Die Lunae, 15° Decembris,
1930.
Parliamentary
Archives,
HL/PO/JU/4/3/846
Lord
Buck-
master.
Viscount
Dunedin.
Lord War-
rington of
Clyffe.
Lord
Tomlin
Lord
Thanker-
ton.
ARCHER-SHEE
v.
GARLAND (INSPECTOR
OF TAXES).
Lord Buckmaster.
MY LORDS,
The Appellant is, by General
Rule 16 of the Income Tax Acts,
assessable to income tax in
respect of the profits of his wife. Her
father was a citizen of
the United States of America, and under
his will, made in New
York, she is entitled to receive during her
life the income of his
residuary estate which is held at present by
the Trust Company of
New York as Executor and Trustee of the
will. Part of such monies
are remitted to this country by the
Trustee and about these no
question is raised, but part remain in
New York and the liability
of the Appellant to have these retained
monies assessed for income
tax is the sole question on this appeal.
The early history of the case
and all material facts are to be
found in 1927 A.C., p. 844,
which1 contains the report of the
decision when the
same dispute as the present was considered by
this House under
different circumstances. The explanation of why,
notwithstanding
that decision, this case is again presented to your
Lordships lies
in the fact that the will of the Appellant's father-
in law under
which the property passed was then construed accord-
ing to
English law, and, so regarded, it was held that the interest
of
the Appellant's wife was derived from stocks, shares or funds
outside
the United Kingdom and therefore by Rule 1 of Case 5 was
assessable
to Income Tax whether received here or not. The question
as to
what might happen if the American law differed from the
English
was left open. Such decision covered the claims up to
April 1925,
but since then three assessments have been made in
accordance with
the law then laid down, and these are the assess-
ments now in
dispute. It is obvious, therefore, for the Appellant
to succeed he
must show that the American law differs in a crucial
respect from
the law of England, and that the former judgment
has accordingly
lost its force, and this he now claims to have done.
His contention was accepted by
the Commissioners and Rowlatt
J., but not by the Court of Appeal
who, with the dissent of
Greer L.J., once more found against the
Appellant.
To make the point now in issue
quite plain it is necessary again
to refer to the Statute and the
Rules.
Under Schedule D. 1, a tax is
charged in respect of—
(a) " The annual profits or
gains arising or accruing
" (i) to any person
residing in the United King-
' dom from any kind of property
whatever whether
" situate in the United Kingdom or
elsewhere."
This general provision is then
separated into six different cases
under which the tax is to be
charged, the fourth and fifth of which
are the ones relevant to
this appeal. They are as follows :—
" Case IV. Tax in
respect of income arising from
" securities out of the
United Kingdom except such income as
" is charged under
Schedule C.
" Case V. Tax in respect
of income arising from posses-
" sions out of the United
Kingdom."
2 [2]
Except that these two cases
appear to overlap, the matter seems
so far clear, but the mists
begin to fall when the rules are exam-
ined, " subject to and
in accordance with which " the tax is to be
charged, for it
is then found that two distinct methods of computa-
tion and two
distinct liabilities apply to different classes of property
under
these two rules.
It will be noticed that Case IV
applies only to what are called
" securities ", and
Rule 1 under it provides that the tax is in that
case to be " computed on
the full amount thereof arising in the
" year of assessment
whether the income has been or will, be received
" in the United Kingdom or
not ", and this differs from the rules
under Case V, which create the
present difficulties. The rules in
question are 1 and 2, and their
material portions are as follows :—
" 1.—The tax in
respect of income arising from stocks,
' shares or rents in any place
out of the United Kingdom shall
' be computed on the full amount
thereof on an average of the
' three preceding years, as
directed in Case I, whether the
' income has been or will be
received in the United Kingdom
' or not. . . .
" 2.—The tax in
respect of income arising from posses-
" sions out of the
United Kingdom, other than stocks, shares
" or rents, shall
be computed on the full amount of the actual
" sums annually
received in the United Kingdom from remit-
" tances payable
in the United Kingdom ... on an average
" of the three
preceding years as directed in Case I, without
" any
deduction or abatement other than is therein allowed."
