Clause 26.—(COLLECTION FROM WIFE OF TAX ASSESSED ON HUSBAND ATTRIBUTABLE TO HER INCOME.) (Hansard, 19 June 1950)

§ The Solicitor-General
I beg to move, in page 19, line 6, to leave out "whether before or."
This Amendment has been put down in the name of my right hon. and learned Friend, as well as that of the hon. and learned Member for Northants, South (Mr. Manningham-Buller) and other Members opposite. It is in order to eliminate an element of retrospection. This Clause enables collections of tax to be made from a wife in respect of income which is her income, where a separate assessment was made, or where the assessment was made on the husband before the year after the Act came into force. The Amendment will have the effect that the Clause will be operative only in respect of assessments made on the husband after the Act comes into force.
We are therefore limiting an element of restrospection. We had a good reason for making the Clause retrospective, because in a number of cases it would have been a very great advantage in doing justice as between 930 husband and wife if we could have collected the tax attributable to the wife's income in respect of an assessment made before the Act. In view of the argument adduced in regard to retrospection, and the matter being nicely balanced, whether this extra measure of justice should be meted out to the husband, or whether we should avoid retrospection wherever possible, the Amendment has been put down.

§ Mr. Manningham-Buller
I wish to thank the right hon. and learned Gentleman for making a short speech in support of this Amendment and for saying all the things I should have said had I been moving it. The effect is, as he has said, to eliminate the retrospective element from the Clause. The Solicitor-General sought to justify the original inclusion of these words which, in my view, might have led to very great hardship. One can think of such cases as where arrangements have been made between husband and wife to discharge their Surtax liabilities, in default of which the Clause gives power, notwithstanding the fact that the wife might have paid the husband her contributions, to enforce liability against her. In the case of matrimonial proceedings, it might have led to great difficulty and to considerable injustice. I am glad that the right hon. and learned Gentleman has moved the Amendment for which we were originally responsible.

§ Mr. Dodds-Parker (Banbury)
May I also add my thanks to the Chancellor for accepting this Amendment? Our intention in putting down the Amendment was somewhat different from that of the Chancellor, which I think is generally expressed in the new subsection (6). I think there is nothing more to be said except that on this side of the Committee we are glad that the Chancellor has for once seen the light. We thank him for accepting the Amendment.

§ The Solicitor-General
I beg to move, in page 19, line 9, to leave out from "for," to the first "on," in line 10, and to insert: the year 1950–51 or any subsequent year of assessment. This limits the wife's income which comes within the purview of the Clause to income which arises to the wife after the Act comes into force. What I said 931 about retrospection also applies to this Amendment. Although I frankly accept that the arguments are rather evenly balanced, it would in many cases have been fair—particularly in cases in which a husband is landed with heavy arrears of Income Tax attributable to his wife's income—to have enabled the Revenue to collect the proper proportion of tax both in respect of pre-tax assessment on the husband and also in respect of pre-tax income arising to the wife. In conformity with the purpose and the spirit behind the previous Amendment, which limits the assessments to those made after the Act, we now also seek to limit the amount of the wife's income to income arising to her after the Act comes into force.

§ Mr. Manningham-Buller
As far as I understand it this Amendment is really to the same effect as the next Amendment, standing in my name, in line 9, to leave out from "assessment," to the first "on," in line 10. If I am right, we on this side of the House do not object to this Amendment, which merely carries out our intentions and our desires.

§ Mr. Basil Nield (City of Chester)
I beg to move, in page 20, line 29, to leave out "result," and to insert "ratio decidendi."
I have an uncomfortable feeling that hon. Members will view with some misgiving the proposed substituting words, but I hope to satisfy the Committee that the Amendment is a sensible and indeed a necessary one. It is designed to remedy what, in my respectful view is a defect in the drafting of this proviso. The situation under consideration is this. Where a husband appeals against his tax assessment and the appellate commissioners fix the amount of the assessment, then that is the result. They have no other function save to fix the sum. If thereafter the liability is transferred to the wife, then under the provisions of this Clause she too has a right of appeal, but, as I understand it, the purpose behind this proviso is that a wife who is appealing cannot ask the appellate commissioners to decide matters which they have already determined in the husband's appeal on the very same grounds. In other words, it is to avoid duplication of argument in that respect.
932 The proviso reads in this way: Provided that, where an appeal was brought against the original assessment, no contention inconsistent with the result of that appeal shall be open on any appeal from the notice, either to the appellant or to the Crown. The effect of that, in our view, is that the wife would be wholly debarred from questioning the other appeal, as she is not allowed to bring the matter forward. We are perfectly in accord with the purpose of this proviso and with the Clause as a whole, but we feel that words other than "result" are necessary to carry out the purpose of the Clause. I would say at once that I am by no means wedded to the Latin words suggested and if the right hon. and learned Gentleman can find better words to carry out the purpose of the Clause, then I will gladly agree to them.

