[HOUSE OF LORDS]

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[CONSOLIDATED APPEALS]

[On appeal from VESTEY v. INLAND REVENUE COMMISSIONERS and

VESTEY v. INLAND REVENUE COMMISSIONERS (NO. 2)]

Revenue - Tax avoidance - Overseas settlement - Income payable to persons outside United Kingdom - Capital sums appointed to discretionary beneficiaries resident in United Kingdom - Beneficiaries not transferors of assets - Whether chargeable to tax - Intention of Parliament in passing legislation - Claim of Crown to discretion in making assessments - Whether unconstitutional - "Rights by virtue of which he has ... power to enjoy" - Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), s. 412 (1) (2)

House of Lords - Judicial precedent - Former decisions of House normally binding - Power to overrule previous decisions to be used sparingly - Construction of taxing statute

In 1942, two members of the taxpayers' family resident in the United Kingdom settled certain overseas properties on

trustees resident abroad on discretionary trusts. The settlement directed the trustees to accumulate and invest the income of the properties so as to form a capital fund, the income of which was paid into a bank in Northern Ireland and was to be divided into two moieties corresponding with the two branches of the taxpayers' family, each having a manager. The income from each moiety was to be accumulated, added to the moiety and reinvested. The trustees' investments included investments in securities and shareholdings in overseas companies. Under the powers contained in the settlement, the trustees between 1962 and 1966 made appointments to the taxpayers, who were some of the discretionary beneficiaries, of capital sums totalling £2,608,000. One of the taxpayers was a minor, and the sum appointed to him was paid to his mother as his trustee. The taxpayers were assessed to income tax and surtax under section 412 (1) and (2) of the Income Tax Act 1952 ¹ in respect of the years 1963-64 to 1968-69 inclusive (with some individual exceptions), the tax in respect of all the taxpayers for the years 1963-64 to 1966-67 inclusive totalling £1,697,895.41 income tax and £3,763,208.46 surtax, a total of £5,461,103.87. For example, two of the taxpayers received payments of £100,000 on May 2, 1966, and their husbands were assessed to income tax and surtax in respect of the years 1963-64 to 1968-69 inclusive, the tax in respect of the years 1963-64 to 1966-67 inclusive totalling in each case £274,121.97. On the taxpayers' appeals, the special commissioners, without dealing with section 412 (1) of the Act, decided that section 412 (2) applied to the capital payments so that the whole of the income of the trustees in the year of appointment and subsequently arising, while the taxpayers were resident in the United Kingdom, was deemed to be the income of each of the taxpayers and was chargeable to income tax, and they upheld the assessments. The taxpayers appealed. Walton J. [1979] Ch. 177 allowed the appeals in part, holding that the assessments on each of the taxpayers should be reduced to the amounts of capital received by that taxpayer in each year of assessment. He remitted the cases to the commissioners for them to consider the applicability of section 412 (1) and to amend the assessments in accordance with their decision on section 412 (1) and his judgment on section 412 (2). As to section 412 (1), the commissioners

1 Income Tax Act 1952, s. 412: "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, he deemed to be the income of that individual for all the purposes of this Act. ..."

decided that, under the terms of the settlement, all the taxpayers, as potential beneficiaries, had rights under which each of them had power to enjoy the income of the trustees under section 412 (5) (d) and that, as a result, such income had to be separately deemed under section 412 (1) to be the income of each of the taxpayers for all the purposes of the Act of 1952, year by year as it arose, so long as each of them remained a potential beneficiary of the settlement. On further appeals by the taxpayers, the Crown contended, inter alia, that it had a discretion to assess one or more or all of the beneficiaries under the settlement in such sums as it thought fit, the only limitation being that the total income of the trustee could not he assessed more than once. Walton J. [1979] Ch. 198 allowed the appeals.

On appeals by the Crown direct to the House of Lords and cross-appeals by the taxpayers against so much of the orders of Walton J. as had upheld the assessments on them limited to the amounts of the capital sums received by them: -

Held, dismissing the appeals and allowing the cross-appeals, that section 412 of the Income Tax Act 1952 was susceptible of two interpretations, the first being that it applied only to the individual or individuals who had sought to avoid liability to tax by the transfer of assets abroad, the second being that it applied to all individuals who had rights within subsection (1) or who received or were entitled to receive capital sums within subsection (2); that adoption of the second interpretation produced a result, in the case of a discretionary trust of the kind under consideration, that was unjust and had not been the intention of Parliament in enacting section 412; that the House of Lords in Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 had not had to consider the operation of section 412 where more than one individual had acquired rights within subsection (1) or had received or was entitled to receive a capital sum within subsection (2) and had not had in mind the wide-ranging implications in such a case of its decision preferring the second, wider, interpretation of section 412; and that, accordingly, the House in the instant case was entitled not to follow that decision and should not do so and the first interpretation of section 412 should be adopted (post, pp. 1174E - 1175B, D-G, 1176B-C, 1184H - 1185C,1187E-H, 1190E, 1195H - 1196A, 1197A-B).

Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948, H.L.(E.) and Bambridge v. Inland Revenue Commissioners [1954] 1 W.L.R. 1460, C.A. overruled.

Lord Howard de Walden v. Inland Revenue Commissioners [1942] 1 K.B. 389, C.A. considered.

Per curiam. (i) The discretion conferred on the House of Lords by Practice Statement (Judicial Precedent) [1966] 1 W.L.R. 1234 should be exercised sparingly, particularly in relation to questions of the construction of statutes, and the House should try to keep it governed by stated principles, but the fact that the circumstances of a particular case cannot be brought precisely within the formulae used in others, of a different character, should not be fatal to its exercise (post, pp. 1178A, 1187B-C, 1190E, 1196F-G, 1197B).

Reg. v. National Insurance Commissioner, Ex parte Hudson [1972] A.C. 944, H.L.(E.) considered.

(ii) The purported exercise by the commissioners of a discretion as to whether one or more or all of the beneficiaries

under the settlement were to be taxed and as to the extent of their liability was unconstitutional (post, pp. 1172F - 1173C,1185G, 1190E, 1194B-C, 1196H - 1197A, B).

(iii) None of the taxpayers had "rights by virtue of which they had power to enjoy" within section 412 (1) prior to its amendment by section 33 (2) of the Finance Act 1969, being simply members of a discretionary trust (post, pp. 1171A-B,1189B, 1190E, 1197B).

Per Viscount Dilhorne. Nothing in section 412 (2) gives it retroactive effect: it does not provide that the income of the non-resident in any year before a person receives or is entitled to receive is to be deemed that person's income (post, p. 1188B).

Decision of Walton J. in Vestey v. Inland Revenue Commissioners [1979] Ch. 177; [1978] 2 W.L.R. 136; [1977] 3 All E.R. 1073 varied.

Decision of Walton J. in Vestey v. Inland Revenue Commissioners (No. 2) [1979] Ch. 198; [1978] 3 W.L.R. 693; [1979] 2 All E.R. 225 affirmed.

The following cases are referred to in their Lordships' opinions:

Absalom v. Talbot [1943] 1 All E.R. 589; 26 T.C. 166, C.A.

Bambridge v. Inland Revenue Commissioners [1954] 1 W.L.R. 1460; [1954] 3 All E.R. 682, C.A.; [1955] 1 W.L.R. 1329; [1955] 3 All E.R. 812; 36 T.C. 313, H.L.(E.).

Chetwode (Lord) v. Inland Revenue Commissioners [1976] 1 W.L.R. 310; [1976] 1 All E.R. 641, C.A.; [1977] 1 W.L.R. 248; [1977] 1 All E.R. 638, H.L.(E.).

Congreve v. Inland Revenue Commissioners [1947] 1 All E.R. 168, C.A.; [1948] 1 All E.R. 948; 30 T.C. 163, H.L.(E.).

Corbett's Executrices v. Inland Revenue Commissioners [1943] 2 All E.R. 218; 25 T.C. 305, C.A.

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

F. S. Securities Ltd. v. Inland Revenue Commissioners [1963] 1 W.L.R. 1223; [1963] 3 All E.R. 229, C.A.; [1965] A.C. 631; [1974] 1 W.L.R. 742; [1964] 2 All E.R. 691; 41 T.C. 666, H.L.(E.).

Gartside v. Inland Revenue Commissioners [1968] A.C. 553; [1968] 2 W.L.R. 277; [1968] 1 All E.R. 121, H.L.(E.).

Herbert (Lord) v. Inland Revenue Commissioners [1943] K.B. 288; [1943] 1 All E.R. 336; 25 T.C. 93.

Howard de Walden (Lord) v. Inland Revenue Commissioners [1942] 1 K.B. 389; [1942] 1 All E.R. 287; 25 T.C. 121, Macnaghten J. and 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.).

Inland Revenue Commissioners v. Cleary [1968] A.C. 766; [1967] 2 W.L.R. 1271; [1967] 2 All E.R. 48; 44 T.C. 399, H.L.(E.).

Inland Revenue Commissioners v. Frere [1965] A.C. 402; [1964] 3 W.L.R. 1193; [1964] 3 All E.R. 796; 42 T.C. 125, H.L.(E.).

Inland Revenue Commissioners v. Hinchy [1960] A.C. 748; [1960] 2 W.L.R. 448; [1960] 1 All E.R. 505; 38 T.C. 625, H.L.(E.).

Inland Revenue Commissioners v. Korner [1969] 1 W.L.R. 554; [1969] 1 All E.R. 679; 45 T.C. 287, H.L.(Sc.).

Latilla v. Inland Revenue Commissioners [1942] 1 K.B. 299; [1942] 1 All E.R. 214, C.A.; [1943] A.C. 377; [1943] 1 All E.R. 265; 25 T.C. 107, H.L.(E.).

Philippi v. Inland Revenue Commissioners [1971] 1 W.L.R. 684; [1971] 1 W.L.R. 1272; [1971] 3 All E.R. 61; 47 T.C. 75, Ungoed-Thomas J. and C.A.

Practice Statement (Judicial Precedent) [1966] 1 W.L.R. 1234; [1966] 3 All E.R. 77, H.L.(E.).

Reg. v. Deputy Industrial Injuries Commissioner, Ex parte Amalgamated Engineering Union, In re Dowling [1967] 1 A.C. 725; [1967] 2 W.L.R. 516; [1967] 1 All E.R. 210, H.L.(E.).

Reg. v. National Insurance Commissioner, Ex parte Hudson [1972] A.C. 944; [1972] 2 W.L.R. 210; [1972] 1 All E.R. 145, H.L.(E.).

Vestey's (Lord) Executors v. Inland Revenue Commissioners [1949] 1 All E.R. 1108; 31 T.C. 1, H.L.(E.).

The following additional cases were cited in argument:

Canadian Eagle Oil Co. Ltd. v. The King [1946] A.C. 119; [1945] 2 All E.R. 499; 27 T.C. 205, H.L.(E.).

Fynn v. Inland Revenue Commissioners [1958] 1 W.L.R. 585; [1958] 1 All E.R. 270; 37 T.C. 629.

Inland Revenue Commissioners v. Clifforia Investments Ltd. [1963] 1 W.L.R. 396; [1963] 1 All E.R. 159; 40 T.C. 608.

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.).

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.).

Midland Silicones Ltd. v. Scruttons Ltd. [1962] A.C. 446; [1962] 2 W.L.R. 186; [1962] 1 All E.R. 1, H.L.(E.).

Sassoon v. Inland Revenue Commissioners (1943) 25 T.C. 154, C.A.

Stanley v. Inland Revenue Commissioners [1944] K.B. 255; [1944] 1 All E.R. 230; 26 T.C. 12, C.A.

APPEALS from Walton J.

These were six consolidated appeals by the Crown brought by leave of the House of Lords granted on November 29, 1978, pursuant to section 13 of the Administration of Justice Act 1969 direct from decisions of Walton J. on July 29, 1977 (Vestey v. Inland Revenue Commissioners [1979] Ch. 177), and May 26, 1978 (Vestey v. Inland Revenue Commissioners (No. 2) [1979] Ch. 198), and six consolidated cross-appeals by the respondent taxpayers from those decisions. By those decisions Walton J. in each case allowed appeals by the respondent taxpayers from determinations of the Special Commissioners for the Purposes of the Income Tax Acts, dated, respectively, April 14, 1976, and January 27, 1978, and discharged or reduced assessments to income tax and surtax that had been made by the Inland Revenue Commissioners against each of the taxpayers for certain years between 1963-64 and 1968-69 and that had been upheld by the special commissioners on appeal by each of the taxpayers. He granted a certificate to the Crown in each case under section 12 of the Act of 1969 for appeal direct to the House of Lords. By their cross-appeals, the taxpayers appealed against so much of the orders of Walton J. as had upheld the assessments on them

under section 412 (2) of the Income Tax Act 1952 limited to the amounts of the capital sums received by them.

The facts are set out in their Lordships' opinions.

Michael Nolan Q.C., Peter Gibson and Brian Davenport for the Crown. These appeals raise the question whether it is possible for income from foreign sources to be accumulated free of United Kingdom tax in the hands of non-resident trustees and then distributed in the form of tax-free capital sums to United Kingdom resident beneficiaries. The taxpayers say that it is: the revenue say that in such circumstances section 412 applies, with the result that the income of the non-resident trustees is deemed to be that of the beneficiaries for United Kingdom tax purposes. The claim for tax in the present case may be justified either under section 412 (1) or under section 412 (2), and the revenue invoke both subsections in the alternative.

Walton J. objected to the revenue claim on the grounds that it depended on an apportionment of the liability by the revenue among the beneficiaries and that the amount apportioned to each beneficiary might exceed any sum actually received by him. The need for apportionment is, however, implicit in section 412, since it is plain that more than one individual may satisfy the conditions of liability in relation to the same income. It is equally plain that the liability imposed by the section is a liability to tax on the income of the non-resident person, not on the benefit received by the United Kingdom resident individual. These points are clearly illustrated by, for example, the latter part of section 412 (5) (d).

Walton J. held that section 412 (1) did not apply in the present case. He held that section 412 (2) did apply, but in reliance on a passage from the speech of Lord Loreburn in Drummond v. Collins [1915] A.C. 1011, 1018 he rejected the natural meaning of the subsection and concluded that the liability should be limited to tax on the capital sum received by the beneficiary in question. Read as a whole, however, the speech of Lord Loreburn states the familiar proposition that one must follow the natural meaning of statutory words unless the context otherwise requires. Here, the context of section 412 (2), so far from going against the meaning that it naturally bears, powerfully supports it. The grounds of liability at every stage rest on something other than the receipt of income. So, by introducing the restriction of the charge to what was received, Walton J. was imposing a restriction that was not within the scheme of section 412. In any event, his restriction does not fit the opening words: "Whether before or after any such transfer."

The ratio decidendi of Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 is that section 412 is not limited to the case of a transfer made or procured by the person liable to be assessed; on the contrary, it was quite clearly held that his liability was independent of his having made a transfer. [Reference was made to Lord Howard de Walden v. Inland Revenue Commissioners [1942] 1 K.B. 389.]

