Inland Revenue Commissioners v Australian Mutual Provident Society

 

Inland Revenue Commissioners v Australian Mutual Provident Society

Australian Mutual Provident Society v Inland Revenue Commissioners

TAXATION; Income Tax

KING’S BENCH DIVISION

MACNAGHTEN J

1 OCTOBER, 1, 2, 5, 26 NOVEMBER 1945

Income Tax – Provident society – Non-resident – Head office in Australia, branch office in London – Income from investments of life assurance fund –

Taxation of income from business carried on by London branch – Basis for ascertaining income so chargeable – Income from certain investments exempted

from United Kingdom tax by statutory provision – Relief from United Kingdom tax of balance of income already charged with Dominion tax – Assessments to

tax excessive by reason of error in returns – Relief – Method of computation to be followed in respect of portion of income specifically exempted from tax but

included in income from investments chargeable to United Kingdom tax – Income Tax Act, 1918 (c 40), s 46, Sched C, r 2 (d), Sched D, Case III r 3(1), (2),

(4), Miscellaneous Rules, r 7 – Finance Act, 1920 (c 18), s 27 – Finance Act, 1923 (c 14), s 24.

(i) The respondent society, the Australian Mutual Provident Society, was established in 1849, under the law of New South Wales, for carrying on the business

of life assurance, with its head office in Sydney and a branch office in London. For United Kingdom tax purposes it was “non-resident,” but, because it

carried on business through its London branch, a portion of its income from the investments of life assurance funds was chargeable 􀂭 236􀀉 to tax under the

Income Tax Act, 1918, Sched D, Case III, r 3(1). R 3(2) prescribed the basis for ascertaining the portion of the income to be so charged, and also contained a

proviso which authorised the Commissioners of Inland Revenue to substitute, by regulation, some other basis. Upon the application of the respondent society,

the Commissioners of Inland Revenue made a regulation which substituted a ratio of United Kingdom “liability” to total “liability” in respect of life assurance

policies for the ratio provided under r 3(2), namely the ratio which premiums received from policy holders resident in the United Kingdom, and from policy

holders whose proposals were made to the society at or through its office or agency in the United Kingdom bore to the total amount of the premiums received

by the society. In 1929–30 the respondent society was charged to United Kingdom income tax in the sum of £184,858, ascertained under the regulation. For

the same year the actual income of the respondent society from investments in the United Kingdom forming part of the life assurance fund amounted to

£73,265, upon which tax had been paid by deduction and, by the Income Tax Act, 1918, Sched D, Case III, r 3(4), the sum of £184,858 was reduced to

£111,593 upon which United Kingdom income tax had been paid. The Special Commissioners found that the respondent society had paid Dominion income

tax on a part of £111,593 for the year 1929–30 and decided that the society was entitled to relief under the Finance Act, 1920, s 27. The Crown appealed from

this decision. It was agreed that according to Australian income tax law any income derived from a source outside Australia, including a business in the

United Kingdom was exempt from Australian tax to the extent to which it was proved to be chargeable to United Kingdom income tax. The Crown, therefore,

contended that the sum of £111,593, on which income tax had been paid in the United Kingdom as income derived from the life assurance business carried on

by the society in London was exempt from Dominion tax, and, further, that the respondent society could not identity any part of the £111,593 with any income

on which the society had paid Dominion income tax:—

Held – Although the sum of £111,593 was deemed to be income from business carried on by the respondent society at its London branch, it was in fact made

up of fractions or portions of the total income from investments of the society’s life assurance fund, such fraction having been ascertained by the regulation

made by the Commissioners of Inland Revenue. Since the respondent society had also paid Dominion income tax on part of that income it was entitled to the

relief claimed under the Finance Act 1920, s 27.

(II) The appellant society, the Australian Mutual Provident Society, claimed relief under the Finance Act, 1923, s 24, on the ground that the assessments

to tax made upon it for the years 1937, 1938, 1939, and 1940 were excessive by reason of an error or mistake in the returns made by it for the purposes of

those assessments. The income from the investments of the society’s life assurance fund included interest and dividends which by the provisions of the

Income Tax Act, 1918, namely, (i) sect 46, (ii) Sched C, r 2(d), (iii) Sched D, Miscellaneous Rules, r 7, were exempt from income tax in the United Kingdom

because the society was not resident here. In 1937 the total income from the investments of the appellant society’s life assurance fund was £4,145,067, of

which £72,354 was income exempted from tax in the United Kingdom. The fraction of the total income, in accordance with the Income Tax Act, 1918, Sched

