Colclough v Colclough
| Judge | Dixon J. |
| Judgment Date | 04 July 1957 |
| Court | High Court |
Income tax-funds in court - (a) whether rules 19 and 21 of the general rules applicable to ITA 1918 Schs A, B, C, D and E apply to the court when paying interest on debts out of funds in court and - (b) whether tax deductible from income accrued to funds in court for years prior to 1922/23.
The Revenue Commissioners contended that rules 19 and 21 of the general rules applicable to ITA 1918 Schs A, B, C, D and E applied in the case and consequently, income tax should have been deducted. This was opposed on behalf of the Colclough Estate and it was further contended that sums claimed in respect of income tax on income accrued to the funds in court for the years prior to 1922/23 were not payable as assessments had not been made and could not now be made for those years.
Held, in the Supreme Court, affirming the decision of the High Court that (a) the courts are not bound by rules 19 and 21 of the general rules applicable to ITA 1918 Schs A, B, C, D and E, when authorising payment of interest on debts out of funds in court and (b) the practice whereby the court provides retrospectively at final allocation for payment of income tax at the appropriate rates in respect of the income accruing to the funds in court in each of the preceding years, even though no formal assessment has been made, should not be upset.
ITA 1967 s 434.
Cases referred to in judgmentAllchin v Coulthard 25 TC 430, [1943] AC 607.
Attorney-General v Metropolitan Waterboard 13 TC 294, [1928] 1 KB 833.
Bebb v Bunny 8 TC 454, 1 K & J 217.
Berry v Farrow [1914] 1 IR 358.
Cox v Murray [1919] 1 IR 358.
Dawson v Dawson 11 Jur 984.
Dinning v Henderson 3 de G & S 702.
Glamorgan Quarter Sessions v Wilson 5 TC 537, [1910] 1 KB 725.
Goslings and Sharpe v Blake 2 TC 450, 23 QBD 324.
Hamilton v Linaker [1923] IR 104.
Holroyd v Wyatt 1 de G & S 125.
Humble v Humble 12 Beav 43.
In Re Cooper [1911] 2 KB 550.
In Re Craven’s Mortgage 8 TC 651, [1907] 2 Ch 448.
In Re Downing’s Estate 1 ITC 103, [1936] IR 164.
In Re Estate of Persse [1888, unreported, Land Judges Court].
In Re Estate of Peter Kelly [1908, unreported].
In Re Ferguson [1935] IR 21.
In Re Michelham [1921] 1 Ch 705.
In Re Sebright [1944] 1 Ch 287.
In Re Young’s Estate [1918] 1 IR 30.
London County Council v Attorney-General 4 TC 265, [1901] AC 26.
Liupaard’s Vlei Estate and Gold Mining Co v Inland Revenue Commissioners 15 TC 573, [1930] 1 KB 593.
Partington v Attorney-General LR 4 E, I AC 100.
Trinidad Petroleum Development Co v Inland Revenue Commissioners 21 TC 1, [1937] 1 KB 408.
Westminster Bank Ltd v Riches 28 TC 159.
William Austin Colclough owned a large coach-building business in Dublin. He died on 30 July 1895, having made his will on 24 January 1895. Probate of the will was granted to John EH Colclough, one of the executors named in the will, on 4 September 1895. By his said will the testator bequeathed all machinery and plant, stock in trade, goodwill, book and other debts and leasehold premises employed in or connected with the trade or business of a coach-builder carried on by him at Duke Street, Duke Lane and Lemon Street to the said John EH Colclough and Thomas Tyndall, whom he appointed his trade trustees, upon trust to carry on the said business until the youngest of his three eldest sons should attain the age of twenty - one years and until the arrival of the said period therein called “the time of distribution” upon trust to apply the profits of the said business as follows:
1. In payment to his trade trustees whilst acting in that capacity of the annual sums therein mentioned.
2. In payment to the testator’s wife while she remained his widow the annual sum of £100 and also the additional sum of £50 for each of his children living with her (provided the profits of the said business should admit of the payments to the children).
3. To invest the surplus profits of each year until the time distribution and income of such investments to form therewith a separate fund which was to be applied towards making the said payment to the testator’s children.
The testator’s three eldest sons surviving him were John Colclough, William Caesar Colclough and Hugh Beauchamp Colclough. On 19 November 1896, the said Hugh Beauchamp Colcough died under the age of twenty-one years, leaving the said John Colclough and William Caesar Colclough him surviving, and on 9 March 1902, the said William Caesar Colclough, the younger of the said two eldest sons surviving, attained the age of twenty-one years and thereupon “the time for distribution” was reached.