Read as a whole, section 412 only imposes single taxation, however difficult the problem of apportionment may be. There was no attempt by the revenue in Latilla v. Inland Revenue Commissioners [1943] A.C. 377 (see per Viscount Simon L.C., at p. 381) to charge each of the

transferors with the whole income: see also at p. 382. [Reference was made to Corbett's Executrices v. Inland Revenue Commissioners [1943] 2 All E.R. 218, 221E-F.] These cases show that the operation of the section has not been regarded as confined to cases where there is only one possible target. Both on the natural meaning of section 412 and on the way in which it has been accepted by the courts, it does apply where there is more than one individual and the charge does fail contemporaneously.

The courts have never adopted an entirely clear line as to the permissibility of double taxation. The House of Lords in Canadian Eagle Oil Co. Ltd. v. The King [1946] A.C. 119, per Viscount Simon L.C., at p. 139, Lord Russell of Killowen, at p. 142, said that there was no rule against it. A case the other way is F. S. Securities Ltd. v. Inland Revenue Commissioners [1965] A.C. 631; see per Lord Reid, at p. 644E, Viscount Radcliffe, at pp. 650F - 651C. The revenue for their part approach the matter with the strong bias against double taxation to which Lord Radcliffe refers. Similar principles must apply with regard to the taxation of more than one individual on the same income, though perhaps with not quite so much force. In applying section 412 to cases where more than one individual falls within the charge, the revenue have consistently acted on the view that the legislature does not impose on them a duty to recover tax on the full amount of the income from each individual concerned. Their practice has always been to apportion the income between the individuals concerned in what seems the most appropriate manner. This practice may be justified either on the ground that the section does impose multiple liability, but that the revenue are not required, as a matter of law, and ought not as a matter of proper administration, to recover tax on the income more than once, or on the ground (which was adopted by the special commissioners) that they are not entitled to tax the same income more than once. On either view, the practical result is the same. The revenue do not claim to be entitled to assess Mrs. Baddeley for more than £274,000 They say that their right to assess each beneficiary on the whole income is coupled with their duty to apportion it amongst the assessees. In that sense, it is a dispensation. Nothing short of rewriting the code can deal with the criticisms made of the revenue's procedure for dealing with apportionment between the taxpayers: see Inland Revenue Commissioners v. Hinchy [1960] A.C. 748. Stock v. Frank Jones (Tipton) Ltd. [1978] 1 W.L.R. 231 said much the same. The problem cannot be solved by reversing Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 because, first, reversing it to deal with this point would also reverse it with regard to multiple transferors, and, secondly, it would also have the effect of reversing it with regard to the intended effect of section 412.

Walton J. [1979] Ch. 177, 184D - 185G reached a conclusion contrary to that of the special commissioners only by the expedient of a radical emendation of the language of section 412 (2). He construed the subsection as though certain words had been added thereto (see per Lord Wilberforce, post, p. 1170B-C). In consciously "cutting down," as he put it, the language of the subsection, he relied on a passage from the speech of Lord Loreburn in Drummond v. Collins [1915] A.C. 1011, 1017:

"... courts of law have cut down ... relied upon by the Crown." That citation provides no such support. The manifest purpose of the section was a deterrent one, as is made plain in the preamble to the section and in Latilla v. Inland Revenue Commissioners [1942] 1 K.B. 299, 303. It is not possible to say that the intention of the section would be defeated by giving effect to the enacted words, and it is impermissible for the court to rewrite the clear provisions of a statute to accord with its own notions of fairness or reasonableness: see Stock v. Frank Jones (Tipton) Ltd. [1978] 1 W.L.R. 231. Further, just as for the purposes of section 412 (1) the income deemed to be that of the taxpayer is not limited to the income that he is entitled or able to receive but may be the whole income of the foreign resident (as the Court of Appeal decided in Lord Howard de Walden v. Inland Revenue Commissioners [1942] 1 K.B. 389), so the income that under section 412 (2) is the income of the taxpayer is not limited to the income comprised in the capital sum that he receives or is entitled to receive. The revenue rely on the words of Lord Greene M.R. in Lord Howard de Walden v. Inland Revenue Commissioners, at pp. 396-397 where he said, "If, as it seems to us ... against the public interest." Walton J.'s emendation is not only quite unjustified on any ordinary principles of statutory construction but is contrary to the plain intention of Parliament. As with a number of anti-avoidance provisions, Parliament has used, in section 412, very wide words in order to bring into liability to tax persons who may be involved in many types of tax avoidance from the simple to the highly sophisticated. Section 412 (3) excludes from liability (in summary) those occasions where the transfer was not for tax avoidance motives. Where this is not shown the section is extremely forceful in its results. Under section 412 (1) the income of a person is deemed to be that of an individual ordinarily resident in the United Kingdom because the latter has, within the very wide words of section 412 (5), "power to enjoy" that income regardless of whether in the years in question he actually did receive that income. Under section 412 (2), Parliament deemed the income of the overseas resident to be that of the individual ordinarily resident in the United Kingdom because the latter received or was entitled to receive any capital sum the payment of which was in any way connected with the transfer or any associated operation, regardless of how much (if anything) he actually received. Parliament, no doubt, intended (as Lord Greene M.R. pointed out) that these very stringent provisions would be effective to deter if not to prevent. Yet Walton J., by adding the words that he did add, has entirely changed the meaning of the subsection so that a person is only taxed on what he actually receives. This ignores the basic concept of deeming one person's income to be that of another that is so clearly provided for in section 412. Walton J.'s dislike of the consequence of deeming one person's income to be that of another is no reason for not giving effect to what Parliament so clearly provided. The remark of Lord Loreburn cited by Walton J. was taken out of its context. At the end of his speech in Drummond v. Collins [1915] A.C. 1011, 1018, Lord Loreburn said: "Lord Cairns long ago said. ... It must be a necessary interpretation."

In the present case, the other statutory language surrounding the emendation proposed by Walton J., so far from making his emendation necessary, is irreconcilable with it. Thus the opening words of section 412 (2) make it clear that the subsection can apply to a capital sum received before the relevant transfer. The scope of the subsection cannot, therefore, be confined to capital sums comprising income that has become that of the foreign resident by virtue or in consequence of the transfer. Further, the language of section 413 (3) (echoing the language used by the legislature in section 412 (2)) contemplates that the charge imposed by section 412, subsection (2) as well as subsection (1), is a charge on the income of the non-resident which is deemed to be that of the resident individual: it is not a charge on a capital sum. (There is an interesting contrast in this respect between the language of section 412 (2) and that of section 33 (4) of the Act of 1969, which is evidently designed to tax capital sums paid out of income that has escaped the charge under section 412.) Section 412 sets out to achieve its deterrent effect by deeming the income of the non-resident to be that of the individual without regard to the quantum of any benefit received by the latter. Accordingly, even Walton J.'s emendation not only disregards the letter of section 412 (2) but also its spirit and is in no way justified by the speech of Lord Loreburn in Drummond v. Collins [1915] A.C. 1011. Furthermore, the passage from Lord Loreburn's speech relied on by Walton J. is not a passage that was approved by the other members of the House and is inconsistent with modern principles of statutory construction, especially those applied in the construction, of taxing Acts, where what one man considers grossly unfair may be considered by another wholly proper. Where, as in the case of taxing Acts, the great majority of subjects pay their tax, however unwillingly, in accordance with the wording of the relevant enactment, it is particularly undesirable that the courts should, many years after the relevant section first came into force, rewrite it in accordance with their own ideas of what at the time of the decision is considered to be fair.

Walton J.'s emendation of section 412 (2) does not square with subsection (3), because he says that it is a charge on a capital sum at the time of receipt. As to his seventh point [1979] Ch. 177, 196C-G, In re Somech, decd. ([1957] Ch. 165) related to the question whether as a matter of trust law an infant had the right to call for a share of residue under a will. It had nothing to do with taxation. When a sum is received by an agent or bare trustee for an infant, it is received by the infant for all taxation purposes, including those of section 412 (2): liability to tax does not depend on the sum having come into the infant's own hands. If that were wrong, it would still be true to say that, where a capital sum has been appointed to be held by a bare trustee for the absolute use and benefit of an infant, the infant is "entitled to receive" that sum as the sole beneficial owner. [Reference was made to Stanley v. Inland Revenue Commissioners [1944] K.B. 255.]

As to Vestey v. Inland Revenue Commissioners (No. 2) [1979] Ch. 198, 203-204, extra-statutory concessions do not fall to be considered in this case. At p. 204F, Walton J. is confusing "right to receive" with

"power to enjoy." [Reference was made to Lord Howard de Walden v. Inland Revenue Commissioners [1942] 1 K.B. 389, 394 and Corbett's Executrices v. Inland Revenue Commissioners, 25 T.C. 305.] It is noteworthy that in the Act of 1969 the only measure that Parliament adopted was to extend the provisions of section 412 (1). As to Walton J.'s judgment, at pp. 205H - 206H, when one reads section 412 (1) with the latter part of subsection (5) (d) one is looking for an individual who has acquired a right whereby he is entitled to keep what is paid to him by the trustees. One looks for a meaning of "right" that will fit the closing words of subsection (5) (d), and, indeed, all the words of subsection (5). As to "become entitled to the beneficial enjoyment of the income," one asks: "how; by what right?" Only by means of being the beneficiary under the trust. It is her right if the manager so directs. The words of subsection (5) (d) only make sense on the basis that, although it is true that before the discretion was exercised the beneficiary had no right to call for any money, she is in a different position from those of us who are not in that class. That is a right that corresponds to the "beneficial entitlement" at the end of subsection (5) (d).

As to hardship, with huge tax assessments going on year after year, it is right to point out that the reason for the application of the section is that this family trust is in the hands of non-resident trustees. If United Kingdom trustees had been appointed, the hardship could have been avoided. The trustees must have been well aware of the consequences when they appointed the capital sums.

As to the second point taken by Walton J. against the revenue, at p. 206, that, if the right is a collective right, it must be ignored, the revenue rely here not on any collective right but on the right of the individual beneficiary. They can, therefore, accept what Lord Morton of Henryton said about collective rights in Lord Vestey's Executors v. Inland Revenue Commissioners [1949] 1 All E.R. 1108, 1135; 31 T.C. 1, 110. Walton J.'s point regarding subsection (5) is contrary to the direction in subsection (6), and subsection (8) (c) is a further indication of the width of the legislative intent. [Reference was made to the judgment of Walton J., at p. 215F.]

As to Lord Chetwode v. Inland Revenue Commissioners [1977] 1 W.L.R. 248, in the case of a company, an individual might become entitled to income on the direction of another individual through whom that income could come. Here, Ronald Arthur Vestey may be said to be able to direct the application of his fund.

The special commissioners were correct in holding that the assessments on the taxpayers were supported by section 412 (1) in its unamended form. Walton J. held that the object of a mere power had no "right" under which he had power to enjoy income. The term "right" falls to be construed in its statutory context and in particular with regard to the fact that the legislature contemplated, as section 412 (5) (d) shows, that a mere object of a power might have power to enjoy the income by virtue of the right. Further, that right is an individual right in that each object of a power is in competition with each other object and what the donee of the power gives in exercise of

that power to an object of that power is that object's alone. The latter part of section 412 (5) (d) applies fairly and squarely to the objects of both discretionary trusts and powers. It would be astonishing if the legislature had failed so to provide. For the greater part of this century such trusts and powers have been very widely used as a means of avoiding tax and have thus been natural targets for anti-avoidance legislation. It may be objected that, on this basis, liability under section 412 (1) could attach to a large number of individuals merely on the ground that they were objects of a widely drawn trust or power, even though they had no likelihood of benefit and might never have heard of the disposition in question. The answer to this objection lies in section 412 (6). The question is thus one of substance and fact. The terms of section 412 (5) are very widely drawn, but in any given case it should be possible to determine in whom the real and substantial power to enjoy the income resides and in whom it does not. [Reference was made to section 25 and to Canadian Eagle Oil Co. Ltd. v. The King [1946] A.C. 119.]

It is immaterial for the purposes of section 412 that income should have been accumulated between its receipt by the trustees and its potential enjoyment by the beneficiary: s. 412 (6). Alternatively, for the purposes of section 412 (5) (d) each of the appointees could have obtained the beneficial enjoyment of income (a) under clause 4 (B) or 6 (B) of the settlement by the exercise by R. A. Vestey as Edmund's manager or by Samuel's manager of the powers to revoke the direction under clause 4 (A) or 6 (A) to accumulate income and (in the case of R. A. Vestey with the consent of Samuel's manager or the trustees) to direct the payment of income to him or her, or (b) under trusts reconstituted by an exercise by R. A. Vestey as Edmund's manager with Samuel's manager of the powers under clause 14.

The special commissioners were also right to hold that the income of Commercial Insurance Co. Ltd. was deemed for the purposes of section 412 (1) to be the income of the taxpayers. The taxpayers have not disputed that, if the share capital of Commercial Insurance Co. Ltd. had been subscribed for out of the accumulations of trust income, its income would properly have been so deemed (provided that the other conditions of section 412 (1) were satisfied); but they contend that the purchase broke the chain of transfers and associated operations and that accordingly only the dividends received by the trustees fell within section 412 (1). Walton J.'s reasoning on this [1979] Ch. 198, 216F, is inconsistent with Lord Chetwode v. Inland Revenue Commissioners [1977] 1 W.L.R. 248, and again ignores the mandatory requirements of section 412 (6). As the trustees could through their total control of Commercial Insurance Co. Ltd. cause all the income of the company to be paid to them, or cause no dividend to be paid, it is unrealistic to limit the income deemed to be that of the appointees for the purposes of section 412 (1) to the dividends actually paid. By the combined effect of the transfer of properties to the trustees of the settlement and associated operations comprising the accumulation of income and the purchase of the Commercial Insurance Co. Ltd. shares therewith, by

reason of the appointees' power to enjoy income of that company in the form of dividends the whole income of that company is deemed to be that of the appointees.

D. C. Potter Q.C., J. E. Holroyd Pearce Q.C. and Alastair Wilsonfor the taxpayers. Section 412 applies only to the transferor, i.e., the person who made, or "engineered," or, having power to stop it, allowed, the transfer. This is, on the construction of the language of section 412, the most probable meaning. If so, the jigsaw puzzle fits and there is no room for discretion. That was what Parliament intended in 1936.

As regards section 412 (1), Walton J.'s decision was correct. As regards subsection (2), he erred only in so far as he imposed any liability on the taxpayers. They should escape, even if the House does not accept their submission on Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 and Bambridge v. Inland Revenue Commissioners [1955] 1 W.L.R. 1329. In the alternative, of course, the House should not impose any greater liability on them than was imposed by Walton J., who reduced it from £5 million to a little over £½ million. There was no nexus between any transfer and associated operations and the payments out of Samuel's fund and Edmund's fund. No surtax was saved by this settlement being made abroad. Underlying Lord Howard de Walden v. Inland Revenue Commissioners [1942] 1 K.B. 389 is the concept that only the transferor was caught by the section. If the House decides that all that Congreve v. Inland Revenue Commissioners decided was that "transferor" could include the person who engineered the settlement, it should say nothing about Lord Howard de Walden v. Inland Revenue Commissioners. The headnote to Congreve in the All England Law Reports is correct. Lord Simonds also propounded the question correctly in his alternative reasoning. The "individual" mentioned in section 412 (1) and (2) is an individual who answers the description in the preamble to the section, i.e., one who for the purpose of preventing or avoiding liability to income tax by means of transfers of assets, etc.

