Vestey v Inland Revenue Commissioners
CHANCERY DIVISION
[1977] 3 All ER 1073, [1977] STC 414, 54 Tax Cas 503
HEARING-DATES: 27th, 28th, 29th JUNE, 29th JULY 1977
29 JULY 1977
CATCHWORDS:
Income tax — Avoidance — Transfer of assets abroad — Income payable to persons resident or domiciled out of United Kingdom — Persons resident out of United Kingdom — Settlement — Trustees — Transfer of assets to trustees resident out of United Kingdom to hold on discretionary trusts — Proper law of settlement law of Northern Ireland — Whether trustees 'persons resident out of United Kingdom' — Whether statutory provisions regarding tax avoidance applicable — Income Tax Act 1952, s 412, preamble.

Income tax — Avoidance — Transfer of assets abroad — Receipt by United Kingdom resident of capital sum payment whereof connected with transfer or associated operation — Any income which by reason of transfer or associated operation income of transfere deemed to be income of recipient of capital sum — Associated operation — Operation in relation to income arising from transferred assets or to assets representing the accumulations of income arising from such assets — Sub—accumulations — Capital sum paid out of accumulations of income of accumulations — Whether 'accumulations' including sub—accumulations of income — Whether payment 'connected with... associated operation' — Income Tax Act 1952, s 412(2)(4).

Income tax — Avoidance — Transfer of assets abroad —Receipt by United Kingdom resident of capital sum payment whereof connected with transfer or associated operation — Any income which by reason of transfer or associated operation income of transferee deemed to be income of recipient of capital sum — Any income — Settlement — Transfer of property to trustees abroad to hold on discretionary trusts — Investment of income from property to form capital fund — Income produced by investment of capital fund divided equally between two other funds — Accumulation and investment of income of each of those funds — Appointment of capital to beneficiary of one of those funds — Whether beneficiary chargeable to tax in respect of whole of income of settlement which had become payable to trustees thereafter — Income Tax Act 1952, s 412(2).

HEADNOTE:
By a settlement dated 25th March 1942 and governed by the law of Northern Ireland, the settlors, Sir Edmund Vestey ('Edmund') and Lord Vestey ('Samuel'), transferred certain overseas property to trustees resident outside the United Kingdom to hold on discretionary trusts for the benefit of Edmund's descendants, who included the taxpayer, and for Samuel's descendants. The settlement provided that the trustees were to invest the income received from the trust property so as to form a capital fund. The income of the capital fund was to be divided by the trustees into two halves, Edmund's fund and Samuel's fund, which were to be held on trust for Edmund's and Samuel's descendants respectively. Both funds were to be invested by the trustees, who were, on the direction of Edmund's manager and Samuel's manager, to accumulate the income and invest it, and the resulting income and accumulation of income were to form part of the capital of Edmund's fund and Samuel's fund respectively. The taxpayer was Edmund's manager and as such he had power under cl 4(D) a of the settlement to direct the trustees to appropriate or release any part of the capital of Edmund's fund and to pay it for the benefit of Edmund's descendants. Samuel's manager had, under cl 6(D), a similar power in respect of Samuel's fund. On 26th March 1942 the trustees leased the trust property to U Ltd. Pursuant to the terms of the settlement the rent was paid into a Belfast bank and was accumulated and invested by the trustees so as to form a capital fund. The income produced by the investment of the capital fund was divided equally between Edmund's fund and Samuel's fund. The trustees were directed by Edmund's manager and Samuel's manager to accumulate the income of the two funds by investing them and the resulting income therefrom. Between 1962 and 1966 appointments from capital were made under the powers contained in cll 4(D) and 6(D) of the settlement in favour of various beneficiaries, including the taxpayer, who was paid, under cl 4(D), £ 365,000. The Crown assessed him to tax under s 412 b of the Income Tax Act 1952 on the basis that on receipt of the capital sum he became chargeable to tax, under s 412(2), in respect of the whole of the income of the settlement not only in respect of the year in which the appointment was made but also thereafter. The other appointees were assessed in the same way but the Crown voluntarily restricted the quantum of the assessments so that it did not in any year assess the appointees overall with income in excess of that actually received in that year by the trustees. The taxpayer appealed, contending, inter alia, (i) that s 412 did not apply in respect of the income payable to the trustees as a result of the transfer, because, although they were personally resident outside the United Kingdom, they were not 'persons resident... out of the United Kingdom', within the meaning of the preamble to s 412, since they had to be treated for the purposes of that section as resident within the jurisdiction in that the proper law of the settlement was that of Northern Ireland; (ii) that, since the capital sum originated from accumulations of income of accumulations, the appointment was not an 'associated operation', within s 412(4), i e 'an operation... in relation to... income arising from any [transferred] assets, or to assets representing... the accumulations of income arising from any such assets', so that the payment to him was not 'in any way way connected with an associated operation' within s 412(2); and (iii) that, in any event, the extent to which the income of the trustees was attributable to him under s 412(2) was limited to the sum actually appointed to him. The Special Commissioners upheld the assessments and the taxpayer appealed.

a Clause 4(D) is set out at p 1092 c to e, post

b Section 412 is set out at p 1085 a to p 1086 e, post

Held — (i) On the true construction of the preamble to s 412 the phrase 'persons resident... out of the United Kingdom' included trustees resident out of the United Kingdom to whom income was payable in a fiduciary capacity. It followed that the requirements of the preamble were satisfied since there had been under the settlement a transfer of assets by virtue or in consequence whereof income became payable to persons resident out of the United Kingdom (see p 1089 b c, post).

(ii) The appointment was an 'associated operation', within s 412(4), because the word 'accumulations' in the plural was intended to include sub-accumulations of income (see p 1089 f to h, post).

(iii) The taxpayer's liability was limited to the sum actually appointed to him because (a) on a true reading of the 1952 Act it was clear that it was not intended that, where an individual ordinarily resident in the United Kingdom received a capital sum by way of appointment under a discretionary power contained in a settlement of assets which had been the subject of a transfer of the kind mentioned in the preamble, the whole of the income which by reason of the transfer had become the income of a person resident or domiciled out of the United Kingdom should be deemed, under s 412(2), to be the individual's income without limit of time and that it was intended the capital sum should to some or a complete extent be treated as income; and in consequence s 412(2) had to be read as if the words 'to the extent which it comprises' had been inserted before the words 'any income' and the word 'it' had been added after 'United Kingdom'; (b) the phrase 'any income' in s 412(2) meant any current income which had become the income of a person resident or domiciled out of the United Kingdom. Since the 'capital' payment to the taxpayer was in fact a payment out of income, he fell to be assessed only in the year of receipt in respect of the whole of the sum. It followed that the appeal would be allowed (see p 1088 a to e and h j, p 1089 d e and p 1098 a b, post); dictum of Earl Loreburn in Drummond v Collins (Inspector of Taxes) [1915] AC at 1017 applied.

NOTES:
For avoidance of tax by means of the transfer of assets abroad, see 20 Halsbury's Laws (3rd Edn) 588-593, paras 1154-1163, and for cases on the subject, see 28(1) Digest (Reissue) 439-445, 1579-1592.

For the Income Tax Act 1952, s 412, see 31 Halsbury's Statutes (2nd Edn) 390.

For 1970-71 and subsequent years of assessment, s 412 of the 1952 Act has been replaced by the Income and Corporation Taxes Act 1970, s 478.

