§ All the provisions of Section twenty-four, Sub-section (2), of the Finance Act, 1907, which relates to a profession, trade, or vocation, which has been set up or commenced within the period of three years preceding the year of assessment, shall apply to income from stocks, shares, rents, or other sources arising in any place out of the United Kingdom, and assessed under case five in Section one hundred of the Income Tax Act, 1842, and the provisions of this Section.
§ Clause brought up and read the first time.
§ Mr. G. LOCKER-LAMPSONI beg to move, "That the Clause be read a second time."
The object of the Clause is to remove what I believe to be a very substantial grievance. Foreign income is assessed under two rules. Income received from Government securities in foreign States, or from loans of foreign States or municipal authorities is assessed on the amount received in the year of assessment; but income received from what are termed "possessions" abroad—that is to say, shares in trading concerns, rents of land, or rents of houses—is assessed like income accruing to a person from trade, business, or profits of employment received in this country. Income from securities in foreign countries is assessed only on the amount which has accrued in the year, while income from possessions in foreign countries is assessed on the average system. This procedure frequently leads to great injustice in the first three years of liability. Possessions in foreign countries are assessed like trading profits. Under the 310 Finance Act, 1907, Section 24 (2) in the case of income in this country accruing from a trade, profession or vocation which has been set up within the three years during which the average is taken under the Income Tax law, the taxpayer has the right to ask the Commissioners to adjust the liability to the actual amount received in the year of assessment. But this advantage does not apply to income from possessions in foreign countries. Say a man's income from possessions in other countries during the first three years was £5,000, £3,000 and £2,000—that is to say, £10,000 in all. He can be taxed on £5,000, £5,000, and £1,000, or £14,000 in all—that is, £4,000 above his actual income from his possessions. If he had actually the same income from trade or business over here, he would be taxed on £5,000, £3,000, and £2,000, or £10,000 in all—that is to say, he would be taxed on the actual income that he had received. It cannot be considered that there is any justice in this distinction between income from possessions abroad and income from ordinary trading profits arising in this country. Unless something is done a very real grievance will arise in the case of assessments under Clause 5 of the Finance Bill, which presumably will be based on the income of the three preceding years, in the case of income from foreign Government securities.
In many cases where people have retired from India or the Colonies they send a considerable portion of their capital to this country, and the income arising from shares or rents abroad may, therefore, be considerably diminished by the time the actual year of assessment comes round—that is, the fourth year. Owing to remittances of capital here, the income from shares or rents accruing abroad may be, say, £1,000, whereas the actual income accruing abroad for the current year may be only £450. Supposing the capital which has been sent over here brings in in this country in the current year an income of £550. The tax of the current year will be paid not on the £450 accruing abroad and the £550 at home, but on the average of £1,000 of the three preceding years, and also the £550 accruing on the capital sent over to this country—that is to say, on £1,550 in all. The result is that although the capital has been invested here and produces an income subject to the deduction of tax over here in the current year, the tax is also based on the income which that capital produced 311 before it was sent over here at all. I do not know whether I have made myself quite clear. The income to the extent of the £550 which accrues from the capital sent over here has practically been taxed twice over—once here, and then again on taking the average of the three preceding years before it was sent over. If this provision of Section 24 (2) of the Finance Act, 1907, is extended, it will absolutely meet this particular grievance. I hope, therefore, the Government will accept my proposal.
§ Sir J. SIMONThe hon. Gentleman has moved his Clause with words at the end which I do not quite understand. I cannot help thinking that it has been transplanted bodily from something put down as an Amendment at an earlier stage. The words at the end, "and the provisions of this Section," do not convey any meaning to my mind at all. Perhaps the hon. Gentleman will explain that?
§ Mr. G. LOCKER-LAMPSONAs a matter of fact, these words are unnecessary. The proposal was put down as an Amendment to a Clause in the Bill, and was then made into a new Clause.
§ Sir J. SIMONI understand that the new Clause is intended to stop after the words "Income Tax Act, 1842."
§ Mr. G. LOCKER-LAMPSONYes.
§ Sir J. SIMONIt follows, therefore, that the hon. Gentleman does not propose to apply the principles contained in the new Clause to Clause 5 of the present Finance Bill at all.
§ Mr. G. LOCKER-LAMPSONI do propose that.
§ Sir J. SIMONWhere will that be? Perhaps the hon. Gentleman will explain that.
§ Mr. G. LOCKER-LAMPSONI should have to add the words "and the provisions of Section 5 of this Act."
§ Sir J. SIMONThen I understand that the. Clause is not to stop at the words "Income Tax Act, 1842," but is to run on with the words "and the provisions of Section 5 of this Act." That is what I expected the hon. Gentleman would say, but, of course. I wanted to know. Let me assure the hon. Gentleman that I under-stand 312 what he proposes, but I think there are good reasons against accepting the Clause. As things stand at present, you have the calculation on the average of three years applied in various cases under the Income Tax Acts. One of the best known to most of us is the case where you have the three years' average applied for the purpose of charging Income Tax in respect of profession, trade, or vocation. But that is by no means the only case where the average is applied. There is one case where a five years' average is taken, and another where a seven years' average is taken. There are many cases in which you do not take the actual year of charge, but some other year. As the law stands, in one case, and in one case only, out of all the cases where averages are taken, the taxpayer is allowed to say, "It is true that the law applies an average of, say three years to my case, but I have not been carrying on my profession, trade, or vocation for three years. This is only the second or perhaps the first year, and I wish to substitute the actual experience of the year of charge for the normal application of the average." That is permitted by Section 24 (2) of the Finance Act, 1907. I do not understand whether the hon. Gentleman proposes to limit this substitution of a given year for an average to cases in which the source of income has begun within the period over which the average is calculated. Does the hon. Gentleman propose to do that?
§ Mr. G. LOCKER-LAMPSONI think it is quite plain from the Section in the Act. I want that Section to apply in its completeness to this particular case.
