CLAUSE 260.—(Exemption of pensions from Indian taxation.) (Hansard, 8 April 1935)

§ The SOLICITOR-GENERAL
I beg to move, in page 145, line 25, after "shall," to insert: if the person to whom the pension is payable is residing permanently outside India be paid on behalf of the Federation or 884 the Province, as the case may be, by, or in accordance with arrangements made with, the Secretary of State, and. This Clause deals with the exemption of pensions from Indian taxation. The words which my right hon. Friend proposes to insert are to meet a point which the Services have raised, that recognition ought to be given somewhere in the Bill of the fact that the Secretary of State is responsible for the issue of pensions in this country. The words or in accordance with arrangements made with, the Secretary of State, refer to civil pensions which are issuable to persons and have been issuable for some years by the High Commissioner. The Amendment does not provide any additional safeguards—the safeguards are really contained in the Clause—but it does make clear what is the existing practice.

§ The DEPUTY-CHAIRMAN (Captain Bourne)
I ought to point out to the Committee that there is an Amendment on the Order Paper standing in the name of the hon. Member for Westhoughton (Mr. Rhys Davies) and other hon. Members. If the next Amendment standing in the name of the Secretary of State is carried, it is obvious that the hon. Member's Amendment will not read. Therefore, if he desires to move his Amendment he will have to move it as an Amendment to the Amendment now before the Committee.

§ Brigadier-General Sir HENRY CROFT
Is there any reason why the words in accordance with the arrangements made by the Secretary of State cannot be inserted? Will my right hon. Friend consider that slight alteration?

§ Mr. MORGAN JONES
May I ask whether it would be convenient to accept as an Amendment to the right hon. Gentleman's Amendment, after the word "India," in the second line of the Amendment, to insert the words "but not in any foreign country." That would cover the point of my hon. Friend's Amendment.

§ The DEPUTY-CHAIRMAN
I am inclined to think that that is the only possible method by which the, hon. Member's point can be raised, and I should be prepared to accept the Amendment in that form.

§ Sir S. HOARE
I am very glad that my Amendment has been moved, not that it adds anything to what was always our desire and intention, but it does go some way to remove certain anxieties felt in the Services. It makes it clear that the Secretary of State, acting as the agent of the Imperial Parliament, has the responsibility for seeing that the money is found from the Indian revenues to meet these pensions. When the words of my Amendment are read in connection with the Amendment that I moved in Clause 153, I think it will be seen that there is now no cause for the anxieties that may have been felt in the past. My hon. and gallant Friend the Member for Bournemouth (Sir H. Croft) asks why we use the words "with the Secretary of State." The answer is that certain of these pensions are paid by the High Commissioner and not direct by the Secretary of State. It is contemplated that the Secretary of State shall make arrangements for the payment of these pensions. The word "with" expresses the relations between the Secretary of State and the High Commissioner and does not in any way detract from the safeguard of the Clause.

Duchess of ATHOLL
May we understand that the Secretary of State will be responsible for seeing that these moneys are allocated from the Indian revenues?

§ Sir S. HOARE
I have just said so.

§ Mr. RHYS DAVIES
I beg to move, as an Amendment to the proposed Amendment, after the word "India," to insert the words in line 2, "but not in any foreign country."
Hon. Members will see what those words convey. We arc raising a fairly important point, but I want to make it clear that nothing I say must be taken as an attack upon any person who has served in any capacity whatever in India. I have made it my business to find out how many persons are receiving pensions for services in India. The figure is literally colossal. There are pensions payable in one category alone to 3,917 military officers, 603 Indian medical officers and 151 officers of the Indian Royal Marine, making a total of 4,671 who receive annually over £2,000,000 in pensions from the Indian revenues.

§ Mr. EMMOTT
They have been well earned.

§ Mr. DAVIES
The hon. Member says they have been well earned. I can see from these figures one reason why John Bull is not willing to leave India.

§ Sir H. CROFT
I wish you were right.

§ Mr. DAVIES
I never interrupt the hon. and gallant Gentleman.

§ Sir H. CROFT
I am sorry.

