United Kingdom House of Lords Decisions

House of Lords

23 July 1969

Mapp (H.M. Inspector of Taxes) v. Oram ^[1]

High Court of Justice (Chancery Division) - 11th, 12th, 13th and

24th July 1967

Court of Appeal - 29th and 30th April and 15th May 1968

House of Lords - 9th and 10th June and 23rd July 1969

Income Tax - Child allowance - Income of child - Foreign employment - No remittance to United Kingdom - Whether child "entitled . . . to an income" - Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), s. 212(4).

During the year 1965-66 the Respondent's son was an undergraduate reading modern languages at the University of St. Andrews. On his tutor's advice he had taken a teaching post in France from October 1964 to June 1965, after which he resumed his degree course at the University. His gross emoluments in 1965-66 from his French appointment were £150, which was wholly spent in France on board, travelling, etc.

The Respondent claimed child allowance for 1965-66 in the full amount of £165. On appeal, he contended (inter alia) that "entitled in his own right to an income" in s. 212(4), Income Tax Act 1952, meant only income chargeable to income tax. For the Crown it was contended that that expression must be read in its commonsense or everyday meaning. The General Commissioners held that the Respondent was entitled to the allowance claimed.

In the High Court the Crown abandoned its contention before the Commissioners but contended that "an income" meant income as computed for the purposes of Schedule E after deducting expenses allowable under para. 7 of Sch. 9, Income Tax Act 1952. In the Court of Appeal and the House of Lords the Crown contended that, although para. 7 of Sch. 9 had no direct application, it should be applied by analogy.

Held, that the Commissioners' decision was correct.

Prince v. Phillips (1961) 39 T.C 477 approved.

Case

Stated under the Income Tax Act 1952, s. 64, by the Commissioners for the General Purposes of the Income Tax for the Division of West Goscote in the County of Leicester for the opinion of the High Court of Justice.

1. 1. At a meeting of the Commissioners holden on 19th May 1966 for the purpose of hearing appeals Leonard Murray Oram (hereinafter called "the

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Respondent") appealed against the refusal of the Inspector of Taxes to allow a claim to child allowance for the year ended 5th April 1966 in the full amount of £165. The sole question for our determination was whether the allowance should be allowed in full, or whether it should, by virtue of s. 212(4), Income Tax Act 1952, be restricted.

2. The following facts were proved or admitted:

(i) The Respondent has a son (hereinafter called "the son") who, being over the age of 16 years, was at the commencement of and during the year of assessment 1965-66 an undergraduate at the University of St. Andrews, where he was reading modern languages.

(ii) The son had been advised and encouraged by his tutor to reside in France and to work there as an English assistant (or temporary teacher) at a lycée in order to perfect his knowledge of French.

(iii) The son obtained such an appointment, which he held from October 1964 until June 1965 (the French academic year), and in October 1965 he returned to St. Andrews University to resume his degree course. During the year of assessment 1965-66 the son carried out the duties of such appointment for a period of two and one-half months, receiving therefor in France a gross emolument equivalent to £150.

(iv) During the son's period of residence in France board was not provided, and he was required to provide temporary board and travelling and necessary incidental expenses at his own sole charge.

(v) Hence the son spent in France all that he had earned and none of the emolument of £150 was remitted to or enjoyed in the United Kingdom.

3. We were therefore called upon to decide whether in the year of assessment 1965-66 the son was entitled in his own right to an income exceeding £115 within the meaning of s. 212(4), Income Tax Act 1952.
4. It was contended for the Respondent that:

(a) "income in his own right" within the terms of s. 212(4) of the Income Tax Act 1952 meant income computed in accordance with the Income Tax Acts: that is to say, income for income tax purposes (citing Prince v. Phillips (1961) 39 T.C. 477);

(b) the French emolument was not chargeable to income tax under Case I, II or III of Schedule E; though the son was resident in the United Kingdom his duties had been carried out entirely abroad and no part of the emolument had been remitted to or received in the United Kingdom;

(c) the emolument was not, therefore, chargeable to income tax at all;

(d) in the alternative, if (which the Respondent did not admit) "income in his own right" did not mean "chargeable income" but meant income in some other and more popular sense, it still fell to be reduced by the amount of such expenditure as was essential to enable the emolument to be earned, which expenditure on the facts of the present case manifestly exceeded £35.

5. It was contended by the Inspector of Taxes as follows:

(a) "income" was nowhere defined in the Income Tax Acts, and the words "entitled in his own right to an income" in s. 212(4) referred to income actually received by the son which was his own; the expression was not confined to income for income tax purposes, but must be read in its commonsense or everyday meaning: he cited Lady Miller v. Commissioners of Inland Revenue ^[2] 15 TC 25, at page 49;

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(b) (i) the expression "who is entitled in his own right to an income exceeding £115 a year" in s. 212(4), Income Tax Act 1952, was to be contrasted with the expression in s. 216(1) of the Act (which provides for dependent relative relief) "whose total income does not exceed £285 a year";

(ii) the expression "total income" is defined in s. 524 of the Act;

(iii) the provisions for child allowance and dependent relative relief had first been enacted in ss. 21 and 22, Finance Act 1920;

(iv) if, for the purposes of s. 212(4), it had been intended to limit the relevant income of the child to income for the purposes of the Income Tax Acts, then the Legislature would have used the expression "total income", as it had done in s. 216;

(c) he cited Miles v. Morrow (1940) 23 T.C. 465, at page 469; Johnstone v. Chamberlain (1933) 17 T.C. 706, at page 715; and Scottish Shire Line Ltd. v. Lethem 6 T.C. 91 ^[3], at page 99, in support of the contention that the intention of s. 212 as amended was to give child allowance to the claimant subject to a straightforward means test against the child in question; if "income" meant "chargeable income" there would have been no need in s. 212 specifically to exclude income from scholarships and bursaries, since such income was already exempt from charge by virtue of s. 458, Income Tax Act 1952;

(d) though the gross emolument of £150 was not assessable to income tax under Schedule E or at all, that gross sum had been received by the son as income to which he was "entitled in his own right", so that the Respondent's child allowance should be reduced from £165 by deducting therefrom £35 (being the excess of the gross emolument of £150 over the statutory limit of £115);

(e) the Commissioners should determine that the Respondent was entitled to child allowance in respect of the son for the year of assessment 1965-66 in the sum of £130 (being £165 less £35).

6. We, the Commissioners, having found that the son's emolument was not assessable to income tax under Schedule E or at all, were of opinion that:

(a) Prince v. Phillips 39 T.C. 477 seemed to support the contention that "income" in s. 212 was not a loose expression but meant income in the same general sense as it meant elsewhere in the Act, that is to say, income for income tax purposes. It appeared to us that the Crown had so submitted in that case and that Buckley J. had accepted the submission.

(b) So far as it was permissible for us to examine (as we were invited to do by the Inspector of Taxes) what might have been the intention of the Legislature, whether the relevant expression should have the more precise meaning of "income within the meaning of the Income Tax Acts" (that is to say "income chargeable to United Kingdom income tax") on the one hand or the looser meaning of "income actually received by the son which was his own" on the other:

(i) if income were intended to mean "chargeable income" it was then easy by the application of the Schedule E rules and of such cases as Ricketts v. Colquhoun ^[4] 10 TC 118 and many related Schedule E cases to determine what deductions (if any) might be made from a child's gross income in order to ascertain his chargeable income constituting his "income in his own right";

(ii) per contra, an intention by the Legislature to substitute the looser definition seemed to imply a further intention that there should be an absence of definition whether any and what deductions might ever be made from a child's gross emolument in order to arrive at his "income in his own right";

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(iii) thus in the present case the son had incurred travelling expenses and the excess cost of his living at the place of his employment (which is notoriously high in France), both incurred essentially and manifestly totalling more than £35. An adoption of the looser definition appeared to involve the acceptance of the proposition either that the Legislature intended that for the purposes of child allowance a child's income must always be taken at its gross figure without deduction or that, whilst some deduction might be possible, it should be unspecified. We did not see how we could very properly look for assistance to the Schedule E rules and cases in determining what might be proper deductions from an emolument which was not chargeable to Income Tax under Schedule E or at all.

For these reasons we considered it unlikely that the Legislature intended the looser definition to prevail.

7. We accordingly allowed the appeal and determined that the Respondent was entitled to a child allowance for the son in the sum of £165.
8. Immediately after our determination the Inspector of Taxes declared to us his dissatisfaction therewith as being erroneous in point of law, and in due course required us to state a Case for the opinion of the High Court of Justice, which Case we have stated and do sign accordingly.
9. The question for the opinion of the High Court is whether our decision was correct in law.

E. F. Winser
W. H. Towle.
W. H. Dickinson
J. Clegg.

Commissioners for the General Purposes of the Income Tax for the Division of West Goscote in the County of Leicester.

30th November 1966.

The case came before Ungoed-Thomas J. in the Chancery Division on 11th, 12th and 13th July 1967, when judgment was reserved. On 24th July judgment was given against the Crown.

F. Heyworth Talbot Q.C. and J. Raymond Phillips for the Crown.

H. H. Monroe Q.C. and Stewart Bates for the taxpayer.

The cases cited in argument are referred to in the judgment.

Ungoed-Thomas J.: This appeal raises the question whether the child allowance for 1965-66, to which the Respondent is entitled in respect of his son, a boy of over 16, who is a full-time undergraduate at St. Andrews University, should be restricted by reference to the amount of the son's earnings for 2\ months as a teacher in a French school.

This question turns on the Income Tax Act 1952, s. 212, which reads:

"(1) If the claimant proves that he has living at any time within the year of assessment any child who is either under the age of sixteen years or who, if over the age of sixteen years at the commencement of that year, is receiving full-time instruction at any university, college, school or other educational establishment, he shall, subject to the provisions of this and the next following section, be entitled in respect of each such child to a deduction from the amount of income tax with which he is chargeable equal to tax at the standard rate on the appropriate amount for the

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child". I need not read the rest of that subsection. "(1A) The appropriate amount for the child shall vary according to the age of the child . . . and subject to subsection (4) of this section - (a) for a child shown by the claimant to have been then over the age of sixteen, shall be £165

... (4) In the case of a child who is entitled in his own right to an income exceeding £115 a year the appropriate amount for the child shall be reduced by the amount of the excess, and accordingly no relief shall be allowed under this section where the excess is equal to or greater than the amount which apart from this subsection would be the appropriate amount for the child: Provided that in calculating the income of the child for the purpose of this subsection no account shall be taken of any income to which the child is entitled as the holder of a scholarship, busary, or other similar educational endowment."

It is common ground that the earnings of the child are prima facie income to which he is entitled in his own right within the meaning of subs. (4). The difficulty in this case arises over the two words in subs. (4) "an income".

The son was advised by his tutor to seek an appointment as a temporary teacher at a lycée to improve his French, and he obtained such a post. In 1965-66 he earned the equivalent of £150 in the 2½ months that fell into that year of assessment. That £150 was spent in France on lodgings and incidental outgoings, with the result that nothing remained to be brought into this country when he returned here. The Inspector of Taxes took the view that in 1965-66 the son had been entitled in his own right to an income exceeding £115, from which it followed that the £165 mentioned in s. 212(1A) (a), on which deduction at the standard rate of tax would prima facie be calculated, would be reduced under subs. (4) by the amount by which £150 exceeded £115 - that is, £35 - making £130.

The Respondent's contention before me was the same as before the Commissioners, namely, that "an income" in s. 212(4) meant income chargeable to income tax; or, as he said, in other words, income for income tax purposes. This was identified as the net income chargeable to tax after deduction of expenses but before deduction of allowances. As the son's foreign income was not brought into this country, it is common ground that it was not chargeable to tax, and therefore, if the Respondent's contention is correct, it was not an income of the child limiting his parent's child allowance.