If, therefore, the income in
this case is income " arising from
" stocks, shares or
rents ", it must be computed on a three years'
average, and
is liable to be taxed whether received in the United
Kingdom or
no, but if it is not it is still computed on a three years'
average
but only " on the full amount of the actual sums annually
"
received in the United Kingdom."
It is not for us to enquire into
the reason for this change; we
assume a reason to exist, and that
it is wise and just. We are
concerned only with whether Rule 1 or
Rule 2 applies. That when
this matter was formerly raised Rule 1
applied was determined by
this House by Wrenbury, Carson and
Atkinson LL., Sumner and
Blanesburgh LL. dissenting. Lord
Wrenbury's judgment was ex-
pressly concurred in by Lord Atkinson,
who added no further
reasons of his own.
It is, therefore, extremely
important to see why Lord Wrenbury
and Carson L. formed this
opinion, and the report enables this to
be accurately determined.
Wrenbury L. at page 866 says :—
' Lady Archer-Shee (if American
law is the same as Eng-
" lish Law) is, in my opinion, as
matter of construction of the
" will, entitled in equity
specifically during her life to the
" dividends upon the
stocks,"
and on the same page he repeats
this conclusion again made de-
pendent upon the hypothesis of the
identity of the law in the two
countries. He there says :—
' It is, I think, if the law of
America is the same as our
'' law, an equitable right in
possession to receive during her
'' life the proceeds of the
shares and stocks of which she is
" tenant for life."
Lord Carson, at p. 870, supports
the same opinion in these words :
" Upon the construction of
the will of Alfred Pell once the
" residue had become
specifically ascertained the Respondent's
" wife was sole
beneficial owner of the interest and dividends
" of all the
stocks and shares forming part of the trust fund."
Now the
construction of the will was there the construction ac-
cording to
English law, the principles and effect of which bad
[3] 3
been enunciated by Wrenbury L.
This opinion was not in accord-
ance with that of Sumner L. who
supported the judgment of
Sargant L. J. in the Court of Appeal
where he said this :—
" What this lady enjoys is
not the stocks, shares and rents
" or other property
constituting the trust, fund under the will;
" what she has is the right
to call upon the trustees, and, if
" necessary, to compel the
trustees to administer this property
" during her life so as to
give her the income arising there from
" according to the
provisions of the trust. Her interest is
" merely an equitable one,
and it is not an interest in the specific
" stocks and shares
constituting the trust fund at all."
This was the opposite view to
that held in this House, and it
was as because it was decided
that it did not define accurately Lady
Archer-Shee's position under the
will according to English law that
the decision was given in favour
of the Crown.
The evidence of two American
lawyers has now been given in the
matter on behalf of the
Appellant and no one has been called to
contradict their
statements.
Mr. Richard Powell, a Professor
of Law at Columbia University
Law School in the City of New York,
stated that the provision
of the law which directs who shall hold
and own the property of a
trust was as follows:—
" Every express trust valid
as such in its creation, except
" as herein otherwise
provided, shall vest the whole estate in
" the trustees in law, and
in equity, subject only to the execu-
" tion of the trust period.
The persons for whose benefit the
" trust is created shall
take no estate or interest in the lands,
" but may enforce the
performance of the trust in equity."
This provision, although it
relates in terms only to lands, had
been held to be equally
applicable to personal property, and again
he said " that Lady
Archer-Shee had no right to any specific divi-
"dends or interest at all,"
and he explained her rights in these
words: —
" While it was true that
under the trust in question (there
" being no provision for
accumulation) the whole of the net
" income (including in
the event of death any income accrued
" but not paid over)
must ultimately be either paid over to or
" applied for the
benefit of Lady Archer-Shee, the manner and
" times of doing so were
within the discretion of the trustees
" subject to judicial
supervision; that if the Trustees exercised
" their discretion
unconscientiously. Lady Archer-Shee had the
" right to ask the Court to
supervise their behaviour in the
" matter both of the
management of the income and of the
" capital of the Trust."