§ Sir J. SIMONI hope the hon. Gentleman does not think that I am merely making points for the purpose of quarrelling with him. The subject is a complicated one, and I must know exactly what he means.
§ Mr. G. LOCKER-LAMPSONWhatever that Section covers, I want it to extend to this.
§ Sir J. SIMONThe Section provides, in the case of an ordinary individual paying Income Tax on the three years' average, that he shall be entitled to say, so far as the figures for the particular profession, trade, or vocation are concerned, "Please, take a given year, and not the average of the three years." That has no application to the case of a man who has been carrying on his profession for four or five 313 years. It applies only at the beginning, and the reason it applies at the beginning is that it may happen that a man in his first year does exceptionally well. His friends give him a considerable amount of support. A friendly solicitor, for instance, gives a young barrister some briefs. But the hon. Gentleman is really proposing a very much bigger thing than would appear from his speech. He is proposing that wherever an average is required by the present Income Tax law, and the taking of an individual year would be preferable to the taxpayer, that substitution shall be available—for instance, under Rule 5 of Section 100, or under Clause 5 of the present Bill—and thereby he would greatly extend what is at present a most exceptional provision. There is very good reason why it should not be so extended. It is comparatively safe to say, in the case of a man with a profession or vocation during the first three years, "I will take your actual figures for the present year, instead of taking an average." At any rate, his profession is definite; you know what you are dealing with. But the hon. Gentleman says, "I want to substitute the receipts of the current year of charge for the average in, for instance, case five of Section 100"—which is the foreign possessions case. Does not the hon. Member see that if you do that you put it in the power of the taxpayer to manipulate—I am not using the word in an offensive way—to vary from time to time the way in which he chooses to employ his capital, with the result that the revenue may lose taxes to which it is entitled, because he has so varied his investments, or varied the form in which he receives his money as to get the advantage of this new Clause? For example, supposing you say to the taxpayer you have got foreign possessions at present and pay income Tax on profits on those foreign possessions remitted to this country on an average of three years. That is the provision to which the hon. Member referred. If you say to the taxpayer, "You can substitute in any given year at your will and pleasure if you like, not what the revenue likes, the actual receipts for the given year"; if the taxpayer in that case wants to reduce his liability to pay to a minimum, there is a very obvious way in which he may do it. He may in that year refrain from having his income remitted to this country so that it is kept under old case five. Even supposing he is none the less hit under our new Clause 5—which 314 has nothing to do with remittance—he none the less may vary his form and may still invest instead in the securities in the home market, with the result that it is at his own will and pleasure to vary the amount which in a given year will come under that particular case. That is the reason why this was not extended at all. It was quite deliberate in 1907, even though it was not under this Government—
§ Mr. CHAMBERLAINIt was your Government.
§ Sir J. SIMONThe right hon. Gentleman is quite right, but whoever was responsible, it was done in this way. It was not because the Government or the House of Commons—I hope—or the revenue imagine that the only case where you have an average was the case where you taxed a profession, trade, or vocation. There were a lot of other cases, but so long as you confined the concession to this it was all right, because a man cannot go on shifting his work about merely in order to save himself a little money in a given year. If you say you may substitute the amount received from foreign possessions in a given year for an average of three years, that will enable the person, by variations in the form of his investments, to present you a figure for a given year which is really not a fair figure.
§ Mr. CHAMBERLAINWill the right hon. Gentleman point out how you can do that under the new Clause 5?
§ Sir J. SIMONAssume the taxpayer takes his interest by cashing coupons, in which case the income would be taxed at its source. In that case it would not come under our new Clause 5; it would be taxed at the source. It might, on the other hand, be remitted home, in which case it would come under our Clause 5. In the second case you can vary the way in which you are paid, so that at your will and pleasure you may tax the income at the source or later.
§ Mr. PRETYMANWill the right hon. Gentleman make it quite clear? A man has the same source of income and investments, which may be foreign or may be home. The same kind of investment in foreign securities, which is a coupon investment, would be treated as a foreign investment. An investment of the same character payable in London would be a home investment. If it is a foreign investment is it assessed on an average of three years? Is that the position or not?
§ Sir J. SIMONNo, it is not. If the hon. and gallant Gentleman will look at either the Income Tax Acts or the book of Mr. Dowell, he will see it is not so really, because the case that applies is that known as Case 4 under the Statute, not Case 5. The hon. Member who moved—quite accurately, if I may say so—confined himself to Case 5, which relates to foreign possessions, and not to the case of industrial securities. What I am pointing out is that if you take our new Clause, and if you say that a man is at liberty to substitute the amount he receives either for one year or an average of three years—in cases where the average applies—you are, as a matter of fact, presenting him with a choice of two alternatives, and, of course, he will always choose the one that suits him best. That does not apply in the one case under the Act of 1907, where concession is made, and for the practical reason that a man cannot say to himself, "I will be a barrister to-day, an architect tomorrow, and something else the next day." merely at his own will and pleasure, to avoid the average and to take a single year. That is the practical reason why the concession is made in that case. The hon. Member gave as an illustration the case of a man receiving £5,000 from foreign possessions in the first year, £3,000 the second year, and £2,000 the next year—the case of a dropping income—
§ Mr. PRETYMANThat is transferred here?
§ Sir J. SIMONWhich is transferred here under the old law. The hon. Member said that it was hard to tax a man in the third year on the average of the three years. We took him, I may say, on the second year on the average of two years. Of course it is quite true there may be such cases, but the answer to that is that it is really a criticism of the whole principle of averages, wherever applied. If your income is a dropping income, your average tends to keep up the figure longer than you like. If your income is a rising income, the average tends to keep the figure down after the time when some people think it ought to be higher. That, really, is not a peculiar hardship of the Income Tax law: it is due to the law of averages, and the result is the same whether you apply it to this or to cricket or to any other averages. The hon. Member, if he follows me, will see that we cannot really apply this system of the substitution of a single year for the average of 316 three years in cases except the one case where it is substituted now. I know the subject is a very difficult and complicated one, but I think I understand what the hon. Member proposes, and I hope he sees that I understand it, and sees my reasons against the Amendment.
