Cahill (Inspector of Taxes) -v-O'Driscoll & Ors, [2005] IEHC 179 (2005)

Docket Number:2004 368 R
Judge:Hanna J.


(REVENUE) [Record No. 2004 368R]



AND WILLIAM F. O'DRISCOLLRESPONDENTS JUDGMENT of Mr. Justice Michael Hanna delivered on the 9th day of June, 2005

This case comes before me as a case stated by Mr. Ronan S. Kelly, Appeal Commissioner for the opinion of this Court pursuant to the provisions of s. 941 of the Taxes Consolidation Act, 1997 (formerly s. 428, Income Tax Act, 1967). The appellant is Mr. P. O'Cahill, Inspector of Taxes. The respondents are partners in the firm of Messrs P.J. O'Driscoll & Sons, Solicitors who carry on practice in Cork and Dublin.

The case involves the rate of income tax applicable to interest earned on clients' funds deposited by the respondents in the course of their practice as solicitors. Funds received from or on behalf of clients of the firm could properly be deposited in two ways. Firstly, there might be a designated, specific deposit account referable to one specific client. In those circumstances, it was straight forward for the firm to match client with the interest earned and to make payment accordingly. This case stated is not concerned with such deposits. Rather, we are concerned with interest earned arising from a general client deposit account with numerous in flows and out flows of monies concerning numerous clients which gave rise to obvious (though apparently, not insurmountable) problems in matching client to interest. In such cases, it is not difficult to understand that many clients might have only the briefest of visitations to the general deposit account and that, in many such instances, only the most modest sums of interest would accrue.

The tax year with which we are concerned is 1991-1992. The Inspector of Taxes had raised income tax assessments on the interest earned on the general client account at the higher rate then applicable of 52%. The Appeal Commissioner took the view that the said interest was taxable at the standard rate in accordance with the provisions of s. 2 of the Finance Act, 1991 (now s. 15 of the Taxes Consolidation Act, 1997). Subsections 1 and 2 of that section provide as follows:2.-(1) Income tax shall be charged for the year 1991-92 and for each subsequent year of assessment and shall, subject to subs. (2), be so charged at the rate of tax specified in the Table to this section as the standard rate.

(2) Where a person who is charged to income tax for the year 1991-92 or any subsequent year of assessment is an individual (other than an individual acting in a fiduciary or representative capacity), he shall, notwithstanding anything in the Income Tax Acts but subject to section 5 (3) of the Finance Act, 1974, be charged to tax on his taxable income-( a ) in a case in which he is assessed to tax otherwise than in accordance with the provisions of section 194 (inserted by the Finance Act, 1980) of the Income Tax Act, 1967, at the rates specified in Part I of the Table to this section, or

( b ) in a case in which he is assessed to tax in accordance with the provisions of the said section 194, at the rates specified in Part II of the said Table,and the rates in each Part of that Table shall be known, respectively, by the description specified in column (3), in each such Part opposite the mention of the rate or rates, as the case may be, in column (2) of that Part."In the Appeal's Commissioner's view and that of the respondents, the impact of that section was to cause tax to be levied at the then standard rate of 29%. The respondents, as solicitors, were holding their clients' monies in trust and were acting in a fiduciary capacity thereby attracting the lesser rate of tax. The respondents'...

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