Nugent-Head v Jacob (Inspector of Taxes)

 Nugent-Head v Jacob (Inspector of Taxes)

TAXATION; Income Tax: FAMILY; Other Family

KING’S BENCH DIVISION

MACNAGHTEN J

5 NOVEMBER 1945

Income Tax – Sched D – Income arising from foreign possessions – Married Woman – “Living with her husband” – “Living … separate from her husband” –

Assessment on wife as feme sole – Husband on military service abroad – Wife entitled in her own right to income from abroad – Income Tax Act, 1918 (c 40),

All Schedules Rules, r 16.

The appellant, an American citizen, married an Englishman in 1933. She lived with her husband in London until 1938, when he joined the army and was

stationed at various places in the United Kingdom. In 1941 the husband was sent abroad for 3 years on military duty, but the appellant continued to reside in

the marital home in London, which contained the husband’s personal effects and which was at all times available to the husband should he be able to return to

it. Under a settlement made on her, the appellant was entitled to a considerable income from property in America. Her income for the year 1941–42

amounted to £13,615 of which £7,082 was remitted to her in London and the balance retained to her credit in America. It was admitted that the whole of the

income became assessable for the year 1942–43 under Case V of Sched D to the Income Tax Act, 1918, as “income arising from possessions out of the United

Kingdom.” An assessment in the sum of £7,082 was made upon the appellant as a feme sole pursuant to the Income Tax Act, 1918, All Schedules Rules, r 16,

which provides that: “A married woman acting as a sole trader, or being entitled to any property or profits to her separate use, shall be assessable and

chargeable to tax as if she were sole and unmarried: Provided that (1) the profits of a married woman living with her husband shall be deemed the profits of

the husband and shall be assessed and charged in his name, and not in her name or the name of her trustee; and (2) a married woman living in the United

Kingdom separate from her husband; whether the husband be temporarily absent from her or from the United Kingdom or otherwise, who received any

allowance or remittance from property out of the United Kingdom, shall be assessed and charged as a feme sole if entitled thereto in her own right, and as the

agent of her husband if she receives the same from or through him, or from his property, or on his credit.” It was contended for the appellant that, as she was

“a married woman living with her husband” within the meaning of the 􀂭 198􀀉 Income Tax Act, 1918, All Schedules Rules, r 16, proviso (1), her income must

be deemed to be the income of her husband who must be assessed and charged for tax upon it. It was contended for the Crown that, although the appellant was

“living with her husband” within the meaning of the Income Tax Act, 1918, All Schedules Rules, r 16, proviso (1), she was also “living separate from her

husband” within the meaning of the Income Tax Act, 1918, All Schedules Rules, r 16, proviso (2), and should, therefore, be assessed to tax as a feme sole in

respect of the remittance:—

Held – (i) On the facts, the appellant did not live separate from her husband within the meaning of the Income Tax Act, 1918, All Schedules Rules, r 16,

proviso (2), and was, therefore, not assessable to tax on the remittance. The income remitted to this country must be assessed on the appellant’s husband.

(ii) on a proper construction of the Income Tax Act, 1918, All Schedules Rules, r 16, provisos (1) and (2), proviso (2) could not be treated as qualifying

proviso (1), but as dealing with a case where the spouses have separated in the ordinary sense of the word.

Notes

The provisions of General Rule 16, relating to the assessment of a married woman living separate from her husband, are ambiguous, but the better opinion

seems to be that she is only to be separately assessed if the separation is due to judicial decree, mutual agreement, desertion or the like. It was held in R v

Creamer ([1919] 1 KB 564) that a husband and wife do not cease to be “living together” within the meaning of the Larceny Act, 1916, s 36, because the

husband is, as in the case under consideration, on military service abroad, and Rowlatt J, distinguishing this case in Eadie v IR Comrs ([1924] 2 KB 198),

pointed out that the position was entirely different where the parties leave each other because they cannot tolerate being under the same roof. He adds that “in

order to be properly understood the proviso in question must be construed with reference to the matter with which it was meant to deal. It is meant to define

the circumstances in which a husband can be charged to income tax in respect of the income of his wife as being income accruing to her while she is living

with him.”