§ Mr. DAVIES
I always listen to his speeches until I get tired of them and then walk out. Let me deal with another category of people who draw pensions for service in India. There are 789 pensioners from the Indian Civil Service, 50 ex-judges of the High Court, 75 members of the pilot service, and two bishops. Then there are uncovenanted services pensions. I have some recollection of that word "uncovenanted" in connection with unemployment insurance. There are 2,862 of these who receive pensions for uncovenanted services. I do not think that there is a woman included in these figures. These pensioners total 3,778, and the amount payable for the year ending 31st March, 1934, was £1,818,000. Then there were 158 ecclesiastical gentlemen who received £70,000 per annum. Unless my arithmetic is at fault that gives £450 per annum each. I am under the impression that a number of these ecclesiastical gentlemen are now employed elsewhere drawing salaries as vicars, priests and curates, all over this country.

§ Mr. H. WILLIAMS
Why not?

§ Mr. DAVIES
The hon. Member will find out "why not," before I go much further.

§ The DEPUTY-CHAIRMAN
The hon. Member is rather long in getting to the point of his Amendment.

§ Mr. DAVIES
I should have come to the point sooner had it not been for the interruptions. I find that the total pensions payable from Indian revenues to persons who have served in the Indian services and who were bred and born in this country amount to £4,000,000 per annum. I want now to raise the real point regarding the taxation of these pensions at the source. I understand that these pensions are not taxable in 887 India. Indeed, some of them are not taxable anywhere. We may test the imperialism of people who believe in the British Empire by pressing our Amendment to the vote. It seems to us anomalous that persons who have served the British Empire in India in the various services are now drawing pensions from the revenues of India and, so we are told on fairly good authority, are living permanently on their pensions in parts of the world where their pensions are not taxable. We think that that anomaly ought to be removed and that the Government ought to insert in the Bill some provision so that these persons shall not be free from the payment of taxation in respect of their pensions.
I am very much interested in this subject because I have been in Parliament long enough to remember some of our social insurance schemes being passed. Whenever we have discussed widows' pensions, old age pensions, workmen's compensation, unemployment insurance benefit or health insurance benefit, we have found that, in spite of the fact that all the people concerned have contributed towards these benefits, not a single workman or his widow, unless I am mistaken, can draw any one of these benefits unless they live within the confines of these islands. [Interruption.] You cannot draw benefit from some of our social insurance schemes unless you reside within these shores, and in some cases within the Empire. It is unfair to those civil servants who have served in India and in the majority of cases have come back home, and whose pensions consequently are taxable in this country in the ordinary way, that there should be other pensioners living abroad and escaping taxation. I have tried to find out from the Secretary of State how many Indian pensioners live outside the British Empire, but I have been told that the information is not available. It is true that a large number of people who are drawing handsome pensions are following other occupations and drawing salaries—

§ The DEPUTY-CHAIRMAN
That question cannot possibly arise on the hon. Member's Amendment.

§ Mr. DAVIES
I will therefore ask the Minister to be good enough to implement the suggestion contained in the Amendment 888 so that if Indian pensioners are not to be taxed in future—they have not been taxed in the past—they shall not be immune from taxation simply because they care to live in countries outside the British Empire. That is the case we put forward, and I think it is a reasonable case. Some are living in the Channel Islands, some in Mediterranean ports and some in other countries where taxation is much lower than it is here. Some of them may be employed by the Russian Government or in Abyssinia or Afghanistan, and receiving another salary. In equity there is something wrong in the present state of the law whereby a pensioner can deliberately avoid the payment of income tax. It is essential to the etiquette of superannuation allowances and pensions in any country that this policy should prevail. It is the only decent thing for a person who is receiving superannuation allowance or a pension to spend the money he receives in that way in the country where it has been earned.

§ Sir S. HOARE
I hope that the hon. Member will not press the Amendment or, if he does, that the Committee will reject it. Pensions of this kind have always been paid free of Indian income tax and this has been taken into account as one of the conditions of the service. For generations past this has been one of the accepted conditions of the Indian Civil Service. I will not follow the hon. Member in his general disquisition about pensions but let me say that I cannot for a moment accept the suggestion underlying part of his speech, that these pensions were either not earned or if they were earned ought to be paid out of revenues other than Indian revenues.

