[CHANCERY DIVISION]

VESTEY AND OTHERS v. INLAND REVENUE COMMISSIONERS

Revenue - Tax avoidance - Overseas settlement - Capital sums appointed to discretionary beneficiaries resident in United Kingdom - Crown's construction of anti-avoidance provisions producing unjust result - Intention of Parliament in passing legislation - Whether language of section to be cut down - Effect of section on tax liability of beneficiaries - Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), s. 412 (2)

Following an earlier settlement, members of the taxpayers' family in 1942 settled on discretionary trusts certain specified overseas property which included an annual rent of £960,000 payable under a lease. Under the terms of the settlement non-resident trustees were directed to accumulate and invest all the income from the trust property for the benefit of the taxpayers. The annual rent was paid to a bank in Northern Ireland and the income from it was divided into two moieties which corresponded with the two branches of the taxpayers' family. Between 1962 and 1966 the non-resident trustees under the powers contained in the settlement made appointments of capital sums to the taxpayers that totalled £2,608,000. One of the taxpayers was a minor at the time the appointment of a capital sum was made to him and that sum was paid to his mother as trustee. The taxpayers were assessed to income tax for the years from 1963 to 1967 in sums totalling £3,185,000 and to surtax for the same years totalling £1,995,472 under the provisions of section 412 of the Income Tax Act 1952 ¹ in respect of the capital payments made to them by the trustees of the settlement. The special commissioners dismissed their appeals against the assessments on the ground that the provisions of section 412 (2) of the Act applied so that in consequence of the appointment of the capital sums, the whole of the income of the settlement in the year of appointment and subsequently arising was deemed to be the income of each of the taxpayers and chargeable to income tax.

On appeal by the taxpayers: -

Held, allowing the appeals, (1) that Parliament could never have intended so unjust a solution to the problem of preventing tax avoidance on the transfer of assets abroad as that contended for by the Crown, namely that section 412 (2) imposed liability on each beneficiary to whom capital sums were appointed to be assessed to tax for the remainder of his life on the whole of the income of the settlement; that the words of the subsection should be emended so as to give effect to what Parliament must have intended, namely, that such capital sums should to the extent to which they comprised income be treated for tax purposes as the income of each appointee and that accordingly the taxpayers fell to be assessed in respect of the sums appointed to them in the year in which they received

[Reported by MRS. HARRIET DUTTON, Barrister-at-Law]

1 Income Tax Act 1952, s. 412: see post, pp. 181A - 182G.

them (see post, pp. 182G - 183B, 184H - 185B, F-G, 196B-C,197A-B).

Dicta of Lord Loreburn L.C. in Drummond v. Collins [1915] A.C. 1011, 1017, H.L.(E.) applied.

(2) That, since the payment of a capital sum to the mother of the taxpayer during his minority did not entitle the taxpayer to receive those moneys at the time of payment, but entitled him to call for the moneys, or the assets representing them, on attaining his majority, the taxpayer was to be assessed for tax on the capital sum in the year he attained his majority and not in the year the payment was made to his mother (post, p. 196F-G).

In re Somech, decd. [1957] Ch. 165 applied.

The following cases are referred to in the judgment:

Bambridge v. Inland Revenue Commissioners [1955] 1 W.L.R. 1329; [1955] 3 All E.R. 812; 36 T.C. 313, H.L.(E.).

Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948; 30 T.C. 163, H.L.(E.).

Drummond v. Collins [1915] A.C. 1011, H.L.(E.).

Howard de Walden (Lord) v. Inland Revenue Commissioners [1942] 1 K.B. 389; [1942] 1 All E.R. 287, C.A.

Inland Revenue Commissioners v. Bates [1968] A.C. 483; [1967] 2 W.L.R. 60; [1967] 1 All E.R. 84; 44 T.C. 225, H.L.(E.).

Somech, decd., In re [1957] Ch. 165; [1956] 3 W.L.R. 763; [1956] 3 All E.R. 523.

The following additional cases were cited in argument:

Astor v. Perry; Duncan v. Adamson [1935] A.C. 398; 19 T.C. 255 H.L.(E.).

Chetwode (Lord) v. Inland Revenue Commissioners [1977] 1 W.L.R. 248; [1977] 1 All E.R. 638, H.L.(E.).

Colquhoun v. Brooks (1889) 14 App.Cas. 493; 2 T.C. 490, H.L.(E.).

Herbert v. Inland Revenue Commissioners (1925) 9 T.C. 593.

Inland Revenue Commissioners v. Herdman [1969] 1 W.L.R. 323; [1969] 1 All E.R. 495; 45 T.C. 394, H.L.(N.I.).

Kelly v. Rogers [1935] 2 K.B. 446; 19 T.C. 692, C.A.

Luke v. Inland Revenue Commissioners [1963] A.C. 557; [1963] 2 W.L.R 559; [1963] 1 All E.R. 655; 40 T.C. 630, H.L.(Sc.).

Mangin v. Inland Revenue Commissioner [1971] A.C. 739, [1971] 2 W.L.R. 39; [1971] 1 All E.R. 179, P.C.

Mills v. Inland Revenue Commissioners [1975] A.C. 38; [1974] 2 W.L.R. 325; [1974] 1 All E.R. 722, 49 T.C. 367, H.L.(E ).

Morelle Ltd. v. Wakeling [1955] 2 Q.B. 379; [1955] 2 W.L.R. 672; [1955] 1 All E.R. 708, C.A.

Reid's Trustees v. Inland Revenue Commissioners, 1929 S.C. 439; 14 T.C. 512.

Western Bank Ltd. v. Schindler [1977] Ch. 1; [1976] 3 W.L.R. 341; [1976] 2 All E.R. 393, C.A.

CASES STATED by the Commissioners for Special Purposes of the Income Tax Acts.

