C. A.

1903

v.

JOHNSON.

inapplicable to the purchase of an annuity accompanied by a gift. The construction placed on the section on behalf of the ATTORNEY- Crown would lead to the result that the greater the benefit that GENERAL is reserved on the disposition of the property, the higher would be the succession duty when the benefit is determined. It cannot have been the intention of the Legislature that a result might be arrived at which might make "increase of beneficial interest" in a property exceed the value of the property. At any rate, if the Act can apply to this case, it can only do so as to the 2901., which was the actual beneficial interest taken by the society.

Sir R. B. Finlay, A.-G., in reply. The argument put

forward for the defendant is much the same as that which was put forward in Grey (Earl) v. Attorney-General (1) and dealt with in the opinion of the Chancellor. As to the succession duty, the suggested anomaly does not arise, for the view taken is that the statute points to an increase of beneficial interest in the property, and cannot include anything beyond the value of the property itself.

Cur, adv. vult.

March 14. The judgment of the Court (Vaughan Williams, Stirling, and Mathew L.JJ.) was read by

VAUGHAN WILLIAMS L.J. In 1889 Mr. C. M. Burton, a director of the London Missionary Society, paid to that society a sum of 500l. upon the terms stated in a resolution of the directors, which is as follows: "That in consideration of the payment to the London Missionary Society of 500l. in lieu of a legacy by a director (Charles Munday Burton, Esq.), who does not wish his name to appear in any published or announced list of subscriptions, the present trustees and their successors in the trusteeship of the society be and hereby are authorized to pay the sum of 251. per annum in quarterly payments . . . during the life of the said Charles Munday Burton, Esq., and a like payment to his present wife Mrs. Martha Burton during her life, should she survive him." It was admitted by the Attorney-General that the payment was made

(1) [1900] A. C. 124.

in pursuance of a binding legal contract; and the case was argued, and it is to be decided, on that footing. Mr. Burton died on May 12, 1895; Mrs. Burton on May 5, 1900; and the annual sum of 251. mentioned in the resolution was regularly paid, out of the funds of the society, first to Mr. Burton during his life, and afterwards to Mrs. Burton during hers.

The Attorney-General on behalf of the Crown claimed that estate duty became payable on the death of Burton under the Finance Act, 1894, s. 2, sub-s. 1 (c); and, further, that succession duty became payable upon the death of Mrs. Burton under the Succession Duty Act, 1853, s. 7.

Phillimore J. has held that estate duty was payable, but that under s. 3, sub-s. 2, of the Finance Act, 1894, the value in 1889 of an annuity of 251. for the lives of Mr. and Mrs. Burton and the life of the survivor of them (which value was admitted to be 2107.) was to be deducted, and consequently estate duty was only payable on 2901. The learned judge further held that no succession duty was payable. From this decision the Attorney-General has appealed.

Sect. 2, sub-s. 1, of the Finance Act, 1894, provides that property passing on the death of the deceased shall be deemed to include" (amongst other property) "(c) property which would be required on the death of the deceased to be included in an account under s. 38 of the Customs and Inland Revenue Act, 1881, as amended by s. 11 of the Customs and Inland Revenue Act, 1889, if those sections were herein enacted and extended to real property as well as personal property, and the words 'voluntary' and 'voluntarily' and a reference to a volunteer' were omitted therefrom."

·

Amongst the property required by s. 11 of the Customs and Inland Revenue Act, 1889, to be included in an account is "property taken under any gift, whenever made, of which property bonâ fide possession and enjoyment shall not have been assumed by the donee immediately upon the gift and thenceforward retained, to the entire exclusion of the donor, or of any benefit to him by contract or otherwise." In Crossman v. Reg. (1), a case decided with reference to s. 38 of (1) (1886) 18 Q. B. D. 256, at p. 262.

C. A.

1903 ATTORNEYGENERAL

v.

JOHNSON.

Vaughan Williams L.J.

C. A.

1903

ATTORNEY-
GENERAL

v.

JOHNSON.

Vaughan Williams L.J.

the Customs and Inland Revenue Act, 1881, Hawkins J. in delivering the judgment of a Divisional Court (consisting of Denman J. and himself), says: "In considering the question whether a settlement is voluntary or not according to the true construction of the Customs and Inland Revenue Act, 1881, we think it is incumbent upon us to look at the real substance of the transaction and its object; and if so looking at it we come to the conclusion that in its origin it was intended to be a free gift to the transferees, but only upon the condition that the settlor should substantially retain to himself the interest in the property for his life, we ought to find the settlement to be voluntary within the meaning of the Act, even though on the face of the deed, and in fact, we may find that there was sufficient consideration to support a contract between the parties, and to take it out of the operation of the statute of 27 Eliz. as regards a subsequent purchaser." In Attorney-General v. Worrall (1), decided on s. 11 of the Customs and Inland Revenue Act, 1889, this view was in substance adopted by the Court of Appeal. It was there held that an assignment of a mortgage debt of 23,9247. by a father to his son was a "gift" within the meaning of the enactment, although it purported to be made in consideration of a covenant by the son to pay to the father during his life the yearly sum of 7351.

