[HOUSE OF LORDS.]

AND

Revenue - Income tax - Infant's savings bank account - Gift by father - "Settlement" - Interest as income of settlor - Finance Act, 1936 (26 Geo. 5 & 1 Edw. 8, c. 34), s. 21.

Absolute gifts by a father to his infant and unmarried children in the form of money paid into Post Office Savings Bank accounts opened in their names and of 3 per cent. Defence Bond holdings are "settlements" within section 21 of the Finance Act, 1936, and render the father liable as settlor to pay income tax under Sch. D on the interest payable on the accounts and the bonds.

Hood-Barrs v. Inland Revenue Commissioners [1947] W.N. 12; 176 L.T. 283; [1946] 2 All E.R. 768; 27 T.C. 385 approved.

Decision of the Court of Appeal [1952] 1 T.L.R. 1419; [1952] 2 All E.R. 32 affirmed.

APPEAL from the Court of Appeal (Evershed M.R., Birkett and Romer L.JJ.).

This was an appeal from an order of the Court of Appeal dated May 13, 1952, dismissing an appeal by the appellant, David Cardigan Thomas, from an order of Donovan J. dated January 18, 1952, dismissing an appeal by the appellant by way of case stated from a decision of the Commissioners for the General Purposes of the Income Tax for the Division of the Tower of London given on January 19, 1951, on the hearing of an appeal by the appellant against assessments made on him under Case III of Sch. D of the Income Tax Act, 1918, in the sums appearing in the case for the chargeable accounting periods for the years 1942-50 inclusive.

The question was whether certain gifts, being absolute gifts made by the appellant to his two infant children, Michael and Heather, constituted a settlement or series of settlements within the meaning of section 21 of the Finance Act, 1936.

The relevant facts, fully set out in the case stated, were summarized by Lord Morton of Henryton as follows:- On December 20, 1933, a Post Office Savings Bank account was opened by or on behalf of the appellant in the name of Michael (born September 8, 1933) with a deposit of £50, and on May 28, 1936, another Post Office Savings Bank account was opened by or on behalf of the appellant in the name of Heather (born February 1, 1936) with a deposit of £50. Thereafter the appellant paid further sums into the same bank for each of his children. Various sums were drawn from the accounts from time to time and were expended for the children's benefit. On December 31, 1948, Michael's account was in credit £844 9s. 0d. and Heather's account was in credit £844 8s. 3d. In the year 1945 the appellant bought £1,000 3 per cent. Defence Bonds for each of the two children. All the sums paid into the children's bank accounts, and the said Defence Bonds, were absolute and unconditional gifts made by the appellant to his children.

The Inspector of Taxes treated the interest upon the two Savings Bank accounts, exclusive of interest upon interest, and the interest upon the two holdings of Defence Bonds as being income of the settlor for the purposes of the Income Tax Acts. This he did in reliance upon the terms of section 21 of the Finance Act, 1936, which provide: "(1) Where, by virtue or in consequence of any settlement to which this section applies and during the life of the settlor, any income is paid to or for the benefit of a child of the settlor in any year of assessment, the income shall, if at the commencement of that year the child was an infant and unmarried, be treated for all the purposes of

the Income Tax Acts, as the income of the settlor for that year and not as the income of any other person. ... (9) In this section - ... (b) the expression 'settlement' includes any disposition, trust, covenant, agreement, arrangement or transfer of assets; (c) the expression 'settlor,' in relation to a settlement, includes any person by whom the settlement was made or entered into directly or indirectly. ..."

Sir Andrew, Clark Q.C. and Charles Lawson for the appellant. The relevant cases are Hood-Barrs v. Inland Revenue Commissioners¹; Chamberlain v. Inland Revenue Commissioners²; Inland Revenue Commissioners v. Morton³; Vestey's Executors v. Inland Revenue Commissioners⁴ (which was not cited in Yates v. Starkey⁵ and St. Aubyn v. Attorney-General.⁶ In Vestey's Executors v. Inland Revenue Commissioners⁷ the House of Lords approved Lord Macmillan's observations in Chamberlain v. Inland Revenue Commissioners,⁸ adopting Lord Moncrieff's judgment in Morton v. Inland Revenue Commissioners.⁹ Hood-Barrs v. Inland Revenue Commissioners,¹⁰ and Yates v. Starkey,¹¹ which followed it, were wrongly decided and should be overruled. See also Copeman v. Coleman.¹²

On the construction of section 21 of the Finance Act, 1936, see also section 20 of the Finance Act, 1922 (referred to in section 21 (5) of the Act of 1936), section 20 (1) (b) and (5), section 38 (2) and section 41 (4) (b) of the Finance Act, 1938, defining "settlement." Whatever "settlement" means in the Act of 1938, it means the same thing in the Act of 1936. "Settlement" is defined in section 21 (9) (b) of the Act of 1936, and that definition is crucial. This definition is identical with that in section 41 (4) (b) of the Act of 1938, save for the addition of the phrase "transfer of assets," which is otiose and adds nothing to the definition. Every gift is in the ordinary sense a disposition and also a transfer of assets (e.g., half-a-Crown given to a nephew at school). There is nothing in section 21 of the Act of 1936 to require that every

1 176 L.T. 283; [1946] 2 All E.R. 768; 27 T.C. 385.