§ Mr. G. LOCKER-LAMPSONI do not think the right hon. Gentleman does quite understand. He tries to make out that my Amendment wants to give the benefit of being assessed on income received in the year of assessment. I am merely trying to give the benefit of the one case which relates to a profession, trade, or vocation to other persons to whom the Section in the Act of 1907 might be made applicable.
§ Sir J. SIMONIf we were going to adopt the Clause at all it would need to be very carefully considered from that point of view. The hon. Member has explained what he has in his mind, and I am not going to squabble about words. Whatever you do, I do not believe you will find if you look into it closely—that it is possible to say to a man, even in the first three years, that you are going to give him an alternative of taking a year, the last year, and taxing him on that instead of applying the general principle of the three years' average. For one thing, I think you will find it more difficult than usual to discover that he has really began this form of income within the last three years—not an easy thing in regard to foreign investments—and in the second place, if you look at the thing broadly you will see that it does not work out unfairly. I agree that in every system of averages there is this, that some people will be required to pay more than they think they should pay, and some less. The matter is not one easy to explain, but I think the House will find that that really is the way this House arrived at it At any rate, when the revenue made that concession in 1907 it was not a concession that there was any difficulty with; they chose a case in which it could be safely done, and I suggest to hon. Members that it really is not a practicable or a wise thing to alter the machinery so that we should apply it to other cases.
§ Mr. CHAMBERLAINThere are three distinct questions which arise out of the discussion which my hon. Friend behind me has initiated. We have had a reply from the right hon. and learned Gentleman 317 upon it. I would like to deal with the questions in their order separately. As regards my hon. Friend's Amendment, the wording of it appears to me to carry out the option which is allowed to the investor at home in certain peculiar circumstances—not merely to some people if they are deriving their income from abroad—but to others. Therefore, if my hon. Friend's Amendment were carried in this form, people resident abroad would have an option in more cases than people resident at home. That is the first point. I agree with my hon. Friend that that would be the effect. When the words of Section 24 are confined to persons chargeable in respect of any profession, trade or vocation, my hon. Friend's Amendment applies it to income from stocks, shares, rents, or other sources arising in any place out of the United Kingdom. That does not confine it to home, but does confine it again in respect of any profession, trade or vocation. My first observation—if I am right in my interpretation—as to which Heaven forbid that I should speak dogmatically— I am not a lawyer and it is a very difficult matter—if I am right in my interpretation I think my hon. Friend's Amendment in that respect goes too far. The second question that is raised is: should not exemption, such as it is, which is now given to persons under these special circumstances—that is in the first three years of a profession, trade or vocation abroad, be extended having regard to the new Section spoken of, to people who derive similar incomes and under similar conditions from abroad? I think the learned Attorney-General made no answer to that point.
§ Sir J. SIMONForgive me, our new Clause 5 does not tax anybody in respect of a profession, trade or vocation; it taxes stocks, shares, rent. It does not tax professional people qua professional people, or trading people qua trading people at all. There is nothing corresponding to that.
§ Mr. CHAMBERLAINSuppose a man starts a manufacturing business in this country he will be entitled for the first three years to have an option given him under Section 24, Sub-section (2) of the Finance Act of 1907. Supposing the same person elected his factory, not in Lancashire, but in India, will he be entitled to the same concession? Will he be taxed on any profits that he brings home? Supposing he brings the whole of his profits of the manufactory home, or suppose he 318 accumulates them in India, under Section 5 you tax him on those profits if he is resident here. Is that so?
§ Sir J. SIMONThe answer is, on stocks, shares, rents, yes, whether he brings them home or not; bat nothing on other income.
§ Mr. CHAMBERLAINThat is very important. I think that is certainly not understood by the people concerned, as I could illustrate from the correspondence I have. I think I am taking a perfectly clear case. I take the illustration of a man who is making cotton goods for the Indian market, and who has the option of establishing a new mill in Lancashire or in India. If he establishes his new mill in Lancashire he gets the benefit of the option under the Act of 1907. Does the hon. and learned Gentleman tell me that if he establishes the mill in India the profits of that mill in India will not be assessed and are not assessable to Income Tax in India under Section 5? He says "unless received." In your new Section 5 there is the phrase "whether they are received or not." Then, in the case of a business establishment, if he does not bring his profits home, they are assessable?
§ Sir J. SIMONNot under our new Clause.
§ Mr. CHAMBERLAINI am very glad to get that assurance, because my correspondence has brought me many letters from people very much concerned about a particular case, and they were under the impression, as I was, that profits of a trade were included under the new Subsection. But I now understand from the Government Bench, and I am very much obliged for the explanation, that if a private resident in this country derives his trade profits from an enterprise abroad, and does not bring them home, he is not assessable to taxation under the new law.
§ Sir J. SIMONI agree this is very important, and it is extremely important that I should not mislead anyone—accidentally, of course—as to what the position is. The right hon. Gentleman is referring to an individual. He is not speaking about a limited company, or any of the complicated questions that arise as to where a limited company is resident. Our Section 5 does not in the least bring in the profits of business carried on abroad. It is strictly limited to what you may broadly call investments, namely, securities, stocks, shares, or rents, and 319 deliberately so. Of course, incorporated companies raise several difficulties of their own, which I do not understand the right hon. Gentleman to be referring to. His case is that of an individual.