D, Case III, r 3, and the regulation made by the Commissioners of Inland Revenue thereunder, was.05565268 and it amounted to £230,684, which, by r 3(1)

was to be deemed to be “profits” chargeable to tax under Sched D, Case III. But since the total income included £72,354 the appellant society claimed relief

in respect of that sum which was not by law chargeable. The Commissioners of Inland Revenue recognised the validity of the claim by deducting from the

total income £72,354, thereby reducing the total income from £4,145,067 to £4,072,713, with the result that the fraction chargeable to income tax under the

Income Tax Act, 1918, Sched D, Case III, r 3, was £226,646. The appellant society contended that the 􀂭 237􀀉 Income Tax Act, 1918, Sched D, Case III, r 3,

afforded no warrant for making any reduction of the total income from the investments of the life assurance fund since the rule provided that the income

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chargeable to tax under Sched D should be a portion of any income of the society from the investments of its life assurance fund wherever received. Further

the appellant society contended that the sum of £72,354 ought to be deducted, not from the total income of £4,145,067 but from £230,684, which was deemed

to be “profits comprised within Sched D,” with the result that the chargeable income would become £158,330. The appellant society based this contention on

the Income Tax Act, 1918, Sched D, Case III, r 3(4), which provides that: “Where a company has already been charged to tax, by deduction or otherwise, in

respect of its life assurance business, to an amount equal to or exceeding the charge under this rule, no further charge shall be made under this rule, and where

a company has already been so charged, but to a less amount, the charge shall be proportionately reduced.”

Held – (i) The fraction of the total income deemed to be profits comprised in Sched D, for the four years in question, amounted to £230,684 which was the

aggregate of the like fraction of the incomes of each of the investments of the society’s life assurance fund. Since the sum of £230,684 contained that fraction

of the £72,354 which was exempt from tax, no tax could be exacted on so much of the £230,684 as consisted of that fraction of the £72,354, not by reason of

any express or implied provision under the Income Tax Act, 1918, Sched D, Case III, r 3, but because no tax may be exacted, either directly or indirectly, on

income exempt by law.

Hughes v Bank of New Zealand and Cadbury Bros Ltd v Sinclair not applied.

(ii) the assessments were, therefore, correctly made on the appellant society.

Notes

The basis of the decision in both these appeals is the same, namely, that the proportion of the Society’s profits which is “deemed” to be profits comprised in

Sched D is in fact made up of fractions of the income derived from each of the investments of the Society’s life assurance fund. In view of this, both the claim

to relief, and the method of calculation adopted by the Commissioners are justified.

As to Investment Income of Foreign Assurance Companies, see Halsbury, Hailsham Edn, Vol 17, p 185, para 383; and for Cases, see Digest, Vol 28, pp

57–61, Nos 293–309.

Cases referred to in judgment

Hughes v Bank of New Zealand [1938] 1 All ER 778, [1938] AC 366, Digest Supp, 107 LJKB 306, 158 LT 463, 21 Tax Cas 472.

Cadbury Bros Ltd v Sinclair [1933] 103 LJKB 29, Digest Supp, 149 LT 412, 18 Tax Cas 157.

Case Stated

(1) Case Stated under the Finance Act, 1920, s 27, and the Income Tax Act, 1918, s 149, by the Commissioners for the Special Purposes of the Income Tax

Acts for the opinion of the King’s Bench Division of the High Court of Justice. The respondent society, the Australian Mutual Provident Society, appealed

against a determination of the Inland Revenue Commissioners refusing a claim for relief in respect of Dominion income tax for the year ended 5 April 1930.

The Commissioners found the following facts:

‘The respondent society carries on mutual life assurance business, having its head office in New South Wales and a branch in London. It was

established in 1849 and for the year in question was governed by the Australian Mutual Provident Society Act, 1910, an Act of New South Wales

Legislature. The respondent society in non-resident for the purposes of United Kingdom income tax. It carries on business at the London branch and is

chargeable to United Kingdom income tax under the Income Tax Act, 1918, Sched. D, Case III, r. 3. The liability is computed by reference to a

proportion of the respondent society’s total income from the investments of the Life Assurance Fund (excluding the annuity fund). Some of the

investments of the Life Assurance Fund are Australian investments which under Australian Federal income tax law are sources of income in Australia.

