HC Deb 27 June 1938 vol 337 cc1601-19

Amendments made:

In page 20, line 29, after "income," insert: which, by virtue or in consequence of the transfer, either alone or in conjunction with associated operations, has become the income.

In line 30, leave out "outside," and insert "out of."

In line 31, leave out from beginning, to "shall," in line 33.—[The Solicitor-General.]

6.59 p.m.

Mr. Benson

I beg to move, in page 21, to leave out lines 5 to 16.

The lines which I propose should be omitted are a qualification of the original form of this proposal to leave out of consideration bona fide transfers for business purposes as it appeared in the Act of 1936. The Solicitor-General will remember that we pointed out that there was considerable opportunity for evasion as the Clause in the Act of 1936 was drafted, and at the time pressed the matter to a Division, and as it turns out the Government have had to come very much more closely to the line we took than they were then prepared to do. But they have still not met our real fundamental objection to this proposal, that is, that where a transfer abroad has taken place, not for any avoidance purpose but purely for the bona fide commercial convenience of the transferor, that this Clause should not apply. The first objection to such a proposal is that it is legislating upon a very vague and difficult thing to assess, and that is the motive of an individual. Whether he is assessed to tax or not depends entirely upon the opinion formed by the Commissioners as to what his motive is for the transference, and it is very easy to cloak motive. The transferor has only to show that his transfer has been made because it was to his own bona fide commercial advantage. No matter how small that advantage may be, if he can establish that he had a real commercial motive for doing it there is no ground for the Commissioners to look further, although the real motive behind may have been a desire to avoid tax. The Commissioners would be prevented from making any further investigation.

There is, I think, an even stronger objection to this proposal than that. Let us assume a bona fide commercial transfer in which no question of tax avoidance ever entered into the head of the transferor. Even granting that position, there is no ground for exempting the transferor from the operation of this Clause. What the Treasury is saying is: "Here we have an honest man; he has made a transfer for a perfectly legitimate purpose. Let us take him out of the operation of this Clause, let us give him the opportunity of enjoying tax-free income." Take a very common case in which a bona fide reason for transfer abroad can be made out. People have foreign interests, and in very many cases the transfer is made for a variety of reasons, for example, that those foreign interests should be worked by a limited company, possibly a non-resident company. There are very many reasons why that should happen. Given that situation, and given an expanding business what happens? The transference abroad has been made to the limited company for perfectly legitimate reasons. The limited company finds the business expanding, it finds that it can absorb in that expansion the profits that are made, so no dividends are declared by this limited company. It has a perfectly legitimate excuse for not declaring dividends, namely, that it is absorbing every penny of its profits into its business. Now there is nothing there which suggests, or which could be construed, as tax avoidance, either in the original establishment of that limited liability company abroad or in the absence of declared dividends—both have perfectly legitimate explanations. So this limited company steadily builds up reserves which ultimately come back in the form of capital to benefit the transferor in this country. In those circumstances the transferor, although he had no intention or purpose of avoiding tax, quite definitely does avoid tax, and I see no reason why we should give him a purely fortuitous advantage in the way of avoidance of tax when he had no intention of claiming such avoidance and when such avoidance is to my mind entirely unjustifiable.

There is one objection that the Solicitor-General may urge against including this particular form of transference within the operation of this Clause, and it is that the operation of this Clause is normally very drastic, and if a legitimate bona fide business transfer abroad were brought into the ambit of this Clause that business would be treated more drastically than a similar company inside the country; in other words, that if this Amendment were carried no untaxed reserves of any kind whatsoever would be allowed, but every penny of profit would be treated as the income of the transferor and would bear tax at the full rate. That is the only objection that I can see. The way to meet that is to combine with Clause 23 the protection which is already given to companies under the control of not more than six persons. You then can put the foreign bona fide company on exactly the same footing as an English company. I would quite willingly have mitigated the severity of the Amendment by such a proposal had I felt that my drafting powers in dealing with such a complicated subject as this were equal to the task, but it is not beyond the capability of a Government draftsman to do it. I think there is a perfectly legitimate case for treating a bona fide commercial transferor no more severely than an English investor, but on the other hand I cannot see that there is any case for treating him far more leniently, as the words in this Clause unquestionably do.