The ratio of Congreve should be limited to its facts, in particular to the fact that Mrs. Congreve made, or brought about, the relevant transfer. The House should review its reasoning, though not the decision as such. It does not apply to a case of multiple liability, nor does it on its face extend to the circumstance where the person taxed is the child or grandchild of the original settlor in no way concerned with the transfer. As to the question of the binding nature of the rationes decidendi of cases in the House, see Midland Silicones Ltd. v. Scruttons Ltd. [1962] A.C. 446. The taxpayers ask the House formally to overrule Bambridge v. Inland Revenue Commissioners [1955] 1 W.L.R. 1329, but the present question was not raised before the House in that case: see the appellants' reasons in their printed case. The ratio decidendi of Philippi v. Inland Revenue Commissioners [1971] 1 W.L.R. 1272 related to the escape clause in section 412 (3). It does not require to be overruled. The question was one of law, which the Court of Appeal answered correctly. The present question was not raised in the stated case.

It is difficult to see how any meaning can be given to section 412 (8) (a)

if the revenue is right. Subsection (3) suggests that Parliament had only one individual in mind. Also, one individual, for example, the one who made the transfer, might escape, but what about the others, who are innocent? The House in Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 did not consider the anomalies that might arise from subsection (2); they did not arise there. For example, "capital sum" includes a sum paid by way of loan or repayment of a loan. There must be millions of individuals ordinarily resident in the United Kingdom who during the last 40 years have borrowed monies, or received payment of monies lent, in circumstances where those monies were "in any way connected with" some transfer or associated operation that would be caught by section 412. Indeed, a person borrowing or lending money has no means usually of discovering whether or not he is or is likely to be caught by section 412 (2), with results that (if the revenue's claim is correct) are devastating. Such an individual is unlikely (save in a very exceptional case) to be able to rely on a possible escape under subsection (3). The effect and consequences of the Congreve reasoning in cases of potential multiple liability such as the present, were not considered in Congreve; when they are considered it becomes evident that Parliament can never have intended those consequences. There are numerous judicial dicta, including some in this House, that cannot be reconciled with the Congreve reasoning: see, for example, MacDonald v. Inland Revenue Commissioners [1940] 1 K.B. 802, 806; 23 T.C. 449, 456; Corbett's Executrices v. Inland Revenue Commissioners, 25 T.C. 305, 212. The whole basis of Lord Howard de Walden v. Inland Revenue Commissioners [1942] 1 K.B. 389 (see at pp. 396, 397-398) was that the taxpayer was the transferor. [Reference was made to Lord Vestey's Executors v. Inland Revenue Commissioners, 31 T.C. 1, 72 perEvershed L.J.] Lord Wilberforce's analysis in Lord Chetwode v. Inland Revenue Commissioners [1977] 1 W.L.R. 248, 251C was correct. He compared the situation before the transfer with that after: that restricts section 412 to the transferor. The House should, therefore, review Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 and affirm it as correctly decided, but on its narrow ground.

Assuming that the taxpayer's submissions above are wrong, how do they distinguish Congreve under section 412 (1) and (2)? Under subsection (1), as respects the first four years, there must be shown to be rights. (Surtax on the fifth year is caught by the Act of 1959, where "rights" has been excised.) Walton J. was correct in his reasoning and conclusion [1979] Ch. 198, 206 when he relied on Gartside v. Inland Revenue Commissioners [1968] A.C. 553. There is no "right" in the present case, only a hope; this is especially so where there is a mere power in the nature of a trust: see per Lord Reid in Gartside, at pp. 605-606. As to the last words of section 412 (5) (d), "rights" appeared in 1936, but the last three lines were not added until 1938; they cannot have altered the meaning of "rights" already established. Lord Vestey's Executors v. Inland Revenue Commissioners, 31 T.C. 1 is clear authority that one looks to the single individual and not to the group of individuals of which the person whom it is sought to charge is one. What Lord

Simonds says, at p. 85, applies here. If power to enjoy is not vested in one individual, but equally in a number of persons, then what Lord Simonds says is clear authority that the individual does not have "power to enjoy" under section 412 (1). A fiduciary power does not give power to enjoy. Lord Vestey's Executors v. Inland Revenue Commissioners therefore decided that the subsection only bites where there is only one individual. In the present case, there is no such individual. None of these individuals have "power to enjoy" within section 412 (5) (c). Once the income has been accumulated under the direction in the trust document to accumulate, it ceases to be income and is capital. On the definition of "associated operations," the accumulation of income was not an associated operation. The words of section 412 (5) (d), "entitled to the beneficial enjoyment of the income," mean what they say; they do not mean beneficial enjoyment in the future. When the sum is appointed, it is simply a sum of capital. Future income is not income for tax purposes. The power of appointment relates only to the capital. Section 412 (5) (b) does not apply; the money is not held for the person's benefit until it is appointed. When it is appointed, it is cash, and it does not increase in value between appointment and payment. Nor does section 412 (5) (a) apply.

As to subsection (2), the definition of "associated operations" in subsection (4) is also relevant here. "Accumulations of income" do not include sub-accumulations. Nor are they "associated operations" within subsection (5) (c). No individual has received such a sum as is mentioned in subsection (2). There must be some limit to "in any way connected therewith." When Parliament wants to refer to compound accumulation, it knows how to do so; see, for example, the Trustee Act 1925, s. 31. In section 412 (4), one has a clear indication that compound accumulation is not intended: "arising from any such assets." As to "connection," there must be a payment out of a fund. The limitation is that it has to be either out of the property transferred or out of property that exists by virtue of an associated operation. If a wide class not restricted to transferors is to be caught, then a more restricted interpretation of these provisions is desirable: for example, what is to be caught should be restricted to payment directly or indirectly out of the transferred assets, or payment as a direct result of any associated operation. Payment out of a fund of sub-accumulations is not "connected with the transfer" or with any associated operation.

As to Walton J.'s emendation of section 412 (2), the taxpayers' suggested emendation is a very modest one: "in conjunction with those associated operations." The result is that it limits it to a lump sum received to the extent that it is backed by the income that produced it: in this case, Edmund's fund.

An alternative argument for the taxpayers, which requires no emendation, relates to section 412 (8) (b): "transfer" and "assets." one can be said to transfer in relation to a block of assets, or in relation to each asset. In section 412 (2), one should work backwards from the capital sum and ask, first, what is the origin of the capital sum?: such and such a fund, formed by the accumulation of income; secondly, what

was the origin of that income?: the rental fund; thirdly, what was the origin of the rental fund?: the actual transfer. What part of that transfer can be ascribed to this particular payment? One has to do some violence to the wording, and the taxpayers' emendation is the least violent. It is very difficult to apply section 412 (2) once one abandons the idea that the transferor is the individual.

The following general submissions are made on section 412 (1) and (2). The authorities cited, for example, Latilla v. Inland Revenue Commissioners [1943] A.C. 377 and Bambridge v. Inland Revenue Commissioners [1955] 1 W.L.R. 1329, deal with successive individuals. The present case is concerned with concurrent individuals. There is authority that, if it is not clear which individual is to bear the tax, the tax fails: Lord Herbert v. Inland Revenue Commissioners [1943] K.B. 288 (Macnaghten J.) and Inland Revenue Commissioners v. Clifforie Investments Ltd. [1963] 1 W.L.R. 396.

As to tax avoidance, the preamble to section 412 refers to the avoidance of taxation. What is meant by "avoidance of taxation" has never been explained in the courts. None of the taxpayers here has avoided taxation.

Walton J. was correct in relying on Canadian Eagle Oil Co. Ltd. v. The King [1946] A.C. 119. One does not have power to enjoy the income of a company if one is only a discretionary beneficiary. There is no power in the taxpayers to enjoy the income of any of these three companies. Once the money has been paid to the trustees, it ceases to be the income of the companies.

Lord Howard de Walden v. Inland Revenue Commissioners [1942] 1 K.B. 389 is good law on the transferor theory.

Holroyd Pearce Q.C. following. The approach in Luke v. Inland Revenue Commissioners [1963] A.C. 557 supports the principles of statutory construction applied by Walton J.; it is not inconsistent with the decision in Inland Revenue Commissioners v. Hinchy [1960] A.C. 748 (which was not cited), and it is the proper one. The decision of the House of Lords in Hinchy had been based on the fact that there was a fixed penalty that had come through from earlier legislation and Lord Reid said, at p. 767, that its meaning could not be changed when incorporated in the subsequent legislation. Hinchy is thus reconcilable with Luke.

Nolan Q.C. in reply. On the cross-appeal, first, the ratio decidendi of Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 was that liability under section 412 was not confined to the transferor; secondly, it was rightly decided in that sense; thirdly, even if it was wrong, it should be followed in the public interest.

As to the ratio, see the bound record, and per Lord Simonds, 30 T.C. 163, 203-204. The decision would have been the same if Mrs. Congreve had made no transfer herself to the Canadian company. Lord Simonds, at p. 205, rejects the limitation suggested as to procurement, though he agrees (see at p. 204) with Cohen L.J. (see per Cohen L.J., at p. 196). The ground on which he is putting it could not be plainer.

As to tax avoidance, tax is on the income, and the tax avoidance is

on the income itself. Section 412 is aimed at keeping income within the United Kingdom tax net: see Sassoon v. Inland Revenue Commissioners (1943) 25 T.C. 154. It is not a question of the reason in Congreve having gone wider than necessary. It was a specific ground of the decision, which of course went wider but only because that was of its own nature.

Congreve should not now be reversed, for a number of reasons. First, it has been accepted without question for 30 years by the revenue and taxpayers and by the House in Bambridge v. Inland Revenue Commissioners [1955] 1 W.L.R. 1329 as meaning what it says. Secondly, the consequences of the decision during that time have been enormously wide. Numerous cases have been affected. Thirdly, it has been accepted by the legislature. Two consolidating Acts have been passed since, and there has also been the enactment of amending legislation in 1969. Fourthly, if the decision had gone the other way, it is inconceivable that the gap, which is a yawning one, would not by now have been filled. [Reference was made to Reg. v. National Insurance Commissioner, Ex parte Hudson [1972] A.C. 944, per Lord Reid.]

The provision of income in a tax-free form can also fairly be described as tax avoidance (see Philippi v. Inland Revenue Commissioners [1971] 1 W.L.R. 1272 and Lord Vestey's Executors v. Inland Revenue Commissioners, 31 T.C. 1); these are also useful on the "escape clause" in section 412 (3). As to Philippi, the judgment of Ungoed-Thomas J. [1971] 1 W.L.R. 684 shows that there can be tax avoidance coupled with a gift. In Lord Vestey's Executors, see at pp. 26 (special commissioners), 81 (Lord Simonds), 104 (Lord Morton of Henryton). Section 245 of the Act of 1952 is another small indication.

The taxpayers say that section 412 (8) (a) has a function if they are right but is otherwise superfluous. It is not superfluous; it would apply in the case of a third party who was not the transferor. Suppose that an individual transferor and his wife each own 30 per cent. of the voting rights in a company. Neither individually would be caught by section 412 (5) (e), whereas, if they are considered together as a combined individual, they can "control the application of the income."

"Connected with," in the context of section 412 as a whole, is confined to cases where the payment (it is the payment, not the money) of the capital sum is connected with the tax avoidance purpose for which, ex hypothesi, the transfer and the associated operation were carried out. [Reference was made to Fynn v. Inland Revenue Commissioners [1958] 1 W.L.R. 585.] Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 was within a comparatively short compass. It was decided within a short time of Latilla v. Inland Revenue Commissioners [1943] A.C. 377, and the House would have been aware of Latilla.

Mrs. Baddeley became assessable under section 412 (5) (c) as well as under section 412 (2). Before she receives the capital sum, there is no evidence on which she could be assessed. It could, however, happen that the evidence supporting the assessment would not arise until after the end of the year in which it was made.

It is true that the effect and consequences of the Congreve reasoning in cases of potential multiple liability such as the present were not considered in Congreve. The House did, however, have the 1938 amendment in front of it, which included discretionary power in "power to enjoy." The House here should only reverse Congreve if it makes better sense of the provision to do so, but it does not. The sensible reading of the section is the Congreve reading, for all the difficulties that it involves. Lord Reid's remark in Midland Silicones Ltd. v. Scruttons Ltd. [1962] A.C. 446, 475 was strictly obiter. This part of the decision of the Court of Appeal in Northern Ireland in Inland Revenue Commissioners v. Herdman [1969] 1 W.L.R. 323 was not appealed against to the House.

As to injustice, see clause 10 of the 1942 deed of settlement. At all material times, the joint managers have had power to remove the non-resident trustees and appoint trustees resident in the United Kingdom. Had they exercised that power before any sort of capital sums had been paid to the taxpayers, the case would never have arisen. There was no reason to have non-resident trustees except for the avoidance of tax. The reason that the power in question has not been exercised is that the family are waiting for the result of this case.

Eight short points arise from the taxpayers' submissions as to Latilla v. Inland Revenue Commissioners [1943] A.C. 377, etc. (1) As to the rights of a discretionary beneficiary, the taxpayers referred to Gartside v. Inland Revenue Commissioners [1968] A.C. 553. See per Lord Reid at p. 605: they each had individual rights. (2) The word "right" is used in Lord Reid's sense in section 412 (1) read with subsection (5) (b) (which came in in 1938), otherwise the rest of (b) is meaningless. (3) The taxpayers say that one should look behind the consolidating Act of 1952 to see how the words got there, but the general trend nowadays is against referring back behind consolidating Acts unless there is an ambiguity to be resolved. Here, either the section means something or it means nothing: that is not an ambiguity. If one does go behind the Act, one cannot say more than that in 1938 Parliament enacted a nullity. That is possible, but it is not a construction that the House should favour. (4) The taxpayers complained that they had been given no opportunity to object to the method of apportionment of the section 412 (1) claim. There is some conflict of recollection here, but see the supplemental case stated in the case of Ronald Arthur Vestey, dated January 27, 1978: it seems that there was an opportunity to discuss the question of apportionment, to make representations. The revenue would not want to put anything in the way of the special commissioners considering that again. (5) The taxpayers complained of the presentation of the revenue's argument as changing from one of absolute liability to one of discretionary power. The argument before Walton J. tended to be on the extremes, but the revenue did also put forward the special commissioners' way of putting it. (6) As to section 412 (2), the taxpayers said that the payments were not connected with transfers or associated operations: such operations did not include sub-accumulations and these were sub-accumulations. The payments having been made under the settlement itself, they were clearly made in connection with

the transfer or associated operations. "Accumulations" clearly include sub-accumulations. It is inconceivable that the legislature would have intended to exclude them. The taxpayers referred to section 31 of the Trustee Act 1925: the words used in section 31 (2) are clearly used to cover both interest and compound interest (see the Law of Property Act 1925, s. 164 (1)); there would be a hole in the rule against sub-accumulations if the taxpayers are right, but there is authority that sub-accumulations are caught by that rule. (7) There is an illuminating contrast between "capital" in section 412 and in section 408, also introduced in 1938. It is clearly a charge on the capital sum in section 408 and not on the income. [Reference was made to Lord Herbert v. Inland Revenue Commissioners [1943] K.B. 288.] In section 412 the charge depends on power to enjoy or the receipt of a capital sum but is a charge on the income of the non-resident person; this is just as well, because otherwise the overseas tax-avoidance problem would not be solved. (8) The taxpayers say that section 412 (2) only bites on the income of an overseas company if it arises as the result of a transfer or associated operations. The revenue agree: they accepted that before Walton J. The concession is mentioned by him at [1979] Ch. 177, 196H-197A; see also at p. 195F-G.

