HC Deb 03 July 1928 vol 219 cc1329-37

Gratuities granted to individuals for specific services to the State in the form of awards granted by the Royal Commission of Awards to Inventors, by the Royal Commission of Scientific and Industrial Research, by the Navy, Army, or Air Force authorities to officers and others for definite and specific services, shall be exempt from Income Tax and Super-tax in respect of these gratuities and awards.—[Sir J. Nall.]

Brought up, and read the First time.


I beg to move, "That the Clause be read a Second time."

This Clause has been put down to meet the kind of case that was raised at Question Time in the House last week, in which an inventor who is granted an award is taxed for Income Tax purposes on the full amount awarded to him. The Financial Secretary to the Treasury is fully acquainted with the kind of cases that arise, and the object of this proposed new Clause is to ensure that an inventor to whom an award is made shall not suffer under the disability which at present applies to him. The Committee will recollect that in the case referred to some £4,000 was deducted for Income Tax from the award, and, although the inventor had had to incur heavy legal costs, no allowance was made for those costs or for the expense incurred in carrying out experiments in connection with the invention; and it may well happen in some cases that the inventor has no net gain to his credit at all. It seems grossly unfair that in cases of this kind, where considerable legal costs are incurred, these are not taken into account in assessing the net income of the taxpayer for purposes of Income Tax. I hope that my hon. Friend will see the justice of the proposal on which this Clause is based. I cannot think that it will involve any great loss to the Revenue; it is mainly a question of principle affecting, probably, only a few individuals.


In the Clause as it appears on the Paper mention is made of the Royal Commission of Scientific and Industrial Research. There is no "Royal Commission of Scientific and Industrial Research." I understand that the Department of Scientific and Industrial Research has not granted awards of the kind contemplated by the Clause. I am aware of the case to which my hon. Friend has referred. I have given a good deal of thought to the principle involved. I think that it may, perhaps, be acceptable to the Committee if I read my notes of the conclusion to which we have come, so that there may be no doubt as to the view of my right hon. Friend the Chancellor of the Exchequer with regard to it. In all these cases payments constitute income and are properly chargeable to tax. Other taxpayers receiving similar gratuities and awards with regard to inventions from other sources—for example, inventors who receive payment in respect of the user of patents by private business concerns, or employés receiving gratuities for specific services from private employers—have to pay tax in respect of the payments. Therefore, there is no gross unfairness such as my hon. Friend suggests. There is no reason why persons who receive similar payments from the State should be put in a privileged position by being granted a special exemption. The decision of Mr. Justice Rowlatt in the case of Ryall v. Hoare made it clear that amounts, whether recurring or not, earned in respect of services rendered or work performed are within this charge of Income Tax. I think that these remarks will indicate to my hon. Friend that there are good reasons why we cannot accept this proposed new Clause.

12 m.


The facts of the case which has been referred to have never been contradicted, and we have to take them as they have been given. Here is a man whom the Government forced to make good his claim at law. It makes him pay three-fourths of the amount to which he is entitled in law and other costs, and then imposes taxation on the whole of the sum to which he ought to have been entitled. The thing is a monstrous injustice, and, if the hon. Gentleman carries it to a Division, I shall certainly go into the Lobby with him.


I feel particularly strongly on this matter, because I have suffered from it myself. I fought the Government for four years to get £500 out of them, and at last I succeeded, and then they taxed me on the award. It is not at all true, as the Financial Secretary says, that this is analogous to a payment by a firm for an invention. It is no loss to the Government. It is the Government who are giving you the money, and when they give you a certain sum and then deduct a certain amount from it it is simply acting like Alice in Wonderland. They do it to annoy. There is absolutely no reason for the deductions at all. All that they have to do is to diminish the amount they are going to give and give it without any deduction at all.


I do not suppose for a moment the hon. Gentleman would suggest that we should alter our whole procedure in regard to awards. Awards, for instance, given to successful commanders in the field are subject to the ordinary rules of taxation, and there is no reason why those special awards which were given after the War should not also bear their proper and due burden. As a matter of fact, a great many of these inventors obtain their information through the fact that they are employed in connection with the military or naval forces, and some of them make large fortunes, while others who have contributed as much put forward no claim at all. I certainly do not sec why the ordinary process of the law should be interrupted in order to add to the advantage of those gentlemen who have received awards.


Can the right hon. Gentleman give any instance in which a general officer had to sue at law for the payment of an award made for services in the field?