7.9 P.m.

The Solicitor-General (Sir Terence O'Connor)

I was glad that the hon. Gentleman the Member for Chesterfield (Mr. Benson), at any rate, recognised that his proposal was a drastic one. It would indeed be a very drastic one. May I just remind the Committee of what Clause 23 proposes to do? What we are trying to do here is to stop up several loopholes that have been proved to exist in Clause 18 of the Act of 1936. That Clause had a little Preamble all to itself. I will not bother the House with the Clause, but I would like to read the Preamble because it is rather exceptional in the way of a Clause in the Act: For the purpose of avoiding by individuals ordinarily resident in the United Kingdom of liability to Income Tax by means of transfers of assets by virtue or in consequence whereof, either alone or in conjunction with associated operations, income becomes payable to persons resident or domiciled out of the United Kingdom, it is hereby enacted as follows: What was enacted was that if the individual claimed the power of enjoyment of that income which he transfers, then the income, notwithstanding the transfer, was to be treated as his. If he showed that the transfer or the associated operations were mainly for some purpose other than the purpose of avoiding the liability to tax then the income would not be treated as his. We have done many things as the result of the experience we have had of the operation of that Clause, and we propose to do a great many things in the present Clause to tighten that up. First of all, we are narrowing down the power to enjoy that income. The power to enjoy will be so stringently defined after this Clause becomes law that many instances can be pointed to where it might have been doubtful whether a power of enjoyment would have remained under the present law. We propose to do away with that proviso which says that the Sub-section shall not apply if the transfer was effected mainly for some purpose other than the purpose of avoiding liability to taxation. That entirely disappears, and in place of it we substitute the two alternative tests that appear on page 21, line 8, onwards—(a), and (b). I will not deal with the first one because the hon. Gentleman did not, but he was wrong in suggesting to the Committee that in the case of a bona fide commercial transaction that was all that need be proved. More than that has to be proved. It has also to be proved that the transfer was not designed for the purpose of avoiding liability to taxation. There is a double barrel there.

What the hon. Gentleman, I think, recognised was that the answer that might be given was that his procedure would catch bona fide cases. I am bound to tell the Committee that that would be the exact result. It is clear that there may be scores of perfectly genuine bona fide commercial transactions that you do not want to hit. This is, after all, a provision solely and exclusively for the purpose of dealing with tax avoidance; it is not dealing with genuine honest business at all. Let me just instance to the Committee the kind of case that, unless we have some provision of this kind, would he hit—and I can assure the hon. Gentleman that the provision has been drawn extremely narrowly, after long deliberation and with very great care, and in the narrowest possible way that is consistent with anything like fairness to genuine transactions. Suppose you have the following case, which I take as an actual genuine instance that we do not want to catch. B in this country becomes a partner in a partnership carrying on its business wholly abroad, and controlled abroad. He transfers assets to the partnership to be used for the purposes of the business. Apart from Section 18 which we are amending here—and the whole purpose of this Clause is to amend it—he would be liable to tax only on his share of the partnership profits actually remitted to this country. Unless we have a motive test of this kind he will be liable for the whole of his share of the profits of the business, whether they are remitted to this country or not. That is an instance in which we should be putting a perfectly genuine transaction into a worse position than the existing law puts it, in an endeavour to deal with a wholly different species of transaction.

Mr. Benson

If he becomes partner in a foreign business how does he in any way expect to have any power of enjoyment of his partner's income?

The Solicitor-General

Without a motive test of this kind he certainly has power to enjoy, under the definition in the 1936 Act—I will not refer to that definition in detail—as strengthened by the words which we are adding in this Clause. I can assure hon. Members that the words "power to enjoy" are extremely wide. Unless I am to bore the Committee with a long legal dissertation on the exact operation of the Clause, I ask hon. Members to accept my assurance that that case would be caught unless we give the exemption. Nobody in the Committee would doubt that an effort to prevent tax evasion which caught cases of that kind would be an intolerable injustice, and that you must make some loophole through which cases like that can be exempt.

Let me take another case, equally genuine. This is a case in which A, in this country, sets up a company abroad to carry on a trade or business and he transfers to the company assets for the purpose of the business. He receives in return shares in the company. That individual would be liable, apart from Clause 18, to tax on the dividends of the shares that he receives in the company, but without the new motive test he would be responsible for the whole of the profits of the business. We could not allow an anomaly of that kind to be established. Those are two instances, but I could give many more, taken from a genuine selec- tion made of cases that might be caught, indicating that we must have a motive test in order to let the genuine cases through.

We have made this test pretty tight. Let me consider it for a moment. In the first place, (a) covers the case of a transaction which is not commercial. The burden rests upon the person who does not wish to be caught by the Clause of proving to the satisfaction of the Commissioners that the purpose of avoiding liability to taxation was not the purpose or one of the purposes, not only of the transaction but of associated operations, or any of them. If it is not a commercial transaction, it has to get through that mesh. A good many transactions take place in which the purpose is not necessarily avoidance of taxation, but it may be one of the purposes. Some people may think it is not wholly to be deprecated that a business should be organised so that it would attract less taxation in one structure than in another, and that that is not a case of tax avoidance at all. In the case which is not a genuine commercial transaction, there is an extremely close mesh to go through.

