session Decisions

Bruce Rennie and others, the testamentary trustees of the late John Millar Wilson, first parties, Mrs Lilian Harriette Wilson, widow of John Millar Wilson, second party, and Christina Mary Wilson and others, nephew and nieces of John Millar Wilson, third parties, brought a Special Case for the opinion and judgment of the Court upon questions relating to the incidence of the income tax payable in respect of a bequest of income to the second party.

The last will and settlement of John Millar Wilson (the testator) conveyed his whole estate, real and personal, heritable and moveable, to the first parties in trust for a variety of purposes, which included the following:—“After payment of my debts and the cost of the administration of my estate to pay to my wife Lilian Harriette Wilson the free yearly income thereof half yearly or as received so long as she remains my widow up to if possible the sum of Six hundred pounds per annum as an alimentary provision not assignable by her or affectable by her debts or deeds or attachable by her creditors to cover all rent rates and taxes and in full satisfaction of all claims against my estate legally competent to her upon or through my death any remaining annual income from the estate above Six hundred pounds to be paid (failing my leaving any lawful issue) to or for the benefit of my nephews and nieces to be distributed as and when my trustees may determine and to cease at the death or re-marriage of my said wife.”

The Case set forth—“1. The testator died on 4th January 1914 domiciled in England. He left a last will and settlement dated 3rd January 1914, under which he appointed the first parties to be trustees, and provided that the trust thereby constituted should be administered in Scotland. 2.… The testator further provided that in the event of his wife marrying again the said annual income above provided to her should thereupon cease, that the household furniture and effects at Darrochmore should at his death be handed over to his wife as her absolute property, and that (failing his leaving lawful issue) on the death or re-marriage of his wife the capital of the estate should be divided equally among his brothers and sisters alive at the date of his death. 3. The testator was survived by his widow. He left no issue. He left a number of nephews and nieces. At the date of his death, which occurred on the day following the execution of the said last will and settlement, the testator was not possessed of any heritable estate or house property. He was tenant under a five years' lease, entered into about six months before his death, of the house ‘Darrochmore, ‘Ipswich,’ in which he resided 4. The testator's estate after payment of debts and death duties amounts to about £14,000. The income, exclusive of income tax, amounts to about £900 per annum. The income is taxed at its source before it is paid to the first parties, and the whole income is brought into charge.”

The questions of law were—“1. In each year in which the income of the testator's estate, exclusive of income tax, amounts to ro exceeds £600, is the second party entitled, so long as she remains unmarried, to payment

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of that sum in full without deduction in respect of income tax? or 2. Is the second party in each such year entitled to payment only of the amount remaining after deducting from the said sum of £600 the income tax payable in respect thereof?”

Argued for the third parties—Where a bequest of income was given, the recipient had to pay the income tax, for that was a tax upon income, i.e., the subject of the bequest—Income Tax Act 1842 (5 and 6 Vict. cap. 35), sections 102 and 103. To elide that result the testator must have made manifest an intention that the income tax should be paid by someone else. Such an intention might be expressly manifested by using clear words to that effect. In the present case there were no such words. That intention must be necessarily implied from the terms of the will. There was nothing in the will from which a clear inference could be drawn to the effect that the testator meant to bequeath the income and the tax upon it. On the contrary, the bequest of income was to cover all rates, taxes, &c. The word “free” did not mean free of income tax, but merely free of administrative and similar charges. Murdoch's Trustees v. Murdoch, 1918, 55 S.L.R. 664, and Smith's Trustees v. Gaydon, 1918, 56 S.L.R. 92, were distinguishable. Those decisions were upon special words, and did not decide that in general free income meant income free of income tax. Rodger's Trustees v. Rodger, 1875, 2 R. 294, 12 S.L.R. 204; Kinloch's Trustees v. Kinloch, 1880, 7 R. 596, 17 S.L.R. 444; Dalrymple v. Dalrymple, 1902, 4 F. 545, 39 S. L. R. 348; Wall v. Wall, 1847, 15 Simon 513, 16 L. J. Ch. 305; Gleadow v. Leetham, 1882, 22 Ch. D. 269; Farrer v. Loveless, [1918] 1 Ch. 223—Dowell, Income Tax Laws, p. 481—were referred to.

Argued for the second party—The authorities cited by the third parties and collected in Dowell were not in point. They merely laid down (1) that deductions or abatement did not include income tax in the general case, so that a gift given free of deductions or abatement was not given free of income tax, and (2) that the words free of deductions or abatement might be so associated with income tax in a particular deed as to give rise to a necessary inference that they were used with reference to and included income tax. The law to that effect was summarised in Theobald, Law of Wills, p. 196, and Jarman on Wills, vol. ii, p. 1134. There was no presumption against a gift being free of income tax— In re Saillard, [1917] 2 Ch. 401, per Swinfen Eady, L.J., at p. 403. Murdoch's case and Smith's case applied. The testator's intention in the present case was that the second party should receive a de facto annual payment of £600, not that she should have a de jure right thereto. The reference to rates and taxes was clearly connected with the gift of the house to the second party, and referred to the rates and taxes payable in respect of it. “Taxes” was to be construed as referring to something of the same genus as rates, viz., assessment in respect of heritable property and upon rental, and did not include imperial taxes— Tidswell v. Whitworth, 1867, L.R., 2 C.P. 326; Stroud's Judicial Dictionary, voce Assessment.

At advising—