Lieut.-Colonel JAMES

I should like once again to appeal to the Chancellor of the Exchequer, because surely he must appreciate that cases of infinite hardship have arisen. To begin with, there is the case of Mr. Martin Hale, about which I have frequently addressed questions to the Financial Secretary. He received an award of £22,000 in all, but litigation was forced upon him by the action of a Government Department which cost him £10,000, and, in addition, he has been called upon to pay Income Tax and Super-tax. There is again the case of Sir Arthur Mills, the inventor of the Mills bomb. I had better not refer to that, because I believe litigation is still pending, but Sir Arthur Mills is a heavy loser. Mr. Constantinescu received an award, I believe, of something like £122,000. In the first instance, he was invited by the Government to produce an invention to enable aircraft to fire between the propellers of aeroplanes when in motion, and establish supremacy in the air. The actual cost of his researches and so on amounted to £40,000. Mr. Constantinescu was not a plutocrat; he was not a Government Department; he had to borrow the money from a financier, who claimed his pound of flesh; and the result is that Mr. Constantinescu has been fined. Again, take the case of an officer in the Army, Navy or Air Force. He is not like a member of a commercial firm; he cannot sell his invention in the open market. He is not like a successful author, novelist, or writer of war reminiscences, who can go to a publisher and get what he asks; he has to take whatever a Government Department like to give him. I submit that it is grossly unfair to charge these small people, not only officers, but civilians, who evolve valuable inventions, Income Tax on the small and often totally inadequate awards which they receive.


So far as the Royal Commission on Awards to Inventors is concerned, I think the Committee ought to remember that those who appeared before that Royal Commission did so on the clear understanding that they were avoiding litigation in relation to their inventions. It is perfectly true to say that the Royal Commission gave consideration to all the matters which have been pointed out in fixing the amounts of the various awards. I speak as an ex-member of the Royal Commission on Awards to Inventors, and I think that hon. Members ought to remember that those who elected to appear before that Royal Commission elected to do so in order to safeguard themselves from litigation, which might cause considerable expense to those who were receiving the awards; and I understood at the time that those who came before that Royal Commission appeared before it with the clear understanding that the decision of the Royal Commission on Awards to Inventors was to be accepted by them as a final decision.


I, at all events, and I think other hon. Members of the Committee, would be glad if my right hon. Friend the Chancellor of the Exchequer would explain a little more fully what he meant by his recent remarks. I am left under the impression, which I think is shared by other hon. Members, that he intended to convey that members of His Majesty's fighting forces who received grants from the country at the end of the late War had to pay Income Tax on those grants—that the general who received £50,000 or £30,000 paid Income Tax in the year when he received the grant, not on the income derived from that capital sum, but actually on the £50,000 or £30,000, or whatever the actual sum might be that he got as a grant. I do not know whether it is an actual fact that those officers were asked to pay Income Tax on the capital sum, and I think it would be well if my right hon. Friend would enlighten the Committee as to whether those people were in fact charged Income Tax, and whether the parallel which he attempted to draw between the two sets of persons is really a correct one, or was, as many hon. Members of the Committee think, an attempt to draw a red herring across the trail of the discussion.


It may be that this new Clause is not very clearly drafted, but I certainly understood from those who proposed it that their intention was to deal with the question of gratuities which were awarded to inventors, and not to raise the question of grants made by Parliament to distinguished officers at the conclusion of the War, As I understand, the point at issue is one which occurs every year. If hon. Members will follow the various accounts of Government Departments, they will see in those accounts that payments are made of definite gratuities on inventions which are of use, whether to the fighting services or to other branches of our national life. The amounts which are paid at the present time are generally quite small, without going back to the cases mentioned by my hon. and gallant Friend the Member for Bromley (Lieut.-Colonel James), which it is true were otherwise than small. It should be definitely agreed upon by Parliament, I submit, that when the Royal Commission, acting under the authority of Parliament, makes a definite grant for a specific invention, chat amount should not be considered as income at all. After all, it is asking a lot of an inventor to expect that he will go on producing inventions year by year. It is not in any sense of the word a source of income; it is, on the other hand, in every sense of the word a definite invention, and as such, as I am sure every hon. Member of the Committee agrees, ought to be deemed to be a definite addition to the capital of the inventor, and no part of his income at all.


I submit that the Chancellor of the Exchequer has been definitely challenged to state whether or not those inventors to whom reference has been made were expected to employ legal assistance, and two hon. Members have challenged him to say whether or not there is any foundation for the statement the right hon. Gentleman made. I submit that he is treating the Committee and Members of his own party with very little courtesy in not answering that challenge and saying whether that statement has any foundation.