If it is a bona fide commercial transaction it has to show the Commissioners that it is such, and also that it was not designed for the purpose of avoiding liability to taxation. We think that these measures are stringent enough for their purpose. My hon. Friends behind me think that they are a great deal too stringent, and I have elaborated the argument a little on that account. Hon. Members opposite have been putting the contrary view, believing that they are not stringent enough.

Amendment negatived.

7.21 p.m.

Mr. Spens

I beg to move, in page 21, line io, after the first "the," to insert "principal."

I was interested in what my hon. and learned Friend the Solicitor-General was saying, but I still am of the opinion that the mesh in paragraph (a) is too small. When you have a test relating to the avoidance of taxation you must not unduly hamper what may be a beneficial transaction. It is true that commercial transactions are dealt with in the next paragraph, but it is difficult, when you are deciding what is a perfectly genuine non-tax-avoidance transaction, to put out of your mind what the effect on your own taxation will be. Suppose a man has to make an allowance for his wife from whom he is divorced or living apart. He desires to do generously by her, and finds that if he allows her £350 a year she may be able to live on it, although it is pretty narrow. It is pointed out to him that if he took it out of a legal obligation and did it in a certain way he could reduce his taxation by about £50, and could increase his wife's allowance to £400. That would be a non-commercial transaction in which it was impossible to say that avoidance of taxation had not been a substantial motive in what he had decided to do. We could not regard it as the main purpose, but we could not say that avoiding taxation was not a factor in his mind in deciding how far to go.

There are thousands of transactions in which a court or the Commissioners might say that because they took into consideration the effect upon taxation and transferred to somebody else a little bit more because they could afford to do so by reason of their taxation having been reduced, they were doing something which had for one of its purposes the avoidance of tax liability. That is why I suggest to my hon. and learned Friend that he should substitute for what was in the previous Act some such words as "the main purpose." For some reason or other the Government do not like the words "main purpose," which this House adopted in 1936. If my hon. and learned Friend adopts "the principal purpose" in non-commercial transactions, where the principal purpose is avoidance of taxation, I suggest that the revenue will be amply and fully protected. It is difficult in a non-commercial transaction for anybody to say honestly on oath that avoidance of taxation might not have been one of his purposes.

Mr. Lees-Smith

I am not learned in the law, but the hon. and learned Gentleman has just given an illustration which bewilders me and leads me to the conclusion contrary to that to which he wishes me to come. Perhaps he will clear up my difficulties. He mentioned the case in which a man gave his wife £350 a year and found that by making it £400 a year he could avoid Income Tax. He reduced his Income Tax by £50, but while he is enabling himself to give his wife an extra £50, the State loses £50, and other taxpayers have to pay so much in addition. Why should the State encourage that kind of thing?

Mr. Spens

I could not have made my meaning clear. The principal motive of the man is to do the best he can by his wife, who is the person in need of an allowance. He finds that by giving his wife that little bit extra he can reduce his own Income Tax, and he is fulfilling what he considers to be a much stronger moral obligation. I agree that the right hon. Gentleman is perfectly entitled to say that he can do that only by reason of the fact that he becomes liable to a smaller sum in Income Tax, but that is a very different motive from that of the tax avoider. He is simply told, "What your wife ought to have is £400," and he says, "I cannot possibly afford it; she will have to do with £300 or £350 a year." It is pointed out that if he puts up £400 a year he will do so at the expense of the State.

Mr. Lees-Smith

Hear, hear.

Mr. Spens

I entirely accept what the right hon. Gentleman says, but that is not tax avoidance, which the Chancellor of the Exchequer wants to hit. If the Chancellor of the Exchequer wants to hit every single instance in which a person makes a family allowance or a separation allowance a little bit more because there will be a little bit less tax to pay as a result, he will cause a very great deal of suffering to a great number of people.

In stopping up gaps the Committee should not go too far. Surely if the right hon. Gentleman confines his attention to cases in which the principal and main purpose is the avoidance of Income Tax he will get everything he wants, and he should surely not try to cover cases in which avoidance of taxation is a completely subsidiary matter. I have seen it done by thousands of people, where there is the greatest difficulty in raising a little extra, £10, £15 or£20, and it makes all the difference in the world to the recipient. These are exactly not the cases in which we want to stop it being done. They are not cases in which big sums are involved; these are small sums belonging to small people. I suggest that it is sufficient that tax avoidance cases should be those in which the main purpose is to avoid taxation.

7.30 p.m.