The Crown's contention before the Commissioners was that the expression "entitled in his own right to an income" in s. 212(4) "was not confined to income for income tax purposes, but must be read in its commonsense or everyday meaning". This contention was abandoned before me, and in the course of argument the Crown instead identified "an income" in s. 212(4) as income computed in accordance with Schedule E, Sch. 9, para. 7; that is, as equivalent to "the emoluments to be assessed" mentioned in that paragraph, after deduction of the narrowly specified expenses to which the paragraph refers. Para. 7 reads:

"If the holder of an office or employment of profit is necessarily obliged to incur and defray out of the emoluments thereof the expenses of travelling in the performance of the duties of the office or employment, or of keeping and maintaining a horse to enable him to perform the same, or otherwise to expend money wholly, exclusively and necessarily in the performance of the said duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed."

It was suggested that para. 7 was not directed to charge to tax but to calculation of emoluments, and therefore defined the son's emoluments although they

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were not subject to charge to tax. It is true that para. 7 does not itself charge tax, but it does not exist except as a cog in the machinery which produces charge to tax. Section 1 of the Income Tax Act 1952 provides for tax being charged in respect of profits and gains described in, inter alia, Schedule E and in accordance with the provisions of the Act applicable to that Schedule. Schedule E, in s. 156, provides that tax shall be charged in respect of any office or employment on emoluments therefrom falling under one or more of the Cases which are set out. It is for the purpose of ascertaining the tax to be charged on these emoluments that we have the "Rules applicable to Schedule E" in Sch. 9, including para. 7. So para. 7 has no raison d'être or existence except to calculate the charge to tax on emoluments. It is not concerned with emoluments which are not subject to a charge to tax; and it is common ground that the son's French emoluments in this case are not subject to a charge to tax. So para. 7 does not directly define the son's emoluments or income. It is then submitted that para. 7 is merely declaratory of what "income" would be apart from the paragraph. Assuming that "income" must mean net income, I for my part am at a complete loss to understand why net income must necessarily (and, of course, on the hypothesis that para. 7 never existed) be income from which the only permissible deductions are the extremely limited expenses specified in para. 7. The narrowness of those expenses has been the subject of so much criticism that I trust there is no need to elaborate this.

So it seems to me that "the emoluments to be assessed" mentioned in para. 7, after deduction of the expenses therein specified, (1) has no place in the Act except to ascertain emoluments on which tax is to be charged, and (2) is not declaratory of what income or even net income would be apart from para. 7. If, however, para. 7 does not apply directly to the calculation of the son's income in this case nor indirectly as being truly declaratory of what income is apart from para. 7, then it seems to me that the Crown's definition of "an income" by reference to the para. 7 emoluments collapses. Even if it were sought to define "an income" as net income independently of para. 7, there would be the formidable difficulty of identifying what deductions from gross income should be made in arriving at net income - which, very understandably, may well be why no attempt was made to do so and the Crown's case was rested exclusively on para. 7.

I have now dealt with what appears to me to be the nub of the case, but I will consider how far other matters canvassed in the very able arguments addressed to me affect this conclusion. It was conceded by the Crown that the Income Tax Act 1952 has references to "income" where income means income chargeable to tax. Thus, Lord Macmillan in Perry v. Astor ^[5] 19 TC 255, at page 290, referred to "any income" in the Income Tax Act 1918 as being reasonably construed to mean any income chargeable with tax. The Crown, however, pointed out by reference to ss. 458, 412 and 227 that "income" was also used to refer to income not chargeable to tax. But in those cases the character of the income was clearly identified by the Statute. It was suggested that the reference in the proviso to s. 212(4) to "any income to which the child is entitled as the holder of a scholarship", etc., shows that "an income" in the paragraph preceding the proviso must include income not chargeable to tax, on the ground that scholarships are not chargeable to tax. But this suggestion fails, as it appears that all scholarships are not free of charge to tax.

Reference was made to Martin v. Lowry ^[6] 11 TC 297, where, at page 315, it is pointed out that, particularly in the Income Tax Acts, words do not always have the same meaning, and that in construing them regard must be

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had to their context; and to the statement of Lord Salvesen in Scottish Shire Line Ltd. v. Lethem ^[7] 6 T.C. 91, at page 99, that:

"Even in a taxing statute it is legitimate to consider which of two possible constructions is most in accordance with the spirit and intention of the Act."

Lord Macmillan thus states the law in Perry v. Astor 19 TC 255, at page 288:

"So far as the intention of an enactment may be gathered from its own terms it is permissible to have regard to that intention in interpreting it, and if more than one interpretation is possible, that interpretation should be adopted which is most consonant with and is best calculated to give effect to the intention of the enactment as so ascertained. More especially, where two sections forming part of a single statutory code are found, when read literally, to conflict, a court of construction may properly so read their terms as, if possible, to effect their reconciliation."

The second sentence which I have quoted from Lord Macmillan's speech states a principle of construction that is very familiar and regularly applied in these Courts. The first sentence makes it clear that the Court is to regard the intention of the Act in so far as it is established by the terms of the Act interpreted in accordance with the well-established principles of construction. The intention is itself ascertained by construction. It is, as any judicial conclusion must be, ascertained by an objective process of reasoning which can be tested, and not established by guesswork or some mystique of determination which would make legislators of judges.

The suggestion which is persuasively made here is that the spirit and intention of s. 212 is to alleviate the burden of taxation on a parent who has to pay for the maintenance of a child, and to recognise that, if a child has money of his own, the need to lessen the burden is correspondingly diminished, and therefore "an income" in s. 212(4) should be construed as including income of the child not brought into the United Kingdom at all and not chargeable to tax. But the conclusion does not follow from the premises. If the spirit and intention were to reduce the relief where the child has money of his own, not only a child's income but his capital also should fall within it. Why should a child's money which he has earned and worked for be counted, but not a windfall? The answer which would immediately occur would be, "Because the Act is an Income Tax Act". But if the child's money is thus to be limited to his income, this is a qualification to the suggested spirit and intention; and if there is that qualification because the Act is an Income Tax Act, why should not the qualification go to the income which such Acts tax and not to the income which they do not tax? An interpretation so governed, as the Crown suggests, by the spirit of the Act might in some respects, at any rate, as pointed out by the Respondent, be reasonably considered to defeat that very spirit. Thus, if the son in this case were, in his second year in France, to send home earnings of his first year, the son would be chargeable to tax in that second year on earnings in respect of which his father would have suffered deduction from allowance in the first year. As so often, particularly in tax Statutes, the spirit and intention of the Act in this case is subject to such uncertainty, at any rate in its application to this particular provision, that it may provide a misleading rather than a reliable guide, and in any case affords a less certain guide than the construction of the words without resort to conceptions of spirit and intention.

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It was said that throughout the Income Tax Acts income had some clearly defined characteristics. But the difference between the parties arose not so much over some characteristics of income as in identifying and defining the particular income within s. 212(4). Even so, however, the taxpayer countered the Crown's contention that income in the Acts did not include fortuitous payments by reference to s. 376, under which fortuitous payments are deemed to be income for income tax purposes. This emphasised the difficulty of treating as income within the Act income which the Act itself does not provide means of defining. This brings us back, of course, to the wisdom of the Crown in basing its case on the definition provided by para. 7 - and to the danger of attempting to base it on some conception of income which the Act does not make precise.

The history of the category of reliefs which includes s. 212(4) is of assistance. Child allowance goes back to s. 68 of the Finance (1909-10) Act 1910, where it depended not in any way on the income of the child but on the total income of the parents. Section 9 of the Income Tax Act 1918 similarly made relief of various kinds, including relief in respect of children, dependent on the amount of the parent's income, namely, "his total income from all sources for the year of assessment, estimated in accordance with the provisions of this Act". This total income clearly means the net income chargeable to tax in respect of which relief to the extent specified is given; and the references in later sections in which relief is given to limits of "the income" of the taxpayer clearly referred to the "total income" mentioned in s, 9. However, in the case of relief in respect of dependent relatives the relief was by s. 13(1) limited to those "whose income from all sources does not exceed twenty-five pounds a year". So in the case of these relations the relief was limited, not only by reference to the taxpayer's income, but also by reference to the income of the person in respect of whom relief was given; by reference in the case of the taxpayer to "his total income from all sources for the year of assessment", and in the case of the person in respect of whom relief was given to his "income from all sources". This appears clearly to echo "total income from all sources for the year of assessment", and to have the same meaning, that is, income chargeable to tax.

When this section was replaced by s. 22(1) of the Finance Act 1920, that later section referred to the dependent relative's income as "total income from all sources". "Total income from all sources" was a term of art before these Acts, and was first defined by Statute in the Finance Act 1927, s. 38(2), replaced with immaterial modification by s. 524(1) of the Income Tax Act 1952. Section 524(1), reads:

"In this Act, 'total income', in relation to any person, means the total income of that person from all sources estimated, as the case may be, either in accordance with the provisions of this Act as they apply to income tax chargeable at the standard rate or in accordance with those provisions as they apply to surtax."

The Finance Act 1920, s. 17 and Sch. 4, replaced the relief provisions in ss. 9 to 13 of the Income Tax Act 1918 by the provisions of ss. 17 et seq. of the 1920 Act. In s. 21(3) there first appears the provision corresponding to s. 212(4) in this case. It reads:

"No deduction shall be allowed under this section in respect of any child who is entitled in his own right to an income exceeding forty pounds a year".

So we have in s. 21(3) of the Finance Act 1920 the extension to relief in respect of children of the principle of limitation by reference to the income of the

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dependant in respect of whom relief is given contained in s. 13(1) of the Income Tax Act 1918 and s. 22(1) of the 1920 Act. This limitation on the relief in respect of the dependent relative is by reference to his chargeable income, so it would be strange if the limitation on the relief in respect of a child by reference to the child's income were by reference to some other income than chargeable income. Section 17(1) of the Finance Act 1920, which introduces the relief sections, is in these terms:

"An individual who, in the manner prescribed by the Income Tax Acts, makes a claim in that behalf and who makes a return in the prescribed form of his total income shall be entitled for the purpose of ascertaining the amount of the income on which he is to be charged to income tax (in this Act referred to as 'the taxable income') to have such deductions as are specified in the five sections of this Act next following made from his assessable income."

"Assessable income" is defined by s. 33 as follows:

"The expression 'assessable income' in the case of any income other than earned income means the amount of that income as estimated in accordance with the provisions of the Income Tax Acts."

And "taxable income" means income after deductions for relief.

The Crown recognises that if "an income" in s. 212(4) of the Income Tax Act 1952, replacing s. 21(3) of the Finance Act 1920, was either such income, the taxpayer would be entitled to succeed. But it is suggested that the omission in s. 21(3) to refer to any such income instead of to "an income" indicates that "an income" does not bear either of these two meanings. But even so this would still leave open the question what meaning it does bear. And, for the reasons which I have given, it seems to me that the history of this relief legislation supports the conclusion, to which I would have come even apart from it, that "an income" means chargeable income.

Reference was made to Perry v. Astor 19 TC 255 and Whitney v. Commissioners of Inland Revenue ^[8] 10 TC 88, and particularly to the observations of Lord Dunedin in the latter case, at page 109, that:

"... income of a non-resident in the United Kingdom accruing out of the United Kingdom and not brought within the United Kingdom does not fall to be estimated according to the provisions of this Act."

It seems, for reasons already given, that that observation would be as applicable to the income of a person in respect of whom relief is claimed as to the income of the person claiming the relief. There is no provision in the Act for estimating any such income which is not chargeable for tax.

The latest case which bears on this issue is Prince v. Phillips (1961) 39 T.C. 477. In that case a claim for relief was made by a parent in respect of a child who earned wages; the parent claimed to deduct from those wages the cost of the child travelling to and from work and of his midday meal. Buckley J. observed, at page 480:

"It has been submitted on behalf of the Crown that 'income' in Sub-section (4) must mean income in the same sense that it means elsewhere in the Act, that is to say, income for Income Tax purposes; and my attention has been drawn to two cases, Ricketts v. Colquhoun ^[9] . . . and Sanderson v. Durbridge ^[10] . . . which establish that for the purpose of tax under Schedule E the taxpayer is not entitled to deduct from his income expenses which do not arise actually in the performance of his

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office or employment, such as the cost of travelling to and from his work or the cost of providing himself with food during that part of the day when he is at work. I think that that submission is sound. Indeed, if it were not so, it seems to me that it would be exceedingly difficult ever to arrive at the amount of income which the child is said to be entitled to in his own right, because it would be extremely difficult to determine precisely what expenditure really was so essential as to be a proper deduction. I think travelling expenses and the cost of providing himself with a midday meal is something which the child has to provide out of his income, not something which has to be deducted before ascertaining his income."