Under the terms of an overseas settlement dated 1942, the non-resident trustees appointed capital sums to the taxpayers as follows:

       Appointee                           Year  Amount 
 
   Ronald Arthur Vestey                  1962  £215,000 
       "         "                       1964  £150,000 
   Edmund Hoyle Vestey                   1963  £700,000 
       "         "                       1966  £220,000 
   Margaret Payne, wife of James Payne   1966  £100,000 
   Jane Baddeley, wife of John Baddeley  1966  £100,000 
   Lord Vestey                           1962  £123,000 
    "   "                                1963  £800,000 
   The Hon. Mark Vestey                  1963  £200,000 

Consequent on those transfers the taxpayers were assessed to tax under the provision of section 412 of the Income Tax Act 1952 as follows:

   Appointee                     Year      Income tax    Surtax 
   Ronald Arthur Vestey         1963-64    £140,000       £140,000 
    "      "      "             1964-65        "           £28,500 
    "      "      "             1965-66        "           £20,000 
    "      "      "             1966-67        "          £140,000 
   Edmund Hoyle Vestey          1963-64    £350,000       £350,000 
    "      "      "             1964-65        "              " 
    "      "      "             1965-66        "              " 
    "      "      "             1966-67        "              " 
    "      "      "             1967-68        "           £40,000 
   James Gladstone Payne        1963-64     £37,500        £37,500 
    "      "      "             1964-65        "             " 
    "      "      "             1965-66        "             " 
    "      "      "             1966-67        "             " 
   John Richard Baddeley        1963-64     £37,500        £37,500 
    "      "      "             1964-65        "             " 
    "      "      "             1965-66        "           £34,200 
    "      "      "             1966-67        "           £37,500 
   Lord Vestey                  1963-64    £350,000        £16,500 
    "      "      "             1966-67        "           £38,772 
   Mark William Vestey          1963-64      £75,000       £75,000 
    "      "      "             1964-65        "             " 
    "      "      "             1965-66        "             " 

The commissioners dismissed appeals against the assessments by all the taxpayers, on the grounds that they fell within the provisions of section 412 (2) of the Income Tax Act 1952. Upholding the Crown's method of computing the taxpayers' income for tax purposes, they adjusted the assessments to amounts agreed by the parties.

The taxpayers appealed.

The facts are stated in the judgment.

D. C. Potter Q.C. and J. Holroyd Pearce for the taxpayers.

Peter Archer Q.C., S.-G., Michael Nolan Q.C., Brian Davenport and Peter Gibson for the Crown.

The main submissions made on behalf of the taxpayers are set out in the judgment at pp. 185D-E, H - 186D, F-H, 195B-G.

Peter Archer Q.C., S.-G., and Michael Nolan Q.C. made two general comments. (1) It is not accepted that the Crown's suggested interpretation of section 412 (2) of the Act of 1952 leads to an unmeritorious result; and (2) when the language of a section is unambiguous there is no room to look at the merits of any particular case: see per Lord Greene M.R. in Lord Howard de Walden v. Inland Revenue Commissioners [1942] 1 K.B. 389. The Crown does not seek to impose any greater liability than tax on the aggregate amount of the income, but within that limit, where a number of beneficiaries have received capital sums, the income must be apportioned between them at the discretion of the Crown.

In answer to the eight points made on the taxpayer's behalf: (i) and (ii) Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 and Bambridge v. Inland Revenue Commissioners [1955] 1 W.L.R. 1329 expressly established that the section is not restricted in its application to the original transferor of assets. Furthermore the taxpayers cannot argue that the Congreve decision does not apply merely because the point was not argued in that case: see Morelle Ltd. v. Wakeling [1955] 2 Q.B. 379, 406, per Sir Raymond Evershed M.R. There is nothing in the wording of the subsection to exclude from its scope cases of multiple liability. (iii) The express terms of the settlement make it unnecessary for the Crown to rely on subsection (4): but if the Crown were to rely on the subsection then there is no need to limit accumulations to a simple accumulation, it includes compound accumulations. (iv) The wording of section 412 (2) does not establish that for the section to apply the individual assessed must be seeking to avoid tax: that subsection is unambiguous and the wording of the preamble to the section cannot add to them in any way. Moreover it would be very difficult for anyone other than the settlor to show whether the purpose of settling assets was to avoid tax. (v) The wording of the preamble is clear and precise and thus the reference to "income becoming payable to persons resident or domiciled out of the United Kingdom" must include the trustees of the settlement. It is perfectly normal and proper to describe trust income as income of the trustees for tax purposes: see Reid's Trustees v. Inland Revenue Commissioners 1929 S.C. 439 and Kelly v. Rogers [1935] 2 K.B. 446. (vi) This contention of the taxpayers seeks to change the meaning of its subsection by reading in words which are not there. (vii) In re Somech, decd. [1957] Ch. 165 expressly covers this point and should be followed. (viii) The Crown's argument on this point is dealt with in the judgment at pp. 196H - 197A.

July 29.WALTON J. read the following judgment. This case raises, yet once again, troublesome questions of construction under what is now section 478 of the Income and Corporation Taxes Act 1970, but which was, at all relevant times, section 412 of the Income Tax Act 1952, and to which I will refer as such. That section reads:

"For the purpose of preventing the avoiding by individuals ordinarily resident in the United Kingdom of liability to income tax by means of transfers of assets by virtue or in consequence whereof, either alone or in conjunction with associated operations, income becomes payable to persons resident or domiciled out of the United Kingdom, it is hereby enacted as follows: (1) Where such an individual has by means of any such transfer, either alone or in conjunction with associated operations, acquired any rights by virtue of which he has, within the meaning of this section, power to enjoy, whether forthwith or in the future, any income of a person resident or domiciled out of the United Kingdom which, if it were income of that individual received by him in the United Kingdom, would be chargeable to income tax by deduction or otherwise, that income shall, whether it would or would not have been chargeable to income tax apart from the provisions of this section, be deemed to be income of that individual for all the purposes of this Act.

"(2) Where, whether before or after any such transfer, such an individual receives or is entitled to receive any capital sum the payment whereof is in any way connected with the transfer or any associated operation, any income which, by virtue or in consequence of the transfer, either alone or in conjunction with associated operations, has become the income of a person resident or domiciled out of the United Kingdom shall, whether it would or would not have been chargeable to income tax apart from the provisions of this section, be deemed to be the income of that individual for all the purposes of this Act. In this subsection, 'capital sum' means (a) any sum paid or payable by way of loan or repayment of a loan; and (b) any other sum paid or payable otherwise than as income, being a sum which is not paid or payable for full consideration in money or money's worth.

"(3) Subsections (1) and (2) of this section shall not apply if the individual shows in writing or otherwise to the satisfaction of the special commissioners either (a) that the purpose of avoiding liability to taxation was not the purpose or one of the purposes for which the transfer or associated operations or any of them were effected; or (b) that the transfer and any associated operations were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation.

"(4) For the purposes of this section, 'an associated operation' means, in relation to any transfer, an operation of any kind effected by any person in relation to any of the assets transferred or any assets representing, whether directly or indirectly, any of the assets transferred, or to the income arising from any such assets, or to any assets representing, whether directly or indirectly, the accumulations of income arising from any such assets.

