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TENNANT V. SMITH

(1892) JELR 87160 (HL)

House of Lords  •  14 Mar 1892  •  United Kingdom

Coram
LORD HALSBURY L.C,LORD WATSON,LORD MACNAGHTEN ,LORD MORRIS ,LORD FIELD,LORD HANNEN.

Judgement

LORD HALSBURY L.C. :-

My Lords, to put this case very simply, the question depends upon what is Mr. Tennant's income. This is an Income Tax Act, and what is intended to be taxed is income. And when I say "what is intended to be taxed," I mean what is the intention of the Act as expressed in its provisions, because in a taxing Act it is impossible, I believe, to assume any intention, any governing purpose in the Act, to do more than take such tax as the statute imposes. In various cases the principle of construction of a taxing Act has been referred to in various forms, but I believe they may be all reduced to this, that inasmuch as you have no right to assume that there is any governing object which a taxing Act is intended to attain other than that which it has expressed by making such and such objects the intended subject for taxation, you must see whether a tax is expressly imposed.

Cases, therefore, under the Taxing Acts always resolve themselves into a question whether or not the words of the Act have reached the alleged subject of taxation. Lord Wensleydale said, in In re Micklethwait(1), "It is a well-established rule, that the subject is not to be taxed without clear words for that purpose; and also, that every Act of Parliament must be read according to the natural construction of its words."

Now, it is certainly true that the occupation of a house rent free is not income. Of course the possession of a house which may be used for purposes of profit, is property and taxable as such. But the bald, dry proposition that the mere fact of occupying a house, which house as property is already taxed, is

not income in any sense, could, I think, hardly be disputed. For my own part, I doubt very much whether a house could ever properly be described as part of a man's income, though, doubtless, the rent for it when received would be income in the hands of the person receiving it.

Another observation that occurs to me is, that in dealing with real property the whole framework of the statute seems to point to a peculiar kind of assessment while treating the things themselves as the subjects of assessment; and the provisions which give effect to that peculiarity of assessment are entirely distinct from the provisions as to income.

Now, Mr. Tennant occupies this house without paying any rent for it. It may be conceded that if he did not occupy it under his contract with the bank rent free, he would be obliged to hire a house elsewhere, pay rent for it, and pro tanto diminish his income, And if any words could be found in the statute which provided that besides paying income tax on income, people should pay for advantages or emoluments in its widest sense (such as I think the word "emoluments" here has not, for reasons to be presently given), there is no doubt of Mr. Tennant's possession of a material advantage, which makes his salary of higher value to him than if he did not possess it, and upon the hypothesis which I have just indicated would be taxable accordingly.

But, upon the principles to which I at first referred, your Lordships are to ascertain not whether Mr. Tennant has got advantages which enable him to spend more of his income than if he did not possess them, but whether he has got that which any words in the statute point out as the subject on which it imposes taxation.

Now, I agree with Lord Adam in his very lucid judgment, that what Mr. Tennant is to be assessed upon must be assessed under Schedule E, and I agree with the criticisms which he applies to the words within which, if at all, this advantage of occupying a house rent free must be brought, and none of the words, either "perquisites," "profits," or "emoluments," are properly applicable, inasmuch as by the rule in which those words are used or explained the word "payable" as applied to them renders it to my mind quite impossible to suppose that the mere occupation of a house is reconcilable with the just application of that word.

I come to the conclusion that the Act refers to money payments made to the person who receives them, though, of course, I do not deny that if substantial things of money value were capable of being turned into money they might for that purpose represent money's worth and be therefore taxable.

The illustration given in the argument of the mode of arriving at a trader's profits, and the mode of treating his stock-in-trade, suggests that money's worth may be treated as money for the purposes of the Act in cases where the thing is capable of being turned into money from its own nature.