§ Sir Ian Fraser (Morecambe and Lonsdale)
I do not think Welsh is allowed in an Act of Parliament, nor Gaelic, and I think, therefore, that anyone who proposes to use Latin words should make out a special reason why they are necessary in place of English words.

§ The Solicitor-General
I am not sure that it would be possible to make out a sufficiently strong case because, unless I am misinformed, there is an Act of George II which says that we must not use Latin terms in an English Act of Parliament, although I think I am right in saying that the words vice versa have been used.

§ Mr. Nield
The word sederunt is also used.

§ The Solicitor-General
There may be other examples. Be that as it may, I recognise, on further consideration of this Clause in the light of the Amendment, that the Clause is too restricted in the matter of appeals. The object of the Clause as originally drafted was to prevent inconsistent decisions being given with regard to the same portion of income. We might have one set of commissioners saying that the income was the wife's and another saying that the same income was the income of the husband, and one might be led into an almost hopeless impasse as a result of that. It was thought necessary, therefore, to put in some restriction with 933 regard to the scope of the matters which could be traversed on appeal.
I am not sure that the words ratio decidendi would improve the position very much, even if they were allowed as a matter of drafting. Perhaps the Committee would agree that we should reconsider the matter between now and the Report stage with a view to widening the scope of the appeal. It might be necessary to enact that the appeal should be heard by the same group of commissioners in order to avoid inconsistency in decisions which, as I have said, might lead to quite absurd results in individual cases. I hope, therefore, that the hon. and learned Member will agree to ask the permission of the Committee to withdraw his Amendment on the understanding that the Government will give further consideration to the matter between now and the Report stage in the hope that the Clause may be improved.

§ Mr. Lyttelton
Like the right hon. and learned Gentleman, I myself thought that the word "result" might lead us to a reductio ad absurdum. I should be inclined to say quod erat demonstrandum and, after what he said, I think we might defer the consideration ad interim.

§ Mr. Nield
It seems to me quite clear that the right hon. and learned Gentleman has made out a prima facie case for considering the matter further. I am grateful to him for the undertaking he has given, and I therefore, beg to ask leave to withdraw the Amendment.

§ The Solicitor-General
I beg to move, in page 21, line 20, at the end to insert: (6) Where a woman has died and the Commissioners of Inland Revenue or the Special Commissioners are entitled to serve a notice under subsection (1) of this section on her executors or administrators, the person liable under the original assessment may, by notice in writing served on the Commissioners in question and specifying the names and addresses of the said executors or administrators, require those Commissioners to serve such a notice and they serve such a notice accordingly. This subsection would have the effect of giving the husband the right to request that a notice should be served upon the wife's executors in a case where the wife has died. Let us suppose that a wife had died and that a large amount of tax was attributable to income of. hers. Unless 934 they were under some sort of statutory obligation, the executors having a duty to the beneficiaries of her estate, would naturally hesitate to pay the tax attributable to that income. They would hesitate to pay it unless they could be made statutorily liable to do so. In order to achieve that, we think on further reflection that it would be right—and indeed, this case has been made to us—to give the husband that right; in other words, to enable him in a case in which a notice might be served under Clause 26—that is, on the wife's executors—to insist that it should be so served. This subsection simply gives the husband that right.