Some of the Australian investments are likewise sources of income within New South Wales and Western Australia respectively under the provisions of

the income tax laws of those States. The respondent society is thus chargeable to Federal and State income taxes in Australia.

In 1929–30, the respondent society was charged to United Kingdom income tax on a sum of £184,858 deemed to be the United Kingdom income as

calculated under the 􀂭 238􀀉 Income Tax Act, 1918, Sched. D, Case III, r 3. For the same year the actual income of the respondent society from

investments in the United Kingdom forming part of the Life Assurance Fund amounted to £73,265 upon which United Kingdom income tax had been

paid by deduction or otherwise. As a result the United Kingdom income of £184,858 calculated under Case III fell to be reduced for the purposes of

assessment by such £73,265, leaving a sum of £111,593 upon which the respondent society paid United Kingdom income tax under the Income Tax Act,

1918, Sched. D, Case III, r 3. The respondent society was also charged to State and Federal income tax in Australia.’

The Special Commissioners held that the respondent society was entitled to the relief claimed by them under the Finance Act, 1930, s 27.

The Crown appealed.

The Solicitor-General (Sir Frank Soskice, KC) and Reginald P Hills for the appellants (Commissioners of Inland Revenue).

J Millard Tucker, KC and J S Scrimgeour, KC for the respondents.

(II) Case Stated under the Finance Act, 1923, s 24, and the Income Tax Act, 1918, s 149, by the Commissioners for the Special Purposes of the Income

Tax Acts for the opinion of the King’s Bench Division of the High Court of Justice. The appellant society, the Australian Mutual Provident Society, appealed

against a determination of the Commissioners of Inland Revenue limiting the amount of relief which the society claimed in respect of an error or mistake in its

returns in computing the assessable income of its London branch for the years ending 5 April 1937, 1938, 1939 and 1940, respectively. The Commissioners

found the following facts:

‘The appellant society carries on mutual life assurance business, having its head office in New South Wales and a branch in London. It was

established in 1849 and … governed by the Australian Mutual Provident Society Act, 1910, an Act of the New South Wales Legislature. The appellant

society is non-resident in the United Kingdom for the purpose of the United Kingdom income tax and for the years in question is entitled to exemption

from United Kingdom income tax in respect of interest and dividends on securities and investments falling within the Income Tax Act, 1918, s. 46, the

Income Tax Act, 1918, Sched. C, r. 2(d), the Income Tax Act, 1918, Sched. D, Miscellaneous Rules, r. 7.

As the society carries on business at its London branch it is assessable to income tax under the provisions of the Income Tax Act, 1918, Sched. D,

Case III, r. 3, and the … regulation … made thereunder by the Commissioners of Inland Revenue …

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The regulation … substituted a ratio of United Kingdom “liability” to total “liability” for the ratio provided by the … rule itself, namely the ratio

which premiums received from policy holders resident in the United Kingdom, and from policy holders whose proposals were made to the society at or

through its office or agency in the United Kingdom bear to the total amount of the premiums received by the society …

Taking the year ended Dec. 31, 1935, as an example (year of assessment 1936–37) the following figures … entering into the calculation emerge:

Reserves:

Whole society .. .. .. .. £93,799,810

London branch .. .. .. .. £5,220,211

Ratio .. .. .. .. .. .. .05,565,268

Interest on assurance fund:

Whole society .. .. .. .. £4,145,067

London branch .. .. .. .. £230,684

(£4,145,067 x .05,565,268)

The word “reserves” means liability in respect of life assurance policies …

Taking the year ended Dec. 31, 1935… as an example (year of assessment 1936–37), the … exempted income amounted to £72,354.’

For the year ended 31 December 1935, therefore, the total income from the investments of the society’s life assurance fund was £4,145,067, of which

£72,354 was income exempted from tax in the United Kingdom. The fraction of the total income was.05565268 and it amounted to £230,684, which was

deemed to be “profits” and as such chargeable under the Income Tax Act, 1918, Sched D, Case III, r 3(1). But since the total income included £72,354 which

was exempt from tax, the appellant society claimed that it was entitled to relief in respect of that sum. The Commissioners of Inland Revenue recognised the

validity of the society’s complaint and deducted £72,354 from the total income, thereby reducing the total income from £4,145,067 to £4,072,713, with the

result that the fraction chargeable to income tax was £226,646.

􀂭 239􀀉

The Special Commissioners held that the Commissioners of Inland Revenue were right in excluding the exempted income from the computation of the

appellant society’s liability.