CASES-REF-TO:
%Bambridge v Inland Revenue Comrs [1955] 3 All ER 812, [1955] 1 WLR 1329, 36 Tax Cas 313, [1955] TR 295, 48 R & IT 814, 34 ATC 181, HL; affg [1954] 3 All ER 682, [1954] 1 WLR 1460, [1954] TR 375, 48 R & IT 63, 33 ATC 393, CA; rvsg in part [1954] 3 All ER 86, [1954] 1 WLR 1265, [1954] TR 255, 47 R & IT 466, 33 ATC 267, 28(1) Digest (Reissue) 440, 1582.
Bates v Inland Revenue Comrs [1967] 1 All ER 84, [1968] AC 483, [1967] 2 WLR 60, 44 Tax Cas 225, [1966] TR 369, HL; affg [1965] 3 All ER 64, [1965] 1 WLR 1133, [1965] TR 189, CA, 28(1) Digest (Reissue) 429, 1552.
Congreve v Inland Revenue Comrs [1948] 1 All ER 948, 30 Tax Cas 163, [1948] LJR 1229, 27 ATC 102, 41 R & IT 319, HL; affg [1947] 1 All ER 168, CA; rvsg [1946] 2 All ER 170, 28(1) Digest (Reissue) 443, 1590.
Drummond v Collins (Inspector of Taxes) [1915] AC 1011, 6 Tax Cas 525, 84 LJKB 1690, 113 LT 665, HL, 28(1) Digest (Repl) 302, 1039.
Howard de Walden (Lord) v Inland Revenue Comrs [1942] 1 All ER 287, [1942] 1 KB 389, 25 Tax Cas 121, 111 LJKB 273, CA, 28(1) Digest (Reissue) 442, 1586.
Somech (deceased), Re, Westminster Bank Ltd v Phillips [1956] 3 All ER 523, [1957] Ch 165, [1956] 3 WLR 763, 23 Digest (Repl) 457, 5268.

CASES-CITED:

Astor v Perry (Inspector of Taxes), Duncan v Adamson (Inspector of Taxes) [1935] AC 398, [1935] All ER Rep 713, 19 Tax Cas 255, HL.
Chetwode (Lord) v Inland Revenue Comrs [1977] 1 All ER 638, [1977] 1 WLR 248, [1977] STC 64, HL.
Colquhoun (Surveyor of Taxes) v Brooks (1889) 14 App Cas 493, [1886-90] All ER Rep 1063, 2 Tax Cas 490, HL.
Herbert (Lord) v Inland Revenue Comrs [1943] 1 All ER 336, [1943] 1 KB 288, 25 Tax Cas 93.
Inland Revenue Comrs v Herdman [1969] 1 All ER 495, [1969] 1 WLR 323, 45 Tax Cas 394, HL.
Inland Revenue Comrs v Mills [1974] 1 All ER 722, [1975] AC 38, [1974] STC 130, 49 Tax Cas 367, HL.
Kelly (Inspector of Taxes) v Rogers [1935] 2 KB 446, 19 Tax Cas 692, CA.
Lockwood, Re, Atherton v Brooke [1957] 3 All ER 52, [1958] Ch 231.
Luke v Inland Revenue Comrs [1963] 1 All ER 655, [1963] AC 557, 40 Tax Cas 630, HL.
Mangin v Inland Revenue Comr [1971] 1 All ER 179, [1971] AC 739, PC.
Morelle Ltd v Wakeling [1955] 1 All ER 708, [1955] 2 QB 379, CA.
Reid's Trustees v Inland Revenue Comrs 1929 SC 439, 14 Tax Cas 512.
Western Bank Ltd v Schindler [1976] 2 All ER 393, [1977] Ch 1, HL.

INTRODUCTION:
Cases stated. (1) Ronald Arthur Vestey v Inland Revenue Comrs

1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 14th, 15th, 16th, 17th, 18th, 21st and 22nd January 1974 and 25th March 1975 Ronald Arthur Vestey ('the taxpayer') appealed against the following assessments to income tax and surtax:

`1963-64 income tax £140,000`	`surtax £140,000`
`1964-65 income tax £140,000`	`surtax £28,500`
`1965-66 income tax £140,000`	`surtax £20,000`
`1966-67 income tax £140,000`	`surtax £140,000`

`1963-64 income tax £350,000`	`surtax £16,500`
`1966-67 income tax £350,000`	`surtax £38,772`

`1963-64 income tax £37,500`	`surtax £37,500`
`1964-65 income tax £37,500`	`surtax £37,500`
`1965-66 income tax £37,500`	`surtax £34,200`
`1966-67 income tax £37,500`	`surtax £37,500`

2. Shortly stated the qeustion for the commissioners' decision was whether the taxpayer had incurred liability under s 412 of the Income Tax Act 1952 in respect of certain capital payments to his wife Jane McLean by the trustees of a settlement dated 25th March 1942.

3. The circumstances under which the assessments under appeal were made, the facts relating thereto, and the contentions of the parties, were set out in the case stated in connection with the appeals of Ronald Arthur Vestey n1 which raised the same questions. The taxpayer and his wife were ordinarily resident in the United Kingdom in the years under appeal.

n1 See p 1075, ante

4. For the reasons which the commissioners gave in relation to the appeals of Ronald Arthur Vestey n2 they dismissed the taxpayer's appeals and adjusted the assessments in accordance with the figures agreed between the parties.

n2 See pp 1079-1081, ante

5. The taxpayer immediately after the determination of the appeals declared to the commissioners his dissatisfaction therewith as being erroneous in point of law and on 20th June 1975 required them to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970, s 56, which case they stated and signed accordingly. The question of law for the opinion of the court was the same as that in the case of Ronald Arthur Vestey.

(4) Payne v Inland Revenue Comrs

1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 14th, 15th, 16th, 17th, 18th, 21st and 22nd January 1974 and 25th March 1975 James Gladstone Payne ('the taxpayer') appealed against the following assessments to income tax and surtax:

`1963-64 income tax £37,500`	`surtax £37,500`
`1964-65 income tax £37,500`	`surtax £37,500`
`1965-66 income tax £37,500`	`surtax £37,500`
`1966-67 income tax £37,500`	`surtax £37,500`

`1963-64 income tax £75,000`	`surtax £75,000`
`1964-65 income tax £75,000`	`surtax £75,000`
`1965-66 income tax £75,000`	`surtax £75,000`

`1963-64 income tax £350,000`	`surtax £350,000`
`1964-65 income tax £350,000`	`surtax £350,000`
`1965-66 income tax £350,000`	`surtax £350,000`
`1966-67 income tax £350,000`	`surtax £40,000`

2. Shortly stated the question for the commissioners' decision was whether the taxpayer had incurred liability to tax under s 412 of the Income Tax Act 1952 in respect of certain capital payments made to him by the trustees of a settlement dated 25th March 1942.

3. The circumstances under which the assessments under appeal were made, the facts relating thereto, and the contentions of the parties, were set out in the case stated in connection with the appeals of Ronald Arthur Vestey n1 which raised the same questions. The taxpayer was ordinarily resident in the United Kingdom in the years under appeal.

n1 See p 1075, ante

4. For the reasons which the commissioners gave in relation to the appeals of Ronald Arthur Vestey n2 they dismissed the taxpayer's appeals and adjusted the assessments in accordance with the figures agreed between the parties.

n2 See pp 1079-1081, ante

5. The taxpayer immediately after the determination of the appeals declared to the commissioners his dissatisfaction therewith as being erroneous in point of law and on 20th June 1975 required them to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970, s 56, which case they stated and signed accordingly. The question of law for the opinion of the court was the same as that in the case of Ronald Arthur Vestey.

COUNSEL:
D C Potter QC and James Holroyd Pearce for the taxpayers. The Solicitor-General (Peter Archer QC), Michael Nolan QC, Brian Davenport and Peter Gibson for the Crown.

JUDGMENT-READ:
Cur adv vult. 29th July.

