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Preface
T
HESE ARE THE papers from the July 2010 Tax Law History
Conference, held once more in the beautiful rooms and grounds of
Lucy Cavendish College Cambridge and organised by the Cambridge
University Law Faculty’s Centre for Tax Law. The following pages reﬂ ect the
range and quality of our conference and reﬂ ect an ever widening range of
topics. Apart from thanking all our speakers for their papers I wish also to
record my thanks to all the participants, whether speakers or not, who have
contributed to the quality and courtesy of the discussions, which, over the
years, have come to mark this event.
As ever, sincere thanks go to Christine Houghton and all the staff of Lucy
Cavendish College who made us so welcome, which explains why the college
enjoys so high a reputation in looking after its conference delegates. We are
also grateful to the President and Fellow of the College for allowing us to
invade their college during the July research period. Finally, we thank the
Chartered Institute of Taxation whose continued support for the Centre is so
much appreciated.
John Tiley
Cambridge October 2011
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Book 1.indb viBook 1.indb vi 12/2/2011 8:21:27 AM12/2/2011 8:21:27 AM

Acknowledgement
The Centre for Tax Law gratefully acknowledges the support of the Chartered
Institute of Taxation in connection with the conference for which the papers in
this volume were written.
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Book 1.indb viiiBook 1.indb viii 12/2/2011 8:21:27 AM12/2/2011 8:21:27 AM

List of Contributors
Dr John Avery Jones CBE Retired Judge of the Upper Tribunal Tax and
Chancery Chamber, former Visiting Professor, London School of Economics
Cynthia Coleman Adjunct Associate Professor, Faculty of Law, University of
Sydney
Ann O’Connell Professor, Melbourne Law School, University of Melbourne;
Senior Fellow, Taxation Law and Policy Research Institute, Monash University
Malcolm Gammie CBE QC, Barrister at One Essex Court, Temple, and
Research Director of the Tax Law Review Committee of the Institute for Fiscal
Studies
Michael Gousmett Founding Trustee, The New Zealand Third Sector
Educational Trust, and Independent Researcher
Jane Frecknall-Hughes Professor of Accounting, The Open University Business
School, Milton Keynes
Michael Littlewood Faculty of Law, University of Auckland, New Zealand
Margaret McKerchar Professor of Taxation, School of Taxation and Business
Law (Atax), Australian School of Business, The University of New South Wales
Angharad Miller Senior Lecturer, Bournemouth University
Ann Mumford Reader in Law, Queen Mary University of London
John Pearce (ex HMRC) now University of Exeter
John Snape Associate Professor of Law at the University of Warwick
Chantal Stebbings Professor of Law and Legal History at the University of
Exeter
David Stopforth Professor of Revenue Law, Accounting and Finance, University
of Stirling
Book 1.indb xiBook 1.indb xi 12/2/2011 8:21:27 AM12/2/2011 8:21:27 AM

xii List of Contributors
C John Taylor Professor and Head of School, School of Taxation and Business
Law, Australian School of Business, The University of New South Wales
Richard Vann Challis Professor of Law at the University of Sydney
Henk Vording Professor, University of Leyden, The Netherlands
Onno Ydema Professor, University of Leyden, The Netherlands
Book 1.indb xiiBook 1.indb xii 12/2/2011 8:21:28 AM12/2/2011 8:21:28 AM

1
Deﬁ ning and Taxing Companies 1799
to 1965
JOHN F AVERY JONES CBE*
ABSTRACT
T
HE ORIGIN OF the provisions for taxing companies was Pitt’s 1799
Act which had separate machinery sections for partnerships and bodies
of persons. Most bodies of persons were unincorporated bodies,
incorporation requiring (for a trading entity) both an Act of Parliament and a
Royal Charter, an expensive process. Unincorporated bodies of persons were
effectively large partnerships in which the members could change without the
consent of all the ‘partners’. They were in the form of a deed of settlement
company, based on trust law in order to avoid the effect of what was later known
as the Bubble Act which prohibited transferable securities in unincorporated
companies. This had nothing to do with preventing a recurrence of the South Sea
Bubble as it was in fact passed before the bubble burst and was the government’s
attempt to stiﬂ e competition for funds for the South Sea Company that had just
taken over the national debt.
Pitt’s machinery sections remained the basis for their taxation throughout:
joint assessment for partnerships, and a return by the chamberlain and
assessment of the body for bodies of persons. While Pitt gave a deduction for
dividends paid by a body of persons, thus separating the body from the members
and treating the body as if it were incorporated, Addington’s 1803 Act taxed the
body on its whole proﬁ ts before dividends, but providing that the member ‘shall
allow out of such Dividends a proportionate Deduction in respect of the Duty
so charged’ [ie charged on the body, not the dividend]. This treated the body
* I am most grateful to Richard Thomas for many helpful comments on the draft of this paper
presented at the conference.
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2 John F Avery Jones CBE
as transparent; there was no charging section for dividends. This deduction
was different from the deduction of tax from charges on income: ﬁ rst, in being
a deduction of tax charged on the body, not the dividend; and secondly, in not
having any equivalent of what became rule 21 of the All Schedules Rules in
the 1918 Act for charges not paid out of taxable income (applying from 1805
but then with assessment of the recipient; deduction and payment of tax to the
Revenue by the payer started in 1888). This meant that, as with partnerships,
if something other than the proﬁ t was distributed it was not taxable; it was
effectively a payment to the member of what the member already owned.
Income tax was reintroduced in 1842 just at the wrong time from the point
of view of the development of company law. Two years later, Gladstone’s Joint
Stock Companies Act 1844 provided for a simple method of incorporation of
companies (meaning partnerships the shares in which were transferable without
the consent of all the members, and partnerships with more than 25 members)
by registration in the way we know it today. These companies were still
unlimited; limited liability was not attained until 1855. They still had attributes
of partnerships and trusts, for example that it was the deed of settlement that
had to be ﬁ led whereas now that the company was incorporated there was no
need for a trust. The Joint Stock Companies Act 1856 severed the connection
with trusts and changed the documents to be ﬁ led from the deed of settlement
to the memorandum and articles of association, thus changing to a constitution
based on contract that we still have today. Effectively therefore this legislation
must have been the end of the unincorporated body of persons for normal
commercial bodies.
These company law changes were ignored for tax law and with a proportional
tax this made little difference. This changed with the introduction of graduated
rates of tax and the concept of total income on the introduction of super-tax
by the Finance (1909–10) Act 1910. Although bodies of persons, now effectively
consisting of registered companies, started life as being transparent for tax
there was no statutory provision saying that the timing of the member’s income
was when the dividend is paid. This seems to have been an assumption made
because companies had been incorporated since the 1850s and were not large
partnerships any more; there was no statutory change. The absence of a charging
provision for dividends was held not to be a problem as dividends formed part
of total income for super-tax on ordinary principles. The 1918 Act changed the
permissive deduction of tax from the ‘proportionate Deduction in respect of the
Duty so charged’ [on the body] to ‘the tax appropriate thereto’ [to the dividend]
in spite of its being a consolidation Act.
Elements of transparency still remained: dividends paid otherwise than out
of proﬁ ts were not taxable, and the same applied to income that fell out of
assessment, until this was reversed by statute in 1931. But this freedom from tax
did not apply if the company distributed more than the current year’s income,
nor to the distribution of the part of the rent in excess of the annual value which
was held not to be taxable in Fry v Salisbury House. Capital dividends remained
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Deﬁ ning and Taxing Companies 1799 to 1965 3
tax-free until the apparent absence of logic for this was criticised by the 1955
Royal Commission; the position was ﬁ nally changed on the introduction of
corporation tax in 1965.
Interestingly, the freedom from tax of capital dividends never applied
to dividends paid by non-resident companies. Such companies were never
transparent (because the Revenue could not ﬁ nd out about the source of their
proﬁ ts) and so the dividends were the source of income, a foreign possession,
which was taxable on ordinary principles unless it represented the tree rather
than the fruit. Since before 1914 foreign dividends were taxed on the remittance
basis for everyone it was normally unnecessary to go behind the remittance.
The Royal Commission used this different treatment of dividends from non-
resident companies as an argument for changing the law for capital dividends
by resident companies.
INTRODUCTION
Mair [the Australian negotiator of the double taxation agreement] noted that Willis
[the UK negotiator] ‘was experiencing difﬁ culty in deciding what, under UK law, is a
company. They use the term ‘body of persons’ in their Act. We eventually decided
that it was unnecessary to include therein any reference to a company’.
1