2 59 T.L.R. 343; [1943] 2 All E.R. 200; 25 T.C. 317.

3 1941 S.C. 467; 24 T.C. 259.

4 [1949] 1 All E.R. 1108; 31 T.C. 1.

5 [1951] Ch. 465; [1951] 1 T.L.R. 661; [1951] 1 All E.R. 732.

6 [1952] A.C. 15, 32, 43; [1951] 2 All E.R. 473.

7 [1949] 1 All E.R. 1108, 1113, 1118, 1132-3, 1143; 31 T.C. 1, 81, 87-8, 107, 120.

8 (1943) 59 T.L.R. 343, 346; 25 T.C. 317, 331.

9 1941 S.C. 467, 480; 24 T.C. 259.

10 176 L.T. 283; 27 T.C. 385.

11 [1951] Ch. 465.

12 [1939] 2 K.B. 484; [1939] 3 All E.R. 224.

disposition must be treated as being a settlement. There are many dispositions which would not be settlements, and the facts of each case must be looked at in the light of the section. Despite the definition the word "settlement" still remains the dominant word in section 21 (1), which is the charging part of the section. To bring a case within the Act one must find something in the nature of a settlement, and the term "settlement" can apply only to cases where the legal title to property is separated from the beneficial interest, or where there has been a separation of the beneficial interest in the income from the beneficial interest in the capital producing it. It would be a ludicrous result if when a father gave his schoolboy son £1, which the boy put into the Post Office Savings Bank, that amounted to a settlement within the meaning of the section.

Section 47 of the Bankruptcy Act, 1883, throws light on the meaning of the word "settlement," and the authorities under it indicate that a gift of cash could not in any event be a settlement. The cases under the section are also relevant to the meaning of the term "transfer of assets": see In re Vansittart¹³; In re Player¹⁴; In re Plummer¹⁵; In re Tankard.¹⁶

In the construction of taxing Acts one must give the words their ordinary everyday meaning and not construe them widely so as to give them a meaning which no ordinary person would think of. To adopt the Crown's construction in this case would be to stretch the plain meaning of the word "settlement" in order to comply with what is alleged to be the intention of the legislature, contrary to the principles laid down in St. Aubyn v. Attorney-General.¹⁷

It is admitted that if these gifts were settlements the appellant was the settlor.

The submissions for the appellant are as follows: (1) In section 21 of the Act of 1936 subsection (1) is the charging subsection, and in it the only word used is "settlement." From that it follows that "settlement" is the dominant word: see Morton v. Inland Revenue Commissioners¹⁸; Chamberlain v. Inland Revenue Commissioners¹⁹ and Vestey's Executors v. Inland Revenue Commissioners.²⁰

13 [1893] 1 Q.B. 181, 184; 9 T.L.R. 14.

14 (1885) 15 Q.B.D. 682, 687.

15 [1900] 2 Q.B. 790, 804.

16 [1899] 2 Q.B. 57, 58; 15 T.L.R. 332.

17 [1952] A.C. 15, 30.

18 1941 S.C. 467, 480; 24 T.C. 259, 269.

19 59 T.L.R. 343, 346; 25 T.C. 317, 331.

20 [1949] 1 All E.R. 1108, 1119; 31 T.C. 1, 88.

(2) Section 21 (9) of the Act of 1936 is not a definition section: see per Lord Moncrieff in Morton v. Inland Revenue Commissioners.²¹ It does not purport to change the meaning of "settlement" but merely enlarges it by saying that it shall include certain transactions. That, being only an enlargement, cannot destroy the meaning of the word "settlement." For a settlement to come within the section one must find one which can include a transfer of assets, etc.

(3) It follows that before the section can apply at all one must find some transaction which is in the nature of a settlement in its broadest possible sense. The broadest possible sense in which the word could be used without destroying its meaning is a transfer of assets with some restraints on alienation. These restraints must be legal "strings" attached such as would subject the transferee to some action at law or in equity if he attempted to alienate the subject-matter.

(4) One must find not only something in the nature of a settlement, but also something in the nature of the type of settlement contemplated by section 21 (1). An absolute and unconditional gift cannot be a settlement within the contemplation of section 21. It would make nonsense of the section to class such a gift as being in the nature of a settlement. The words "for the benefit" in subsection (1) only have application where the payment is to some person other than the child, and so they cannot apply here.