PANEL: WALTON J

JUDGMENTBY-1: WALTON J

JUDGMENT-1:
WALTON J read the following judgment: This case raises, yet once again, troublesome questions of construction under what is now s 478 of the Income and Corporation Taxes Act 1970, but which was, at all relevant times, s 412 of the Income Tax Act 1952, and to which I will refer as such. That section reads as follows:

'For the purpose of preventing the avoiding by individuals ordinarily resident in the United Kingdom of liability to income tax by means of transfers of assets by virtue or in consequence whereof, either alone or in conjunction with associated operations, income becomes payable to persons resident or domiciled out of the United Kingdom, it is hereby enacted as follows:

'(1) Where such an individual has by means of any such transfer, either alone or in conjunction with associated operations, acquired any rights by virtue of which he has, within the meaning of this section, power to enjoy, whether forth-with or in the future, any income of a person resident or domiciled out of the United Kingdom which, if it were income of that individual received by him in the United Kingdom, would be chargeable to income tax by deduction or otherwise, that income shall, whether it would or would not have been chargeable to income tax apart from the provisions of this section, be deemed to be income of that individual for all the purposes of this Act.

'(2) Where, whether before or after any such transfer, such an individual receives or is entitled to receive any capital sum the payment whereof is in any way connected with the transfer or any associated operation, any income which, by virtue or in consequence of the transfer, either alone or in conjunction with associated operations, has become the income of a person resident or domiciled out of the United Kingdom shall, whether it would or would not have been chargeable to income tax apart from the provisions of this section, be deemed to be the income of that individual for all the purposes of this Act.

In this subsection, "capital sum" means -- (a) any sum paid or payable by way of loan or repayment of a loan; and (b) any other sum paid or payable otherwise than as income, being a sum which is not paid or payable for full consideration in money or money's worth.

'(3) Subsections (1) and (2) of this section shall not apply if the individual shows in writing or otherwise to the satisfaction of the Special Commissioners either -- (a) that the purpose of avoiding liability to taxation was not the purpose or one of the purposes for which the transfer or associated operations or any of them were effected; or (b) that the transfer and any associated operations were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation.

'(4) For the purposes of this section, "an associated operation" means, in relation to any transfer, an operation of any kind effected by any person in relation to any of the assets transferred or any assets representing, whether directly or indirectly, any of the assets transferred, or to the income arising from any such assets, or to any assets representing, whether directly or indirectly, the accumulations of income arising from any such assets.

'(5) An individual shall, for the purposes of this section, be deemed to have power to enjoy income of a person resident or domiciled out of the United Kingdom if -- (a) the income is in fact so dealt with by any person as to be calculated, at some point of time, and whether in the form of income or not, to enure for the benefit of the individual; or (b) the receipt or accrual of the income operates to increase the value to the individual of any assets held by him or for his benefit; or (c) the individual receives or is entitled to receive, at any time, any benefit provided or to be provided out of that income or out of moneys which are or will be available for the purpose by reason of the effect or successive effects of the assoicated operations on that income and on any assets which directly or indirectly represent that income; or (d) the individual has power, by means of the exercise of any power of appointment or power of revocation or otherwise, to obtain for himself, whether with or without the consent of any other person, the beneficial enjoyment of the income, or may, in the event of the exercise of any power vested in any other person, become entitled to the beneficial enjoyment of the income; or (e) the individual is able in any manner whatsoever, and whether directly or indirectly, to control the application of the income.

'(6) In determining whether an individual has power to enjoy income within the meaning of this section, regard shall be had to the substantial result and effect of the transfer and any associated operations, and all benefits which may at any time accrue to the individual as a result of the transfer and any associated operations shall be taken into account irrespective of the nature or form of the benefits.

'(7) For the purposes of this section, any body corporate incorporated outside the United Kingdom shall be treated as if it were resident out of the United Kingdom whether it is so resident or not.

'(8) For the purposes of this section -- (a) a reference to an individual shall be deemed to include the wife or husband of the individual; (b) "assets" includes property or rights of any kind, and "transfer", in relation to rights, includes the creation of those rights; (c) "benefit" includes a payment of any kind; (d) references to income of a person resident or domiciled out of the United Kingdom shall, where the amount of the income of a company for any year or period has been apportioned under Chapter III of Part IX of this Act, include references to so much of the income of the company for that year or period as is equal to the amount so apportioned to that person; (e) references to assets representing any assets, income or accumulations of income include references to shares in or obligations of any company to which, or obligations of any other person to whom, those assets, that income or those accumulations are or have been transferred.'

I shall, of course, have to consider the facts in some little detail hereafter, but the main question which arises on this appeal is what, on the true construction of this section, is the position where discretionary beneficiaries under a settlement of assets so transferred as described in the preamble to the section, a settlement not made by them, receive capital sums by way of appointment pursuant to powers conferred by such settlement. Is the effect, as contended by the Crown, that, no matter how small the sum so appointed may be, it entails liability on the person to whom it is so appointed to be assessed to tax in respect of the whole of the income of the settlement, and that not only in respect of the year in which the appointment is made but for ever thereafter, at any rate, so long as the settlement still exists, and possibly longer, namely until death brings a merciful release from the clutches of the section and the Revenue? And that not only this appointee but each and every appointee is similarly so liable, so that in strict theory (whatever may be done by way of administrative action by the Crown) the Crown is entitled to as many times the tax on the income as there have been distinct appointees, year by year, subject only to the merciful releases in the case of any individual to which I have already referred? Or, on the other hand, is liability limited; and, if so, how and by what provision of the section?

It will at once be seen that the precise problems with which this appeal is concerned arise under sub-s (2) of the section, and they do not appear to have been previously considered by any court. I commence with certain matters which I think are clear, or which I, sitting in a court of first instance, am bound to take as being clear. First, in the construction of this section the preamble forms part of it and must be taken into account accordingly: see per Cohen LJ and Lord Simonds in Congreve v Inland Revenue Comrs n1. Secondly, the words 'such an individual' in sub-ss (1) and (2) only mean an individual ordinarily resident in the United Kingdom (as indicated by the preamble) and are not restricted to the person originally transferring the assets. Whatever might be said as to the true nature of the ratio decidendi in Congreve v Inland Revenue Comrs n1 in the House of Lords, this was the opinion expressed by their Lordships; and in Bambridge v Inland Revenue Comrs n2 this was the subject-matter of actual decision by the Court of Appeal. In these circumstances, although much attracted by an argument by counsel for the taxpayer to the effect that the true intent of the section was to confine liability to the transferor himself, especially in view of the provisions of sub-s (8)(a), which, pace some extraordinarily ingenious suggestions by counsel for the Crown, do not otherwise make good sense, I think I am bound by the Bambridge case n2 in this regard and I shall simply follow it. It should be recorded that counsel for the taxpayer expressly challenged the decision in both of these cases, so that he may be able to address his arguments later to a tribunal which, unlike this court, could if it chose give effect to them.

n1 [1947] 1 All ER 168 at 172, 30 Tax Cas 162 at 196; [1948] 1 All ER 948 at 952, 30 Tax Cas 163 at 204

n1 [1948] 1 All ER 948, 30 Tax Cas 163

n2 [1955] 3 All ER 812, [1955] 1 WLR 1329, 36 Tax Cas 313

Thirdly, this whole section is a penal section, intended to punish individuals who have the temerity to avoid, or attempt to avoid, tax in the manner struck at by the section. This clearly appears from the speech of Lord Greene MR in Lord Howard de Walden v Inland Revenue Comrs n3. Thus, for example, as appears from that case itself, the receipt or accrual of the income to the 'person resident or domiciled out of the United Kingdom' may increase the value of assets held by the individual in question only to the most minimal extent, and he may yet, by virtue of sub-s (5), be deemed to have power to enjoy the whole of the income, which thus becomes his income for the purposes of sub-s (1).

n3 [1942] 1 All ER 287 at 289, [1942] 1 KB 389 at 397, 25 Tax Cas 121 at 134

It should be pointed out, I think, that the 'crime' in respect of which this penalty is exacted is a very odd one. So far as the section is concerned, the possessor of assets may freely give them to persons residing outside the United Kingdom for no consideration, and no consequences whatsoever follow, however much this country's overall balance of payments may be harmed. It is only when some benefit accrues to a United Kingdom resident that the penalties are incurred; that is to say, when this country's overall balance of payments is benefited.It therefore appears in the eyes of the Revenue to be a 'crime' to obtain a tax advantage for oneself or for one's nominee, but no 'crime' at all to damage this country's international monetary position. I, for one, find this scale of values a difficult one to appreciate.