Potter Q.C. As to the ratio decidendi of Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948, the revenue sets store by the fact that Mr. Glasgow made two transfers. If the case had turned on those transfers, it would be against the taxpayers. There is an element of equivocation, uncertainty or ambiguity about the transfers made by Mr. Glasgow. This drives one back to the facts found by the commissioners. Compare paragraph 19, 30 T.C. 163, 178, 179, with the finding at p. 180. Mr. Glasgow's transfers were not strictly in issue in the stated case; therefore, it is not a case that is so binding on the House that it cannot be distinguished on Lord Reid's third ground, and it should be.

The revenue knew about this settlement from an early date: in 1944 there was liability to estate duty. In Lord Vestey's Executors v. Inland Revenue Commissioners, 31 T.C. 1, it was inferred that the settlement had been replaced by another.

As to the removal of "rights" from section 412 (1) in 1969, one surmises that this was done to bring in discretionary trusts, following a change of policy by the Crown. There does not, therefore, appear to be a consistent policy by the Crown as to the application of Congreve v. Inland Revenue Commissioners.

By taking capital sums the taxpayers have not avoided United Kingdom tax on past income.

Their Lordships took time for consideration.

November 22.LORD WILBERFORCE. My Lords, these are six appeals and cross-appeals from two decisions of Walton J.: they come direct to this House under Part II of the Administration of Justice Act 1969. They are concerned with assessments for income tax and surtax made upon the

six respondents for the years 1963-64, 1964-65, 1965-66, 1966-67 and 1968-69 (except that no assessments were made upon Lord Vestey for 1964-65 and 1965-66 and no assessment was made upon M. W. Vestey for 1966-67). The assessments were made under section 412 of the Income Tax Act 1952 (now incorporated in section 478 of the Income and Corporation Taxes Act 1970) which is concerned with the transfer of assets abroad. The original sources of these sections were the Finance Act 1936, section 18, and the Finance Act 1938, section 28. The assessments for 1968-69 are additionally made under the Finance Act 1969, section 33. The sums involved are very large and important and difficult questions arise for decision.

The origin of the matter is a settlement made on March 25, 1942, by the second Baron Vestey and his uncle Sir Edmund Hoyle Vestey Bt. as settlors. These persons were the heads of two Vestey families, to one or other of which the respondents belong. The respondents transferred no assets and had no hand in the settlement: they, together with a number of other persons, are potential beneficiaries under it.

By the settlement the settlors conveyed certain very valuable properties outside the United Kingdom to trustees resident outside the United Kingdom to hold upon the trusts of the settlement.

There is no doubt that this was a transfer of assets by virtue of which income became payable to persons resident out of the United Kingdom (viz. the trustees) so as potentially to bring section 412 into operation. However, it is important to notice that neither of the settlors had any rights, nor at any time received any sum, so as to make themselves liable to be charged with tax under either section 412 (1) or section 412 (2). The claim is, and is only, against beneficiaries under the settlement.

The trusts of the settlement are elaborate and are fully set out in the case stated. I think that the following summary is sufficient to enable the contentions of the revenue to be understood.

1. The trustees were obliged during a period called "the prescribed term," which, unless extended, will expire in 1984, to accumulate the income of the trust property by investment so as to form a capital fund, called the "rental fund." Advantage was taken, in this connection, of the law of Northern Ireland under which the settlement was made, which does not include the Thellusson Act [Accumulations Act 1800], which would have limited the period of accumulation. After the end of the prescribed term the rental fund was to be divided into two equal parts - Edmund's fund and Samuel's fund - and held on the trusts declared concerning these funds. During the prescribed term the income of the rental fund was to be divided into two equal parts which were to be held on the trusts which would be applicable to Edmund's fund and Samuel's fund if already in possession.

2. Subject to the above provisions the trust property was to be held in trust for the son of Sir Edmund, the respondent Ronald Arthur Vestey, and the son of the second Lord Vestey, W. H. Vestey, in equal shares.

3. During a period defined by reference to the law against perpetuities, designed to last until 2030 A.D., and called the specified period, a person designated as Edmund's manager (who in fact was at all material times

the respondent Ronald Arthur Vestey) had power to direct the accumulation of the income of Edmund's fund. Edmund's manager did in fact so direct.

4. Subject as aforesaid Edmund's manager had power during the specified period to appoint the income of Edmund's fund between a class including Ronald Arthur Vestey and his issue and other persons. Subject thereto the income was to be held on protective trusts for (inter alia) the issue of Ronald Arthur Vestey per stirpes.

5. Trusts were declared of Edmund's fund to take effect after the end of the specified period.

6. (This is the material provision as regards these appeals.) Edmund's manager had power during the specified period to direct the trustees to pay or apply capital of Edmund's fund to or for the benefit of Ronald Arthur Vestey or his issue, or, failing this, the issue of Sir Edmund, but Edmund's manager could only exercise this power in favour of himself jointly with Samuel's manager or the trustees.

7. Similar trusts mutatis mutandis to those referred to under 4 to 6 above were declared as regards Samuel's fund - there being designated a person to act as Samuel's manager. He also directed accumulation.

8. There were cross-remainders applicable to Edmund's fund and Samuel's fund in the event of failure of the trusts applicable to them respectively.

9. Finally there was (clause 14) a wide power given to Edmund's manager and Samuel's manager during the specified period to revoke the trusts, powers or provisions of the settlement and to reconstitute the same, but not so as to confer any interest upon either of the settlors.

Thus, in the most summary form, the income from the transferred properties was to be accumulated in three stages. First it was to be accumulated so as to form the rental fund. Secondly the income of the rental fund was to be accumulated so as to form (i) Edmund's fund and (ii) Samuel's fund. Thirdly the income of (i) Edmund's fund and (ii) Samuel's fund was to be accumulated, and it was out of these accumulations that the relevant capital payments were made.

It is next necessary to ascertain who were (i) the potential and (ii) the actual beneficiaries who either had rights by virtue of which they had power to enjoy income of the settlement (section 412 (1)) or might receive capital payments under (6) and (7) above (section 412 (2)).

The potential beneficiaries in 1963-64 were (a) 16 members of the Vestey family on Sir Edmund Vestey's side, (b) 12 members of the Vestey family on Samuel Vestey's side.

In 1963-64 two more persons became members of class (a), making 18, and one of class (b), making 13, and these remained the relevant numbers through 1966-67. Each class was, of course, susceptible of increase in any subsequent year, and has in fact been so increased.

The actual beneficiaries were the respondents to whom capital payments were made. I shall set these out not only against the individual recipients but also under each relevant year of assessment; I do this because, as I think it important to emphasise, it is each assessment on each separate beneficiary in each separate year that has to be justified

(or attacked). The combination in this case of a number of years of assessment upon a number of beneficiaries, however convenient for the revenue, or for argument, is liable to confuse the legal issues The dates mentioned are the dates when the sums were appointed: it does not appear whether they were paid on the same dates or later.

The payments were:

Beneficiary                   Date(s)                       Amount
                              EDMUND'S FUND
R. A. Vestey                 October 29, 1962               £215,000 
                            November 18, 1964               £150,000 
E. H. Vestey                  January 1, 1963               £700,000 
                            November 18, 1966               £220,000 
Mrs. Payne                        May 2, 1966               £100,000 
Mrs. Baddeley                     May 2, 1966               £100,000 
                                SAMUEL'S FUND
Baron Vestey                     July 9, 1962               £123,000 
                              January 1, 1963               £800,000 
M. W. Vestey                  January 1, 1963               £200,000 
(through his mother) 
and, arranged according to date, 
Tax year            Dates           Beneficiary              Amount
1962-63         July 9, 1962        Baron Vestey           £123,000 
            October 29, 1962        R. A. Vestey           £215,000 
             January 1, 1963        E. H. Vestey           £700,000 
1962-63      January 1, 1963        Baron Vestey           £800,000 
             January 1, 1963        M. W. Vestey           £200,000 
1963-64      -------------------------- NIL ----------------------- 
1964-65    November 18, 1964        R. A. Vestey           £150,000 
1965-66      -------------------------- NIL ----------------------- 
1966-67          May 2, 1966        Mrs. Payne             £100,000 
                 May 2, 1966        Mrs. Baddeley          £100,000 
1967-68                             [No evidence of any payments.] 

On these figures, the Inland Revenue Commissioners have made the assessments now in question. The assessments were first made in 1970, i.e. subsequent to all the payments of capital sums in issue in these appeals. The commissioners then appear to have looked back at six years of assessment, and to have assessed each beneficiary in respect of a proportion of the total income of the trustees in each year (allowance being made for periods when he was resident outside the United Kingdom), irrespective of whether that beneficiary received any payment in that year, or in any year prior to or subsequent to that year. The proportion decided upon was that which the capital sum(s) received by each beneficiary bore to the total income of the trustees for each year, i.e. not to the income of the trustees in the year of payment The resultant figures for 1963-64 to 1966-67 are set out in the case for the respondents: for convenience I reproduce them in an appendix to this opinion.

There are many remarkable features about these figures: I shall comment on some later. They can be highlighted by reference to the cases of Mrs. Payne and Mrs. Baddeley. Though these beneficiaries received nothing until 1966-67, in which year each received £100,000, they (in fact their husbands) have been assessed for a proportion of the trustees' income in each relevant year, starting with 1963-64, totalling (in each case) £274,121.97. It is the commissioners' claim that they could have been assessed for many times that amount.

The revenue's claim, on these figures, was based first on subsection (2) of section 412, on the ground that each beneficiary received a capital sum of the character described, and secondly on subsection (1), on the ground that each beneficiary had rights by virtue of which he had power to enjoy income of the trustees. Whichever subsection applied, the revenue claimed to be entitled to tax each beneficiary on the whole of the trustees' income, but they limited their actual claim to a proportion fixed as described above. The taxpayers dispute each of these claims, and additionally, as an overriding contention, submit that section 412 does not apply at all to a case where (as here) the transfer of assets was not made by any of them, but by other persons (viz. the original settlors).

The learned judge (Walton J.) considered that he was precluded from accepting the overriding contention by the decision of this House in Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 and by that of the Court of Appeal in Bambridge v. Inland Revenue Commissioners [1955] 1 W.L.R. 1329. On the particular arguments, he rejected the revenue's claim under section 412 (2), holding that each taxpayer's liability was limited to tax in respect of the actual sum(s) received by him in any particular year of assessment. As to section 412 (1), he held that, before the subsection was amended by the Finance Act 1969, section 33, the revenue's claim failed because no beneficiary had any rights by virtue of which he had power to enjoy income: as to the last year, to which the amended subsection applied (deleting any reference to "rights"), the claim failed because what the beneficiaries had power to enjoy was not income but capital, viz. accumulations of income which had been capitalised.

All of these contentions (and others involving subsidiary but important points) are in issue in these appeals, and the House is invited if necessary to depart from its previous decision in Congreve and to overrule the Court of Appeal's decision in Bambridge. Since, if it were to do so, that would dispose of all the appeals in the taxpayers' favour, it would appear to be logical and economical to consider this question first.

I find myself unable immediately to take this course. A decision whether Congreve should be followed cannot be made until it is seen what the consequences of following the case would be, and this involves consideration of the meaning of the two subsections of section 412 and of the judge's decisions with regard to them. These, on the view which I take, need not be lengthy. I make it clear that the following analysis only applies on the assumption that Congreve is correct.

I take first section 412 (2). If this subsection could be limited in the way suggested by the judge, a result would be produced that would be intelligible, workable, certain, and, from some points of view, not unjust.

The taxpayer receiving a capital sum, assuming that the trustees had income in that year, would pay tax on it as income: assessment on this basis would be clear and mandatory, and lacking in any element of arbitrariness or discretion. I have sympathy with the judge's efforts to achieve this result.

However, I regret that I am unable to accept the suggested limitation. The judge achieved it by means of what he (justly) described as a bold emendation through the insertion of words. I transcribe the subsection as emended, the inserted words being underlined.

"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, to the extent to which it comprisesany 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 itshall, 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." (see [1979] Ch. 177, 185G).

My Lords, it is not necessary to enter upon objections of a detailed character to this emendation though some are formidable. For inspection of it unanswerably shows that the process involved is not one of construction, even one of strained construction, but is one of rewriting the enactment. The subsection says in the clearest terms that "any income" of the foreign resident, etc., is to be deemed the income of the recipient of the capital sum. To say that what is to be deemed the recipient's income is not "any income" but a portion of that income equal to the capital sum received would be a totally different fiscal approach - one which Parliament might certainly have taken, but which it has manifestly avoided in this instance.

Certain other suggestions were made by Mr. Potter as to the manner in which the subsection might be cut down. These had the merit of being less radical than the judge's emendation, but the defect of being ineffective. I do not pursue them for the reason, which I find overwhelming, that the subsection is clear beyond doubt in its terms. It is "any income" of the foreign transferees which is deemed to be the income of the recipient of a capital sum, indeed of each and every recipient of any capital sum, small or large, whenever received. From these words there is no escape.

I pass to subsection (1) - still on the assumption that Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 is correct. It is the revenue's contention that each and every one of the potential beneficiaries (viz. 13 to 14 as to one fund and 16 to 18 as to the other, making 29 to 32 in all) had rights by virtue of which they had power to enjoy income, etc. They accept, and indeed maintain, that at least each actual recipient - having such rights - can be assessed in respect of any income of the foreign transferees: inferentially they must accept, for there is no basis for any distinction, that each potential recipient - each of the

29 to 32 persons - can be so assessed, and this in respect of each year in which he has the rights, etc. They submit that the subsection, coupled with Congreve, compels this.

My Lords, I do not agree, in this particular case, that any of the taxpayers had "rights by virtue of which they had power to enjoy." On this point, in my opinion, the judge was clearly right: they were simply members of a discretionary class to which income, or capital, might in the discretion of other persons become available. To hold that as such they had any rights of the character described would be inconsistent with much authority and with principle (see inter alia Gartside v. Inland Revenue Commissioners [1968] A.C. 553, 606 per Lord Reid; Lord Vestey's Executors v. Inland Revenue Commissioners (1949) 31 T.C. 1.

However (and this is what is relevant when it becomes necessary to consider Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948) there might well be situations in which numerous persons, beneficiaries under a trust, might justly be considered to have "rights, etc.": and moreover, since the deletion of the reference to "rights, etc." by the Act of 1969, section 33, all actual and potential beneficiaries (viz. all 29 to 32) under this settlement may have "power to enjoy" within one or more of the definitions of that expression contained in subsection (5). More generally, and apart from the provisions of this particular settlement, there may be cases in which some beneficiaries have "power to enjoy" within one paragraph of subsection (5) and other beneficiaries have "power to enjoy" within other paragraphs. The total of the cases may be very large. On the revenue's contention each and every one of such beneficiaries if resident in the United Kingdom is liable to income and surtax in respect of the whole income of the trustees.