"(5) An individual shall, for the purposes of this section, be deemed to have power to enjoy income of a person resident or domiciled out of the United Kingdom if (a) the income is in fact so dealt with by any person as to be calculated, at some point of time, and whether in the form of income or not, to enure for the benefit

of the individual; or (b) the receipt or accrual of the income operates to increase the value to the individual of any assets held by him or for his benefit; or (c) the individual receives or is entitled to receive, at any time, any benefit provided or to be provided out of that income or out of moneys which are or will be available for the purpose by reason of the effect or successive effects of the associated operations on that income and on any assets which directly or indirectly represent that income; or (d) the individual has power, by means of the exercise of any power of appointment or power of revocation or otherwise, to obtain for himself, whether with or without the consent of any other person, the beneficial enjoyment of the income, or may, in the event of the exercise of any power vested in any other person, become entitled to the beneficial enjoyment of the income; or (e) the individual is able in any manner whatsoever, and whether directly or indirectly, to control the application of the income.

"(6) In determining whether an individual has power to enjoy income within the meaning of this section, regard shall be had to the substantial result and effect of the transfer and any associated operations, and all benefits which may at any time accrue to the individual as a result of the transfer and any associated operations shall be taken into account irrespective of the nature or form of the benefits.

"(7) For the purposes of this section, any body corporate incorporated outside the United Kingdom shall be treated as if it were resident out of the United Kingdom whether it is so resident or not.

"(8) For the purposes of this section (a) a reference to an individual shall be deemed to include the wife or husband of the individual; (b) 'assets' includes property or rights of any kind, and 'transfer', in relation to rights, includes the creation of those rights; (c) 'benefit' includes a payment of any kind; (d) references to income of a person resident or domiciled out of the United Kingdom shall, where the amount of the income of a company for any year or period has been apportioned under Chapter III of Part IX of this Act, include references to so much of the income of the company for that year or period as is equal to the amount so apportioned to that person; (e) references to assets representing any assets, income or accumulations of income includes references to shares in or obligations of any company to which, or obligations of any other person to whom, those assets, that income or those accumulations are or have been transferred."

I shall, of course, have to consider the facts in some little detail hereafter, but the main question which arises on this appeal is what, on the true construction of this section, is the position where discretionary beneficiaries under a settlement of assets so transferred as described in the preamble to the section, a settlement not made by them, receive capital sums by way of appointment pursuant to powers conferred by such settlement. Is the effect, as contended by the Crown, that, no matter how small the sum so appointed may be, it entails liability on the person to whom it is so appointed to be assessed to tax in respect of the

whole of the income of the settlement, and that not only in respect of the year in which the appointment is made but for ever thereafter - at any rate, so long as the settlement still exists, and possibly longer; namely, until death brings a merciful release from the clutches of the section and the revenue? And that not only this appointee but each and every appointee is similarly so liable, so that in strict theory (whatever may be done by way of administrative action by the Crown) the Crown is entitled to as many times the tax on the income as there have been distinct appointees, year by year, subject only to the merciful releases in the case of any individual to which I have already referred? Or, on the other hand, is liability limited; and, if so, how and by what provision of the section?

It will at once be seen that the precise problems with which this appeal is concerned arise under section 412 (2) and they do not appear to have been previously considered by any court. I commence with certain matters which I think are clear, or which I, sitting in a court of first instance, am bound to take as being clear. First, in the construction of this section the preamble forms part of it and must be taken into account accordingly: see per Cohen L.J. at p. 196 and Lord Simmonds at p. 204 in Congreve v. Inland Revenue Commissioners (1948) 30 T.C. 163. Secondly, the words "such an individual" in subsections (1) and (2) only mean an individual ordinarily resident in the United Kingdom (as indicated by the preamble) and are not restricted to the person originally transferring the assets. Whatever might be said as to the true nature of the ratio decidendi in the Congreve case in the House of Lords, this was the opinion expressed by their Lordships; and in Bambridge v. Inland Revenue Commissioners [1955] 1 W.L.R. 1329, this was the subject matter of actual decision by the Court of Appeal. In these circumstances, although much attracted by an argument by Mr. Potter on behalf of the taxpayers to the effect that the true intent of the section was to confine liability to the transferor himself, especially in view of the provisions of subsection (8) (a), which, pace some extraordinarily ingenious suggestions by counsel for the Crown, do not otherwise make good sense, I think I am bound by the Bambridge case in this regard and I shall simply follow it. It should be recorded that Mr. Potter expressly challenged the decision in both of these cases, so that he may be able to address his arguments later to a tribunal which, unlike this court, could if it chose give effect to them.

Thirdly, this whole section is a penal section, intended to punish individuals who have the temerity to avoid, or attempt to avoid, tax in the manner struck at by the section. This clearly appears from the judgment of Lord Greene M.R. in Lord Howard de Walden v. Inland Revenue Commissioners [1942] 1 K.B. 389, 397. Thus, for example, as appears from that case itself, the receipt or accrual of the income to the "person resident or domiciled out of the United Kingdom" may increase the value of assets held by the individual in question only to the most minimal extent, and he may yet, by virtue of subsection (5), be deemed to have power to enjoy the whole of the income, which thus becomes his income for the purposes of subsection (1).

It should be pointed out, I think, that the "crime" in respect of which this penalty is exacted is a very odd one. So far as the section is concerned, the possessor of assets may freely give them to persons residing outside the United Kingdom for no consideration, and no consequences whatsoever follow, however much this country's overall balance of payments may be harmed. It is only when some benefit accrues to a United Kingdom resident that the penalties are incurred; that is to say, when this country's overall balance of payments is benefited. It therefore appears in the eyes of the revenue to be a crime to obtain a tax advantage for oneself or for one's nominee, but no crime at all to damage this country's international monetary position. I, for one, find this scale of values a difficult one to appreciate.

It is also convenient at this point to note that, as a pure matter of fact, the income of the foreign recipient in this case was brought back into the United Kingdom - Northern Ireland - by the foreign residents. But it was never taxed there when it was so brought back; and, although such return is a curious fact, I do not think that at the end of the day it affects anything I have to decide.

Now one can appreciate the scope and nature of a penal section in direct connection with the person who procured the transfer of the assets which grounds liability under this section: that was the case of Lord Howard de Walden himself. It requires only a slight stretch of the imagination to appreciate its scope in relation to any single person who succeeds to that position, and this was the case in Bambridge. It is, however, difficult to appreciate the logic of a section being penal when the penalties are imposed, if the Crown are right in the present case, not upon persons who had any direct hand in the transfer, or persons who succeeded to the positions of persons who had such a direct hand, but persons who might not even have been born at the date of the transfer and accompanying settlement. One can see that, as an extreme measure, the intendment of the section might require the complete confiscation of all benefits such persons received. We are nowadays so accustomed to confiscation of the top slice of income (such top rate being 98 per cent.) and of the top slice of capital (at the rate of 75 per cent.) that such rates no longer strike us as being the penalty on hard work and thrift that they really are. But if the provisions of subsection (3) are taken au pied de la lettre, if any individual ordinarily resident in the United Kingdom receives by way of appointment under a discretionary power contained in a settlement of assets which have been subject to such a transfer as is mentioned in the preamble to the section, then the whole of the income which by reason of the transfer has become the income of a person resident or domiciled out of the United Kingdom is to be deemed his income - and, according to the Crown, without limit of time. It equally follows that, if there are in fact a number of such appointments to different persons, the income is deemed to be the income of each one: so that the Crown is, at the end of the day, entitled to multiple tax, the multiplier being the number of different appointments made. No wonder the Solicitor-General was moved to say that the provisions of the section contain a trap for all beneficiaries thereunder, and