It is also convenient at this point to note that, as a pure matter of fact, the income of the foreign recipient in this case was brought back into the United Kingdom, Northern Ireland, by the foreign residents. But it was never taxed there when it was so brought back; and, although such return is a curious fact, I do not think that at the end of the day it affects anything I have to decide.

Now one can appreciate the scope and nature of a penal section in direct connection with the person who procured the transfer of the assets which grounds liability under this section: that is the case of Lord Howard de Walden n4 himself. It requires only a slight stretch of the imagination to appreciate its scope in relation to any single person who succeeds to that position, and this was the case in Bambridge v Inland Revenue Comrs n2. It is, however, difficult to appreciate the logic of a section being penal when the penalties are imposed, if the Crown are right in the present case, not on persons who had any direct hand in the transfer, or persons who succeeded to the positions of persons who had such a direct hand, but on persons who might not even have been born at the date of the transfer and accompanying settlement. One can see that, as an extreme measure, the intendment of the section might require the complete confiscation of all benefits such persons received. We are nowadays so accustomed to confiscation of the top slice of income (such top rate being 98 per cent) and of the top slice of capital (at the rate of 75 per cent) that such rates no longer strike us as being the penalty on hard work and thrift that they really are. But, if the provisions of sub-s (2) are taken au pied de la lettre, if any individual ordinarily resident in the United Kingdom receives by way of appointment under a discretionary power contained in a settlement of assets which have been subject to such a transfer as is mentioned in the preamble to the section, then the whole of the income which by reason of the transfer has become the income of a person resident or domiciled out of the United Kingdom is to be deemed his income, and, according to the Crown, without limit of time. It equally follows that, if there are in fact a number of such appointments to different persons, the income is deemed to be the income of each one: so that the Crown is, at the end of the day, entitled to multiple tax, the multiplier being the number of different appointments made. No wonder the Solicitor-General was moved to say that the provisions of the section contain a trap for all beneficiaries thereunder, and that they ought at once to disclaim all interest. And this is odd, because, if the trustees of the settlement merely paid the sums by way of income and not capital, no penal results whatever would apparently befall the innocent beneficiaries: see the definition of 'capita sum' at the end of sub-s (2).

n2 [1955] 3 All ER 812, [1955] 1 WLR 1329, 36 Tax Cas 313

n4 [1942] 1 All ER 287, [1942] 1 KB 389, 25 Tax Cas 121

I refuse to believe that Parliament can ever have intended such an unjust solution to the problem of preventing the transfer of assets abroad with a view to avoiding tax, no matter how pressing the problem. I take the general approach which I ought to adopt from the speech of Earl Loreburn in Drummond v Collins (Inspector of Taxes) n1

'... Courts of Law have cut down or even contradicted the language of the Legislature when on a full view of the Act, considering its scheme and its machinery and the manifest purpose of it, they have thought that a particular case or class of cases was not intended to fall within the taxing clause relied upon by the Crown.'

n1 [1915] AC 1011 at 1017, 6 Tax Cas 525 at 538, 539
Here I think that overkill is one thing, but overkill on the lines and to the extent suggested by the wording of the section can never have been intended. The difficulty, of course, lies in suggesting a suitable emendation of the words of the subsection to give effect to what Parliament must have intended, namely that the capital sums should, to some or a complete extent, be treated as income. I was for a long time attracted by a suggestion of counsel for the taxpayer that a suitable emendation would be to add the word 'those' in sub-s (2) before the words 'associated operations' where they secondly occur, thus confining the income to that dealt with in the associated operation whereunder the beneficiary took his interest -- the appointment. If this emendation had the result contended for by counsel for the taxpayer, then one would have to go back to the appointment, see what amount of income of the assets transferred was therein dealt with, and that would be the amount of income deemed to be the income of the appointee. On consideration, I do not think that the suggested emendation would, in fact, have that result, because it is not 'in conjunction with those associated operations', i e the appointment, that the income has become the income of the trustees. The trustees have the income by virtue of the transfer (and possibly, in other cases, by virtue of associated operations) but never by virtue of the precise associated operation (the appointment) under which the appointee takes his benefits.I therefore think that a rather bolder emendation is called for, and I would suggest the addition of some such words as 'to the extent to which it comprises' before the words 'any income' and the word 'it' after 'United Kingdom'. I am fully conscious that I am cutting down the language of the subsection; I think I have the authority of Earl Loreburn for so doing.

There are some minor points of construction which arise. The preamble brings the section into operation where income becomes payable to persons resident or domiciled out of the United Kingdom. Counsel for the taxpayer sought to maintain that where, as is the fact of the present case, and will doubtless frequently be the case, the persons in question are trustees, it appears wholly arbitrary that liability should depend on their particular residences, which may very well change, and that one ought to fix on some more constant feature of the trust, which would obviously, he submitted, be the proper law; and, if that were to be sought in the present case, it would be found to be that of Northern Ireland, and hence not out of the United Kingdom. I found these submissions unconvincing. It appears to me that there can be no sufficient reason for not taking those words in the preamble, at any rate, at their full face value, and on their natural and ordinary meaning they include trustees. Indeed, the framers of the section must have been well aware that in most cases they would be dealing with trusts, and this is in numerous places actually demonstrated in the language used. Purely by way of example, sub-s (5)(d), dealing with powers of appointment, must be dealing with trusts of some kind.

Counsel for the taxpayer had a further point on sub-s (2) which I must notice. He called attention to the words 'any income which... has become the income of a person resident or domiciled out of the United Kingdom', and submitted that this limited the assessment of the person who had received the capital sum to income received by the trustee prior to the date of receipt of the capital sum. I am not entirely certain that, if read in this way, the words would not produce just as great an injustice as the Crown's interpretation produces, for then, as I see it, it would mean that the capital beneficiary could be assessed retrospectively (admittedly only for a period of six years) on the trust income. I think, however, that the more natural meaning is that those words merely indicate the income of the trustees, the current income, but which 'has become' theirs by reason of the transfer and associated operations. As was pointed out on behalf of the Crown, since a capital sum is envisaged by the section as possibly having been received before any transfer takes place, counsel for the taxpayer's construction would ensure that in such circumstances no tax was payable at all, which certainly cannot have been intended.

Counsel for the taxpayer also had a point on sub-s (4), which contains the definition of 'associated operation'. He says that, as regards income, that deals with the income arising from the transferred assets, and to income arising from such assets; but does not extend to the income of such income, or the income of such income of such income, and so on down the chain of accumulation. Having regard to the somewhat unusual provisions of the settlement here actually in question, if this submission were correct it would follow that the appointments to the various beneficiaries which have actually taken place would not be 'associated operation', as they have all been in relation to the income arising from accumulated income. I see no reason, however, for giving sub-s (4) such a restricted meaning. I think the question all turns on the meaning of the word 'accumulations', which is, I think, wide enough to carry the implication of sub-accumulations of income, the 'sub' being raised to any power consistent with the facts. Counsel for the taxpayer said that 'accumulations' was put in the plural because 'accumulation', in the singular, may denote either the act of accumulating or the accumulated fund, whereas the plural contains only one meaning; but I cannot accept that. The phrase here in question is 'assets representing... the accumulations', and if a single accumulation and no sub-accumulation was intended, the singular could have been used with not the slightest risk of any misconstruction.