§ Mr. CHAMBERLAINThat is satisfactory. I certainly did not mean to invite the Attorney-General into the technicalities of where a company is domiciled, or anything of that kind. I wanted to take a clear case of an individual who has, say, a mill in India or somewhere else abroad, and to see the effect of this legislation upon that. That disposes, and disposes satisfactorily, of the second point I wish to bring before the House. The third point arises rather from an answer of the right hon. and learned Gentleman, and I want to ask him for information upon the subject to see whether I have correctly under stood what he said in reply to my hon. and learned Friend. Supposing that some body resident in this country has his money invested, partly in this country and partly abroad, and suppose that for perfectly legitimate reasons he lessens the proportion of his capital invested abroad and in creases the proportion of his capital in vested at home, in the kind of securities of different sorts which are embraced in the purview of the Amendment and of the Sub-section to which it refers. Do I understand the right hon. and learned Gentleman to say, in the first place, that it is the law, and, in the second place, that it ought to be the law; that, although he has transferred capital, he is to be assessed upon the average of the profits which were actually received—that is to say, suppose that at the commencement of the three years he had £10,000 abroad, and that at the end of the year he sold £5,000 of the foreign investments and invested it at home, does the right hon. and learned Gentleman mean to say when you come to assess him for Income Tax in the second year in the securities dealt with here—
§ Sir J. SIMONUnder Section 5?
§ Mr. CHAMBERLAINI am following, I think, the case put by the Attorney-General himself. What we understood him to say was that in cases of such a transfer of investment where you were dealing, not with income fluctuating by the chances of the fortunes of the year, but with income diminishing owing to the transfer of part of the capital to another investment, you would still assess that holder upon the average of three years, 320 and that if his income from £10,000 was £500 in the first year, but owing to the transfer of the capital it was £250 in the second, you would call upon him to make an average of £750. That surely cannot be what the Attorney-General meant to say, because, of course, capital so transferred to this country is going to pay Income Tax here upon the profits it makes, and you would then be charging the same capital twice over. I think my hon. Friend said it was the law, and I thought the Attorney-General confirmed the view of my hon. Friend and said it was not only the law, but that it should be the law.
§ Sir J. SIMONI will put it as plainly as I can There are three things that must be distinguished. There is first the provision of the old law by which you tax an income from foreign securities, so far as they are remitted to this country. They are not taxed upon the average under the old law, but upon the amount you receive in the year. In the second place, also under the old law, there is the case of remitting to this country the proceeds of what are called foreign possessions—not the same thing as securities. For instance, the best known case in regard to foreign possessions, the one argued in the Courts a great deal, is the case of a wool business in Australia. There, of course, you may remit to this country in specie or in money. Under the old law you tax upon the average that is remitted to this country. Under the old law and under the present law you tax upon the average, the reason being that it might happen a person did not send here the whole of the product in any given twelve months, and therefore it was thought right to take the average The third thing is under our new Clause, and that, of course, has nothing to do with whether income is remitted to this country or not, though on the other hand I think it is quite clear it is limited to the case of securities, stocks, shares, and rents, and does not include profits on an ordinary business abroad. There again there is no question of average. You tax year by year on the interest of your investment abroad just as you are taxed year by year on the interest of your investments at home. At home you would be taxed at the source, whereas abroad you are not; but that is merely a matter of machinery. Out of the three cases—two under the old law, and one under the new—there is only one in which the average can apply. This new Clause cannot possibly have any reference to the first case 321 of the remittance to this country of foreign securities, nor to the last case I have mentioned, namely, that under Clause 5. The only case to which it can possibly have reference would be the case of the remittance to this country of the proceeds of foreign possessions, and there what I say is, that it is right to stick to the average, and that it would be wrong to give the taxpayer an option, because, of course, that would obviously mean that the taxpayer, either by choosing the time when he remitted or by limiting in some other form the amount, in any one year it might be a very small thing, whereas, as a matter of fact, the average would not correspond to the small figure which was produced in one year by manipulation. I do not know whether I make it clear, but two out of the three cases could not possibly be affected.
§ Mr. CHAMBERLAINI think I understand the right hon. and learned Gentleman, and I am much obliged for his explanation. If I do not understand it, it is not for want of courtesy or want of knowledge on his part. But I take that case of foreign possessions, and I want to put a specific instance in that connection. I think the right hon. Gentleman said that the standard case was the case of a wool business in Australia. Take a man who is resident in London and making £5,000 a year by a wool business in Australia. He would be resident in London and he would have the whole of that £5,000 whether he brought it home or not. I understand in that case he will be assessed on the average of three years.
§ Sir J. SIMONThe new Section will have nothing to do with that. It only deals with securities, stocks, shares, and rents. It has nothing to do with that.
§ Mr. G. LOCKER-LAMPSONThe right hon. and learned Gentleman gave three cases. Is there not a fourth case in which this new Clause applies, namely, the case that, if a business is set up, at the end of three years, instead of being assessed on the average, it is assessed at the end of the year? That is what I want to apply to foreign possessions.
§ Mr. CASSELMay I ask the right hon. and learned Gentleman whether it is not the case that you have a distinction between separate cases—the case of an individual, the case of a partnership, and the case of a company? My right hon. Friend put the case of an individual who 322 has a business in Australian wool and who is resident in this country. I would ask the right hon. and learned Gentleman whether it is not the case that under the existing law that individual, however his business is managed, as an individual would be liable for the whole of the profits?
§ Sir J. SIMONThat is not under the new Section 5.
§ Mr. CASSELNo, under the existing law. The case of an individual who owns the whole business is deemed to control the whole business, however much it passes into the hands of agents, for he can always dismiss his agents. Under the existing law a single individual—I am distinguishing the care of an individual—is liable on the whole profits of that business carried on abroad, whether remitted to this country or not. Whatever arrangement he makes in regard to agents he has the control of that business. Then you come to the case of a partnership and a company, where I think you are raising up most illogical provisions by your two new Sections. What you provide is this: Take the case of a partner in that wool business living in this country, and that partnership is controlled abroad; if I own half the shares in that partnership, you provide by Clause 10 that I am to be liable in respect to profits I do not bring back to this country.
§ Sir J. SIMONI treated the new Clause as meaning what it says. The hon. and learned Gentleman is talking of a partnership. What on earth has this Clause to do with any question of partnership?
Mr. DEPUTY-SPEAKERWe are not dealing here with Clause 5 or Clause 10. We must keep to the subject raised by the proposed new Clause.
§ 6.0 P.M.