The quotation above, taken from a paper given at the previous History of
Taxation conference in 2008, records a problem that arose in the course of
the negotiation of the UK-Australia double taxation agreement of 1946. The
context was a possible dual residence provision that would have differentiated
between companies and others, for which a deﬁ nition of ‘company’ was
necessary. It seems extraordinary that in 1946 we were having difﬁ culty in
deﬁ ning a company.
2
This article ﬁ rst explores the nature of the problem and
how we taxed bodies of persons, and concludes with how we dealt with deﬁ ning
company in other early tax treaties, and how bodies of persons are still referred
to in modern tax treaties.
1
CJ Taylor ‘“I suppose I must have more discussion on this dreary subject”: The Negotiation and
Drafting of the UK-Australia Double Taxation Treaty of 1946’ in Studies in the History of Tax Law,
(Vol 4 ed John Tiley, Hart Publishing, Oxford, 2010) Ch 9, p 213 at 261–2. There is nothing about
this point in the UK National Archives ﬁ le except that the deﬁ nition of company is crossed out in
one of the early drafts. The UK negotiator was Robert Willis who later became Deputy Chairman
of the Board of Inland Revenue.
2
This is more likely to have been an excuse for not agreeing to the Australian proposal because
we managed to deﬁ ne company in all our other early tax treaties: see text at fn 173 (or perhaps it
was an excuse by the Australian negotiator to the Commissioner for not achieving the dual residence
provision).
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4 John F Avery Jones CBE
THE PROBLEM
Company Law
We shall start with the state of company law in Pitt’s time. His 1799 Income
Tax Act had separate provisions for partnerships
3
and for ‘Bodies Politick or
Corporate, Companies, Fraternities, or Societies of Persons, whether Corporate
or not Corporate’,
4
which will be referred to as ‘bodies of persons’.
5
The normal
form of unincorpoprated body of person used for commercial purposes at the
time was a deed of settlement company. Gower describes it in this way:
The company would be formed under a deed of settlement (approximating to a cross
between modern articles of association and a debenture trust deed) under which the
subscribers would agree to be associated in an enterprise with a prescribed joint stock
6
divided into a speciﬁ ed number of shares; the provisions of the trust deed would be
variable with the consent of a speciﬁ ed majority of the proprietors; management
would be delegated to a committee of directors; and the property would be vested in
a separate body of trustees, some of whom would often be directors also. Often it
would be provided that these trustees should sue or be sued on behalf of the company,
and although the legal efﬁ cacy of such a provision was by no means clear, suit by the
trustees in a court of equity seems to have been generally permitted. As for the right
to be sued, it will be appreciated that obscurity on this point was by no means an
unmixed disadvantage from the point of view of the company.
7
Thus a deed of settlement company
8
had most of the attributes of an incorporated
body but was constituted as a trust.
9
Although dividends are not mentioned in
3
1799 (39 Geo.3 c.13) (‘1799’ or ‘Pitt’s Act’) ss 82, 83. The Act was amended and new Schedules
substituted in the same year by 39 Geo.3 c.22.
4
1799 ss 87, 88, 89, 96, 98, 99, 100, 106, 110, 111.
5
They were so deﬁ ned in ITA 1918 s 237; ITA 1952 s 526; TA 1970 s 526(5); TA 1988, s.832(1).
6
The stock in ‘joint stock’ is stock-in-trade. LCB Gower (The Principles of Modern Company
Law, 6th ed (the historical section is not included in later editions), ed Paul L Davies, Stevens,
1997 (hereinafter ‘Gower’), at p 20) explains: ‘This process can be traced in the development of
the famous East India Company, which received its ﬁ rst charter in 1600, granting it a monopoly of
trade with the Indies. Originally any member could carry on that trade privately, although there
also existed a joint stock to which members could, if they wished, subscribe varying amounts. At
ﬁ rst this joint stock and the proﬁ ts made from it were redivided among the subscribers after each
voyage. From 1614 onwards, however, the joint stock was subscribed for a period of years, and this
practice subsisted until 1653 when a permanent joint stock was introduced. It was not until 1692
that private trading was ﬁ nally forbidden to members. Until this date, therefore, the constitution
of the East India Co. represents a compromise between a regulated company, formed primarily for
the government of a particular trade, and the more modern type of company, designed to trade for
the proﬁ t of its members. This new type was called a joint stock company, a name which persists
until the present day, although few of those who use it realise that it was adopted to distinguish the
companies to which it relates from a once normal, but now obsolete, form’.
7
Gower (see fn 6) at pp 33–4 (the historical section is not included in editions after the 6th).
8
When companies ﬁ rst became incorporated by registration by the Joint Stock Companies Act
1844 (see the heading below The rise of incorporation and the abolition of the unincorporated
body) one of the deﬁ nitions in s 3 was: ‘The Word “Shareholder” to mean any Person entitled to a
Share in a Company, and who has executed the Deed of Settlement’. The contents of the deed of
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Deﬁ ning and Taxing Companies 1799 to 1965 5
this quotation, they are in tax legislation
10
and so we can assume that proﬁ ts
were divided in the sense of declaring dividends, although the proﬁ ts must have
been held in trust for the members before being distributed as dividends.
11
In
case it is objected that there should not have been any unincorporated companies
in Pitt’s time because of the Act that became known as the Bubble Act 1720, it
will be argued that this was irrelevant.
12
The fact is that they must have existed
otherwise there would not have been elaborate rules for taxing them.
Apart from the small number of bodies incorporated by Act of Parliament or
Royal Charter (often both ),
13
the rest were essentially large or small partnerships.
This distinction between unincorporated bodies of persons
14
and partnerships
was not one of principle. There would usually be a larger number of members of
a body of persons, there would be a separation of management and ownership,
and shares would be transferable without the consent of all the members (which
would be required in a partnership).
15
Both were governed by partnership law,
settlement are set out in s 7 and Sch A is headed: ‘List of Purposes for which Provision is required
to be made by the Deed of Settlement of a Company before such Company can obtain a Certiﬁ cate
of complete Registration’. These references were replaced by the Memorandum and Articles of
Association by the Joint Stock Companies Act 1856, which is in recognisably modern form.
9
A consequence was that if the company owned real property the shares in the company were to
that extent real property, see the cases concerning the New River Company. The ‘Bubble Act’ (See
the heading The irrelevance of the South Sea Bubble below) which incorporated the Royal Exchange
Assurance Corporation and the London Assurance Company speciﬁ cally provided in s 9 that their
shares were personal property.
10
1799 s 88, see text at fn 65; 1803 (43 Geo 3 c 122) (‘1803’ or ‘Addington’s Act’) s 127 see text
at fn 71. For an example of a deed of settlement company declaring dividends see The deed of
settlement of the Society for Equitable Assurances on Lives and Survivorships with the bye-laws and
orders William Morgan, London, 1833. The Equitable started as a company with shareholders and
mutualised in the 19th century.
11
The term ‘dividends’ was also used in a different sense in Addington’s 1803 Act in Schedule
C: ‘Dividends, or Shares of Annuities payable out of the publick Revenue’. Dowell’s Income Tax
Laws (7th edn, 1913) at p 217 explains: ‘On the creation of the “consols” in 1752, of annuities
“consolidated into one joint stock of annuities”, the annuities dealt with were made payable in half-
yearly dividends on January 5th and July 5th, hence the word “dividends”, meaning these shares
of the bank annuities’. This use was probably confusing even at the time. On 6 August 1842 the
Solicitor’s Ofﬁ ce advised against an argument put forward by Rothschilds that they were in receipt
of interest and not dividends or annuities on a foreign loan on the basis that ‘there is no doubt that
the term dividends is applicable to interest and is commonly used to designate it’. (The National
Archives, Public Record Ofﬁ ce (‘TNA’) ﬁ le IR99/102 p 30). The expression was still causing problems
as late as Esso Petroleum Co Ltd v Ministry of Defence [1989] STC 805 in which it was held to be
limited to interest on securities and did not include interest on damages payable by the Crown.
12
See the heading The irrelevance of the South Sea Bubble below.
13
From the Bill of Rights 1688 the Crown did not grant a charter to trading companies unless
Parliament sanctioned it, thus requiring both a charter and an Act. The Hudson’s Bay Company
received its charter in 1670.
14
‘In law these unincorporated companies were merely partnerships’. Gower (see fn 6) p 31.
The provisions in Companies Act 1985, s 665 relating to the winding up of unregistered companies
speciﬁ cally included partnerships in the deﬁ nition of unregistered company, thus showing that they
were treated in the same way, which continued until its repeal by Insolvency Act 1985.
15
As evidence of the common law of partnership at the time, Adam Smith writing in 1776 said:
‘First, in a private copartnery, no partner, without the consent of the company, can transfer his share
to another person, or introduce a new member into the company. Each member, however, may, upon
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6 John F Avery Jones CBE
and there was no limit on the number of partners until 1844.
16
Lindley describes
the distinction in this way:
The fundamental distinction between [unincorporated companies] and partner-
ships was that a partnership consisted of a few individuals known to each other, and
bound together by the ties of friendship and mutual conﬁ dence, who, therefore, were
not at liberty without the consent of all to retire from the ﬁ rm and substitute other
persons in their places; whilst a company consisted of a large number of individuals
not necessarily nor indeed usually acquainted with each other at all, so that it was a
matter of comparative indifference whether changes amongst them were effected
or not. Nearly all the differences which existed between ordinary partner ships and
unincorpor ated companies will be found traceable to the above distinction. Indeed it
may be said that the law of unincorporated companies was composed of little else than
the law of partnership modiﬁ ed and adapted to the wants of a large and ﬂ uctuating
number of members.
17

Commenting on the words ‘company, association or partnership’ in the
Companies Act 1862
18
(with predecessors from 1844
19
) preventing the formation
of a new company, association or partnership with more than 20 partners,
James LJ said:
A company or association...is the result of an arrangement by which parties
intend to form a partnership which is constantly changing, a partnership to-day
consisting of certain members, and to-morrow consisting of some only of those
members along with others who have come in, so that there will be a constant
shifting of the partnership, a determination of the old and a creation of a new
partnership, and with the intention that, so far as the partners can by agreement
between themselves bring about such a result, the new partnership shall succeed
to the assets and liabilities of the old partnership. This object as regards liabilities
could not in point of law be attained by any arrangement between the persons
themselves, unless the persons contracting with them authorised the change by a
novation, or unless by special provisions in Acts of Parliament sanction was given
to such arrangements.
20
We therefore had a similar, though informal, distinction to the civil law one
between a société de personnes in which the identity of the partners was
proper warning, withdraw from the copartnery, and demand payment from them of his share of the
common stock’. (Wealth of Nations, Book 5, Ch 1, Part 3, Art 1).
16
Except for banking partnerships, where the limit was 6 (Bank of England Act 1741 s 5) which
was increased to 10 by Companies Act 1862 s 4. See also fn 106.
17
Lindley and Banks on Partnership, 18th edn p 22 §2–34. The Income Tax Codiﬁ cation
Committee (Cmd 5131) 1936 (hereinafter ‘Codiﬁ cation Committee’) point out at para 98 of their
Report that the ﬁ rst edition of Lindley on Companies (1860) was called ‘A Treatise on the Law of
Companies considered as a branch of the Law of Partnership’.
18
S 4.
19
See text at fn 106.
20
Smith v Anderson (1880) 15 Ch.D 273, 273–4 deciding that an investment trust (established as
a trust) was not within the legislation.
Book 1.indb 6Book 1.indb 6 12/2/2011 8:21:28 AM12/2/2011 8:21:28 AM

Deﬁ ning and Taxing Companies 1799 to 1965 7
important and a société de capitaux where the identity of the members was not,
with the word société comprising both of them.
21
The distinction mentioned by Gower that unincorporated bodies could
not sue in law was narrowed for a small class of unincorporated bodies by
the Grants of Privileges to Companies Act 1834
22
which p ermitted grants by
the Crown by Letters Patent of privileges that could be granted to a company
incorporated by Royal Charter, particularly the right to sue in the name of an
ofﬁ cer of an unincorporated company, thus largely removing the disadvantage
of unincorporated bodies of persons where such right was granted. The Act
provided:
That it shall and may be lawful for His Majesty, His Heirs and Successors, by Letters
Patent to be from Time to Time for that Purpose issued under the Great Seal of the
United Kingdom of Great Britain and Ireland… to grant to any Company or Body of
Persons associated together for any trading, charitable, literary, or other Purposes…
although not incorporated by such Letters Patent, any Privilege or Privileges which,
according to the Rules of the Common Law, or in pursuance of the said recited
Act, it would be competent to His Majesty, His Heirs and Successors, to grant to
any such Company or Body of Persons in and by any Charter of Incorporation, and
especially the before-mentioned Privilege of maintaining and defending Actions,
Suits, Prosecutions, and other Proceedings, both at Law and in Equity, in the Name or
Names of any One or more of the principal Ofﬁ cers for the Time being of any such
Associations respectively….
Judgment against an ofﬁ cer of such a body was treated as being against the
members. The Act also provided for the names of the ofﬁ cers of such a body
and a list of members to be available at the ofﬁ ce of the Clerk of the Patents.
23
The Irrelevance of the South Sea Bubble
The provisions of Pitt’s Act for taxing bodies of persons, whether or
not incorporated, shows that we can dismiss as irrelevant the attack on
unincorporated companies in an Act passed in June 1720, which much later
became known as the Bubble Act.
24
This was not passed to prevent a recurrence
of the South Sea Bubble but in advance of it. The Bill was introduced in February
1720
25
about six months before the collapse of the South Sea Bubble, and passed
21
To some extent in English company is the same as it can denote a partnership (as in ‘Smith
& Company’) or a corporate body (as in ‘company law’), although in current usage a company
normally means a corporate body.
22
(1834) c. 94 s 1.
23
ibid ss 2, 4.
24
(1719) 6 Geo 1 c 18.
25
Before the adoption of the Gregorian calendar in Britain in 1752 (by 24 Geo.2 c.23 and 25 Geo.
2 c.30), the year began on 25 March, and so the Bill was introduced in what was then called February
1719, but the current notation is used for clarity. The ending of the tax year on 5 April is the result
of the government’s ﬁ nancial year ending on 29 September 1752 being extended to 10 October 1752
Book 1.indb 7Book 1.indb 7 12/2/2011 8:21:28 AM12/2/2011 8:21:28 AM

8 John F Avery Jones CBE
in June 1720 some two months before the collapse, which started in early August
1720.
26
Far from being legislation against the South Sea Bubble, it was passed
in support of the South Sea Company which had just taken over the national
debt
27
and it was in Parliament’s interest to stiﬂ e competition for capital in
favour of the Company by preventing rival investment attractions.
28
Somewhat
incongruously provisions were also added to the Bill in May 1720 to incorporate,
and grant a monopoly on marine insurance
29
to, the Royal Exchange Assurance
Corporation, and the London Assurance Company each of which had agreed
to pay £300,000 to pay off George I’s civil list debt.
30
The Act had a saving for
pre-24 June 1718 (which seems to be an arbitrary date two years’ before the Act)
undertakings, and provided:
31