I have designedly avoided considering the question whether in any sense the occupation of this house is a benefit or a burden to the recipient of the advantage or disadvantage, whatever it may be, though I doubt very much whether such considerations on the one side or the other are relevant to the question which your Lordships have to determine. I am aware that it has the high authority of the late Lord President, and his Lordship undoubtedly treated the question as, if it were established to be a clear pecuniary benefit it would be taxable, whereas, if it were a heavy burden it would not. Nor did his Lordship shrink from suggesting that this occupation of a house rent free would be taxable or not, according as it was unsuitable for the occupant's domestic arrangements or the reverse. It followed, therefore, that in every case where such a question arose it would be necessary to examine the particular circumstances of each man's family. If he had a large family that could not be accommodated in the house, and he must hire a house elsewhere, one result would follow. If he was a bachelor, and the house was appropriate to his wants, then another result would follow.

I cannot think that the legislature ever contemplated such an examination or discrimination of persons subject to taxation as such a system of assessment would imply. Nor do I understand upon what principle the inquiry could properly be directed. The money a man has been compelled to spend for the maintenance of his wife and family, if he has them, has not the less formed part of his income. The fact that he is compelled to spend on this or that subject of expenditure does not make the money that he has had to spend the less his income because he has had to spend it. The example given by Lord Young, on the other hand, of a man who is saved by the form of his occupation as a sea captain from the necessity of hiring a house, is a very cogent and striking illustration to what extreme views such an interpretation of the Act would lead.

I observe both the Lord President and the Lord Justice Clerk used the phrase "gains" as applicable to the advantage which Mr. Tennant derives from the occupation of the house. That seems to be a reference to Schedule D, whereas, as I have already said, I concur with Lord Young and Lord Adam that Mr. Tennant's income must be assessed under Schedule E. And further, it appears to me impossible to contend that it can be assessed under both D and E, each being in terms exclusive of the other. Nor do I think that a different class of emolument can be intended to be reached under Schedule D, though the words "emoluments or gains" in Schedule D do not receive exposition from the words that occur in Schedule E.

For these reasons, I am of opinion, in the words of Lord Young, that the thing sought to be taxed is not income unless it can be turned into money. Accordingly, I think that the determination of the commissioners was right, and that the order appealed from ought to be reversed, and I so move your Lordships.

LORD WATSON (after stating the facts as substantially given above, continued):-

In ascertaining total income from all sources, with a view to the exemptions enacted by sect. 8 of the Act of 1876, I am of opinion that no income arising in this country can be taken into account which is not chargeable with duty under one or other of the income tax schedules. What may be the rule with respect to income arising in another country and not assessable here, I do not consider it necessary for the purposes of this case to determine. Accordingly, it appears to me that the case was decided in the Court below, as it has been argued at your Lordships' bar, upon the true legal issue - namely, whether the appellant's residence is income, within the meaning of the statutes, which must be valued and assessed for income-tax.

Schedule A, which assesses property according to its annual value, includes all lands, tenements, hereditaments, and heritages capable of actual occupation. Schedule B imposes an additional assessment in respect of occupancy, upon some of the lands and others comprehended in Schedule A, the occupation of which in itself constitutes a trade or business. The appellant is not a proprietor, neither is he an occupier within the meaning of Schedule B. The bank are the only occupiers, being, as Lord Herschell said in Russell v. Town and County Bank(1), "in the same position as if that portion of their bank premises were used in any other way in the strictest sense for the purposes of the bank and the business of the bank." The appellant does, no doubt, reside in the building, but he does so as the servant of the bank and for the purpose of performing the duty which he owes to his employers. His position does not differ in any respect from that of a caretaker or other servant, the nature of whose employment requires that he shall live in his master's dwelling-house or business premises instead of occupying a separate residence of his own.

The legislature has made elaborate provision for ascertaining the yearly value of lands, tenements, hereditaments, and heritages assessable under Schedule A, and also the yearly value of occupation falling under Schedule B; but there is no machinery to be found in any of the Income Tax Statutes for arriving at the annual value of residence as distinguished from such occupation. Yet it is manifest that the ascertainment of annual value in the latter case may be attended with greater difficulty and nicer considerations than are involved in the application of the rules for assessing and charging duties under Schedules A and B. Even according to the respondent's argument, the assessable value of a servant's residence, in premises which he does not occupy, is not the price which other persons might be prepared to pay for the privilege, but the benefit which he personally derives from it, estimated in money.