On this broad analysis of the two subsections how then is an assessment to income/surtax to be made? The subsections give no more indication than that "that income" (subsection (1)) or "any income" (subsection (2)), i.e. any income of the foreign trustees, is to be deemed the income of an individual: they give no guidance or indication whatever as to what is to be done if there is more than one individual to whom either subsection may apply.

The contention of the revenue is that in such cases they have a discretion which enables them to assess one or more or all of the individuals in such sums as they think fit: the only limitation upon this discretion is, they say, that the total income (of the foreign trustees) may not be assessed more than once. This is a remarkable contention. Let us consider first some of the practical consequences, if it is correct.

(1) It is open to the revenue to select one or more of the beneficiaries to tax and to pass over the others.

(2) It is open to the revenue to apportion the tax between several beneficiaries according to any method they think fit - and this without any possibility of appeal, none being provided for.

(3) The liability of individual beneficiaries may depend upon when the revenue chooses to make its assessment. Thus, if assessments had been made in 1962-63, or in 1963-64, the income of those years would have been apportioned between selected beneficiaries. On the revenue's method, these would have been the recipients of capital sums in 1962-63.

This having been done, the income of those years could not subsequently have been apportioned to other beneficiaries. But by deferring assessments until after 1966-67, the revenue has been able to impose liability in respect of the income of 1963-64 upon fresh entrants, viz. Mrs. Payne and Mrs. Baddeley, who received capital sums in 1966. How does this square with the principle that income tax is an annual tax, that a taxpayer is entitled to know what tax is claimed against him? In principle a taxpayer who has made a completely correct return is entitled to be taxed on the basis of it and not to have his liability determined by the choice of the revenue when to make its assessment. I repeat what I have already said, that the question is not as to the correctness of the overall assessments upon all the respondents in all the selected years, but as to the correctness of, for example, the assessment upon Mrs. Payne in respect of 1963-64.

(4) The revenue is entitled to continue the process of discretionary assessment so long as the settlement endures. It may adhere to its present system, or change it: it may take into account changes in facts (for example, the appearance of new entrants into the class, or new recipients) or it may not. No beneficiary has any means of challenging their decisions.

These are some of the consequences, in this case, and applied to these beneficiaries, of the revenue's contention: they are frightening enough. But there are more fundamental objections, in principle, to the whole proposition.

Taxes are imposed upon subjects by Parliament. A citizen cannot be taxed unless he is designated in clear terms by a taxing Act as a taxpayer and the amount of his liability is clearly defined

A proposition that whether a subject is to be taxed or not, or, if he is, the amount of his liability, is to be decided (even though within a limit) by an administrative body represents a radical departure from constitutional principle. It may be that the revenue could persuade Parliament to enact such a proposition in such terms that the courts would have to give effect to it: but, unless it has done so, the courts, acting on constitutional principles, not only should not, but cannot, validate it.

The revenue's contentions to the contrary, however moderate and persuasive their presentation by Mr. Nolan, fail to support the proposition.

They say that the income tax legislation gives them a general administrative discretion as to the execution of the Acts, and they refer to particular instances of which one is section 115 (2) of the Act of 1970 (power to decide period of assessment). The judge described the comparison of such limited discretions with that now contended for as "laughable." Less genially, I agree. More generally, they say that section 412 imposes a liability upon each and every beneficiary for tax in respect of the whole income of the foreign transferees: that there is no duty upon the commissioners to collect the whole of this from any one beneficiary, that they are entitled, so long as they do not exceed the total, to collect from selected beneficiaries an amount decided upon by themselves.

My Lords, I must reject this proposition. When Parliament imposes a tax, it is the duty of the commissioners to assess and levy it upon and from those who are liable by law. Of course they may, indeed should, act with administrative commonsense. To expend a large amount of taxpayer's money in collecting, or attempting to collect, small sums would be an exercise in futility: and no one is going to complain if they bring humanity to bear in hard cases. I accept also that they cannot, in the absence of clear power, tax any given income more than once. But all of this falls far short of saying that so long as they do not exceed a maximum they can decide that beneficiary A is to bear so much tax and no more, or that beneficiary B is to bear no tax.

This would be taxation by self-asserted administrative discretion and not by law. As the judge well said [1979] Ch. 177, 197: "One should be taxed by law, and not be untaxed by concession." The fact in the present case is that Parliament has laid down no basis on which tax can be apportioned where there are numerous discretionary beneficiaries.

This was clearly seen by the special commissioners: They say in the supplemental case stated on January 27, 1978:

"Apportionment of the 'deemed' income according to the quantum of the respective beneficial interests has much to commend it, but (as we noticed in paragraph 12 of our original decision) section 412 does not so provide. We recognise that apportionment may be impossible in the case of some of the discretionary beneficiaries whose expectancy may be insignificant. Various methods of apportionment were canvassed before us, the merits of each differing according to the circumstances. In our view, in default of a method prescribed by the section, and we can find none, it is for the board in exercise of their powers in the execution of the Acts to decide on the appropriate apportionment."

It is interesting to compare this passage, and what Parliament has not done in the present context, with what it has done in another There is power, as is well known, to apportion for purposes of surtax (or higher rates of income tax) income of "close companies" to shareholders, or "participators," including in some cases persons entitled to secure that income or assets will be applied for their benefit. But, here, Parliament has expressly conferred the power to apportion, has laid down principles according to which the apportionment is to be made, has defined the period for which assessments are to be made, and has allowed for appeals - all this in a detailed and precise manner (see Act of 1970, sections 296ff. - derived from the Finance Act 1965 - and Finance Act 1972, Schedule 16). The contrast between this legislation and the present is striking.

The commissioners have, I gladly accept, done their best to devise a system which is workable and reasonably fair. But whatever system they might devise lacks any legal basis. I must regard this case therefore as one in which Parliament has attempted to impose a tax, but in which it has failed, in the case of discretionary beneficiaries, to lay down any basis on which it can be assessed or levied. In the absence of

any such basis the tax must fail. That this must be the result was correctly perceived by Macnaghten J. in Lord Herbert v. Inland Revenue Commissioners [1943] K.B. 288 - a decision based upon the Act of 1938, section 38. The learned judge there used these words, at p. 291:

"It seems to me fantastic to suppose that Parliament has conferred upon inspectors of taxes, or even on the special commissioners, the power to choose whether A, or B, or C should be liable to income tax or surtax, as the case might be."

My Lords, this brings me to Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 itself. Can a decision which involves the consequences which I have described be acceptable? I must say at once that I cannot accept Mr. Potter's argument that the proposition that section 412 applies to cases where the person sought to be taxed was not him/herself a transferor was not a ratio decidendi of that case. He certainly gets some support for the proposition that the case was decided on a different ground from the headnote to the All England Law Report:

"An individual can, within the meaning of section 18 of the Finance Act 1936, be said to acquire rights 'by means of' a transfer of assets though the transfer is effected neither by the individual nor by his agent, but by a company, the whole or greater part of the share capital of which is held by or on behalf of that individual."

However, that is the limit of his comfort for the headnote is certainly incomplete. It is clear, on consideration of the facts, elaborate it is true but susceptible of analysis, and from the judgments, that it was argued that Mrs. Congreve could not be taxed in respect of assets transferred by her father. The judgments in the Court of Appeal and in this House unambiguously reject this contention and the fact that they accepted an alternative argument to the effect that in any case Mrs. Congreve had organised or engineered transfers by her father does not prevent their rejection of the contention from being a ratio decidendi. Indeed not only was it a ratio, it was the main ratio. It was followed, as such, in the subsequent cases of Bambridge v. Inland Revenue Commissioners [1955] 1 W.L.R. 1329 and Philippi v. Inland Revenue Commissioners [1971] 1 W.L.R. 1272. So the issue cannot be avoided whether this ratio is correct.

The result of the preceding argument is that, if Congreve is correct in this respect, a result is produced, in the case of discretionary trusts, which is arbitrary, unjust, and in my opinion unconstitutional. That must cast doubt on the decision. For it is a well accepted principle that if one interpretation of an Act of Parliament produces such a result, but another avoids it, the latter is to be preferred.

There are undoubtedly two possible interpretations of section 412, particularly having regard to the preamble.

The first is to regard it as having a limited effect: to be directed against persons who transfer assets abroad; who by means of such transfers avoid tax, and who yet manage when resident in the United Kingdom to obtain or to be in a position to obtain benefits from those

assets. For myself I regard this as being the natural meaning of the section. This avoids all the difficulties discussed above. No difficulty arises from cases of multiple transferors.

The second is to give the whole section an extended meaning, so as to embrace all persons, born or unborn, who in any way may benefit from assets transferred abroad by others. This is or follows from the Congreve interpretation. This I regard as a possible but less natural meaning of the section.

Apart from linguistic considerations there are other arguments. I mention two.

1. One much used by the revenue is that the section is a penal section. But this cuts both ways. In a case such as Lord Howard de Walden v. Inland Revenue Commissioners [1942] 1 K.B. 389 this argument has much force. The transferor in that case, who derived a comparatively small benefit from the transferred assets, was taxed in respect of the whole income. It was an entirely valid argument, lucidly explained by Lord Greene M.R., in support of so severe a liability, to say that the section was penal and meant to deter transfers abroad In such a context his metaphor of burnt fingers is completely apposite. But the argument turns the other way when so draconian a tax ("astonishingly severe" were Mr. Nolan's words) is sought to be imposed upon persons who had no hand in the transfer, who may never benefit from it, who cannot escape from it, who remain under liability so long as they live or the settlement lasts. In relation to such persons equity and principle suggest that Parliament intended no such thing - or at least cannot be assumed from the veiled language used to have intended any such thing. To penalise is one thing, to visit the sins of the transferor on future generations is quite another.

2. There is the reference to avoiding tax: prevention of avoidance is the stated objective. But there may be many cases, of which this is one, in which no tax is avoided by the person sought to be charged. If this settlement had been made in England with English trustees, not a penny of tax could, at the relevant time, have been levied on any of the beneficiaries. The settlement would be a classic accumulating settlement with power to pay capital sums, accepted at the time as not attracting any tax. This seems to show that the mischief at which the section was directed was a more limited one.

My Lords, these and other arguments, together with the linguistic, persuade me that the better interpretation of the section is not that accepted in Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 but is one limiting its operation and charging effect to the transferors of assets.

We now have to face the fact that this House decided otherwise, unanimously, and affirming the Court of Appeal. That was 30 years ago, the decision has been followed in reported cases (Bambridge v. Inland Revenue Commissioners [1955] 1 W.L.R. 1329, Philippi v. Inland Revenue Commissioners [1971] 1 W.L.R. 1272) and no doubt many persons have been taxed on the basis of it, without resistance. I have

reflected with anxiety whether this House ought, within the principles which should guide the exercise of the power taken in 1966 [Practice Statement (Judicial Precedent) [1966] 1 W.L.R. 1234], to depart from it I bear in mind that the decision was one of interpretation of a taxing Act: that the interpretation accepted was - I say with all respect - a tenable one: that this House ought not to sanction attempts to obtain reversals of decisions deliberately reached however attractive to their successors another view may appear to be.

But on the other side - and this must be a rare situation - it can now be seen, as it certainly was not seen in 1949, that the consequences of the interpretation then accepted must lead, in relation to a large class of settlements and in particular where subsection (2) might be invoked (it was not considered in Congreve), to a situation involving results which are arbitrary, potentially unjust, and fundamentally unconstitutional. If these had been seen in 1949 - within the ambit of proper argument they could not reasonably have been seen - I cannot believe that the eminent Lords who decided the case would have been willing to ascribe to Parliament an intention to produce such results. The alternative which is supported by the language is to suppose that the section was intended by Parliament as a limited section, attacking, with penal consequences, those who removed assets abroad so as to gain tax advantages while residing in the United Kingdom and not a section representing such a departure from principle, yet without any prescribed mechanism to operate it, as the alternative can now be seen to involve.

It may be said, and I believe that some of your Lordships share this opinion, that to limit the section so as to relate only to transferors of assets is to emasculate it, or to open up a wide gap in its application. But is this so? Let us consider some of the earlier pronouncements as to its purpose. In Latilla v. Inland Revenue Commissioners [1942] 1 K.B. 299 Lord Greene M.R. after quoting the preamble said, at p. 303:

"It is notorious that before the passing of this legislation [i.e. the Finance Act 1936, section 18] individuals who were minded to enjoy their income without bearing the appropriate burden of British taxation were able to do so by transferring assets productive of income to a non-resident person or company by whom the income was retained abroad so as not to incur taxation here. The money representing the income was then by means of one or other of several well-known expedients transferred to this country as capital."

He affirmed this statement of the purpose of the section in Lord Howard de Walden v. Inland Revenue Commissioners, 25 T.C. 121, 132. Macnaghten J. at first instance, at pp. 128-129, had given his analysis of the section which brings out very clearly that it must be the transferor who acquires rights (cf. also Kanga and Palkhivala, The Law and Practice of Income Tax, 7th ed. (1976), p. 725, on the corresponding Indian Section).

The pronouncements of Lord Greene were made in December 1941 - i.e. just before the settlement was executed.

When Latilla came before this House [1943] A.C. 377 Viscount Simon L.C. opened his speech with these words, at p. 381:

"My Lords, of recent years much ingenuity has been expended in certain quarters in attempting to devise methods of disposition of income by which those who were prepared to adopt them might enjoy the benefits of residence in this country while receiving the equivalent of such income without sharing in the appropriate burden of British taxation. Judicial dicta may be cited which point out that, however elaborate and artificial such methods may be, those who adopt them are 'entitled' to do so. There is, of course, no doubt that they are within their legal rights, but that is no reason why their efforts, or those of the professional gentlemen who assist them in the matter, should be regarded as a commendable exercise of ingenuity or as a discharge of the duties of good citizenship. On the contrary, one result of such methods, if they succed, is, of course, to increase pro tanto the load of tax on the shoulders of the great body of good citizens who do not desire, or do not know how, to adopt these manoeuvres. Another consequence is that the legislature has made amendments to our income tax code which aim at nullifying the effectiveness of such schemes."

So we have a clear, identifiable and substantial mischief against which the section, as I would now construe it, was certainly directed. Then are we to suppose that the section must also have been directed against cases where a person transfers assets abroad for the benefit of a child or grandchild: and is it incredible that Parliament should not have covered that case?

My Lords, to extend so penal a section so as to catch future generations is not merely something which logically follows from penalising transferors themselves, but is something which appears to me to introduce a new dimension - indeed an innovation in our tax law Are we to deduce from an evident intention to tax (and penalise) transferors of assets one to visit their offence upon their children - or their grandchildren? Surely such an extension, which would certainly have attracted debate, if not criticism, in Parliament, would have been spelled out and not left to be deduced from such cryptic words as have been used. I find in the section, if directed at transferors, and benefits taken by them, an ample and powerful anti-avoidance instrument and I feel not only no need, but a great reluctance, in view of the wording used, to extend it against any beneficiary, child, or grandchild, or descendant.

I recognise that there is always the possibility of "overkill." Parliament itself may not have consciously intended to go beyond the transferor, yet words may have been used which are so wide as to do so. Such cases exist in modern fiscal legislation (cf. Inland Revenue Commissioners v. Cleary [1968] A.C. 766). But then I think that the courts, if they are satisfied that the words used, on one interpretation, go o far as to create extreme injustices and departure from fiscal propriety, are well entitled to take another interpretation which does not do this. And in this case, the other interpretation can be found without straining words or writing anything in.

