WESTMINISTER BANK, LTD, Vs. RICHES

JUDGEMENT

(1.) Rule 21(1) of the General Rule to All Schedules under the Income Tax Act, 1918, provides that : Upon payment of any; interest of money... charged with tax under Schedule D... the person by through whom any such payment is made shall deduct thereat a sum representing the amount of the tax thereon at the rate of tax in force at the time of payment. Under paragraph 2 of the rule provision is made for assessment to tax of the person who is bound to deduct under paragraph 1. Under schedule D tax is to be charged on all interest of money... not specially exempted from tax. For the purposes of the present case, at any rate, there is nothing in the relevant legislation to qualify the generality of this provision.

(2.) In an action brought by Mr., Riches, the present defendant, against the Westminister Bank, Ltd. (the present plaintiffs), in their capacity of judicial trustees of the will of Mr. Ridsdel, deceases, Mr. Riches established a claim to a sum of Pound 36,255. He had justly claimed to be entitled to a half share of the profits realised by Mr. Ridsdel in a certain transaction. Mr. Ridsdel had paid him a sum much less than that to which he was entitled, and Pound 32,255 was the balance which remained due. A plea of accord and satisfaction failed, because, as the judge found, Mr. Riches consent to take the smaller sum had been induced by the fraudulent misrepresentations of Mr. Ridsdel. After giving judgment, the learned Judge exercised in favour of Mr. Riches the discretion given to him by Section 3(1) of the Law Reform (Miscellaneous Provisions) Act, 1934, which is as follows : In any proceedings tried in lay Court of record for the recovery of any debt or damages, the Court may, if it thinks fit, order that there shall included in the sum for which judgment is given interest at such rate as it thinks fit on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the judgment. The learned Judge awarded interest at 4 per cent. per annum from June 14, 1936, to May 14, 1943. The formal judgment, as it was finally drawn up after some discussion at the bar, expressed the decision of the Judge as follows : It is... adjudged that the plaintiff recover from the defendant Pound 36,255 with Pound 10,028 interest, making together the sum of Pound 46,283. An appeal from the judgment now under appeal was given was brought by the bank for (1) a declaration that the bank had satisfied the judgment in the earlier action by paying the amount adjudged to be due less Pound 5.014, the latter sum representing the income-tax on the interest awarded; (2) an injection to restrain Mr. Riches from levying execution., Evershed, J., made the declaration, and the bank did not insist on lit prayer for an injection. Two questions of importance now arise for our decision. First, is the sum of Pound 10,028, which was awarded as interest, interest on which tax is chargeable under Schedule D ? Secondly, if the answer to the first question is in the affirmative, was the bank bound to entitled to deduct from that sum the tax due on it at the time of payment ? It may be stated here that it was agreed that rule 19 of the General Rules had no application to the present case, since the interest in question was not payable wholly out of profits or gains brought into charge to tax.

(3.) The question whether interest awarded under the Act of 1934 is subject to tax has never been judicial decided. There is, therefore, no authority which is precisely in point. On principle, and apart from authority, I see no reason why it should not fall within the words of Schedule D. When the Legislature authorizes the Court to award interest, it is a reasonable assumption that it intends what it calls interest to be regarded as interest for the purposes of taxation. If, indeed, there were something in the context of the statutes to show that the word was used with one meaning in the 1934 Act, and with another in the taxing Acts, such an assumption would be negatived I can find nothing to suggest that in the Act of 1934 the word interest has so special a meaning that it falls outside the description all interest of money. If the Act provided that damages high be awarded to the plaintiff and should be based on the language of the Act. The provisions that the interest awarded to the plaintiff and should be based on a calculation of interest, a different result might follow, but that is not the language of the Act. The provision that the interest awarded is to be included in the sum for which judgment is given seems to me to carry the matter no further. Nor can I attach importance to the fact that the interest awarded to compensate the plaintiff for what age has lost thought the defendants delay in paying a just debt. Finally, I am by no means persuaded that this interest is excluded from the wide words of the taxing Act because, as was said, it is non-recurrent. What the judge does in a case like this is, first to him to say, if he thinks fit, that, as the sum ought to have been paid at that date, it is right that it should bear interest as from that date. The order is retrospective, but I see no reason to think that a right to receive interest, in the sense in which that word is used in Schedule D, may not come into being as the result of a retrospective order. If we were dealing, not with a statute, but with a contract with resulted in an analogous position, I think that there could be little doubt about the matter. Suppose, for instance, that A lends Pound 1,000 to be repaid at the end of three years with such interest, if any, as C (an impartial friend acting as arbitrator) may in this discretion think it fair and just, in all the circumstances, that B should pay. If A received interest under Cs award, it could hardly be doubted, I think, that it would be interest subject to tax. So far as this particular point is concerned. I see no distinction in principle between that case and the one before us.