HL Deb 04 April 1889 vol 334 cc1546-52
*LORD ADDINGTON

, in rising to call attention to the recent Return (289), Income Tax on Charities, showing more than 200 claims for restitution of income tax rejected by the Board of Inland Revenue upon their own authority and upon an interpretation of the law which has been judged erroneous by the Supreme Court of Appeal in the case of the Moravian Brotherhood; and to ask Her Majesty's Government whether the Board of Inland Revenue would at once appeal from the Supreme Court to the House of Lords, or would revert to its former practice, and restore to the claimants the moneys levied as income tax upon exempt properties, and now retained by the Department, to the detriment of the charities concerned, said: My Lords, I propose, with all possible brevity, to call your Lordships' attention to the subject of the question I ask Her Majesty's Government. The Board of Inland Revenue have, in the exercise of their own discretion, taken upon themselves to impose income tax upon property which has hitherto been exempted. I venture to think that that procedure is tainted with illegality. I say so because I think it is not warranted by circumstances, and because I feel that the purpose at which it aims is to inflict a very serious injury upon the community at large and to discourage the exercise of that charity which is an essential element in all civilization. That being the subject of my impeachment, I feel that I am bound to make it good. The Income Tax, as we first knew it by history, was introduced by Mr. Pitt in 1799, and, as then constituted, it was strictly a personal tax. It is distinctly a personal tax now, but there has been this variation in the mode of the collection. Under Mr. Pitt's Act, every individual was bound to make a statement showing on one side of the account the whole of his property, and on the other the whole of his outgoings. There were exemptions of various kinds. For example, there was an exemption necessarily attaching to poverty. You cannot take from a man that portion of his income which, if he lose, he cannot subsist. Therefore, in Pitt's time, £60 a year was the limit below which incomes were exempt. Then there was another and a larger category of exemptions, and these were the multifarious charities with which this country is so happily distinguished. But in 1803, when the income tax came to be renewed, it was found to be convenient no longer to allow the exemption in the returns, but to assess all income at its source and refund to the parties entitled the income tax after it had been levied. In fact, it came to this—that instead of an individual making his own return of what he was worth and paying upon it, all his different properties were taxed at the source—his funds in the hands of his bankers, and so on in that indirect fashion. But the tax being levied in that way, it extended also to those properties which belonged to charities, and the Board of Inland Revenue, having first of all received the income tax upon all kinds of income, were charged with the duty of restoring to the charities the portion of the tax which referred to their several revenues. In that way they stepped into the position of trustees; they are receivers to the charities; they are, provisionally, only the holders of this money, and they are bound to give it back; and when, instead of giving it back, they retain it to themselves, they commit, in my humble opinion, a breach of trust. I will not myself use strong language with regard to the action of the Inland Revenue. I prefer quoting to your Lordships some tolerably strong evidence that I am not exaggerating in the words I use. In the year 1863, with the same amount of zeal which appears to be inherent in Somerset House, the Board of Inland Revenue desired to make certain exceptions to the charities which were then exempted, and they appealed to the Treasury for permission to exercise their judgment in the matter. They gave an interesting sketch of the history of the tax, and they asked to be left to follow their own devices in regard to exemptions. The answer of the Treasury at that time was as follows:— The actual administration of the Act has acquired, it may be held, so much of prescription as ought to stand good, at least, against any interposition by an authority purely administrative.…. The subject is one which should be reserved to be dealt with by the Legislature. I think that when, in the face of that instruction, we find the Inland Revenue, without any further notice, taking upon themselves to appropriate this money, they are committing an illegal act. I know it may be said, although an act may be illegal, still it may be politic, and it may be beneficial in its results. So far, however, from such a conclusion, we arrive at one the exact reverse. Charity, by reclaiming the vicious, by teaching the ignorant, and tending the suffering, minimizes all the social evils which injure the community at large. Taxation of charity obstructs its exercise and weakens the checks upon demoralization, I invite your Lordships' attention to the Return (289) on the Table of the House. You will find in it some hundreds of claims, various in their character, but rejected with remarkable uniformity upon the plea that they were "not within the scope of exemption." Societies for building and repairing churches were told that the only plea available for them was a "provision for funds held by trustees under Schedule C," whereas their claim rested upon an earlier exemption embracing their funds as devoted to "charitable purposes." The argument of the Inland Revenue lands them in this dilemma. The "repair" of churches is exempted, although not a charity, but the "building" of a church is not a charity, nor is it exempt. "Repairs" are exempt, if provided by funds assessed under Schedule C. They are not exempt if provided through rents under Schedule A, or interest under Schedule D. Repairs, now exempt under Schedule C, would be taxable if the securities were changed from Consols to Rents. Since this list was published the question has been fought out in the Law Courts, in the case of the fund of the Moravian Brotherhood, and in the Court of Appeal the unanimous decision of the Lords Justices has been given against the position taken up by the Inland Revenue, and that body ought not to be allowed to continue to act on a basis which has been held to be illegal. My Lords, I am not going to prolong needlessly my remarks upon the subject. I think I have said enough to show you that the matter is one which cannot be left as it is, and I will ask my noble Friend at the head of the Government whether the Government will choose definitely between the two alternatives—either to recur to the old system of exemption, or at once proceed, by way of appeal in the Moravian Brotherhood case, to obtain a final decision as to the law of the matter.