My Lords, the discretion conferred by the Practice Statement (Judicial Precedent) [1966] 1 W.L.R. 1234 is a general one. We should exercise it sparingly and try to keep it governed by stated principles. But the fact that the circumstances of one particular case cannot be brought precisely within the formulae used in others, of a different character, should not be fatal to its exercise - or the discretion would become ossified. I regard this case as one where a previous decision has been given on facts of a particular type without consideration being given (and there is no shred of criticism in saying this) to the possible consequences in a wider type of situation. Of course it is generally true that, when a decision of principle is given, the fact that those who gave it did not have every possible situation in mind does not prevent the decision being applied to new and unforeseen facts. The doctrine of precedent and the interest of certainty require that it should be. But if, as I believe to be the case here, extension of a limited decision to totally different situations involves a new dimension which itself embraces administrative and constitutional difficulties of a high degree, I think that this House ought to use its discretion to refuse the extension. The only choice is then between overruling the previous decision so far as the principal ratio is concerned or confining it to its, or similar, facts.

My Lords, we have not, I hope, in recent years become so habituated to fiscal severities or to "overkill" sections as to be insensitive to those proprieties which were so eloquently stressed by Walton J. in his judgments. It is respect for these and for the fabric of our fiscal law which persuade me that Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948, as to its principal ratio and the following cases, should be departed from or overruled and the section interpreted as applying only where the person sought to be charged made, or, may be, was associated with, the transfer. If your Lordships do not follow me so far, then, in view of the consequences which would result from the extension of Congreve into a case where there are discretionary beneficiaries, I would hold that it cannot be applied to such a case, that no method for levying the tax in such cases has been prescribed by Parliament, that this gap cannot be filled by administrative decision and that the tax and the assessments of it fail.

I would dismiss the appeals and allow the cross-appeals.

VISCOUNT DILHORNE. My Lords, in these consolidated appeals the respondent Ronald Arthur Vestey is the son of Sir Edmund Vestey Bt. The respondent Edmund Hoyle Vestey is Ronald's son and the respondents J. R. Baddeley and James C. Payne are Ronald's sons-in-law. The respondents Lord Vestey and Mark William Vestey are great-grandsons of the first Lord Vestey. By a settlement dated March 25, 1942, Sir Edmund Vestey and the first Lord Vestey conveyed a large number of properties outside the United Kingdom to trustees and on March 26, 1942, the trustees leased the trust property to Union Cold Storage Ltd. for 21 years at an annual rent of £960,000. By a further lease dated April 10, 1963, the trust property was again leased to that company at that rent. The trustees of the settlement, who have at all times been resident out of the United Kingdom, also held all the shares in three companies, in two as subscribers for their shares and in the third, the Commercial Insurance Corporation Ltd., by purchasing the shares.

Under the settlement the trustees were to receive the income of the properties conveyed to them and of property representing the same during a prescribed period and to invest it so as to form a capital fund, called the rental fund. During the prescribed term the income of the rental fund was to be divided into two moieties and held on the trusts applicable to what were called Edmund's fund and Samuel's fund. From and after the end of the prescribed term the trustees were to divide the rental fund into two moieties, Edmund's fund and Samuel's fund and hold them on the trusts declared with regard thereto.

The settlement provided that the trustees might be directed by "Edmund's manager," who was the respondent Ronald Arthur Vestey, to accumulate for such period or periods within the period specified in the deed, the whole or any part of the income of Edmund's fund and that subject to the power of accumulation and to other provisions of the deed the trustees should hold the income upon trust for Ronald Arthur Vestey and his issue or, if no issue of his should be living, for the issue of Sir Edmund Vestey in such amounts or shares as Edmund's manager might direct. Similar provisions were made with regard to Samuel's fund and Samuel's manager was, until his death in 1944, William Howarth Vestey, the grandson of the first Lord Vestey. He was followed as Samuel's manager by Mr. Brown and then in 1966 the third Lord Vestey was appointed to that office. On August 30, 1942, Samuel's manager directed the trustees to accumulate the whole of the income of Samuel's fund by investing it. On September 14, 1942, a similar direction was given by Edmund's manager in relation to the income of Edmund's fund.

The settlement gave Edmund's manager power within the specified period to direct the trustees to appropriate and realise capital and to pay it to Ronald Arthur Vestey and his issue and in default to the issue of Sir Edmund Vestey in such shares and such manner as Edmund's manager might direct. A similar power to direct the trustees to distribute capital as he might direct among the issue of the first Lord Vestey was given to Samuel's manager.

In the exercise of these powers the trustees were directed to distribute and did distribute between the respondents Ronald Arthur Vestey,

Edmund Hoyle Vestey, Lord Vestey and Mark Vestey and also Mrs. Payne and Mrs. Baddeley, daughters of Ronald Arthur Vestey, the sum of £2,608,000 on various dates between October 1962 and November 1966.

The revenue then raised assessments on the six respondents. It is not necessary to state in detail the amount of each assessment. Two examples will suffice. Ronald Arthur Vestey received a total of £365,000 from the trustees, £215,000 on October 29, 1962, and £150,000 on November 18, 1964. He was consequently assessed to income tax and surtax for the years 1963-64, 1964-65, 1965-66 and 1966-67 amounting to £888,500. Mr. Baddeley, as the husband of Mrs. Baddeley who received £100,000 on May 2, 1966, was in consequence of that assessed to tax for 1963-64 in the sum of £62,088.71, for 1964-65 in the sum of £64,818.14, in 1965-66 in the sum of £84,667.75. In none of those years had Mrs. Baddeley received anything from the trustees. For 1966-67 Mr. Baddeley was assessed in the sum of £62,547.35. So in consequence of the receipt by his wife of £100,000 in 1966, he was assessed to tax in the sum of £274,121.95.

The respondents appealed from these assessments to the special commissioners without success. They then appealed to the High Court and Walton J. allowed their appeals and remitted the cases to the special commissioners for them to consider whether the assessments were justified under section 412 (1) of the Income Tax Act 1952. They had been made under section 412 (2). The special commissioners concluded that the assessments were justified under section 412 (1) and the respondents' appeal from that decision was heard by Walton J. who allowed their appeals. The revenue now appeal direct to this House from Walton J.'s decisions by virtue of section 12 of the Administration of Justice Act 1969.

Section 412 commences with what has been called a preamble. That and what is contained in subsection (1) of that section was first enacted by the Finance Act 1936, section 18. Subsection (2) was added by the Finance Act 1938, section 28.

These parts of section 412 read as follows:

"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."

The respondents contended that these provisions only applied where the taxpayer assessed had made the transfer of assets by virtue or in consequence of which income became payable to a person resident or domiciled out of the United Kingdom or where he had caused such a transfer to be made. This argument was put forward without success in Congreve v. Inland Revenue Commissioners, 30 T.C. 163. The respondents now contend that that decision of this House should be distinguished and, alternatively, if it cannot be distinguished, should now be reviewed and not followed.

The facts of that case were very complicated. It will suffice to say that Mr. Glasgow, Mrs. Congreve's father, had prior to the enactment of the Act of 1936 transferred assets to a foreign company. Mrs. Congreve had done so too and it was not disputed that she had acquired rights by virtue of which she had power to enjoy income payable to a number of foreign companies. Lord Simonds in his speech with which the other members of the House agreed posed the question, at p. 203:

"... whether the transfer of assets, upon which either alone or in conjunction with associated operations the liability is founded, must be (as the appellants contend) a transfer effected by Mrs. Congreve or her agent or may be (as the respondents contend) effected by anyone, father, friend, or company in which she has an interest great or small, so long as the result is reached that she has power to enjoy the relevant income."

Lord Simonds, at p. 204, said that he did not know what better words could have been used in the section if the legislature intended to define its purpose as covering a transfer of assets by A by means of which B avoided liability to tax. He regarded the language of the section as plain and said, atp. 205:

"If there has been such a transfer as is mentioned in the introductory words, and if an individual has by means of such transfer (either alone or in conjunction with associated operations) acquired the rights referred to in the section, then the prescribed consequences follow."

This was in my view clearly the ratio decidendi of the House in this case. It was also the ratio decidendi of the Court of Appeal, 30 T.C. 163 where the judgment of the court was given by Cohen L.J. as he then was. Both this House and the Court of Appeal clearly rejected the contention that the section only applied to the individual who had by himself or through an agent made such a transfer.

I can see no ground for distinguishing that case from this, so unless the House is prepared to hold that that case was wrongly decided, the appellants must in my opinion succeed on this issue.

Cohen L.J. with whose judgment Lord Simonds agreed on all points treated the words "such an individual" in subsections (1) and (2) as meaning an individual ordinarily resident in the United Kingdom. Their meaning does not appear to have been debated in the House. A possible meaning appears to me an individual ordinarily resident who has sought to avoid liability to income tax by means of a transfer of assets abroad. If that was their meaning, then the scope of section 412 is limited. If, on the other hand, the words just mean an individual ordinarily resident in the United Kingdom, the decision of this House in Congreve v. Inland Revenue Commissioners, 30 T.C. 163 was I think right.

Lord Simonds in the course of his speech did not refer to subsection (8) of the section. It states, inter alia: "For the purposes of this section - (a) a reference to an individual shall be deemed to include the wife or husband of the individual; ..." These words have considerable significance and importance if "such an individual" means an individual ordinarily resident in the United Kingdom who has sought to avoid income tax by the transfer of assets abroad. If the decision in Congreve is right, it is not easy to attach significance to them. Mr. Nolan suggested that they might have been inserted to cover a case where a husband and wife jointly but not separately had control of a company. I find it difficult to accept that this provision was inserted by Parliament to meet that situation. I think it is much more likely that they were inserted to secure that the wife or the husband of the transferor was brought within the scope of the section and I consequently regard this provision as an indication that by "such an individual" is meant an individual who has sought to avoid tax by the transfer of assets abroad.

In Congreve the House did not have to consider, and so far as one can see did not when construing the section consider, the operation of subsections (1) and (2) when there was more than one individual who had acquired rights giving power to enjoy income of a person resident or domiciled abroad, and more than one individual had received or was entitled to receive a capital sum connected with the transfer of assets abroad. Walton J. [1979] Ch. 177, 184, when considering subsection (2), said that if its provisions were taken literally, the income of the person resident or domiciled abroad was to be deemed without limit of time to be the income of each individual who received or was entitled to receive such a capital sum "... so that the Crown is, at the end of the day, entitled to multiple tax, the multiplier being the number of different appointments made."

He refused to believe that Parliament can ever have so intended, and, relying on a passage from Lord Loreburn L.C.'s speech in Drummond v. Collins [1915] A.C. 1011, he thought he was entitled to treat subsection (2) as so amended as to secure that the individual who received or was entitled to receive the capital sum was taxable only to the extent to which the capital sum comprised income which by virtue of a transfer of assets had become the income of a foreigner. Such a radical alteration of the plain language of this part of the subsection is one that in my opinion can only be made by Parliament. Mr. Potter for the respondents suggested another amendment of the subsection. If made, I am not at all sure that it would work as he desired but again such an alteration as he proposed could in my view be made by Parliament alone.

In Inland Revenue Commissioners v. Hinchy [1960] A.C. 748 where the revenue contended that Mr. Hinchy was liable under section 25 (3) of the Income Tax Act 1952 to pay a penalty of treble the whole tax with which he ought to be charged for the relevant year for failing to disclose in his return the receipt of £32 19s. 9d. in interest, Lord Reid, at p. 767, gave instances of that penalty being "grossly and extravagantly disproportionate to the offences" and said:

"Difficulties and extravagant results of this kind caused Diplock J. and the Court of Appeal to search for an interpretation which would yield a more just result. What we must look for is the intention of Parliament, and I also find it difficult to believe that Parliament ever really intended the consequences which flow from the appellants' contention. But we can only take the intention of Parliament from the words which they have used in the Act, and therefore the question is whether these words are capable of a more limited construction. If not, then we must apply them as they stand, however unreasonable or unjust the consequences, and however strongly we may suspect that this was not the real intention of Parliament."

He concluded that the words were not capable of a more limited construction.

My Lords, I see no escape from the conclusion, if Congreve v. Inland Revenue Commissioners, 30 T.C. 163 was rightly decided, that each individual who receives or is entitled to receive a capital sum of the character referred to in subsection (2) must be deemed to have the income of the foreigner with the result, as Walton J. [1979] Ch. 177, 184, said "... that the Crown is, at the end of the day, entitled to multiple tax ..." If Congreve is right, subsection (1) would produce the same result if a number of individuals had acquired rights giving them power to enjoy a part of the income of a foreigner.

I share Walton J.'s view that Parliament cannot have intended that a person, it might be unborn at the time of the transfer of assets, should be chargeable to tax on the whole of the income of the foreigner if he acquired rights giving him power to enjoy part of that income or received or was entitled to receive a capital sum coming within subsection (2) and without limit of time or that the revenue should be able to recover multiple tax if there were a number of such individuals.

None of these consequences would arise if the persons deemed to have the income of the non-resident were the individuals who had sought to avoid income tax and, by virtue of subsection (8) (a), his wife or her husband. It would not be unjust that they should be chargeable to income tax on the income enjoyed by the non-resident in consequence of the individual's transfer of assets abroad to avoid tax. Further, the omission to make any provision in the section when, if Congreve is right, a number of individuals have to be deemed to have the income of the non-resident is, I think, very significant.

The choice lies between the section having a limited application, applying only to the individual who has sought to avoid income tax and his or her spouse and a wide application to all individuals who have rights bringing them within subsection (1) or who have received a

capital sum within subsection (2), however innocent of tax avoidance an individual might be and without regard to the amount which he might have power to enjoy or which he has received or is entitled to receive as a capital sum.

The limited application would leave, it is said, "a yawning gap." Persons who transfer assets abroad may do so for the benefit of their families and not for their own benefit. With this construction their descendants would not come within the section. Gaps when they are found in our tax laws are usually speedily filled. The wider application is productive of such manifest injustices that in my view Parliament cannot have intended it.

I have therefore come to the conclusion that the decision in Congreve v. Inland Revenue Commissioners, 30 T.C. 163 on this question was wrong, though the actual decision of the case can be upheld on the alternative ground stated by Cohen L.J. in his judgment.

The revenue has not in this case sought to assess each respondent on the whole of the income of the non-resident trustees. They have apportioned each year that income in proportion to the capital sum received by each individual between October 1962 and November 1966, so, if the revenue are right, the extent of Mr. Baddeley's liability to tax depended on the amounts received by the others. In their case the revenue say that it has always been their practice to apportion the income between the individuals concerned in what seems the most appropriate manner. Although an individual has the right to appeal against an assessment made on him, this right is worthless if the amount of his assessment depends solely on the discretion of the revenue. "This practice," it was said, "may be justified either on the ground that the section does impose multiple liability, but that the " revenue "are not required, as a matter of law, and ought not as a matter of proper administration, to recover tax on the income more than once, or on the ground ... that the" revenue "are not entitled to tax the same income more than once."