that they ought at once to disclaim all interest. And this is odd, because, if the trustees of the settlement merely paid the sums by way of income and not capital, no penal results whatever would apparently befall the innocent beneficiaries: see the definition of "capital sum" at the end of subsection (2). I refuse to believe that Parliament can ever have intended such an unjust solution to the problem of preventing the transfer of assets abroad with a view to avoiding tax, no matter how pressing the problem. I take the general approach which I ought to adopt from the speech of Lord Loreburn L.C. in Drummond v. Collins [1915] A.C. 1011, 1017:

"... courts of law have cut down or even contradicted the language of the legislature when on a full view of the Act, considering its scheme and its machinery and the manifest purpose of it, they have thought that a particular case or class of cases was not intended to fall within the taxing clause relied upon by the Crown."

Here I think that overkill is one thing, but overkill on the lines and to the extent suggested by the wording of the section can never have been intended.

The difficulty, of course, lies in suggesting a suitable emendation of the words of the subsection to give effect to what Parliament must have intended; namely, that the capital sums should, to some or a complete extent, be treated as income. I was for a long time attracted by a suggestion of Mr. Potter, who appeared for the taxpayers in this case, that a suitable emendation would be to add the word "those" in subsection (2) before the words "associated operations" where they secondly occur, thus confining the income to that dealt with in the associated operation whereunder the beneficiary took his interest - the appointment. If this emendation had the result contended for by Mr. Potter, then one would have to go back to the appointment, see what amount of income of the assets transferred was therein dealt with, and that would be the amount of income deemed to be the income of the appointee. On consideration, I do not think that the suggested emendation would, in fact, have that result, because it is not "in conjunction with those associated operations" - i.e., the appointment - that the income has become the income of the trustees. The trustees have the income by virtue of the transfer (and possibly, in other cases, by virtue of associated operations) but never by virtue of the precise associated operation (the appointment) under which the appointee takes his benefits. I therefore think that a rather bolder emendation is called for, and I would suggest the addition of some such words as "to the extent to which it comprises" before the words "any income" and the word "it" after "United Kingdom." I am fully conscious that I am cutting down the language of the subsection: I think I have the authority of Lord Loreburn L.C. for so doing.

There are some minor points of construction which arise. The preamble brings the section into operation where income becomes payable to persons resident or domiciled out of the United Kingdom. Mr. Potter sought to maintain that where, as is the fact of the present case, and will doubtless frequently be the case, the persons in question are trustees, it appears wholly arbitrary that liability should depend upon their

particular residences, which may very well change, and that one ought to fix upon some more constant feature of the trust, which would obviously, he submitted, be the proper law; and, if that were to be sought in the present case, it would be found to be that of Northern Ireland, and hence not out of the United Kingdom. I found these submissions unconvincing. It appears to me that there can be no sufficient reason for not taking those words in the preamble, at any rate, at their full face value, and on their natural and ordinary meaning they include trustees. Indeed, the framers of the section must have been well aware that in most cases they would be dealing with trusts, and this is in numerous places actually demonstrated in the language used. Purely by way of example, subsection (5) (d), dealing with powers of appointment, must be dealing with trusts of some kind.

Mr. Potter had a further point on subsection (2) which I must notice. He called attention to the words "any income which... has become the income of a person resident or domiciled out of the United Kingdom," and submitted that this limited the assessment of the person who had received the capital sum to income received by the trustee prior to the date of receipt of the capital sum. I am not entirely certain that, if read in this way, the words would not produce just as great an injustice as the Crown's interpretation produces, for then, as I see it, it would mean that the capital beneficiary could be assessed retrospectively (admittedly only for a period of six years) on the trust income. I think, however, that the more natural meaning is that those words merely indicate the income of the trustees, the current income, but which "has become" theirs by reason of the transfer and associated operations. As was pointed out on behalf of the Crown, since a capital sum is envisaged by the section as possibly having been received before any transfer takes place, Mr. Potter's construction would ensure that in such circumstances no tax was payable at all, which certainly cannot have been intended.

Mr. Potter also had a point on subsection (4), which contains the definition of "associated operations." He said that, as regards income, that deals with the income arising from the transferred assets, and to income arising from such assets; but does not extend to the income of such income, or the income of such income of such income, and so on down the chain of accumulation. Having regard to the somewhat unusual provisions of the settlement here actually in question, if this submission were correct it would follow that the appointments to the various beneficiaries which have actually taken place would not be "associated operations," as they have all been in relation to the income arising from accumulated income. I see no reason, however, for giving subsection (4) such a restricted meaning. I think the question all turns upon the meaning of the word "accumulations," which is, I think, wide enough to carry the implication of sub-accumulations of income, the "sub" being raised to any power consistent with the facts. Mr. Potter said that "accumulations" was put in the plural because "accumulation," in the singular, may denote either the act of accumulating or the accumulated fund, whereas the plural contains only one meaning: but I cannot accept that. The phrase here in question is "assets representing... the accumulations," and if a single accumulation and no sub-accumulation was

intended, the singular could have been used with not the slightest risk of any misconstruction.

Having thus dealt with the difficult problems of construction which arise in this case, I turn to the facts. I have before me six effective appeals from decisions of the special commissioners. A seventh appeal was listed, that of New Holding & Finance Co. Ltd. but this appeal has been abandoned, and in any event it raised a wholly different point. Save for one special point in relation to the appeal of the taxpayer, Mark William Vestey, which I must consider separately, the appeals all raise the same points as they arise out of similar facts, and I shall take the facts as they are found by the commissioners in the case of the taxpayer, Ronald Arthur Vestey.