§ Mr. CASSELThe only reason I rose was in consequence of the case which my right hon. Friend put, and with reference to which it is essential to understand the position in order to realise the difference between the case of an individual and the partnership and a company. The individual under the existing law is liable. In the case of a partnership under the new Section 10 he is not liable in respect of that which he does not bring back. If that same partnership is transformed into a limited company in which he has a half share, he is liable on the dividends on that company although he does not bring them 323 back. The result of these two Sections is to leave the matter in a hopelessly illogical position, and the right hon. Gentleman had better refer this matter to a Royal Commission.
§ Mr. POLLOCKI think the Attorney-General is perfectly right in the statement of the law which he made, but it does not meet this Amendment. My hon. Friend's Amendment is very simple, but it is impossible to understand it without going back a little. My hon. Friend asks for an extension of the exemption granted under Section 24, Sub-section (2), of the Act of 1907. I am going behind that to remind the House what that Section was passed for. The Attorney-General, who is familiar with the Report of the Income Tax Act, 1905, will recollect that Clauses 81 to 111 deal specifically with this question of the three years' average. What was the position before the Act of 1907? There was Section 133 of the old Income Tax Act, which provided for an adjustment of the assessment at the end of the year by dispensing with all estimates which were based on the preceding year, or the average, and substituting the actual profits of the year by assessment as soon as ascertained. For good reasons, which are pointed out, it was held that the old form of adjustment was insufficient and ineffective, and was not fair to the Crown and the Income Tax Commissioners proposed that Section 133 should be repealed and a new mode of adjustment introduced. In consequence of their recommendation a new Clause was put in, and Section 24, Sub-section (2), and Section 133 of the old Act was repealed, and so now we have got the adjustments which can be made in respect of the three years' system brought up to a more modern system by means of Section 24, Sub-section (2), of the old system, and the old Section 133 of the Act of 1842 no longer stands good.
What is the effect of that? It is that by means of this adjustment it is possible now for a man to say to the Commissioners that by reason of the three years' system he has paid more by taking this Act than he would have paid if he had taken the real sum he had received. That is the adjustment given in Section 2 and Sub-section (3). Now, my hon. Friend the Member for Salisbury comes forward with a very simple Amendment, and he gave a very good illustration of what it was sought to do. He said, "Let us take the three years' 324 average. A man has to return his whole income. Suppose he has returned it for a given year, say, 1914–15, and in that there is a certain amount comes to him from abroad. He has to return that because it is a part of the income from other sources which is to be found in the Income Tax returns we have to make. Having made his average based upon the sum of money he has received from foreign sources, he has returned his average. Having done that, he finds also that he is taxed particularly by another side wind or imposition in respect of this portion of the money which comes from abroad," and so my hon. Friend says that during a period of three years there ought to be an opportunity for exemption in respect of duty which has already been taken into account, and which is only being taxed by means of a direct imposition, and being foreign income there ought, therefore, to be an exemption from the three years' system. I think I have correctly explained the purpose of my hon. Friend's Amendment.
The illustration which he gave to meet the point made it perfectly plain that this is all he desires to do. The Attorney-General several times over gave a clear exposition of the law, but I am sure he would not resist what I have said, because it is a pure act of justice. I agree that this Clause might have to be framed again or have introduced into it other words in order to make it accord with the Income Tax Act, but that is no reason why we should not read this Clause a second time. At the present moment no adjustment can be made in respect of this income coming from abroad. My hon. Friend suggests an adjustment, particularly in the last line or two. He says there are certain cases in which the hardship will be emphasised by reason of the passage of Clause 5 of this Bill. That Clause provides that whether the money comes over here or does not, it has equally got to be returned and there can be an assessment in respect of money which does not come over here. My hon. Friend proposes to give the exemption in respect both of money which is remitted from abroad and which is taxed, as I say, by a side wind, and which has already found its place in the three years' average and also in respect to the Income Tax which could be imposed by virtue of Clause 5 of the Finance Act of this year. This Amendment is to give that exemption during the same period, and no longer than Clause 24, Sub-section (2) gives it at the present time in respect of an average year's income. It is merely ingrafting 325 upon Section 24 a system which is required for the purpose of meeting an injustice by reason of income which is remitted and sent from abroad, and which, although not remitted, is taxed by means of Clause 5. All the other problems and conundrums which have been put have nothing whatever to do with that simple proposition.
The Attorney-General says that foreign securities are taxed at the year of assessment, and that is the difficulty which makes my hon. Friend's Clause necessary. If they were not taxed on the year of assessment the difficulty might not arise, but inasmuch as they are so taxed, and you have to adopt a three years' average, and although they have been taxed in the year of assessment, they have to find a place in the average system. That system works unfairly, because you get an average of a certain amount of income which has been taxed, and will be taxed, although you are, by means of the average system, submitting them to taxation. I do not think that the Attorney-General was very clear in his answers as to why that
§ exemption should not be given, and it seems to me that he wandered into a good many by-paths and a good many subjects instead of considering the very small alteration of the law which would be made by this Clause. If the Chancellor of the Exchequer thinks fit to make any answer, I hope he will say that it is not merely sought to put this Clause in a cupboard ready for the Income Tax Commissioners for their Report when it is made, but that he will see that Section 5 has brought into prominence an injustice which ought to have been remedied before, and will feel the weight of my hon. Friend's argument that Clause 24, Sub-section (2) ought to be extended in the way which is proposed by this very narrow exemption during that particular period of three years. On these grounds I support the Amendment of my hon. Friend.
§ Question put, "That the Clause be read a second time."
§ The House divided: Ayes, 182; Noes, 283.