(5) In the case of an absolute gift, even an income-producing asset, the income is never paid to the donee "by virtue or in consequence of" the gift. If the donee is given cash and he invests it, the income is not paid to him "by virtue" of the gift but by virtue of his having invested it. (There is no distinction between "by virtue" and "in consequence.") If what is given is an income-producing asset, like shares, the subsequent income is paid to the donee by virtue of his election to keep the shares and not to sell them - "by virtue or in consequence," not of the gift, but of his retention of the shares. So a gift with no "strings" impeding alienation is not a settlement. In the case of a gift of a chattel which is subsequently sold, e.g., jewellery or a motor-car given to a daughter, who sells it and invests the proceeds, it cannot be said that the income from the invested proceeds is payable by virtue of the gift. If an absolute gift were held to fall within section 21, it would be hard to determine in

21 1941 S.C. 467, 480; 24 T.C. 259, 268.

such a case whether the income was paid to the child "by virtue or in consequence of" the gift. One is not presupposing trickery but ordinary natural cases. If gifts were to be treated as settlements there is nothing in section 21 to limit them to income bearing assets. This is a case of an absolute and unconditional gift and so subsection (2) of section 21 does not apply at all. A gift, if it is to be a settlement, must be an irrevocable settlement. It would be destructive of thrift if the effect of this section were to encourage the spending of gifts to children at once. The section was never designed to touch any such gift as this. An absolute and unconditional gift is the very antithesis of a "settlement" in any possible sense in which that word could be used either by a lawyer, a business man or the man in the street. It would be wrong and contrary to the opinion of the majority in St. Aubyn v. Attorney-General²² to construe the word as something which is its antithesis.

(6) If it had been the legislature's intention that section 21 should apply to absolute and unconditional gifts it would have been simple and natural to include in the charging part of the section the words "or by virtue or in consequence of any absolute and unconditional gift." Since such a gift is so different from a settlement, that would have been done if it had been intended. On the Crown's construction the wording of section 21 is tautologous.

(7) Some weight must be given to the difference between "disposition" in section 22 (1) of the Finance Act, 1922, and "settlement" in section 21 (1) of the Act of 1936: see Hood-Barrs v. Inland Revenue Commissioners.²³

(8) The bankruptcy cases provide a valuable analogy, showing that where there is an expansion clause such as subsection (9) of section 21 of the Act of 1936, it does not mean that every transfer of assets, including a transfer of assets without any "strings," comes within the meaning of the term "settlement" in the operative part of the Act. Before a transfer of assets can partake of the nature of a settlement there must be a factor falling within one of the following heads: (1) some restraint on alienation of the gift; (2) a separation of the legal title from the beneficial interest in the subject of the gift, so that they are conferred on different persons; (3) a severance of the right to receive the income from the ownership of the capital of the subject of the gift, so that they are given to different persons. In any of these cases, and

22 [1952] A.C. 15.

23 176 L.T. 283, 285; 27 T.C. 385, 392.

possibly in others, a transfer of assets would be in the nature of a settlement.

The appellant particularly relies on the observations in Inland Revenue Commissioners v. Morton²⁴; Chamberlain v. Inland Revenue Commissioners²⁵ and Vestey's Executors v. Inland Revenue Commissioners,²⁶ cases decided under section 38 (2) of the Finance Act, 1938.

[LORD NORMAND intimated that their Lordships did not require to hear any argument on behalf of the respondent on the question whether the cases decided under section 38 (2) of the Act of 1938 illuminated section 21 of the Act of 1936, but they wished to hear argument on the construction of section 21 on its own merits and on the effect of the bankruptcy cases.]

Sir Reginald Manningham-Buller S.-G., Pennycuick Q.C., J. H. Stamp and Sir Reginald Hills for the Crown. The income arising from the hank deposits and Defence Bonds belonging to the children was rightly included in the appellant's income for the purpose of the assessments made on him in respect of income chargeable under Case III of Sch. D of the Income Tax Act, 1918. The provisions of section 21 of the Act of 1936 required that the income of his infant children so arising should be treated as his income and not as income of either of the children.

It was said on behalf of the appellant that the question arising on this appeal is whether an absolute and unconditional gift is a settlement within the meaning of section 21. But the question is not thus properly posed. Properly stated it is: is an absolute and unconditional gift of shares in cash a producer of income within section 21? For the appellant it was also argued that before one can apply the section one must find something in the nature of a settlement in the ordinary sense. That is ill-founded in relation to section 21, although it may be so in the case of section 38 of the Act of 1938. The effect of section 21, and its object, is to secure that any income paid for the benefit of the child of a settlor by virtue of a settlement as defined in the section is to be treated as income of the settlor, no matter in what manner the provision is made by him for the child. Clearly from the way in which section 21 (1) is drafted, it applies to any transaction or arrangement, and any such transaction or arrangement which produces income is caught.

24 1941 S.C. 467, 475-6, 480-1, 483; 24 T.C. 259, 265-6, 269, 271.

25 59 T.L.R. 343, 345, 347; 25 T.C. 317, 330, 331-2, 335.

26 [1949] 1 All E.R. 1108, 1113-4, 1118-9, 1132, 1133, 1143; 31 T.C. 1, 82, 88, 107, 108, 120.