Having thus dealt with the difficult problems of construction which arise in this case, I turn to the facts. I have before me six effective appeals from decisions of the Special Commissioners. A seventh appeal is listed, that of New Holding & Finance Co Ltd, but this appeal has been abandoned, and in any event it raised a wholly different point. Save for one special point in relation to the appeal of Mark William Vestey, which I must consider separately, the appeals all raise the same points as they arise out of similar facts, and I shall take the facts as they are found by the Special Commissioners in para 5 of the case stated in respect of Ronald Arthur Vestey.

'(3) By a Settlement dated 25 March 1942 (hereinafter referred to as "the 1942 Settlement") made between Sir Edmund Hoyle Vestey and Lord Vestey as Settlors of the one part and James Flynn and Reginald Beak as Trustees of the second part and Ulster Bank Ltd of the third part, the Settlors settled the property described in the Schedule thereto. The material parts of the Settlement are as follows:

'"1. In this Deed the following expressions have the following meanings respectively: (a) 'The Trustees' means the parties hereto of the second part and their successors in title as trustees or trustee for the time being of this Deed. (b) 'The Company' means the said Ulster Bank Limited. (c) 'The Joint Managers' means Ronald Arthur Vestey (the elder now surviving son of Sir Edmund Vestey) and the Honourable William Howarth Vestey (the son of Lord Vestey) together during their joint lives and the survivor of them during his life after the death of either of them and after the death of both of them such person or persons (whether individual or corporate) as they jointly by any deed or deeds revocable or irrevocable or as the survivor of them in like manner or by Will or Codicil shall designate for this purpose (and so that they or the survivor of them may make and authorise delegation and sub-delegation in any manner and to any extent of the exercise of this power of designation whether before or after the death of such survivor but due regard being had to the law concerning remoteness) or in default of and subject to any such designation Edmund's Manager and Samuel's Manager hereinafter defined. (d) 'Edmund's Manager' means the [taxpayer] during his life and after his death such person or persons (whether individual or corporate) as he shall by any deed or deeds revocable or irrevocable or by Will or Codicil designate for this purpose (and so that he may make and authorise delegation and sub-delegation in any manner and to any extent of the exercise of this power of designation whether before or after his own death but due regard being had to the law concerning remoteness) or in default of and subject to any such designation his personal representatives. (e) 'Samuel's Manager' means the said William Howarth Vestey during his life and after his death such person or persons (whether individual or corporate) as he shall by any deed or deeds revocable or irrevocable or by Will or Codicil designate for this purpose (and so that he may make and authorise delegation and sub-delegation in any manner and to any extent of the exercise of this power of designation whether before or after his own death but due regard being had to the law concerning remoteness) or in default of and subject to any such designation his personal representatives. (f) 'The Trust Property' means the capital property rights and interests assured or covenanted to be assured by Clause 2 hereof and all moneys investments and property at any time representing the same or added to the Trust Property as capital by way of further Settlement or otherwise. (g) 'The Specified Period' means the period from the date of this Deed until whichever of the three following dates or events shall first occur namely (i) the 1st day of January 2030 (ii) the expiration of 20 years after the death of the survivor of the issue actually born before the date of this Deed of the late Right Honourable William Baron Vestey and Sir Edmund Vestey and His late Majesty King Edward VII respectively and (iii) the failure by death of all the issue (whether present or future) of Sir Edmund Vestey and the said William Baron Vestey respectively except Lord Vestey himself and so that all his issue shall for the purposes of this Deed be deemed to have definitely failed by death if and when no issue of his shall be living (and notwithstanding that he may be still alive) and similarly with regard to Sir Edmund Vestey and his issue. (h) 'The Prescribed Term' means the term from the date of this Deed until the 1st day of January 1963 or the earlier end of the Specified Period or until such if any date either before or after the said 1st day of January 1963 (but not after the 1st day of January 1984 or the end of the Specified Period) as the Joint Managers while not less than two in number or (if and while the Joint Managers shall be a single person) as Edmund's Manager and Samuel's Manager together shall appoint by any deed or deeds executed in each case during the continuance of the Prescribed Term as then existing and so that the Prescribed Term may be thus repeatedly extended by successive deeds or ended by deed at any time.

'"2. THE Settlors together as Settlors in respect of all the property in this clause hereinafter mentioned except that marked [with a star] in the margin of the Schedule hereto And Lord Vestey alone as Settlor in respect of such excepted property [in short, convey the property to the Trustees].

'"3. THE Trustees shall henceforth hold the Trust Property and the income thereof UPON THE TRUSTS and with and subject to the powers and provisions following that is to say: (i) During the Prescribed Term the Trustees shall receive in due course the income of the Trust Property and shall invest such income in manner hereinafter mentioned so as to form a capital fund (hereinafter called 'the Rental Fund'). (ii) From and after the end of the Prescribed Term the Trustees shall divide the Rental Fund or treat it as divided into two moieties and shall hold such moieties upon the trusts and with and subject to the powers and provisions hereinafter contained concerning the same respectively And one or the first of the said moieties [and what represents it] is hereinafter called 'Edmund's Fund' and the other [and what represents it] is hereinafter called 'Samuel's Fund'. (iii) Until the end of the Prescribed Term the Trustees shall divide the income (as and when received) of the Rental Fund or treat it as divided into two moieties and shall hold one or the first moiety of such income upon the trusts and with and subject to the powers and provisions (including the power of accumulation) which would for the time being be applicable hereunder to the income of Edmund's Fund if already in possession [and the other] to the income of Samuel's Fund if already in possession... (iv) Subject to the foregoing trusts the Trustee shall hold the Trust Property and the income thereof IN TRUST for the said Ronald Arthur Vestey and William Howarth Vestey absolutely in equal shares.

'"4. (A) THE Trustees shall invest or keep invested Edmund's Fund in manner hereinafter mentioned and shall if and whenever so directed in writing from time to time by Edmund's Manager accumulate for such period or periods within the Specified Period as may be prescribed by direction as aforesaid the whole or any part or parts of the income (not actually distributed before the relevant direction) of Edmund's Fund by investing the same and (if and so far as so directed) the resulting income thereof in manner hereinafter mentioned and all accumulations of income so made shall be added to and form part of the capital of Edmund's Fund.

'"(B) SUBJECT to the last foregoing power of accumulation and to the provisions hereinafter contained the Trustees during the Specified Period shall hold the income of Edmund's Fund UPON TRUST for all or any one or more of the following persons for the time being living (within the Specified Period) that is to say the said Ronald Arthur Vestey and his issue or (if and while no issue of his shall be living) the issue of Sir Edmund Vestey in such amounts or shares at or for such times or periods and in such manner in all respects as Edmund's Manager shall from time to time in writing direct [and then there is an exception to that which I do not think I need read; then:] And in default of and subject to any such direction UPON TRUST for the issue for the time being living of the said Ronald Arthur Vestey in equal shares per stirpes (while more than one) during the respective lives of such issue within the Specified Period or in the event of and after the failure by death of the said Ronald Arthur Vestey and all his issue (whether present or future) then UPON TRUST for the issue for the time being living of Sir Edmund Vestey in equal shares per stirpes (while more than one) during the respective lives of such issue within the Specified Period But so that in the case of each such person (in this Clause 4 hereinafter called 'the Beneficiary') including the said Ronald Arthur Vestey and each one of all the said issue the income concerned shall be paid to him or her only if and so long as no act or event (other than the execution or exercise of any trust or power contained in this Deed) shall [cause a forfeiture, and then there are provisions as to what happens from that].

