(1.) LORD EVERSHED M.R. In this case I have had the advantage of reading in advance the judgment to be delivered by Donovan L. J. I agree with my brothers conclusions and with his reasons for them. Out of respect, however, for the opposite conclusion which Harman L. J. has reached, and for the argument of the counsel for the appellants, I state shortly my own reasons for thinking that this appeal should be dismissed.
The case is, indeed, a remarkable one. The appellants granted to the National Coal Board a long lease (as that phrase is defined by section 172 of the Income -tax Act, 1952) of premises known as Hobart House, the lease being for a term of 81 years from March 25, 1955, at an annual rent of Pounds 96,177. The National Coal Board proceeded to pay to the appellants, in respect of each of the first six quarters under their lease, the rent in full, i.e., sums on each occasion of Pounds 24,044 5s., without any deduction in respect of income -tax. Why the Coal Board omitted to make the deductions which it was their duty under section 170 of the Act to make, is not explained and is irrelevant for present purposes. The appellants appear to have accepted these quarterly payments - perhaps naturally enough - without demur. The Additional Commissioners for Income -tax have now proceeded to assess the appellants in respect of these quarterly sums of rent, as being profits or gains liable to tax under Schedule D of the income -tax legislation. That they are such profits and gains was not disputed by Mr. Heyworth Talbot, but it is contended by him that the inevitable effect of the statutory language, in the relevant sections of the Act, is such that the appellants cannot now be assessed for income -tax in respect of them. Mr. Heyworth Talbot also submitted, in opening his case, that the Coal Board remained liable to assessment in respect of their various payments, that it was indeed the duty of the special commissioners so to assess the board, by that the board could not now claim to deduct from any future payment of rent any tax which they would be made liable to pay upon such assessments. I am glad to say that, for the purposes of this appeal, it is unnecessary for the court to express any view upon any part of this submission.
(2.) THAT the sums of rent in question are profits and gains in the hands of the appellants is not in doubt : and Mr. Heyworth Talbot also conceded that, if the appellants were surtax payers, they would have to pay such tax in respect of the total sums so received by them. It was, however, the main burden of Mr. Heyworth Talbots argument that the effect of the amendment made in 1927 to what is now section 170 of the Income -tax Act, 1952 (formerly rule 21 of the All Schedules Rules) has been inevitably to liberate persons in the position of the appellants from any liability to assessment for income -tax in such circumstances as have occurred in the present case. In the end of all, the question turns, as I think, upon the short and single question : are the words of sub -section (1) of section 36 of the present Act - 'Statements of profits or gains under Schedule D shall, unless an assessment thereon is required to be made by the Special commissioners, be laid before the Additional Commissioners' - such as to produce the effect, when read in conjunction with section 170 of the Act, that the only assessment which may now lawfully be made in respect of rent payable under a long lease is an assessment to be made by the special commissioners form themselves making any assessment in any circumstances upon the recipient ? A similar point arises from the effect of section 170 upon section 6 of the Act; but the main argument has revolved round section 36, and I do not desire to add anything to what Donovan L. J. says in his judgment in regard to section 6.
If such is the effect of section 170, it was not suggested by Mr. Heyworth Talbot that the result was other than an oblique effect of a amendment to the law intended only to relate to the mechanics of income tax collection. Donovan L. J. has, in his judgment, traced the history of the relevant sections. Prior to the year 1888 liability for assessment to income -tax in respect of annual payments made otherwise than out of the profits or gains of the payer rested exclusively upon the recipient as being part of his profits or gains subject to the general charge for income -tax. In the year 1888, what later became rule 21 of the All Schedules Rules, was introduced in terms which corresponded to the first part of the first sub -section of the present section 170. In the year 1927 it emerged, as a result of In re Lang Propeller Ltd., that the debt to the Crown thereby created, not being an assessed tax, gave to the Crown no priority in a winding up of the debtor. As a result rule 21 was, by the Finance Act, 1927, amended, and has since been in the form now represented by section 170. It will be observed that Parliament, in making this amendment, though it had before them the language of rule 19 of the All Schedule Rules (now section 169 of the Act of 1952) did not thinks fit to introduce into the amended rule 21 the language of the sub -section 1(a) of section 169 : 'No assessment shall be made on the person entitled to the interest, annuity or annual payment.' It has been consistently held by the courts that the amendments introduced by the Acts of 1888 and 1927 were intended as changes only in the machinery of collection - see, for example, the judgment of Finlay J. in the case of Rye and Eyre v. Inland Revenue Commissioners, and the observations of Upjohn J. in Stokes v. Bennett (Inspector of Taxes). It is also not in doubt, as a result of the case of Glamorgan Quarter Sessions v. Wilson, that under the law as it then stood (in 1910) failure on the part of a lessee to make the deduction in respect of tax required by the terms of rule 21 (now found in section 170(1)) did not have the effect that the lessor was not himself liable to be assessed in respect of the gross sum of rent which he had received. It is, however, now contended - and I return to the fundamental question in the case to which I have already adverted - that the references to assessment by the special commissioners introduced into what are now the later sub -sections of section 170 have, when read in conjunction with the terms of section 36 of the present Act, not only altered the machinery of tax collection by getting rid of the difficulty encountered in the Lang Propeller case, but have materially altered the policy and substance of the law itself by making no longer possible, in circumstances such as the present, assessment of the lessor in respect of rents received by him without deduction by the lessee.
If the purpose of the amendments to the statute was to alter only the machinery for collection, then I apprehend that the court should not give to such amendment the much wider effect now contended for, unless such conclusion is inevitable according to the strict construction of the material language of the statute. As Lord Dunedin observed in Whitney v. Inland Revenue Commissioners : 'A statute is designed to be workable, and the interpretation thereof..... should be to secure that object, unless crucial omission or clear direction makes that end unattainable.'