In the present case the learned judges of the majority have assessed the value of the appellant's residence at £50, upon the somewhat speculative footing that, if his duty did not require him to reside in the bank, he would be compelled to pay that sum for suitable accommodation for himself and family elsewhere. In that view the so-called benefit may in some instances prove a heavy burden, as in the case of a bank agent who, but for the service required by his employers, would continue to reside, free of charge, in his parents' house. I entertain very serious doubt whether, according to the scheme of the Income Tax Acts, it was intended to assess in any shape mere residence, either in performance of duty to the actual occupant or by licence from him. But I do not find it necessary to decide the point, because I am satisfied that the appellant is not liable to duty under any schedule.

I agree with your Lordships that income arising from employment as a bank agent is assessable under Schedule E in all cases where the bank which employs him is a company or society, whether corporate or not corporate, as specified in the third rule of that schedule. The Bank of Scotland being a corporation, the appellant's office is undoubtedly within the schedule. Neither is it doubtful that the appellant is liable to pay duty in respect of all "salaries, fees, wages, perquisites, or profits whatsoever" accruing to him by reason of such office, as provided by the first rule.

It is clear that the benefit, if any, which a bank agent may derive from his residence in the business premises of the bank is neither salary, fee, nor wages. Is it, then, a perquisite or a profit of his office? I do not think it comes within the category of profits, because that word, in its ordinary acceptation, appears to me to denote something acquired which the acquirer becomes possessed of and can dispose of to his advantage - in other words, money - or that which can be turned to pecuniary account. If the context had permitted, it might have been possible to argue that a benefit of that kind was a perquisite. But the fourth rule of Schedule E defines perquisites, for all purposes of the Act, to be "such profits of offices and employments as arise from fees and other emoluments, in the course of executing such offices or employments."

It was argued, however, that, if not liable under Schedule E, the appellant was, at all events, liable under Schedule D. I do not think it can be reasonably maintained that a public office or employment assessable under Schedule E is also liable to assessment as an employment or vocation within the meaning of Schedule D. No doubt that schedule also includes all "other profits and gains not charged by virtue of any of the other schedules contained in this Act." But it appears to me that everything in the shape of profit or gain arising from a public office or employment, which the Legislature intended to be chargeable with duty, is ascertainable and assessable under the rules of Schedule E and under these rules only. The profits and gains arising from public offices and employments are in no sense profits and gains not charged by virtue of schedules other than Schedule D.

There is a clause in the Act of 1842 (sect. 188) which enacts that "every provision in this Act contained, and applied to the duties in any particular schedule, which shall also be applicable to the duties in any other schedule, and not repugnant to the provisions for charging, ascertaining, or levying the duties in such other schedule shall, in charging, ascertaining, and levying the same, be applied as fully and effectually as if the application thereof had been expressly and particularly directed." The respondent did not rely in argument upon the terms of that clause, the construction of which is by no means free from difficulty. Thus far its terms are clear enough. The provisions of Schedule D with respect to employments and vocations are not to be applied to offices and employments under Schedule E, unless they are in the first place "applicable" to such offices and employments, and, in the second place, not repugnant to the rules of assessment enacted for Schedule E. Assuming for the sake of argument that the rules of assessment for employments and vocations under Schedule D differed in material respects from the rules for assessing public offices and employments under Schedule E, I do not think they would be applicable to cases falling under Schedule E, or could be applied without repugnancy, or, in other words, without abrogating pro tanto the rules of Schedule E.

I think it right to add that, in my opinion, the result would not be different if the rules of Schedule D were applied to the appellant's so-called benefit of residence.

In that case the appellant would be chargeable upon the full balance of "the profits, gains, and emoluments" accruing to him from his employment as bank agent. Having regard to the general scheme and context of the Act, I am unable to come to the conclusion that these words "profits, gains, and emoluments" of a private employment as bank agent under Schedule D were meant by the legislature to include more than the "salaries, fees, wages, perquisites, or profits whatsoever," accruing to a similar employment by a public company. In my opinion, the word "emolument" occurring in the rules of Schedule D means some more tangible benefit than a servant's residence in his master's house, or a meal or a suit of livery supplied by the master.