'"(c) FROM and after the end of the Specified Period (if ending otherwise than by the death of a descendant of Sir Edmund Vestey) and subject to the provisions hereinafter contained the Trustees shall hold Edmund's Fund and the income thereof IN TRUST for the person or persons to whom as the beneficiary or beneficiaries the income of Edmund's Fund shall or but for any [forfeiture] would immediately before such end have been payable under sub-clause (B) of this clause (or any such direction or directions as first referred to in that sub-clause) and if more than one in the shares in which such income shall or would then have been so payable to them.

'"PROVIDED ALWAYS THAT: -- (D) Edmund's Manager may at any time or times within the Specified Period direct the Trustees to appropriate or realise or raise any part or parts of the capital of Demund's Fund and to pay the same to or apply the same for the benefit of the said Ronald Arthur Vestey or any one or more of his issue for the time being living or in the event of and after the failure by death of the said Ronald Arthur Vestey and all his issue (whether present or future) then any one or more of the issue for the time being living of Sir Edmund Vestey in such shares (if more than one) and in such manner as Edmund's Manager shall think proper and discharged from all the trusts powers and provisions of this Deed (And the Trustees shall give effect to any such direction accordingly) But while Edmund's Manager shall be a single individual [there is a restriction].

'"(E) Edmund's Manager may at any time or times within the Specified Period by any deed or deeds revocable or irrevocable appoint in the case of each or any person being issue of Sir Edmund Vestey that after the death of such person within the Specified Period any part not exceeding £ 3,000 per annum (free from death duties and expenses) and not exceeding in any event one half of the income which under sub-clause (B) of this clause would for the time being be payable to such person if he or she were still living (and if no such act or event as is mentioned in that sub-clause had been done or happened) shall be paid to any surviving wife or husband of such person (if cohabiting with such person at his or her death) during the life within the Specified Period of such wife or husband, [and then there is a restriction on that].

'"(F) DURING the Specified Period (but subject to the power given by sub-clause (D) of this clause) the Trustees shall keep Edmund's Fund as an undivided whole [and I do not think I need read any more of that].

'"(G) ANY accumulations of income or of any part or share of income of Edmund's Fund which may within the Specified Period be made under this Deed or any relevant statutory power (and whether during any minority or otherwise) shall forthwith be added to and shall thenceforth form part of the capital of Edmund's Fund (as an undivided whole) for all purposes and shall not be applicable as income at any subsequent time".'
Then there is another proviso, with a further proviso on that, which I need not read, those dealing with the question of forfeiture. Clause 5 reads:

'5. IF at any time during the Specified Period no issue of Sir Edmund Vestey shall be living or if at the end of the Specified Period some issue of his shall be living but none of them shall become entitled to Edmund's Fund under Clause 4 hereof then (subject to the foregoing powers and provisions and the provisions hereinafter contained) Edmund's Fund and the income thereof shall be added to and held upon with and subject to the same trusts powers and provisions as Samuel's Fund and the income thereof respectively and in the event of the failure or determination of such trusts powers and provisions (and subject thereto) shall be held IN TRUST for the said Ronald Arthur Vestey absolutely.'

Then there are similar provisions in cl 6 dealing with Samuel's Fund; cl 7 is the mirror image of cl 5 depending on 'at any time during the Specified Period no issue of the said William Baron Vestey (except Lord Vestey himself if still in existence)' being living. Then, cl 8 contains powers of management; and cl 9 contains powers of investment, which I do not think matter. Clause 11 provides:

'STRICT accounts of the trust premises both capital and income and of all dealings therewith shall be kept and shall be audited at least once in every year by a professional accountant or professional accountants to be appointed from time to time by the Joint Managers during the Prescribed Term or after the end thereof by Edmund's Manager in respect of Edmund's Fund and by Samuel's Manager in respect of Samuel's Fund...'
Clause 12, to which I have already directly referred, reads:

'THIS Deed shall be construed and operate according to the law of Northern Ireland in all respects and so that (subject to the express provisions hereof) all relevant Statutes including in particular the Conveyancing Act 1881 and the Trustee Act 1893 shall apply to this Deed and the trusts hereof...'
I do not think there is anything more in that which I need read. It of course follows from the provisions of cl 12 that the proper law of the 1942 settlement was Northern Irish, and in all relevant respects (save that the Thelluson Act n1 does not apply) such law is similar to that of England and Wales. Paragraph 5 of the case stated continues:

n1 Accumulations Act 1800

'(5) The 1942 Settlement was of property which the accounts refer to as Trust Property. The Settlement then created a Rental Fund which consisted of income arising from the Trust Property. Edmund's Fund and Samuel's Fund are the one half shares of the income of the Rental Fund, the names corresponding to the two branches of the Vestey family concerned in the appeals. William, first Baronet and first Baron, who died in 1940, was succeeded by Samuel, second Baron, who was one of the Settlors of the 1972 Settlement. Samuel died in 1954; his son, William Howarth, predeceased him leaving two sons, Samuel George Armstrong, the third Baron, and the Honourable Mark William Vestey. The other branch, so far as relevant, consisted of Edmund Hoyle Vestey, first Baronet (the other Settlor of the 1942 Settlement) one of his sons, Ronald Arthur Vestey (the [taxpayer]) and the [taxpayer's] children, Edmund Hoyle Vestey, Mrs Jane Baddeley and Mrs Margaret Payne.

'(6) By a Lease dated 26 March 1942 (hereinafter referred to as "the 1942 Lease") Messrs Flynn and Beak leased the property comprised in the 1942 Settlement to the Union Cold Storage Co Ltd for a term of twenty-one years from 10 April 1942 in continuation or extension of [an earlier demise made in 1921]. The 1942 Lease was expressed to be supplemental to the 1921 Lease and the property was demised to the Lessee at the same rent and on the same terms and conditions as were reserved and made payable and contained in and in the same manner as if all the operative parts of the 1921 Lease were therein repeated and made applicable accordingly with the substitution throughout of the Schedule thereto for the Schedules to the 1921 Lease and of the term thereby granted for that granted by the 1921 Lease and of the Lessors for the lessors of the 1921 Lease.'
The 1942 lease provided, first of all, that the rent should be payable to the lessors; secondly, that the powers to determine the lease by notice and to withdraw any part or parts of the demised premises should be exercisable by the new lessors; thirdly, that 'The Lessees shall not have power to determine this lease by notice before the 1st day of January 1950'; and, finally, that --

'The Lessors and the Lessees may at any time or times by agreement substitute other hereditaments and premises for any of those hereby demised either with or without any alteration of the rent hereby made payable...'
Paragraph 5 of the stated case continues:

'(7) In 1963 the 1942 Lease came to an end and a new lease was executed on 10 April 1963. The Lessors were the then Trustees of the 1942 Settlement (Messrs Flynn Beak and Drabble) of the one part and the Union International Co Ltd (formerly Union Cold Storage Co Ltd) Lessees of the other part. This Lease was expressed to be supplemental to the 1921 Lease and the 1942 Lease and the Lessors granted to the Lessees the hereditaments and premises referred to in the Schedule thereto (expressed to comprise the hereditaments and premises held by the Lessees under the 1942 Lease subject to certain deeds of withdrawal and substitution and certain other property) for the term of 21 years from 10 April 1963 at the same rent and upon the same terms and conditions as were contained in the 1921 Lease.

'(8) By a Settlement dated 3 January 1963 ("the 1963 Settlement") the [taxpayer] and Lord Vestey as Settlors of the first part and Messrs Flynn Beak and Drabble as Trustees of the second part and Ulster Bank Ltd of the third part, Settlors settled their respective interests in the property expectant on the determination of the Prescribed Term under the 1942 Settlement (1st January 1984) on the trusts therein mentioned. Those trusts were similar to the trusts contained in the 1942 Settlement...