Mr. Bellenger

The hon. and learned Gentleman has not given too good an illustration, and I sympathise with the point put by my right hon. Friend. This case is on a level with that of those people who wanted to do the best they possibly could for their children's education, and, who, until the law was altered, in providing a sum for that purpose, were able, by the manner in which the deed was drawn, to escape taxation themselves. This may not be, strictly speaking, tax evasion, but it means that the divorced gentleman is prepared to give his wife another £50 a year, not at his own expense, but at the expense of the general body of taxpayers. That argument will not bear investigation. If the lady needs £400 a year, let the husband find it for her, but do not let him come to the general body of taxpayers and say, "I am going to provide her with £350, and you can provide her with £50." As one of the general body of taxpayers who is happily married and not divorced, I object to providing £50 for that kind of purpose.

7.32 p.m.

The Solicitor-General

I think that one of the minor comedies of this discussion is that, when my hon. and learned Friend looks at the OFFICIAL REPORT to-morrow morning, he will probably find that he has used the words "mainly" and "principal" as interchangeable. The position that we are trying to meet is that the words effected mainly for some purpose other than the purpose of avoiding liability to taxation have broken down. I will tell the Committee in a moment of a case which these words have failed to meet. As my hon. and learned Friend would amend our test, the words would be the purpose of avoiding liability to taxation was not the principal purpose for which the transfer or associated operations or any of them were effected. I myself can see very little difference between these two sets of words, and, if one of them has broken down, I am perfectly confident that the other will. This is the sort of case that might be expected to get through that mesh. Again it is an actual case. A taxpayer A transferred a large amount—he was not one of the small people for whom my hon. and learned Friend was pleading—of foreign securities to a trust company abroad on certain trusts under which the income was to be accumulated until the death of the taxpayer. There was a discretion to the trustees to pay certain portions of the income to the taxpayer or to his son. The deed gives to the taxpayer and his son power, with the consent of the trustees, to revoke the trust, or, alternatively, they can withdraw all or any part of the trust property for their own benefit. The trust income has been accumulated, and none of it has been distributed. The vigilant Revenue authorities pursued this taxpayer, and he contended, successfully, as it transpired, on appeal, that the foreign trust was born because of his fears as to the financial position of this country and the dangers of the situation on the Continent—

Mr. Lees Smith

When was this—in 1931?

The Solicitor-General

No, in 1936. He stated that he wanted to find a stable country where he could make safe provision for his family. The Special Commissioners decided that the main purpose of the transaction was occasioned by A's pessimistic view of the European situation at the time; that, arising out of that, his main intention was to make provision for his family in a safer country; and that, if there was any intention of avoidance of taxation, it was incidental to the main purpose. They therefore decided that there was no liability under Section 18 of the Act of 1936. That instance has only to be cited to the Committee for the Committee to realise that on this particular matter the hon. Member for Chesterfield (Mr. Benson) was a true prophet in 1936, when he said that the word "mainly" would be too wide. Viewing the experience with that word, I cannot recommend the Committee to adopt my hon. and learned Friend's alternative words, "the principal purpose," and for that reason we must ask the Committee to leave this very carefully and tightly drawn mesh as it stands.

Amendment negatived.

7.36 p.m.

Mr. Benson

I beg to move, in page 21, line 3o, at the end, to insert: (5) At the end of paragraph (a) of Subsection (5) of the said Section the following words shall be added ' and after the death of the individual, his heirs, or assigns'. This Amendment is, I think, open to less objection than was raised by the Solicitor-General to the last Amendment. It seems to me that, as the Clause is drafted, there is a very widely open door owing to the fact that the Clause only applies to the transferor. Once a transfer has been made, and somebody else inherits the transferred capital, he escapes. Therefore, I propose that the provisions of the Clause shall apply, not only to the transferor, but, after his death, to his heirs and assigns. This is a very essential limitation.

There are two objects of tax avoidance, the one the benefit that will accrue to the individual, and the other the benefit that will accrue to his children. I am not certain which of these is the more important. I do not think anyone will deny the strength of the motive of making provision for one's children, and the fact that we are continually having to legislate against avoidance of Death Duties shows quite clearly that it is a strongly acting motive. As the Clause is at present drawn, it applies to the transferor only, and he is in a position, by the transference of capital abroad under these various complicated schemes, to leave his children a tax-free income when he dies. Every transfer which is caught by the nets of the present Clause and of the 1936 Clause will, from the death of the transferor, automatically come outside the scope of the Act, and the income will become tax free.