And whereas it is notorious, that several Undertakings or Projects of different Kinds
have, at some Time or Times since the four and twentieth Day of June one thousand
seven hundred and eighteen, been publickly contrived and practised, or attempted to
be practised, within the City of London and other Parts of this Kingdom, as also in
Ireland , and other his Majesty’s Dominions, which manifestly tend to the common
Grievance, Prejudice and Inconvenience of great Numbers of your Majesty’s Subjects
in their Trade or Commerce, and other their Affairs;
and the Persons who contrive or attempt such dangerous and mischievous Undertakings
or Projects, under false Pretences of publick Good, do presume, according to their
own Devices and Schemes, to open Books for publick Subscriptions, and draw in many
unwary Persons to subscribe therein towards raising great Sums of Money, whereupon
the Subscribers or Claimants under them do pay small Proportions thereof, and such
Proportions in the whole do amount to very large Sums;…
And whereas in many Cases the said Undertakers or Subscribers have, since the said
four and twentieth Day of June one thousand seven hundred and eighteen, presumed
to act as if they were Corporate Bodies, and have pretended to make their Shares
in Stocks transferrable or assignable, without any legal Authority, either by Act of
Parliament, or by any Charter from the Crown for so doing;…
And whereas it is become absolutely necessary, That all publick Undertakings and
Attempts, tending to the common Grievance, Prejudice and Inconvenience of your
by the lost 11 days (the day after 2 September 1752 was 14 September 1752), and all dates for making
payments were similarly extended. 5 April, as the end of the tax year, is the adjusted 25 March
quarter day, not the adjusted 25 March start of the year, which the same Act moved to 1 January:
see Simon’s Taxes A1.152 footnote 4, and correspondence with John Jeffrey-Cook (1985) BTR 56–7.
26
The share price was approximately (there being no reporting system) £128 in January 1720,
£750 by early June, £1,050 by 25 June, £950–£1,000 in July, £800 by early August, £300 by the end of
September and below £200 by the end of the year.
27
By 6 Geo 1 c 4.
28
See Ron Harris, ‘The Bubble Act: Its Passage and Its Effects on Business Organization’
The Journal of Economic History, Vol 54, No 3 (Sept, 1994), pp 610–627 for this convincing
interpretation.
29
S 12. The monopoly was for marine insurance by corporations, bodies politic, societies and
partnerships. This did not prevent underwriting of marine insurance by individuals in Lloyd’s
Coffee House, or Lloyd’s as we now know it.
30
S 18.
31
S 22.
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Deﬁ ning and Taxing Companies 1799 to 1965 9
Majesty’s Subjects in general, or great Numbers of them, in their Trade, Commerce,
or other lawful Affairs, be effectually suppressed and restrained for the future, by
suitable and adequate Punishments for that Purpose to be ascertained and established:
That from and after the four and twentieth Day of June one thousand seven hundred
and twenty, all and every the Undertakings and Attempts described, as aforesaid, and
all other publick Undertakings and Attempts, tending to the common Grievance,
Prejudice and Inconvenience of his Majesty’s Subjects, or great Numbers of them, in
their Trade, Commerce or other lawful Affairs,
and all publick Subscriptions, Receipts, Payments , Assignments, Transfers, pretended
Assignments and Transfers, and all other Matters and Things whatsoever, for
furthering, countenancing or proceeding in any such Undertaking or Attempt, and
more particularly the acting or presuming to act as a Corporate Body or Bodies,
the raising or pretending to raise transferrable Stock or Stocks, the transferring or
pretending to transfer or assign any Share or Shares in such Stock or Stocks, without
legal Authority, either by Act of Parliament, or by any Charter from the Crown, to
warrant such acting as a Body Corporate, or to raise such transferrable Stock or
Stocks, or to transfer Shares therein,…
shall (as to all or any such Acts, Matters and Things, as shall be acted, done, attempted,
endeavoured or proceeded upon, after the said four and twentieth Day of June one
thousand seven hundred and twenty) for ever be deemed to be illegal and void, and
shall not be practised or in any wise put in execution.
32
Not only was the Act not dealing with the mischief of the South Sea Company,
which had not then occurred, but that Company was speciﬁ cally excluded from
its provisions:
XXVII. Provided always, and be it further enacted by the Authority aforesaid, That
nothing in this Act contained shall extend, or be construed to extend to… any
Subscriptions made or to be made for enlarging the Capital Stock of the Governor
and Company of Merchants of Great Britain trading to the South-Seas and other
Parts of America, and for encouraging the Fishery (by or by Order of the General
Court, or Court of Directors of the same Company) or to any Receipts made out and
given, or to be made out or given, in respect of such Subscriptions, but that all such
Subscriptions made and to be made, shall be ﬁ rm and valid, and all Receipts made out
and given, or to be made out or given, concerning the same, shall be assignable at Law
by Endorsement made or to be made thereon; any Thing in this or in any other Act, or
any Law, Usage or Custom to the contrary notwithstanding.
There was also a saving for traditional partnerships (although, as we have
noted,
33
there was then no limit in the number of partners):
XXV. Provided always, That nothing in this Act shall extend, or be construed to extend
to prohibit or restrain the carrying on of any home or foreign Trade in Partnership, in
32
S 18 (here and elsewhere I have split up the sentence into paragraphs for ease of reading).
Breach of the Act carried the extreme penalty of praemunire in s 19, which is to be ‘put out of the
King’s Protection, and their Lands and Tenements, Goods and Chattels, forfeit to our Lord the King’
(Statute of Praemunire 1392 (16 Ric 2 c 5)). The original purpose of that statute was to prevent any
assertion of the supremacy of the Pope over the King.
33
See fn 16.
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10 John F Avery Jones CBE
such Manner as hath been hitherto usually, and may be legally done according to the
Laws of this Realm now in Force…; any Thing in this Act to the contrary in any wise
notwithstanding.
34
According to the wording of the Act therefore, unless the body was incorporated
by Act of Parliament or Royal Charter, raising capital by transferable stock was
made void, and so the only way of trading was in partnership ‘in such Manner
as hath been hitherto usually’, which meant that the partners’ interests were
not transferable without the consent of all the partners;
35
this would ﬁ t with
the prohibition of transferable interests in unincorporated companies.
36
That
distinction would be the one made in Pitt’s Act in the machinery provisions
for taxing partnerships and bodies of persons,
37
except that on the basis of the
Bubble Act the latter should not have existed. One can conclude that certainly
by Pitt’s time the Bubble Act was a dead letter and not something that had stiﬂ ed
the progress of company law for a century;
38
the deed of settlement company
was no doubt invented to circumvent its provisions. The Act was ultimately
repealed in 1825
39
during the interregnum of income tax between 1816 and 1842.
Tax Law
Tax law made no distinction between incorporated and unincorporated bodies
of persons; the distinction it made was between partnerships and bodies of
persons. Contrary to accepted wisdom that Addington’s machinery provisions
were always superior to Pitt’s, most of the machinery provisions for assessing
partners on the one hand and bodies of persons on the other originated in Pitt’s
1799 Act and were only modiﬁ ed in minor ways in Addington’s 1803 Act and
later Acts up to 1806,
40
the 1806 Act being copied in this respect in the 1842
Act.
41
The main distinction between Pitt’s and Addington’s Acts was over the
tax base mainly because of Addington’s deduction of tax at source.
(a) Partnerships
For partnerships, Pitt’s Act provided that partnership proﬁ ts may be charged
jointly in the partnership name for persons engaged in partnership in any trade
34
‘excepting only as to the insuring of Ships and Goods or Merchandizes at Sea, or going to Sea,
and lending Money upon Bottomry’ for which Royal Exchange Assurance Corporation and the
London Assurance Company were granted a monopoly (see fn 29).
35
See fn 15.
36
See fn 17.
37
See the next heading.
38
Although no doubt it caused problems of interpretation.
39
1825 6 Geo 4 c 91.
40
1805 (45 Geo 3 c 49) (‘1805’); 1806 (46 Geo 3 c 65) (‘1806’).
41
Income Tax Act 1842 (‘1842’).
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Deﬁ ning and Taxing Companies 1799 to 1965 11
or manufacture or any adventure or concern, and also provided for a return of
proﬁ ts by any one partner:
LXXXII. Provided always, and be it further enacted, That any Persons engaged in
any Trade or Manufacture, or in any Adventure or Concern, in Partnership together,
may be jointly charged to the said Rates and Duties, in respect of their Joint Income
arising from such Trade or Manufacture, or such Adventure or Concern, under the
Firm or Description of their said Business, and that the Return of any one of the
said Partners, on Behalf of himself and the others for that Purpose, shall be sufﬁ cient
Authority for the said Commissioners to charge such Partners jointly in respect of their
Income arising from such Trade or Manufacture, or such Adventure or Concern, but
nevertheless wholly distinct from any Charge which may be made upon such Persons,
or any of them, in respect: of any other Income belonging to them, or any of them.
Addington built on this while making a number of changes: (a) a joint return
and assessment was the method having priority rather than being permissive
as in Pitt’s Act, but partners were permitted to return their separate share of
proﬁ ts
42
(and conversely partners were not required to return their share when
there had been a joint return
43
); (b) the return was to be made by the partner
with precedence, the origin of the familiar ‘precedent acting partner’, which was
obviously more enforceable than Pitt’s Act leaving it to any of the partners to
make the return; (c) applying also to professions; (d) dealing with the situation
that no partner was resident, in which case the assessment (necessarily limited
to the British
44
proﬁ ts) was made in the partnership name (presumably because
the Revenue would have been unable to investigate the identity of the partners
in a partnership with exclusively non-resident partners), thereby implying,
contrary to Pitt’s Act, that assessment in the partnership name did not apply in
other situations (assessment of UK resident partners by name would have been
easier to enforce, and it suggests that partnerships were likely to have a small
number of partners, although there was at the time no limit on the number
of partners).
45
These additions suggest that assessment of partnerships was
important in practice and difﬁ culties had arisen with partnerships under Pitt’s
Act. Addington’s section was:
XCV. And be it further enacted, That the Computation of the Duty to be charged
in respect of any Profession, Trade, or Manufacture, or any Adventure or Concern,
whether carried on by any Person singly, or by any one or more Persons jointly,
shall be made exclusive of the Proﬁ ts or Gains arising from Lands, Tenements, or
42
The form of return is in Sch G, No 7 for the joint return, and No 8 for partners wishing to be
assessed separately.
43
They had to make a declaration in the form in Sch G No 9 giving the name of the ﬁ rm and the
place of business and the fact that the partners had been jointly assessed, but without giving any
ﬁ gures.
44
Income tax was not introduced in Ireland until 1853 when it became a United Kingdom tax.
45
Assessment in the partnership name generally was included in 1918 Sch D Cases I and II rule
10; 1952 s 144. The same applied to national defence contribution (later proﬁ ts tax) in FA 1937 Sch
5 para 2.
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12 John F Avery Jones CBE
Hereditaments occupied by joint Partners for the Purpose of such Profession, Trade,
or Manufacture;
46
and the Computation of Duty arising in respect of any Trade or
Manufacture carried on by two or more Persons jointly, shall be made and stated
jointly, and in one Sum, and separately and distinctly from any other Duty chargeable
on the same Persons, or either or any of them; and that the Return of the Partner who
shall be ﬁ rst named in the Deed, Instrument, or other Agreement of Co-partnership
(or where there shall be no such Deed, Instrument, or Agreement, then of the Partner
who shall be named singly, or with Precedence to the other Partner or Partners in the
usual Name, Style, or Firm of such Copartnership, or where such precedent Partner
shall not be an acting Partner, then of the precedent acting Partner), and who shall be
resident in Great Britain , and who is hereby required to make such Return on Behalf
of himself and the other Partner or Partners, whose Names and Residences shall also
be declared in such Return, shall be sufﬁ cient Authority to charge such Partners jointly:
Provided always, that where no such Partner shall be resident in Great Britain, then
the Statements shall be prepared and delivered by their Agent, Manager, or Factor,
resident in Great Britain , jointly for such Partners, and such joint Assessments shall
be made in the Partnership Name, Style, Firm, or Description:
Provided also, that if the said Partners shall declare the Proportions of their respective
Shares in such Profession or Concern, in order to a separate Assessment, it shall be
lawful to charge them separately and respectively, at the Rate which such Proportions
shall be chargeable with by virtue of this Act; but if no such Declaration be made,
then such Assessment shall be made jointly, according to the Amount of the Proﬁ ts
and Gains of such Partnership:
Provided also, that any joint Partner in such Profession or Concern, which shall have
been already returned by such precedent Partner as aforesaid, may return his Name
and Place of Abode, and that he is such Partner, without returning the Amount of Duty
payable in respect thereof, unless the Commissioners respectively shall think proper
to require further Returns; in which Case it shall be lawful for such Commissioners
to require from every such Partner the like Returns, and the like Information and
Evidence, as they are hereby entitled to require from the Partner making the Return
of Duty.
47
Pitt’s Act also provided that changes in the partnership were to be ignored unless
the change was a speciﬁ c cause of a diminution of the proﬁ ts. This does not
seem to indicate that the number of partners was likely to be large even though
Pitt did provide for assessment in the partnership name, which Addington
permitted only for partnerships with solely non-resident partners:
LXXXIII. And be it further enacted, That if amongst any Persons engaged in Trade
or Manufacture, in Partnership together, any Change shall take place in any such
Partnership, either by Death or Dissolution of Partnership, as to all or any of the
Partners, or by admitting any other Partner therein, within the Period when the
46
Partners could claim exemptions or abatements on Sch A income separately: 1803 s 202.
‘
PublickPublick companies’ (incorporated companies) returned both land and trading proﬁ ts together, see
1803 s 94.
47
See also 1805 s 104; 1806 s 112 (Sch D Case I Rules r 3); 1842 Sch D Cases I and II Rules r.3; 1918
Sch D Cases I and II Rules r 10; 1952 s 144.
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Deﬁ ning and Taxing Companies 1799 to 1965 13
Computation of Income ought to be made under this Act, or before the Time of
making the Assessment under this Act, or if any Person shall have succeeded to any
Trade or Manufacture, or any Adventure or Concern, within such respective Periods
as aforesaid, it shall be lawful for the said respective Commissioners, and they, and
also the Party or Parties interested, and every Ofﬁ cer acting in the Execution of this
Act, shall compute and ascertain the Income of such Partnership, or any of such
Partners, or any Person succeeding to such Trade or Manufacture, or Adventure
or Concern, according to the Income derived during the respective Periods before-
mentioned, notwithstanding such Change therein or Succession to such Business as
aforesaid, unless such Partners or Partner, or such Person succeeding to such Business
as aforesaid, shall prove, to the Satisfaction of the said respective Commissioners, that
the Income of such Person or Persons hath fallen short, or will ﬁ ll short, for some
speciﬁ ck Cause to be alledged to them, since such Change or Succession took place,
or by reason thereof.
This provision was adopted with minor variations in all the later Acts.
48
(b) Bodies of Persons
49
In contrast to partnerships, bodies of persons made returns and were assessed
as a body, whether or not they were incorporated, although most of them would
not have been incorporated because the only means of incorporation was by Act
of Parliament or Royal Charter (often both were required
50
), which would have
been an expensive procedure.
51
Pitt’s Act imposed tax:
upon all Income of every Person residing in Great Britain, and of every Body Politick
or Corporate,
52
or Company,
53
Fraternity,
54
or Society
55
of Persons (whether Corporate
or not Corporate) in Great Britain….
56

