C. A. purposes of the Act to consider the question what property passed upon the death, not what interest the deceased person ATTORNEY- possessed. possessed. The question here is whether or no the Ditton GENERAL estate passed subject to a mortgage. 1903 v. MONTAGU (LORD). Stirling L.J. Prior to the date of the mortgage, which was May 29, 1888, the estate stood limited to the use of the Dowager Duchess of Buccleuch for life, and, after her death, to the use of the testator's second son, Lord Montagu, for life, with remainder to his eldest son, in tail; but by a disentailing deed, subsequently executed, a joint power of appointment was given to Lord Montagu and his eldest son, so that now, practically, for the present purpose, the effect is the same as if the Duchess and Lord Montagu had life interests followed by a remainder to the eldest son of the latter in fee. Lord Montagu and his son were desirous of raising a sum of 27,000l., and applied to the Duchess to aid them in so doing. One way in which their desire might have been carried out was by their all joining in the sale of a portion of the estate of sufficient size to produce the required amount. In that case, when the sale had been effected, and the purchase-money paid over to Lord Montagu and his son, there would have been an end of the settlement altogether as regards that portion of the property: it could not possibly be contended that, after that transaction, the property sold was comprised any longer in the settlement; and the sole property which would have passed on the death of the Duchess, and on which estate duty would have been payable, would have been that portion of the estate which remained unsold. That course was not adopted; but, instead thereof, the Duchess and Lord Montagu and his son executed a mortgage in fee, by which the whole of the estate was conveyed to the mortgagees to secure 27,000l. That sum was paid to the father and son, and they covenanted to repay it, the Duchess not making herself personally responsible for its payment, although she joined in the conveyance of the fee to the extent of her life estate. Lord Montagu and his son contemporaneously entered into a covenant by which they undertook to indemnify the Duchess and the estate in her lifetime against the mortgage debt, and they conveyed certain property C. A. 1903 GENERAL v. MONTAGU (LORD). Stirling L.J. to trustees on trust to apply the same for the purpose of securing the indemnity of the Duchess in accordance with their covenant. Whatever the arrangements between the ATTORNEYparties inter se may have been, they combined to execute a legal mortgage of the property in fee to secure 27,000l.; and the question which we have to consider is what the effect of that transaction is as regards the question what property passed upon the death of the Duchess. That question is answered in the clearest way by Lord Davey in the passage which my brother Vaughan Williams has read from Earl Cowley v. Inland Revenue Commissioners (1), and which it is unnecessary for me to read again. The case is substantially the same as if the tenant for life and the remaindermen had combined to sell a specific portion of the property, and so taken that part out of the settlement: here, to the extent of the mortgage, the whole property is taken out of the settlement. That I take to be the effect of what was laid down in Earl Cowley v. Inland Revenue Commissioners (1); and, so reading that case, I think we are bound to decide that in this case the property which remained in settlement, and passed on the death of the Duchess, was simply an equity of redemption. It follows that the value of the mortgage debt of 27,000l. must be deducted from the principal value of the estate in arriving at the amount of the estate duty. It is not necessary for me to say much as to any of the other points discussed. The 2nd section of the Act does not appear to me to apply for the same reasons as were given in Earl Cowley v. Inland Revenue Commissioners. (1) With regard to s. 7 also, I can only say, as was said in that case, that, whatever that section may apply to, it has no application to this case, because there is no question here of making any deductions from the value of the equity of redemption, which is the only subject of the duty. MATHEW L.J. The short question in this case is whether the property which passed on the death of the Duchess is to be treated as subject to the mortgage or not. It was contended, in substance, that it must be treated as not so subject, because (1) [1899] A. C. 198. VOL. I. 1903. 2 M 2 of the contract for indemnity entered into with the Duchess. In dealing with that contention we must look to the language of the Finance Act, 1894; and I find nothing in that Act to justify such a contention. It appears to me clear that this case comes within the provisions of s. 1 of the Act, and that the property which passed within the meaning of that section was the equity of redemption in the estate subject to the mortgage, and nothing more. That being so, none of the arguments based upon s. 7 can have any bearing on the case. I agree that this appeal must be allowed. Appeal allowed. Solicitor for informant: Solicitor of Inland Reveuue. C. A. 1903 Feb. 13. E. L. [IN THE COURT OF APPEAL.] SCOBLE AND OTHERS v. THE SECRETARY OF STATE Revenue--Income Tax-Annuity-Purchase-money-Payment by Annual By a contract, made in 1849 between the East India Company and the Great Indian Peninsula Railway Company, it was agreed that at the expiration of fifty years therefrom it should be lawful for the East India Company, on notice to the railway company, to purchase from them their railway at a