Re Colclough, Colclough and Others v Colclough and Others
| Jurisdiction | Ireland |
| Judgment Date | 01 January 1967 |
| Date | 01 January 1967 |
| Docket Number | (1912. . 845) |
| Court | Supreme Court |
Supreme Court.
Revenue - Income tax - Administration suit - Payment of debts and interest by Court - Interest paid gross - Income tax not deducted from payment of interest - Claim by Revenue Commissioners that income tax should have been deducted - Whether income tax should be deducted from payment of interest by the Court - Practice of the Court - Income Tax Act, 1918 (8 & 9Geo. 5, c. 40), General Rules applicable to all Schedules, rr. 19 and 21.
Notice of Motion.
William Austin Colclough owned a large coach-building business in Dublin. He died on the 30th July, 1895, having made his will on the 24th January, 1895. Probate of the will was granted to John E. H. Colclough, one of the executors named in the will, on the 4th 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 E. H. 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 for 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 sums 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 for distribution and the 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 the 19th November, 1896, the said Hugh Beauchamp Colclough, died under the age of twenty-one years, leaving the said John Colclough and William Caesar Colclough him surviving, and on the 9th 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 13s. 9d., 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 7s. 6d., leaving a deficiency of £1,240 12s. 6d. required to make up the sum of £6,000 which would have been necessary to meet the said legacies.
On the 29th April, 1902, the trade trustees and John E. H. 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 the 25th October, 1909, on which date the said John Colclough died, having made his will, dated the 20th 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 1s. 1d. for overdrawing and the said William Caesar Colclough owed the sum of £374 7s. 11d. for the same reason.
On or about the 24th 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 E. H. Colclough as personal representative of the said William Austin Colclough, deceased, appointed a 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, administered by the Court was brought by John E. H. Colclough, the personal representative of the said deceased, and others as plaintiffs against William Caesar Colclough and Richard Wallace Robb as defendants. On the 12th November, 1912, the primary decree was made, ordering the trusts to be performed and declaring the legacies and annuities well charged and appointing a receiver. On the 29th January, 1913, directions were given to terminate the business and on the 3rd March, 1914, an enquiry as to creditors of the business and the amounts due to them was directed. On the 26th March, 1915, the certificate of the Chief Clerk was filed, showing arrears of legacies and annuities, and on the 20th 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 6s. 1d. 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 the 27th 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 the 27th 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 the 3rd May, 1942. The amount authorised to be paid was £6,713 11s. 2d. of which £3,584 17s. 3d. 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 the 10th October, 1962. The claim was as follows:—
1, A claim for (a) £1054 6s. 0d. for tax payable on the income which accrued on the funds in Court up to the 15th January, 1960;
(b) Further tax upon all untaxed income accruing to the funds between the 15th January, 1960, and the date of final allocation;
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 £2973, 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;
(b) Such further tax as may be payable on the balance of interest still remaining to be paid in so far as such balance exceeds the taxable income of the estate for the year in which such payment takes place.
The claim of the Revenue was based upon Rules 19 and 21 of the General Rules applicable to all Schedules of the Income Tax Act, 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 same 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 4s. 9d. 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 suit in respect of (a) the interest paid in the year of assessment 1942/43 to creditors of the firm of John Colclough & Sons pursuant to the order of this Honourable Court dated the 27th day of July, 1942; (b) the interest paid in the year of assessment 1947/48 to creditors as aforesaid pursuant to the order of this Honourable Court dated the 1st day of December, 1947?
3, If the answer to question 2 is in the affirmative, is such income tax payable at the standard rate in force for the year of assessment in which such interest was paid or at the standard rates from time to time in force for the respective years for which such...
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