48
1803 s 96; 1805 s 105; 1806 s 112 (Sch D Case I Rules r.4); 1842 Sch D Cases I and II Rules r 4;
1918 Sch D Cases I and II Rules r 11; 1952 s 145.
49
Much of the material on the meaning of body of persons has been previously published in the
writer’s article ‘Bodies of Persons’ (1991) BTR 453.
50
See fn 13.
51
See text at fn 30.
52
Blackstone refers to incorporated bodies as artiﬁ cial legal persons called bodies politic, bodies
corporate or corporations: Vol 1, Ch 18. The 14th edn of 1803 is contemporary with this legislation.
53
‘The word “company” has no strictly technical meaning. It involves, I think, two ideas
namely, ﬁ rst that the association is of persons so numerous as not to be aptly described as a ﬁ rm
[partnership]; and secondly, that the consent of all the other members is not required to the transfer
of a member’s interest’. In re Stanley (1906) 1 Ch 134 per Buckley J Blackstone mentions the
Company of Surgeons in London in Vol 1, Ch 18. This had been incorporated by 18 Geo.2 c.15 on
its separation from the Barber-Surgeons Company, and was reincorporated by Royal Charter as the
Royal College of Surgeons of London in 1800, changing its name to the Royal College of Surgeons
of England in 1843.
54
‘A fraternity is some people of a place united together, in respect of a mystery and business, into
a company…’ [mystery in this sense means a trade or calling, from the Latin misterium, meaning
professional skill] Cuddon v Eastwick (1704) 1 Salk 192 which concerned ‘the company and fellowship
of porters’ to whom the Common Council of the City of London had in a by-law given exclusive rights
to load ships. It was objected that the City could not make a corporation, which is true as only the
Crown can create a corporation, but it was held that the company and fellowship of porters was only
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14 John F Avery Jones CBE
The assessment on the body was no doubt for convenience as the number of
members could be large and was likely to ﬂ uctuate so that it would not have
been practicable to assess the members jointly by name as partnerships. Pitt’s
Act provided that the income was taxable in the hands of the body following a
return by the chamberlain
57
or other ofﬁ cer:
LXXXVII. And be it further enacted, That where any Bodies Politick or Corporate,
Companies, Fraternities, or Societies of Persons, whether Corporate or not Corporate,
shall be entitled unto any Annual Income to the respective Amounts before speciﬁ ed,
(other than and besides any Income applicable to charitable Purposes,) such Annual
Income (not applicable to charitable Purposes only) shall be chargeable with such and
the like Rates as any other Annual Income of the same Amount will, under and by
virtue of this Act, be chargeable with.
XC. And be it further enacted, That the Chamberlain, Treasurer, Clerk, or other
Ofﬁ cer acting as Treasurer, Auditor, or Receiver, for the Time being, of every such
Corporation, Company, Fraternity, or Society, shall, and he is hereby required, within
twenty-eight Days after the Publication of such general Notice as herein mentioned,
in the Parish or Place wherein the Ofﬁ ce of such Chamberlain, Treasurer, Clerk, or
other Ofﬁ cer, shall be situate, to make out and deliver to the Inspector or Surveyor
a fraternity and not a corporation. The City livery companies were fraternities unless incorporated
by Royal Charter, which many were. Chaucer’s Prologue mentions:
An Haberdasser and a Carpenter
A Webbe, a Deyer, and a Tapiser
And they were clothed in o liveree,
Of a solempne and greet fraternitee.
The OED gives two relevant meanings: ‘...4. A body or order of men, organised for religious or devout
purposes....5. A body of men associated by some common interest; a company, guild’. See Parish
Fraternity Register of the fraternity of the Holy Trinity in the Parish of St Botolph without Aldersgate,
London Record Society, 1982, which reproduces its records from its foundation in 1377 to about 1463.
That fraternity was incorporated by letters patent of Henry VI in 1446.
55
A society seems not to have any deﬁ nite meaning and could include both incorporated and
unincorporated societies. Blackstone mentions the Royal Society and the Society of Antiquaries, and
a statutory body, the Society of the British Fishery. The OED has the following relevant meanings: ‘...
II.7. Partnership or combination in or with respect to business or some commercial transaction. III.1.
A number of persons associated together by some common interest or purpose, united by a common
vow, holding the same belief or opinion, following the same trade or profession, etc; an association...b.
A corporate body of persons having a deﬁ nite place of residence” (residence here means geographical
place and not residence in the tax sense); a reference to the Society of the Middle Temple is cited
in relation to this last meaning. Pitt’s Act and subsequent Acts contain an exemption from tax for
friendly societies, indicat ing that they would otherwise have been included: 1799, s 5, referring to
friendly societies established under 33 Geo.3 c.54 (friendly societies were unincorporated until the
Friendly Societies Act 1992 permitted incorporation, which most of the larger ones did). See also
1803, s 67. Industrial & Provident Societies have been incorporated since 1862.
56
S 2. Addington’s Act, Schedule D Case I, Rule Second provided: ‘The said Duty shall extend
to every Person or Persons, Bodies Politick or Corporate, Fraternities, Fellowships, Companies, or
Societies, and to every Act, Mystery, Adventure, or Concern, carried on by them respectively in
Great Britain or elsewhere as aforesaid’.
57
One of the OED meanings of chamberlain is ‘A steward; an ofﬁ cer who receives the rents and
revenues of a corporation or public ofﬁ ce’ with a cross-reference to one of the meanings of Chamber
‘The place where the funds of a government, corporation, etc are (or were) kept; chamberlain’s
ofﬁ ce; treasury 1632’.
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Deﬁ ning and Taxing Companies 1799 to 1965 15
duly authorized as aforesaid, a Statement of the Annual Income of such Corporation,
Company, Fraternity, or Society, according to the Form speciﬁ ed in the Schedule to this
Act annexed, marked (B)….
58
Addington’s equivalent provision listed two additional bodies of persons (bodies
collegiate
59
and fellowships),
60
combined Pitt’s two sections, and enlarged the
chamberlain’s duties but without changing the essentials of Pitt’s mechanism:
LXXXVIII. And be it further enacted, That all Bodies Politick, Corporate, or
Collegiate, Companies, Fraternities, Fellowships, or Societies of Persons, whether
Corporate or not Corporate, shall be chargeable with such and the like Duties as any
Person or Persons will under and by virtue of this Act, be chargeable with; and that the
Chamberlain or other Ofﬁ cer acting as Treasurer, Auditor, or Receiver, for the Time
being, of every such Corporation, Company, Fraternity, Fellowship, or Society, shall
be answerable for doing all such Acts, Matters, and Things, as shall be required to be
done by virtue of this Act, in order to the assessing such Corporations, Companies,
Fraternities, Fellowships, or Societies, to the Duties granted by this Act, and paying
the same.
61

Pitt’s Act provided that the chamberlain was entitled to pay the tax out of
income coming into his hands and was indemniﬁ ed by the body:
XCI. And be it further enacted, That where any Person, being Trustee, Agent, or Receiver,
Guardian, Tutor, Curator, or Committee, of or for any Person or Persons having any
Income which shall be chargeable by virtue of this Act, or any Chamberlain, Treasurer,
Clerk, or other Ofﬁ cer of any Corporation, Company, Fraternity, or Society, having
any such Income as aforesaid, shall be assessed by virtue of this Act, to contribute any
Sum or Sums in respect of such Income, then and in every such Case it shall be lawful
for every such Person who shall be so assessed, by and out of such Annual Income as
shall come to his or her Hands or Hand as such Trustee, Agent, or Receiver, Guardian,
Tutor, Committee, or Curator as aforesaid, or as such Chamberlain, Treasurer, Clerk,
or other Ofﬁ cer, to retain so much and such Part of such Annual Income as shall
from Time to Time be sufﬁ cient to pay such Assessment; and every such Trustee,
Agent, or Receiver, Guardian, Tutor, Committee, or Curator, Chamberlain, Treasurer,
Clerk, or other Ofﬁ cer, shall be, and they are hereby respectively indemniﬁ ed against
all and every Person and Persons, Corporations, Companies, Fraternities, or Societies
whatsoever, for all Payments which they shall respectively make out of such Income, in
pursuance and by virtue of this Act.
58
The omitted part dealt with returning what proportion of the income was not chargeable
and why, presumably referring to the charitable exemption; and for the surveyor transmitting the
information to the clerks to the Commissioners. Addington’s and later Acts would not require the
reference to exemption since this would require the reclaiming of tax deducted at source.
59
The list in ss 127 and 129 was ‘Corporation, Fellowship, Fraternity, Company, or Society’, thus
using the word corporation.
60
The OED includes the following deﬁ nition: 7 A guild, corporation, company;...an association
of any kind 1541.
61
1803 s 88; 1805 s 98; 1806 s 53; 1842 s 44; 1918 s 106; 1952 s 362. The early Acts also contained
similar provisions for assessing Schedule C income on bodies, see 1803 s 77; 1805 s 84. They became
unnecessary when the 1806 Act provided for deduction of tax at source from Schedule C income (as
Addington had always wanted but Pitt had prevented).
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16 John F Avery Jones CBE
Later Acts all adopted this provision with minor modiﬁ cations.
62
The
existence of the indemnity at the end of the quotation suggests that the
chamberlain was personally liable for the tax, which is not unlikely for an
unincorporated body, and this is accepted as being the law for trustees for
whom the same provision applies. The Privy Council has, however, decided
that he was not liable under a provision of the Jamaica tax legislation
similar to Addington’s s 88.
63
There was a similar indemnity in the Jamaican
legislation but this is not mentioned in the decision, although it was referred
to by the Court of Appeal of Jamaica.
64