"By a settlement dated March 25, 1942 (hereinafter referred to as 'the 1942 settlement'), made between Sir Edmund Hoyle Vestey and Lord Vestey as settlors of the one part and James Flynn and Reginald Beak as trustees of the second part and Ulster Bank Ltd. of the third part, the settlors settled the property described in the schedule thereto. The material parts of the settlement are as follows: '1. In this deed the following expressions have the following meanings respectively: (a) "the trustees" means the parties hereto of the second part and their successors in title as trustees or trustee for the time being of this deed. (b) "The company" means the said Ulster Bank Ltd. (c) "The joint managers" means Ronald Arthur Vestey (the elder now surviving son of Sir Edmund Vestey) and the Honour-able William Howarth Vestey (the son of Lord Vestey) together during their joint lives and the survivor of them during his life after the death of either of them and after the death of both of them such person or persons (whether individual or corporate) as they jointly by any deed or deeds revocable or irrevocable or as the survivor of them in like manner or by will or codicil shall designate for this purpose (and so that they or the survivor of them may make and authorise delegation and sub-delegation in any manner and to any extent of the exercise of this power of designation whether before or after the death of such survivor but due regard being had to the law concerning remoteness) or in default of and subject to any such designation Edmund's manager and Samuel's manager hereinafter defined.

"'(d) "Edmund's manager" means the said Ronald Arthur Vestey during his life and after his death such person or persons (whether individual or corporate) as he shall by any deed or deeds revocable or irrevocable or by will or codicil designate for this purpose (and so that he may make and authorise delegation and sub-delegation in any manner and to any extent of the exercise of this power of designation whether before or after his own death but due regard being had to the law concerning remoteness) or in default of and subject to any such designation his personal representatives.

"'(e) "Samuel's manager" means the said William Howarth Vestey during his life and after his death such person or persons (whether individual or corporate) as he shall by any deed or deeds

revocable or irrevocable or by will or codicil designate for this purpose (and so that he may make and authorise delegation and sub-delegation in any manner and to any extent of the exercise of this power of designation whether before or after his own death but due regard being had to the law concerning remoteness) or in default of and subject to any such designation his personal representatives.

"'(f) "The trust property" means the capital property rights and interests assured or covenanted to be assured by clause 2 hereof and all moneys investments and property at any time representing the same or added to the trust property as capital by way of further settlement or otherwise.

"'(g) "The specified period" means the period from the date of this deed until whichever of the three following dates or events shall first occur namely (i) January 1, 2030 (ii) the expiration of 20 years after the death of the survivor of the issue actually born before the date of this deed of the late Right Honour-able William Baron Vestey and Sir Edmund Vestey and His late Majesty King Edward VII respectively and (iii) the failure by death of all the issue (whether present or future) of Sir Edmund Vestey and the said William Baron Vestey respectively except Lord Vestey himself and so that all his issue shall for the purposes of this deed be deemed to have definitely failed by death if and when no issue of his shall be living (and not-withstanding that he may be still alive) and similarly with regard to Sir Edmund Vestey and his issue.

"'(h) "The prescribed term" means the term from the date of this deed until January 1, 1963, or the earlier end of the specified period or until such if any date either before or after the said January 1, 1963 (but not after January 1, 1984, or the end of the specified period) as the joint managers while not less than two in number or (if and while the joint managers shall be a single person) as Edmund's manager and Samuel's manager together shall appoint by any deed or deeds executed in each case during the continuance of the prescribed term as then existing and so that the prescribed term may be thus repeatedly extended by successive deeds or ended by deed at any time.

"'2. The settlors together as settlors in respect of all the property in this clause hereinafter mentioned except that marked * in the margin of the schedule hereto and Lord Vestey alone as settlor in respect of such excepted property'," in short, convey the property to the trustees.

"'3. The trustees shall henceforth hold the trust property and the income thereof upon the trusts and with and subject to the powers and provisions following that is to say: (i) during the prescribed term the trustees shall receive in due course the income of the trust property and shall invest such income in manner hereinafter mentioned so as to form a capital fund (hereinafter called "the rental fund"). (ii) From and after the end of the prescribed term the trustees shall divide the rental fund or treat it as divided into two moieties and shall hold such moieties upon the trusts and with and subject to the powers and provisions hereinafter contained concerning

the same respectively. And one or the first of the said moieties'" and what represents it is called "Edmund's fund," and the other and what represents it is called "Samuel's fund." "'(iii) Until the end of the prescribed term the trustees shall divide the income (as and when received) of the rental fund or treat it as divided into two moieties and shall hold one or the first moiety of such income upon the trusts and with and subject to the powers and provisions (including the power of accumulation) which would for the time being be applicable hereunder to the income of Edmund's fund if already in possession'" and the other "'to the income of Samuel's fund if already in possession.... (iv) Subject to the foregoing trusts the trustees shall hold the trust property and the income thereof in trust for the said Ronald Arthur Vestey and William Howarth Vestey absolutely in equal shares.

"'4. (A) The trustees shall invest or keep invested Edmund's fund in manner hereinafter mentioned and shall if and whenever so directed in writing from time to time by Edmund's manager accumulate for such period or periods within the specified period as may be prescribed by direction as aforesaid the whole or any part or parts of the income (not actually distributed before the relevant direction) of Edmund's fund by investing the same and (if and so far as so directed) the resulting income thereof in manner hereinafter mentioned and all accumulations of income so made shall be added to and form part of the capital of Edmund's fund.

"'(B) Subject to the last foregoing power of accumulation and to the provisions hereinafter contained the trustees during the specified period shall hold the income of Edmund's fund upon trust for all or any one or more of the following persons for the time being living (within the specified period) that is to say the said Ronald Arthur Vestey and his issue or (if and while no issue of his shall be living) the issue of Sir Edmund Vestey in such amounts or shares at or for such times or periods and in such manner in all respects as Edmund's manager shall from time to time in writing direct...'" and then there is an exception to that which I do not think I need read. Then: "'And in default of and subject to any such direction upon trust for the issue for the time being living of the said Ronald Arthur Vestey in equal shares per stirpes (while more than one) during the respective lives of such issue within the specified period or in the event of and after the failure by death of the said Ronald Arthur Vestey and all his issue (whether present or future) then upon trust for the issue for the time being living of Sir Edmund Vestey in equal shares per stirpes (while more than one) during the respective lives of such issue within the specified period But so that in the case of each such person (in this clause 4 hereinafter called "the beneficiary") including the said Ronald Arthur Vestey and each one of all the said issue the income concerned shall be paid to him or her only if and so long as no act or event (other than the execution or exercise of any trust or power contained in this deed) shall'" cause a forfeiture, and then there are provisions as to what happens from that.

"'(C) From and after the end of the specified period (if ending otherwise than by the death of a descendant of Sir Edmund Vestey) and subject to the provisions hereinafter contained the trustees shall hold Edmund's fund and the income thereof in trust for the person or persons to whom as the beneficiary or beneficiaries the income of Edmund's fund shall or but for any'" forfeiture "'would immediately before such end have been payable under sub-clause (B) of this clause (or any such direction or directions as first referred to in that sub-clause) and if more than one in the shares in which such income shall or would then have been so payable to them'."