In that case the child's income was chargeable to tax under Schedule E and fell within Sch. 9, para. 7; and in the circumstances of that case there was no occasion for considering whether para. 7 provided for the calculation of income not chargeable to tax. But Buckley J. did hold that "income" in s. 212(4) meant income for income tax purposes. That income for income tax purposes was income from which, as stated by Buckley J., at page 479, the Crown admitted National Insurance contributions to be a legitimate deduction. Section 377(2) of the Income Tax Act 1952 provides that:

"the total income of that person" - namely, the taxpayer who pays the contribution - "for that year of assessment shall be calculated accordingly for all the purposes of this Act".

So it seems to me that Buckley J. was treating "income for income tax purposes" as income chargeable to tax. Further, he emphasised that unless the Act provided for the calculation of an income it would be extremely difficult to determine it. And in the view which I have expressed, the Act does not provide for the calculation of income not made chargeable to tax.

So my conclusion is that the taxpayer is entitled to succeed on this appeal.

Bates: As for costs, my Lord, it will be remembered that there was an agreement that the Revenue would pay the taxpayer's costs in any event, and if the amount of the Respondent's costs is not agreed they should be taxed on a common fund basis. The point of that is that we have an order for taxation, and can go before the Master on quantum if the Respondent's costs are not agreed.

Phillips: That is in line with the agreement, my Lord.

Ungoed-Thomas J.: Very well; it is ordered accordingly.

- - - - - - - - - - - - - - - - - - - - -

The Crown having appealed against the above decision, the case came before the Court of Appeal (Danckwerts, Salmon and Fenton Atkinson L.JJ) on 29th and 30th April 1968, when judgment was reserved. On 15th May 1968 judgment was given in favour of the Crown (Danckwerts L.J. dissenting) on the question whether the word "income" in s. 212(4), Income Tax Act 1952, included income outside the charge to United Kingdom tax, but against the Crown on the question of the expenses to be allowed in computing such income.

F. Heyworth Talbot Q.C. and J. Raymond Phillips Q.C. for the Crown.

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H. H. Monroe Q.C. and J. Holroyd Pearce (for Stewart Bates) for the taxpayer.

The following cases were cited in argument in addition to those referred to in the judgments: - Special Commissioners of Income Tax v. Pemsel 3 TC 53; [1891] AC 531; Martin v. Lowry 11 TC 297; [1927] A.C. 312: Johnstone v. Chamberlain (1933) 17 T.C. 706.

- - - - - - - - - - - - - - - - - - - - -

Danckwerts LJ.: This is an appeal from a judgment of Ungoed-Thomas J. dated 24th July 1967 dismissing an appeal of the Crown from a decision of the General Commissioners of the Division of West Goscote in the County of Leicester on 19th May 1966. The date of the Case stated by the Commissioners is 30th November 1966.

The question to be decided arises upon the provisions in the Income Tax Acts relating to children's allowances obtainable in certain circumstances. It will be convenient to set out the relevant provisions of s. 212 of the Income Tax Act 1952 at the beginning. Section 212 provides as follows:

"(1) If the claimant proves that he has living at any time within the year of assessment any child who is either under the age of sixteen years or who, if over the age of sixteen years at the commencement of that year, is receiving full-time instruction at any university, college, school or other educational establishment, he shall, subject to the provisions of this and the next following section, be entitled in respect of each such child to a deduction from the amount of income tax with which he is chargeable equal to tax at the standard rate on the appropriate amount for the child. In this provision 'child' includes a stepchild and an illegitimate child whose parents have married each other after his birth. (1A) The appropriate amount for the child shall vary according to the age of the child at the commencement of the year of assessment, and subject to subsection (4) of this section - (a) for a child shown by the claimant to have been over the age of sixteen, shall be one hundred and sixty-five pounds ...".

Then in subs. (4) comes the provision which raises the question in the present case:

"(4) In the case of a child who is entitled in his own right to an income exceeding £115 a year the appropriate amount for the child shall be reduced by the amount of the excess, and accordingly no relief shall be allowed under this section where the excess is equal to or greater than the amount which apart from this subsection would be the appropriate amount for the child: Provided that in calculating the income of the child for the purpose of this subsection no account shall be taken of any income to which the child is entitled as the holder of a scholarship, bursary, or other similar educational endowment."

The facts as found by the Commissioners in the Case Stated are as follows:

"(i) The Respondent has a son who, being over the age of sixteen years, was at the commencement of and during the year of assessment 1965-66 an undergraduate at the University of St. Andrews, where he was reading modern languages, (ii) The son had been advised and encouraged

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by his tutor to reside in France and to work there as an English assistant (or temporary teacher) at a lycée in order to perfect his knowledge of French. (iii) The son obtained such an appointment, which he held from October 1964 until June 1965 (the French academic year), and in October 1965 he returned to St. Andrews University to resume his degree course. During the year of assessment 1965-66 the son carried out the duties of such appointment for a period of two and a half months, receiving therefor in France a gross emolument equivalent to £150. (iv) During the son's period of residence in France board was not provided, and he was required to provide temporary board and travelling and necessary incidental expenses at his own sole charge. (v) Hence the son spent in France all that he had earned, and none of the emolument of £150 was remitted to or enjoyed in the United Kingdom."

The question, therefore, is whether in the year of assessment 1965-66 the son was entitled in his own right to an income exceeding £115 within the meaning of s. 212(4) of the Income Tax Act 1952. It must be appreciated, of course, that no part of the earnings of the son in France in the circumstances was taxable in the United Kingdom, as no part thereof was remitted to that country.

The Crown claimed that the amount of the £165 allowance should be reduced by a sum of £35, being the difference between £115 and £150. Both the General Commissioners and the learned Judge rejected the Crown's claim and held that the taxpayer was entitled to the full allowance of £165. Only a sum of £35, of course, is at stake, but the Crown objected to the decisions because they upset a practice, adopted by the Inland Revenue, so we were told, over the last 40 years, by which, though they could not tax such foreign income, they treated the income receivable abroad, reduced only by the limited expenses allowable under rule 7 of the Rules applicable to Schedule E of the Income Tax Act 1952, as operating to produce a reduction in any children's. allowance for the purposes of s. 212.

The idea behind the provisions of s. 212 no doubt is that it is not equitable or reasonable that a taxpayer should receive the allowance under the section when by reason of his son's income in his own right the parent is not being put to any expense or not the whole expense of his son's education. The real point, however, is whether income of the son which is not taxable, and may be said, therefore, not to be income for the purposes of the Income Tax Acts at all, should be taken into account for the purposes of any provision of the Income Tax Act in the absence of any express provision to that effect.

A very strong point against the contentions of the Crown is that Schedule E and rule 7 of Sch. 9 to the Income Tax Act 1952 have no application, and there was, so far as I can see, no lawful justification for the Inspector to apply that Schedule or that rule to the foreign income of the son in the present case. There was therefore no method of ascertaining the relevant income of the son, and the application of the rules relating to Schedule E to such income was arbitrary and unlawful. There is no relevant provision for the purposes of this case, as there is in Sch. 5 to the Finance Act 1957 in relation to the income of overseas trade corporations. However, it is necessary to consider the arguments which were put forward for and against the claim of the Crown.

Our attention was called to s. 458, a general provision exempting scholar- ] ship income from income tax, and it was suggested that if income exempted from income tax was not within the terms of s. 212(4) the proviso to that

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subsection was otiose. I am not impressed by the argument, because it may well have been thought convenient in dealing with children's allowances to make the point clear. The provisions of s. 212 have their origins in the Finance Act 1920, ss. 21 and 28. Section 21(3) is in similar terms to s. 212(4) (though the figure then was £40), and contains a similar proviso excluding scholarship income. Section 28 contains a provision, similar to s. 458, providing for exemption of scholarship income from tax. An argument was attempted to be founded on the fact that the two provisions were contemporaneous, but I could not find any relevant deduction from this occurrence. I do not find this of any help to the problem which has to be solved.

It is common ground (1) that "entitled in his own right" refers to income to which the child is legally entitled, in contradistinction to voluntary allowances in respect of which the child has no enforceable legal rights, (2) that "an income" covers earned income, even if that income is the earnings of short-term employment, (3) that any earnings which are not remitted to this country are not chargeable with income tax.

Admittedly, in some cases in the Income Tax Act "income" does mean nothing but taxable income: see Perry v. Astori ^[11] 19 TC 255. That case concerned the income of two settlements with New York trustees created by a British resident in respect of funds in New York, and it was held that the settlor, who was entitled to the income of the settlements and had a power to revoke the settlements, was not liable to income tax under s. 20(1) of the Finance Act 1922 except in respect of income of the settlement which was remitted to the United Kingdom. Lord Macmillan, at pages 289-90, said:

"... he pays on the amount actually brought home. It is with this existing scheme that Section 20, which is to be read along with it, has to be reconciled. I have shewn how on the Crown's reading these enactments come into conflict. The reconciliation is, I suggest, to be effected by reading Section 20 as designed to effect a notional amalgamation of two existing incomes both charged to Income Tax by the existing law. If the words 'any income' are construed, as they reasonably may be, to mean any income chargeable with tax under the British Finance Act of the year, the difficulties of the Crown's interpretation to a large extent disappear. For the income of the American trustee, being the income of a foreign non-resident, is not brought into charge, while the income so far as received by the resident in this country is, consistently with the scheme of the Income Tax Acts, brought into charge under its appropriate head - in the present instance Rule 2 - and is by force of Section 20 amalgamated with the resident's income derived from sources within the United Kingdom."

Of course, the facts of that case in the House of Lords were different from those of the present case, but I find Lord Macmillan's words very helpful, because, when it is found that there are no Schedules of the Income Tax Act - Schedule E or Schedule D or any other Schedule - that are applicable, because the foreign income is not subject to tax under the Income Tax Acts, so that it is impossible for the Inland Revenue to establish what proportion of the gross income should be assessable, then the difficulty disappears if, as Lord Macmillan says, the "income" referred to in the relevant section or subsection is construed to mean income chargeable with tax under the British Income Tax or Finance Acts.

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Again, in Whitney v. Commissioners of Inland Revenue ^[12] 10 TC 88, it was said in the House of Lords, in the case of a non-resident American who received income from the United Kingdom, that the word "income" in the Income Tax Acts means "such income as is within the Act taxable under the Act"; per Lord Wrenbury, at page 113.

This makes sense to me. As I have already indicated, if the Inspector cannot lawfully assess the income to tax, he cannot apply the rules of Schedule E or any other Schedule, and he cannot compute the income for the purposes of the Income Tax Acts. In my view, it is not admissible, by speculatively attributing to Parliament an intention on the ground that it might be fair and reasonable, to bring into a Statute provisions which are not to be found in the Statute. The provisions of the Statute must be taken as they are, and the Court is not at liberty to improve them because a situation which might be anticipated is not provided for.

We were referred in argument to a number of sections where special words occurred, either in regard to other exemptions or reliefs or allowances or in regard to cases where there are special provisions with the object of bringing the income of non-residents within the ambit of the Income Tax Acts. In s. 22 of the Finance Act 1920, which provides for allowances in the case of dependent relatives, the phrase "whose total income from all sources does not exceed £50 a year" appears, and it was said that, as "total income from all sources" is a well-known phrase used in regard to income chargeable with tax, the words "an income" in s. 21(3) could not mean a taxable income. This I found unconvincing and a non sequitur. A reference was also made to s. 26(1), where there is a reference to "total income ... from all sources estimated in accordance with the provisions of the Income Tax Acts". It was said that "income" in s. 21 of the 1920 Act denoted income which has certain well-known characteristics - a receipt or incoming - a net profit as distinguished from a gross income, and not of a capital nature, and receivable as a matter of right and not bounty. Well, of course, all that is very true - capital is not income - and I should have thought that taxation in the Income Tax Acts was directed to profits and not to gross income. But I am unable to see how this solves the problem in the present case. We were referred to s. 412, which is designed to prevent persons residing in this country evading income tax by transferring assets to persons resident abroad. But this is a very special provision dealing with a particular situation which involved special foreign income, and I do not find it in the least material to the problem which we have to consider. Mr. Heyworth Talbot pointed out to us that since 1927 there has been a change by which allowances in respect of children are no longer given by way of deduction in assessing income but are instead given by way of claims for relief against taxation. I do not find that this makes any difference to the result of this case.