Where Addington differed fundamentally from Pitt was over the tax base,
Addington taxing bodies before payment of dividends (with deduction and
retention of tax from the dividend) while Pitt taxed them after deduction of
dividends (and also interest). Pitt’s treatment of the members gave the body a
greater degree of legal personality for tax. Pitt’s provision was:
LXXXVIII. Provided always, and be it further enacted, That no such Bodies Politick
or Corporate, Companies, Fraternities, or Societies aforesaid, shall be charged or
chargeable, in respect of any Income, which, according to the Rules or Regulations
of such Corporations, Companies, Fraternities, or Societies, shall be applicable to
charitable Purposes, or to the Payment of any Annual Dividends or Interest to arise
and become payable to any individual Members of such Corporations or Publick
Companies, or to any other Persons or Publick Bodies, having any Share, Right, or
Title of, in, or to any Capital Stock or other Property belonging to such Corporations
or Publick Companies, nor in respect of which any Dividends or Interest shall,
according to such Rules and Regulations, become payable;
provided that such Person or Persons, Corporations, Companies, Fraternities, or
Societies, to whom such Dividends or Interest shall be payable, shall be charged and
chargeable in respect thereof, according, to the Amounts thereof, and the Rates before
speciﬁ ed, as and when the same shall be received by them respectively, other than
and except Dividends and Interest the Property of Persons not the Subjects of his
Majesty, and not resident in this Kingdom, and that an Account of the Amount of
such Dividends and Interest be delivered to such Inspector or Surveyor as shall be
authorized for that Purpose under the Hands of three or more of the Commissioners
for the Affairs of Taxes, upon Demand thereof, by the same Persons, and in the
62
1803 s 93; 1805 s 103; 1806 s 58; 1842 s 44; 1918 s 106(2); 1952 s 362(3). There was until 2010
a survivor of this principle in TA 1988 s 59(3) for proﬁ ts of markets or fairs, or tolls, ﬁ sheries, or
any other annual or casual proﬁ ts not distrainable under which the owner or occupier or receiver of
the proﬁ ts is answerable for the tax so charged and may retain and deduct the same out of any such
proﬁ ts. The Rewrite proposed to repeal this, see Change 748 to the Taxation (International and
Other Provisions) Bill, now enacted in 2010. This provision dates from 1806 s 85 with predecessors
relating to land tax in 1763 4 Geo 3 c 2. Presumably the problem was that markets and fairs were of
short duration which made taxing their proﬁ ts difﬁ cult.
63
Income Tax Commissioner v Chatani [1983] STC 477. The indemnity provision is found in the
Jamaican Income Tax Act s 56
64
(1980) 31 WIR 337. The PC said at p 479d that they did not ﬁ nd it necessary to refer to certain
other provisions of the Act on which the Court of Appeal relied, but said that if support were
needed for its conclusion it was obtained from another section that made the directors liable for tax
deducted and not paid over.
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Deﬁ ning and Taxing Companies 1799 to 1965 17
same Manner, as the Statements of the Income of such Corporations, Companies,
Fraternities, and Societies, are required to be delivered.
65

Pitt therefore unambiguously treated all bodies of persons like incorporated
ones with a complete separation of the body and the member, and only the
body being taxed on undistributed income. It is not clear under what heading
the member was assessed on dividends but the more likely heading seems to be
trading income, which included other types of income of an uncertain annual
amount,
66
in which case the member’s income was of the same type as the body’s.
In accordance with his principle of taxation at the source Addington taxed
bodies on their proﬁ ts before dividends with a proportionate deduction of the
tax, which it will be suggested below was the tax charged on the body rather than
the dividend. Both Pitt’s and Addington’s systems taxed the proﬁ ts of the body
and gave relief for dividends,
67
but Addington’s taxation at the source was much
more efﬁ cient as it avoided the need to assess the member as well as the body.
The other differences were that Pitt also deducted annual interest but Addington
dealt with this as a charge on income; and there was now no deduction for
payments for charitable purposes.
68
Addington’s Act also expressly stated that
salaries of ofﬁ cers were in effect deductible, which may have designed to deal
with payments to ofﬁ cers who were also members. Addington’s Act provided:
65
This section seems to imply that dividends would be distributed in the year the proﬁ ts were
made; see text around fn 86 in relation to the same assumption in Addington’s Act.
66
The possible headings were ‘income from any Trade, Profession, Ofﬁ ce, Pension, Allowance,
Stipend, Employment, or Vocation, being of uncertain Annual Amount’ (Case 15), or ‘income
not falling under any of the foregoing Rules’ (Part IV). Case 16: ‘income from Ofﬁ ces, Pensions,
Stipends, Annuities, Interest of Money, Rent Charge, or other Payments of the like Nature, being
of certain Annual Amount’ does not seem to be applicable. The words ‘being of uncertain [Case
15] or certain [Case 16] annual amount’ were not in the original Act but were added in the schedule
substituted by 39 Geo.3 c.22.
67
If the proﬁ ts were 100 and the dividend 50 and if the tax rates under both had been 10%, Pitt
would tax 50 on each of the body and the member, leaving each with 45 after tax; Addington taxed
100 on the body but allowed the body to retain the 5 tax deducted from the dividend, so that the
body retained 100-10-50+5=45 (the same as in Pitt’s system) and the member received income of 45
net from which 5 had been deducted in tax.
68
Addington’s Act exempted wholly charitable bodies from tax under Sch A (IV Exemptions)
applying to: (1) ‘The Scite of any College or Hall in any of the Universities of Great Britain, and all
Ofﬁ ces, Gardens, Walks, and Grounds for Recreation, repaired and maintained by the Funds of such
College or Hall’, (2) ‘The Scite of every Hospital or publick School, or Alms House, and all Ofﬁ ces,
Gardens, Walks, and Grounds for Recreation of the Hospitallers, Scholars, and Almsmen, repaired
and maintained by the Funds of such Hospital, School, or Alms House’ and (3) rents of ‘any Hospital
or Alms House, on Proof before the respective Commissioners of the due Application of the said Rents
and Proﬁ ts to charitable Purposes only, and in so far as the same shall be applied to charitable Purposes
only’ (item (3) was extended in 1805 to public schools and all land vested in trustees for charitable
purposes); and from tax under Sch C (s 68) applying to: ‘Corporations, Companies, Fraternities,
or Societies, or of any Trustee or Trustees, established by Act of Parliament, Charter, Decree, Deed
of Trust, or Will’ (the Sch C exemption was extended to yearly interest and annual payments under
Schedule D by 1842 s 105). For the history of the charitable exemptions see the writer’s ‘The Special
Commissioners from Trafalgar to Waterloo’ in Studies in the History of Tax Law (vol 2, ed Tiley, Hart
Publishing, 2007) (also published in [2005] BTR 40), and Michael Gousmett, ‘A Short History of the
Charitable Purposes Exemption from Income Tax of 1799’ in ch 5 of this book.
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18 John F Avery Jones CBE
CXXVII. And be it further enacted, That every such Ofﬁ cer before described of any
Corporation, Fraternity, Fellowship, Company, or Society, not otherwise to be charged
as aforesaid,
69
shall also within the like Period prepare and deliver in like Manner, a
Statement of the Duty payable by such Corporation, Fraternity, Fellowship, Company,
or Society, computed according to the Directions of this Act, together with such
Declaration of the Manner of estimating the same as aforesaid;
and such Estimate shall be made on the Amount of the annual Proﬁ ts and Gains of
such Corporation, Fraternity, Fellowship, Company, or Society, before any Dividend
70

shall have been made thereof to any other Person or Persons, or publick Bodies having
any Share, Right, or Title, in or to such Proﬁ ts or Gains; and all such other Person
or Persons, and publick Bodies, shall allow out of such Dividends a proportionate
Deduction in respect of the Duty so charged;
provided that nothing hereinbefore contained shall be construed to require in
such Statement the Inclusion of Salaries, Wages, or Proﬁ ts of any Ofﬁ cer of such
Corporation, Fraternity, Fellowship, Company, or Society, otherwise chargeable under
this Act.
Whether Addington treated all bodies of persons as incorporated or
unincorporated for tax purposes is less clear than Pitt’s treatment of them as if
incorporated. But it is interesting that from 1805 the proﬁ ts of the three major
incorporated bodies, the Bank of England, the East India Company and the
South Sea Company were computed after dividends, as Pitt had done.
71
There
are more pointers to his treatment of all other bodies being transparent, ie as
if the bodies were unincorporated, but the deduction of salaries to ofﬁ cers who
are members points in the opposite direction, although such salaries would also
have chargeable under Schedule D. As Malcolm Gammie has explained, the two
possibilities are that the body is transparent or that distributions are a charge on
income out of a mixed fund of income, which is a separate source.
72
The most
important pointer towards transparency is that dividends do not fall within any
69
This refers to assessment by referees by s 110 and following without naming the ﬁ gure. The
procedure was dropped in 1806 s 68 and these words were deleted.
70
See fn 11 for the then meaning of dividend.
71
1805 s 117: the statement of the duty payable in the section quoted above changed to the
‘amount of the balance of the annual proﬁ ts or gains’; and an addition made: ‘Provided also, that the
Statements of the several Companies of the Bank, East India and South Sea, shall be made exclusive
of the Dividends and the Proﬁ ts attached thereto, and to be divided amongst the Proprietors of
the respective Stocks belonging to such Companies’, the proﬁ t thus being after dividends for these
incorporated companies; 1806 s 68 (the words ‘balance of’ in the above substituted in 1805 were
deleted; and a further addition made: ‘but the Statement of the East India Company shall include
the Interest payable on any Bonds granted by the said Company, which shall become due after the
Thirtieth Day of September One thousand eight hundred and six’); 1842 s 54; 1918 All Sched Rules
r 20, see text at fn 128 for the differences in wording.
72
See ‘The Origins of Fiscal Transparency in UK Income Tax’ in Studies in the History of Tax
Law, vol 4 Ch 2 p 33. Partnership interests and the interest of a beneﬁ ciary of a life interest trust
are not recognised as a source of income in their own right but are transparent, unlike charges on
income which are paid out of unidentiﬁ ed income and are treated as a separate source. I shall argue
that bodies of persons started as transparent in Addington’s Act but later acquired some elements
of opacity after the rise of incorporated companies and the abolition of unincorporated bodies that
had existed in Addington’s time.
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Deﬁ ning and Taxing Companies 1799 to 1965 19
of Addington’s Schedules which it surely would have done if they were a separate
source of income. As Lord Wright explained much later: ‘There is, in fact, only
one proﬁ t, no new proﬁ t being created from the fact that the shareholder gets
his share; the tax is a tax on the proﬁ ts and not on the dividend’.
73
The closest
analogy seems to be that of an interest in possession trust which is transparent
for tax purposes
74
so that the beneﬁ ciary can apply assessment rules applicable
to the type of underlying income. This is not surprising when unincorporated
companies were formed as trusts by a deed of settlement. But if the income
is received by the trustees rather than being paid directly to the beneﬁ ciary
75