As to Liability to Income Tax of Married Women with Separate Income, see Halsbury, Hailsham Edn, Vol 17, pp 373, 374, para 767; and for Cases, see

Digest, Vol 28, p 96, Nos 570–573.

Case referred to in judgment

Derry v Inland Revenue (1927), 13 Tax Cas 30, Digest Supp, [1927] SC 714.

Case Stated

Case Stated under 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 taxpayer, a married woman, appealed against an assessment to income tax under Case V of Sched D to the

Income Tax Act, 1918, All Schedules Rules, r 16, made upon her as a feme sole in the sum of £7,082 for the year 1942–43 in respect of income arising from

foreign possessions. The following facts were found by the Commissioners:—

‘The appellant and her husband were married in 1933 and lived together in London. She was and is an American citizen and at all material times

has been ordinarily resident in the United Kingdom. The appellant’s husband, an Englishman, joined the Army in 1939. Until Nov. 1941, he was

stationed at various places in this country, and his wife continued to live in London, but frequently went to stay at hotels near where her husband was

from time to time stationed. The husband spent all his periods of leave with his wife. In Nov. 1941, he went on active service overseas … His wife

continued to reside in London in a flat which she acquired in her own name in July, 1940, the husband’s personal effects were left in her care and the

flat constituted the marital home which was at all times available to the husband should he be able to return to it … It was admitted on behalf of the

respondent that the appellant was living with her husband within the meaning of the Income Tax Act, 1918, All Schedules Rules, r. 16, proviso (1).

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The appellant was entitled in her own right to a life interest in certain income arising abroad under … dispositions which were all governed by

American law.

Some of the income arising under these dispositions was remitted from America to the appellant in the United Kingdom, and in 1941–1942, the year

preceding the year of the assessment under appeal, the amount of such remittances was £7,082 … By the Finance Act, 1940, s. 19, the appellant’s

income arising under the said dispositions has been chargeable to income tax on the basis of the full amount arising abroad (whether remitted to the

United Kingdom or not) during the year preceding the year of assessment.

The full amount of such income arising abroad during the year preceding the year of assessment under appeal was agreed to be £13,615.’

􀂭 199􀀉

The Special Commissioners accepted as correct the Crown’s contention:

‘… and that the Income Tax Act, 1918, All Schedules Rules, r. 16, proviso (2), should be treated as a qualification of the Income Tax Act, 1918, All

Schedules Rules, r. 16, proviso (1), i.e., as dealing with the particular case of a married couple who, although living together, are temporarily in different

places and then only as regards a specified portion of the wife’s income, i.e., remittances.’

They accordingly assessed the appellant’s husband in the sum of £6,533 and the appellant in the amount of the remittances, namely, £7,082.

The appellant’s husband accepted the decision of the Special Commissioners but the appellant appealed on the ground that the whole of her income,

£13,615 should be assessed and charged on her husband.

F Grant KC and Terence Donovan KC for the appellant.

The Solicitor General (Sir Frank Soskice KC), and Reginald P Hills for the respondent (Inspector of Taxes).

5 November 1945. The following judgment was delivered.

MACNAGHTEN J. This is an appeal by Mrs Nugent-Head, the wife of Col Nugent-Head, against an assessment to income tax under Case V of Sched D, for

the year 1942–43, in the sum of £7,082, made upon her as a feme sole, pursuant to the Income Tax Act, 1918, All Schedules Rules, r 16. Her case is that she is

not assessable to tax under that rule or at all.

The appellant, an American citizen, married her husband, an Englishman, in 1933. It was a very happy marriage, and they lived together in London until

on the outbreak of war with Germany in 1939, her husband joined the Army. For the next two years he was stationed at various places in the United Kingdom,

but in November 1941, he was sent abroad, and he remained abroad throughout the next three years. During the whole of the year of the assessment, the

appellant was living in a flat in London, and her husband was living overseas in discharge of his military duties.