In my view, the income received by the son in France and not remitted to the United Kingdom is not relevant for the purposes of s. 212 of the Act. I think that the General Commissioners and the learned Judge reached the correct decision and the appeal should fail.

A further point was discussed. It was said that in any event, if the French income of the son was material for the purposes of s. 212, expenses were incurred such as travel expenses and other allowable expenses which would reduce the £150 earned below £115. There was a finding by the Commissioners in para. 6(iii) of the Case Stated in these terms:

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"thus in the present case the son had incurred travelling expenses and the excess cost of his living at the place of his employment (which is notoriously high in France), both incurred essentially and manifestly totalling more than £35."

But Prince v. Phillips (1961) 39 T.C. 477 shews (in a case that did not involve foreign income) that for the purposes of s. 212(4) no more deductions can be claimed than those allowable to an ordinary taxpayer. It was not clear, therefore, in the finding of the Commissioners what particular expenses they were referring to. In relation to the view which I have formed on the case, this point does not arise. If it did, it would be necessary to refer the case back to the General Commissioners to specify the details of the expenses to which they were referring.

Salmon LJ.: For the purpose of the Income Tax Acts, income has three essential characteristics: (1) it represents net gains and not, for example, gross takings; (2) it is received as of right and not as bounty; (3) it is received by way of revenue and not as capital. In the Income Tax Acts the word "income" is used sometimes to denote only income which is chargeable to tax and sometimes to include income which is not so chargeable. Undoubtedly it is used far more often in the former than in the latter sense, for, alas, in most cases income is chargeable to tax. The word "income" is certainly wide enough in its ordinary and natural meaning to cover non-taxable income. The context in which it is used may, however, require that word to be given a restricted meaning.

The problem which arises in this case is, what does the word "income" mean as used in s. 212(4) of the Income Tax Act 1952? The taxpayer contends that is must be given a restricted meaning, that is to say, income chargeable to tax. The Crown contends that it must be given its ordinary and natural meaning, that is to say, any income whether or not chargeable to tax. In order to solve this problem I think that the Courts are entitled and indeed bound to look for the legislative purpose behind s. 212 and its precursor, s. 21 of the Finance Act 1920.

This purpose must be ascertained from the language of the Statutes themselves. If this language does not reveal the purpose of the Legislature, the Courts are not entitled to guess at it or to assume some purpose which seems to them reasonable. Sometimes it is very difficult, if not impossible, to discover the purpose of the Legislature, and the Courts must then construe the language of the section concerned without this aid. In the present case, however, there is no difficulty in discovering the legislative purpose - and indeed it is not disputed by the taxpayer. Parliament recognised that the maintenance of children imposes some financial burden upon parents and accordingly allowed deductions for children from the income tax with which parents are chargeable. In the present case the deduction to which the taxpayer would admittedly be entitled but for subs. (4) is a sum equal to the tax chargeable at the standard rate on £165: see s. 212(1) and (1A) of the 1952 Act. Parliament, however, also recognised that if a child had an income of its own, at any rate above a certain figure, its maintenance would be less of a financial burden to its parents than otherwise; the higher the child's income, the less the financial burden would be. Parliament accordingly provided for a reduction of the amount which the parent might deduct from his tax in respect of the child without an income. Apparently it was thought that if the child's income did not exceed £115 a year, this should not affect the parent's right to a deduction from tax

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under s. 212(1), but that "in the case of a child who is entitled in his own right to an income exceeding £115 a year" the deduction for the child should be reduced by the amount of the excess: see s. 212(4).

In the present case the taxpayer's son received £150 in the year of assessment from earnings as a temporary teacher in a French lycée. He had gone there in order to perfect his French, on the advice of his tutor at St. Andrews University. He managed, I imagine with little difficulty, to spend the whole of the £150 during his sojourn in France. Since this sum had been earned wholly outside the United Kingdom and none of it had been remitted to the United Kingdom, it was clearly not chargeable to income tax. The taxpayer claims, and the learned Judge and the Commissioners have decided, that because these earnings were not chargeable to tax they cannot be "income" within the meaning of that word in subs. (4). I am afraid that I am unable to agree. I can see no reason for giving the word "income" such a restricted meaning in this subsection, particularly when in other parts of the Act it is clearly used in its wider sense.

It would in my view be very strange that a father whose son earns, say, £150 a year subject to tax is obliged to make a reduction in the amount he is entitled to deduct for his son's maintenance, yet a father whose son earns £150 a year tax free is not obliged to make any such reduction. This would make no sense to me, for the father whose son has a tax-free income is presumably better placed qua his son's maintenance than the father whose son's income is chargeable to tax. Certainly I cannot understand why any distinction should be made in favour of the former.

I hope that I am not importing into the Statute any provisions that are not there, nor altering any words used in subs. (4) - nor adding to them. On the contrary, I think that the taxpayer's contention involves adding the words "and which is chargeable to tax" after the words "an income exceeding £115 a year" in the subsection. I am not prepared to do this. In my view the word "income" in subs. (4) bears its ordinary and natural meaning, that is to say, income whether or not chargeable to tax. In my judgment it is not permissible to give the word the restricted meaning for which the taxpayer contends, particularly as in my view such a meaning is entirely out of harmony with the manifest intention of the Legislature. It is upon this ground that I base my judgment.

Some additional grounds were relied upon by the Crown, and I will deal with them shortly. It was said, quite rightly, that the word "income" in s. 212(4) must have the same meaning as that which it bears in s. 21 of the Finance Act 1920. The proviso to s. 21(3) is substantially in the same terms as the proviso to s. 212(4) of the Act of 1952:

"Provided that in calculating the income of the child for the purposes of the foregoing provision no account shall be taken of any income to which the child is entitled as the holder of a scholarship, bursary, or other similar educational endowment."

For the first time income from scholarships and the like was exempted from income tax by s. 28 of the Act of 1920, which is reproduced in s. 458 of the Act of 1952. It was argued on behalf of the Crown that unless "income" in s. 21 covered income which was not chargeable to tax the proviso would be otiose. I agree. I do not think, however, that this argument lends much support to the Crown's case. Otiose provisions are not uncommon in Statutes, and it may well be that this proviso was inserted ex abundanti cautela. Its existence has not influenced me in the conclusion at which I have arrived. The

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most that I can say about it is that it is not inconsistent with my construction of the section.

Another subsidiary point made by the Crown is that in s. 22 of the 1920 Act (dealing with deductions in respect of dependent relatives) the Legislature used the words "total income from all sources", which is well recognised as a term of art for income chargeable to tax. The argument is that, as in the immediately preceding section the Legislature used the words "an income", it must there have meant something different from what it meant in s. 22 - otherwise the Legislature would have used the same words. I do not think, however, that any real importance can be attached to these verbal variations.

Then there is the third and certainly the most persuasive subsidiary point taken by the Crown. Sections 17 and 18 of the 1920 Act clearly contemplate an income which may not be chargeable to tax. Section 17 provides that:

"An individual who ... makes a return ... of his total income shall be entitled for the purpose of ascertaining the amount of the income on which he is to be charged to income tax ... to have [certain] deductions ... made from his assessable income."

Section 18 provides that one of these deductions to which any individual (including a child) was entitled was a deduction of £135. Section 21(1) provides, amongst other things, for a deduction of £36 in respect of one child over 16 years receiving full-time instruction at any university. Section 21(3) provides that no such deduction should be allowed in respect of any child who is entitled in his own right to an income exceeding £40. If "income" in subsection (3) means taxable income, it would follow that a parent could claim a deduction in respect of a child with a total income of £175, for no more than £40 of it would be taxable; and this, it is suggested, cannot have been the intention of Parliament. If the words "an income" in subs. (3) mean an income whether or not chargeable to tax, certainly the words "an income" in s. 212(4) of the 1952 Act must have the same meaning. There may be an answer to this argument, but none was advanced, perhaps because the point was taken only in reply. It might have been suggested by the taxpayer that the true test is not "is the income taxable?" but "may the income be taxable if it is sufficiently large and does it therefore fall to be assessed under the Income Tax Acts?" Accordingly, I prefer to rest my conclusion on the ground stated earlier in this judgment, which seems to me equally valid whichever test is sought to be applied.

The taxpayer relied strongly upon two authorities, Whitney v. Commissioners of Inland Revenue (1925) 10 T.C. 88 and Perry v. Astor (1935) 19 T.C. 255. I confess that I have been unable to gain any assistance from either of these two cases. In the first case the taxpayer relied on the following passage in the speech of Lord Wrenbury, at page 113:

"As regards the word 'income' ... It means such income as is within the Act taxable under the Act."

In order, however, to appreciate the significance of this passage, it is important to remember that the House of Lords was considering the meaning of the word "income" in s. 4 of the Income Tax Act 1918, which charged "an additional duty of income tax (in this Act referred to as super-tax)" "in respect of the income of any individual, the total of which from all sources exceeds" a certain sum. The question was whether an American citizen resident in the United States was chargeable to super-tax in respect of income accruing to him from property in this country. Obviously, I think, super-tax would not be chargeable upon any income which was not chargeable to ordinary income tax. Schedule D provided that ordinary income tax should be charged

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"... in respect of the annual profits or gains arising or accruing ... to any person, whether a British subject or not, although not resident in the United Kingdom, from any property whatever in the United Kingdom ...".

In my view, all that Lord Wrenbury was saying in the passage to which I have referred was that income chargeable to ordinary income tax was also chargeable to super-tax if it exceeded a certain amount.

Perry v. Astor ^[13] seems to me to offer even less comfort to the taxpayer than Whitney v. Commissioners of Inland Revenue ^[14]. The House of Lords there had to consider the meaning of the words "any income" in s. 20(1) of the Finance Act 1922. It held that they did not apply "to the income of a resident in America derived under an American disposition from American assets"^[15] because in their context they applied only to "income chargeable with tax under the British Finance Act of the year" ^[16]. In reaching this conclusion on the interpretation of the Statute, Lord Macmillan invoked the principle that ^[17]:

"So far as the intention of an enactment may be gathered from its own terms it is permissible to have regard to that intention in interpreting it, and if more than one interpretation is possible, that interpretation should be adopted which is most consonant with and is best calculated to give effect to the intention of the enactment as so ascertained."

So far as the present case is concerned, these authorities are relevant only to illustrate that in some sections of the Income Tax Acts "income" may mean taxable income. This, however, is beyond dispute. Nor is it disputed that in some sections "income" includes non-taxable income. Its true meaning in any section depends on the context in which it is used. In the present case the taxpayer's argument was really an argument of convenience. It amounted to this, that although the Legislature may appear to have intended the words "an income" in s. 212(4) of the Act of 1952 to apply to any income, it cannot have had any such intention. The words should be construed so as to apply only to an income chargeable to tax, however inconsistent this may be with the purposes of the section - otherwise it would be difficult to measure or ascertain the income. This is because the statutory rules laid down for measuring and ascertaining a taxable income, in particular rule 7 of Sch. 9 to the Income Tax Act 1952, would not apply. Rule 7 seems to me to be both artificial and archaic. It obscures rather than reveals the taxpayer's true net income. I cannot accept that without it there would be any practical difficulty in ascertaining the true income of the taxpayer's son, that is to say, his net gain from his earnings of £150. By applying the ordinary principles of accountancy practice and common sense it should be fairly easy to ascertain what was the real cost of achieving these earnings. No doubt this must always ultimately be a question of fact. I do not accept the contention of the Crown that the statutory rules must be applied by analogy.

For the above reasons, reluctant and diffident though I am to differ from my brother Danckwerts L.J. and the learned Judge, I would allow the appeal.