the trustees can be taxed on account of their receiving the income. It is still
the beneﬁ ciary’s income but as a collection mechanism the trustees pay the tax.
The difference is that the body of persons is always assessed as a body.
76
With
a partnership there is less separation of the person assessed and the person
entitled.
The treatment of dividends is different from that of charges on income,
77
and
the difference must have been intentional. As we have seen, for dividends the
recipient had to allow a proportionate deduction of tax and dividends did not
fall within any of the Schedules. Addington taxed annuities, yearly interest and
annual payments
78
under Schedule D, the case being unspeciﬁ ed until 1806 when
it was speciﬁ ed as Case III.
79
The ﬁ rst category of charges on income is those
paid out of income brought into charge to tax: the payer was authorised to
deduct tax from them and retain it. The second category is those charged on
foreign property and therefore received without any deduction of tax, that is,
73
Neumann v IRC (1934) 18 TC 332 at 368.
74
Archer-Shee v Baker (1927) 11 TC 749. The transparency of the trust meant that the income
was from ‘securities, stocks, shares or rents’ which had ceased to be taxed on the remittance basis in
1914. It is at ﬁ rst sight strange that transparency applied to a trust with non-resident trustees (and
foreign governing law, although in this case New York law was treated as being the same as English
law; the result was different when New York law was taken into account in Garland v Archer-Shee
(1930) 15 TC 693), but not to a non-resident company seemingly on the basis that the Revenue
could not ﬁ nd out about the underlying income, see the heading Non-resident bodies below. The
reason for the difference is that with a life interest trust the beneﬁ ciary has an entitlement to the
whole income (subject to the trustees’ expenses), but with an incorporated company all that the
shareholder is entitled to is the dividend when declared.
75
1799 s 43; 1803 s 92; 1805 s 102; 1806 s 57; 1842 s 42; 1918 s 103(3)(a); 1952 s 367. From 1803
these provide that a trustee who has authorised the receipt of the income by the beneﬁ ciary need
only provide the Revenue with the name address of the beneﬁ ciary. The 1799 Act provided that the
beneﬁ ciary and not the trustee is deemed to be in actual receipt of the income.
76
It is most unlikely that a body of persons would direct income to be paid to the members.
77
An expression that survived until the Corporation Tax Act 2010; they are now called ‘qualifying
charitable donations’, being the only remaining heading.
78
The logic seems to be that these are personal obligations to be paid out of the generality of the
payer’s income and so the source of that income was irrelevant.
79
Case III applied to ‘The Duty to be charged in respect of Proﬁ ts an uncertain annual Value not
charged in Schedule (A.)’. This charge was actually incorporated into Case III by ITA 1853 s 2 rather
than charging it by reference. Strictly therefore before this the section may have been a separate
charging provision (as Lord Macnaghten regarded it in Attorney-General v London County Council
(1900) 4 TC 265, 207–8), but the distinction does not appear to make any difference.
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20 John F Avery Jones CBE
that the payment was made before the income was remitted: the income was
taxable on the recipient under Schedule D (Case III from 1806).
80
This second
category was extended in 1805 (by Pitt) to charges on income not paid out of
taxed proﬁ ts or gains (and also to short interest).
81
The section is set out below
in its 1806 (Lord Henry Petty) form with the additions made in 1805 in italic text
and those in 1806 in italic bold text (but ignoring any changes in the rate of tax
or differences in capitalisation):
CXIV. And be it further enacted, That upon all Annuities yearly Interest of Money
or other annual Payments, whether such Payments shall be payable, within or out of
Great Britain, either as a Charge on any Property of the Person or Persons paying the
same by virtue of any Deed or Will or otherwise or as a Reservation thereout, or as a
Personal Debt or Obligation by virtue of any Contract, or whether the same shall be
received and payable Half Yearly, or at any shorter or more distant Periods there shall
be charged for every Twenty Shillings of the Annual Amount thereof the Sum of Two
Shillings without Deduction according to and under and subject to the Provisions by
which the Duty in the Third Case of Schedule (D.) may be charged;
[1] provided that in every Case where the same shall be payable out of Proﬁ ts or Gains
brought into Charge by virtue of this Act, no Assessment shall be made upon the
Person entitled to such Annuity Interest or other Annual Payment, but the Whole of
such Proﬁ ts or Gains shall be charged with Duty on the Person liable to such Annual
Payment without distinguishing such Annual Payment, and the Person so liable to
make such Annual Payment, whether out of the Proﬁ ts or Gains charged with Duty,
or out of any Annual Payment liable to Deduction, or from which a Deduction hath
been made, shall be authorized to deduct out of such Annual Payment at the Rate of
Two Shillings for every Twenty Shillings of the Amount thereof,…, and the Person
or Persons to whom such Payments are to be made as are liable to Deduction… shall
allow such Deduction, at the full Rate of Duty hereby directed to be charged, upon the
Receipt of the Residue of such Money, and under the Penalty herein-after contained,
and the Person charged to the said Duties, having made such Deduction, shall be
acquitted and discharged of so much Money as such Deduction shall amount unto as
if the Amount thereof had actually been paid unto the Person or Persons to whom,
such Payment shall have been due and payable;…
[2] but in every Case where any annual Payment as aforesaid shall, by reason of
the same being charged on any Property or Security in Ireland, or in the British
Plantations, or in any other of His Majesty’s Dominions, or on any Foreign Property
or Foreign Security, or otherwise, be received or receivable without any such Deduction
80
The requirement on the payer to deduct and pay over the tax, instead of the recipient being
assessed, was not introduced until C&IR Act 1888 s 24(3). In its amended form it became Rule 21
of the All Schedules Rules in the 1918 Act.
81
Meaning not taxed in the same year, see The Luipaard’s Vlei Estate and Gold Mining Co Ltd
v IRC (1930) 15 TC 573 (Rowlatt J had suggested in Attorney-General v Metropolitan Water Board
(1927) 13 TC 294, 301 that proﬁ ts could be carried forward for this purpose, which he accepted
was wrong in Luipaard’s Vlei). The fact that the courts later decided that for dividends the proﬁ ts
can have been charged to tax in any year, and so the rate at which they have been charged may be
different from the current rate, will be suggested to be the result of the Revenue and the courts, and
to some extent Parliament, later adapting the rules to ﬁ t incorporated bodies.
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Deﬁ ning and Taxing Companies 1799 to 1965 21
as aforesaid, and in every Case where any such Payment shall be made from Proﬁ ts or
Gains not charged by this Act, or where any Interest of Money shall not be reserved or
charged or payable for the Period of One Year, then and in every such Case there shall
be charged upon such Interest Annuity or other annual Payment as aforesaid, the Duty
before mentioned, according to and under and subject to the several and respective
Provisions by which the Duty in the Third Case of Schedule (D.) may be charged:…
82
Although for the purposes of the charitable exemption,
83
dividends were later
treated as annual payments, they cannot have fallen within the charges on income
section as annual payments because of the section dealing with the deduction of
tax from dividends.
84
There are some similarities between charges in category
[1] (permissive deduction of tax for charges paid out of income brought into
charge to tax) and dividends, when both are paid out of taxed income, but
there are signiﬁ cant differences. The ﬁ rst difference is that for charges the rate
of permissive deduction was the current rate of tax on the payment, and for
dividends it was, on a literal reading, a proportionate deduction in respect of
the tax ‘so charged’, that is charged on the body (not on the dividend),
85
which
points towards transparency. To repeat the relevant part of Addington’s section:
such Estimate shall be made on the Amount of the annual Proﬁ ts and Gains of such
Corporation, Fraternity, Fellowship, Company, or Society, before any Dividend shall
have been made thereof to any other Person or Persons, or publick Bodies having
any Share, Right, or Title, in or to such Proﬁ ts or Gains; and all such other Person
or Persons, and publick Bodies, shall allow out of such Dividends a proportionate
Deduction in respect of the Duty so charged;
Presumably the deduction is of a proportion corresponding to the proportion
of the current year’s proﬁ t distributed as dividend. There was no need for a
charging section for dividends because the body was transparent, as is implied
by the reference to ‘share…in or to such proﬁ ts or gains’. What was taxed was
the underlying income of the body itself. That accounting
86
was primitive at the
82
1803 s 208; 1805 s 192; 1806 s 114; 1842 s 102; 1918 All Schedules Rules, r 19, 21; 1952 ss 169,
170. I have added the numbering [1] and [2] for ease of reference to these parts.
83
‘That any Corporation, Fraternity, or Society of Persons, and any Trustee for charitable Purposes
only, shall be entitled to the same Exemption in respect of any yearly Interest or other annual Payment
chargeable under Schedule (D.) of this Act, in so far as the same shall be applied to charitable Purposes
only, as is herein-before granted to such Corporation, Fraternity, Society, and Trustee respectively in
respect of any Stock or Dividends chargeable under Schedule (C.) of this Act, and applied to the like
Purposes’: 1842 s 105 (this provision is not found in earlier Acts); 1918 s 37(1)(b); 1952 s 447(1)(b). If
dividends were not annual payments there would have been no right for a charity to recover the tax
deducted from them, see the Codiﬁ cation Committee (see fn 17) at para 101.
84
See text around fn 70.
85
The Codiﬁ cation Committee (see fn 17) at para 99 say that the words ‘may mean (especially
the words in the Act of 1842) that the company may only deduct a proportionate amount of the
tax borne by the company in the year in which he dividend is declared or paid…’. Deduction of
tax on the body’s proﬁ t from the dividend was not such a burden when the tax rate was 5%. This
interpretation was the taxpayer’s contention that was rejected (although on the basis of the different
wording of the 1918 Act) in F H Hamilton v IRC (1931) 16 TC 213, which is considered below.
86
Pacioli wrote about double entry bookkeeping in 1494. The use of double entry bookkeeping
in place of the charge and discharge bookkeeping in use for landed estates, seems to have been
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22 John F Avery Jones CBE
time is shown by the items that it was necessary to state were not deductible,
such as capital withdrawn, sums employed as capital, debts other than bad
debts, and personal expenses.
87
In any case there was no obligation even to keep
accounts or to provide them to the Revenue unless there was an appeal and the
General Commissioners issued a precept for a Schedule (in effect a proﬁ t and
loss account).
88
On the other hand, there were rules allowing returns for the
date to which accounts are made up.
89
developing in England about this time, having been in use for some centuries in mainland Europe and
it was already in use in Scotland. See J R Edwards A History of Financial Accounting (Routledge,
1989; Accounting History from the Renaissance to the Present, a Remembrance of Luca Pacioli,
ed T Lee, A C Bishop, and R H Parker, New York, Garland Pub, 1996); B S Yamey and R H Parker
Accounting History: some British Contributions (Oxford, Clarendon, 1994); J R Edwards, G Dean,
F Clarke Merchants’ accounts, performance assessment and decision making in mercantilist Britain
(Accounting, Organisations and Society 34 (2009)) 551; and J R Edwards A business education for
‘the middling sort of people’ in mercantilist Britain, The British Accounting Review 41 (2009) 240
(I am grateful to Professor Jane Frecknall Hughes for bring these last two to my attention). I do not
claim to have researched this aspect in any detail. My impression is that little is known about the
accounting system used by small businesses in England at the time.
87
The 1806 Act prevented the deduction of the following items: (a) ‘Sums expended for Repairs
of Premises occupied for the Purpose of such Trade Manufacture Adventure or Concern nor for any
Sum expended by them for the Supply or Repairs or Alterations of any Implements or Utensils or
Articles employed for the Purpose of such Trade Manufacture Adventure or Concern, beyond the
Sum usually expended for such Purposes according to an Average of Three Years preceding the Year
in which such Assessment shall be made; (b) sums ‘on Account of Loss not connected with or arising
out of such Trade Manufacture Adventure or Concern’; (c) ‘any Capital withdrawn therefrom’; (d)
‘Sums employed or intended to be employed as Capital in such Trade Manufacture Adventure or
Concern’; (e) ‘any Capital employed in Improvement of Premises occupied for the Purposes of such
Trade Manufacture Adventure or Concern’; (f) ‘on Account or under Pretence of any Interest which
might have been made on such Sums if laid out at Interest’; (g) ‘for any Debts, except such Debts,
or such Parts thereof as shall be proved to the Satisfaction of the Commissioners respectively, to
be irrecoverable and desperate’; (h) ‘for any Average Loss beyond the actual Amount of Loss after
Adjustment’; (i) ‘for any Sum recoverable under an Insurance or Contract of Indemnity’ (Sch D Case
I rules r.3); (j) ‘any Disbursements or Expences whatever, not being Money wholly and exclusively
laid out or expended for the Purposes of such Trade Manufacture Adventure or Concern, or of such
Profession Employment or Vocation’; (k) ‘any Disbursements or Expences of Maintenance of the
Parties, their Families or Establishments’; (l) ‘for Rent or Value of any Dwelling-house or domestic
Ofﬁ ces, or any Part of such Dwelling-house or domestic Ofﬁ ces, except such Part thereof as may be
used for the Purposes of such Trade or Concern, not exceeding the Proportion of the said Rent or
Value herein-after mentioned’; (m) ‘for any Sum expended in any other domestic or private Purposes,
distinct from the Purposes of such Trade Manufacture Adventure or Concern, or of such Profession
Employment or Vocation’ (Sch D Cases I and II rules r.1); (n) ‘any Deduction from the Proﬁ ts or
Gains arising from any Property herein described, or from any Ofﬁ ce or Employment of Proﬁ t
on account of Diminution of Capital employed, or of Loss sustained in any Trade Manufacture
Adventure or Concern, or in any Profession Employment or Vocation’. (s 198). Items (c) to (e) in
particular suggest that Adam Smith’s distinction between ﬁ xed and circulating capital (Wealth of
Nations (1776) Book 2 Ch 1) had not been generally adopted in practice at the time. Items (k) to (m)
were related to cases where the trade or profession was conducted from home. The 1799 Act 15th
Case had a special deduction rule amounting to two-thirds of the rent for shops, innkeepers, and
schoolmasters who took in 10 or more boarding pupils.
88
See the writer’s ‘The Special Commissioners after 1842: from Administrative to Judicial
Tribunal’ (2005) BTR 80 at 88. The 1955 Royal Commission Cmd.9474 (hereinafter ‘1955 Royal
Commission’) (para 1052) recommended a statutory requirement to keep accounts, which the
Revenue opposed not having the resources to check them. By the time of the Keith Committee
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Deﬁ ning and Taxing Companies 1799 to 1965 23
The second and most important distinction between the treatment of charges
and dividends is that there was no equivalent for dividends of category [2]
of charges (taxation of the recipient; later, deduction of tax by the payer and
payment over of the tax to the Revenue,
90
when the payment is not made out
of proﬁ ts or gains brought into charge to tax). In the 1803 form of the charges
on income section this may have been assumed to be unnecessary since foreign
income would necessarily have been remitted
91
before a dividend could be paid
out of it. But this cannot explain why there was no equivalent for dividends of
the 1805 version dealing with charges not made out of proﬁ ts or gains brought
into charge to tax. That possibility clearly existed for the distribution of capital
gains on assets used in the trade, or the capital itself, which suggests that the
difference must have been deliberate.
92
If an annuity is paid out of capital it
still has the character of income and should be taxed.
93
One might say the same
of a dividend, but the interest of a member of a body (like that of a partner)
is not exclusively an entitlement to income similar to an annuity. If the body
is treated as transparent and the proportionate deduction is that of the tax on
the body there would obviously be no tax on the distribution of anything other
than taxable proﬁ ts.
94
That is exactly what one would expect from treatment of
the body as if they were unincorporated (as most of them were).
95
If bodies had
been taxed as if they were incorporated one would not expect this treatment of
dividends paid out of proﬁ ts that were not taxable, as is demonstrated by the
treatment of dividends from non-resident companies where the courts, after the
time when incorporation was usual, regarded as income anything distributed by
the non-resident company, whether out of income or capital gains, so long as the
share still remained intact.
96

