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as general guarantors of every charge upon the income (including any Income Tax) which the public body is unable to get back.
It would scarcely have been necessary to mention the Birmingham Settlement in connection with this case, but that the Attorney-General, in paragraph ii of the Information, introduced the proportional system (of which the Birmingham Settlement is the most usual form) in regard to the consolidated loan fund of the London County Council, and in his argument he says: “If the security that the holders of consolidated stock have is in its nature a charge on the whole fund, the proper way to deal with the right to deduction is to take the proportion thus:-as £2,450,000 : £500,000 :: £1,160,000 : the amount of interest on which tax is to be retained by the Council for their own use."
On this point Lord Macnaghten says: “ It was seriously argued that, inasmuch as the holders of the metropolitan stock have a charge on all the property of the Council-capital and income alike-for their interest as well as for their principal, and might, in case of default, resort to any and every item comprised in their security, therefore it would be right and proper, before default, to treat the dividend on metropolitan stock as paid rateably out of the capital of the property belonging to the Council and the different branches of their income. That is an ingenious, but not, I think, a very businesslike suggestion. It is enough to say that it is the plain duty of the Council, not being beneficial owners of the funds which they administer, to keep down annual charges out of an annual income as far as it will extend, and not perhaps the less so because the instructions of the Treasury under whose financial control they are placed require them to keep accounts distinguishing capital from income. I pass from that point. It is not, I think, open to argument.”
Again, Lord Davey says : “On the second point I find it difficult to express myself with becoming respect. The contention is, that as interest on their consolidated stock is charged on the whole of the lands, rents and property belonging to the Council and on their rates, such interest ought, for the benefit of the Crown, to be apportioned rateably over all the subjects of the charge, and only a rateable proportion deemed to be paid out of their income from rents or from interest receivable by them or from their own debtors. The proposition has the merit of novelty. Admittedly there is no authority for it. The attention of your Lordships is not called to any statutory enactment directing any such procedure or to any principle of law which prescribes it. On the contrary, the general principle of payment in due course of administration is to pay annual charges in the first place out of annual income.”
Lord Lindley likewise says: “I also agree with what they (Lord Macnaghten and Lord Davey) have said on the subordinate question of apportionment.”
From motives of policy only, the claim of the Council had heretofore been limited to the actual cash received on which duty had been paid. It was now determined to carry the point still further, and to claim off the annual value of certain lands occupied by the Council, and on which they had paid
Income Tax, which were the source of no monetary income, but rather of expense. The case was decided in favour of the Council on the 28th June, 1904, and also by the Court of Appeal, consisting of the Master of the Rolls, Lord Justice Mathew and Lord Justice CozensHardy, on the 8th June, 1905. But in the House of Lords, on the 19th March, 1907, a directly contrary judgment was given in favour of the Inland Revenue Department. It is right to mention that Lord James of Hereford, while voting with the others, made these remarks : “My Lords, I entertain grave doubts as to the judgments which have been delivered in this case, but they are not strong enough to cause me to dissent from the views which have been expressed by my noble and learned friends (the Lord Chancellor and Lord Macnaghten); therefore I concur in the motion before the House."
This, then, was the result of the two cases: First, the Council was entitled to deduct from the amount of their stock their actual and assessed income under Schedules A and D; second, they were not entitled to deduct the annual value of the property they held in ownership and did not let.
It is of course quite useless to criticise a decision of the House of Lords. From the moment it is made it becomes the law, whatever we may think the law was before. At the
1 L. R. (1904), 2 K. B. 635.
2 L. R. (1905), 2 K. B. 375. 8 L. R. (1907], A. C. 131.
same time, if it appears from a study of the subject that justice is not done by this decision, every effort should be made to induce Parliament to introduce such a section into the Acts as may rectify the anomaly, in like manner as there can be no doubt that the Statute 41 & 42 Vict., C. 15, S. 12, was the direct result of the case of Forder v. Handyside & Co., by which depreciation was disallowed. It is a well-known principle of the interpretation of statutes relating to revenue that if the words of any Act of Parliament explicitly charge the subject with any duty, it must be paid, no matter what hardship it may cause.