I would expect, particularly having regard to the triviality of the amount involved, that the figures could be agreed. I should have thought that the cost of the journey to and from France alone may well have absorbed the greater part, if not the whole, of the £35 in dispute - and this is, in my view, clearly a deductible expense, for without it the £150 could not have been earned. I would be surprised if in the long run the result of this appeal has any effect

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upon the amount of this taxpayer's liability. The principle, however, for which the Crown contends is of general application and may in other cases be of considerable practical importance. If the figures cannot be agreed, the case should be remitted to the Commissioners to determine by what amount, if any, the net income exceeded £115.

Fenton Atkinson L.J.: The first question in this appeal is whether in the relevant year of assessment the taxpayer's son was entitled in his own right to "an income" within s. 212(4) of the Income Tax Act 1952. The second question, which only arises if the answer to the first question is "Yes", is whether that income exceeded £115. It is not necessary in this judgment to repeat the facts, which have already been stated.

On behalf of the taxpayer it is contended that the words "an income" in s. 212(4) must be construed as income for income tax purposes or income chargeable to tax, the two phrases being treated as synonymous. Therefore, as it is common ground that no part of the £150 earned in the relevant period was brought into this country and so it never became chargeable to tax, it is said that the son was not entitled to an income for the purposes of this section. On behalf of the Crown it is contended that the words "an income" in this subsection mean an income in the income tax sense, that is to say, income possessing certain well-known characteristics, namely, receipts representing a net gain, received as a matter of right and not being capital receipts. Receipts, it is said, with those characteristics, which the son's £150 clearly possessed, are income in the income tax sense whether or not in the particular circumstances they are chargeable to tax.

Various sections of the Income Tax Acts were referred to and certain authorities cited in the course of argument, showing that, though in certain statutory contexts "income" means, and means only, chargeable income, in certain other contexts the meaning cannot be so restricted.

The most cogent argument advanced by the Crown was founded on the manifest intention of the subsection, and we were referred to the well-known passage in the speech of Lord Macmillan in Perry v. Astor ^[18], which Salmon L.J. has already read in the course of his judgment. It is plain that the intention behind s. 212(4) of the 1952 Act was to secure that, if the child is in fact substantially provided for in his own right, then the father's child allowance should be reduced. Mr. Monroe did not dispute that that is the manifest intention of this subsection. That being so, it would seem a somewhat strange result of s. 212(4) if the father's child allowance has to be reduced when his son earns in this country an income of £150 chargeable to tax, but escapes any such deduction if the son earns the same income in France which is not chargeable to tax, only because and in so far as none of it is brought into this country.

Certain other points taken on behalf of the Crown fall to be considered. It was pointed out that the specific inclusion of an exemption for scholarship income in the proviso to s. 212(4) is otiose if the taxpayer's contention is correct because such income is not chargeable to tax by reason of s. 458 of the same Act. For my part I attach little or no weight to this argument, as it seems very probable the proviso to s. 212(4) was inserted ex abundanti cautela, following the example of the draftsman of s. 21(3) of the Finance Act 1920.

Next, attention was drawn to the different wording adopted in ss. 21(3) and 22(1) of the Finance Act 1920. It was s. 21(3) of that Act which first introduced the principle of a reduction of the child allowance according to the

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income of the child. The point is made that, whereas s. 21(3) uses the words "an income", s. 22(1), which deals with dependent relative allowance, provides that such allowance shall only be payable in respect of a person whose "total income from all sources" does not exceed £50 a year. The words "total income from all sources" were at that time a term of art meaning chargeable income. So, say the Crown, the use of different words in s. 21(3) (namely "an income") supports the view that the Legislature in that subsection meant to include non-chargeable income. Again, I am not prepared to attach any substantial weight to the argument that, when in the mass of legislation relating to income tax we sometimes find additional words used to give a precise meaning to the word "income", a similar meaning may not be given to the word without those additional words.

A third submission was that the words "an income" in s. 212(4) of the 1952 Act must mean the same as the same words in s. 21(3) of the Finance Act 1920. But if the words "an income" in the latter section meant chargeable income, then, by reason of the provisions of ss. 17 and 18 of the 1920 Act, one could only arrive at the child's chargeable income after deducting the personal allowance of £135, and therefore the child could enjoy an income of £175 before the father lost the right to the reduction. This, it was contended, would be a startling result by the financial standards of the year 1920 and the deductions provided by the section. The point has some force, but for my part I think that an argument which had escaped the notice of all those responsible for representing the Crown's case until Mr. Heyworth Talbot was replying in this Court has to be regarded with some caution.

For the taxpayer the main argument has been that, if the words "an income" are not construed as meaning chargeable income, then there are no statutory provisions by which the amount of the net income, after allowing a proper deduction for expenses, can be assessed. The Crown admit that the very rigid rules for expenses laid down in para. 7 of Sch. 9 to the Income Tax Act 1952 as appropriate to a Schedule E assessment have no application, and to say that the difficulty can be resolved by the process of applying those rules by analogy, as the Crown contended, seems to me wholly unjustified. In my view this argument has great force, but I cannot regard it as decisive of the question of construction posed by s. 212(4). In the comparatively rare cases of a child entitled to an income earned abroad, none of which is brought into this country, I cannot see any insuperable difficulty in deciding what expenses have necessarily been incurred in earning the income so as to arrive at a net figure of income for the purpose of s. 212(4).

In my view both meanings of "an income" contended for are possible as a matter of construction. I fall back, therefore, on the manifest intention of the subsection and look to see which interpretation is most consonant with, and best calculated to give effect to, that intention. Approaching it in that way, I feel satisfied that the Crown's contention must be preferred, and I would allow the appeal on the first point. I need hardly state that I at any rate reach this conclusion with very real diffidence, as it means differing from Danckwerts L.J. and the learned Judge, with their great experience of the Income Tax Acts.

On the second point which then arises, namely, whether the son's net income exceeded £115 after proper deductions for necessary expenses, Counsel were, I think, agreed the matter should be remitted to the Commissioners, failing agreement, but no doubt agreement can readily be achieved having regard to the trivial amount involved.

Phillips Q.C.: I would ask, my Lord, that the appeal may be allowed.

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Danckwerts L.J.: Yes.

Phillips Q.C.: And that the determination of the General Commissioners be set aside, and that the Case Stated be remitted to them to determine the amount of the relief to which the Respondent is entitled on the basis that his child was in 1965-66 entitled in his own right to an income of £150 less any sum properly deductible therefrom, in accordance with the judgments that have been delivered.

Danckwerts L.J.: Will you not be able to agree that?

Phillips Q.C.: Yes, I hope so, my Lord.

Danckwerts L.J.: I should have thought so, yes.

Phillips Q.C.: On the question of costs -

Danckwerts L.J.: There has been an agreement.

Phillips Q.C.: There has been an agreement, and we are paying the costs of the Respondent on a common fund basis. There does remain one matter, and that is this: I am instructed to ask for leave to appeal to the House of Lords against that part of your Lordships' Order formulating the basis upon which the deduction falls to be made. In other words, we would wish to contend, if we were given leave to appeal, that the deductions from the gross income fall to be made by analogy with rule 7.

Danckwerts L.J.: Do you really want to go to the House of Lords on that?

Phillips Q.C.: The matter is of fairly general importance.

Salmon L.J.: Do you want to invoke the horse in rule 7?

Phillips Q.C.: I do not think we should need the horse, no.

Salmon LJ.: Is it not a matter of ordinary accountancy practice?

Phillips Q.C.: It does leave this rather unsatisfactory position that now incomes arising and taxable in this country will have to be dealt with in accordance with the -

Danckwerts L.J.: When you press this point, it makes me think that my judgment must be right after all that of my brethren wrong.

Phillips Q.C.: It would not be right for me to comment on that, my Lord.

Danckwerts L.J.: No; I am afraid, Mr. Phillips, we are not prepared to give you leave.

Salmon L.J.: I would much rather see you settle it.

Monroe Q.C.: On the basis of your Lordships' judgment, I would have supposed that it would be unnecessary to remit, because presumably the liability is nil. Presumably the income is nil on the basis of the facts as presented to the Commissioners. If the deductions are to be what the majority of your Lordships have said they are to be, I would assume that it would be unnecessary to remit the case to the General Commissioners, because clearly the full allowance would be due.

Danckwerts L.J.: Yes, I should have thought so.

Salmon L.J.: If they cannot be agreed, it will be remitted to the General Commissioners.

Phillips Q.C.: Yes. I am asking formally for the Order for remission, with the expectation that the matter will be agreed.

Danckwerts L.J.: Yes. I think it should give no trouble.

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Appeals having, by leave of the Appeal Committee of the House of Lords, been entered against the above decision, the case came before the House of Lords (Lord Hodson, Viscount Dilhorne and Lords Upjohn, Pearson and Dip-lock) on 9th and 10th June 1969, when judgment was reserved. On 23rd July 1969 judgment was given unanimously against the Crown, with costs.

H. H. Monroe Q.C. and S. J. Bates for the taxpayer. The parties have accepted that in s. 212(4) of the Income Tax Act 1952 "a child entitled in his own right to his own income exceeding £115 a year" means an income in the year of assessment, and it has not been argued that the income must have a semblance of permanence in that it is an income which recurs yearly: see Miles v. Morrow (1940) 23 T.C. 465 and Prince v. Phillips (1961) 39 T.C. 477. It may be that the parties have accepted too readily that it is any income received by the child in the year of assessment, but if it had to be from a permanent source difficulties would arise in applying that concept to the different and fluctuating sources from which income can be derived.

Section 22(1) of the Finance Act 1920, in dealing with allowances for maintaining an incapacitated relative, refers to "total income from all sources", a phrase that has always been considered to mean income for income tax purposes; and although the words in s. 212(4) of the Act of 1952 differ, there is no need to imply a different approach to the standard of measurement of income referred to in that section from the approach under s. 22(1).

The historical source of s. 212 is s. 68 of the Finance (1909-10) Act 1910, and that was followed by s. 12(1) of the Income Tax Act 1918; both the old sections referred to income from all sources. Then came s. 21(3) of the Finance Act 1920, which introduced for the first time the provision concerning a child "who is entitled in his own right to an income" which exceeded a given figure "a year". The Finance Act 1920 also introduced a new concept of assessing income for tax purposes. It was in three stages; first the total income from all sources had to be ascertained, then under s. 16, and as defined by s. 33, the "assessable income" was ascertained, and the third stage was the making of the necessary deductions to find the "taxable income". Sections 21 and 22 of the Act of 1920, which respectively dealt with children and incapacitated relatives, must refer to the same income and it must be income chargeable to tax. Section 28(1) of that Act and the proviso to s. 212(4) of the Income Tax Act 1952 excepts income from scholarships. The Crown below made the point that on our construction there would be no need for the proviso. The draftsman may have wished to clarify that scholarships were not included and, although it was not necessary to do so, it is submitted that the Crown are placing more weight than is justified, if our construction is accepted, on the resulting superfluity of the proviso; see Special Commissioners of Income Tax v. Pemsel 3 TC 53; [1891] AC 531. Section 24 of the Act of 1920 concerned a non-resident taxpayer. Section 38 of the Finance Act 1927 introduced tax at the standard rate, changed super-tax into surtax and defined for the first time "total income". Section 43 of that Act makes provision for the making of a tax return. It would be strange if the son's income determining his father's right to tax relief in the form of a child allowance was assessed differently from that of his father. In both cases the income must be the income as shown in the tax return. The Crown rely on s. 156 of the Act of 1952, Sch. E, Case III, as being the method by which the son's income is to be assessed, but if the son made a tax return he would write in the return "nothing". Before 1920 a child allowance was limited by the parent's income, but since 1920 the limitation has been the child's income. That change in system sufficiently explains the change from "income from all sources" to "income" in s. 212. It is more important to ensure that there is a practical way in which a father's entitlement to a child allowance is assessed than to apply the not

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unimportant principle that a father should only be entitled to a child allowance if he maintains his son. There are many ways of assessing whether a father is entitled to a child allowance, but it must be a reasonable and workable system and the taxpayer's proposition is workable.

