KETTLE'S GIFT Versus KETTLE'S GIFT
1. In form, this is an application by the personal res pondents to two motions under which orders were made restraining Dorlands Advertising Ltd. (which I shall call "the company") from permitting the transfer of certain shares in that company and from paying any dividends due or to become due thereon, asking that the only outstanding injunc tion‑namely, that granted by an order of October 8, 1965 may be discharged. The injunctions in question were obtained by the Inland Revenue Commissioners in support of a notice in lieu of district issued by them and served on the company in respect of the shares in question. In substance, the question is whether estate duty is payable in respect of certain gifts inter vivos made by the late Edith Ann Kettle (whom I shall call "Mrs. Kettle") which resulted in the present applicants becoming the registered owners of those shares.
2. Mrs. Edith Ann Kettle was at all material times domiclied in Ontario. Canada, where she died on August 23, 1963. Immediately prior to the events with which I am concerned, she was the registered holder of ordinary and preference shares in the company, which is an English company incorporated in 1911. In March 1963, the company made two bonus issues of shares. As a result of the second of these issues, Mrs. Kettle became entitled, inter alia, to 18,316 ordinary shares of 5s, each. A renounceable allotment letter in respect of those shares was sent to Mrs. Kettle at the end of March. Mrs. Kettle renounced in favour of her niece, Mrs. Smithers, in respect of 8,316 of the shares ; in favour of her niece's husband, Mr. L. H. Smithers in respect of a further 5,000 shares; and in favour of her great niece, Mrs. Smithers' daughter, Mrs. Smith, in respect of the remaining 5,000 shares. At the end of May 1963, those three persons, who are the present applicants were registered In the books of the company as the holders of their shares. The form of renunciation annexed to the renounceable allotment letter was signed by Mrs. Kettle on May 14, 1963. She died some three months later.
3. The Crown claim estate duty on the 18,316 shares under section 2(1)(c) of the Finance Act, 1894. That section, when read is conjunction with section 1 of the same Act and section 38 of the Customs and Inland Revenue Act, 1881 (as amended), imposes a liability for estate duty on property taken under a disposition made by the deceased purporting to operate as an immediate gift inter vivos which has not been bona fide made five years before the death of the deceased. The applicants claim exemption from estate duty by virtue of section 28(2) of the Finance Act, 1949, on the ground that the property the subject of the gift was, at the material time, property situate outside Great Britain.
4. That subsection, so far as material to the present case, provides as follows:
5. "As respects property passing on the death of a person dying after the commencement of this Part of the Act, subsection (2) of section 2 of the Finance Act, 1.894 (which exempts from estate duty property situate abroad and not charge able with legacy duty or succession duty), . . . shall not have effect ; but that property shall be deemed for the purposes of estate duty not to include any property passing on the death which Is situate out of Great Britain . . . . . . if the property so situate passes only by virtue of paragraph (c) of subsection (1) of section 2 of the Finance Act, 1894, as having been the subject of a gift inter vivos and it is shown"‑--
6. And I now paraphrase‑that the deceased did not die domiciled in any part of Great Britain.
7. The dispute turns largely on the question what is the appropriate time for ascertaining the locality of the property for which exemption is claimed. Mr. Bagnall, for the applicants, argues that it is the date of the gift: Mr. Walton, for the Crown, argues that it is the date of death. It is common ground that if the Crown's argument is right estate duty is payable, since the applicants were the registered holders of their shares when Mrs. Kettle died.
8. The relevance to Mr. Bagnall's argument of the date for ascertaining the locality o the property is this. He argues, first, that the proper date for ascertaining the "property taken" under a gift is the date of the gift g secondly, that the property taken under the gift at that date was not shares in the company but Mrs. Kettle's rights under the renounceable allotment letter ; thirdly, that at the date of the gift that property was situate, not in Great Britain but in Ontario, where the donor, the renounceable allotment letter and the donees all were. The question of the point of time at which the locality of the property has to be determined is, therefore, crucial.
9. Mr. Bagnall submits that if the subject‑matter of a gift has to be ascertained at the date of the gift for the purpose of identifying the property which is deemed to pass on death and Legislature then creates an exception to its deeming provision, commonsense would suggest that the question whether the exception applies should be determined at the same date. As he put it, one would expect the "taking out" to be decided at the same time and by reference to the same facts as the "putting in."
10. Mr. Walton, for the Crown, argues that this is a fallacy, since the theory of the provisions here in question is, in the words of Lords Sands in Strathcona (Lord) v. Inland Revenue (1929 S C 800) :
11. "That, in order to avoid disappointment of the estate duty, the property donated should be treated just as if no donation had been made, and the property in question had remained part of the deceased's estate and had actually passed upon his decease. The property is deemed to pass ; that is to say, for the purposes of estate duty it shall be treated as if It had passed."
12. Therefore, says Mr. Walton, there is no a priori reason for referring the question of locality to the date of the gift rather than the date of death.
13. In my judgment, the question is a very short one of the true construction of section 28(2) of the Act of 1949, and in particular of the words "but that property shall be deemed for purposes of estate duty not to Include any property passing on the death which Is situate out of Great Britain." It is clear from the reference to section 2(1)(c) of the Act of 1894 in the later part of the subsection which I have already read that the expression "any property passing on the death" includes any property which is deemed to pass on the death, so that set out in extenso the exemption is in favour of any property passing on the death and any property which by virtue of section 2(1)(c) is deemed to pass on the death which is situate out of Great Britain, subject to the conditions specified.
14. Does the word "is," in the phrase "which is situate out of Great Britain;" signify one date in relation to property which passes on the death and another date in relation to property which Is deemed to pass ? To hold that it does would, in my opinion, unduly strain the language of the subsection. In my judgment, the subsection is referring to one point of time and one only, namely, the death of the deceased.
15. In these circumstances, it is unnecessary to consider the validity of the submissions which were made by Mr. Bagnall and disputed by Mr. Walton, that the subject‑matter of the gift was the right to shares and not shares, and that‑ the locality of that right was Ontario and not Great Britain.
16. I, therefore, dismiss this application, and I will discuss with' counsel the appropriate form of order.
17. Application dismissed.