(3) The definition of "settlement" in section 1 of the Settled Land Act, 1925, indicates the normal meaning of the word. In the definition in section 21 (9) (b) of the Act of 1936 full effect must be given to the words used, in particular the words "includes any." The word "settlement" is thereby given an enlarged meaning, but the appellant seeks to place an ill-defined limitation on that enlargement, thereby amending the expressions of the statute. The Army Act, s. 190 (40), says that "the expression 'horse' includes a mule"; it could not be argued that the only mules included were those having the characteristics of horses. Under the section the proper questions to be asked are: (a) Was there a transfer of assets? (b) In consequence of the transfer, was income payable to the child?

The Crown's interpretation of the section is not tautologous: see Hill v. William Hill (Park Lane) Ld.²⁷ The court must seek to give effect to the expressions "transfer of assets" and "disposition." The words "transfer of assets" are deliberately put into the section to indicate its scope. Subsection (9) (b) should not be treated as having read into it the words "in the nature of a settlement." Its words have their ordinary and natural meaning. In the phrase "by virtue or in consequence of any settlement" in subsection (1) the words "by virtue" are not the same as "in consequence"; the latter are wider. Here the income arose to the children "by virtue of" the transfer of assets and also "in consequence of" it. For the appellant it was contended that if shares were transferred to an infant the income from them was received "in consequence of" his decision not to dispose of that asset. This contention is not well-founded. Where shares are transferred and the income is subsequently received, clearly it is received both "in consequence of" the transfer and "by virtue of" it. Where cash is transferred to an infant and invested by him it may be hard to determine whether or not the income is received "in consequence of" the transfer. But in the present case it is clear that what was transferred produced income for the benefit of the children.

The present point was not raised in Copeman v. Coleman,²⁸ where the question was not whether the transaction was in the nature of a settlement, but whether it was bona fide. The decision tends to support the Crown's contention. Hood-Barrs v.

27 [1949] A.C. 530, 546, 547; 65 T.L.R. 471, 474, 475; [1949] 2 All E.R. 452, 461.

28 [1939] 2 K.B. 484, 494.

Inland Revenue Commissioners,²⁹ followed in Yates v. Starkey,³⁰ is authority for the Crown's argument. Inland Revenue Commissioners v. Payne³¹ is referred to with approval in Morton v. Inland Revenue Commissioners.³²

As to the bankruptcy cases, the application of section 47 of the Bankruptcy Act, 1883, does not throw any useful light on the interpretation of section 21 of the Act of 1936. If any assistance can be found in the section, it is in favour of the Crown's contention. The words "transfer of property" (section 47 (3) of the Act of 1883) and "transfer of assets" (section 21 (9) (b) of the Act of 1936) mean the same thing in whichever definition clause they are included. In the Act of 1883 the definition of "property" is in another section (section 168). The purpose, object and intent of the Act of 1883 are so different from those of the present Act that it is wiser not to place reliance on it. It does not indicate that an absolute gift is not caught by section 21 of the Act of 1936. In re Vansittart³³ establishes that an absolute gift can be a settlement.

Pennycuick Q.C. following. In the cases under the Bankruptcy Act, 1883, the courts held with one qualification that outright gifts were settlements within the extended definition of section 47 (3): see especially In re Vansittart.³³ For the qualification see In re Plummer,³⁴ per Lord Alverstone M.R.: "... if there is a gift of money or proceeds, but it is not intended that the money or the proceeds shall be retained by the donee in the form of money, but shall be expended at once, that will not be a 'settlement.'" The effect of the bankruptcy cases is that in the case of an outright gift where it is contemplated that the subject-matter shall be retained indefinitely the section shall apply. The reason for the qualification lies in the context of the operative provisions of the Act.

Sir Andrew Clark Q.C. in reply. On the argument for the Crown one would wholly disregard the use of the word "settlement" in section 21 (1) of the Act of 1936 and read the definition in subsection (9) as though it stood alone and apart. That is wrong, for its words cannot be divorced from their context, and some effect must be given to the use of the word "settlement." But, even if the Crown be right in that, it must still surmount the next step and show that, assuming that the

29 176 L.T. 283, 287; 27 T.C. 385, 395.

30 [1951] Ch. 465.

31 (1940) 23 T.C. 610, 620.

32 1941 S.C. 467, 480; 24 T.C. 259, 269.

33 [1893] 1 Q.B. 181.

34 [1900] 2 Q.B. 790, 804.

word settlement can in effect be struck out of the charging subsection, an absolute and unconditional gift is the type of "transfer of assets" aimed at by it. Some permanency is visualized by it, so that the income shall be paid or applied for the benefit of the child over a period of time, but once a gift is absolute there is no such element of permanency. The section is entirely aimed at income, not capital. On its construction no absolute gift can come within it, for it is not designed to strike at that sort of thing. Payments to be made irrevocably during the life of a child would not come within the section unless the provisions in the deed respecting them were in the nature of a settlement, and one would have to examine the terms of the deed to see whether or not that was so.