This opinion was confirmed by a
member of a legal firm of old
standing in New York, and is
uncontradicted.
The M.R. thinks that the latter
part of the statement I have
quoted " in essentials appears
to accord with the statements " of
Wrenbury L. The same
question often presents itself to different
minds under different
aspects; to my mind the statement which
must be taken with the
other words I have quoted differs in every
essential from Wrenbury
L.'s views. At its highest it does no
more than express what
Sargant L.J. thought, but erroneously,
was the English law, and it
was this that Wrenbury L. rejected.
I cannot reconcile the
statement of the American
lawyer that Lady Archer-Shee had
"no right to any specific divi-
" dends or interest at all
" with the statement of Lord Wrenbury
that she was "
entitled in equity specifically during her
" life to the
dividends upon the stocks." Nor, again, can
I reconcile the statement that
she took " no estate or interest '
in the funds, though she
might enforce the performance
of the trust in equity with the
statement of Lord Carson that under
4 [4]
English law she was sole
beneficial owner of the interest and divi-
dends of all the stocks
and shares.
In my opinion the difference
between the two systems of law
cannot be better explained than by
contrasting the Judgments of
Sumner and Blanesburgh LL. in the
House of Lords, and that of
Sargant L. J. in the Court of Appeal
with that of Lords Wrenbury,
Carson, and Atkinson which there
prevailed. These former learned
Judges were held to have
imperfectly enunciated the English Law,
but they have expressed
with perfect clearness what we now know
is the American Law which
is the law we are bound to apply.
This to my mind ends the case
but the Attorney-General pressed
on us with such insistence the
case of Williams c. Singer, 1919 2.
K.B. 108 1921 A.C. that
I feel some comment is necessary.
In that case the trustees of an
English settlement were domi-
ciled in this country but the tenant
for life was a French subject
by marriage and domiciled abroad.
The income of the settled fund
was paid under orders of the
trustees direct to the tenant for
life at a Bank in New York.
In those circumstances
assessments were made on the trustees
and these assessments were
set aside by this House. One sentence
from the judgment of Cave
L.C. will serve to show how little
to the present purpose is the
consideration of that authority. He
says, p. 72: " The
object of the acts is to secure for the State a
" proportion
of the profits chargeable, and this end is attained,
"
speaking generally, by the simple and effective process of taxing
" the profits where they are found. If the beneficiary
received
" them he is liable to be assessed upon them.
If the trustee
" receives and controls them he is
primarily so liable." The case
of Syme v.
Commissioners of Inland Revenue 1914 AC 1013 again
,is no
assistance. The tax was there assessed upon income " derived
"
by any person from personal exertion ' and this was by the
statute
declared to include " income arising or accruing from any
"
trade " although not arisen from the taxpayer's own
personal
exertion or trade. Under the provisions of a will
trustees carried
on a business and paid the Appellant one fifth of
the profits and on
these the tax was held duly assessed under the
provisions already
quoted. It is rarely profitable to attempt
the interpretation of one
statute by another and in this case the
mere comparison of the
language shows it to be useless. The
former decision in the case
shows that an absolute ownership of
the stocks, shares and divi-
dends is not necessary; a limited
ownership is sufficient to satisfy
the rule, but it shows also
that such ownership must be specific
in relation to the subject,
and the opinion on which we are bound
to act shows that is not the
true position of Lady Archer-Shee. For
these reasons I think
this appeal should be allowed.
Lord
Back-
master.
Viscount
Dunedin.
Lord
Warring-
ton
of
Clyffe.
Lord
Tomlin.
Lord
Thanker-
ton.
[5]
ARCHER-SHEE
v.
GARLAND (Inspector
of Taxes).
Viscount Dunedin.
MY LORDS,
The first and indeed crucial
point of this case is to make up
one's mind as to what was the
true ratio decidendi in the former
case as to the same source of
income in this House, for by that
decision we are bound. I think
the ratio decidendi very clearly
appears by comparing the judgment
of Viscount Sumner, who
was in the minority, with the majority
judgment which prevailed.