§ Mr. Joynson-Hicks (Chichester)
The proposed words give rise to a line of thought which is brought particularly to our minds by a Clause which we are to discuss later. I ask the guidance of the Solicitor-General upon what would be the effect of the service of this notice upon the wife's executors. We know, particularly in the type of case which this provivision is contemplating where substantial amounts of Income Tax liability may be anticipated, that it not infrequently happens that assessments are very long overdue in being issued. It may be that the assessment of taxation is two or three years in arrear.
The point which struck me as the right hon. and learned Gentleman was speaking was this. What provision are the executors of the deceased wife's estate to make in order to meet the possible contingent liability for tax in respect of notices which may be served upon them by the Commissioners at the request of the husband? A liability seems left open upon the executors which may give rise to a considerable amount of trouble. It is possible that it might hold up the administration of the estate and so affect infants. The matter seems to me to require considerably more thought and detailed working out than has been given to is in these comparatively brief provisions, which will leave the matter standing in the half-way-house position. It will give an advantage to the husband which he most certainly ought to have, and at the same time it will not limit the obligations upon the wife's estate.

§ Mr. Dodds-Parker
I should like to add to what my hon. Friend has just said by asking the Solicitor-General whether 935 the Clause empowers or authorises trustees to take capital funds for the payment of any tax which may be outstanding.

§ The Solicitor-General
To deal with the point made by the hon. Member for Chichester (Mr. Joynson-Hicks), I suppose that assessment notices under the Clause would stand in the same position in regard to the executors as any other contingent or possible liability in respect of the wife's estate. It takes a little time for estates to be wound up, especially as there are often complications. The executors, in winding up, have to make provision for contingent liabilities. They would stand on the same footing as any other contingent liability. I certainly hope that all endeavours will be made to serve the notice upon them as soon as possible.
From their point of view, they would normally know whether it was possible for such a notice to be served. They would find out by reasonable inquiry whether there was Income Tax of the wife's which might attract this liability. I should have thought that, generally speaking, that was a matter of arrangement which could be soon brought about, and that if a notice was to be served it would be served, and in the meantime such provision as executors would normally make in the case of potential liability would be made. I think that is the position.
The change which this proposal makes is that, in the case where no notice can of necessity be served upon them and they are in the difficulty that they do not know whether they can properly, having regard to their duty to the beneficiaries who desire to share in the proceeds of the estate, make provision for a possible claim in respect of tax, it makes it clear that such a notice can of necessity be served upon them. To that extent it eases their position rather than complicates it. When they proceed to administer the estate, they will do so in the knowledge that the husband can insist upon a notice being served and that it is not such a contingent possibility as it would otherwise be if the husband had not that right.

§ Mr. Manningham-Buller
Can the Solicitor-General say what limitation there 936 is in time upon the service of these notices? I quite see what the Amendment seeks to provide, and I do not see much objection to the object in view, but what worries me a little is the possibility that the husband may not make his request until after a considerable period has elapsed. Then, upon his making the request, a notice has to be served—if I understand the Clause. It may well be that a considerable time elapses after the death of the wife before the notice is served, in which case there will be delay due to that in the distribution of the estate. This is obviously a serious point, and I ask the right hon. and learned Gentleman whether he will not give further consideration to it between now and the Report stage. It is a point which deserves consideration and perhaps the insertion of a provision limiting the time within which such a notice can be served.

§ The Solicitor-General
I see the point which the hon. and learned Gentleman makes. Of course, once the husband makes the request then the notice must be served as soon as is reasonably possible. That is the effect of the wording used. The question will arise as to when the husband serves the notice. This angle of the matter was considered, but it was thought that in practice there would be very little likelihood of difficulty. If the husband knows that he is being charged to tax, having had an assessment served upon him—and he certainly will know that that tax is attributable to his wife's estate in a case in which it is so atributable—normally, I should have thought, and certainly if they were at arm's length, if they were separated or anything of that sort, he will very soon serve the notice. He will not hesitate about it.
The difficulty about imposing a time limit upon him is that we should have to impose a time limit upon the assessment upon him. As hon. Members know, particularly in tax matters of any complication, although everybody does his best to get the matter cleared up as soon as possible, it is often very difficult to say exactly when it will be finally cleared up. Assessments can be made for a number of years after the taxation. If the time were abbreviated, one would always be in the difficulty that it might not be possible to assess the amount of tax in a shorter space of time.
937 I think that the best way to deal with it is that I should advise the Committee to accept the Clause in the form in which it stands and that if, in point of fact, it gives rise to difficulty between now and some later period—it will be watched closely in the meantime—the matter can be reconsidered. I hope that the Committee will agree that it is unlikely that the whole of this matter will give rise to extreme difficulty, any more than those which already exist in the assessment and collection of tax, and that hon. Members will pass the Clause in its present form

§ Mr. Bell (Buckinghamshire, South)
Would it not be possible for the husband to be asked to serve his notice within a certain time after the assessment is made upon him? Possibly the wife's executors might be enabled to serve a notice on the husband requiring him to serve his notice within a certain time or else to lose the right to do so. If a time limit were made after the assessment was served on the husband, then the question of how long the Income Tax authorities need to make an assessment would not arise.