(1983, Cmnd.8822) the Revenue were in favour and the committee recommended it at para 3.2.17. It
was eventually enacted by FA 1990 s 90. The writer has a recollection of the elderly AM Latter QC
(1875–1961), who appeared in most revenue cases from 1912 to 1939, telling him that on principle he
never provided accounts of his practice to the Revenue.
89
1803 Sch D Case I r. 1, 3, Case II r.1, Case III rule.
90
See fn 80.
91
In Addington’s Act all foreign income was taxed on the remittance basis; Pitt had taxed what
became Addington’s Case IV (the two categories of foreign income are Pitt’s) on an arising basis.
92
It is possible when the charges on income provision was amended to deal with this in 1805 a
consequential change to the treatment of dividends was overlooked, but this seems unlikely to be
the case.
93
As in Trustees of the Will of Brodie v IRC (1933) 17 TC 432, Lindus & Hortin (1933) 17 TC
442, and Cunard’s Trustees v IRC (1945) 27 TC 122.
94
As Viscount Simonds and Lord Reid pointed out in Cenlon Finance Co Ltd v Ellwood (1962) 40
TC 176, 202, 205–6 this exemption for dividends paid out of non-taxable income is nowhere stated.
95
There is no need for the tax treatment to follow this legal distinction; for example, today we
have LLPs that are incorporated but normally taxed as partnerships, and unit trusts, which are not
incorporated but are taxed as if they were. The transparency of a life interest trust for tax purposes
is different from the position in trust law: see Donovan Waters ‘The Nature of the Trust Beneﬁ ciary’s
Interest’ (1967) 45 Can Bar Rev 219. The reason for the difference is explained by Malcolm Gammie
in the paper referred to in fn 72.
96
See the heading Non-resident bodies below.
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24 John F Avery Jones CBE
The only difﬁ culty over complete transparency is the reference to dividends in
Addington’s provision,
97
although, as we have seen, dividend was not a term of
art. The reason may be no more than the change from Pitt’s system of taxing
bodies on the post-dividend income required it to be put beyond doubt that it was
now the pre-dividend income. Apart from that, the payment of a dividend was
as irrelevant for tax as when partnership drawings were made. The permissive
deduction of tax from the dividend may merely have been to prevent the member
claiming that he was entitled, as he was under Pitt’s system, to a proportion of
the proﬁ t before tax. If, on the other hand, the reference to dividends was a
timing provision, that the income of the body is not that of the member until
distributed as a dividend, this was inconsistent with full transparency.
98
But that
does not seem likely. If that were the intention, there would surely have been
provisions about what tax to deduct from dividends paid in years later than
that in which the proﬁ t was earned,
99
and dividends would have be treated as
charges on income as a separate source of income taxable under Schedule D.
The conclusion is that transparency was assumed to apply to bodies of persons,
just as it did for partnerships and trusts.
Much later, Lord Phillimore in Bradbury v English Sewing Cotton
100
correctly
described the system applying to an incorporated body in this way:
…the Act of 1842 has apparently proceeded on the idea that for revenue purposes
a joint stock company should be treated as a large partnership, so that the payment
of Income Tax by a company would discharge the quasi-partners. The reason for
their discharge may be the avoidance of double taxation, or to speak accurately, the
avoidance of increased taxation. But the law is not founded upon the introduction of
some equitable principle as modifying the Statute; it is founded upon the provisions
of the Statute itself; and the Statute carries the analogy of a partnership further, for
it contemplates a company declaring a dividend on the gross gains, and then on the
face of the dividend warrant making a proportionate deduction in respect of the duty,
97
See text at fn 70.
98
Although Addington’s tax was at a ﬂ at rate the question whether the income of the body was
the member’s income before distribution was important not only for persons whose income was
below £150 pa, for which there were nine graduated rates of tax on income between £60 and £150 pa
and no tax below £60 (1803 s 193; 1805 s 180), but also for the abatement of tax for those with more
than two children which had four graduated abatements applying with no ceiling on the amount of
income (1803 s 195; 1805 s 181). These were not continued in 1806 after which the tax became a
fully proportional one. However, an exemption for incomes of less than £150 pa was re-introduced
in 1842 (s 163) and reduced to £100 in 1853 (s 30) and so the issue was potentially relevant after 1842.
99
The 1955 Royal Commission said in para 50 that ‘Once large retentions become a permanent
feature and the income tax becomes progressive, there is no theoretical justice in taxing undistributed
proﬁ ts at the standard rate’, thus suggesting that earlier there were originally no large retentions
presumably because the tax rate was the same whether or not the proﬁ ts were distributed and the
shareholder expected distribution.
100
(1923) 8 TC 481, 519 (approved by Lord Atkin in Neumann v IRC (1934) 18 TC 332 at 359).
See also ‘…so the Act of 1842 has, apparently, proceeded on the idea that for revenue purposes a
joint stock company should be treated as a large partnership, so that the payment of income tax by
a company would discharge the quasi-partners’. Neumann v IRC (1934) 18 TC 332 per Lord Tomlin
at 359.
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Deﬁ ning and Taxing Companies 1799 to 1965 25
so that the shareholder whose total income is so small that he is exempt from Income
Tax or pays at a lower rate, can get the Income Tax which has been deducted on the
dividend warrant returned to him.
We had therefore reached the position that up to the abolition of income tax
in 1816, the machinery provisions for returns and assessment treated all bodies
of persons like incorporated ones, but in all other respects
101
the treatment of
bodies was transparent for tax purposes.
The Rise of Incorporation and the Abolition of the Unincorporated Body
Income tax was reintroduced in 1842 just at the wrong time from the point of view
of the development of company law. Two years later, Gladstone’s Joint Stock
Companies Act 1844 provided for a simple method of incorporation of compa-
nies by registration in the way we know it today.
102
These companies were still un-
limited; limited liability was not attained for another 11 years.
103
And companies
still had attributes of partnerships and trusts, for example that it was the deed of
settlement that had to be ﬁ led whereas now that the company was incorporated
there was no need for a trust. The 1844 Act deﬁ ned joint stock104 company estab-
lished for any commercial purpose, or for any purpose of proﬁ t, to include:
Every Partnership whereof the Capital is divided or agreed to be divided into Shares, and
so as to be transferable without the express Consent of all the Copartners;
105
and also,…
Every Partnership which at its Formation, or by subsequent Admission (except any
Admission subsequent on Devolution or other Act in Law), shall consist of more than
Twenty-ﬁ ve Members.
106
101
Except for the deduction of salaries paid to members, see the proviso in the text at fn 71 (and
the possible exception for dividends).
102
It is interesting that the US introduced the ability to incorporate by registration earlier: New
York in 1811, Massachusetts in 1830 and Connecticut in 1832: C A Cooke Corporation Trust and
Company (Manchester University Press, 1950) at 134. He suggests that the US use of corporation as
opposed to company was because they moved straight to the distinction between corporations and
partnerships, whereas in the UK we developed the intermediate deed of settlement unincorporated
company (at 94). In spite of this earlier incorporation, in the US all corporations were originally
taxed as partnerships, initially with only distributed proﬁ ts being taxed from 1862–64, and then
as fully transparent entities from 1864 to 1909; a corporate excise tax on ‘every corporation,
joint-stock company or association, and every insurance company’ was introduced in 1909 and,
following the Sixteenth Amendment, from 1913 an income tax on such bodies: See Richard
Winchester ‘Corporations That Weren’t: The Taxation of Firm Proﬁ ts in Historical Perspective’,
19 Southern California Interdisciplinary Law Journal 501 (2010) (available at http@//ssrn.com/
abstract=1593806). In relation the origins of the US corporate tax, see Reuven S Avi-Yonah ‘Why
was the US Corporate tax Enacted in 1909’ in J Tiley (ed), Studies in the History of Tax Law (Vol
2, Hart Publishing, 2007) Ch 14, p 377, and S A Bank ‘Entity Theory as Myth in the US Corporate
Excise Tax of 1989’, ibid, Ch 15 p 393.
103
Limited Liability Act 1855.
104
See fn 6.
105
That is, unincorporated bodies of persons, see text at fn 17.
106
Joint Stock Companies Act 1844, s 2 (ﬁ nally Companies Act 1985, s 716, repealed by Regulatory
Reform (Removal of 20 Member Limit in Partnerships etc) Order 2002, SI 2002 No 3203). This
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26 John F Avery Jones CBE
This meant that no new unincorporated bodies could be formed with more than
25 members, which limit was reduced to 20 from 1856.
107
The 1844 Act did not
apply to existing bodies:
And that, except where the Provisions of this Act are expressly applied to Partnerships
existing before the said First Day of November [1844], it shall be held to apply only to
Partnerships the Formation of which shall be commenced after that Date…Provided
also, that, except as herein-after is specially provided, this Act shall not extend to any
Company incorporated or which may be hereafter incorporated by Statute or Charter,
nor to any Company authorized or which may be hereafter authorized by Statute or
Letters Patent to sue and be sued in the Name of some Ofﬁ cer or Person.
108
The Joint Stock Companies Act 1856 had prevented existing partnerships with
more than 20 members (that Act having reduced the number from 25) from
carrying on a trade or business for gain unless they registered as companies.
109

