Inland Revenue v. Hay

The Commissioners of Inland Revenue, appellants , being dissatisfied with the decision of the Commissioners for the Special Purposes of the Income Tax Acts in an appeal by Sir Duncan Edwyn Hay of Haystoun, Baronet, respondent , against an assessment to super tax on the sum of £3951 for the year ending 5th April 1923, appealed by Stated Case.

The question of law was—“Whether the said interest is admissible as a deduction in computing the respondent's income for the purpose of assessment to super tax?”

The reasoning of the English Court of Appeal in Goslings & Sharpe's case was approved by Lord Sumner in Gateshead Corporation v. Lumsden ( [1914] 2 KB 883 ) , and by Rowlatt, J., in Garston Overseers v. Carlisle , [1915] 3 K.B. 381 . In those cases the question was as to the scope of the words “yearly interest” used in the Income Tax Acts of 1842 and 1853.

The first contention stated for the Commissioners is—“That there was no evidence that the interest was paid out of revenue or that any interest had been paid at all.” Little, if any, argument was presented upon this contention. We have got to take the case as presented to us. The assumption upon which it is stated is that interest of the specified amount was in fact paid by the respondent to his agents.

If the payment was wholly made out of capital the respondent ought not to have been assessed upon any part of it. The assessment should have been made upon the recipients of the income. If, however, the interest was paid only partly out of income brought into charge and the deduction properly made, I do not think that you can treat as the respondent's income that part of the interest paid to the respondent's agents either out of capital or out of income already brought into charge, whether the question arises as regards payment of income tax or of super tax.