But when we get out of the range of the Law Courts and consider the matter from the standpoint of a politician, many other considerations are allowed to have play. For instance, if it can be shown that the result of an adherence to a rule which has been approved of by the House of Lords is to burden the rates and charge an Income Tax where there is no income, the reverence we feel, and justly feel, for the House of Lords must give way to the higher considerations of justice and equity. Now, in the present instance, it is apparent that exemption and abatement cannot effectively be allowed where Income Tax representing no income is already charged on the rates. Exemptions are granted on incomes of £160 a-year and under ; but of what use is that to a public body which finds itself charged, as already shown, on £2,500 ? In the London County Council case it was evident that, judged by the standard of any ordinary person, the London County Council had not a stiver of income of their own. That, however, has not prevented the House of Lords from assessing them on £118,000. Such a fact by itself is sufficient to show that, however circumscribed the House of Lords might be, and even coerced into the decision which we are considering, the matter cannot be allowed to remain where it is.
1 [1876) 1 Ex. D. 233.
There are several subordinate matters which appear to require consideration.
It is well known that trouble has arisen in many municipal boroughs owing to the provisions of the Public Health Acts. These Acts have rendered it necessary to establish a General District Fund as well as a City or Borough Fund. Where this is the case the interest charged on the General District Fund is as a rule paid entirely out of the rates. This is no matter of surprise when it is considered that the buildings, etc., acquired under the Public Health Acts are generally sources of expense and not of profit, and occupied by the Corporation for the very purposes of the public health. It is of the utmost importance that the income and the interest in connection with both these funds should be treated together as if there were only one fund.
Another point necessary to be considered is the question of sinking funds. If it was necessary to establish that a corporation or a public body was not entitled to (say) abatement, it would be the duty of the Surveyor of Taxes to insist on the inclusion of the income on such investments in the statement of income, even if by doing so the public body was proved to be not entitled to the abatement claimed. Consequently, in every case, if for no other
, reason, the receipts from sinking fund investments ought to be counted into the income as against the interest. In some cases the Legislature has given power to corporations to invest in this way in their own securities. Where this is done it would seem that the tax should not be charged at all, for the reason that the income is non-existent except on paper. What has been said about sinking funds applies equally to reserve funds. Of course it may be that the interest payable out of the sinking fund or reserve fund to the Corporation may have the effect, on its being cancelled, of raising the profits; but that is immaterial. The great thing is to keep steadily in view the principle that no charges not representing absolute income should lie upon the rates.
There are two interesting cases recently reported which give us some sidelights on the subject of this paper. I refer to the Ystradyfodwg and Pontypridd Main Sewerage Board v. Bensted (Surveyor of Taxes), and Harris v. Edinburgh Corporation. In the first of these cases the capital involved was £156,000. The assessment was £800—4th, or £666 : 14s. The money was spent on a sewer. In the Edinburgh Case the assessment was on £2,425, or net £1,839, in respect of certain public slaughter-houses. The cost of the building was £20,000. In each of these cases an unsuccessful attempt was made to show that the assessment should properly be made under Schedule A, Rule III. The point to which attention might more usefully have been given was entirely neglected. Of course Courts of law will not entertain cases of value at all, the object of " cases” being exclusively to settle points of law. In the Welsh case, so far as the Income Tax is concerned, the difficulty arises from their having borrowed money from the Public Works Loans Commissioners, who do not allow the Income Tax. But then it is worthy of remark that the amount paid upon the rates must be enormous by comparison with the duty on the Schedule A valuation.
Now by sect. 47 of the Act 16 & 17 Vict., c. 34, the appellant may require a valuation to be verified on oath by the person appointed by the Commissioners; and there appears little doubt that an appeal to the Assessment Committee against the valuation, and to the Income Tax Commissioners against the assessment, would be extremely useful. There seems to be no reason why a similar course should not be pursued in the Edinburgh case.
It is worthy of remark that in the Welsh case, as against the cost of £156,000 the gross assessment is only £800. 1 L. R. (1907], A. C. 264.
2  44 S. L. R., 873.