As to the example cited from the Army Act, it exemplifies the appellant's contention, since a mule is an animal in the nature of a horse because one of its parents is a horse. Say a statute defined "cattle" as "all animals normally found on a farm"; on the Crown's contention that would include mice and rats, but on the appellant's contention it would include animals normally used for the purposes of the farm.

If a gift of £5,000 to an infant were invested in a smallholding it would be impossible to say how much of the income arose by virtue of the gift and how much by virtue of his work and ingenuity.

Prima facie, an outright gift is not within the section, for "the transaction must be in the nature of a settlement, though it may be effected by a conveyance or transfer": see In re Player.³⁵

Their Lordships took time for consideration.

April 20.LORD NORMAND. My Lords, I have had the advantage of reading the opinion about to be delivered by my noble and learned friend, Lord Morton of Henryton, and I agree with him that this appeal must be dismissed for the reasons given by him. He has quoted and commented upon certain observations made by me in St. Aubyn v. Attorney-General.¹ I must confess that I there used language of a breadth which lends itself to misunderstanding and that I ought to have expressly qualified my words in the manner which my noble and learned friend indicates.

35 15 Q.B.D. 682, 686, 687.

1 [1952] A.C. 15; [1951] 2 All E.R. 473.

LORD MORTON OF HENRYTON. My Lords, my noble and learned friend, Lord Oaksey, has asked me to say that he concurs in the opinion which I am about to deliver.

My Lords, the question which arises on this appeal is whether interest upon two Post Office Savings Bank accounts, one in the name of the appellant's son Michael, and the other in the name of the appellant's daughter Heather, and interest upon two holdings of £1,000 3 per cent. Defence Bonds in the names of Michael and Heather respectively, ought to be treated, for all the purposes of the Income Tax Acts, as the income of the appellant.

The relevant facts are fully set out in the case stated and may be summarized as follows:- On December 20, 1933, a Post Office Savings Bank account was opened by or on behalf of the appellant in the name of Michael (born September 8, 1933) with a deposit of £50, and on May 28, 1936, another Post Office Savings Bank account was opened by or on behalf of the appellant in the name of Heather (born February 1, 1936) with a deposit of £50. Thereafter the appellant paid further sums into the same bank for each of his children. Various sums were drawn from the accounts from time to time and were expended for the children's benefit. On December 31, 1948, Michael's account was in credit £844 9s. 0d. and Heather's account was in credit £844 8s. 3d. In the year 1945 the appellant bought £1,000 3 per cent. Defence Bonds for each of the two children. All the sums paid into the children's bank accounts, and the said Defence Bonds, were absolute and unconditional gifts made by the appellant to his children.

The Inspector of Taxes treated the interest upon the two Savings Bank accounts, exclusive of interest upon interest, and the interest upon the two holdings of Defence Bonds as being income of the settlor for the purposes of the Income Tax Acts. This he did in reliance upon the terms of section 21 of the Finance Act, 1936. That section provides as follows: "(1) Where, by virtue or in consequence of any settlement to which this section applies and during the life of the settlor, any income is paid to or for the benefit of a child of the settlor in any year of assessment, the income shall, if at the commencement of that year the child was an infant and unmarried, be treated for all the purposes of the Income Tax Acts as the income of the settlor for that year and not as the income of any other person. ... (9) In this section - ... (b) the expression

'settlement' includes any disposition, trust, covenant, agreement, arrangement or transfer of assets; (c) the expression 'settlor,' in relation to a settlement, includes any person by whom the settlement was made or entered into directly or indirectly. ..."

Counsel for the appellant sought to rely upon certain other subsections in the course of his argument, but I think it is unnecessary to set them out, as I understand that all your Lordships are of opinion that they throw no light upon the question which arises for decision.

For the sake of simplicity, I shall consider only the gifts to Michael, as the gifts to Heather stand on precisely the same footing.

Counsel for the appellant does not seek to draw any distinction between the interest on the bank account in Michael's name and the interest on the Defence Bonds bought in Michael's name, and it is common ground that if the gifts of money and Defence Bonds were "settlements" within the meaning of section 21 of the Finance Act, 1936, the appellant was the settlor. It is also common ground that income was paid to Michael by virtue or in consequence of these gifts. Thus the only point for determination is - Were the absolute gifts in question "settlements" within the meaning of section 21 of the Finance Act, 1936? This question has been answered in the affirmative successively by the Commissioners, by Donovan J. and by the Court of Appeal.

My Lords, I too would answer this question in the affirmative. It is true that an absolute gift of money or of an investment would not ordinarily be described as a "settlement," but it is expressly enacted that in section 21 the expression "settlement" includes, inter alia, "Any ... transfer of assets." For my part, I see no escape from the conclusion that the appellant made a transfer of assets, in the ordinary meaning of that phrase, when he used his own money to make a payment into Michael's bank account and to purchase Defence Bonds in Michael's name. Sir Andrew Clark, for the appellant, invited your Lordships to put a limited and special meaning upon this phrase. I shall shortly examine his arguments, but it should be said at once that the matter is by no means free from authority.