In the course of his judgment in relation to subsection (1) Walton J. said [1979] Ch. 198, 213 that the Crown had submitted that

"... if the conditions of the section were satisfied then the taxpayer was chargeable in respect of the whole of the income of the non-resident ... and that none the less because there might also be somebody else who was in precisely the same situation."

This, if the decision in Congreve was right, must be so. Has the revenue then any right or power to mitigate the gross injustice that results? I think not. The section is mandatory. It says that the income of the non-resident "... shall ... be deemed to be income of that individual for all the purposes of this Act." The income of each individual to whom the section applies must be deemed to include the income of the non-resident. There is no question of the income of any individual being taxed more than once.

On this view the consequences to each individual may be even worse than they are to the respondents in this case and in my opinion the revenue has no power to override the clear provisions of this section.

I now turn to the question whether, if as I think the decision of this House in Congreve v. Inland Revenue Commissioners, 30 T.C. 163 was wrong, it should not now be followed. That case was decided 31 years ago. It was followed and not questioned in Bambridge v. Inland Revenue Commissioners [1954] 1 W.L.R. 1460; [1955] 1 W.L.R. 1329 and it does not appear to have been questioned in any subsequent case.

In Reg. v. National Insurance Commissioner, Ex parte Hudson [1972] A.C. 944 the decision of this House in Reg. v. Deputy Industrial Injuries Commissioner, Ex parte Amalgamated Engineering Union, In re Dowling [1967] 1 A.C. 725 was challenged and the question whether it should be overruled was considered by a committee of seven, four of whom came to the conclusion that the case had been wrongly decided but four of whom held that it should not be overruled, my noble and learned friends Lord Wilberforce, Lord Diplock and I thinking that it should be. Lord Reid said, at p. 966, that in his opinion

"... the typical case for reconsidering an old decision is where some broad issue is involved, and that it should only be in rare cases that we should reconsider questions of construction of statutes or other documents. In very many cases it cannot be said positively that one construction is right and the other wrong. Construction so often depends on weighing one consideration against another. Much may depend on one's approach. If more attention is paid to meticulous examination of the language used in the statute the result may be different from that reached by paying more attention to the apparent object of the statute so as to adopt that meaning of the words under consideration which best accord with it. Holding these views, I am firmly of opinion that Dowling's case ought not to be reconsidered. No broad issue of justice or public policy is involved nor is any question of legal principle. The issue is simply the proper construction of complicated provisions in a statute. There must be a large number of decisions of this House of this character. Possibly some of your Lordships may think the decision in Dowling's case more wrong than most of them. But a decision to reconsider Dowling's case would I think encourage those who would like to see others of such decisions reversed to think that litigation for that purpose might be worth while and would have a rather far-reaching tendency to impair existing certainty."

Lord Morris of Borth-y-Gest thought it wholly inappropriate not to treat Dowling's case as a binding authority. "It was," he said, at p. 973, "essentially a decision which involved questions of construction of the statutory provisions."

Lord Pearson pointed out, at p. 996, that in Dowling's case there were conflicting views and that each of them was tenable, and said, at pp. 996-997:

"If a tenable view taken by a majority in the first appeal could be overruled by a majority preferring another tenable view in a second appeal, then the original tenable view could be restored by a majority preferring it in a third appeal. Finality of decision would be utterly lost."

Lord Simon of Glaisdale, while thinking the decision in Dowling's case wrong, thought that it would be wrong to depart from it for a number of reasons, one of which was, at p. 1024:

"A variation of view on a matter of statutory construction - so much a matter of impression - would, I should have thought, rarely provide a suitable occasion - by itself, that is to say, for it would be different if it were convincingly shown that a previous construction, clearly demonstrated to be wrong, was causing administrative difficulties or individual injustice."

My Lords, it is clear that our power to depart from previous decisions is one that should rarely be exercised. None of their Lordships in Reg. v. National Insurance Commissioner, Ex parte Hudson [1972] A.C. 944 said that it should never be exercised in relation to the construction of a statute but the passages from the speeches which I have cited indicate that in such cases it should be exercised very rarely indeed. Here the choice is not between a literal construction and what is now not infrequently called a purposive construction. Here, as Walton J. showed, the construction placed on the section in Congreve v. Inland Revenue Commissioners, 30 T.C. 163, can be productive of very great injustice to persons like Mr. Baddeley and many others. I would myself be reluctant to assert that any decision of this House on a question of law was not a tenable view, and when this House has reconsidered a previous decision, there is always the possibility, remote though I think it is, that in a further appeal the first decision would be restored. Indeed where a decision on construction has been reconsidered, I would have thought that the possibility of this House reconsidering it again was very remote indeed.

Is this one of those very rare cases in which it would be right to depart from the construction placed on the subsection in Congreve? At one time I thought not and that it should be left to the legislature to remedy the injustice but on further consideration I have come to the conclusion that it is.

There is no indication in the judgments in Congreve or in the speech of Lord Simonds that in the course of that litigation any consideration was given to subsection (8) (a) or to the fact that the construction this House accepted meant that the income of the non-resident was to be deemed the income of as many individuals as had rights giving them power to enjoy any income of the non-resident or as had received any capital sum, however small, coming within subsection (2). If these matters had been adverted to, it is, I think, inconceivable that Lord Simonds would not have referred to them in his speech. It is these matters which have led me to think that the decision in Congreve was wrong, and if these matters had been brought to the attention of the House in that case, it might well be that a different conclusion would then have been reached.

In my opinion the decision in Congreve should be overruled with the consequence that none of the assessments in the present case should be upheld.

If, however, a majority of your Lordships take a different view and hold that despite the injustice that can ensue that decision should be followed, in my view the assessments made on Mr. Baddeley for the years 1963-64, 1964-65 and 1965-66 should in any event be discharged. While the income of the non-resident trustees would be deemed to be income of his wife on her receipt of the £100,000 on May 2, 1966, in that and subsequent financial years, I see nothing in subsection (2) which gives it retroactive effect. It does not provide that the income of the non-resident in any year before a person receives or is entitled to receive is to be deemed that person's income. Assessments totalling £449,782 were made on him for those three years. Mr. Payne is in the same position as Mr. Baddeley as his wife received £100,000 on the same date and in my view the assessments made on him for those years should also be discharged.

Mr. Potter for the respondents contended that the capital sums received were not within subsection (4) associated operations as those sums originated from the accumulations of income derived from accumulations of income made by the trustees. That subsection is in very wide terms and reads as follows:

"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."

This submission was rejected by Walton J. [1979] Ch. 177, 186-187, and I think rightly for the reasons he gives. I would, however, point out that, whether or not the distribution of capital was an associated operation, a capital sum which comes within subsection (2) is one which is "... in any way connected with the transfer or any associated operation, ..." In my opinion the capital sums in this case were clearly so connected.

Mr. Potter also contended that the income of the three companies in which the non-resident trustees held all the shares was not to be regarded as the income of the non-resident trustees. The revenue conceded that the income of the Commercial Insurance Corporation Ltd. was not to be treated as the income of the trustees as they had purchased all the shares but I see no ground for not treating the income of the two companies, the shares in which were subscribed for by the trustees, as part of their income.

Mr. Potter did not pursue the point he took in relation to the Hon. Mark Vestey before Walton J. and on which he failed.

I now turn, on the basis that Congreve v. Inland Revenue Commissioners, 30 T.C. 163, is followed, to the revenue's alternative claim under subsection (1). Section 412 was amended by section 33 of the Finance Act 1969 to read as follows:

"(1) Where by virtue or in consequence of any such transfer, either alone or in conjunction with associated operations, such an individual has, within the meaning of this section, power to enjoy," etc.

The effect of this amendment was to make it unnecessary for the revenue to establish that the individual had acquired any rights. It sufficed, to bring him within the subsection, to establish that he had "power to enjoy."

Mr. Potter contended that no rights giving a power to enjoy had been acquired and that there was no power to enjoy. Walton J. [1979] Ch. 198, 206, held, again in my opinion rightly, that "... none of these discretionary beneficiaries had any 'right' to anything at all which could possibly bring the subsection into play prior to the Finance Act 1969." I need not repeat the reasons he gave for that conclusion with which I agree. Before the second hearing before him assessments for the year 1968-69 were added to those under consideration at the first hearing by agreement between the parties in order to obtain a decision on the effect of the amendment of section 412.

"Power to enjoy" is given a very wide meaning by subsection (5). So far as material that subsection reads as follows:

"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 - ... (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; ..."

Subsection (8) (c) provides that "benefit" includes a payment of any kind.

I can see no ground for holding that the capital sums received were not provided "out of the income of the trustees or out of monies available" for that purpose by reason of the effect or successive effects of the associated operations nor do I see any ground for holding that when Edmund's manager and Samuel's manager exercised the power vested in them of directing the trustees to make the capital payments, the recipients of the capital sums did not become entitled to the beneficial enjoyment of the income. In my view (c) and (d) apply.

So, in my opinion, if Congreve v. Inland Revenue Commissioners, 30 T.C. 163, is followed, the assessment for the years 1963-64, 1964-65, 1965-66 and 1966-67 cannot be sustained under subsection (1) but the assessments for 1968-69 can be sustained under that subsection as amended. It is common ground that an individual cannot be assessed

under subsection (1) and also under subsection (2) though the assessments made under section 412 may be justified under either subsection.

My Lords, in this complicated case at least one thing is clear and that is the urgent need for the reconsideration by Parliament of the terms of section 412 as amended (now re-enacted by section 478 of the Income and Corporation Taxes Act 1970). If the conclusion I have reached as to the construction of the section is accepted, then there is indeed a gap to be filled for then the section only applies to the individual who has sought to avoid tax and to his or her spouse and others who may benefit from the tax avoidance will not be penalised even though they participated in the tax avoidance. I need not dilate on the injustice which may be suffered by a number of individuals if the Congreve construction is applied. They would not I think have grounds for complaint if they were only assessed to tax on the sums they received or were entitled to receive or had power to enjoy though a distinction might be drawn between those who participated in the tax avoidance and those who did not. The former category might continue to be liable to be assessed to tax on the whole income of the non-resident.

Consideration of the penalty provisions in section 25 of the Act of 1952 in Inland Revenue Commissioners v. Hinchy [1960] A.C. 748 led to the law being changed in the next Finance Act. I hope that, in consequence of the light now thrown on section 412, that section may equally speedily be amended. In my opinion it certainly should be.

For the reasons I have stated, in my view the appeals should be dismissed with costs and the cross-appeals allowed with costs.

LORD SALMON. My Lords, I agree so completely with everything stated in the luminous speech of my noble and learned friend Lord Wilberforce that I find it impossible to add anything. I would dismiss the appeals and allow the cross-appeals.

LORD EDMUND-DAVIES. My Lords, these appeals and cross-appeals arise from assessments to income tax and surtax made upon each of the respondents under section 412 of the Income Tax Act 1952, which contained provisions formerly in section 18 of the Finance Act 1936. They were some (but not all) of the potential beneficiaries under a discretionary settlement of March 25, 1952, the nature of which has been helpfully summarised in the speeches of my noble and learned friends, Lord Wilberforce and Viscount Dilhorne. The assessments were made on the basis that section 412 deemed the income of the non-resident trustees of that settlement to be the income of each respondent for all the purposes of the Income Tax Acts. None of the respondents was, either directly or indirectly, a settlor of the settlement. The primary point of substance is whether the Commissioners of Inland Revenue can, as they assert, apply section 412 to a person or persons other than the individual who made the transfer contemplated by the settlement. The point can best be dealt with by asking two questions: (1) Was Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 correctly decided by this House? (2) Even if it was wrong, should your Lordships nevertheless follow it?

By way of a preface, reference should first be had to the earlier decision in Lord Howard de Walden v. Inland Revenue Commissioners [1942] 1 K.B. 389; 25 T.C. 121 which, like Congreve, turned on section 18 of the Act of 1936, but which, unlike Congreve and the instant case, related only to the liability to tax of the actual transferor of assets to foreign companies and did not deal with the position of later beneficiaries under the settlement. Upholding Macnaghten J.'s finding that such a transferor was liable to be assessed to income tax and surtax, Lord Greene M.R. said in his extemporary judgment, at pp 396-397:

"If, as it seems to us, the language of the section clearly does not limit the income of the non-resident in respect of which the taxpayer is charged to the actual benefit which he draws from the income of the non-resident - a construction, be it observed, which would largely defeat the expressed purpose of the section - it is illegitimate to force on that language a strained construction merely because it may otherwise lead to a result which to some minds may appear to be unjust. But ... we are not prepared to say that it is necessarily as unjust as [the taxpayer's counsel] contends. The section is a penal one, and its consequences, whatever they may be, are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest. For years a battle of manoeuvre has been waged between the legislature and those who are minded to throw the burden of taxation off their own shoulders on to those of their fellow subjects. ... It scarcely lies in the mouth of the taxpayer who plays with fire to complain of burnt fingers."

And, again speaking of the transferor himself, Lord Greene M.R. added, at p. 398: "... the father will be taxed on the companies' income because he is the person against whom the deterrent action of the section is directed." (Emphasis added in both citations.) The actual decision in Lord Howard de Walden turned on the amount of the assessments appealed against, which were based on the view that the whole income of the foreign companies were, under section 18, to be deemed to be the transferor's income for the purposes of the Income Tax Acts. Notwithstanding that the transferor himself received and enjoyed far less, the Court of Appeal held that the whole income was to be deemed his, since the companies' income was traceable to the assets he had transferred. The decision has been criticised, notably by Buckley L.J. who described it in Lord Chetwode v. Inland Revenue Commissioners [1976] 1 W.L.R. 310, 328 as "extremely harsh" and expressed difficulty in accepting that the construction of section 18 had received adequate consideration. And in the instant case Walton J. [1979] Ch. 198, 215, regarded it as "wrong," but added, at pp. 215, 217:

"I do not see how I can escape the straitjacket ... Standing Lord Howard de Walden v. Inland Revenue Commissioners [1942] 1 K.B. 389, my own fundamental conception of the rule of law is deeply offended. The only alternative is for the Crown to tax all who could possibly under any circumstances be recipients of any sliver of income

upon the whole of that income - a suggestion equally as offensive. Being bound by that case I am, unhappily, in no position to right a clearly perceived wrong."

But, although I confess to entertaining considerable sympathy with those views, we are not presently concerned to determine the correctness of the Lord Howard de Walden decision. Right or wrong, its present importance lies in the fact that it was within the framework of that case that Congreve v. Inland Revenue Commissioners was considered, both the Court of Appeal [1947] 1 All E.R. 168 and the House of Lords [1948] 1 All E.R. 948 citing it with apparent approval. The primary holding in the latter case was that section 18 applied if the transfer was procured by the taxpayer, even though not actually executed by him. So far, so good. But more important for present purposes was the further holding that section 18 was not directed solely against such a taxpayer, Cohen L.J. saying [1947] 1 All E.R. 168, 172:

"We do not think the words 'by means of' [in the preamble to section 412] connote activity by the individual concerned ... [The words] are fully satisfied if the avoidance of tax is effected through the instrumentality of the transfer by whosoever it is executed."

