Barlow v Inland Revenue Commissioners: 1937

A defaulting trustee who had misappropriated trust property entered into a deed dated 27 March 1930 by which he covenanted to pay a principal sum which was made up of the amount of the trust monies he was obliged to account for together with compound interest at 5 per cent per annum up to 1 January 1930. The deed also provided for the payment of interest from 1 January 1930 until payment of the principal sum. The question arose as to whether the interest element of the principal sum was yearly interest and therefore deductible by the taxpayer under s.24 of the Finance Act 1923 (as amended by the Finance Act 1927). It was not in dispute that the continuing interest was deductible but the Special Commissioners decided that the interest element included in the principal sum was either a capital sum or, if interest, was not yearly interest.
Held: Finlay J followed the decision of the Court of Appeal in Barnato and held that the amount of interest comprised in the principal sum fell to be treated as interest rather than a capital payment. That left him to consider whether it was also yearly interest and, again, he differed from the Special Commissioners:
‘The general position of the law was laid down a long time ago in the case of Bebb v Bunny, 1 Kay and J. 216, where the matter was fully discussed by Page Wood, V.-C., and that decision, though I think there has once or twice been some doubt cast upon it, was a correct decision. A distinction was drawn very much later in a case of Goslings and Sharpe v Blake, but that case had reference to a very different subject matter, interest on a banker’s short loan. It is very well known that in the City of London bankers lend money for very short periods, sometimes it is actually a period of hours, for a week or a fortnight or a month, and what was held there was that the decision in Bebb v Bunny did not apply to these bankers’ short loans and that interest on these loans was not yearly interest of money. That appears to me to be a very different subject matter from this, and I think it would be enough to say that in my opinion upon this point of yearly interest of money this clearly is yearly interest of money, and I think that Bebb v Bunny shows that. I will add on this point, although I think the point does not appear to be expressly raised, that Barnato’s case is in point and that the interest in Barnato’s case seems to me to have been exactly of the same nature as the interest here, and it does not appear there to have been suggested that the interest was not yearly interest of money. It seems to me, therefore, that that case, though I quite agree the point was not precisely raised, is in point here also.’

Finlay J
(1937) 21 Tax Cas 354
England and Wales
Cited by:
CitedRevenue and Customs v Joint Administrators of Lehman Brothers International (Europe) SC 13-Mar-2019
The Court was asked whether interest payable under rule 14.23(7) of the Insolvency Rules 2016 is ‘yearly interest’ within the meaning of section 874 of the Income Tax Act 2007. If so, the administrators must deduct income tax before paying interest . .

Lists of cited by and citing cases may be incomplete.

Income Tax

Updated: 18 January 2022; Ref: scu.671252