I, therefore, concur in the judgment which has been moved by the Lord Chancellor.

LORD MACNAGHTEN :-

My Lords, I agree.

The appellant, who is the agent at Montrose for the Bank of Scotland, being assessed for income tax, claims an abatement. The question is whether his "total income from all sources" is or is not less than £400. That depends upon whether he has to bring into account the value of a free residence provided for him by the bank in the bank premises.

Notwithstanding the opinion of one of the learned judges of the Court of Session, I think it is perfectly clear that nothing is to be brought into account on a claim to relief except what is chargeable for the purpose of assessment.

The first point for consideration is what is the meaning of the expression "total income from all sources." It certainly means more than income properly so described - it includes more than "profits and gains" chargeable under the last three schedules of charge. It includes the annual value of property chargeable under Schedule A, and the annual value of the occupation chargeable under Schedule B. The Income Tax Code

(5 and 6 Vict. c. 35, s. 167, and 16 and 17 Vict. c. 34, s. 28) contains express directions for estimating and calculating these values for the purpose of ascertaining the title to abatement when relief by way of abatement is claimed. But it contains no directions for estimating or bringing into account any benefit, or advantage, or enjoyment derived from lands, tenements, hereditaments, or heritages, which does not come under Schedule A or Schedule B.

The next point to be considered is what is the nature of the appellant's occupation of the residence provided for him in the bank premises. From the case stated for the opinion of the Court of Exchequer in Scotland it appears that "the appellant is bound, as part of his duty, to occupy the bank house as custodier of the whole premises belonging to the bank, and also for the transaction of any special bank business after bank hours." He is not entitled to sublet the bank house or to use it for other than bank business, and in the event of his ceasing to hold his office he is under obligation to quit the premises forthwith. Property, therefore, in the house he has none, of any sort or kind. He has the privilege of residing there. But his occupation is that of a servant, and not the less so because the bank thinks proper to provide for gentlemen in his position in their service accommodation on a liberal scale. It is clear, therefore, that the appellant is not chargeable under Schedule A in respect of the bank house, or liable to pay the duty as occupying tenant. The bank and the bank alone is chargeable and liable to pay.

Then this question suggests itself, Has not the Crown got all that it is entitled to in respect of this house when it has received the duty on its full annual value? Is not the notion of finding some subject for taxation in lands, tenements, hereditaments, or heritages, over and above the full annual value chargeable under Schedules A and B, a fanciful notion and foreign altogether to the scope and intent of the Income Tax Code? The learned counsel for the Crown say no. Their case is that the benefit derived by the appellant from his occupation of the bank house is chargeable under Schedule E, or, at any rate, under Schedule D.

I do not doubt that the occupation of the bank house rent free, though not unattended with some inconveniences, is, on the whole, a considerable advantage to the appellant. It is a gain to him in the popular sense of the word. Whether such a benefit or gain comes under the head of "profits and gains" chargeable for income tax purposes is the question submitted to your Lordships. I use the expression "profits and gains" because that is the term which the legislature uses as applicable to both the schedules of charge under which it is said the appellant is chargeable.

In the course of the argument the learned counsel for the Crown admitted that there was a difficulty in maintaining their claim under Schedule E. On examining that schedule it became obvious that it extends only to money payment or payments convertible into money. And so they took their stand on Schedule D.

For the purposes of this case I am willing to assume that, in assessing a person holding an office chargeable under Schedule E, the Crown may resort to Schedule D in order to reach gains or profits arising or accruing from his office which, for some reason or another, do not come within the letter of Schedule E. The third paragraph of Schedule D imposes the duty in respect of all profits and gains not charged by virtue of any of the other schedules. It seems to me, therefore, that if the privilege of occupying the bank house rent free is really a profit or gain within the meaning of the Income Tax Code, and if it is not chargeable under Schedule E, it might be caught by Schedule D - not, I think, under case 2, rule 2, on which the Crown mainly relied, but under case 6. Case 2, rule 2, is, I think, inapplicable because it only extends to the duty to be charged in respect of employments not contained in any other schedule. Case 6 goes much further. It gives effect to the third paragraph of Schedule D, and extends to the duty to be charged in respect of any annual profits or gains not falling under any of the foregoing rules and not charged by virtue of any of the other schedules.