Having regard to the terms of s. 11 of the Customs and Inland Revenue Act, 1889, which speaks of a benefit to the donor by contract, and to the language of the Finance Act, 1894, s. 2, sub-s. 1 (c), which incorporates the provisions of s. 11 of the Customs and Inland Revenue Act, 1889, as if the words "voluntary" and "voluntarily" and "volunteer" were omitted, and to the decisions in Crossman v. Reg. (2) and Attorney-General v. Worrall (1), we come to the conclusion that the Legislature intends that property shall be treated as taken under a "gift," although such gift may have been made under a contract by which the donor takes a benefit.

If, then, the substance of the transaction between Mr. Burton and the Missionary Society be looked at, it seems to us that (1) [1895] 1 Q. B. 99. (2) 18 Q. B. D. 256.

C. A.

1903

GENERAL

V.

JOHNSON.

Vaughan Williams L.J.

it was intended not to be a matter of pure business, but one of bounty on the part of Mr. Burton. The facts that the payment was made "in lieu of a legacy," and that the amount ATTORNEYpaid largely exceeded the market value of the annuities agreed to be paid to Mr. and Mrs. Burton are sufficient to establish this. Consequently, the transaction must, in our opinion, be held to be a gift within the meaning of s. 2, sub-s. 1 (c), of the Finance Act, 1894. In truth this was not seriously disputed by the learned counsel for the Missionary Society, who urged that the gift ought not to be treated as consisting of 5001., but of that amount less the deduction of 210l. This contention was based partly on the language of the Customs and Inland Revenue Act, 1898, s. 11, sub-s. 1, and partly on the terms of s. 3 of the Finance Act, 1894.

The

As to the first of these grounds, it is to be observed that by the terms of the Finance Act, 1894, property passing on the death of the deceased is to be deemed to include the property in question as being property which would be required "on the death of the deceased" to be included in an account. point of time to which regard must be paid is that of the death of the deceased-in this case Mr. Burton. If at that moment the 5007. had remained in the hands of the society undiminished, then (subject to any question arising as to the effect of the annuity which was to be paid to Mrs. Burton) it would seem that the whole sum must be taken to have passed and to be subject to estate duty. This is in accordance with the decisions in Attorney-General v. Worrall (1), where no deduction was allowed in respect of the yearly sum of 7351. covenanted to be paid by the donee to the donor during his life, and AttorneyGeneral v. Grey (Earl) (2), where no deduction was made in respect of an annual rent charge reserved to the donor during his life.

What the society actually did with the 500l. does not appear; but it is contended that they ought not to be treated as having the whole of that sum in their hands at Mr. Burton's death, because no investment of that sum, proper to be made by trustees, would at the present time yield 251. (that is, (1) [1895] 1 Q. B. 99.

́(2) [1898] 2 Q. B. 534; [1900] A. C. 124.

C. A.

1903

5 per cent. on 5007.) per annum; and consequently that, for the purpose of paying the annuity, the capital originally placed ATTORNEY- in their hands must be treated as having been encroached upon GENERAL to a certain extent. We do not think that this contention JOHNSON. ought to prevail, for, if one looks at the real substance of the transaction and its object, it is difficult to avoid the conclusion that it was intended to be a testamentary gift of 5001.

V.

Vaughan Williams L.J.

Suppose the transaction in this case had been that, in consideration or upon the condition of the society paying to the donor the interest on 500l. for his life, he would make a present gift of 500l. It seems to us that such a case would clearly have fallen within the operation of s. 11 of the Act of 1889. Now what is the difference between that case and the present? It seems to me that, instead of the consideration being the interest on 5007., it is an arbitrary annuity of 251. for the lives of the donor and his wife, and it is said that interest at this rate could not be obtained on an investment of trust moneys, which we assume to be true. This difference does not in our judgment convert the transaction into a purchase of an annuity. A consideration is given whether the promise is to pay interest at the rate obtainable on trust investments, or to grant an annuity exceeding that rate, and in either case the substance of the transaction is a testamentary gift. The donor gives the 500l., less the profits to be made thereout, until his death and that of his wife. The fact that, by the condition of the gift which the transferee accepts, the rate of profit is fixed above the rate of interest which might be reasonably expected upon a trust investment does not seem to us to divest the transaction of its character as a gift, nor does the fact that the gift is subject to a life interest at the fixed rate in favour of the wife. The corpus of the gift is in no way encroached upon. It seems to us that to hold the contrary would be to disregard the decision in Attorney-General v. Worrall (1), for we do not think that consistently with that case one can take into account the quantum of the profits of the subject-matter of the gift which are retained by the donor. The profit retained in respect of the 5001. presently paid may (1) [1895] 1 Q. B. 99.