Then there is a proviso: "'(D) Edmund's manager may at any time or times within the specified period direct the trustees to appropriate or realise or raise any part or parts of the capital of Edmund's fund and to pay the same to or apply the same for the benefit of the said Ronald Arthur Vestey or any one or more of his issue for the time being living or in the event of and after the failure by death of the said Ronald Arthur Vestey and all his issue (whether present or future) then any one or more of the issue for the time being living of Sir Edmund Vestey in such shares (if more than one) and in such manner as Edmund's manager shall think proper and discharged from all the trusts powers and provisions of this deed (And the trustees shall give effect to any such direction accordingly) But while Edmund's manager shall be a single individual'" there is a restriction.

"'(E) Edmund's manager may at any time or times within the specified period by any deed or deeds revocable or irrevocable appoint in the case of each or any person being issue of Sir Edmund Vestey that after the death of such person within the specified period any part not exceeding £3,000 per annum (free from death duties and expenses) and not exceeding in any event one half of the income which under sub-clause (B) of this clause would for the time being be payable to such person if he or she were still living (and if no such act or event as is mentioned in that sub-clause had been done or happened) shall be paid to any surviving wife or husband of such person (if cohabiting with such person at his or her death) during the life within the specified period of such wife or husband'," and then there is a restriction on that.

"'(F) During the specified period (but subject to the power given by sub-clause (D) of this clause) the trustees shall keep Edmund's fund as an undivided whole'," and I do not think I need read any more of that.

"'(G) Any accumulations of income or of any part or share of income of Edmund's fund which may within the specified period be made under this deed or any relevant statutory power (and whether during any minority or otherwise) shall forthwith be added to and shall thenceforth form part of the capital of Edmund's fund (as an undivided whole) for all purposes and shall not be applicable as income at any subsequent time'." Then there is another proviso, with a further proviso on that, which I need not read, those dealing with the question of forfeiture.

"'5: If at any time during the specified period no issue of Sir Edmund Vestey shall be living or if at the end of the specified period some issue of his shall be living but none of them shall become entitled to Edmund's fund under clause 4 hereof then (subject to the foregoing powers and provisions and the provisions hereinafter contained) Edmund's fund and the income thereof shall be added to and held upon with and subject to the same trusts powers and provisions as Samuel's fund and the income thereof respectively and in the event of the failure or determination of such trusts powers and provisions (and subject thereto) shall be held in trust for the said Ronald Arthur Vestey absolutely'."

Then there are similar provisions in clause 6 dealing with Samuel's fund; and clause 7 is the mirror image of clause 5 depending on "at any time during the specified period no issue of the said William Baron Vestey (except Lord Vestey himself if still in existence)" being living. Then, clause 8 contains powers of management; and clause 9 contains powers of investment, which I do not think matter. Clause 11 provides:

"'Strict accounts of the trust premises both capital and income and of all dealings therewith shall be kept and shall be audited at least once in every year by a professional accountant or professional accountants to be appointed from time to time by the joint managers during the prescribed term or after the end thereof by Edmund's manager in respect of Edmund's fund and by Samuel's manager in respect of Samuel's fund...'."

Clause 12, to which I have already directly referred:

"'This deed shall be construed and operate according to the law of Northern Ireland in all respects and so that (subject to the express provisions hereof) all relevant statutes including in particular the Conveyancing Act 1881 and the Trustee Act 1893 shall apply to this deed and the trusts hereof...'."

I do not think there is anything more in that which I need read. It of course follows from the provisions of clause 12 that the proper law of the 1942 settlement was Northern Irish, and in all relevant respects (save that the Thelluson Act does not apply) such law is similar to that of England and Wales. The case continues:

"The 1942 settlement was of property which the accounts refer to as trust property. The settlement then created a rental fund which consisted of income arising from the trust property. Edmund's fund and Samuel's fund are the one half shares of the income of the rental fund, the names corresponding to the two branches of the Vestey family concerned in the appeals. William, first Baronet and first Baron, who died in 1940, was succeeded by Samuel, second Baron, who was one of the settlors of the 1942 settlement. Samuel died in 1954; his son, William Howarth, predeceased him leaving two sons, Samuel George Armstrong, the third Baron, and the Honour-able Mark William Vestey. The other branch, so far as relevant, consisted of Edmund Hoyle Vestey, first Baronet (the other

settlor of the 1942 Settlement) one of his sons, Ronald Arthur Vestey (the appellant) and the appellant's children, Edmund Hoyle Vestey, Mrs. Jane Baddeley and Mrs. Margaret Payne.

"By a lease dated March 26, 1942 (hereinafter referred to as 'the 1942 lease') Messrs. Flynn and Beak leased the property comprised in the 1942 settlement to the Union Cold Storage Co. Ltd. for a term of 21 years from April 10, 1942, in continuation or extension of "an earlier demise made in 1921." The 1942 lease was expressed to be supplemental to the 1921 lease and the property was demised to the lessee at the same rent and on the same terms and conditions as were reserved and made payable and contained in and in the same manner as if all the operative parts of the 1921 lease were therein repeated and made applicable accordingly with the substitution throughout of the schedule thereto for the schedules to the 1921 lease and of the term thereby granted for that granted by the 1921 lease and of the lessors for the lessors of the 1921 lease. The 1942 lease provided," first of all, that the rent should be payable to the lessors; secondly, that the powers to determine the lease by notice and to withdraw any part or parts of the demised premises should be exercisable by the new lessors; thirdly, that "The lessees shall not have power to determine this lease by notice before January 1, 1950"; and, fourthly, that "The lessors and the lessees may at any time or times by agreement substitute other hereditaments and premises for any of those hereby demised either with or without any alteration of the rent hereby made payable.

"In 1963 the 1942 lease came to an end and a new lease was executed on April 10, 1963. The lessors were the then trustees of the 1942 settlement (Messrs. Flynn Beak and Drabble) of the one part and the Union International Co. Ltd. (formerly Union Cold Storage Co. Ltd.) lessees of the other part. This lease was expressed to be supplemental to the 1921 lease and the 1942 lease and the lessors granted to the lessees the hereditaments and premises referred to in the schedule thereto (expressed to comprise the hereditaments and premises held by the lessees under the 1942 lease subject to certain deeds of withdrawal and substitution and certain other property) for the term of 21 years from April 10, 1963, at the same rent and upon the same terms and conditions as were contained in the 1921 lease.

"By a settlement dated January 3, 1963 ('the 1963 settlement') the appellant and Lord Vestey as settlors of the first part and Messrs Flynn Beak and Drabble as trustees of the second part and Ulster Bank Ltd. of the third part, settlors settled their respective interests in the property expectant on the determination of the prescribed term under the 1942 settlement" - that is to say, January 1, 1984 - "on the trusts therein mentioned. Those trusts were similar to the trusts contained in the 1942 settlement.