The authorities which help are Whitney v. Commissioners of Inland Revenue 10 TC 88; [1926] AC 37, and see per Viscount Cave L.C., at pages 103-4, per Lord Dunedin, at pages 109-10 and per Lord Wrenbury, at pages 112-3; Perry v. Astor 19 TC 255; [1935] A.C. 398 and see per Lord Macmillan, at page 284 et seq., and Prince v. Phillips (1961) 39 T.C. 477. The taxpayer relies on the Crown's contention in Prince v. Phillips, at page 478; at page 489, Buckley J. in his judgment made it clear that the Crown had contended that deductions for national insurance contributions, in accordance with s. 377 of the Income Tax Act 1952, should be made from the child's income; that deductions could not be made for expenses of travelling and food, and that the child's income was income for income tax purposes. The taxpayer's contention is based on the context of the Act, the test of workability and the authorities. The whole trend in the Income Tax Acts is that income means income for income tax purposes unless it is clearly enacted to the contrary. The only provision which provides a means of calculating income which is not liable to United Kingdom income tax is the Finance Act 1957, Sch. 5, paras. 1 and 2, and those paragraphs deal with the method of measuring overseas trading income.

The difficulty of the Court of Appeal's decision in this case is that there is no practical way of measuring the child's income. Sections 363 and 364 of the Income Tax Act 1952 refer to the duty to make a tax return and the liability to make such a return on behalf of an incapacitated person, and in s. 526 the definition of an "incapacitated person" includes a child. The taxpayer adopts and relies on the judgment of Ungoed-Thomas J. In the Court of Appeal, Salmon L.J. and Fenton Atkinson L.J. ruled that "income" in s. 212(4) had its ordinary and natural meaning, but income is a vague concept and before accountants and economists discuss "income" they define their use of it in the context of their conversation. The Court of Appeal's decision left open the question of how the son's income was to be measured. There really is but one answer. The income to be measured is the income chargeable to tax, and once that answer is accepted the question in this case becomes academic, for here there is no income chargeable to tax. If that answer be wrong then the taxpayer adopts the words of Danckwerts L.J. at page 662 ante; [1969] 1 Ch. 293, 308, that the application of the Rules of Schedule E to the son's income was "arbitrary and unlawful", and if that be so then there is no lawful way of measuring the son's income.

F. Heyworth Talbot Q.C. and P. W. Medd for the Crown. The tax return in this case was made pursuant to the Income Tax Management Act 1964, and the onus is on the taxpayer to prove his claim that he is entitled to a child allowance: see s. 9(8) of that Act. The language of s. 212 of the Income Tax Act 1952 was framed 49 years ago, when it was not uncommon for a father to give his son a yearly allowance whilst he was at university, and Parliament, to exclude that allowance, added the words "entitled in his own right". "An income" in s. 212(4) means any kind of income to which the child is entitled as of right. Although it is not a usual way of referring to a child's earnings, it is accurate to say that his earnings are income to which he is entitled in his own right. The draftsman used different language in ss. 21 and 22 of the Finance Act 1920 respectively because in s. 22 he was limiting income to that chargeable to tax, whilst in s. 21 he widened the language to include all income within the concept of the Income Tax Acts but not limited to income chargeable to tax. It refers to any kind of income and it is not

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limited to a secured income. "Income" in s. 22 includes voluntary payments, and it is a deliberate act to include voluntary payments for dependent relatives and to exclude them for children. "Income" in s. 212(4) of the Act of 1952 has not the same meaning as the income of a dependent relative, and therefore the question arises what is "income" in that subsection.

The use of the expression "an income" of so much "a year" is probably unique in the Income Tax Acts, but its use is not surprising in the light of the decisions of Rowlatt J. in Cape Brandy Syndicate v. Commissioners of Inland Revenue 12 TC 358; [1921] 1 K.B. 64 and Martin v. Lowry 11 TC 297, 308. Repetitiveness is not to be inferred in the use of "annual" and it means no more than the profits of the year: see Martin v. Lowry [1927] A.C. 312. "So much in any year" means no more than a requirement for the measurement of income to which the child is entitled in that year.

"Income" in the Income Tax Acts always means income in the income tax sense although, due to some special provision, it may not be chargeable to tax. It is no longer true to say that income tax is a tax upon income because there are exceptions, of which the most recent is the short-term capital gains tax. Income denotes that which has the characteristics of income within the Income Tax Acts, whether or not chargeable to tax. Foreign earnings which have been remitted to this country are chargeable to tax; unremitted foreign earnings are not chargeable to tax, but they are still income within the meaning of the Acts, and the foreign unremitted earnings of the taxpayer's child were the child's income and an income to which he was entitled in his own right: see Miles v. Morrow (1940) 23 T.C. 465 and Williams v. Doulton (1948) 28 T.C. 522. The reason for the proviso whereby scholarships were excepted from the child's income was that Parliament was actuated by general principles rather than a desire to equate a tax rule, for a parent might forbid his child to accept a scholarship so that he himself did not lose his right to a child allowance and thereby the section would act to the detriment of the child. There must be a difference between "total income from all sources" in s. 22 of the Finance Act 1920 and "entitled in his own right to an income"; that difference must be either wider or narrower, and "total income from all sources" could not include any income to which the child was not entitled in his own right. The difference must be that "total income" refers to chargeable income only, whilst "entitled in his own right to an income" refers to an income within the meaning of the Acts. There is no binding authority on this House, but that construction is consistent with the practice that has prevailed for the last 49 years. In principle there is nothing wrong with a parent being denied a child allowance when his child has an income from a settled fund or from his own earnings whether or not those earnings were received in this country or abroad.

If it is right that "an income" in s. 212(4) of the Income Tax Act 1952 denotes a receipt or accrual having the characteristics of income within the Income Tax Acts, then it is common sense to use a statutory rule to quantify that income. Although Schedule E does not apply to the child's income, Sch. 9, para. 7, of the Income Tax Act 1952 is a guide, and the purpose of that paragraph is to provide a mode of quantification of taxable income. Where non-taxable income has to be quantified it is natural to quantify it by reference to this paragraph, and although it has often been said that it is a harsh rule, it serves as a guide or criterion and it is right to apply its principles to foreign emoluments.

Monroe Q.C. replied.

- - - - - - - - - - - - - - - - - - - - -

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Lord Hodson: My Lords, this appeal raises the question whether the child allowance for 1965-66 which the taxpayer has claimed in respect of his son, a boy over 16, a full-time undergraduate at St. Andrews University, should be restricted by reference to the amount of the boy's earnings for two and a half months in a French school.

The question turns on s. 212 of the Income Tax Act 1952 ^[19]. The following extracts are material:

"(1) If the claimant proves that he has living at any time within the year of assessment any child who is either under the age of sixteen years or who, if over the age of sixteen years at the commencement of that year, is receiving full-time instruction at any university, college, school or other educational establishment, he shall, subject to the provisions of this and the next following section, be entitled in respect of each such child to a deduction from the amount of income tax with which he is chargeable equal to tax at the standard rate on the appropriate amount for the child.... (1A) The appropriate amount for the child shall vary according to the age of the child at the commencement of the year of assessment, and subject to subsection (4) of this section - (a) for a child shown by the claimant to have been then over the age of sixteen, shall be one hundred and sixty-five pounds; ... (4) In the case of a child who is entitled in his own right to an income exceeding £115 a year the appropriate amount for the child shall be reduced by the amount of the excess ... Provided that in calculating the income of the child for the purpose of this subsection no account shall be taken of any income to which the child is entitled as the holder of a scholarship, bursary, or other similar educational endowment."

The taxpayer's son, when over 16, obtained a post as a temporary teacher at a lycée in France. In 1965-66 he received the equivalent of £150 in the two and a half months that fell in the year of assessment. The whole of the £150 was spent in France, so that nothing remained to be brought into this country on his return here to resume his degree course at St. Andrews University.

As the provision of the Statute shows, it is for the taxpayer to set out the facts which substantiate his claim, and on those stated by him the Inspector of Taxes refused to allow the claim to child allowance on the ground that the boy was entitled in his own right to an income exceeding £115 a year for the year in question. This refusal was not surprising, for, although the Commissioners of Inland Revenue admitted that they could not tax the boy's receipts as foreign income, since it was not remitted to this country, they relied on a practice which, it was said, had been followed for the last 40 years. This practice was to treat income in the wide sense of the word receivable abroad, although not taxable, reduced only by certain limited expenses to which I shall later refer, as operating to cut down or defeat children's allowances for the purpose of s. 212.

The General Commissioners allowed the taxpayer's appeal from the Inspector's refusal on the ground that "income in his own right" within the terms of s. 212(4) meant income computed in accordance with the Income Tax Acts, that is to say, income for income tax purposes. The emoluments which the boy received were not chargeable to income tax under Case I, II or III of Schedule E. Not being chargeable they did not operate to defeat the claim of the taxpayer. On appeal to the Court, Ungoed-Thomas J. upheld the decision of the Commissioners, but the decision was reversed by the Court of Appeal, which by a majority (Salmon and Fenton Atkinson LJJ., Danckwerts LJ. dissenting) held that the word "income" in s. 212 meant income in the

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widest sense of the word, whether or not chargeable to tax. Accordingly the fact that the earnings were not remitted and so were not chargeable was irrelevant. They were still income and, subject to such deductions as might be properly allowed in accordance with the ordinary principles of accountancy, must be set against the taxpayer's claim.

The appeal to your Lordships' House was set in train by the Crown, which obtained leave to appeal upon the contention that the Court of Appeal was wrong in that part of its decision which concerned the method of allowing deductions from earnings whether earned abroad or at home. It was submitted that the deductions to be made from the gross amount received by the boy were those authorised by para. 7 of Sch. 9 to the Income Tax Act 1952. Paragraph 7 reads:

"If the holder of an office or employment of profit is necessarily obliged to incur and defray out of the emoluments thereof the expenses of travelling in the performance of the duties of the office or employment, or of keeping and maintaining a horse to enable him to perform the same, or otherwise to expend money wholly, exclusively and necessarily in the performance of the said duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed."

This paragraph of course has no application to the emoluments of the boy since these were not taxable, and this no doubt led the majority of the Court of Appeal to seek their own solution to the problem of how the proper deduction should be ascertained in dealing with claims for child allowance where nontaxable income of the child was concerned.

The taxpayer was, on the same day as the Crown, given leave to appeal in order to submit that the whole approach of the majority of the Court of Appeal was wrong, so that no question of calculating the deductions arose. He maintained the submission he had successfully made to the Commissioners and to Ungoed-Thomas J. that the words "income in his own right" in s. 212 must mean income computed in accordance with the Income Tax Acts.

In order to construe the section it is legitimate, and indeed necessary, to see what the origin of s. 212 was and in what context it first appeared. This is to be found in the Finance Act 1920. Section 21(1) is in the same terms as s. 212(1) of the 1952 Act save that the deduction is, in the earlier Act, fixed at £36. Section 21(3) reads:

"No deduction shall be allowed under this section in respect of any child who is entitled in his own right to an income exceeding forty pounds a year . . ."

The proviso which follows is in the same terms as that to be found following s. 212(4) of the 1952 Act. Section 22(1) of the 1920 Act is important. It is a section providing for deduction in respect of dependent relatives, and, so far as material to the construction of s. 212 reads:

"If the claimant proves that he maintains at his own expense any person ... being a person whose total income from all sources does not exceed fifty pounds a year, he shall be entitled to a deduction...."

This section finds its origin in s. 13(1) of the Income Tax Act 1918. In the Income Tax Act 1952 s. 216(1), with certain necessary alterations, is to the same effect as s. 22(1) of the 1920 Act. This limitation on the relief in respect of the dependent relative is admitted to be by reference to his or her chargeable income. It would, as Ungoed-Thomas J. pointed out ^[20], be strange if the

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limitation on the relief in respect of a child by reference to the child's income were by reference to some other income than chargeable income.

