United Kingdom House of Lords Decisions

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Cite as: 41 ScotLR 865, [1904] UKHL 865

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House of Lords.

(On Appeal From The Court Of Appeal in England.)

Tuesday, March 15. 1904.

(Before the Lord Chancellor (Halsbury), Lords Macnaghten, Davey, James of Hereford, Robertson, and Lindley.

41 SLR 865

Hunter

v.

Attorney-General.

Subject_Revenue — Income-Tax — Deductions — Premium on Life Insurance — Premiums Partly Advanced by Insurance Company — Income-Tax Act 1853 (16 and 17 Vict. c. 34), sec. 54.
Facts:

A, who had insured his life under a life insurance policy, by arrangement with the insurance company paid in cash only one-half of the annual premium, the company advancing him the other half on the security of the policy, and giving him a receipt for the whole amount of the premiums as “paid.”

Held ( diss. Lord James of Hereford) that A was not entitled under section 54 of the Income-Tax Act 1853 to deduct from his profits and gains liable to income-tax the whole amount of the annual premiums, but only the half actually paid by him in cash,

Headnote:

By section 54 of the Income-Tax Act 1853 it is enacted—“Any person who shall have made insurance on his life … in or with any insurance company … shall be entitled to deduct the amount of the annual premiums paid by him for any such insurance … from any profits or gains in respect of which he shall be liable to be assessed under either of the Schedules (D) or (E) of this Act, or to have any assessment which may be made upon him under either of the said schedules reduced or abated by the deduction of the amount of the said annual premiums from the amount of the profits or gains on which such assessment has been made, or if such person shall be assessed to duties under any of the schedules contained in this Act, and shall have paid such assessment, or shall have paid or been charged with any of the said duties by deduction or otherwise, such person, on claims made to the Commissioners for special purposes, and on production to them of the receipt for such annual payment, and on proof of the facts to the satisfaction of the said Commissioners, shall be entitled to have repaid to him such proportion of the said duties paid by such person as the amount of the said annual premiums bears to the whole amount of his profits and gains on which he shall be chargeable under all or any of the schedules of this Act.” …

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By policy dated 30th June 1896 Robert Lewin Hunter insured his life with the London Life Association, Limited, for £1500, the premium being £66, 17s. 6d., of which £33, 17s. 6d. was paid by Hunter in cash, and as the receipt bore, “including £33 advanced by the Association.”

In terms of the policy and of an agreement with the Association dated 19th July 1897 Hunter paid in cash in each of 1897, 1898, and 1899 the sum of £33, 17s. 6d., the remaining £33 being advanced to him by the Association by way of loans on the security of the policy, and interest being paid by him at 4 per cent. on the sums so advanced. The receipts granted by the Association in each year were for “the sum of £66, 17s. 6d., being the amount of one year's premiums due as above for the assurance of £1500 by this policy on the life of Mr R. L. Hunter, £66, 17s. 6d., amount paid.”

In each of the years 1896–7, 1897–8, and 1898–9 Hunter was assessed to income-tax under Schedule (D) on the assumption that he was entitled to relief to the amount of £33, 17s. 6d. only in respect of the premiums for the policy, and in each year the special Commissioners on appeal refused to grant relief in respect of the whole £66, 17s. 6d.

In 1900 Hunter presented a petition of right claiming £3, 6s., the income-tax paid in respect of the balance of £33 for the three years. Phillimore, J., held that the petitioner was entitled to deduct £66, 17s. 6d. as the annual premiums paid by him. This decision was reversed by the Court of Appeal ( Williams, Stirling, and Mathew, L.JJ.), who held that Hunter had been rightly assessed.

Hunter appealed.

At the conclusion of the arguments their Lordships gave judgment as follows:—

Judgment:

Lord Chancellor (Halsbury)—It appears to me that this judgment ought to be affirmed. The whole point is that the exemption or deduction, or whatever it is to be called, is to be allowed to the assured if the premium has been “paid by him,” and the sole reason which I give for my judgment is that it has not been paid by him. I move your Lordships that the appeal be dismissed with costs.

Lord Macnaghten—I quite agree.

Lord Davey—I am of the same opinion. No doubt the argument based on the charge on the policy appears to have some weight, because it appears, as between the appellant and the Insurance Company, that the premium has been paid. But that is not the question. The question is whether the appellant has paid the premium so as to obtain the benefit of the exemption. Looking at the whole transaction, it appears to me that it was a scheme of some ingenuity whereby the Insurance Company invited people to insure their lives in their office on the footing of half the annual premiums for seven years not having to be found in cash, and the very merit of the scheme, as pointed out in some of the documents, in the invitations or prospectus, or whatever it is called, is that the insured will not have to pay in cash the whole of the premiums. In these circumstances I think that the entry in the ledger is a perfectly accurate entry, that £33, 17s. 6d. is paid and £33 remained “on credit.” It may be that the insured was liable to be sued for that £33, but he was willing to run that risk, no doubt, for the sake of obtaining the very favourable terms which were offered to him by the Insurance Company, who were not likely to spoil their business by taking such a step.

Lord James of Hereford—I have entertained considerable doubt in this case, and I express the opinion which I now do express before your Lordships with very great hesitation as to whether I am right or not, but on the whole I have come to the conclusion that this payment does in fact exist, and therefore that the appellant is entitled to succeed. I am aware of the statement that this transaction as regards the £33 was described as “on credit.” That, of course, is substantially in favour of the opinion which your Lordships have expressed. But I am disposed to look rather at the real substance of the transaction as it is found in the charge on the policy. It is admitted that the parties have acted in perfect good faith in this arrangement which has taken place; whether it is an ingenious one or not it is certainly an honest transaction, and in it as between the two parties this sum is treated as an advance upon loan, and it is admitted that upon that document between them an action could have been brought, so that at any time, if the company chose to take that course, although it may be one which they would not have taken in fact, they could have sued upon it. It appears to me there is nothing in the transaction which can be cordemned either in the nature of the transaction itself or as being legally in fault. If one party chose to say to the other, “I will lend you money with one hand and receive it with the other,” it seems to me to be a transaction of loan with a charge of interest upon that loan, and it was treated by the parties in good faith as a loan, and that being so, it would be a “payment” in the same way, as had been mentioned at the bar, as if the money had been borrowed from a third person, or as if there had been two different departments in the same office in which the transaction had taken place. For these reasons, with very great diffidence, I differ from my noble and learned friends who have expressed their opinions, for looking at the case as a whole—and it is full of difficulties though it is a short one—it appears to me that the appellant is entitled to succeed.

Lord Robertson—I agree with the motion which has been proposed upon the very simple and sufficient ground stated by the Lord Chancellor. The whole argument of the appellant has been, that as in a question between the assured and the Insurance Company he must be held to have

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paid the larger sum. But in point of fact, in a question of the extent by which his income has been diminished during the year by the payment, there can be no doubt that it was only by £33 and not by £66.

Lord Lindley—I am of the same opinion. I think the judgment of Mathew, L.J., absolutely unanswerable. I say this bearing in mind that under the old common law plea of payment you could prove the plea by a settlement of account on a balance payment, but that is not such a payment as is contemplated by the Income-Tax Acts at all.

Judgment appealed from affirmed and appeal dismissed.

Counsel:

Counsel for the Petitioner and Appellant— Dankwerts, K.C.— Acland, K.C. Agents— Hunter & Haynes.

Counsel for the Respondent— Attorney-General ( Sir Richard Finlay, K.C.)—Solicitor-General ( Sir E. Carson, K.C.)— Rowlatt. Agent— Sir F. C. Gore, Solicitor of Inland Revenue.
1904