The general scheme or policy of income -tax may be discerned, so far as relevant to this appeal, from sections 1, 122 and 148 of the Act of 1952. By the first of those sections tax is charged in respect of 'all property profits or gains' described in section 122 (that is, Schedule D), including (by paragraph 1(a)(i)) 'the annual profits or gains arising or accruing - (i) to any person residing in the United Kingdom from any kind of property whatever.....' By section 148 the tax under Schedule D 'shall be charged on and paid by the persons receiving or entitled to the income in respect of which tax under' the schedule is directed to be charged. Rents under long leases are brought within the scope of Schedule D by section 177 of the Act. To such rents, if paid by a lessee wholly out of profits or gains brought by him into tax, section 169 of the Act (formerly rule 19 of the All Schedules Rules) is applicable. Where, however, and to the extent that such rents are not payable out of profits or gains brought into charge, sub -section (1) of section 170 requires the lessee, on making the payment, to deduct out of it a sum representing the amount of the tax thereon at the standard rate in force a the time of the payment. Sub -sections (2) and (3) of the section, so far as relevant, provide : 'Where any such payment as aforesaid is made by or through any person, that person shall forthwith deliver to the Commissioners of Inland Revenue, for the use of the Special Commissioners, an account of the payment,..... and of the tax deducted out of the payment..... and the Special Commissioners shall assess and charge the payment for which an account is so delivered on that person. (3) The Special Commissioners may, where any persons has made default in delivering an account required by this section,..... make an assessment according to the best of their judgment.....'
Section 36 of the Act - the vital section for the purposes of this appeal occurs in Chapter II of Part II of the Act, a chapter concerned, according to its heading, with 'Returns and Assessments.' I, therefore, agree with Donovan L. J. that, according to the scheme and policy of the Act, a person in receipt of profits or gains of the nature of the rent here in question would, prima facie, be taxable in respect thereof and bound, accordingly, to make a return relating thereto. But the machinery of Part VII of the Act (and of sections 170 and 177 in particular) provides that in the case of a rent paid otherwise than out of the profits or gains of the lessee, the duty of the lessee is to deduct the appropriate tax out of his 'payment' of the rent and to render an account accordingly for the use of the special commissioners, who will assess him in respect of such 'payment' of rent. Thus the ordinary liability of the recipient of the rent (as his profits or gains) is discharged on his behalf by the lessee, so that the lessor is regarded for income -tax (though not for surtax) purposes as having accounted for tax in respect of the rent.
We are only in this appeal concerned with the case where the lessee has paid the contractual rent in full, without making any deduction or rendering any account, as he should have done according to the terms of sub -section (1) of section 170. What the position might be (or, indeed, might have been prior to 1927) where a lessee, having made the deduction, then failed to account therefore to the Commissioners of Inland Revenue (whether or not after assessment by the special commissioners under the existing Act) it is unnecessary for us to decide. I observe only that, since the rent in the case supposed are profits or gains of the lessor and of no other person, any attempt to assess both the lessor and the lessee in respect thereof would appear at least to be open to the objection that an attempt was being made to tax the same person twice in respect of the same taxable income.
(3.) THESE problems do not, however, arise in the present case. The question on the facts of the present case remains; the lessor having received 'profits or gains from..... property' is he, according to the general scheme and policy of the Act, liable to make a return in respect thereof ? Or is he exempted from so doing by the language of sub -section (1) of section 36 ? I agree with Donovan L. J. that, upon the facts of the present case, the exemption of that sub -section is inapplicable. According to its strict language and in the context of Chapter II of Part II of the Act, the sub -section is related to profits or gains under Schedule D, and the exemption is similarly limited to cases where assessment of such profits or gains is 'required' to be made by the special commissioners -for example, upon the request, as provided by section 38, of the person chargeable. As a matter of strict language, section 170 is concerned with the assessment of the 'payment' of rent by the lessee. True the 'payment' is, by the section, identified with what would in the lessors hands be profits or gains. Still, in the hands of the lessee, the subject -matter charged is the rent payment, which in his hands is not profits or gains, nor is it paid out of profits or gains for which he is chargeable. I refer again to the divergence in language in this respect between sections 169 and 170, the former of which (but not the latter) states expressly that no assessment shall be made upon the recipient of the payment.
But if this be too narrow a view, it is still, as I conceive, necessary to construe the word 'required' in sub -section (1) of section 36. True it is that, where the lessee has made the deduction when paying his rent and has accounted accordingly to the commissioners, then by the terms of sub -section (2) of section 170 the special commissioners 'shall' assess him. In such case, I will now assume that the assessment upon the lessee is 'required' to be made by the special commissioners within the terms of section 36(1) of the Act. But in the present case no deduction was made and no account delivered by the National Coal Board. It is therefore conceded by Mr. Heyworth Talbot that sub -section (3) and not sub -section (2) of section 170 is applicable, and the relevant words of sub -section (3) are 'The Special Commissioners may ... make an assessment.' Though Mr. Heyworth Talbot was at first disposed to contend that 'may' meant 'shall', he later conceded that the powers of assessment conferred by sub -section (3) are discretionary and not obligatory. If this is right, then special commissioners are 'required' to make an assessment within the terms of sub -section (1) of section 36 of the Act ? In my judgment it cannot. In my judgment, if it is contended that the amendment of the machinery provisions of what is now section 170 have the oblique but wide effect upon the general scheme of the Act so as, in a case such as the present, to absolve the lessor from his previously -existing tax liability, such result must be justified by a strict construction of the Act, that is of section 36(1); and in my judgment, the word 'required' is not satisfied by a mere discretion.;