Upon the death of the testator the trade trustees continued to carry on the business of the testator up to the time for distribution and from time to time made the annual payments directed by the will and also set aside the surplus profits, amounting to £5,568.13.9., towards paying certain legacies to the testator’s other children. This sum was invested in trustee securities but owing to the market prices having subsequently diminished considerably the value of the said securities at the time for distribution was ascertained to be the sum of £4,759.7.6., leaving a deficiency of £1,240.12.6. required to make up the sum of £6,000 which would have been necessary to meet the said legacies.
On 29 April 1902, the trade trustees and John EH Colclough as the personal representative of the deceased entered into an indenture whereby they transferred and assigned the business to John Colclough and William Caesar Colclough, charged as stated in the said will. John Colclough and William Caesar Colclough then continued to carry on the business from the date of the said assignment until 25 October 1909, on which date the said John Colclough died, having made his will, dated 20 September 1909, appointing the said William Caesar Colclough and Richard Wallace Robb to be executors and trustees thereof to whom he bequeathed all his real and personal property upon the trusts mentioned in the said will and he authorised his trustees to concur in the winding up of the said business and to dispose of his share therein. On the death of the said John Colclough a balance sheet of the business was prepared and it was found that John Colclough owed the business a sum of £497.1.1. for overdrawing and the said William Caesar Colclough owed the sum of £374.7.11. for the same reason.
On or about 24 June 1910, William Caesar Colclough as surviving partner of the said firm, and Richard Wallace Robb, as acting executor of the will of John Colclough, deceased, with the necessary consents of legatees and annuitants and of the said John EH Colclough as personal representative of the said William Austin Colclough, deceased, appointed as manager. The business failed to prosper and had various debts which it was unable to meet. There were also arrears of legacies unpaid and arrears of annuities, and a suit to have the trusts of the will of William Austin Colclough, deceased, and others as plaintiffs against William Caesar Colclough and Richard Wallace Robb as defendants. On ordering the trusts to be performed and declaring the legacies and annuities well charged and appointing a receiver. On 29 January 1913, directions were given to terminate the business and on 3 March 1915, the certificate of the Chief Clerk was filed, showing arrears of legacies and annuities, and on 20 December 1915 the certificate as to trade creditors, their debts and the interest due on their debts, was filed. The total amount due for debts and interest at this date was £3,629.6.1. There was due on arrears of annuities £714 and in respect of vested legacies there was due the sum of £257 and there was £2,000 contingently due in respect of further legacies. By an order of 27 June 1916 the trade creditors were declared to be entitled to be paid the sums found due to them out of the funds of the suit.
On 27 August 1942, an order was made in the suit for the payment of the principal sum due in respect of the debts and ninety per cent of the interest accrued due up to 3 May 1942. The amount authorised to be paid was £6,713.11.2. of which £3,584.17.3. represented interest. Since that period further income from rents and investments had accrued and at the date of the present hearing there were sufficient funds in court to pay the remainder of the debts, all the legacies and annuities having long since been paid.
The Revenue Commissioners claimed against the funds in court in respect of income tax due on the interest paid in 1942 and the interest still remaining to be paid. Following correspondence in relation to this claim, the Revenue finally formulated an amended claim by a letter, dated 10 October 1962. The claim was as follows:
1. A claim for (a) £1054.6.0. for tax payable on the income which accrued on the funds in court up to 15 January 1960.
2. (a) £1,114 alleged to be due under rule 21 of the all Schedules rules in respect of the tax payable on the sum of £2,973, which was paid to debtors as interest on their debts under the order of 1942, and which was not paid out of profits or gains brought into charge in that year.
The claim of the Revenue was based upon rule 19 and 21 of the general rules applicable to all Schedules of the ITA 1918.
The notice of motion herein sought directions on the following matters arising in the proceedings upon an application to settle the allocation Schedule upon final allocation. The amounts set out in the notice of motion were not the as the Revenue claim as formulated above by reason of the fact that the Revenue amended their claim after the hearing in the High Court. The directions sought were as follows:
1. Whether the sum of £838.4.9. or any part thereof and if part thereof how much is payable out of the funds in court standing to the credit of this suit in respect of income tax on the untaxed income or interest which accrued to the trust estate on the funds in court?
2. Whether income tax is payable out of the funds in court standing to the credit of this...
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