'(9) The original Trustees of the 1942 Settlement, James Flynn and Reginald Stephens Beak, were resident and ordinarily resident in Uruguay and in the Argentine respectively. Additional trustees of the 1942 Settlement, none of whom were or are resident in the United Kingdom, were appointed [from time to time]. All the trustees of the 1942 and 1963 Settlements [except one] were employees of companies of the Vestey group. The Trustees meet infrequently, usually in Paris. The [taxpayer] and Mr Edward Brown meet the individuals acting as Trustees from time to time. The Trust securities were retained by the Ulster Bank Ltd in Belfast, Northern Ireland.

'(10) By a direction in writing of the Trustees dated 27 July 1950 the rent payable by the Lessee of the 1942 Lease was paid to the Ulster Bank Ltd in Belfast and there placed to the credit of an account in the name of the [taxpayer] called the "F & B account" maintained by him by authority of and on account of the Trustees. By further directions in writing dated 30 June 1967 and 12 December 1967 the Trustees for the time being authorised further payments of rent to be paid to the said Bank but to the credit of the account of the then Trustees.

'(11) By directions in writing given on 30 August 1942 by William Howarth Vestey as Samuel's Manager under Clause 6(A) of the 1942 Settlement and on 14 September 1942 by the [taxpayer] as Edmund's Manager under Clause 4(A) thereof, the trustees were directed to accumulate the whole of the income of Samuel's and Edmund's funds respectively by investing the same and the resulting income thereof, until otherwise directed...

'(12) The Joint Manager referred to in Clause 1(c) of the 1942 Settlement was at all material times the [taxpayer] who was also Edmund's Manager as defined by Clause 1(d) of the Settlement. After the death of William Howarth Vestey in 1944 Samuel's Manager was Mr Edward Brown until 19 March 1966 and thereafter Lord Vestey. The "Prescribed Term" as defined by Clause 1(h) of the 1942 Settlement by virtue of a Deed of Direction made on 2 November 1962 by the [taxpayer] and Mr Edward Brown was extended to 1 January 1984.

'(13) The rent payable under the 1942 Lease was paid quarterly to the Ulster Bank... and was accumulated and invested. The investments of the Rental Fund were ultimately to be divided into Edmund's Fund and Samuel's Fund on the expiration of the Prescribed Term on 1 January 1984 but for convenience separate accounts were kept of Edmund's Moiety and Samuel's Moiety. The Trustees' accounts accordingly showed the division of the funds and invested income under the following heads: -- The Trust Property Fund consisting of the freehold and leasehold properties plant and machinery comprised in the 1942 Lease valued at £ 18 million on 1 April 1942 (with adjustments for sales and purchases) together with other property and investments representing assets of the 1942 Settlement. The Rental Fund consisting of the accumulation of the Rent payable under the 1942 Lease. The Rental Fund Investments consisting of the proceeds of investment of the Rental Fund. Edmund's Fund consisting of a moiety of the income produced by the investments of the Rental Fund. Samuel's Fund consisting of the other moiety... The Trustees also prepared Income and Expenditure accounts which recorded the rents received and also the investment income from the above mentioned funds. The Trustees' Accounts were audited by a Certified Public Accountant in Uruguay and were kept in Uruguay...

'(14) The Trustees of the 1942 Settlement owned directly, or through nominees, all the shares in the following companies (hereinafter called "the offshore companies") -- (i) Commercial Insurance Corporation Limited was incorporated in 1922 and its share capital was purchased by the Trustees in 1944... It has a wholly-owned subsidiary company, New Holding & Finance Company Limited. (ii) The Commercial Investment Company Limited is a company incorporated and managed and controlled in Bermuda... (iii) The Salient Shipping Company (Bermuda) Limited is a company incorporated and managed and controlled in Bermuda...

'(15) New Holding & Finance Company Limited (hereafter referred to as "NHF") is a company incorporated and managed and controlled in England... All its share capital is owned by Commercial Insurance Corporation to whom it paid substantial dividends. For the years 1963/64 and 1965/66 the Commissioners of Inland Revenue issued directions and apportionments to NHF under section 245 of the Income Tax Act 1952 directing that its actual income (other than estate and trading income) should be deemed to be the income of its members (i e of the Commercial Insurance Corporation). NHF appealed against the directions and apportionments. [The Special Commissioners] heard the appeals of NHF together with the [other appeals in front of them] on the footing that if the said directions and apportionments were correct they operated to swell the income of the Commercial Insurance Corporation which (according to the Crown's contention) was deemed to be income of the [taxpayer]...

'(18) The following appointments from capital were made under the powers contained in Clauses 4(D) and 6(D) of the 1942 Settlement: --

`Appointor`	`Appointee`	`Date`	`Amount`
`The [taxpayer]`	`The [taxpayer]`	`29 October 1962`	`£215,000`
`as Edmund's`		`18 November 1964`	`£150,000`
`Manager with the`
`consent of Samuel's`
`Manager`
`under clause 4(D).`
	`Edmund Hoyle Vestey`	`1 January 1963`	`£700,000`
		`18 November 1966`	`£220,000`
	`Margaret Payne the`
`The [taxpayer] as`	`wife of James Gladstone`	`2 May 1966`	`£100,000`
`Edmund's Manager`	`Payne`
	`Jane McLean Baddeley`
	`the wife of John Richard`	`2 May 1966`	`£100,000`
	`Baddeley`
`Edward Brown as`	`Lord Vestey (the third`	`9 July 1962`	`£123,000`
`Samuel's Manager`	`Baron)`	`1 January 1963`	`£800,000`
`under clause`	`The Hon Mark William`
`6(D).`	`Vestey`	`1 January 1963`	`£200,000`
`...'`

Consequent on these appointments, the Crown has raised assessments on the recipients, or on the recipient's spouse where the recipient was a woman, in the year of receipt in question and subsequent years. The Crown has, however, restricted the quantum of such assessments so that in no year does it seek to assess the recipients overall with income in excess of that actually received in that year by the trustees. This is, of course, on the Crown's argument, a purely voluntary act on its part, but an act of considerable magnitude, seeing that it claims it is strictly entitled to exact tax on the whole income no less than six times over. The magnitude of this concession is, of course, in itself a tacit acknowledgment that the section can never have been intended to work in the manner the Crown claims that it does.

On these facts, counsel for the taxpayer submitted the following points: (1) that s 412 applied only where the taxpayer assessed himself made the transfer or caused it to be made; (2) that if this was not accepted owing to the decisions in Congreve v Inland Revenue Comrs n1 and Bambridge v Inland Revenue Comrs n2 then those cases should be distinguished, as they were not dealing with cases where (i) there was multiple liability and (ii) the Crown was claiming a discretionary right to determine which of the taxpayers were liable and for what proportion of the income; (3) that the capital sums in question having originated from accumulations of income of accumulations, the appointment was not, within sub-s (4), an associated operation; (4) that it was a necessary condition of liability under s 412 that the individual assessed was attempting to escape tax; (5) that the section did not apply to payments to trustees merely by reason of the fact that they were domiciled or resident outside the United Kingdom; (6) that the width of sub-s (2) should be limited by adding the word 'those' before the words 'associated operations' where they secondly occur, or, alternatively, by construing 'has' as 'has previously', so that no future assessments on the recipients of the capital sums would be possible; (7) that since the Hon Mark Vestey was an infant at the time when the relevant sum was appointed to him, and it was not paid to him but to his mother, he neither received nor was entitled to receive that sum, and so was outside the purview of sub-s (2); (8) that since the share capital of Commercial Insurance Corpn Ltd was purchased by the trustees, its income, as distinct from the income arising therefrom by way of dividends, does not accrue by reason of any chain of associated operations. The company's own income is therefore not within the description of 'income which, by virtue or in consequence of the transfer, either alone or in conjunction with associated operations', on which sub-s (2) operates. So neither the company's own income, nor any income of NHF apportioned to it under the surtax apportionment provisions of the 1952 Act, can be brought into account.