Before dealing more fully with the arguments as to the interpretation and effect of the words "who is entitled in his own right to an income exceeding £115 a year" appearing in s. 212(4) of the Income Tax Act 1952, I should refer to the somewhat unexpected language which Parliament has employed, and which at first sight seems inappropriate to cover casual earnings which are not readily recognisable as income in one's own right, nor, if earned, as here, over a short period, are suitably described as an income to which the recipient is entitled "a year". The point was not raised by the taxpayer, but in view of the difficulty in applying these words I should, I think, express my own opinion. I think the words do cover the earnings in this case. The use of the words " a year" does not necessarily denote perennial payments. Compare the decision of this House in Martin v. Lowry ^[21] [1927] A.C. 312, where in construing the words "annual profits" the argument that the word "annual" suggested repetition was rejected. As to the more difficult point, that is to say, whether receipts by way of earnings are properly described as income to which the boy was entitled, I think the context of the provision excluding scholarships shows that a wide meaning should be given to the words used. They should not be limited to income from a trust or settlement or moneys paid under a legal obligation as opposed to a voluntary allowance. This wider meaning has, I think, always been given to the words and is supported by such authority as is available. Miles v. Morrow (1940) 23 T.C. 465 concerned payments to the son of a taxpayer. The latter, who made a claim under s. 21 of 1 the Finance Act 1920, agreed to pay a premium on his son being articled to an accountant. The contention that the payments which the son received were not part of his income but deemed to be payable by way of return of premium was rejected. It was held that the emoluments received by the boy were his income in his own right. Miles v. Morrow was followed in England in Williams v. Doulton (1948) 28 T.C. 522, and I see no reason to criticise these decisions.

To return to the rival contentions as to the meaning of the wording in s. 212(4), the taxpayer relies wholly on the submission that the word "income" means income chargeable to tax. I agree with Ungoed-Thomas J. and with Danckwerts L.J. that the word "income" in the Income Tax Acts is apt to mean taxable income even if it is not always used with that meaning. Lord Macmillan in Astor v. Perry ^[22] [1935] A.C. 398 (the decision was subsequently reversed by s. 411 of the Income Tax Act 1952 but that does not affect the validity of Lord Macmillan's dictum) referred to "any income" in the Income Tax Act 1918 as being reasonably construed to mean any income chargeable with tax- Again, in Whitney v. Commissioners of Inland Revenue ^[23] [1926] AC 37 it was said by Lord Wrenbury in the case of a non-resident American who received income from the United Kingdom that the word "income" in the Income Tax Acts means "such income as is within the Act taxable under the Act".

There are, of course, examples in the Income Tax Acts, e.g. ss. 458, 412 and 227 of the Income Tax Act 1952, in which the word "income" is used to refer to income not chargeable to tax. In all those cases the character of the income was identified by the Statute. Section 227 is an example. It deals with relief to non-residents and refers to "tax ... chargeable on his total income from all sources, including income which is not subject to income tax charged in the United Kingdom". These words speak for themselves and demonstrate why total income was not there being spoken of as total chargeable income.

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When income not chargeable to tax is brought into the income tax net by the Legislature, one expects that this will be made clear. An example is to be found in s. 376 of the Income Tax Act 1952, by which certain fortuitous payments are deemed to be income for the purpose of assessment to income tax.

Reliance was placed by the Crown on the difference in language in the sections of the Income Tax Acts which deal with dependent relatives as compared with those which deal with the allowances for children, but, like Salmon L.J. in the Court of Appeal, I cannot draw the inference that because the words "total income from all sources", well recognised as a description of income chargeable to tax, are used in s. 22{1) of the Finance Act 1920, dealing with deductions for dependent relatives, the Legislature must have meant something different when in the preceding section, dealing with deductions for children, it used the words "an income". The verbal alteration may be difficult to explain, but nothing can, I think, be built upon it.

The majority of the Court of Appeal founded themselves upon what they held to be the manifest intention of the Legislature, which is not disputed by the taxpayer. Parliament, recognising that the maintenance of children imposes a financial burden upon parents, allows deductions for children from income tax which would otherwise be payable. It is, therefore, said with force that it is odd that a father whose son has a tax-free income (as in this case) is better placed, qua his son's maintenance, than the father whose son's income is chargeable to tax. I recognise the force of the argument based on the apparent absurdity of the results which different sets of facts may throw up, but I cannot see how the construction contended for by the Crown is workable in practice. As the majority of the Court of Appeal recognised, when having come to deal with deductions from the income which they thought should be taken into account, there was no statutory method by which the calculation could be made, and the Court had to devise a method by which this could be done. There is, to my mind, a strong argument based on practical grounds of workability in favour of the taxpayer's contention that the only income of his son which can be taken into account in considering his claim for deduction is income which is chargeable to tax. If this involves adding the words "and which is chargeable to tax" after the words "an income exceeding £115 a year", be it so; such an addition is necessary in many places in the Income Tax Acts. Income in the income tax sense is after all that which the taxpayer must put in the return which he is obliged to make. I agree with Ungoed-Thomas J. and with Danckwerts LJ. that on the true construction of s. 212(4) "income" means income for income tax purposes. The same conclusion was reached by Buckley J. in Prince v. Phillips (1961) 39 T.C. 477, a decision to the same effect with which I agree.

The short answer to the Crown's contention, based upon the intention of Parliament as disclosed by the relevant sections giving relief to parents in respect of their children, is that the pattern of the Income Tax Acts shows that the Legislature is concerned with income chargeable to tax and not with receipts not so chargeable.

I would allow the appeal of the taxpayer. It follows that the appeal of the Crown should be dismissed, since no question of deduction from the earnings in France of the taxpayer's son can arise.

Viscount Dilhome: My Lords, I have had the advantage of reading the opinion of my noble and learned friend Lord Hodson, and I only desire to add a few observations.

The judgment of the majority of the Court of Appeal appears to have been based primarily on the conclusion that, if income earned overseas by a

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child and not liable to tax was not brought into account in calculating the child's income for the purpose of s. 212(4) of the Income Tax Act 1952, the intention behind that subsection would be defeated. While I recognise that the purpose of s. 212(4) was to secure that a taxpayer should not be entitled to a child allowance or the full allowance where he was relieved of responsibility for the maintenance of his child by the child having an income of his own exceeding £115 a year, it can equally be said that s. 216 provides that a taxpayer is not entitled to a dependant's allowance when he is relieved of the burden of fully maintaining the dependant by the latter having an income of his own above the stipulated figure. It is clear and not disputed that in calculating the dependant's income regard is had only to his chargeable income and not to income not chargeable to tax, and yet the failure to take into account a dependant's income not chargeable to tax may be said to defeat the purpose of the section just as much as the failure to take into account a child's income not chargeable to tax defeats the purpose of s. 212(4). I can see no reason why Parliament should have intended that a child's income should be computed differently for the purpose of a child's allowance from the income of a dependant for the purposes of a dependant's allowance. I do not think that Parliament can have intended to create such an anomaly, and in my opinion the use of the word "income" by itself in s. 212(4) and the contrast between the language of s. 212(4) and that of s. 216 does not warrant such a conclusion.

Although a number of meanings can be given to the word "income" it is, I think, very significant that, when regard is to be had to income not chargeable to tax, express words are used in the Income Tax Act to make that clear. In s. 227 it is provided that, in calculating the relief to which a non-resident may be entitled, reference has to be made to his "total income from all sources, including income which is not subject to income tax charged in the United Kingdom", and in s. 412 it is expressly provided that in certain circumstances income "whether it would or would not have been chargeable to income tax apart from the provisions of" the section, shall "be deemed to be the income of that individual for all the purposes of this Act." If Parliament had intended to include in the computation of a child's income income not chargeable to tax, I would have expected to have found included in s. 212(4) after the word "income" the words "whether or not chargeable to tax", or some similar words, to make it clear that non-chargeable income was to be included.

I agree with my noble and learned friend Lord Hodson that a strong argument against the Crown's contention is that if accepted it would be very difficult, if not impossible, to operate. In this case the son's earnings were gross. The rules applicable to Schedule E in Sch. 9 to the Act cannot be lawfully applied to income not charged under that Schedule. They cannot be applied to a child's earnings overseas which are not subject to that Schedule, and if, as the majority of the Court of Appeal thought, the net income of the child from his earnings overseas is to be ascertained by the application of the ordinary principles of accountancy and common sense, the result would be that more would be deductible from a child's gross earnings overseas than from similar earnings in this country.

It was contended by counsel for the taxpayer that the words "entitled in his own right to an income exceeding £115 a year" meant no more than that the child had had an income in excess of that amount in a financial year. The Crown's only dissent from this proposition was as to the content to be given to the word "income". It was suggested that this formula was used in s. 21 of the Finance Act 1920, where it first appeared, to make it clear beyond all doubt that voluntary allowances given to the child were not to be treated as part of his income. However this may be, one would not perhaps normally

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say that a person who earned £1,000 in a particular year was entitled in his own right to an income exceeding £115 a year, and while it may be that these words were intended in 1920 only to apply to income from a trust or similar income, they have, I understand, always been treated by the Revenue as if they meant income received in a year. I hesitate to say that the Revenue has been wrong in doing so, and as the matter was not argued I express no opinion on it. It would seem to be right that the income of a child and that of a dependant for the purpose of allowances should be similarly calculated, but I hope that when the income Tax Act 1952 comes to be revised the opportunity will be taken to alter the wording of s. 212(4) so as to avoid any possibility of misunderstanding.

I too am of the opinion that the taxpayer's appeal should be allowed and consequently that the Crown's appeal should be dismissed.

Lord Upjohn: My Lords, this appeal raises a short but important question on the true construction of s. 212(4) of the Income Tax Act 1952. The facts are fully set out in the Case Stated, and I shall not attempt to restate them. The whole question is whether a parent, having a child of sixteen years of age receiving full-time instruction at a university or college, is therefore prima facie entitled to a deduction of income tax on the amount of £165 from the tax with which he is chargeable, or whether, having regard to subs. (4), he has to permit a reduction, and if so of how much.

Your Lordships heard an interesting account of the history of this legislation. Before 1918 it was recognised that a parent of limited means who had a child under the age of sixteen years for which he was at law responsible should have some relief from income tax, and the Tax Acts so provided. But in 1920 the scheme of relief was completely altered, and I do not think it is necessary to examine the earlier history of the statutory provisions. But the Income Tax Act 1952 was a consolidating Act, and is therefore presumed not to have altered the law but only to have re-enacted the relevant section, namely, s. 21 of the Finance Act 1920. Much of the argument before your Lordships has really turned upon that section rather than s. 212; and so I propose only to set out the relevant subsection of s. 21, which gave relief to the parent, but he was bound to allow a reduction as provided by subs. (3), which was in these terms:

"No deduction shall be allowed under this section in respect of any child who is entitled in his own right to an income exceeding [£115] a year: Provided that in calculating the income of the child for the purposes of the foregoing provision no account shall be taken of any income to which the child is entitled as the holder of a scholarship, bursary, or other similar educational endowment."

The point could hardly be shorter. The claimant's son earned an income of about £150 as a lecturer in France for a year in order to improve his French. As he spent that modest income in France and no part of it was remitted to this country, that income in the boy's hands was not subject to British income tax, and the whole question therefore is whether these earnings while in France were properly described for the purposes of s. 21(3) as income to which the child was entitled in his own right. The only point that has been argued before your Lordships and in the Courts below was whether, on the one hand, "income" meant income in a broad sense - and if that be the proper construction, there can be no doubt that this was income of the child - or, on the other hand, whether it meant income subject to assessment for the purposes of British income tax, in which case it was quite plainly not income of the child. But, my Lords, I have had serious difficulty in supposing that in the year 1920

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s. 21(3) was at all directed to earnings of a child. While it may be true that a child who goes out and earns income while in full-time instruction at a university is literally entitled to an income in his own right, this would not, I think, be the appropriate language to describe earnings - certainly not earnings which were for a single university period of a year in France, spent there at the direction of his college tutor to improve his French. The recipient of such an income is not normally described as a person who is entitled in his own right to an income exceeding £115 a year. Though there is the exception for the holder of a scholarship, bursary or other similar educational endowment, that does not seem to me to militate against the argument that the section is not looking at earnings, for the holder of a scholarship, bursary or other similar educational endowment is not normally regarded as earning that. He has already earned it by obtaining a scholarship, and I would have supposed that this section was directed to the case where the infant had an independent income under some trust or covenant which he was entitled to claim in his own right and not by way of some voluntary allowance. But, my Lords, this point has not been taken in the Courts below nor before your Lordships, and there is modest authority against the view that I have expressed, namely, Miles v. Morrow 23 T.C. 465 [a case in Northern Ireland]: see the judgment of Brown J., at page 470. This was followed by Atkinson J. in Williams v. Doulton 28 T.C. 522, who, however, expressed no view of his own. In these circumstances, I shall assume, without expressing any view of my own, that the language of s. 21, now s. 212 of the Act of 1952, is apt and appropriate to include earnings of the type here in question. The question then is whether the son's income was income for the purposes of s. 212 or not. My Lords, it is a trite remark that "income" has many different meanings in as many different contexts. But, in my opinion, in an Income Tax Act the approach to the construction of that word is that it is income chargeable to tax under our system of taxation laws. This was so stated by Lord Macmillan in Astor v. Perry ^[24] [1935] A.C. 398, and by Lord Wrenbury in Whitney v. Commissioners of Inland Revenue ^[25] [1926] AC 37. But this is only an approach: it is not a rule of construction only to be displaced if the context otherwise requires. There are many cases, as my noble and learned friend Lord Hodson has pointed out in his speech, where the word "income" in a taxing Act is used to include income not chargeable to tax.