Under a settlement made by her grandfather and the testamentary dispositions of her parents, the appellant enjoys a considerable income from property in

America. During the year 1941–42, her income from that source amounted to £13,615, and of that sum £7,082 was remitted to her in London, and the balance,

£6,533, was retained in America. It is admitted that the whole of the income became assessable for the year 1942–43 under Case V of Sched D, as “income

arising from possessions out of the United Kingdom.”

The question at issue is whether the assessment should be made on the appellant, or on her husband. The answer to that question depends upon the

meaning and effect of the Income Tax Act, 1918, All Schedules Rules, r 16, which runs thus:

‘A married woman acting as a sole trader, or being entitled to any property or profits to her separate use, shall be assessable and chargeable to tax as

if she were sole and unmarried: Provided that (1) the profits of a married woman living with her husband shall be deemed the profits of the husband,

and shall be assessed and charged in his name, and not in her name or the name of her trustee; and (2) a married woman living in the United Kingdom

separate from her husband, whether the husband be temporarily absent from her or from the United Kingdom or otherwise, who receives any allowance

or remittance from property out of the United Kingdom, shall be assessed and charged as a feme sole if entitled thereto in her own right, and as the agent

of the husband if she receives the same from or through him, or from his property, or on his credit.’

This rule reproduces the provisions of the Income Tax Act, 1842, s 45. That section was based on provisions to be found in the Income Tax Acts, 1803, 1805

and 1806.

In view of the changes in the law relating to the property of married women which have taken place in the last 100 years, it is not surprising that

provisions with regard to the taxation of their income, which were apt and intelligible in the beginning of the 19th century have become inapt and ambiguous

when re-enacted in the Income Tax Act, 1918. The present case illustrates the urgent need for the simplification and clarification of the law relating to income

tax, which the present Chancellor of the Exchequer and his predecessors have all recognised.

R 16, apart from its provisos, itself is plain and simple. A married woman who has an income of her own is to be assessed and charged to tax like any

spinster. The difficulty in construing the rule is caused by the two provisos. The first proviso deals with the case of a married woman “living with her

husband,” 􀂭 200􀀉 and the second deals with the case of a married woman “living in the United Kingdom separate from her husband, whether the husband be

temporarily absent from her or from the United Kingdom or otherwise.” Both these provisos are ambiguous. Does the first proviso include such a case as the

present one where the spouses would be living together, if they could, but the force of circumstances compels them to live apart? Does the second proviso

refer to the case where the spouses are separated by a judicial decree, or by mutual agreement, or by the desertion of one or other of them? If that is the

meaning of the word “separate” in the second proviso, the words “whether the husband be temporarily absent from her or from the United Kingdom or

otherwise” seem inappropriate. On the other hand, if the second proviso only refers to cases where the spouses happen for the time to be living in different

places, it seems to follow that the words “living with her husband” in the first proviso must mean living together at the same place.

Before the Special Commissioners, and in this court, the Crown contended that, although the appellant and her husband were in fact living far apart, she

was, nevertheless, during all the time of their separation “living with her husband” in the sense in which those words are used in the first proviso. The

appellant accepted this contention as well founded, and maintained that, since she was living with her husband within the meaning of the first proviso, it

followed that her income must be deemed to be the income of her husband, and that it must be assessed and charged in his name and not in her name, since

that is what the first proviso says quite plainly. To that the Crown made answer that, although the appellant was “living with her husband” within the meaning

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of the first proviso, she was also “living separate from her husband” within the meaning of the second proviso, and, therefore, as to the remittance of £7,082, to

which she was entitled in her own right, she should be assessed and charged as a feme sole.

The Special Commissioners accepted the view put forward by the Crown as correct, and they accordingly assessed the appellant’s husband in the sum of

£6,533, on the ground that the appellant was living with her husband within the meaning of the first proviso, and they assessed the appellant in the sum of

£7,082 on the ground that she was living separate from her husband within the meaning of the second proviso. The appellant’s husband accepts the decision

of the Special Commissioners, but the appellant brings this appeal: she maintains that the whole of her income, £13,615, ought to be assessed and charged on

her husband.