"The original trustees of the 1942 settlement, James Flynn and Reginald Stephens Beak, were resident and ordinarily resident in Uruguay and in the Argentine respectively. Additional trustees of the 1942 settlement, none of whom were or are resident in the United

Kingdom, were appointed" from time to time. "All the trustees of the 1942 and 1963 settlements "except one" were employees of companies of the Vestey group. The trustees meet infrequently, usually in Paris. The appellant and Mr. Edward Brown meet the individuals acting as trustees from time to time. The trust securities were retained by the Ulster Bank Ltd. in Belfast, Northern Ireland.

"By a direction in writing of the trustees dated July 27, 1950, the rent payable by the lessee of the 1942 lease was paid to the Ulster Bank Ltd. in Belfast and there placed to the credit of an account in the name of the appellant called the 'F & B account' maintained by him by authority of and on account of the trustees. By further directions in writing dated June 30, 1967, and December 12, 1967, the trustees for the time being authorised further payments of rent to be paid to the said bank but to the credit of the account of the then trustees.

"By directions in writing given on August 30, 1942, by William Howarth Vestey as Samuel's manager under clause 6 (A) of the 1942 settlement and on September 14, 1942, by the appellant as Edmund's manager under clause 4 (A) thereof, the trustees were directed to accumulate the whole of the income of Samuel's and Edmund's funds respectively by investing the same and the resulting income thereof, until otherwise directed...

"The joint manager referred to in clause 1 (c) of the 1942 settlement was at all material times the appellant who was also Edmund's manager as defined by clause 1 (d) of the settlement. After the death of William Howarth Vestey in 1944 Samuel's manager was Mr. Edward Brown until March 19, 1966, and thereafter Lord Vestey. The 'prescribed term' as defined by clause 1 (h) of the 1942 settlement by virtue of a deed of direction made on November 2, 1962, by the appellant and Mr. Edward Brown was extended to January 1, 1984.

"The rent payable under the 1942 lease was paid quarterly to the Ulster Bank... and was accumulated and invested. The investments of the rental fund were ultimately to be divided into Edmund's fund and Samuel's fund on the expiration of the prescribed term on January 1, 1984, but for convenience separate accounts were kept of Edmund's moiety and Samuel's moiety. The trustees' accounts accordingly showed the division of the funds and invested income under the following heads: The Trust Property Fund consisting of the freehold and leasehold properties plant and machinery comprised in the 1942 lease valued at £18 million on April 1, 1942 (with adjustments for sales and purchases) together with other property and investments representing assets of the 1942 settlement. The Rental Fund consisting of the accumulation of the rent payable under the 1942 lease. The Rental Fund Investments consisting of the proceeds of investment of the rental fund. Edmund's Fund consisting of a moiety of the income produced by the investments of the rental fund. Samuel's Fund consisting of the other moiety...

"The trustees also prepared income and expenditure accounts which recorded the rents received and also the investment income

from the above mentioned funds. The trustees' accounts were audited by a certified public accountant in Uruguay and were kept in Uruguay...

"The trustees of the 1942 settlement owned directly, or through nominees, all the shares in the following companies (hereinafter called 'the offshore companies') - (i) Commercial Insurance Corporation Ltd. was incorporated in 1922 and its share capital was purchased by the trustees in 1944... It has a wholly-owned subsidiary company, New Holding & Finance Co. Ltd. (ii) The Commercial Investment Co. Ltd. is a company incorporated and managed and controlled in Bermuda... (iii) The Salient Shipping Co. (Bermuda) Ltd. is a company incorporated and managed and controlled in Bermuda....

"New Holding & Finance Co. Ltd. (hereinafter referred to as 'NHF') is a company incorporated and managed and controlled in England... All its share capital is owned by Commercial Insurance Corporation to whom it paid substantial dividends. For the years 1963-64 and 1965-66 the Commissioners of Inland Revenue issued directions and apportionments to NHF under section 245 of the Income Tax Act 1952 directing that its actual income (other than estate and trading income) should be deemed to be the income of its members," that is, of the Commercial Insurance Corporation. "NHF appealed against the directions and apportionments." The special commissioners heard the appeals of NHF together with the other appeals in front of them "on the footing that if the said directions and apportionments were correct they operated to swell the income of the Commercial Insurance Corporation which (according to the Crown's contention) was deemed to be income of the appellant.

"The following appointments from capital were made under the powers contained in clauses 4 (D) and 6 (D) of the 1942 settlement: Appointor - The appellant as Edmund's manager with the consent of Samuel's manager under clause 4 (D); Appointee - The appellant" himself; and there were two appointments, on October 29, 1962, "Amount - £215,000" and, on November 18, 1964, "Amount - £150,000." Then: "Appointer - The appellant as Edmund's manager," and there are a number of appointments. Edmund Hoyle Vestey, two: on January 1, 1963, £700,000; on November 18, 1966, £220,000. "Margaret Payne the wife of James Gladstone Payne," on May 2, 1966, £100,000." Jane McLean Baddeley the wife of John Richard Baddeley," on May 2, 1966, £100,000. Then: "Appointor-Edward Brown as Samuel's manager under clause 6 (D)," three appointments. There were two in favour of "Lord Vestey (the third Baron)": on July 9, 1962, £123,000; and on January 1, 1963, £800,000. Then: "Appointee - The Hon. Mark William Vestey," on January 1, 1963, £200,000.

Consequent upon these appointments, the Crown has raised assessments on the recipients, or on the recipient's spouse where the recipient was a woman, in the year of receipt in question and subsequent years. The Crown has, however, restricted the quantum of such assessments so

that in no year does it seek to assess the recipients overall with income in excess of that actually received in that year by the trustees. This is, of course, on the Crown's argument, a purely voluntary act on its part, but an act of considerable magnitude, seeing that it claims it is strictly entitled to exact tax on the whole income no less than six times over. The magnitude of this concession is, of course, in itself a tacit acknowledgement that the section can never have been intended to work in the manner the Crown claims that it does.