In Hood-Barrs v. Inland Revenue Commissioners² the Court of Appeal had to decide whether a gift of shares by a father

2 176 L.T. 283; [1946] 2 All E.R. 768; 27 T.C. 385.

to each of his two infant and unmarried daughters was a "settlement" within section 21 of the Act of 1936. The court unanimously held that it was, because it was a "transfer of assets," and declined to give that phrase a limited meaning. That decision is not, of course, binding upon your Lordships' House, but in my view it was correct and is indistinguishable from the present case. It is, I think, unnecessary to consider the decision in Yates v. Starkey³ as the facts differed widely from the facts of the present case, but Jenkins L.J. observed⁴: "For their meaning" - i.e., for the meaning of the words "settlement" and "settlor" in section 21 - "... I must go to the definitions provided by subsection (9), construe those definitions, and apply them according to their true construction, however remote from the ordinary conceptions of 'settlement' or 'settlor' the content of the definitions may in any given instance appear to be." This observation, with which I agree, is particularly relevant to the argument presented by Sir Andrew Clark in the present case.

Sir Andrew, while conceding that each of the gifts now in question might be described as a transfer of assets, if this phrase were to be given its ordinary meaning, contended that as the word "settlement" was the only word used in the charging subsection (1), it was "the dominant word"; and that a transaction did not come within section 21 unless it was "something in the nature of a settlement." It follows, he said, that a transaction which might ordinarily be described as a transfer of assets did not come within section 21 unless (a) it was accompanied by some restraint on alienation, such as would subject the transferee to some action at law or in equity if he attempted to alienate the subject of the gift, or (b) the income and the capital of the subject of the gift were given to different persons, or (c) the legal title and the equitable interest in the subject of the gift were conferred on different persons. In any one of these three cases, he said, and it may be in other cases, a transfer of assets would be something in the nature of a settlement, but an absolute and unconditional gift is the antithesis of a settlement and cannot be a "transfer of assets" within the meaning of section 21.

My Lords, in the words used by Lord Greene M.R. in Hood-Barrs v. Inland Revenue Commissioners,⁵ this is a

3 [1951] Ch. 465; [1951] 1 T.L.R. 661; [1951] 1 All E.R. 732.

4 [1951] Ch. 465, 476.

5 176 L.T. 283, 292; 27 T.C. 385, 402.

"subversive suggestion" as to the meaning and operation of such an interpretation clause as subsection (9) (b) and I cannot accept it. The object of the subsection is, surely, to make it plain that in section 21 the word "settlement" is to be enlarged to include other transactions which would not be regarded as "settlements" within the meaning which that word ordinarily bears. Its effect is that wherever the word "settlement" occurs in section 21 one must read it as "settlement, disposition, trust, covenant, agreement, arrangement or transfer of assets," and if "by virtue or in consequence of" any of these transactions or deeds income is paid to or for the benefit of a child of the settlor, section 21 comes into operation.

I can find no context here which should lead your Lordships to give, for instance, the words "transfer of assets" any meaning other than that which they ordinarily bear, or to infuse into them some flavour of the meaning ordinarily given to the word "settlement." Further, Sir Andrew's contention, if it were accepted, would create grave uncertainty as to the precise content of each of the words used in subsection (9) (b). What, for instance, is a covenant "in the nature of a settlement"? And what is the difference between a "settlement," in the ordinary meaning of that word, and a trust "in the nature of a settlement"? Sir Andrew submits that uncertainty also results if an absolute gift is held to fall within section 21, for it may be a matter of great difficulty to determine, in certain cases, whether income is paid to or for the benefit of a child of the settlor "by virtue or in consequence of" such a gift. For example, said counsel, if a father gives his child a motor-car or jewellery, and the child sells the gift and invests the proceeds, is the income from the investment paid to the child "by virtue or in consequence of" the gift, or is it paid to him or her in consequence of the sale of an asset which belonged absolutely to the child?

My Lords, I can find no force in this argument. It is true that difficulties may arise of the kind suggested by counsel. In each case it will be for the Commissioners to make a finding as to whether the income in question was or was not paid to or for the benefit of the child "by virtue or in consequence of" the settlement. These are not difficulties in construing the section but difficulties in applying it to the facts of particular cases. Their existence affords no reason for imparting uncertainty into the meaning of the words used in subsection (9) (b).

I must, however, refer to certain authorities relied on by Sir Andrew Clark as supporting his argument. He first referred to

the cases of Inland Revenue Commissioners v. Morton,⁶ Chamberlain v. Inland Revenue Commissioners,⁷ and Vestey's Executors v. Inland Revenue Commissioners.⁸ These were all decisions as to the effect of section 38 (2) of the Finance Act, 1938. That section provided that if and so long as the terms of any settlement answered a particular description, any income arising under the settlement "from the property comprised in the settlement" should be treated as the income of the settlor, and the definition subsection - section 41 (4) (b) - is in substance the same as section 21 (9) (b) of the Act of 1936, except that the words "or transfer of assets" are omitted. Sir Andrew does not rely upon the decisions in these cases, but he does rely upon certain observations which appear in the judgments.