§ Mr. DAVIES
I never said that.

§ Sir S. HOARE
That was the general conclusion I drew from his speech, but 1 am glad if I misunderstood his argument. I did not quite follow the point of the long list of figures he read to the Committee. The only question is whether tax free pensions should be restricted to pensioners who are living in this country or in the Empire. In actual practice it is very difficult to draw a distinction and really it is not worth while. I imagine that there are very few pensioners living in foreign countries, and it would take 889 a great deal of trouble and invidious investigations to find out where everybody was living. I can assure the Committee that there are very few exceptions of this kind, so rare that it is not worth the while of the India Office or of the Government of India to make meticulous investigation of this kind. That being so it is much better to go on with the present practice and not trouble about the exceptions which, if they exist, are on such a small scale that we need not take them into account.

§ Sir H. CROFT
Let me thank the Secretary of State for the explanation he gave to my question —

§ The DEPUTY-CHAIRMAN
I think we had better dispose of the Amendment to the proposed Amendment.

§ Sir H. CROFT
I just said that in order to save the time of the Committee. I should like to ask the hon. Member for Westhoughton (Mr. Rhys Davies), who has just made an eloquent speech, whether he appreciates the fact that it really would be a great hardship to single out a few of these Indian pensioners in the manner he suggests. He has made a calculation of the number of these pensioners, and it was interesting to find the extraordinary small number of pensioners of the Government of a country so large as India, an administration covering one-fifth of the human race. We are grateful to him for having brought the facts before us. I beg him not to go into the Lobby on the Amendment. It seems to me that it would be casting A special kind of slur on very few people. Those who know the people who have retired from the Indian Civil Service realise that there are a certain number who are absolutely broken in health after a long service in India, not only the men but the women as well, who can only keep alive by going to A sunny climate. I hope he will not divide the Committee on the Amendment. It would be very hurtful to a few pensioners who in these circumstances have endeavoured to find a refuge in some climate more like that in which they have lived so long, and whose health could not stand a rigorous climate.

§ Mr. LANSBURY
I understand that those who live in the United Kingdom 890 pay Income Tax on these pensions, and therefore it would not be equitable or fair to tax them in India. The whole point of the Amendment is that we do not want people to get an unfair advantage by drawing a pension and then live outside the Empire in order to dodge taxation. That is the whole point. If we can be convinced that the numbers involved are very small, it would help us in arriving at a decision. We do not want to impose hardship on any person who has become broken in health because of service in India or anywhere else, and, if it is necessary for them to live abroad, we are as willing as anyone else to let them live there and say nothing about it, taxation free. But there are selfish people who take their money abroad, people from this country, in order to escape Income Tax and Death Duty. They are the people we want to stop. If the Secretary of State can tell us that the number is small, I have no doubt that my hon. Friends would consider the matter.

§ Sir S. HOARE
To obtain an accurate answer would mean the circularising of these thousands of individuals, and that really seems to me to be out of the question. But I have satisfied myself that the number really is insignificant, so insignificant that it does not seem to me to necessitate any differential action. If the right hon. Gentleman will take it from me that the number is insignificant, I feel sure that that is the case.

§ Mr. RHYS DAVIES
In view of the fact that we have been able to ventilate the point, and in view of the answer of the Secretary of State and the eloquent plea of the hon. and gallant Member for Bournemouth (Sir H. Croft) I beg to ask leave to withdraw the Amendment to the proposed Amendment.