Any doubt as to the ambit of those words was removed in the House of Lords, Lord Simonds saying [1948] 1 All E.R. 948, 952-953:

"My Lords, on this question I agree at all points with the unanimous judgment of the Court of Appeal which was delivered by Cohen L.J. The preamble or introductory words of the section which state its purpose do not, in my view, assist the contention, which was developed on its operative words, that the avoidance by an individual of liability to tax must be achieved by means of a transfer of assets effected by that individual. They are, on the contrary, in the widest possible terms, and I do not know what better words could be used if the legislature intended to define its purpose as covering a transfer of assets by A, by means of which B avoided liability to tax ... If there has been such a transfer as is mentioned in the introductory words, and if an individual has by means of such transfer (either alone or in conjunction with associated operations) acquired the rights referred to in the section, then the prescribed consequences follow."

Your Lordships were invited to hold that these passages were merely obiter dicta and, as such, need not now be applied. But it is an invitation that, for my part, I find it impossible to accept. On the contrary, they appear to me to contain the true ratio decidendi of both courts. There is accordingly no escape from the problem of whether it can and should now be departed from, and this is particularly so when regard is had to its application by this House in Bambridge v. Inland Revenue Commissioners [1955] 1 W.L.R. 1329 and by the Court of Appeal in Philippi v. Inland Revenue Commissioners [1971] 1 W.L.R. 1272.

My Lords, the correctness of the general proposition enunciated in Congreve v. Inland Revenue Commissioners [1947] 1 All E.R. 168; [1948] 1 All E.R. 948 can be tested by applying it to facts which, while markedly different from those which were there being considered, may (as the Inland

Revenue Commissioners contend) nevertheless be regarded as falling completely within its ambit. Although Congreve dealt with the tax liability of a single beneficiary of a settlement giving rise to the transfer of assets abroad, the appellants submit it applies with full force to the instant case of multiple beneficiaries, none of whom played any part in the transfer. The astounding consequences of assessing some (but not all) of them in accordance with that submission were condemned in understandably strong language by Walton J., and they have been closely considered in the speeches of my noble and learned friends Lord Wilberforce and Viscount Dilhorne. So startling and unattractive do I find them that I gladly abstain from covering the same ground. Instead, I content myself with recalling that learned counsel for the appellants informed your Lordships at one stage: "We accept that the result of applying Congreve to the taxpayers here may be disastrous," while, at another stage, he submitted that a strict application of section 412 would have entitled them to assess a single beneficiary on the basis of the total income of the settlement in the year of apportionment of the capital sums, and this regardless of the amount of benefit actually received by him. The commissioners never went as far as to do that, but one solitary example should serve to illustrate the breathtaking implications of even a modified application of their basic contention. In 1966-67 Mrs. Baddeley, one of the beneficiaries, received a capital sum of £100,000 from Edmund's fund; as a result, her husband was assessed in the following amounts of surtax and income tax:

                                                Income Tax      Surtax
    1963-64 (nothing received)                  £20,013.71      £42,075 
    1964-65 (   "       "    )                  £21,100.14      £43,718 
    1965-66 (   "       "    )                  £22,777.91      £61,889.85 
    1966-67 (£100,000 received)                 £21,416.86      £41,130.50 

In the result, arising out of the receipt of one capital sum of £100,000, Mr. Baddeley suffered a claim of £274,121.97. And that is not the end of the story, for the appellants contended that, even so, they had exercised a "dispensing" power in claiming no more, since by strict entitlement they could have assessed the Baddeleys on the basis of the whole trust income of some millions of pounds.

My Lords, such boldness has no connection with Lord Greene's view that a taxpayer who plays with fire has no right to complain if his fingers get burnt. The truth is that the strict application of Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 to the facts of the present case leads to such extraordinary conclusions that the appellants have found themselves compelled to temper the wind to the (comparatively) shorn lamb. This procedure has been attacked as highly questionable, but, invoking the provision in section 5 (2) of the Act of 1952, that they

"... may do all such acts as may be deemed necessary and expedient for raising, collecting, receiving and accounting for the [income] tax in the like and as full and ample a manner as they are authorised to do with relation to any other duties under their care and management ..."

the appellants claim to exercise dispensing powers and to make "extrastatutory concessions" in suitable cases. They submit that they have done no more than exercise those powers in the instant case by apportioning "the estimated 'foreign income' for each year ... in the proportions in which the appointees had benefited, in the aggregate, by actually receiving accumulated income." Indeed, they added that in the present case they have done no more than their predecessors did in Corbett's Executrices v. Inland Revenue Commissioners [1943] 2 All E.R. 218 and in Bambridge v. Inland Revenue Commissioners [1955] 1 W.L.R. 1329, and that "sub silentio such apportionments were approved by the court in both cases."

My Lords, it is surely high time to consider the basis of this claim by the executive to make such extra-statutory concessions. It is, of course, well-known that published lists of concessions have existed for many years. The first was in 1944, though in practice they have existed in one form or another for a much longer period. But, beneficent and relatively harmless though such concessions may have been in most cases, it is difficult to reconcile them with the view expressed by Earl Loreburn in Drummond v. Collins [1915] A.C. 1011, 1018, that:

"Lord Cairns long ago said that 'if the person sought to be taxed comes within the letter of the law, he must be taxed' And though there have been cases in which the letter of the law has been disregarded in view of other statutory language, I think it can be done only in case of necessity. It must be a necessary interpretation."

It has recently been pointed out in an article to which I am considerably indebted (David W. Williams, "Extra Statutory Concessions," 1979 British Tax Review 137) that Sir Stafford Cripps said in 1949 that they had come into existence "... without any particular legal authority under any Act of Parliament but by the Inland Revenue under my authority" (466 H.C. Deb., July 6, 1949, col. 2267). And, despite the reliance sometimes placed upon the Income and Corporation Taxes Act 1970, section 115 (2), the Taxes Management Act 1970, section 1, and the Inland Revenue Regulation Act 1890, section 1, the fact is that there exists no statutory support for the assessment procedure adopted in the present case. And, even were there some statutory or other basis for the published list of concessions, Walton J. [1979] Ch. 198, 204, made the important point that:

"... they do represent a published code, which applies indifferently to all those who fall, or who can bring themselves, within its scope. What is claimed by the Crown now is something radically different. There is no published code, and no necessity for the treatment of all those who are in consimili casu alike. In one case the Crown can remit one-third, in another one-half, and in yet another case the whole, of the tax properly payable, at its own sweet will and pleasure. If this is indeed so, we are back to the days of the Star Chamber. Again, I want to make it crystal clear that nobody is suggesting that the Crown has, or indeed ever would, so utilise the powers which it claims to bring about unjust results; ... The root of the evil is that it claims that it has, in fact, the right to do so."

Judicial comment regarding extra-statutory concessions has been mixed. Speaking "in no spirit of criticism" Donovan L.J. observed in F.S. Securities Ltd. v. Inland Revenue Commissioners [1963] 1 W.L.R. 1223, 1233: "This is a difficult code to administer, and practical considerations no doubt justify at times some departure from strict law for the common convenience of the revenue and the taxpayer." Even Lord Upjohn spoke with two voices. In 1968 he said in Inland Revenue Commissioners v. Bates [1968] A.C. 483, 516:

"... the commissioners ..., realising the monstrous result of giving effect to the true construction of the section, have in fact worked out what they consider to be an equitable way of operating it which seems to them to result in a fair system of taxation. I am quite unable to understand upon what principle they can properly do so ..."

Yet in the following year he said in Inland Revenue Commissioners v. Korner [1969] 1 W.L.R. 554, 558, of an unpublished concession: "This practice is very old, works great justice between the Crown and the subject and I trust will never be disturbed." Among the critics was Viscount Radcliffe, who "... never understood the procedure of extrastatutory concessions [when] at least the door of Parliament is opened every year for adjustment of the tax code "(Inland Revenue Commissioners v. Frere [1965] A.C. 402, 429), and in another case Lord Wilberforce, in rejecting a concession, observed that "... administrative moderation ... is ... no real substitute for legislative clarity and precision" (Inland Revenue Commissioners v. Bates [1968] A.C. 483, 521). And, my Lords, it should above all be remembered that none other than the Bill of Rights 1688 declared:

"1. That the pretended power of suspending of laws, or the execution of laws, by regal authority, without consent of Parliament, is illegal. 2. That the pretended power of dispensing with laws, or the execution of laws, by regal authority, as it has been assumed and exercised of late, is illegal."

Wholly in line with such authoritative declarations were the observations of Scott L.J. in Absalom v. Talbot [1943] 1 All E.R. 589, 598, that:

"No judicial countenance can or ought to be given in matters of taxation to any system of extra-legal concessions. Amongst other reasons, it exposes revenue officials to temptation, which is wrong, even in the case of a service like the Inland Revenue, characterised by a wonderfully high sense of honour. The fact that such extralegal concessions have to be made to avoid unjust hardships is conclusive that there is something wrong with the legislation." (Emphasis added.)

But the alternative explanation, my Lords, may in the instant case be that the fault lies not in section 412 of the Act of 1952, but in the way in which it (like its forerunner, section 18 of the Act of 1936) has been interpreted. In my judgment, the words "such an individual"

appearing in subsections (1) and (2) hark back to the opening words of the preamble, namely to individuals whose purpose is the avoidance of liability to tax, and do not refer simply to any individual "ordinarily resident in the United Kingdom." Indeed, as the noble and learned Lord, Viscount Dilhorne, has observed, if the latter, restricted interpretation is to be adopted it is not easy to see why subsection (8) of section 412 provided that: "For the purposes of this section - (a) a reference to an individual shall be deemed to include the wife or husband of the individual; ..." As was submitted in the respondents' printed case: "[Subsection (8) (a) ] has a positive and important function if the [respondents] ... are correct; but otherwise is superfluous." And, indeed, Walton J. [1979] Ch. 177, 183, had himself expressed the view that "... the provisions of subsection (8) (a) ... do not otherwise make good sense ..." It follows that in my judgment the extension of section 412 by the judgment of this House in Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 to beneficiaries wholly disconnected with the original transferor or transferors was erroneous.

Even so, my Lords, ought we now to depart from it? It has stood for 30 years and, as previously observed, it has been followed in this House. But if it be permitted to stand, we have the deplorable situation that the Inland Revenue Commissioners can capriciously select which of several beneficiaries they are going to tax, and may equally capriciously decide the basis upon which they are going to be assessed And it is said that all this is perfectly lawful even though the afflicted taxpayer has no means of challenging his assessment. The noble and learned Lord, Viscount Dilhorne, has analysed in some detail the circumstances in which this House, by a majority, refused in Reg. v. National Insurance Commissioner, Ex parte Hudson [1972] A.C. 944 to overrule a five-year-old decision, Lord Reid saying, at p. 966:

"... I am firmly of opinion that Dowling's case [Reg. v. Deputy Industrial Injuries Commissioner, Ex parte Amalgamated Engineering Union, In re Dowling [1967] 1 A.C. 725] ought not to be reconsidered. No broad issue of justice or public policy is involved nor is any question of legal principle. The issue is simply the proper construction of complicated provisions in a statute. There must be a large number of decisions of this House of this character."

I have also in mind the earlier observation of Lord Reid, at p. 966, that "... it should only be in rare cases that we should reconsider questions of construction of statutes or other documents," and, like others of your Lordships, I was minded at one time to conclude that, despite the strong adverse view I had formed about the decision in Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948, this House ought not now to overrule it. But there can be no absolute veto against overruling decisions turning on the construction of statutes or other documents - or, indeed, any other type of decision. We can now see the startling and unacceptable consequences of Congreve when applied to circumstances never contemplated when that case was being considered. So remarkable are they, and so disturbing are the unconstitutional devices now resorted to by the Inland Revenue Commissioners,

that I am forced to the conclusion that the interests, not only of the respondents but of the public at large alike, demand that the claim of the executive in this matter be challenged and rejected. The appellants take their stand upon Congreve and claim that while that decision remains the devices they have resorted to may continue. My Lords, they must not, and I judge that in these circumstances the appellants themselves leave us with no alternative but to overrule Congreve. I accordingly concur in dismissing the appeals and allowing the cross-appeals.

LORD KEITH OF KINKEL. My Lords, I agree with the views expressed in the speeches of my noble and learned friends Lord Wilberforce and Viscount Dilhorne, which I have had the opportunity of considering in draft.

The important issues in these appeals are whether the principal ground for the decision of this House in Congreve v. Inland Revenue Commissioners [1948] 1 All E.R. 948 was erroneous, and, if so, whether the decision, in so far as it proceeded upon that ground, should now be departed from.

The ground in question consisted in a clear ruling upon the proper construction of section 412 of the Income Tax Act 1952, and was thus stated by Lord Simonds, at p. 952:

"The preamble or introductory words of the section which state its purpose do not, in my view, assist the contention, which was developed on its operative words, that the avoidance by an individual of liability to tax must be achieved by means of a transfer of assets effected by that individual. They are, on the contrary, in the widest possible terms, and I do not know what better words could be used if the legislature intended to define its purpose as covering a transfer of assets by A, by means of which B avoided liability to tax."

In the result, transfers of assets by the taxpayer's father were held to involve her in liability under the section. The House also accepted an argument that in any event certain transfers had been organised or brought about by the taxpayer herself, but this ground, though capable of supporting the correctness of the actual decision on liability to tax, was plainly a subsidiary one.

I have arrived at the firm opinion that the principal ground of decision in Congreve was indeed erroneous. I consider that the natural and intended meaning of the words "such an individual" in section 412 (1) is that they indicate not merely an individual ordinarily resident in the United Kingdom, but an individual so resident who has sought to avoid liability to income tax by means of such transfers of assets as are mentioned in the preamble. Further, this meaning gives a sensible content, which would otherwise be lacking, to the provision in subsection (8) (a) that reference to an individual shall be deemed to include the husband or wife of the individual. Finally, the consequences which follow from attributing the wider meaning to the words, when that meaning is applied to a numerous class of beneficiaries under a discretionary trust, are so dramatically unjust, as the facts of the present case illustrate,

that I cannot think it to have been intended by Parliament. These consequences have been examined in depth in the speeches of my noble and learned friends, and need no repetition.

So it is necessary to consider whether this is one of these rare cases where it would be proper for this House, acting under the Practice Statement (Judicial Precedent) [1966] 1 W.L.R. 1234, to depart from one of its own previous decisions. In my opinion it is. The decision was one upon a matter of statutory construction. It turned upon a view which was a tenable one, regarded from the purely linguistic angle, although no attempt was made in the speech of Lord Simonds to account for the presence in section 412 of subsection (8) (a), which may not have been drawn to their Lordships' attention. But the implications of that view, as now revealed in the instant appeals, were not present to the minds of their Lordships. consideration of these implications must, in my opinion, lead to the conclusion that the view taken is not tenable, and would not have been so regarded at the time had their Lordships had the opportunity of such consideration. For the reasons fully developed in the speeches of my noble and learned friends, these implications are of the greatest importance from the point of view of constitutional propriety and the proper administration of revenue law. In my opinion they involve broad issues of justice and public policy, such as were mentioned by Lord Reid in Reg. v. National Insurance Commissioner, Ex parte Hudson [1972] A.C. 944, 966, the character of which makes it not only proper but necessary to depart from the earlier decision.

Accordingly, I too would dismiss the appeals and allow the cross-appeals.

Solicitors: Speechly, Bircham; Solicitor of Inland Revenue.

M. G.