1957 (3) TMI 59 – THE COURT OF APPEAL – [1958] 34 ITR 303 (CA) – – Dated:- 19-3-1957 – LORD GODDARD C.J., JENKINS and L. SELLERS JJ. JUDGMENT APPEAL from Vaisey J. [1956] 1 W.L.R. 1105; [1956] 3 All E.R. 52; 31 I.T.R. 624 This was an appeal by the taxpayer, John Young Sangster, from the decision of Vaisey J., who reversed the decision of the Commissioners for the Special Purposes of the Income Tax Acts, who had substantially reduced assessments made upon the taxpayer to income tax, Schedule D, for the years 1951-1952, 1952-1953, in respect of interest on a deposit account which he kept with the Colmore Row, Birmingham, branch of Barclays Bank. The case stated by the Commissioners for the Special Purposes of the Income Tax Acts, so far as relevant, provided: 1. At a meeting of the commissioners held on January 28, 1955, John Young Sangster (hereinafter called "the taxpayer") appealed against assessments made upon him to income-tax, Schedule D, for the years and in the amou
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they applied to the 1952-1953 assessment in the same manner as they applied to the 1951-1952 assessment. (2) The assessments under appeal were made upon the basis that the income in question had to be computed in accordance with the Finance Act, 1951, s. 21, which deals with cases where a person acquires a new source or an addition to any source of income chargeable under Case III of Schedule D. The provisions apply in relation to new sources or additions to sources of income acquired before April 6, 1951, only where income first arose therefrom on or after that date. (3) Cases where a person has acquired a new source or an addition to any source of such income and income first arose therefrom before that date are governed by the Finance Act, 1926, s. 30. (4) If the matter were governed by the Finance Act, 1951, s. 21, then subparagraph (a) of and the proviso to paragraph 2(1) of the Rules applicable to Case III of Schedule D to the Income Tax Act, 1918, would apply to interest upon t
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the taxpayer and the bank. Interest on deposit accounts was calculated on the principal on a day-to-day basis and was credited on half-yearly rest dates, June 20 and December 20 in each year. When it was so credited, the interest became principal and then (and not before) began itself to earn interest. It was not the practice to allow accruing interest to be withdrawn between the half-yearly rest dates, save that if an account was closed at any time interest was calculated up to the date of closure, credited and withdrawn as principal. The rate of interest varied from time to time. In 1951 the bank required 14 days' notice of withdrawals from deposit account; a depositor who wished to make a withdrawal without this notice could do so, but would lose 14 days' interest on the sum withdrawn. The taxpayer withdrew ? 253,000 on March 30, 1951, without giving the 14 days' notice, and 14 days' interest on this sum was deducted in calculating the interest credited on the follow
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s to which the appeal related should be computed in accordance with section 30 of the Finance Act, 1926. 7. It was contended on behalf of the Crown:- (1) That the taxpayer acquired a new source, or an addition to a source, of income chargeable under Case III of Schedule D on March 17, 1951. (2) That income first arose therefrom after April 6, 1951; that is to say, on June 20, 1951 when the interest was placed at the credit and disposal of the taxpayer. (3) That income tax for the years to which the appeal related was properly computed by reference to the provisions of section 21 of the Finance Act, 1951. The commissioners were referred, inter alia, to the following authorities: Cull v. Cowcher [1934] 18 T.C. 449; Simpson v. Executors of Bonner Maurcie [1929] 14 T.C. 580; 45 T.L.R. 581; St. Lucia Usines and Estates Co. v. St. Lucia (Colonial Treasurers) [1924] A.C. 508; Dewar v. Commissioners of Inland Revenue [1935] 2 K.B. 351; 19 T.C. 561; 51 T.L.R. 536; Apportionment Act, 1870. The c
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n March 17, 1951, income first arose therefrom on June 20, 1951. On April 26, 1955, we determined the appeal by adjusting the assessments to the following figures, which had been agreed between the parties to be correct upon the basis of our decision in principle: the 1951-1952 assessment we reduced to ? 53; the 1952-1953 assessment we reduced to ? 7,032." The inspector of taxes appealed to the court. On July 3, 1956, the appeal was allowed by Vaisey J. who held that the source or origin of the interest on the ? 2,000,000 was the deposit of the money coupled with the contract between the taxpayer and the bank; that it was not to be found in an existing contract but that a new contractual relationship resulted from and was brought into existence by the tender of that sum by the taxpayer and its acceptance by the bank on the date in question; that, accordingly, the taxpayer acquired a new source, or an addition to a source, of income chargeable under Case III of Schedule D on March
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t a contract is made with the bank under which, so long as the account continues in existence, interest will be paid on whatever balance there is to the credit of that account. In other words, there is one contract which continues to run throughout the existence of the deposit account. Contrary to the contention of the Crown, a new contrast is not entered into on every occasion on which the depositor pays a sum into that account. It is conceded that if the lodgment of the sum in question did constitute a new source, or an addition to a source, then the income therefrom first arose after April 5, 1951, and that for tax purposes it is to be computed in accordance with the provisions of section 21 of the Finance Act, 1951. The relationship between banker and customer is that of debtor and creditor: per Atkin L.J. in Joachimson v. Swiss Bank Corporation [1921] 3 K.B. 110, 126; 37 T.L.R. 534. That case concerned a current account, but the only differences between a current and a deposit acc
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new and separate source. That would cause very great practical difficulties. Roy Borneman Q.C. and Sir Reginald Hills for the Crown. There is a new contract every time a sum is accepted on deposit. Even if it be held that there is a single continuing contract throughout the existence of a deposit account, that of itself produces no income. It is the operation of that contract on the particular sums of money deposited that produces the income, where there is a contractual right to receive interest, and accordingly new deposits of money in a deposit account are new sources or additions to sources of income within Case III of Schedule D. Heyworth Talbot Q.C. replied. LORD GODDARD C.J. This is an appeal from a judgment of Vaisey J., who reversed the decision of the special commissioners, who adjusted certain assessments for the years 1951-1952 and 1952-1953 made upon Sangster in respect of certain interest which he received on a deposit account which he kept at Barclays Bank. Sangster, who
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ncipal. The rate of interest allowed varied from time to time." It happened that in 1951 a very large sum of money amounting to ?2,000,000 was paid into the deposit account, which even then had a substantial sum of money in it, and it is in respect of interest earned by this very largely increased amount of money paid in that this appeal arises. The point which the court has to decide is one which is exceedingly simple in statement. It is, what was the source of the income? The special commissioners held that the contract was the source of the income. Vaisey J. took a different view, and I think held that the source of income was the deposit of the money coupled with the contract I say at once that I cannot agree that where a deposit account is kept between a customer and a banker there is a new contract every time money is paid in; I think that it is one continuing contract, but the contract itself yields no income at all. The deposit of money would yield no income at all unless
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rms to repay it. As a general rule he does not pay interest on a current account, although bankers do at times agree to allow interest on a current account if a certain credit balance is maintained. We need not consider current amounts in this case at all. We are only concerned with deposit accounts under which money is paid in at 14 days' notice; that is to say, that the customer cannot withdraw the money without giving 14 days' notice, though he may be allowed to do so if he gives up interest. Interest at the current rate is allowed by the banker, and the current rate generally is regulated by the Bank rate. Sangster had been assessed under Case III of Schedule D in respect of this interest which he had been receiving, and I think that it is necessary in considering this matter to refer to section 21 of the Finance Act, 1951. [His Lordship read part of subsection (i) and continued:] It was argued in the present case that the source of income was the contract. I cannot agree w
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