Whether what has any foundation?


Whether the impression the right hon. Gentleman left on the mind of the Committee is true, that

those members of the Forces who received substantial block grants at the end of the war had to pay tax not only on the income for those grants, but on the actual grants themselves?


If I gave the impression that the grants to the Generals were taxed on the capital sum, I was wrong; but so far as this particular case is concerned—the awards to inventors—there is no doubt about what was the intention of Parliament and what is the practice. The rule provides most clearly that these awards are subject to Income Tax on the capital sum.

Question put, "That the Clause be read a Second time."

The Committee divided: Ayes, 80; Noes, 142.

Division No. 235.] AYES. [12.13 a.m.
Adamson, Rt. Hon. W. (Fife, West) Henderson, T. (Glasgow) Potts, John S.
Alexander, A. V. (Sheffield, Hillsbro') Hirst, G. H. Remer, J. R.
Batey, Joseph Hudson, J. H. (Huddersfield) Richardson, R. (Houghton le-Spring)
Beamish, Rear-Admiral T. P. H. Hudson, R. S. (Cumberl'nd, Whiteh'n) Riley, Ben
Bird, Sir R. B. (Wolverhampton, W.) Hutchison, Sir Robert (Montrose) Roberts, Rt. Hon. F. O. (W. Bromwich)
Brocklebank, C. E. R. Jenkins, W. (Glamorgan, Neath) Sandeman, N. Stewart
Bromfield, William John, William (Rhondda, West) Scrymgeour, E.
Brown, James (Ayr and Bute) Johnston, Thomas (Dundee) Shaw, Rt. Hon. Thomas (Preston)
Buchan, John Jones, T. I. Mardy (Pontypridd) Slesser, Sir Henry H.
Buckingham, Sir H. Kelly, W. T. Sprot, Sir Alexander
Cowan, D. M. (Scottish Universities) Kennedy, T. Sutton, J. E.
Crawfurd, H. E. Kirkwood, D. Tinker, John Joseph
Crookshank, Col. C. de W. (Berwick) Lawrence, Susan Tomlinson, R. P.
Dalton, Hugh Lawson, John James Varley, Frank B.
Duncan, C. Lindley, F. W. Watson, Sir F. (Pudsey and Otley)
Dunnico, H. Loder, J. de V. Watson, W. M. (Dunfermline)
Edwards, C. (Monmouth, Bedwellty) Long, Major Eric Watts-Morgan, Lt.-Col. D. (Rhondda)
Fenby, T. D. McDonnell, Colonel Hon. Angus Wellock, Wilfred
Gibbins, Joseph Mitchell, E. Rosslyn (Paisley) Wheatley, Rt. Hon. J.
Gillett, George M. Moore-Brabazon, Lieut.-Col. J. T. C. Whiteley, W.
Greenwood, A. (Nelson and Colne) Murnin, H. Williams, T. (York, Don Valley)
Grenfell, D. R. (Glamorgan) Nall, Colonel Sir Joseph Wilson, R. J. (Jarrow)
Gretton, Colonel Rt. Hon. John Nelson, Sir Frank Windsor, Walter
Grundy, T. W. Oliver, George Harold Wragg, Herbert
Hall, G. H. (Merthyr Tydvil) Palin, John Henry
Hardie, George D. Paling, W. TELLERS FOR THE AYES.—
Hartshorn, Rt. Hon. Vernon Parkinson, John Allen (Wigan) Lieut.-Colonel James and Mr. Ernest
Hayday, Arthur Pethick-Lawrence, F. W. Brown.
Acland-Troyte, Lieut.-Colonel Cobb, Sir Cyril Fanshawe, Captain G. D.
Agg Gardner, Rt. Hon. Sir James T. Cochrane, Commander Hon. A. D. Fermoy, Lord
Allen, Sir J. Sandeman Cooper, A. Duff Fielden, E. B.
Ashley, Lt.-Col. Rt. Hon. Wilfrid W. Cope, Major Sir William Fraser, Captain Ian
Astor, Maj. Hn. John J. (Kent, Dover) Couper, J. B. Galbraith, J. F. W.
Atkinson, C. Courthope, Colonel Sir G. L. Gilmour, Lt.-Col. Rt. Hon. Sir John