The penalty for non-compliance was that each partner was severally liable for the
liabilities without a right of contribution from the other partners. However, this
was modiﬁ ed in the 1857 Act so that such trading was not prohibited although
the rule about liabilities still applied.
110
This must have resulted in most existing
bodies (technically partnerships) preferring to be registered under the 1844 Act
to obtain the full effects of incorporation, which were considerable:
111

XXV. And be it enacted, That on the complete
112
Registration of any Company being
certiﬁ ed by the Registrar of Joint Stock Companies such Company and the then
Shareholders therein, and all the succeeding Shareholders, whilst Shareholders, shall
be and are hereby incorporated as from the Date of such Certiﬁ cate by the Name of
the Company as set forth in the Deed of Settlement, and for the Purpose of carrying
on the Trade or Business for which the Company was formed, but only according
to the Provisions of this Act, and of such Deed as aforesaid, and for the Purpose of
suing and being sued, and of taking and enjoying the Property and Effects of the
said Company; …and such Company shall continue so incorporated until it shall be
dissolved, and all its Affairs wound up; but so as not in anywise to restrict the Liability
of any of the Shareholders of the Company, under any Judgment, Decree, or Order
for the Payment of Money which shall be obtained against such Company, or any of
the Members thereof, in any Action or Suit prosecuted by or against such Company
in any Court of Law or Equity; but every such Shareholder shall, in respect of such
deﬁ nition shows the similarity between partnerships and incorporated bodies for which there were
separate tax rules.
107
Joint Stock Companies Act 1856 s 4.
108
S 2. The last phrase refers to the 1834 Act, see text at fn 22.
109
S 4.
110
S 3.
111
Note the declaration of dividends in No 9.
112
There existed an earlier state of provisional registration, with ‘provisionally’ added after the
name. Complete registration required that the deed of settlement be subscribed (hence ‘subscriber’)
in respect of three quarters of the shares. Following complete registration the subscribers became
shareholders and ‘registered’ was added after the name. Provisional registration was abolished by
the Joint Stock Companies Act 1856.
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Deﬁ ning and Taxing Companies 1799 to 1965 27
Monies, subject as after mentioned, be and continue liable as he would have been if the
said Company had not been incorporated; and thereupon it shall be lawful for the said
Company, and they are hereby empowered, as follows; that is to say,
1. To use the registered Name of the Company, adding thereto ‘Registered;’ and also,
2. To have a Common Seal (with Power to break, alter, and change the same from
Time to Time), but on which must be inscribed the Name of the Company; and also,
Powers and Privileges of Companies. —
3. To sue and be sued by their registered Name in respect of any Claim by or upon the
Company upon or by any Person, whether a Member of the Company or not, so long
as any such Claim may remain unsatisﬁ ed; and also,
4. To enter into Contracts for the Execution of the Works, and for the Supply of the
Stores, or for any other necessary Purpose of the Company; and also,
5. To purchase and hold Lands, Tenements, and Hereditaments in the Name of the said
Company, or of the Trustees or Trustee thereof, of the Purpose of occupying the same
as a Place or Places of Business of the said Company, and also (but nevertheless with
a Licence, general or special, for that Purpose, to be granted by the Committee of the
Privy Council for Trade, ﬁ rst had and obtained,
113
) such other Lands, Tenements, and
Hereditaments as the Nature of the Business of the Company may require; and also,
6. To issue Certiﬁ cates of Shares; and also,
7. To receive Instalments from Subscribers in respect of the Amount of any Shares not
paid up; and also,
8. To borrow or raise Money within the Limitations prescribed by any special
Authority; and also,
9. To declare Dividends out of the Proﬁ ts of the Concern;
114
and also,
10. To hold General Meetings periodically, and extraordinary Meetings upon being
duly summoned for that Purpose; and also,
11. To make from Time to Time, at some General Meeting of Shareholders specially
summoned for the Purpose, Bye Laws for the Regulation of the Shareholders,
Members, Directors, and Ofﬁ cers of the Company, such Bye Laws not being repugnant
to or inconsistent with the Provisions of this Act or of the Deed of Settlement of the
Company; and also,
12. To perform all other Acts necessary for carrying into effect the Purposes of such
Company, and in all respects as other Partnerships are entitled to do:
And the said Company are hereby empowered and required,—
13. To appoint from Time to Time, for the Conduct and Superintendence of the
Execution of the Affairs of the Company, a Number of Directors, not less than Three,
for a Period not greater than Five Years, with or without Eligibility to be re-elected at
the Expiration of the Term, as may be prescribed by any Deed of Settlement or Bye
Law; and also,
113
This refers to the necessity of obtaining a licence in mortmain, with the result that companies
still did not have the right to acquire land. The requirement to obtain such a licence was abolished
by the Joint Stock Companies Act 1856 for companies carrying on a trade or business for gain.
114
Concern is also used in ss 13, 24, 27 (‘To hold Meetings periodically and from Time to Time
as the Concerns of the Company shall require’ and ‘ordinary Management of the Concerns of the
Company’). These suggest that dividends might be paid out of the proﬁ ts of separate businesses,
each having their own joint stock. ‘Adventure or concern’ is also used in tax law, see the examples
under the heading (a) Partnerships above.
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28 John F Avery Jones CBE
14. To appoint and remove One or more Auditors, and such other Ofﬁ cers as the Deed
of Settlement under which the Company shall be constituted may authorize.
In 1855 companies completely (as opposed to provisionally)
115
registered under
the 1844 Act could convert to limited liability by changing the name so that
‘limited’ was the last word, changing the deed of settlement to state that the
company was formed with limited liability, and passing a resolution of three-
quarters of the shareholders and providing an audited certiﬁ cate of solvency.
116

The shareholders’ liability was limited to the amount unpaid on the shares.
By 1856, 956 companies had completely registered under the 1844 Act.
117
The
1856 Act more logically severed the connection with trusts and changed the
documents to be ﬁ led from the deed of settlement to the memorandum and
articles of association,
118
thus changing to a constitution based on contract that
we have today.
119
Effectively therefore this legislation must have been the end of
115
See fn 112. There were about 4,000 provisional registrations during the same period, of which
1,600 were railway companies for which complete registration was optional as they incorporated by
Act of Parliament (see fn 117).
116
Limited Liability Act 1855 s 2. It was a condition for a new company that 25 shareholders
signed the deed of settlement and an existing company also had to satisfy this condition. This was
therefore the minimum number of shareholders, which was reduced to 7 in the following year by the
Joint Stock Companies Act 1856 s 3.
117
B C Hunt, The Development of the Business Corporation in England 1800–1867 (Harvard
University Press, Cambridge, Massachusetts, 1936) p 114. Of these 47 were Irish companies. The
largest categories were insurance 219, gas and water 211 (plus 28 Irish), markets and public halls
85 (plus 1 Irish), shipping 41, petty lending 41. He lists 947 (plus 47 Irish) companies in existence
before the 1844 Act on p 88. On insurance companies, the following statistics were given for various
periods by Mr Stephen Cave moving the Second Reading of the Life Assurance Bill (1870) (HC Deb
23 February 1870 vol 199 col 722): ‘We learn from Black’s Chart and White’s Insurance Register
that before the year 1824, when ofﬁ ces were under charters and Acts of Parliament, thirty-nine were
founded and only one ceased to exist; that from 1824 to 1843 inclusive, under deeds of settlement,
105 were established and thirty-eight ceased. From 1844 to 1868, under the registration system, 219
were founded and 170 ceased to exist… For three years, from 1853 to 1855 inclusive, sixty-two were
founded and thirty ceased. In 1856 public attention was roused by a Return to this House of balance-
sheets under the Act of 1844, which displayed in thirty cases out of ﬁ fty-four, as analyzed by Christie,
an expenditure in excess of premiums and interest received, and in six an expenditure, not only in
excess of premiums and interest, but also of paid-up capital, without the smallest accumulation to
meet ever-growing liabilities. The number founded was seven in that year, while the number of those
which ceased was twenty. During the next ﬁ ve years, from 1857 to 1861 inclusive, three attempts at
legislation were made, and fourteen ofﬁ ces only were founded, and no less than seventy-four ceased.
But in 1863, possibly in consequence of facilities given by the Companies’ Act of 1862, the numbers
began to show the other way’.
118
The Joint Stock Companies Act 1857 ss 27, 28 required companies registered under the 1844
Act to re-register under the 1856 Act or not be able to sue (although it could still be sued) or pay
dividends. Between 1856 and 1859, 741 companies registered under the 1856 Act, and 834 between
1860 and 1862 (B C Hunt (see fn 117) at 144).
119
‘The Memorandum of Association … shall, when registered bind the Company and the
Shareholders therein to the same Extent as if each Shareholder had subscribed his Name and
afﬁ xed his Seal thereto or otherwise duly executed the same, and there were in such Memorandum
contained, on the Part of himself, his Heirs, Executors, and Administrators, a Covenant to conform
to all the Regulations of such Memorandum, subject to the Provisions of this Act’ (s 7). See now
Companies Act 2006 s 33: ‘The provisions of a company’s constitution bind the company and its
members to the same extent as if there were covenants on the part of the company and of each
member to observe those provisions’.
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Deﬁ ning and Taxing Companies 1799 to 1965 29
the unincorporated body of persons carrying on a commercial activity. While
there may have been some remaining in transition, from then on, apart from
the few incorporated by Royal Charter or Act of Parliament, bodies were either
incorporated under this Act or, if below the (now) 20 partner limit, partnerships.
Of course, many unincorporated bodies, such as friendly societies and industrial
and provident societies, remained.
Tax Law from 1842 Onwards
These major developments in company law were for a long time ignored by
tax law, although it might be said that company law had now caught up with
the distinction between partnerships and bodies (mostly now required to be
incorporated) that had always been made in tax law. Rules that were made
predominantly for unincorporated bodies, which had mainly ceased to exist, now
had to be applied to incorporated ones. This does not seem to have caused any
problems.
120
But as income tax was charged at a proportional rate of tax this is
to be expected; distributed and undistributed proﬁ ts bore the same rate of tax.
121

There are no reported cases of difﬁ culty
122
until the introduction of graduated
rates of tax and the concept of total income
123
with the introduction of super-
tax by the Finance (1909–10) Act 1910.
124
By then companies incorporated by
registration had existed for more than sixty years, and unincorporated bodies
(other than partnerships with up to 20 partners, and bodies outside the normal
commercial ﬁ eld like friendly societies and clubs) had not existed for the same
period, so the circumstances existing in Addington’s time were forgotten and
thinking was coloured by the fact that commercial bodies were incorporated.
Companies were separate legal persons as a matter of company law, and issues
arose of (a) whether payment of dividends now determined the timing of
120
Codiﬁ cation Committee (see fn 17) para 98.
121
See 1955 Royal Commission, para 50. See fn 98 for exemptions for small incomes.
122
One could mention Ashton Gas Company v Attorney-General [1906] 1 AC 10 on whether a
maximum dividend of 10% was gross or net of tax; it being held to be gross because if it were net
the dividend would exceed the maximum. It is clear that the tax was on the dividend.
123
See John Pearce ‘The Rise and Development of the Concept of ‘Total Income’ in United
Kingdom Income Tax Law: 1842–1952’ in Studies in the History of Tax Law (ed John Tiley, Vol 2,
Hart Publishing, Oxford, 2007) Ch 3, p 87. Strictly, as he points out, there was a concept of ‘total
Income from every Source’ in 1853 s 28 in relation to the exemption for income under £100 pa and
the abatement for income up to £150 pa; ‘total income from all sources’ was used in FA 1907 s 19(1)
in relation to earned income relief, and in F (1909–19) A 1910 s 68(1) for child relief, as well as the
same words for super-tax in s 66, in the last of which they were more important as it was a charging
provision.
124
This had the effect that distributed proﬁ ts were taxed at progressive rates, while undistributed
proﬁ ts were taxed at the standard rate. The difference was later increased since from 1947 proﬁ ts
tax, introduced as National Defence Contribution in 1939, taxed distributed proﬁ ts at a higher
rate than undistributed proﬁ ts. