The Duke’s gardener was paid weekly, but to reduce tax, his solicitors drew up a deed in which it was said that the earnings were not really wages, but were an annual payment payable by weekly instalments.
Held: To find out what the true relationship was and what the true nature of these payments were, you had to look at the deed.
Tomlin L said: “it is said that in revenue cases there is a doctrine that the Court may ignore the legal position and regard what is called ‘the substance of the matter’, and that here the substance of the matter is that the annuitant was serving the Duke for something equal to his former salary or wages, and that therefore while he is so serving, the annuity must be treated as salary or wages. This supposed doctrine . . seems to rest for its support upon a misunderstanding of language used in some earlier cases. The sooner this misunderstanding is dispelled, and its supposed doctrine given its quietus, the better it will be for all concerned, for the doctrine seems to involve substituting ‘the incertain and crooked cord of discretion’ for ‘the golden and streight metwand of the law’. Every man is entitled if he can to order his affairs so that the tax under a tax statute is less than it would otherwise be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax. This so called doctrine of “the substance” seems to me to be nothing more than an attempt to make a man pay notwithstanding that he has so ordered his affairs that the amount of tax sought from him is not legally claimable.” and “Whatever the substance of the arrangements may have been, their fiscal effect had to be in accordance with the legal rights and obligations they created.”
Judges: Lord Tomlin
References:  AC 1,  All ER 259, (1935) 19 Tax Cas 490, (1935) 104 LJKB 383
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