329| Division No. 191.] | AYES. | [6.11 p.m. |
| Agg-Gardner, James Tynte | Cooper, Sir Richard Ashmole | Hohler, Gerald Fitzroy |
| Aitken, Sir William Max | Craig, Captain James (Down, E.) | Hope, Harry (Bute) |
| Amery, L. C. M. S. | Craig, Norman (Kent, Thanet) | Hope, James Fitzalan (Sheffield) |
| Astor, Waldorf | Craik, Sir Henry | Hope, Major J. A. (Midlothian) |
| Baird, J. L. | Crichton-Stuart, Lord Ninian | Horne, Edgar |
| Baker, Sir Randolf L. (Dorset, N.) | Croft, H. P. | Horner, Andrew Long |
| Baldwin, Stanley | Currie, George W. | Hume-Williams, William Ellis |
| Banbury, Sir Frederick George | Dalrymple, Viscount | Hunt, Rowland |
| Banner, Sir John S. Harmood- | Dalziel, Davison (Brixton) | Ingleby, Holcombe |
| Baring, Major Hon. Guy V. (Winchester) | Denison-Ponder, J. C. | Jessel, Captain H. M. |
| Barnston, Harry | Dennis, E. R. B. | Joynson-Hicks, William |
| Barrie, H. T. | Dickson, Rt. Hon. C. Scott | Kerry, Earl of |
| Bathurst, Charles (Wilts, Wilton) | Duke, Henry Edward | Keswick, Henry |
| Beach, Hon. Michael Hugh Hicks | Duncannon, Viscount. | Kinloch-Cooke, Sir Clement |
| Beckett, Hon. Gervase | Du Pre, W. Baring | Lane-Fox, G. R. |
| Bennett-Goldney, Francis | Eyres-Monsell, Bolton M. | Lloyd, George Butler (Shrewsbury) |
| Bentinck, Lord H. Cavendish- | Faber, George Denison (Clapham) | Locker-Lampson, O. (Ramsey) |
| Beresford, Lord Charles | Faber, Captain W. V. (Hants, W.) | Lockwood, Rt. Hon. Lieut.-Colonel A. R. |
| Bigland, Alfred | Falle, Bertram Godfray | Lowe, Sir F. W. (Birm., Edgbaston) |
| Bird, Alfred | Fell, Arthur | Lyttelton, Hon. J. C. |
| Blair, Reginald | Fletcher, John Samuel | MacCaw, Wm. J. MacGeagh |
| Bowden, G. R. Harland | Ganzoni, Francis John C. | Mackinder, Halford J. |
| Boyton, James | Gardner, Ernest | M'Calmont, Major |
| Brassey, H. Leonard Campbell | Gibbs, G. A. | M'Neill, Ronald (Kent, St. Augustine's) |
| Bridgeman, William Clive | Gilmour, Captain John | Malcolm, Ian |
| Bull, Sir William James | Glazebreek, Captain Philip K. | Mildmay, Francis Bingham |
| Burdett-Coutts, W. | Grant, J. A. | Mills, Hon. Charles Thomas |
| Burgoyne, A. H. | Greene, W. R. | Morrison-Bell, Capt. E. F. (Ashburton) |
| Burn, Colonel C. R. | Guinness, Hon. Rupert (Essex, S. E.) | Mount, William Arthur |
| Butcher, John George | Gwynne, R. S. (Sussex, Eastbourne) | Newman, John R. P. |
| Campbell, Captain Duncan F. (Ayr, N.) | Haddock, George Bahr | Newton, Harry Kottingham |
| Campion, W. R. | Hall, D. B. (Isle of Wight) | Nicholson, William G. (Petersfield) |
| Carlile, Sir Edward Hildred | Hall, Marshall (L'pool, East Toxteth) | Nield, Herbert |
| Cassel, Felix | Hamilton, C. G. C. (Ches., Altrincham) | O'Neill, Hon. A. E. B. (Antrim, Mid) |
| Castlereagh, Viscount | Hardy, Rt. Hon. Laurence | Orde-Powlett, Hon. W. G. A. |
| Cave, George | Helmsley, Viscount | Ormsby-Gore, Hon. William |
| Cecil, Evelyn (Aston Manor) | Henderson, Major H. (Berks, Abingdon) | Paget, Almeric Hugh |
| Cecil, Lord Hugh (Oxford University) | Henderson, Sir A. (St. Geo., Han. Sq.) | Pease, Herbert Pike (Darlington) |
| Cecil, Lord R. (Herts, Hitchin) | Hibbert, Sir Henry F. | Peel, Lieut.-Colonel R. F. |
| Chamberlain, Rt. Hon. J. A. | Hickman, Colonel Thomas E. | Perkins, Walter F. |
| Clay, Captain H. H. Spender | Hills, John Waller | Peto, Basil Edward |
| Clive, Captain Percy Archer | Hill-Wood, Samuel | Pole-Carew, Sir R. |
| Clyde, James Avon | Hoare, S. J. G. | Pollock, Ernest Murray |
| Pretyman, Ernest George | Stanier, Beville | Ward, A. S. (Herts, Watford) |
| Pryce-Jones, Colonel E. | Stanley, Hon. G. F. (Preston) | Watson, Hon. W. |
| Quilter, Sir William E. C. | Starkey, John Ralph | Weston, Colonel J. W. |
| Randles, Sir John S. | Staveley-Hill, Henry | Wheler, Granville C. H. |
| Rees, Sir J. D. | Steel-Maitland, A. D. | White, Major G. D. (Lancs., Southport) |
| Rolleston, Sir John | Stewart, Gershom | Williams, Colonel R. (Dorset, W.) |
| Ronaldshay, Earl of | Strauss, Arthur (Paddington, North) | Willoughby, Major Hon. Claud |
| Rothschild, Lionel de | Sykes, Alan John (Ches., Knutsford) | Wilson, A. Stanley (Yorks, E. R.) |
| Rutherford, John (Lancs., Darwen) | Sykes, Sir Mark (Hull, Central) | Wilson, Captain Leslie O. (Reading) |
| Samuel, Sir Harry (Norwood) | Talbot, Lord Edmund | Wilson, Maj. Sir M. (Bethnal Green, S. W.) |