The amount of income which has been put into these tax avoiding trusts abroad is sufficiently great to compel the Government to introduce, not one Clause, but two Clauses, in an attempt to stop the leakage. But every trust, the leakage from which these Clauses are designed to stop, will automatically, at some time or other, come outside the scope of the Act. What is the use of passing what is, in effect, merely temporary legislation? When a man dies, if he has formed a tax avoiding trust which is caught by this and previous legislation, the mere fact of his death ought not to bring the trust outside the scope of our legislation. On the part of future transferors, there is still a strong motive for the establishment of these tax avoiding trusts abroad. If a man forms one, he is not penalised; he is merely compelled to pay 'the tax that he would pay if he invested his money in this country. He can transfer abroad without any loss. But, when he transfers abroad, he knows that, while he suffers no loss, his children, when he dies, will gain a very considerable advantage in that their income will be tax free; they will be able to receive it in the form of capital instead of what really is, income.

I have raised this point before. I think I raised it in 1936, and I certainly raised it on the Second Reading of the present Bill. The only argument that we have had so far has been that it is impossible to accept this suggestion because you cannot pry into the motives of a dead man. What is the use, we are asked, of going to heirs and saying, "We are going to tax you," when the heirs have no possible grounds on which they can defend themselves, because they cannot explain what their parent's motive was? It seems to me that that argument, which is the only one we have had, does not meet the case, because, as our tax legislation is drawn at the present time, every transfer abroad has to run the gauntlet of the provision as to motive, and, if there is a tax avoidance motive, it comes within the ambit of the Clause, while if it is a purely bona fide commercial transaction it is excluded from the ambit of the Clause. My Amendment would not in any way vary the status of any trust or transfer; it merely suggests that, where a transfer has been made for tax avoidance purposes, and where it has been established during the lifetime of the transferor that the purpose was tax avoidance, this Measure and the Act of 1936 shall apply to that transfer, and when the transferor has died, the same tax shall apply to that particular trust, so that the heirs or assigns shall not receive the benefit of the present drafting, which takes them entirely outside the Act.

7.44 p.m.

The Solicitor-General

I cannot help thinking, from one observation that fell from the hon. Member at the conclusion of his remarks, that he is under some little misunderstanding as to the present effect of the Clause. He said he could not understand why, when once it was established that the purpose was tax avoidance, the Clause should not operate. The important matter there is that he assumes that the Clause places upon the Revenue the burden of establishing that. There is, however, no such requirement. This Clause, if passed substantially as it stands, will, in every instance where there has been a transfer of assets abroad and where the individual transferring them can be said to have enjoyment of them, throw upon the taxpayer the burden of proving a negative. That is a very different thing from what the hon. Gentleman suggested, namely, that it would be for the Revenue to establish that the purpose was tax avoidance.

Mr. Benson

If I said that, I made a mistake. What I intended to suggest was that, if a taxpayer transfers abroad and wishes to avoid the operation of this Clause and Section 18 of the Act of 1936, he has to establish a motive, but, whether or not a motive is established, after the death of the transferor the status of the transference should not be changed.

The Solicitor-General

Here we are enacting the most stringent possible provision. It is agreed that there are a large number of perfectly genuine cases. The only way these genuine cases can get out of this mesh is to appear before the Commissioners and establish a negative. They have to establish that the purpose of avoiding liability to tax was not the purpose, or one of the purposes, of the transfer. It is quite impossible for any of the person's representatives to discharge the burden that the Clause puts on them, which alone will enable them to get a perfectly genuine transaction out of the mesh which is intended to deal with sinister transactions. The one person. who knows whether one of the purposes was the avoidance of taxation is the person who has made the transfer. I agree that if you take it as pure theory it may be that some testators on their death-beds might say to themselves, "We will give more advantage to those who follow us by transferring our assets abroad; we will do so, and take all the attendant risks." Those who advise my right hon. Friend can find no evidence of any such instance. There is no evidence that any such provision is necessary. In our view, this Would render the motive test unworkable, and might bring about a very strong and reasonable demand that the motive test should be modified in some way. Having provided a stringent motive test, we cannot recommend the Committee to make it still more stringent in this way.

Mr. Benson

I am not sure that I have made myself quite clear. Take this case. You have a transference abroad in which the transferor has completely failed to establish before the Commissioners that the transfer was made for bona-fide commercial purposes. It has been decided that the income shall attract tax. When the transferor dies, although the motive of tax avoidance has been definitely established—or at any rate, has been accepted—and tax has been attracted as a result, the whole of the transferred assets come outside the scope of the Act. That was definitely laid down in 1936 by the Financial Secretary to the Treasury; and, when pressed, he repeated that this legislation applies only to the transferors. But where you have a case of a transference having been made and the transferor having failed to satisfy the Commissioners as to motive, there is obviously no injustice in taxing the heirs when the transferor dies. When you get a case of a transference where the transferor has succeeded in establishing a bona-fide transaction, that is outside the scope of the Act already and the heirs have not to re-establish that it was a bona-fide transaction.