price representing the full amount of the value of all the shares or capital stock of the railway company, and that if and when the East India Company should become liable under the contract to pay for the purchase of the railway it should be lawful for them, instead of paying a gross sum therefor, to declare, by notice to the railway company, their option to pay an "annuity," to commence from the time when the gross amount would be payable and to continue during the residue of a term of ninety-nine years, the rate of interest to be used in calculating the annuity to be determined as therein specified. At the expiration of the fifty years the Secretary of State for India, in whom the powers exercisable by the East India Company under the contract had become vested, gave notice to the railway company of his intention to purchase the railway, and the price was determined and became payable. The Secretary of State thereupon duly declared his option to pay an annuity, and the rate of interest to be used in calculating the annuity was duly fixed. The annuity was paid half-yearly, each payment representing, as to a part of it, an instalment of the price paid for the railway, and, as to the residue, interest on the amount of the price for the time being unpaid. This arrangement was sanctioned by a local Act, which provided that the Secretary of State should pay the annuity to certain trustees appointed on behalf of the shareholders of the railway company : Held, that so much of each instalment as represented payment of the purchase-money was not within the term "annuity" in Sched. C of the Income Tax Acts, and, therefore, that income tax was not payable upon the whole amount of each half-yearly payment, but only upon so much of it as represented interest. Judgment of Phillimore J., [1902] 2 K. B. 413, reversed. APPEAL from the judgment of Phillimore J., reported [1902] 2 K. B. 413. The action was brought to recover two sums of 81227. 10s. 8d. and 96117. 6s. 6d. respectively, alleged to have been wrongfully deducted and retained for income tax by the Secretary of State for India out of an annuity payable by him to the plaintiffs. The following material facts were admitted at the trial :— The plaintiffs are the annuity trustees referred to in the Great Indian Peninsula Railway Purchase Act, 1900 (63 & 64 Vict. c. cxxxviii.) (Local). By a contract dated August 17, 1849, made between the East India Company of the one part, and the Great Indian Peninsula Railway Company of the other part, it was agreed that the East India Company should provide land for a railway to be constructed by the railway company, and that the railway company should construct a railway on that land, and that on the completion thereof the East India Company should grant to the railway company a lease of, or otherwise secure to the railway company a right and title to, that land for a term of ninety-nine years commencing from August 17, 1849, unless the same should be sooner determined under the provisions contained in the contract. Clause 23 of the contract provided: That at any time. . . . within six calendar months after the expiration of the first fifty years of the said term, it shall be lawful for the East India Company to give notice to the said railway company in London and at Bombay of their intention C. A. 1903 SCOBLE V. SECRETARY OF STATE C. A. 1903 SCOBLE v. SECRETARY OF IN COUNCIL to purchase the said railway and works, together with the telegraphs (if any) and the engines, carriages, stock, plant, and machinery belonging to the said railway and works, and thereupon at the half-yearly day next but one following such notice the land to be provided as aforesaid, with the railway thereon, FOR INDIA. and all buildings, works, fixed machinery, telegraphs, and conveniences whatsoever, shall revert to and become the property of the East India Company as the owners thereof by purchase on account of the Government of India and the East India Company shall be bound to pay in London on the said half-yearly day for the purchase of all the said premises the full amount of the value of all the shares or capital stock in the said railway company." Clause 26 provided: "That in every or any case in which under the provision of these presents the East India Company shall become bound to repay the capital expended by the said railway company as aforesaid, or in which the East India Company shall become liable to pay for the purchase of the said railway works and stock before the expiration of the said term of ninety-nine years, it shall be lawful for the East India Company, instead of paying a gross sum of money in respect of the premises, to declare by notice to the said railway company in London their option to pay an annuity from the time when the gross amount would be payable, and to continue during the residue of the said term of ninety-nine years, and in that case such annuity shall be payable in London on such two halfyearly days in the year as shall be selected by the East India Company in that behalf, with a fractional part for any broken half-year, the rate of interest which shall be used in calculating such an annuity being determined by the average rate of interest during the preceding two years received in London upon public obligations of the East India Company, and which shall be ascertained by reference to the governor or deputy-governor of the Bank of England for the time being." The railway was duly constructed, and was subsequently extended under the provisions of two further contracts which incorporated the clauses of the contract of August 17, 1849. Under the statute, 21 & 22 Vict. c. 106, all the powers of the |