n1 [1948] 1 All ER 948, 30 Tax Cas 163

n2 [1955] 3 All ER 812, [1955] 1 WLR 1329, 36 Tax Cas 313

I have already indicated that I have rejected counsel for the taxpayer's first submission, bound thereto as I am by the Bambridge decision n1 in the Court of Appeal, if not also by the decision of the House of Lords in Congreve v Inland Revenue Comrs n2. As regards his second submission, for the reasons already given I do not regard these cases as applicable to the specific point of construction of sub-s (2); they deal with what is now sub-s (1) only. I have rejected his third point, and his fifth; and, as regards his sixth, I have rejected it as it stands but reached a conclusion which will presumably be satisfactory to him by a slightly bolder (although I trust pedantically justified) road. This leaves for consideration his fourth, seventh and eighth submissions.

n1 [1955] 3 All ER 812, [1955] 1 WLR 1329, 36 Tax Cas 313

n2 [1948] 1 All ER 948, 30 Tax Cas 163

As regards the fourth, I feel the force of counsel for the taxpayer's submission that in the present case the individuals who are now assessed have not avoided liability to income tax at all. They have done nothing; and, indeed, they may not even know in any given case (although they clearly do now know) the source of the benefit they have received, nor whether it was intended to form part of a tax avoidance scheme. But, having said that, I think that on a fair reading of the section, what Parliament was intending to do was to treat the avoidance intention as colouring all benefits under the scheme for such avoidance, no matter in whose hands they might be found, and to attack such benefits accordingly. And if the limitation which I think must be placed on sub-s (2), or some similar limitation, applies, then the not unjust situation will be reached where any appointee of capital will be liable to have a sum up to the whole of that capital treated as his income in the year of receipt, but will not suffer any further liability.

The seventh point raises, of course, a very special point. The relevant deed of direction of 1st January 1963 runs, in its operative part, as follows:

'... the said Edward Brown hereby irrevocably directs and appoints that the Trustees therein mentioned shall forthwith appropriate the sum of Two hundred thousand pounds (£200,000) cash being part of the Capital of Samuel's Fund therein referred to to the Honourable Mark William Vestey (being a grandson to the said Samuel Baron Vestey party to the Settlement) and pay the same to Pamela Lady Vestey the Mother and lawful guardian of the said Honourable Mark William Vestey for his absolute use and benefit discharged from all the trusts powers and provisions of the said Deed of Settlement';
and endorsed thereon is a receipt by Pamela Lady Vestey, his mother and lawful guardian. It is therefore plain that the Hon Mark Vestey never himself actually received the money; it was received by his mother in the capacity of a trustee. Did he nevertheless become 'entitled to receive' that sum? I think that the answer must be, in the light of Re Somech (deceased), Westminster Bank v Phillips n3, that he did not have, prior to attaining his majority, any strict entitlement to receive the money at once. But, as I think also clearly appears from that case, on attaining his majority he would have a right to call for the money, or the assets representing it, so far as they had not been properly expended by his mother, as his trustee, on his behalf in the meantime. In the light of this conclusion, no assessment could have been made on him in respect of the year 1963-64; it should have been for the year 1964-65 (a year for which he has of course been assessed), and, I imagine, the figures are at large, although readily ascertainable.

n3 [1956] 3 All ER 523, [1957] Ch 165

On counsel for the taxpayer's final point there was, unusually, a certain measure of agreement. Counsel for the Crown accepted that, for the purposes of sub-s (2) (he did not make any such concession as regards sub-s (1)), counsel for the taxpayer's contention with regard to the income of Commercial Insurance Corpn Ltd was correct. I think he nevertheless, as he said (and correctly) that this was a new point not taken before the Special Commissioners, stated that he would like the case remitted to them to investigate the circumstances of the acquisition of the capital of this company by the trustees. But it appears to me that the stated case means what it says, and that a purchase means a purchase. Therefore, on this point, counsel for the taxpayer's contentions succeed.

In the event, in my judgment, the appeals of the taxpayers must be allowed. We know as a fact that all the 'capital' payments were payments out of income, and nothing but income, so that the taxpayers fall to be assessed in the year of receipt in respect of the whole of such sums; all but Mark Vestey, who falls to be assessed in the following year in respect of the sum which he then became entitled to receive from his mother, his trustee. I do not know whether the figures are readily agreeable or whether the matter will have to be sent back to the Special Commissioners to find the figures.

I have been informed that there was an assessment on Mr Ronald Vestey under sub-s (1) of s 412 before the Special Commissioners, and that they refused to deal with it on the ground that the Crown had recovered all the tax on the relevant income which it possibly could by reason of the assessments made on the taxpayers now under appeal under sub-s (2). That matter is clearly not before me. It is not referred to in the case stated, and I do not therefore think I am seised of the position in any way.

I am now prepared to hear argument on the precise form of my order, and costs; but before I finally part with this case I feel constrained to make one general observation. I conceive it to be in the national interest, in the interest not only of all individual taxpayers, which includes most of the nation, but also in the interests of the Revenue authorities themselves, that the tax system should be fair. Absolute equity is, of course, impossible to achieve, and nobody would cry for the moon. But rank, blatant, injustice, of the kind and on the scale exemplified in s 408 of the 1952 Act, s 412(1) in some circumstances, and s 412(2) on the Crown's construction of it, is quite another matter. Like Lord Upjohn in Bates v Inland Revenue Comrs n1, I am quite unable to understand on what principle of law the Crown, as he said, 'realising the monstrous result of giving effect to the true construction', or what it assumes to be the true construction, of these sections, feesl itself entitled to mitigate their monstrosity by such concessions as it chooses to make. One should be taxed by law, and not be untaxed by concession. This has now proceeded for such a long time without the Revenue authorities taking one of the numerous opportunities which they have, at least once a year, to put the matter right that I am afraid they must have failed to realise the deep, brooding resentment felt by every taxpayer who is not charged simply on his own income (including, of course, what he himself could have had by way of his own income had he so chosen). A tax system which enshrines obvious injustices is brought into disrepute with all taxpayers accordingly, whereas one in which injustices, when discovered, are put right (and with retrospective effect when necessary) will command respect and support.

n1 [1967] 1 All ER 84 at 96, [1968] AC 483 at 516, 44 Tax Cas 225 at 268

DISPOSITION:
Appeals allowed with costs. Cases (1)-(4) and (6) remitted to the Special Commissioners for them to make appropriate findings of fact and conclusions of law in relation to the Crown's alternative contention to the effect that each assessment under appeal was supported by s 412(1) of the Income Tax Act 1952 and to amend the cases accordingly and to adjust as may be appropriate in accordance with such amendment or the judgment of the court the respective assessments to income tax and surtax. Case (5) remitted to the Special Commissioners for them to hear any evidence tendered on behalf of the taxpayer as to the capital sum to which he became entitled on attaining his majority and to make appropriate findings of fact and conclusions of law in relation to the Crown's alternative contention to the effect that each assessment under appeal was supported by s 412(1) of the 1952 Act and to amend the case accordingly and to adjust as may be appropriate in accordance with such amendment on the judgment of the court the assessments to income tax and surtax for the years 1963-64, 1964-65 and 1965-66.

SOLICITORS:
Speechly, Bircham & Co (for the taxpayers); Solicitor of Inland Revenue.