Barclay-Harvey, C. M. Craig, Sir Ernest (Chester, Crewe) Goff, Sir Park
Birchall, Major J. Dearman Culverwell, C. T. (Bristol, West) Gower, Sir Robert
Blundell, F. N. Curzon, Captain Viscount Grace, John
Boothby, R. J. G. Dalkeith, Earl of Graham, Fergus (Cumberland, N.)
Bowyer, Captain G. E. W. Davidson, Major-General Sir J. H. Grotrian, H. Brent
Boyd-Carpenter, Major Sir A. B. Davies, Maj. Geo. F. (Somerset, Yeovil) Hall, Lieut.-Col. Sir F. (Dulwich)
Braithwaite, Major A. N. Dawson, Sir Philip Hall, Capt. W. D'A. (Brecon & Rad.)
Briscoe, Richard George Dixey, A. C. Hamilton, Sir George
Bullock, Captain M. Drewe, C. Hammersley S. S.
Burman, J. B. Edmondson, Major A. J. Hanbury, C.
Burton, Colonel H. W. Elliot, Major Walter E. Hannon, Patrick Joseph Henry
Butt, Sir Alfred Ellis, R. G. Harrison, G. J. C.
Campbell, E. T. Evans, Captain A. (Cardiff, South) Hartington, Marquess of
Cecil, Rt. Hon. Sir Evelyn (Aston) Everard, W. Lindsay Henderson, Capt. R. R. (Oxf'd, Henley)
Chadwick, Sir Robert Burton Fairfax, Captain J. G. Henderson, Lieut.-Col. Sir Vivian
Churchill, Rt. Hon. Winston Spencer Falls, Sir Bertram G. Heneage, Lieut.-Col. Arthur P.
Henn, Sir Sydney H. O'Connor, T. J. (Bedford, Luton) Skelton, A. N.
Hennessy, Major Sir G. R. J. O'Neill, Major Rt. Hon. Hugh Slaney, Major P. Kenyon
Holt, Captain H. P. Penny, Frederick George Stanley, Lord (Fylde)
Hope, Capt. A. O. J. (Warw'k, Nun.) Perkins, Colonel E. K. Stanley, Lieut.-Colonel Rt. Hon. G. F.
Hopkins, J. W. W. Peto, G. (Somerset, Frome) Stanley, Hon. O. F. G. (Westm'sland)
Howard-Bury, Colonel C. K. Philipson, Mabel Storry-Deans, R.
Iliffe, Sir Edward M. Pilcher, G. Stuart, Hon. J. (Moray and Nairn)
Inskip, Sir Thomas Walker H. Pownall, Sir Assheton Sueter, Rear-Admiral Murray Fraser
Iveagh, Countess of Preston, William Sugden, Sir Wilfrid
Kennedy, A. R. (Preston) Radford, E. A. Thompson, Luke (Sunderland)
King, Commodore Henry Douglas Raine, Sir Walter Thomson, Rt. Hon. Sir W. Mitchell'
Kinloch-Cooke, Sir Clement Ramsden, E. Titchfield, Major the Marquees of
Knox, Sir Alfred Reid, Capt. Cunningham (Warrington) Tryon, Rt. Hon. George Clement
Lamb, J. Q. Rentoul, G. S. Vaughan-Morgan, Col. K. P.
Lougher, Lewis Roberts, E. H. G. (Flint) Warner, Brigadier-General W. W.
Luce, Maj.-Gen. Sir Richard Harman Rodd, Rt. Hon. Sir James Rennell Watts, Sir Thomas
McLean, Major A. Ropner, Major L. Wayland, Sir William A.
Macmillan, Captain H. Ruggles-Brise, Lieut.-Colonel E. A. Williams, Herbert G. (reading)
Macnaghten, Hon. Sir Malcolm Salmon, Major I. Windsor-Clive, Lieut.-Colonel George
MacRobert, Alexander M. Samuel, A. M. (Surrey, Farnham) Womersley, W. J.
Manningham-Buller, Sir Mervyn Samuel, Samuel (W'dsworth, Putney) Woodcock, Colonel H. C.
Margesson, Captain D. Sanders, Sir Robert A. Young, Robert (Lancaster, Newton)
Mason, Colonel Glyn K. Sanderson, Sir Frank
Milne, J. S. Wardlaw Sandon, Lord TELLERS FOR THE NOES.—
Mitchell, S. (Lanark, Lanark) Sheffield, Sir Berkeley Captain Wallace and Sir Victor
Monsell, Eyres, Com. Rt. Hon. B. M. Shepperson, E. W. Warrender.
Newman, Sir R. H. S. D. L. (Exeter)