The Solicitor-General

I confess I have overlooked that possibility. What the hon. Member is visualising is a case where there has been a decision that the transfer has been made for the purpose of avoiding tax. But he will recognise that it is much more limited than the position with which his Amendment would deal. His Amendment will deal with any case where there has been a transfer of assets abroad, and you have to consider the position of the heirs and assigns to those assets. What the hon. Member is concerned with is only, in fact, a case where a decision has been given that a transaction is not bona-fide, and it is said, "Why should the heirs benefit?" I will have that looked into before the Report stage, but I think I can tell the hon. Gentleman what the position is now. What we are dealing with here is the income of an individual. You are arranging for a levy on the income of a person during his life. When he dies, that liability to Income Tax dies with him, subject to the provision which enables his executors to be charged in respect of the last year of his liability to tax. So far as I know, the hon. Member's proposition would be introducing an entirely novel and difficult provision into the Income Tax Acts. It would be a very diffi- cult proposition to justify. It is a proposition which is based upon the conception of income as being a continuous thing, apart from the lifetime of the person who is paying taxation. The whole of our system of taxation depends on ascertaining what the income of the individual is, and what is his capacity to bear taxation. All that would be departed from under the proposition of the hon. Gentleman. For that reason, I do not hold out any hope of dealing with the very special limited case which he put in his concluding remarks; but I will look into the matter.

Mr. Lees-Smith

Are we to understand that this is the dilemma? There is a certain income abroad which has been taxed on the ground that it was not bona-fide. The taxpayer dies. Are we to understand that after he dies that income still goes abroad, but will in future be free from taxation?

The Solicitor-General

A testator desiring to avoid taxation transfers assets abroad—say, to a company. One form that the transaction takes is that he then sells assets to the company, and gets paid in the form of a lump sum. He gets paid from the foreign company capital sums which are really derived from the income which has been transferred abroad. That is one of the assets we are now bringing into charge. We say that, as regards that individual, this has never ceased to be his income; therefore, the taxation shall fall on him in respect of the assets that he transferred abroad. But upon his death, although he has transferred the assets with that motive of fraud, the vice of the transaction will die with him. The assets will remain abroad, and they will then become the property of somebody else, perhaps his son. It does not follow that his son does not pay taxation on those assets. He might be paying as a resident abroad receiving income here, only to the extent of the income brought in. It is definitely not certain that he will avoid the tax altogether. As I said, I will look into this matter, to see if there are any possibilities of dealing with the subject; but I do not contemplate that there are any.

Question put, "That those words be there inserted."