In my opinion the answer to the claim of the Crown does not depend on any minute criticism of the language of the different schedules. The real answer is, that the thing which the Crown now seeks to charge is not income, nor is it required to be taken into account as income for the purpose of ascertaining title to relief by way of abatement. It falls neither under Schedule A nor under D or E. I have already dealt with Schedule A. Under that schedule the duty is payable on the "annual value." The duty under Schedules D and E is payable on the "annual amount." It is a tax on income in the proper sense of the word. It is a tax on what "comes in" - on actual receipts. Take, for example, the 6th case of Schedule D, which sweeps in all profits or gains not otherwise chargeable. What the person liable to be assessed is required to do under Schedule G is to return "the full amount" of annual profits "received" (5 and 6 Vict. c. 35, s. 190, Schedule G, XII.). No doubt if the appellant had to find lodgings for himself he might have to pay for them. His income goes further because he is relieved from that expense. But a person is chargeable for income tax under Schedule D, as well as under Schedule E, not on what saves his pocket, but on what goes into his pocket. And the benefit which the appellant derives from having a rent-free house provided for him by the bank, brings in nothing which can be reckoned up as a receipt or properly described as income.

For these reasons I am of opinion that the appeal must be allowed.

LORD MORRIS :-

My Lords, I concur in the judgment which has been moved.

LORD FIELD :-

My Lords, I also concur in the judgment that the appeal should be allowed and the decision of the commissioners restored. For the reasons which have been so fully indicated to your Lordships it appears to me that the residence of the appellant upon the bank premises, which although rent free could not in any way be converted by him into money or money's worth, cannot be held to be either a gain, profit, perquisite, or emolument, within the meaning of the statutes.

LORD HANNEN :-

My Lords, the question for consideration is whether the appellant is entitled under the Customs and Inland Revenue

Act, 1876, s. 8, to an abatement on the amount of income on which he has been assessed, on the ground that his total income from all sources is under £400. His undisputed income is £374; if to this should be added the annual value of the house he resides in rent free, his assessable income exceeds £400, otherwise not.

The appellant is agent for the Bank of Scotland at Montrose. He is bound as part of his duty as such agent to live in the bank house as custodier of the whole premises, and to transact business there after bank hours. He cannot temporarily vacate the house without special consent of the directors, and he cannot sublet or use the premises for other than bank business. Is such an occupation as this to be regarded as a part of the appellant's income? It certainly does not come within the natural meaning of the word "income." It saves the appellant from the expenditure of income on house rent, but it is not in itself income. That it is a suitable residence for the appellant is an accident which ought not to affect the determination of a question of principle as to the incidence of taxation. The income tax is imposed, not on the personal suitableness of a man's surroundings, which must vary with each man, and with the same man in different circumstances, but on his income capable of being calculated. The appellant occupies the bank house as a part of his duty, and I do not see how the case can be distinguished from that, so aptly put by Lord Young, of the master of a ship who is spared the cost of house rent while afloat. His cabin does not on that account become a part of his income.

Different considerations would apply to the case of an agent who as part of his remuneration has a residence provided for him which he might let. That which could be converted into money might reasonably be regarded as money - but that is not the case before us.

Although the question raised on this occasion is on a claim for abatement, I think it would equally arise on an assessment under either of the Schedules D and E. For the reasons given by Lord Adam, I am of opinion that the occupation of this house does not fall within the description of "salaries, fees, wages, perquisites, profits, or emoluments" in the sense in which those words are used in the Act.

I think, therefore, that the judgment appealed from should be reversed, and that of the commissioners affirmed.

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