On these facts, Mr. Potter, for the taxpayers, submitted the following points. I. That section 412 applied only where the taxpayer assessed himself made the transfer or caused it to be made. II. That if this was not accepted owing to the decisions in Congreve v. Inland Revenue Commissioners, 30 T.C. 163 and Bambridge v. Inland Revenue Commissioners [1955] 1 W.L.R. 1329, then those cases should be distinguished, as they were not dealing with cases where (i) there was multiple liability, and (ii) the Crown was claiming a discretionary right to ascertain which of the taxpayers were liable and for what proportion of the income. III. That the capital sums in question having originated from accumulations of income of accumulations, the appointment was not, within subsection (4), an associated operation. IV. That it was a necessary condition of liability under section 412 that the individual assessed was attempting to escape tax. V. That the section did not apply to payments to trustees merely by reason of the fact that they were domiciled or resident outside the United Kingdom. VI. That the width of subsection (2) should be limited by adding the word "those" before the words "associated operations" where they secondly occur; or, alternatively, by construing "has" as "has previously," so that no future assessments on the recipients of the capital sums would be possible. VII. That since the Hon. Mark Vestey was an infant at the time when the relevant sum was appointed to him, and it was not paid to him but to his mother, he neither received nor was entitled to receive that sum, and so was outside the purview of subsection (2). VIII. That since the share capital of Commercial Insurance Corporation Ltd. was purchased by the trustees, its income, as distinct from the income arising therefrom by way of dividends, does not accrue by reason of any chain of associated operations. The company's own income is therefore not within the description of "income which, by virtue or in consequence of the transfer, either alone or in conjunction with associated operations," upon which subsection (2) operates. So neither the company's own income, nor any income of NHF apportioned to it under the surtax apportionment provisions of the Act of 1952, can be brought into account.

I have already indicated that I have rejected Mr. Potter's first submission, bound thereto as I am by the Bambridge decision in the Court of Appeal, if not also by the decision of the House of Lords in Congreve. As regards his second submission, for the reasons already given I do not regard these cases as applicable to the specific point of construction of subsection (2); they deal with what is now subsection (1) only. I have rejected his third point, and his fifth; and, as regards his sixth, I have rejected it as it stands but reached a conclusion which will presumably be satisfactory to him by a slightly bolder (although I trust pedantically

justified) road. This leaves for consideration his fourth, seventh and eighth submissions.

As regards the fourth, I feel the force of Mr. Potter's submission that in the present case the individuals who are now assessed have not avoided liability to income tax at all. They have done nothing; and, indeed, they may not even know in any given case (although they clearly do now know) the source of the benefit they have received, nor whether it was intended to form part of a tax avoidance scheme. But, having said that, I think that on a fair reading of the section, what Parliament was intending to do was to treat the avoidance intention as colouring all benefits under the scheme for such avoidance, no matter in whose hands they might be found, and to attack such benefits accordingly. And if the limitation which I think must be placed on subsection (2), or some similar limitation, applies, then the not unjust situation will be reached where any appointee of capital will be liable to have a sum up to the whole of that capital treated as his income in the year of receipt, but will not suffer any further liability.

The seventh point raises, of course, a very special point. The relevant deed of direction of January 1, 1963, runs, in its operative part, as follows:

"the said Edward Brown hereby irrevocably directs and appoints that the trustees therein mentioned shall forthwith appropriate the sum of two hundred thousand pounds (£200,000) cash being part of the capital of Samuel's fund therein referred to to the Honour-able Mark William Vestey (being a grandson of the said Samuel Baron Vestey party to the settlement) and pay the same to Pamela Lady Vestey the mother and lawful guardian of the said Honour-able Mark William Vestey for his absolute use and benefit discharged from all the trusts powers and provisions of the said deed of settlement;"

and endorsed thereon is a receipt by Pamela Lady Vestey, his mother and lawful guardian. It is therefore plain that the Hon. Mark Vestey never himself actually received the money: it was received by his mother in the capacity of a trustee. Did he nevertheless become "entitled to receive" that sum? I think that the answer must be, in the light of In re Somech, decd. [1957] Ch. 165, that he did not have, prior to attaining his majority, any strict entitlement to receive the money at once. But, as I think also clearly appears from that case, on attaining his majority he would have a right to call for the money, or the assets representing it, so far as they had not been properly expended by his mother, as his trustee on his behalf, in the meantime. In the light of this conclusion, no assessment could have been made on him in respect of the year 1963-64; it should have been for the year 1964-65 (a year for which he has of course been assessed), and, I imagine, the figures are at large, although readily ascertainable.

On Mr. Potter's final point there was, unusually, a certain measure of agreement. Mr. Nolan, on behalf of the Crown, accepted that, for the purposes of subsection (2) (he did not make any such concession as regards subsection (1)), Mr. Potter's contention with regard to the income

of Commercial Insurance Corporation Ltd. was correct. I think he nevertheless, as he said (and correctly) that this was a new point not taken before the special commissioners, stated that he would like the case remitted to them to investigate the circumstances of the acquisition of the capital of this company by the trustees. But it appears to me that the stated case means what it says, and that a purchase means a purchase. Therefore, on this point, Mr. Potter's contentions succeed.

In the event, in my judgment, the appeals of the taxpayers must be allowed. We know as a fact that all the "capital" payments were payments out of income, and nothing but income, so that the taxpayers fall to be assessed in the year of receipt in respect of the whole of such sums: all but the Hon. Mark Vestey, who falls to be assessed in the following year in respect of the sum which he then became entitled to receive from his mother, his trustee. I do not know whether the figures are readily agreeable or whether the matter will have to be sent back to the special commissioners to find the figures.

I have been informed that there was an assessment on Mr. Ronald Vestey under section 412 (1) before the special commissioners, and that they refused to deal with it on the ground that the Crown had recovered all the tax on the relevant income which it possibly could by reason of the assessments made on the appellant taxpayers now under appeal under subsection (2). That matter is clearly not before me. It is not referred to in the case stated, and I do not therefore think I am seized of the position in any way.

I am now prepared to hear argument on the precise form of my order, and costs; but before I finally part with this case I feel constrained to make one general observation. I conceive it to be in the national interest, in the interest not only of all individual taxpayers - which includes most of the nation - but also in the interests of the revenue authorities themselves, that the tax system should be fair. Absolute equity is, of course, impossible to achieve, and nobody would cry for the moon. But rank, blatant, injustice, of the kind and on the scale exemplified in section 408 of the Act of 1952, section 412 (1) in some circumstances, and section 412 (2) on the Crown's construction of it, is quite another matter. Like Lord Upjohn in Inland Revenue Commissioners v. Bates [1968] A.C. 483, 516, I am quite unable to understand upon what principle of law the Crown, as he said, "realising the monstrous result of giving effect to the true construction," or what it assumes to be the true construction, of these sections, feels itself entitled to mitigate their monstrosity by such concessions as it chooses to make. One should be taxed by law, and not be untaxed by concession. This has now proceeded for such a long time without the revenue authorities taking one of the numerous opportunities which they have - at least once a year - to put the matter right that I am afraid they must have failed to realise the deep, brooding resentment felt by every taxpayer who is not charged simply upon his own income (including, of course, what he himself could have had by way of his own income had he so chose). A tax system which enshrines obvious injustices is brought into disrepute with all taxpayers accordingly, whereas one in

which injustices, when discovered, are put right (and with retrospective effect when necessary) will command respect and support.

Solicitors: Speechly, Bircham: Solicitor of Inland Revenue.