| Samuel, Samuel (Wandsworth) | Terrell, George (Wilts, N. W.) | Wood, Hon. E. F. L. (Yorks, Ripon) |
| Sanders, Robert Arthur | Thomas-Stanford, Charles | Wood, John (Stalybridge) |
| Sanderson, Lancelot | Thomson, W. Mitchell- (Down, North) | Wortley, Rt. Hon. C. B. Stuart. |
| Sandys, G. J. | Thynne, Lord Alexander | Yate, Colonel C. E. |
| Scott, Sir S. (Marylebone, W.) | Tobin, Alfred Aspinall | Younger, Sir George |
| Sharman-Crawford, Colonel R. G. | Touche, George Alexander | |
| Smith, Rt. Hon. F. E. (L'pool, Walton) | Tryon, Captain George Clement | TELLERS FOR THE AYES.—Mr. |
| Smith, Harold (Warrington) | Tullibardine, Marquess of | G. Locker Lampson and Mr. H. Terrell. |
| Spear, Sir John Ward | Valentia, Viscount | |
| NOES. | ||
| Abraham, William (Dublin, Harbour) | Denman, Hon. Richard Douglas | Hughes, Spencer Leigh |
| Addison, Dr. Christopher | Devlin, Joseph | Illingworth, Percy H. |
| Adkins, Sir W. Ryland D. | Dewar, Sir J. A. | John, Edward Thomas |
| Agar-Robartes, Hon. T. C. R. | Dickinson, Rt. Hon. Willoughby H. | Jones, Edgar (Merthyr Tydvil) |
| Agnew, Sir George William | Donelan, Captain A. | Jones, H. Haydn (Merioneth) |
| Ainsworth, John Stirling | Doris, William | Jones, J. Towyn (Carmarthen, East) |
| Alden, Percy | Duffy, William J. | Jones, Leif (Notts, Rushcliffe) |
| Allen, Arthur A. (Dumbartonshire) | Duncan, C. (Barrow-in-Furness) | Jones, William S. Glyn-(Stepney) |
| Allen, Rt. Hon. Charles P. (Stroud) | Duncan, Sir J. Hastings (Yorks, Otley) | Jowett, Frederick William |
| Arnold, Sydney | Edwards, John Hugh (Glamorgan, Mid) | Joyce, Michael |
| Baker, Harold T. (Accrington) | Elverston, Sir Harold | Kellaway, Frederick George |
| Baker, Joseph Allen (Finsbury, E.) | Esmonde, Dr. John (Tipperary, N.) | Kelly, Edward |
| Balfour, Sir Robert (Lanark) | Esmonde, Sir Thomas (Wexford, N.) | Kennedy, Vincent Paul |
| Baring, Sir Godfrey (Barnstaple) | Falconer, James | Kenyon, Barnet |
| Barlow, Sir John Emmott (Somerset) | Farrell, James Patrick | Kilbride, Denis |
| Barnes, George N. | Fenwick, Rt. Hon. Charles | King, Joseph |
| Barran, Sir John N. (Hawick Burghs) | Ffrench, Peter | Lambert, Rt. Hon. G. (Devon, S. Molton) |
| Barran, Rowland Hurst (Leeds, N.) | Field, William | Lambert, Richard (Wilts, Cricklade) |
| Beale, Sir William Phipson | Fiennes, Hon. Eustace Edward | Lardner, James C. R. |
| Beauchamp, Sir Edward | Fitzgibbon, John | Law, Hugh A. (Donegal, West) |
| Beck, Arthur Cecil | Flavin, Michael Joseph | Lawson, Sir W. (Cumb'rld, Cockerm'th) |
| Benn, W. W. (T. Hamlets, St. George) | Furness, Sir Stephen Wilson | Levy, Sir Maurice |
| Bentham, George Jackson | Gelder, Sir William Alfred | Lewis, Rt. Hon. John Herbert |
| Bethell, Sir John Henry | George, Rt. Hon. D. Lloyd | Lough, Rt. Hon. Thomas |
| Birrell, Rt. Hon. Augustine | Ginnell, L. | Lyell, Charles Henry |
| Black, Arthur W. | Gladstone, W. G. C. | Lynch, Arthur Alfred |
| Boland, John Plus | Glanville, Harold James | Macdonald, J. Ramsay (Leicester) |
| Booth, Frederick Handel | Goddard, Sir Daniel Ford | Macdonald, J. M. (Falkirk Burghs) |
| Bowerman, Charles W. | Goldstone, Frank | McGhee, Richard |
| Boyle, Daniel (Mayo, North) | Greenwood, Hamar (Sunderland) | Maclean, Donald |
| Brady, Patrick Joseph | Greig, Colonel J. W. | MacNeill, J. G. Swift (Donegal, South) |
| Brockiehurst, William B. | Griffith, Rt. Hon. Ellis Jones | MacVeagh, Jeremiah |
| Brunner, John F. L. | Guest, Hon. Frederick E. (Dorset, E.) | M'Callum, Sir John M. |
| Bryce, J. Annan | Gulland, John William | McKenna, Rt. Hon. Reginald |
| Buckmaster, Sir Stanley O. | Gwynn, Stephen Lucius (Galway) | M'Laren, Hon. F. W. S. (Lincs., Spalding) |
| Burns, Rt. Hon. John | Hackett, John | M'Micking, Major Gilbert |
| Burt, Rt. Hon. Thomas | Hancock, John George | Manfield, Harry |
| Buxton, Noel (Norfolk, North) | Harcourt, Rt. Hon. Lewis (Rossendale) | Markham, Sir Arthur Basil |
| Byles, Sir William Pollard | Harcourt, Robert V. (Montrose) | Marks, Sir George Croydon |
| Carr-Gomm, H. W. | Harmsworth, Cecil B. (Luton, Beds) | Marshall, Arthur Harold |
| Cawley, Sir Frederick (Prestwich) | Harvey, A. G. C. (Rochdale) | Mason, David M. (Coventry) |
| Cawley, Harold T. (Lancs., Heywood) | Harvey, T. E. (Leeds, West) | Meagher, Michael |