So I approach the words of s. 212 with this in mind, and I think it was perfectly clear that the Legislature was dealing only with income which in the hands of the son was subject to British tax. If the Statute is limiting the right of the taxpayer to make a statutory deduction on proving the primary facts, and does so by reference to the income of the infant, it is extremely difficult to see how the income of that infant can be calculated for this purpose save upon income tax principles. Indeed, the appeal of the Crown was based on the fact that this income of the son should be calculated in accordance with Schedule E, which it is now common ground has absolutely nothing to do with the case, so that there was no method of ascertaining the relevant income of the son. So if "income" means income in a broad sense, how do you calculate it to see if it exceeds £115? It cannot mean gross receipts, for every person earning an income has expenses; but there is no machinery in the Acts for calculating the permissible deductions. This consideration strongly supports the view that "income" means income subject to British tax. So, my Lords, I entirely agree with the judgment of Ungoed-Thomas J. and the dissenting judgment of Danckwerts L.J. In my view, the majority of the Court of Appeal proceeded on a basis which, with all respect to them, is entirely unsound in

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approaching the construction of a taxing Statute. The majority in the Court of Appeal relied upon the anomaly that the father whose son has a tax-free income is presumably in a better position in regard to his son's maintenance than the father whose son's income is chargeable to tax, and this weighed decisively with them. My Lords, I have said on many occasions that in taxing Statutes reliance on hardships or anomalies is a very unsound basis of construction. The complexities of income tax law today are bound to give rise to cases of anomalies and hardships, sometimes even injustices, not always against the subject, sometimes, though less often, against the Crown. Unless there is some real ambiguity in the language used, and I do not think there is here, it is quite unsafe to allow anomaly, hardship and injustice to control the language Parliament has used. Let us stick to the celebrated words of Rowlatt J. ^[26] approved in your Lordships' House^[27] which, as I have so recently quoted them in Commissioners of Customs & Excise v. Top Ten Promotions Ltd. ^[28], I will not quote again. In my opinion, the Respondent is entitled to succeed in his appeal, and in that event the cross-appeal of the Crown does not arise. For this reason I would allow the appeal of the taxpayer and dismiss the cross-appeal of the Crown.

Lord Pearson: My Lords, the question in this appeal arises under the child allowance provisions of s. 212 of the Income Tax Act 1952, as amended by later enactments. The taxpayer's son was in the year of assessment an undergraduate studying modern languages at St. Andrews University, and on the advice of his tutor, in order to perfect his knowledge of French, he took employment as a temporary teacher at a school in France and was so employed for two and a half months of the year of assessment. He earned a sum of £150 and spent it on board and travelling and incidental expenses in France, not remitting any part of it to the United Kingdom. Under s. 212(1) the taxpayer was entitled in respect of the son to a deduction from the amount of income tax with which he was chargeable equal to tax at the standard rate on the "appropriate amount for the child". Under subs. (1A) "the appropriate amount for the child" would, subject to subs. (4), be £165. The Crown contends that under subs. (4) there should be a reduction of "the appropriate amount for the child" by £35, on the ground that in the year of assessment the son was "entitled in his own right to an income exceeding £115 a year" by £35.

First, I will refer briefly to a possible contention which has not been relied upon by counsel for the taxpayer but has been discussed in the course of the argument. It could be contended that the expression "entitled in his own right to an income exceeding £115 a year" denotes only a regular or recurrent income from some continuing source, such as a trust or settlement, and does not include a sum of money earned under a temporary employment in a particular year. The decisions, however, have been in favour of giving a wide meaning to the expression: Miles v. Morrow (1940) 23 T.C. 465, at page 470; Williams v. Doulton (1948) 28 T.C. 522, at page 525. Also it can be suggested that the words "entitled in his own right" are meant to exclude voluntary allowances, by parents or relatives or friends, and that when the work in an employment has been done (or contracted to be done, where there is a payment in advance) the employee is "entitled in his own right" to the remuneration. The words "£115 a year", though they would normally imply recurrence, would in

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an Act relating to income tax naturally refer to the income in a particular year, because the income to be taken into account is the income of the relevant year whether or not there has been or will be similar income in a past or future year: Martin v. Lowry ^[29] [1926] 1 K.B. 550, at page 558; [1927] A.C. 312, at pages 315-6. I would need to be persuaded that the possible contention to which I have referred is right, but as it is not in issue in the appeal I am not expressing any definite opinion on it.

The taxpayer's contention is that the "income" referred to in s. 212(4) is income chargeable to income tax, and, as the sum received by the taxpayer's son in France was wholly expended there and so not remitted to the United Kingdom, it is not chargeable to income tax under Schedule E or at all and therefore is not to be taken into account in reduction of the child allowance under s. 212. It is common ground that the sum was not chargeable to income tax. As Ungoed-Thomas J. said in his judgment, the income chargeable to income tax is identified as the net income chargeable to tax after deduction of expenses but before deduction of allowances.

The main argument in favour of the taxpayer's contention is that it is workable. A child is an actual or potential taxpayer, and a return made on his behalf would have to show his chargeable income assessed as required by the Acts. In respect of emoluments from employment the deductible expenses would be ascertained under Schedule E and rule 7 of Sch. 9 to the Income Tax Act 1952. Then if the words "the income" in s. 212(4) mean the chargeable income, the net amount of it can be ascertained in the same way. The measure which is used for determining the child's income on which he is liable for tax is also used for determining the child's income which may, by reducing the parent's child allowance, increase the parent's tax liability. That is at any rate a natural arrangement. Moreover, no violence is done to the language used if the words "an income" in a taxing Act are interpreted as referring to the income which is chargeable to tax under the Act, because that is the income which is relevant for the purposes of the Act: Whitney v. Commissioners of Inland Revenue ^[30] [1926] AC 37, at pages 55-6, Astor v. Perry ^[31] [1935] A.C. 398, at page 419.

On the other hand, if the expression "an income" in s. 212(4) does not mean chargeable income, how is it to be measured or ascertained? In particular, what expenses are deductible? Under para. 5 of Schedule E, which is contained in s. 156 of the Income Tax Act 1952, the provisions set out in Sch. 9 apply in relation to the tax to be charged under Schedule E. If "an income" in s. 212(4) is not chargeable income, rule 7 of Sch. 9 is not applicable. Then there is no provision for determining what expenses are deductible. Salmon L.J. has said^[32]:

"By applying the ordinary principles of accountancy practice and common sense it should be fairly easy to ascertain what was the real cost of achieving these earnings. No doubt this must always ultimately be a question of fact. I do not accept the contention of the Crown that the statutory rules must be applied by analogy."

It seems to me that this would leave too much undefined. There would have to be developed a new set of rules for ascertaining the deductible expenses for the purposes of s. 212(4), and the Act has given no guidance as to what the rules should be. It is not reasonable to suppose that Parliament intended to create such an indefinite regime.

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I do not think there is any tenable compromise. If the words "an income" in s. 212(4) were held to mean income for income tax purposes subject to exceptions, what would the exceptions be? Which of the rules regulating the assessment of income for income tax purposes would be applied unaltered, and which would be excluded or altered? There seems to be no reason for altering the rules of Schedule E for this purpose so as to bring in income earned abroad and not remitted to the United Kingdom.

There is the argument that the evident policy of s. 212(4) is to reduce the parent's child allowance when the child has an income of his own, and it would be inconsistent with this policy, or at any rate unfair, to reduce the parent's child allowance when the child's income is earned at home but not when it is earned and spent abroad. But I do not think this argument carries much weight. There is already the inequality between the position of the family where the child has no earnings to help with his maintenance and the position of the family where the child has earnings up to £115. Also the income earned abroad may be taxed in the country where it is earned.

I prefer the reasoning of Ungoed-Thomas J. and Danckwerts L.J. to that of the majority of the Court of Appeal. In my opinion, the taxpayer's appeal should be allowed and the appeal of the Crown should be dismissed.

Lord Diplock: My Lords, the speech of my noble and learned friend Lord Hodson expresses so fully the substance of my own view upon this short point of statutory construction that, if I said more about it than that I concur, I should be indulging in mere paraphrase.

Questions put:

That the original appeal be dismissed with costs.

The Contents have it.

That as regards the cross-appeal, the Order appealed from be reversed except as to costs, and the judgment of Ungoed-Thomas J. restored.

The Contents have it.

That the cross-respondent do pay to the cross-appellant his costs in this House.

The Contents have it.

[Solicitors: - Solicitor of Inland Revenue; Collyer-Bristow & Co. (for Ingram & Co., Leicester).]

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Note 1    Reported (Ch. D.) [1969] 1 Ch. 293; [1968] 2 W.L.R. 267; 111 S.J. 636; [1968] 1 All E.R. 643; (C.A.) [1969] 1 Ch. 293; [1968] 3 W.L.R. 442; 112 S.J. 488; [1968] 3 All E.R. 1; (H.L.) [1970] AC 362; [1969] 3 WLR 557; 113 S.J. 797; [1969] All E.R. 215.    [Back]

Note 2    [1930] AC 222.    [Back]

Note 3   1912 S.C. 1108.    [Back]

Note 4   [1926] AC 1.    [Back]

Note 5   [1935] A.C. 398.    [Back]

Note 6   [1927] A.C. 312    [Back]

Note 7   1912 S.C. 1108.    [Back]

Note 8   [1926] AC 37.    [Back]

Note 9   10 TC 118; [1926] AC 1.    [Back]

Note 10   36 T.C. 239; [1955] 1 W.L.R. 1087.    [Back]

Note 11   [1935] A.C. 398.    [Back]

Note 12   [1926] AC 37.    [Back]

Note 13   19 TC 255.    [Back]

Note 14   10 TC 88    [Back]

Note 15   19 TC 255, at p. 289.    [Back]

Note 16   Ibid., at p. 290    [Back]

Note 17   Ibid., at p. 288.    [Back]

Note 18   19 TC 255, at p. 288.    [Back]

Note 19   As amended by the Finance Act 1963, s. 13    [Back]

Note 20   See page 659 ante.    [Back]

Note 21   11 TC 297.    [Back]

Note 22   19 TC 255, at p. 290.    [Back]

Note 23   10 TC 88, at p. 113.    [Back]

Note 24   19 TC 255, at p. 290.    [Back]

Note 25   10 TC 88, at p. 113.    [Back]

Note 26   Cape Brandy Syndicate v. Commissioners of Inland Revenue, 12 TC 358, at p 366-[1921] 1 K.B. 64.    [Back]

Note 27    Canadian Eagle Oil Co. Ltd. v. The King, 27 TC 205. at p. 248, per Viscount Simon; [1946] A.C. 119.    [Back]

Note 28   [1969] 1 W.L.R. 1163, at p. 1172.    [Back]

Note 29   11 TC 297, at pp. 313, 321.    [Back]

Note 30   10 TC 88, at p. 113.    [Back]

Note 31   19 TC 255, at p. 290.    [Back]

Note 32   See page 668 ante.    [Back]