The Committee divided: Ayes, 12o; Noes, 199.
Division No. 250.] AYES. [8.0 p. m.
Adams, D. (Consetl) Guest, Dr. L. H. (Islington, N.) Oliver, G. H.
Adams, D. M. (Poplar, S.) Hall, J. H. (Whitechapal) Paling, W.
Alexander, Rt. Hon. A. V. (H'Isbr.) Hardie, Agnes Parker, J.
Attlee, Rt. Hon. C. R. Harris, Sir P. A. Parkinson, J. A.
Bonfield, J. W. Harvey, T. E. (Eng. Univ's.) Pearson, A.
Barnes, A. J. Hayday, A. Pethick-Lawrence, Rt. Hon. F. W.
Batey, J. Henderson, A. (Kingswinford) Ridley, G.
Bellenger, F. J. Henderson, T. (Tradeston) Ritson, J.
Bonn, Rt. Hon. W. W. Hills, A. (Pontefract) Roberts, Rt. Hon. F. O. (W. Brom.)
Benson, G. Hopkin, D. Robinson, W. A. (St. Helens)
Bevan, A. Jenkins, A. (Pontypool) Salter, Dr. A. (Bermondsey)
Broad, F. A. Jenkins, Sir W. (Neath) Sexton, T. M.
Bromfield, W. John, W. Simpson, F. B.
Brown, C. (Mansfield) Johnston, Rt. Hon. T. Sinclair, Rt. Hon. Sir A. (C'thn's)
Burke, W. A. Jones, A. C. (Shipley) Smith, E. (Stoke)
Chater, D. Jones, Sir H. Haydn (Merioneth) Smith, Rt. Hon. H. B. Lees- (K'ly)
Close, W. S. Kelly, W. T. Smith, T. (Normanton)
Clynes, Rt. Hon. J. R. Kennedy, Rt. Hon. T. Sorensen, R. W.
Cooks, F. S. Kirby, B. V. Stewart, W. J. (H'ght'n-le-Sp'ng)
Collindridge, F. Kirkwood, D. Strauss, G. R. (Lambeth, N.)
Cove, W. G. Lansbury, Rt. Hon. G. Summerskill, Dr. Edith
Dtggar, G. Lawson, J. J. Taylor, R. J. (Morpeth)
Dalton, H. Leach, W. Thorne, W.
Davies, R. J. (Westhoughton) Leonard, W. Thurtle, E.
Day, H. Leslie, J. R. Tinker, J. J.
Ede, J. C. Logan, D. G. Tomlinson, G.
Edwards, Sir C. (Bedwellty) Lunn, W. Viant, S. P.
Elliston, Cant. G. S. Macdonald, G. (Ince) Walkden, A. G.
Evans, D. O. (Cardigan) McEntee, V. La T. Walker, J.
Fletcher, Lt.-Comdr. R. T. H. McGhee, H. G. Watkins, F. C.
Frankel, D. Marshall, F. Watson, W. McL.
Gardner, B. W. Mothers, G. Welsh, J. C.
Gerro Jones, G. M. Maxton, J. Westwood, J.
George, Megan Lloyd (Anglesey) Messer, F. Whiteley, W. (Blaydon)
Gibson, R. (Greenock) Milner, Major J. Williams, T. (Don Valley)
Graham, D. M. (Hamilton) Montague, F. Wilson, C. H. (Altonliffe)
Green, W. H. (Deptford) Morrison, Rt. Hon. H. (Hackney, S.) Windsor, W. (Hull, C.)
Greenwood, Rt. Hon. A. Morrison, R. C. (Tottenham, N.) Young, Sir R. (Newton)
Griffith, F. Kingsley (M'ddl'sbro, W.) Muff, G.
Griffiths, G. A. (Hemsworth) Nathan, Colonel H. L. TELLERS FOR THE AYES.—
Groves, T. E. Naylor, T. E. Mr. Charleton and Mr. Adamson.
NOES.
Acland-Troyte, Lt.-Col. G. J. Conant, Captain R. J. E. Guest, Lieut.-Colonel H. (Drake)
Adams, S. V. T. (Leeds, W.) Cook, Sir T. R. A. M. (Norfolk, N.) Gunston, Capt. Sir D. W.
Agnew, Lieut.-Comdr. P. G. Cooke, J. D. (Hammersmith, S.) Hambro, A. V.
Albery, Sir Irving Cooper, Rt. Hn. A. Duff (W'sfr S.G.gs) Hannah, I. C.
Allen, Col. J. Sandeman (B'knhead) Cooper, Rt. Hn. T. M. (E'nburgh, W.) Hannon, Sir P. J. H.
Allen, Lt.-Col. Sir W. J. (Armagh) Crooke, Sir J. S. Haslam, Henry (Hornoastle)
Asks, Sir R. W. Crookshank, Capt. H. F. C. Haslam, Sir J. (Bolton)
Assheton, R. Groom-Johnson, R. P. Hangers, Captain F. F. A.
Atholl, Duchess of Crossley, A. C. Hely-Hutchinson, M. R.
Balfour, G. (Hampstead) Crowder, J. F. E. Hepburn, P. G. T. Buchan
Balfour, Capt. H. H. (Isle of Thanet) Culverwell, C. T. Herbert, A. P. (Oxford U.)
Barclay-Harvey, Sir C. M. Davies, C. (Montgomery) Herbert, Major J. A. (Monmouth)
Beamish, Rear-Admiral T. P. H. Davison, Sir W. H. Holmes, J. S.
Beauchamp, Sir B. C. Dawson, Sir P. Hope, Captain Hon. A. O. J
Belt, Sir A. L. Denman, Hon. R. D. Horabrugh, Florence
Bernays, R. H. Denville, Alfred Hudson, Capt. A. U. M. (Hack., N.)