*LORD STANLEY OF ALDERLEY

The Inland Revenue Commissioners found their refusal to exempt charities from income tax, though hitherto exempted, on the judgment of a Scotch Court. The Members of that Court showed an undisguised jealousy of the interpretations of the English Court of Chancery passing as current or taking effect in Scotland. Those Judges claimed that the most ordinary and vulgar sense of the word charity should be taken in Scotland. In short, they would only recognize doles and such charity as the Charity Commission and public opinion in this country have set their faces against. But what do we know in this country of a Lord Ordinary? Most of us are more familiar with the Président de la Cour de Cassation; and by what right do the Inland Revenue Commissioners attempt to administer Scotch law and Scotch judgments in England? The Presidents of the French and Scotch Courts of Appeal both interpret a modern form of Roman Law. The Chairman of Inland Revenue would hardly base his action on a judgment of the French Court of Appeal. Why, then, should he, without the excuse of being a Scotchman, endeavour to enforce the equally foreign decision of a Scotch Court upon English taxpayers? Lord Justice Fry in his judgment last December in the English Court of Appeal upset the arguments of the Scotch Court, for he showed, from the number of technical words used in the Act, that charitable uses should be taken in the technical and not in the ordinary sense of the words. Another anomaly is to be found in the Return now under consideration. The Inland Revenue Commissioners show as much animosity to all funds intended to assist either building or repairs of churches or devoted to religious purposes as they could do if they were Commissioners of King Henry VIII. charged with rooting out "superstitious uses." But, although the funds of confraternities which are quasi-monastic bodies, if employed in church repairs, are exempt under Schedule C, yet if they get taxed under Schedule A no mercy is shown to them. As the destination of those funds is the same in either case, both funds, whether under Schedule A or C, ought to have the same exemption. There are 13 cases of refusal of exemption from income tax which might be called the worst. Of these six were refused on the ground that the deeds of trust were not binding; but if the accounts show that the money is used for the charities designated by the titles of the funds taxed, those accounts should be sufficient. Five charities are alleged by the Inland Revenue Commissioners not to be for a charitable purpose. Two of these are the Royal Humane Society and a Liverpool humane society. If it be a charitable purpose to make the life of the poor more endurable, is it not a charitable purpose to save life, to preserve the life of, perhaps, the breadwinner of a family? Two institutions for the relief of decayed governesses and poor ladies are said not to be charitable. Two other charities, one for confirmed invalids, the other a dispensary, are denied to be charities, because some small payments were made by those benefited by the charity. Where a sum is required by a poor person which he cannot provide, is it no longer a charity to provide him with three quarters of it because he found the other quarter? The action of the Inland Revenue Commissioners and the good work done by the Secretary of the Charity Commissioners, Mr. Gauntlett, in defending the interests of the charities, will drive many people to put their charities under the wing of the Charity Commission. It is contrary to public policy that charity should be taxed and discouraged: my earliest recollections in this House of the noble Marquess the Prime Minister are of his defence of the pious founder, and I hope that he will not allow him to be extinguished, and will save the charities from the expense of further litigation.

THE MARQUESS OF SALISBURY

I have some difficulty in answering the two speeches we have just heard, because, although they are very eloquent and convincing, they should rather have been addressed by counsel to the Courts, and not in this House, where we cannot deal with the matter at all. This question is still sub judice; the Board of Inland Revenue are taking steps as rapidly as possible to bring up the question for the decision of this House. As soon as that is done we shall know what the law is, and if the law as then ascertained does not satisfy my noble Friend, it will be open to him to bring forward a measure to amend it. But while the matter is still in litigation it would be entirely contrary to the general practice for Members of the Government to express any opinion. I must say that it is rather hard that the Board of Inland Revenue should be subject to the adverse criticism of my noble Friend. My noble Friend near me (Lord Stanley of Alderley) has taunted me with the fact that I have more than once invoked the interference of this House with the action of the Charity Commissioners. It is true that I have done so, but in doing so I was only asking the House to exercise the power which has been reserved to this House by the Act of Parliament. Now my noble Friend is asking us to do that which the House never has done and I hope, never will do—namely, to interfere in litigation that is still going on.

*LORD ADDINGTON

May I just say, in reply to the noble Marquess, that the Board of Inland Revenue have given no signs whatever of their intention to appeal against the decision of the Court of Appeal.

THE MARQUESS OF SALISBURY

I have here the Statement of the Inland Revenue— That on the advice of the Law Officers an appeal will he lodged against the decision in the case of the Moravian Brotherhood, and the final judgment of the House of Lords upon the points at issue will be obtained at the earliest possible date.