The argument which leads to the curious conclusion that the appellant was living with her husband, and at the same time was living separate from him, is,

as I understand it, this: that, although the two provisos are separate and purport to deal with two different cases, the first with the case of a wife living with her

husband, and the second with the case of a wife living separate from her husband, the second proviso should be read, not as a separate proviso, but as a

qualification of the first proviso, because, it is said, the rule itself provides for the case of a married woman living separate from her husband, and the second

proviso would be unnecessary, unless it be read as a qualification of the first.

If the second proviso merely said that in the case supposed, namely, that a married woman, receiving a remittance from foreign property while living in

the United Kingdom separate from her husband, should be assessed and charged as a feme sole, there would no doubt be some force in that argument. But the

proviso does not say that. It says that she is only to be assessed as a feme sole if she is entitled to the remittance in her own right. If she receives it from her

husband, or through him, or from his property, or on his credit, she is not to be assessed as a feme sole; in that case she is to be assessed as the agent of her

husband.

Reference was made to the Scottish case of Derry v Comrs of Inland Revenue as giving some support to the decision of the Special Commissioners. In

that case Mrs Derry, the wife of Dr Douglas Derry, was in receipt of income assessable under Case V of Sched D as income arising from possessions out of

the United Kingdom. Owing to a nervous breakdown, she was living in a nursing home in England, and there was little hope that she would ever recover

sufficiently to be able to leave the nursing home. Her husband was Professor of Anatomy at the University of Cairo, and he lived there throughout the year,

􀂭 201􀀉 except when he came on leave to England for a period of less than three months. He was never able to live with his wife at the nursing home. The

question submitted to the court was whether Mrs Derry was assessable under r 16. The court consisted of Lord Sands, Lord Blackburn and Lord Ashmore, and

they all agreed that the answer to that question was in the affirmative; but each gave a different reason for that decision. Lord Blackburn thought that Mrs

Derry was not living with her husband within the meaning of the first proviso and, therefore, came within the general rule that all married women, other than

married women living with their husbands, were to be assessed as spinsters. Lord Ashmore considered that, on the facts stated by the Commissioners, Mrs

Derry was living separate from her husband, and that she therefore came within the second proviso. He did not express any opinion as to whether she was

living with her husband within the meaning of the first proviso. Lord Sands, however, was of opinion that she was “living with her husband” within the

meaning of the first proviso, and also living “separate from her husband” within the meaning of the second proviso. The argument was put very clearly by

Lord Sands in these words (13 Tax Cas 30, at p 37):

‘The opening enactment of r. 16 deals with all married women. Proviso (1) deals with married women living with their husbands. A married

woman not living with her husband is covered by the opening clause; a married woman living with her husband by the proviso. But these two classes

include all married women … A married woman not living with her husband falls under the opening clause. Under that clause her separate estate is

assessable. She obtains no relief from direct assessment under proviso (1), which deals only with married women living with their husbands. Proviso

(2) would, therefore, be unnecessary and meaningless if regarded simply as a qualification of the provision of the opening clause as regards the wife’s

separate income.’

As I have said, that argument would have some force but for the fact that Parliament has thought fit to provide that a married woman living separate from

her husband, if entitled to the remittance in her own right, is to be assessed as a feme sole, but that, if she receives it from or through her husband, or from his

property, or on his credit, she is not to be assessed as a feme sole, but as the agent of her husband. Therefore, I venture, with all respect, to think that it is not

necessary to do violence to the rule by treating the second proviso as if it was a part of the first, and then, having done that, to treat it as an exception from the

case provided for by the first proviso. In my opinion, if the first proviso is to be construed as covering a case such as this, where the husband and the wife

have been living far apart—(and both the appellant and the respondent are agreed that the first proviso should be so construed)—then the second proviso must

be read in its natural sense as applying to the case where the spouses have separated in the ordinary sense of that word. In these circumstances, I think the

appeal must be allowed, and the assessment quashed.

Appeal allowed with costs. Assessment quashed. Order for return of tax paid with interest at 3 per cent.

Solicitors: Gordon, Dadds & Co (for the appellant); Solicitor of Inland Revenue (for the respondent).

P J Johnson Esq Barrister.

[1946] 1 All ER 202