Birohall, Sir J. D. Despencer-Robertson, Major J. A. F. Hudson, Rt. Hon. R. S. (Southport)
Blair, Sir R. Boland, G. F. Hulbert, N. J.
Bossom, A. C. Donner, P. W. Hunloke, H. P.
Boulton, W. W. Dorman-Smith, Major Sir R. H. Hunter, T.
Braithwaite, Major A. N. Duckworth, Arthur (Shrewsbury) Inskip, Rt. Hon. Sir T. W. H.
Brass, Sir W. Duckworth, W. R. (Moss Side) Jones, Sir G. W. H. (S'k N'w'gt'n)
Briscoe, Capt. R. G. Duncan, J. A. L. Jones, L. (Swansea W.)
Brown, Rt. Hon. E. (Leith) Edge, Sir W. Kerr, Colonel C. I. (Montrose)
Browne, A. C. (Belfast, W.) Edmondson, Major Sir J. Kerr, H. W. (Oldham)
Bull, B. B. Ellis, Sir G. Kerr, J. Graham (Scottish Unlink)
Bullock, Capt. M. Elliston, Capt. G. S. Lamb, Sir J. Q.
Burgin, Rt. Hon. E. L. Erskine-Hill, A. G. Latham, Sir P.
Butcher, H. W. Findlay, Sir E. Law, Sir A. J. (High Peak)
Campbell, Sir E. T. Fox, Sir G. W. G. Leech, Sir J. W.
Cartland, J. R. H. Fremantle, Sir F. E. Levy, T.
Cary, R. A. Furness, S. N. Little, Sir E. Graham
Caralet, Thelma (Islington, E.) Fyfe, D. P. M. Llewellin, Colonel J. J.
Cazalet, Capt. V. A. (Chippenham) Glyn, Major Sir R. G. C. MacAndrew, Colonel Sir C. G.
Chamberlain, Rt. Hn. N. (Edgb't'n) Gower, Sir R. V. MoCorquodale, M. S.
Clarry, Sir Reginald Grant-Ferris, R. MacDonald, Rt. Hon. M. (Ross)
Cobb, Captain E. C. (Preston) Greene, W. P. C. (Worcester) MoEwen, Capt. J. H. F.
Colfox, Major W. P. Gretton, Col. Rt. Hon. J. McKie, J. H.
Colville, Rt. Hon. John Grimeton, R. V. Macmillan, H. (Stockton-on-Tees)
Maitland, A. Reid, Sir D. D. (Down) Strauss, E. A. (Southwark, N.)
Makins, Brigadier-General Sir Ernest Reid, W. Allan (Derby) Strauss, H. G. (Norwich)
Manningham-Buller, Sir M. Remer, J. R. Stuart, Hon. J. (Moray and Nairn)
Margesson, Capt. Rt. Hon. H. D. R. Robinson, J. R. (Blackpool) Tacker, Sir R. I.
Markham, S. F. Ropner, Colonel L. Taylor, C. S. (Eastbourne)
Maxwell, Hon. S. A. Ross, Major Sir R. D. (Londonderry) Thomson, Sir J. D. W.
Mayhew, Lt.-Col. J. Ross Taylor, W. (Woodbridge) Thorneycroft, G. E. P.
Moore, Lieut.-Colonel Sir T. C. R. Rowlands, G. Titohfield, Marquess of
Morgan, R. H. Royds, Admiral Sir P. M. R. Tree, A. R. L. F.
Morrison, G. A. (Scottish Univ's.) Ruggles-Brise, Colonel Sir E. A. Walker-Smith, Sir J.
Muirhead, Lt.-Col. A. J. Russell, R. J. (Eddisbury) Wallace, Capt. Rt. Hon. Euan
Munro, P. Russell, S. H. M. (Darwen) Ward, Lieut.-Col. Sir A. L. (Hull)
Nall, Sir J. Salmon, Sir I. Ward, Irene M. B. (Wallsend)
Neven-Spence, Major B. H. H. Salt, E. W. Waterhouse, Captain C.
Nicolson, Hon. H. G. Samuel, M. R. A. Wedderburn, H. J. S.
O'Connor, Sir Terence J. Sanderson, Sir F. B. Wells, Sir Sydney
Palmer, G. E. H. Shakespeare, G. H Whiteley, Major J. P. (Buokingham)
Perkins, W. R. D. Shaw, Captain W. T. (Forfar) Wickham, Lt.-Col. E. T. R.
Pickthorn, K. W. M. Shute, Colonel Sir J. J. Williams, H. G. (Croydon, S.)
Pilkington, R. Simmonds, O. E. Willoughby de Eresby, Lord
Ponsonby, Col. C. E. Simon, Rt. Hon. Sir J. A Wilson, Lt.-Col. Sir A. T. (Hitohin)
Procter, Major H. A. Somervell, Rt. Hon. Sir Donald Withers, Sir J. J.
Raikes, H. V. A. M. Somerville, A. A. (Windsor) Womersley, Sir W. J.
Ramsay, Captain A. H. M. Southby, Commander Sir A. R. J. Wood, Hon. C. I. C.
Ramsbotham, H. Spans, W. P. Wragg, H.
Ramsden, Sir E. Stanley, Rt. Hon. Lord (Fylde)
Rathbone, J. R. (Bodmin) Stanley, Rt. Hon. Oliver (W'm'I'd) TELLERS FOR THE NOES.
Reed, Sir H. S.(Aylesbury) Stewart, J. Henderson (Fife, E.) Captain Dugdate and Major
Harvie watt.

Clause, as amended, ordered to stand part of the Bill.