Viscount Sumner thought that the
specific property in the stocks,
shares, securities, and other
investments which formed the Trust
Fund, was in the hands of the
Trustees, and that accordingly
what the beneficiary in this
country got was what came to her
from a foreign possession,
namely, her right to get the Trustees
to make payment to her of
the balance of the income. That view
was rejected by the majority
on the view that there was in the
beneficiary a specific and
equitable interest in each and every one
of the stocks, shares,
etc. which formed the Trust Fund, and that
the case fell either
under Case IV, or, in so far as the funds
consisted of stocks and
shares, under Rule I of Case V, and they
remitted the case to find
out the exact constituents of the Fund.
That case was decided
without enquiry as to the law of New York.
It is obvious that the
judgment of the majority turns upon an
assumption that the law of
New York is what they declared the
English law to be.
Now, in the present case, the
law of New York has been
enquired into, and we have heard the
testimony of the lawyers
examined. In face of that testimony it
seems to me quite an
impossibility to hold that, according to that
law, there is a specific
equitable interest in the beneficiary in
each parcel of securities,
stocks, etc. The interest of the
beneficiary is just what Viscount
Sumner thought it was in the
former case. Accordingly I think
the appeal must be allowed and
the judgment of Rowlatt J.
restored, for the income of Lady
Archer-Shee is drawn from a
foreign possession and falls under
Rule 2 of Case V.
Lord
Buck-
master.
Viscount
Dunedin.
Lord
Warring-
ton.
Lord
Tomlin.
Lord
Thanker-
ton.
[6]
ARCHER SHEE
v.
GARLAND (INSPECTOR OF TAXES).
Lord Tomlin.
MY LORDS,
The answer to the question which
falls to be determined on this
appeal depends in my opinion first
upon the effect of the decision in
your Lordships' House in
Baker v. Archer Shee 1927 AC 844 and
secondly
upon the conclusion as to American Law to be drawn from
the
evidence of the American lawyers.
I do not think it can be doubted
that the majority of your Lord-
ships' House in the former case,
founded themselves upon the view
that according to English law
(with which, in that case, American
law was assumed to be
identical) the Appellant's wife had a pro-
perty interest in the
income arising from the securities stocks and
shares constituting
the American trust and that but for the exist
ence of that
supposed property interest the decision would have
been different.
The evidence upon American Law
adduced before the Commis-
sioners in the present case
contains statements to the effect that the
whole estate in law and
in equity in the trust funds is vested in the
trustees and that
the words of the Trust give to the Appellant's wife
merely the
right to resort to a Court of equity to compel the trustees
to
discharge the task imposed upon them which was to apply the
money
which they receive as a net income from the trust to her use,
that
they have within the limits of reasonable and conscientious
behaviour
an absolute discretion as to the application of the income
for her
benefit, that if they decided to apply the money for her
benefit
instead of paying it over they must exercise the power to do
so
reasonably, and that she had no right to any specific dividends
or
interest at all.
In the face of these statements
I think the finding of fact must
necessarily be that according to
American law the Appellant's
wife has no property interest in the
income arising from the securi-
ties stocks and shares
constituting the trust fund but has only a
chose in action
available against the trustees.
Applying the principle of the
previous decision of your Lord-
ships' House to the case with the
fact as to American law found
as I have indicated it should in my
opinion be found, I reach the
conclusion that the assessable
income, the subject of the appeal, is
income arising from a
possession out of the United Kingdom other
than stocks shares or
rents, viz. a chose in action available against
the American
trustees and that the assessment should be made not
under Case IV
and Case V rule 1 of Schedule D but under Case V
rule 2 of that
Schedule.
The appeal therefore in my
opinion succeeds.
Lord Thankerton.
MY LORDS,
I concur in your Lordships'
opinion.
Lord Buckmaster.
MY LORDS,
My noble and learned friend Lord
Warrington of Clyffe has
asked me to say that he agrees with the
judgment which I have
read.
(8916-50) Wt 31908-34 14
12/30 P.St. G311