My Lords, I can derive no assistance from any of these observations. They were very fully analysed by Evershed M.R., in his judgment in the present case. I agree with that analysis and I need not repeat it. It is to be noted that the observations in question were not directed to the section now under consideration; further, in each of these cases it was unanimously held that there was a "settlement," within the meaning of sections 38 and 41 (4) (b) of the Act of 1938, and the attention of the Court of Session in Morton's case,⁹ and of this House in the cases of Chamberlain¹⁰ and Vestey,¹¹ was directed to determining what was "the property comprised in the settlement."

Sir Andrew next sought support from the case of St. Aubyn v. Attorney-General¹² and particularly from observations of Lord Simonds and Lord Normand as to the meaning of the words "Where a person dying after the commencement of this Act has made to a company to which this section applies a transfer of any property," in section 46 of the Finance Act, 1940. The majority of this House decided that in paying cash for 100,000 preference shares, for which he subscribed, the second Baron St. Levan did not "make a transfer of any property" to St. Aubyn Estates Ld. within the meaning of section 46.

Lord Simonds said¹³ "The first point arises on the subscription by Lord St. Levan for 100,000 preference shares. For these he paid cash according to the ordinary use of language. Did he then 'transfer property' to the company

6 1941 S.C. 467; 24 T.C. 259.

7 59 T.L.R. 343; [1943] 2 All E.R. 200: 25 T.C. 317.

8 [1949] 1 All E.R. 1108; 31 T.C. 1.

9 1941 S.C. 467; 24 T.C. 259.

10 59 T.L.R. 343; 25 T.C. 317.

11 [1949] W.N. 233; 31 T.C. 1.

12 [1952] A.C. 15.

13 Ibid. 32.

within the meaning of section 46? My Lords, I have no hesitation in saying that the payment of cash to a company upon a subscription for shares is not a transfer of property to the company. No one, lawyer, business man or man in the street, was ever heard to use such language to describe such an act and I decline to stretch the plain meaning of words in an Act of Parliament in order to comply with what is said to be its purpose. ... The question is not at what transaction the section is, according to some alleged general purpose, aimed but what transaction its language, according to its natural meaning, fairly and squarely hits. Applying this, the one and only proper test, I say that when Lord St. Levan paid for his shares he did not transfer property to the company."

Lord Normand said¹⁴: "The first point is whether Lord St. Levan, when he paid £100,000 for the preference shares in the company, made a transfer of property within the meaning of section 46. My opinion is that 'transfer of property' are not the usual words which would be naturally selected to describe a payment of money, though it cannot be denied that money is property or that payment is a transfer. I think that if it had been intended to strike at money payments the simple words necessary to make that intention clear would have been added."

The observations of Lord Simonds were clearly directed only to the section then under consideration and to the meaning of the words "transfer of any property" in the context wherein they then appeared. In my view they do not assist the appellant in the present case. On the contrary, I think that the transaction in the present case is one which the phrase "transfer of assets" in the section now under consideration "fairly and squarely hits." It is no doubt possible to read Lord Normand's observations as referring generally to the meaning of the phrase "transfer of property," but I feel sure that my noble and learned friend intended to deal only with the meaning and effect of the words "transfer of property" in section 46 of the Finance Act, 1940, and to concur with the view of Lord Simonds that Lord St. Levan, in paying cash for preference shares, did not transfer property to the company within the meaning of the section.

Finally. Sir Andrew referred to a series of decisions upon the

14 [1952] A.C. 43.

meaning of the word "settlement" in section 47 of the Bankruptcy Act, 1883. That section provides as follows: "(1) Any settlement of property not being a settlement made before and in consideration of marriage, or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration, or a settlement made on or for the wife or children of the settlor of property which has accrued to the settlor after marriage in right of his wife, shall, if the settlor becomes bankrupt within two years after the date of the settlement, be void against the trustee in the bankruptcy, and shall, if the settlor becomes bankrupt at any subsequent time within 10 years after the date of the settlement, be void against the trustee in the bankruptcy, unless the parties claiming under the settlement can prove that the settlor was at the time of making the settlement able to pay all his debts without the aid of the property comprised in the settlement, and that the interest of the settlor in such property had passed to the trustee of such settlement on the execution thereof. ... (3) 'Settlement' shall for the purposes of this section include any conveyance or transfer of property." Section 168 (1) provides: "In this Act, unless the context otherwise requires ... 'Property' includes money, goods, things in action, land, and every description of property, whether real or personal and whether situate in England or elsewhere; also, obligations, easements, and every description of estate, interest and profit, present or future, vested or contingent, arising out of or incident to property as above defined. ..."