The appellant society appealed.

J Millard Tucker KC and J S Scrimgeour KC for the appellants.

The Solicitor General (Sir Frank Soskice KC) and Reginald P Hills for the respondents (Commissioners of Inland Revenue).

Cur adv vult

26 November 1945. The following judgment was delivered.

MACNAGHTEN J. These are appeals from decisions of the Special Commissioners with regard to the liability of the Australian Mutual Provident Society to

income tax for the year 1930 in the first case, and for the years 1937, 1938, 1939 and 1940 in the second. The Crown is appellant in the first appeal: the

society is appellant in the second appeal. The Australian Mutual Provident Society, established in 1849 under the laws of New South Wales, carries on the

business of mutual life assurance; the head office of the society is situate in Sydney. For the purposes of United Kingdom income tax the society is not

resident in the United Kingdom, but it has a branch office in London, and it is, therefore, chargeable to income tax under the Income Tax Act, 1918, Sched D,

Case III.

The Income Tax Act, 1918, Sched D, Case III, r 3(1) provides that, in the case of an assurance company with its head office situate—as the head office of

the society is situate—out of the United Kingdom, which carries on life assurance business through any branch or agency in the United Kingdom, a portion of

the income of the company from the investments of its life assurance fund is to be deemed to be “profits” comprised in Sched D and charged to tax under Case

III of that Schedule. R 3(2), which prescribes the basis for the purpose of ascertaining the portion of the income to be so charged, contains a proviso that, in

the case of an assurance company, with its head office situate—as the head office of the society is situate—in a British possession, the Commissioners of

Inland Revenue may, by regulations, substitute some other basis for the purpose of ascertaining the portion to be charged. Accordingly, on the application of

the society, the Commissioners of Inland Revenue made a regulation whereby it was provided that such portion of the whole income from the investments of

the society’s life assurance fund should be charged to tax under Sched D as bears the same proportion to the whole income as the amount of the society’s

liability in respect of its life assurance policies issued by it in cases where the policy holders are resident in the United Kingdom and in cases where the policy

holders are resident abroad but the proposals were made to the society at or through a branch in the United Kingdom bears to the total amount of the liability

in respect of all the life assurance policies issued by the society. In other words, the income chargeable to tax in the United Kingdom is the same fraction of

the whole income from the investments of the society’s life assurance fund as the liability of the society in respect of what I may call its “London” policies is

of its liability in respect of all the life assurance policies issued by it. For the tax year 1929–30, the income chargeable on the society, ascertained in

accordance with that regulation, amounted to £184,858; but the society had already been charged to tax by deduction on £73,265, and, in accordance with the

provisions of r 3(4), the sum of £184,858 was reduced to £111,593 by deducting £73,265 therefrom.

The question at issue in the first of these two appeals is whether the society is entitled, under the Finance Act, 1920, s 27, to relief at the rate therein

prescribed from the tax paid by it on the said sum of £111,593. That section provides that if any person who has paid, by deduction or otherwise, or is liable to

pay, income tax in the United Kingdom for any year of assessment on any part of his income, proves to the satisfaction of the Special Commissioners that he

has paid Dominion income tax for that year in respect of the same part of his income, he shall be entitled to relief from United Kingdom income tax paid or

payable by him on that part of his income at the rate therein prescribed. The society proved to the satisfaction of the Special Commissioners that it had paid

Dominion income tax for the year in question on a part of the £111,593; and they accordingly held that the society was entitled to relief under that section.

From that decision the Crown appeals to this court.

The society was charged to State and Federal Income tax in Australia; but it 􀂭 240􀀉 was agreed for the purposes of this appeal that, according to

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Australian income tax law, any income derived from a source outside Australia, including a business in the United Kingdom, is exempt to the extent to which

it is proved to be chargeable to United Kingdom income tax. It was submitted by the Crown that the £111,593, on which income tax had been paid in the

United Kingdom as income derived from the life assurance business carried on by the society in London, was exempt from Dominion income tax, and, further,

that the society could not identify any part of the £111,593 with any income on which the society had paid Dominion income tax.

