Dr Barnardo's Homes National Incorporated Association v Commissioners for Special Purposes of the Income Tax Acts

[1921] 2 A.C. 1

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(Judgment by: Viscount Cave)

Between: Dr Barnado's Homes National Incorporated Association - Appellant
And: Commissioner for Special Purposes of the Income Tax Acts - Respondents

Court:

Judges: Viscount Finlay

Viscount CaveLord Atkinson
Lord Sumner

Subject References:
REVENUE
INCOME TAX
EXEMPTION OF CHARITIES
Residuary Bequest
Ascertainment of Residue
Income Tax on Interim Dividends

Legislative References:
Income Tax Act, 1842 (5 & 6 Vict. c. 35) - s. 88, Sch. C, r. 3; s. 105

Judgment date: 14 March 1921

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Judgment by:
Viscount Cave

My Lords, I am of the same opinion. The third exemption in s. 88, Sch. C, of the Income Tax Act, 1842, applies to:

"the stock or dividends of any corporation, fraternity, or society of persons, or of any trust established for charitable purposes only, or which, according to the rules or regulations established by Act of Parliament, charter, decree, deed of trust, or will, shall be applicable by the said corporation, fraternity, or society, or by any trustee, to charitable purposes only, and in so far as the same shall be applied to charitable purposes only."

Sect. 98 provides machinery for obtaining the return of any duty deducted from stock or dividends which fall within the exemption. Sect. 105 extends the above exemption to any yearly interest or annual payment chargeable under Sch. D of the Act in so far as the same are applied to charitable purposes only, and continues as follows:

"and the amount of the duties which shall have been paid by such corporation, fraternity, society, or trustee in respect of such interest or yearly payment, either by deduction from the same or otherwise, shall be repaid under the order of the said commissioners for special purposes in the manner hereinbefore provided for the repayment of sums allowed by them, in pursuance of any exemption contained in the said Schedule (C)."

It is under these sections that the appellants claim repayment of duty.

On reading the above provisions it is clear that exemption is given only in respect of any dividends, interest or other annual payments "of" - that is to say, belonging to - a charity, or which according to its trust instruments are applicable to charitable purposes only, and only in so far as they are in fact applied to charitable purposes. The appellants must therefore, in order to succeed in their claim, prove that the dividends from which tax was deducted were dividends

(a)

belonging to the appellants, or

(b)

applicable to their charitable purposes only, and

(c)

in fact so applied.

Plainly this cannot be said of these dividends when received. When the personal estate of a testator has been fully administered by his executors and the net residue ascertained, the residuary legatee is entitled to have the residue as so ascertained, with any accrued income, transferred and paid to him; but until that time he has no property in any specific investment forming part of the estate or in the income from any such investment, and both corpus and income are the property of the executors and are applicable by them as a mixed fund for the purposes of administration. This was fully explained in Lord Sudeley v. Attorney-General. ^[F15]

But it is argued on behalf of the appellants that, the residue having now been ascertained and divided, they are at liberty to investigate the accounts and to ascertain what part of the fund so divided represented income, and to recover the tax on their share of the sum so ascertained; and for that purpose they claim to resort to the well-known rule in Allhusen v. Whittell, ^[F16] where it was held that as between a tenant for life under a will and the remainderman, the tenant for life is entitled as from the death of the testator to a sum equal to the income of the residue of the estate after deducting such portion of the capital as, together with the income of such portion for one year, was required to pay the testator's debts and legacies. In my opinion this argument is misconceived. The rule in Allhusen v. Whittell ^[F16] is confined to cases where a residuary fund is held in trust for several persons in succession, and where for the purposes of ascertaining the rights of the beneficiaries inter se, it is necessary to disentangle the accounts and to determine what part of the total fund should be treated as income and paid to the life tenant. In this case there is no trust and no life tenant; and there is no authority whatever for applying the rule in question to a case where the residuary legatee is absolutely entitled to the residue. In my opinion this contention also fails.

For the above reasons I agree that the appeal should be dismissed with costs.