| Chapple, Dr. William Allen | Haslam, Lewis (Monmouth) | Meehan, Francis E. (Leitrim, N.) |
| Clancy, John Joseph | Havelock-Allan, Sir Henry | Meehan, Patrick J. (Queen's Co., Leix) |
| Clough, William | Hayden, John Patrick | Millar, James Duncan |
| Clynes, John R. | Hayward, Evan | Molloy, Michael |
| Collins, Godfrey P. (Greenock) | Helme, Sir Norval Watson | Molteno, Percy Alport |
| Collins, Sir Stephen (Lambeth) | Hemmerde, Edward George | Mond, Rt. Hon. Sir Alfred |
| Compton-Rickett, Rt. Hon. Sir J. | Henderson, Arthur (Durham) | Montagu, Hon. E. S. |
| Cornwall, Sir Edwin A. | Henry, Sir Charles | Mooney, John J. |
| Craig, Herbert J. (Tynemouth) | Hewart, Gordon | Morgan, George Hay |
| Crooks, William | Higham, John Sharp | Morrell, Philip |
| Crumley, Patrick | Hinds, John | Morison, Hector |
| Cullinan, John | Hobhouse, Rt. Hon. Charles E. H. | Morton, Alpheus Cleophas |
| Dalziel, Rt. Hon. Sir J. H. (Kirkcaldy) | Hedge, John | Munro, Rt. Hon. Robert |
| Davies, Ellis William (Eifion) | Hogge, James Myles | Murphy, Martin J. |
| Davies, Timothy (Lincs., Louth) | Holmes, Daniel Turner | Murray, Captain Hon. Arthur C. |
| Davies, Sir W. Howell (Bristol, S.) | Holt, Richard Durning | Nicholson, Sir Charles N. (Doncaster) |
| Dawes, James Arthur | Hope, John Deans (Haddington) | Noian, Joseph |
| De Forest, Baron | Howard, Hon. Geoffrey | Norman, Sir Henry |
| Delany, William | Hudson, Walter | Norton, Captain Cecil William |
| Nugent, Sir Walter Richard | Rendall, Athelstan | Taylor, Thomas (Bolton) |
| Nuttall, Harry | Richardson, Thomas (Whitehaven) | Tennant, Rt. Hon. Harold John |
| O'Brien, Patrick (Kilkenny) | Roberts, Charles H. (Lincoln) | Thorne, G. R. (Wolverhampton) |
| O'Connor, T. P. (Liverpool) | Roberts, George H. (Norwich) | Thorne, William (West Ham) |
| O'Doherty, Philip | Roberts, Sir J. H. (Denbighs) | Toulmin, Sir George |
| O'Donnell, Thomas | Robertson, Sir G. Scott (Bradford) | Walsh, Stephen (Lancs., Ince) |
| O'Dowd, John | Robertson, John M. (Tyneside) | Walters, Sir John Tudor |
| O'Malley, William | Robinson, Sidney | Wardle, George J |
| O'Neill, Dr. Charles (Armagh, S.) | Roch, Walter F. (Pembroke) | Waring, Walter |
| O'Shaughnessy, P. J. | Roche, M. Augustine (Louth) | Warner, Sir Thomas Courtenay T. |
| O'Sullivan, Timothy | Roe, Sir Thomas | Wason, Rt. Hon. E. (Clackmannan) |
| Outhwaite, R. L. | Rowlands, James | Wason, John Cathcart (Orkney) |
| Palmer, Godfrey Mark | Rowntree, Arnold | Watt, Henry Anderson |
| Parker, James (Halifax) | Runciman, Rt. Hon. Walter | Wedgwood, Josiah C. |
| Pearce, Robert (Staffs, Leek) | Russell, Rt. Hon. Thomas W. | White, J. Dundas (Glasgow, Tradeston) |
| Pearce, William (Limehouse) | Samuel, Rt. Hon. H. L. (Cleveland) | White, Sir Luke (Yorks, E. R.) |
| Pease, Rt. Hon. Joseph A. (Rotherham) | Samuel, J. (Stockton-on-Tees) | White, Patrick (Meath, North) |
| Phillips, John (Longford, S.) | Scanlan, Thomas | Whitehouse, John Howard |
| Pirie, Duncan V. | Scott, A. MacCallum (Glas., Gridgeton) | Whittaker, Rt. Hon. Sir Thomas P. |
| Ponsonby, Arthur A. W. H. | Seely, Rt. Hon. Colonel J. E. B. | Whyte, Alexander F. (Perth) |
| Pratt, J. W. | Sheehy, David | Wiles, Thomas |
| Price, C. E. (Edinburgh, Central) | Sherwell, Arthur James | Wilkie, Alexander |
| Price, Sir Robert J. (Norfolk, E.) | Shortt, Edward | Williams, Aneurin (Durham, N. W.) |
| Priestley, Sir W. E. B. (Bradford, E.) | Simon, Rt. Hon. Sir John Allsebrook | Williamson, Sir Archibald |
| Primrose, Hon. Neil James | Smith, Albert (Lancs., Clitheroe) | Wilson, Hon. G. G. (Hull, W.) |
| Pringle, William M. R. | Smith, H. B. Lees (Northampton) | Wilson, W. T. (Westhoughton) |
| Radford, George Heynes | Smyth, Thomas F. (Leitrim, S.) | Winfrey, Sir Richard |
| Raffan, Peter Wilson | Soames, Arthur Wellesley | Wing, Thomas Edward |
| Rea, Rt. Hon. Russell (South Shields) | Spicer, Rt. Hon. Sir Albert | Wood, Rt. Hon. T. McKinnon (Glasgow) |
| Rea, Walter Russell (Scarborough) | Strauss, Edward A. (Southwark, West) | Yeo, Alfred William |
| Reddy, Michael | Sutherland, John E. | Young, William (Perthshire, E.) |
| Redmond, John E. (Waterford) | Sutton, John E. | |
| Redmond, William (Clare, E.) | Taylor, John W. (Durham) | TELLERS FOR THE NOES.—Mr. |
| Redmond, William Archer (Tyrone, E.) | Taylor, Theodore C. (Radcliffe) | W. Jones and Mr. Webb. |