Although the £111,593 was deemed to be income from the business carried on by the society at its branch office in London, it was in fact a portion or

fraction of the total income from the investments of the society’s life assurance fund; the fraction having been ascertained by the method prescribed by the

regulation made by the Commissioners of Inland Revenue. The sum of £111,593 was made up by adding together that fraction of the income of each of the

investments of the life assurance fund. For the year in question, the total income from the investments of the life assurance fund amounted to £3,726,143. On

part of that sum, namely, £1,022,482, no Dominion income tax had been charged; but on the remainder, namely, £2,703,661, Dominion income tax had been

charged and paid. The society made no claim for relief in respect of the United Kingdom income tax paid by it on the fraction of the income of the

investments amounting to £1,022,482, on which no Dominion income tax had been charged or paid. It only claimed relief in respect of the tax paid by it on

the fraction amounting to £2,703,661 on which Dominion income tax had been charged and paid.

Although, under the provisions of the Income Tax Act, 1918, the £111,593 was “deemed to be” profits “comprised within Sched D” and was to be

“charged as being income derived from business carried on in the United Kingdom,” it was not suggested that it was so regarded according to Australian law

or that the sum so charged was in fact exempted from income tax in Australia. Since the £111,593 was in fact made up of fractions of the income derived

from each of the investments of the society’s life assurance fund and on part of that income the society had paid Dominion income tax, I agree with the Special

Commissioners in thinking that the society is entitled to the relief claimed.

Before disposing of the first appeal, there is one further matter to be considered. The rate of relief from United Kingdom income tax prescribed by the

Finance Act, 1920, s 27, is as follows:

‘… (a) if the Dominion rate of tax does not exceed one half of the [appropriate rate of United Kingdom income] tax, the rate at which relief is to be

given shall be the Dominion rate of tax: (b) In any other case the rate at which relief is to be given shall be one-half of the [appropriate rate of the

United Kingdom income] tax …’

The several States constituting the Commonwealth of Australia, as well as the Commonwealth itself, can impose income tax, and since income tax imposed by

any State as well as income tax imposed by the Federal Government, comes within the expression “Dominion income tax,” the income from the investments of

the society’s life assurance fund is not chargeable to a uniform rate of Dominion income tax. Part of the income bears both Federal and New South Wales

income tax. Other parts bear Federal income tax or West Australian income tax only. If, however, the fraction of the society’s income from the investments

of its life assurance fund, which is chargeable to United Kingdom income tax under the provisions of r 3, is regarded as made up of the like fraction of the

income from each of the investments, no difficulty arises in ascertaining the amount of the relief to which the society is entitled.

In my opinion, this appeal fails, and must be dismissed with costs; and the case will go back to the Special Commissioners to ascertain the amount of the

relief to which the society is entitled.

The second of these appeals, in which the society is the appellant, arises out of a claim by the society for relief under the Income Tax Act, 1918, s 24, on

the ground that the assessments made upon it under Case I of Sched D for the years ending 5 April 1937, 1938, 1939 and 1940 were excessive by reason of an

error or mistake in the returns made by it for the purposes of those assessments.

􀂭 241􀀉

During each of those years the income from the investments of the society’s life assurance fund included interest and dividends which, by reason of the

following provisions contained in the Income Tax Act, 1918, namely: (i) sect 46 of the 1918 Act: (ii) Sched C, r 2(d); and (iii) Sched D, Miscellaneous Rules,

r 7, were exempt from income tax in the United Kingdom, because the society is not resident here. The statement submitted by the Special Commissioners for

the opinion of the court, sets out the total income from the investments of the life assurance fund during the years in question, and also the amount of the

interest and dividends comprised in that total which were exempt from United Kingdom income tax. Taking the first of those years, for example, the

statement shows that the total income from the investments of the society’s life assurance fund for that year was £4,145,067, and that of that total £72,354 was

income exempted from tax in the United Kingdom. The fraction of the total income, in accordance with the provisions of r 3 and the regulation made by the

Commissioners of Inland Revenue thereunder, was.05565268, and it amounted to £230,684; and that was the amount which by r 3(1), was to be deemed to be

“profits” comprised in Sched D, and to be charged under Case III of that Schedule. But since the total income included the £72,354 which was exempt from

tax, the society complained that it was entitled to relief in respect of that sum, since otherwise tax would be charged on income which was not by law

chargeable.

The Commissioners of Inland Revenue recognised the validity of the society’s complaint and gave the following relief. They deducted the £72,354 from

the total income, thereby reducing the total income from £4,145,067 to £4,072,713, with the result that the fraction chargeable to income tax under r 3 was

£226,646. The society, however, is not content with that concession. It is said, in the first place, that the provisions of r 3 afford no warrant for making any

reduction of the total income from the investments of the life assurance fund. Since the rule provides that the income chargeable to tax under Sched D should

be a portion of “any income of the company from the investments of its life assurance fund wherever received,” I am disposed to think that this criticism is

well founded, and that, for the purposes of ascertaining the portion of the income chargeable to tax, it is necessary to take the prescribed fraction of the total

income from the investments of the life assurance fund and that it is not permissible to make any deduction from that total.