§ The Solicitor-General
The difficulty is that when the husband gets the assessment be may appeal and the case may go higher and higher. It is unfortunately the case, as hon. Members know who have to deal with this type of question, that it often takes a long time before the matter can be finally determined, often through nobody's fault. A long time may elapse before the position is reached which finally fixes the husband's liability. Therefore, I ask the Committee to say that, on balance, it would be better not to impose, at this stage at any rate, any limitation such as hon. Gentlemen suggest, so that we can see how the Clause works.

§ Mr. Manningham-Buller
I hope that the right hon. and learned Gentleman will go a little further than that, because the point is a technical one and we do not want to spend much time this evening in discussing it when we have other more important things with which to deal. I ask him to say that he will give further consideration to this matter between now and the Report stage. I am not very happy about letting this go into the Bill and seeing in a few years' time how it has worked. There may be a real difficulty 938 here. I see the matter from the point of view of the husband, but one ought to have regard to the point of view of the executors. If the right hon. and learned Gentleman will say that, we can proceed.

§ The Solicitor-General
Without any commitment, I accept it as a matter of course that arguments advanced will be given careful consideration between now and the Report stage.

§ Mr. Joynson-Hicks
Can the right hon. and learned Gentleman say what, if any, will be the effect on the executors of the possible delay in concluding an assessment of tax if the husband does contest it, which was the point I had in mind originally with regard to the keeping open of the estate? What, if any, will be the responsibility of executors who may have notice of this contingent liability, and what will be their duty to retain in the estate a residuary fund sufficient to enable them to meet it, as opposed to their duties as executors to distribute the estate with all possible speed?

§ Mr. Houghton
The Clause removes what has in the past been a source of great domestic difficulty in some households and has constantly been a source of great difficulty in the collection of tax by the Inland Revenue. The Clause now changes the powers of the Inland Revenue to recover tax assessed on the husband in respect of a wife's income. This is a long-overdue change and I congratulate the Inland Revenue on at last having a Chancellor of the Exchequer who is prepared to shift the liability for payment of tax on a wife's income to the wife and not to confine it to the husband.
I have this plea to make, however. While this change now relieves a husband of the liability of paying tax assessed upon him which is attributable to the wife. Section 171 of the Income Tax Act, 1918, is still retained. This section gives power 939 to the Inland Revenue to distrain on the husband for tax which is assessed on the wife. I wonder whether the retention of this provision is either necessary or desirable?

§ The Temporary Chairman (Mr. Butcher)
The hon. Member can only discuss whether this Clause, as amended, shall stand part of the Bill. He cannot deal in that way with a provision in an earlier Act.

Mr. Donovan (Leicester, North-East)
I want to draw the Solicitor-General's attention to the proviso, which reads: Provided that, where an appeal was brought against the original assessment, no contention inconsistent with the result of that appeal shall be open on any appeal from the notice, either to the appellant or to the Crown. Does the word "appeal" include subsequent proceedings by way of case stated in the High Court by an appeal from the Commissioners? I ask that because in subsection (4) one reads: Where the amount payable under a notice given under subsection (1) of this section is reduced as a result of an appeal or of the stating of a case for the opinion of the High Court. That may indicate in the mind of the draftsman some distinction between the two, but I do not think that any could have been intended. We might have a case where the Crown won on an appeal before the General or Special Commissioners and lost in the High Court, and therefore they would be raising no contention inconsistent with the result of the appeal in any subsequent proceedings if the word "appeal" were limited merely to the proceedings before the Commissioners.

§ The Solicitor-General
The word "appeal" in the proviso means an appeal to the Commissioners. As I have said, this proviso is one which we want to consider further with the general object in view which I described earlier, and the point which my hon. and learned Friend raises is one which will be taken into account.