§ EARL RUSSELL rose to call attention to the case of the Rev. J. G. Cornish, Salcombe House, Sidmouth, and to ask whether it is a fact that taxpayers are charged Income Tax and Super-Tax on rent they have not received. The noble Earl said: My Lords, I owe your Lordships an apology for having failed to be here when this Question should have been put a week ago. Such excuse as I can put forward is due to the fact that there were three Government Bills for Second Reading that day, and I had not contemplated that they would be disposed of within seven minutes, or less, but that, I recognise, is no excuse for not being in my place, and I must ask your Lordships to forgive me. The matter to which I call attention was contained in a letter 971 written to The Times by a reverend gentleman of whom I know nothing beyond his letter, and with whom I have not communicated and who has not communicated with me, so that this is the sum and substance of my information. But it seemed to me so curious that I thought it was desirable to found a Question upon it.
What he says is that he started by having a bad debt of a year and a half's rent, and he had paid Income Tax on the expected rent. Why I do not know, but he must have been an enthusiastic supporter of the Chancellor of the Exchequer. When he did not get the rent he asked for repayment of the Income Tax, and was refused on the ground that there is no statutory allowance for lost rent. This, it was said, was under an Act of 1847. But what finally caused me to take the matter up was the next sentence of the letter. Not satisfied with their action, which one would imagine would have been disappointing enough to most people, what the taxing authority them did was this: on the top of it came a demand for Super-Tax on the unpaid rent. It is a little hard to pay tax on rent not received, but it seems to me to pass breaking point when you are asked to pay Super-Tax on it as well, and add it to your Super-Tax account. After remonstrating, he was informed by the Special Commissioner that as his claim for repayment had been refused they could enforce their claim. And the writer says:
Is it not rather hard measure that a landlord should (a) lose his rent; (b) pay Income Tax on it; (c) be charged Super-Tax in addition?
Your Lordships will probably think it is rather hard measure, and I shall be very glad to hear to-day from the noble Lord opposite whether it is the law.
§ I do not wish to be put off with any statement about its being under case this or case that or under schedule this or schedule that. Is it really the law that a thing of this sort can happen? If it is, I can only suppose it must have gone through the House of Commons by inadvertence, because it is so clearly opposed to natural justice. I do not think even the influence of Government would have got a provision of this sort into an Income Tax Act in another place 972 if it had been fully understood. If it is not the law, why has the reverend gentleman not been properly dealt with and returned his money? If I am informed that it is the law, then I hope I shall receive an assurance that the law will be changed, because I am unable to conceive any set of circumstances which would justify a demand for tax in such a case as this. I care little, as I say, whether it is said to be the proper thing to do under this schedule or that schedule. It is not honest, and I am sure the Government of this country, and even the taxing authorities, do not want to do things that are not honest. I put the Question that stands in my name and I hope I shall receive a satisfactory answer from the noble Lord opposite.
§ THE CHANCELLOR OF THE DUCHY OF LANCASTER (LORD CUSHENDUN)
My Lords, the noble Earl has asked whether it is a fact that taxpayers are charged Income Tax and Super-Tax on rent they have not received, and he has elaborated that question. The answer to the question is that it depends upon circumstances, and I think I can explain to the noble Earl and to your Lordships that this is a very reasonable position. If the landlord remits rent of his own motion as a matter of charity or generosity, then in those circumstances there is no reason whatever why the State should contribute to this charity, and in those circumstances he is required to pay Income Tax. But if it turns out that the tax is irrecoverable by process of law, and the landlord takes every means of enforcing the debt——
§ LORD CUSHENDUN
If the rent is irrecoverable, then if he succeeds in proving that the rent is irrecoverable no tax is payable. That in itself, speaking quite generally, seems to me a very reasonable proposition. But it is not always very easy to determine the fact whether or not the rent is irrecoverable. I would remind the noble Earl and your Lordships that the tax is in the first instance taken from the occupying tenant. It is only when the occupying tenant, having paid the tax, sends the receipt to the landlord that he can deduct it from the next rent. Now it happens that this gentleman, Mr. Cornish, as a good many 973 men do, I believe, departed from the usual practice and from his ordinary liability by paying the tax in the first instance himself. He paid the tax in the first instance himself instead of going through the form of paying it through the tenant. He put in what is called a certificate for lost rent when he found that the tenant was in difficulties. He himself made the statement when signing that certificate that he had intended to remit six months' rent and that he had got a promise from the tenant that he would pay the balance of the twelve months' rent out of the valuation of the farm which he was then intending to leave. It subsequently turned out that the farm was in a condition when no valuation was payable at all. The tenant could not get anything from his valuation, and then Mr. Cornish said that he had not intended to enforce the rent on account of the man having a large family and on account of his own clerical position. It was obviously a case of generosity and charity, to which no one would object, on the part of this reverend gentleman, but to say that for that reason he should be relieved of the tax when he was remitting the rent himself for those reasons would, I think, be a very extreme proposition.
But when the facts were more fully gone into—this is where I say the difficulty of arriving at the true facts comes in—and it was known that there was no valuation paid at all, more particular examination was made into the circumstances of the tenant, and then the local inspector came to the conclusion that, notwithstanding what Mr. Cornish had said, the rent was really irrecoverable. Thereupon an intimation was made to him that the usual rule in such cases would be followed and that no tax would be payable. I cannot say for certain, but I believe that the amount has been repaid. If it has not been repaid it will be, but I cannot say 974 whether it has actually been repaid up to the present moment. I think that your Lordships will agree that this is a reasonable way of dealing with matters of this sort. The noble Earl concluded by asking me whether it was possible that the law allowed this sort of thing to be done. If there is any stretching of the law at all it is in allowing remission. That has been done under Treasury practice for a very long time. I am not sure that I could point to any statutory provision which enables that to be done, but it is so reasonable and it has been followed for so long that I cannot imagine anybody taking objection to it. Those are the facts of the case, and I can only hope the answer given to the noble Earl will satisfy him in the matter.