Proceeding from the contention that the method adopted by the Commissioners of Inland Revenue for dealing with the £72,354 was unwarranted, the

society contends that that sum ought to be deducted, not from the total income of £4,145,067, but from £230,684, the fraction of the total income which, by the

rule, is deemed to be “profits comprised within Sched D,” with the result that the chargeable income becomes £158,330.

The Income Tax Act, 1918, Sched D, Case III, r 3(4) provides as follows:

‘Where a company has already been charged to tax, by deduction or otherwise, in respect of its life assurance business, to an amount equal to or

exceeding the charge under this rule, no further charge shall be made under this rule, and where a company has already been so charged, but to a less

amount, the charge shall be proportionately reduced.’

The contention put forward by the society, as I understand it, is that the income from the investments exempted from the payment of tax should be regarded as

if it were income which had been “charged to tax by deduction or otherwise” within the meaning of those words in r 3(4). It is not easy to see how the words

“income charged to tax” can be construed so as to include income which is not chargeable to tax. But counsel for the appellant society urged very strongly

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that such a construction was rendered necessary by reason of the decisions in Hughes v The Bank of New Zealand, and in Sinclair v Cadbury Bros Ltd.

In the former case the Bank of New Zealand, like the society, was not resident in the United Kingdom, but had a branch in London and, like the society,

was assessable to income tax here in respect of the profits of that branch. But it was not assessable under Case III of Sched D; it was assessable under Case I

of that Schedule on the profits made by the branch, computed in accordance with the rules applicable to that Case. The Bank, like the society, held

investments which, under the provisions of the Income Tax Act, 1918, were exempt 􀂭 242􀀉 from United Kingdom income tax, and the main question at issue

in that case was whether the income received by the branch from those investments ought or ought not to be included as receipts in the computation of its

profits. It was held that it ought not to be included in the computation, because the exemption from income tax was absolute, and, if the income from those

investments was included as a receipt, it would necessarily be subjected to tax. The decision in the case of Cadbury Bros Ltd was to the like effect. In that

case the company carried on its trade at a factory erected on land which, by an Act passed in 1660, was exempt from all taxation. The company was assessed

to tax under Case I of Sched D in respect of the profits of its trade and the question at issue was whether, in the computation of the profits of the trade carried

on by the company, the annual value of the land on which the factory was situate ought to be included as a trade expense. It was held that it ought to be so

included because, unless it were so included, the company would, in effect, be charged to tax on the annual value of the land contrary to the provisions of the

Act of Charles II.

These cases establish beyond all question that the Crown cannot exact income tax, either directly or indirectly, on income which is by law exempted from

payment of tax; but, with all respect to counsel for the appellant society, I am unable to see how they support the contention that in this case the £72,354, the

income which is exempt from the payment of tax, ought to be deducted from the £230,684 which, in accordance with the provisions of r 3 and the regulation

made by the Commissioners of Inland Revenue, is to be deemed to be profits within Sched D, and to be chargeable to tax under Case III of that Schedule.

In my judgment on the first of these appeals I ventured to point out that the fraction of the total income deemed to be profits comprised in Sched

D—which, for the first of the four years in question on this appeal was.05565268 and amounted to £230,684—is in fact the aggregate of the like fraction of the

income of each of the investments of the society’s life assurance fund. Since therefore, the sum of £230,684 contains that fraction of the £72,354 which is

exempt from income tax, it follows that no tax can be exacted on so much of the £230,684 as consists of that fraction of the £72,354, not by reason of any

express or implied provision to be found in r 3, but by reason of the fact that no tax may be exacted, either directly or indirectly, on income which is exempt

by law from tax.

As the Special Commissioners pointed out, the actual result of this method of dealing with the £72,354 is precisely the same as that of the method

adopted by the Commissioners of Inland Revenue; but it seems to me that it is the more correct method. In my opinion, therefore, the appeal fails and must be

dismissed with costs.

Appeals dismissed with costs.

Solicitors: Solicitor of Inland Revenue (for the appellant); Bell, Brodrick & Gray (for the respondents).

P J Johnson Esq Barrister.

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