In In re Player¹⁵ it was held by a Divisional Court (Mathew, Cave and Wills JJ.) that a gift of £650 made by the bankrupt to his son, in order to pay for the stock in trade necessary to enable the son to commence a business, was not a "settlement" within section 47. Cave J. after setting out the history of the earlier statutes dealing with this matter, said¹⁶: "It is contended that by virtue of the interpretation clause in the Act of 1883, when applied to section 47, every gift by a father to children, if followed within two years by the father's bankruptcy, is within that section, and that a son can be compelled to refund all moneys given to him within that period for his maintenance or advancement in life. It seems to me a very strong thing to say that a definition of 'property' not to be found in the

15 15 Q.B.D. 682.

16 Ibid. 686, 687.

section itself which deals with this matter, but found in the interpretation clause applying to the whole Act, should have an effect going so much further than the legislature has gone before. I do not think it was intended that section 47 should have that effect. One must look at the whole of the language of the section in applying that definition, and consider what is meant by 'settlement.' Although 'settlement,' by subsection (3) 'shall for the purposes of this section include any conveyance or transfer of property,' yet I think the view of my brother Mathew is well founded, and that a settlement in the ordinary sense of the word is intended. The transaction must be in the nature of a settlement, though it may be effected by a conveyance or transfer. The end and purpose of the thing must be a settlement, that is, a disposition of property to be held for the enjoyment of some other person. Thus a purchase by the father of shares, which are registered in the son's name, and upon which the son receives the dividends, is within the statute. But where the gift is of money to be expended at once, the transaction is not, in my opinion, within section 47 of the Act of 1883. It would not have been within the Act of 1849, and I do not feel bound by reason of the interpretation clause in the Act of 1883, the effect of which is, I think, restricted by the terms of section 47 itself, to put a construction upon the words of that section which has never been put upon similar words before the Act of 1883 was passed, and which would bring about such serious and far-reaching consequences."

In In re Vansittart¹⁷ Vaughan Williams J. adopted the reasoning just quoted, and held that a gift of jewellery by the bankrupt to his wife within two years of his bankruptcy was a "settlement" within section 47 and therefore void against the trustee in the bankruptcy, because¹⁸ "the 'donor' contemplated the retention by his wife of the present which he gave her." In In re Tankard¹⁹ Wright J. followed the two cases just cited, and in In re Plummer²⁰ the Court of Appeal approved of all three cases. In the last-mentioned case Lord Alverstone M.R. observed²¹: "There are two lines of cases bearing upon the subject, which I will indicate as follows. If there is a gift by a father to a son of money or proceeds of property which can

17 [1893] 1 Q.B. 181; 9 T.L.R. 14.

18 [1893] 1 Q.B. 181, 184.

19 [1899] 2 Q.B. 57; 15 T.L.R. 332.

20 [1900] 2 Q.B. 790.

21 Ibid. 804.

be traced, and the money or proceeds is or are intended to be retained or preserved as the property of the donee, that money or those proceeds will be property in 'settlement.' On the other hand, if there is a gift of money or proceeds, but it is not intended that the money or the proceeds shall be retained by the donee in the form of money, but shall be expended at once, that will not be a 'settlement.'"

My Lords, I give full weight to the fact that in section 47 of the Bankruptcy Act, 1883, the legislature first used the word "settlement" and then defined it, in the same section, as including any transfer of property, and I would not seek to draw any distinction between the phrase "transfer of property" and the phrase "transfer of assets" which occurs in section 21 (9) of the Finance Act, 1936. To this extent, the two sections resemble one another, and Sir Andrew Clark relies strongly upon the observation of Cave J. in In re Player²² that to come within section 47 "the transaction must be in the nature of a settlement, though it may be effected by a conveyance or transfer." I am content to assume in favour of the appellant that the four cases on section 47 just cited were all rightly decided, and that the observation just quoted puts a correct construction on section 47. In my opinion, however, these cases do not help the appellant. In none of them was it doubted that an absolute gift could be a "settlement" within section 47, and in two of them such a gift was held to be a settlement. The court, however, felt able to put some restriction upon the ordinary meaning of the words "transfer of property" by reason of the fact that the whole object of the section, as appeared from its terms, was to make certain transactions void as against the trustee in bankruptcy; and it was thought that a transfer of money, which was to be at once expended and could not be traced, was not within the intendment of the section. I can find no words in section 21 of the Finance Act, 1936, which should lead your Lordships to put a limited meaning upon the words "transfer of assets," and if and so far as one can gather the intendment of section 21 from its wording, I think it was intended to throw the net as widely as possible, and to sweep in all kinds of transactions which would not ordinarily be regarded as settlements, provided only that "by virtue or in consequence" thereof any income is paid to or for the benefit of a child of the settlor.

In my judgment the argument for the appellant receives no

22 15 Q.B.D. 682, 687.

countenance from the wording of section 21 or from any of the authorities relied upon by counsel. I would dismiss the appeal with costs.

LORD REID.My Lords, I concur.

LORD COHEN.My Lords, I also concur.

Solicitors: Tyrrell Lewis & Co.; Solicitor of Inland Revenue.