§ Mr. COCKS
In regard to the question of pensions, I should like to assure the Committee that there is more in the position I want to put before them than perhaps they may suppose. The matter was discussed on the Joint Select Committee, and the point of view was received sympathetically by several members of the Joint Select Committee who were not of my party. The Indian delegation put forward the idea that pensions should be subject to an Indian tax. That does not mean that civil servants coming back to England and living in this country should pay a double tax because under the double income tax arrangement they pay the income tax of the country in which they live. They said: We see no justification for the proposal to exempt from income tax the pensions of retired officers of the All-India Services. Any such exemption would not benefit the retired officials resident in Great Britain or Northern Ireland who are subject to the British income tax and who would come within the scope of the double income tax arrangements. Whether India levied an income tax on pensions or not they would continue to pay income tax at the British rate. The only persons who would be protected are the retired officials who have settled in foreign countries in order to evade the British income tax. We do not think that these officers deserve the sympathy of Parliament or that any special constitutional provision should be made for their benefit. The question is not, in fact, connected with service rights or privileges, for retired British officials in India are subject to Indian income tax. The matter is one for adjustment between the British Treasury and the Indian Government, if the latter decided to remove the present exemption. It is possible that, owing to the fact that under the Indian income tax provisions no exemptions are given for families, in a few cases the British rate might be lower than the Indian rate of income tax and that a few retired officials in Great Britain and Northern Ireland would, therefore, become subject to a higher rate of tax. To avoid any hardship in this comparatively small number of cases we would have no objection to any arrangements under which retired officials in Great Britain and Northern Ireland would continue to pay income tax at the same rate as at present. The Secretary of State has said that it is difficult to find out which of these particular individuals were living abroad, but, if the whole of the income tax were levied at the source in India, they would pay the tax. If they live in France or the Channel Islands, they do not pay. I sympathise very much with 892 the case of pensioners mentioned by the hon. and gallant Member for Bournemouth (Sir H. Croft), those people who are broken in health and have to seek foreign climates which suit them. I sympathise very much with them. I understand their case. But that is not any reason why they should be exempt from income tax. After all, there are people who live in the Channel Islands in order to escape income tax. On the other hand, there are many Indian civil servants broken in health who live in England and have to pay income tax here. The proposal put forward by the Indian delegation has reason behind it. Though I do not intend to press the matter to a Division, it is only right that their point of view should be stated.

§ Sir H. CROFT
It is a misapprehension to suppose that people can go to the South of France and live cheaply. Every one is beginning to learn that it is very much more expensive to live there at the present time. People are finding out that it is much better to sojourn in Bournemouth. Let me mention one point in regard to the general principle of this Clause. The Secretary of State has endeavoured to meet the case of pensioners up to a point, but I once more ask what is his intention in the case of default—

§ The DEPUTY-CHAIRMAN
That question does not arise on /his Clause, which deals merely with exemption from taxation. The hon. and gallant Member cannot now go into the whole question of default.

Duchess of ATHOLL
With all respect, the Secretary of State was allowed to make a very interesting and important announcement as to the responsibility for seeing that the money was collected.

§ The DEPUTY-CHAIRMAN
I understood the Secretary of State to make a statement about how the money should be used to meet the pensions. We cannot go back on the discussion we have already had as to how the money is to be collected in the first instance.

§ Sir H. CROFT
The Amendment of the Secretary of State begins with the words
893 "If the person to whom the pension is payable." Surely one must know where the money is coming from? I hope we shall be able to share my right hon. Friend's optimism that there will be no default, but this is perhaps one of the last occasions on which we can ask him what steps he proposes to take in case of default.

The DEPUTY CHAIRMAN
That point cannot arise on this Clause. We cannot go into the question of what may happen if the money is not forthcoming.

§ Mr. H. WILLIAMS
I would like to raise a question of interpretation. This taxation is not to apply to persons "residing permanently outside India." I want to be certain what is the meaning of the words "residing permanently outside." I remember that seven or eight years ago a Bill was introduced into this House to enable persons serving in India who were treated as being domiciled in this country, to approach the courts in India in respect of divorce. This question of domicile is always a difficult and complicated one, and "resident in" does not necessarily bring in that mysterious thing known as domicile. I want to know what "residing permanently" means. Suppose that someone is in the habit of visiting India, someone who served there visits relatives there. A friend of mine who is a retired Indian General officer was a colleague of mine in connection with a certain job. He was about 77 years of age and did not enjoy very good health. He used to live in Italy during the winter, and as he had to go there anyhow 'he decided to reside there for six months and one day in the year, because that had the beneficial reaction to which the hon. Member for Westhoughton (Mr. R. Davies) referred. But what does "residing permanently outside" mean?

§ Sir S. HOARE
There has never been any difficulty about these words. They have been in operation for years, as far as Indian pensions are concerned. I understand that six months is the test applied. The expression is quite clearly understood.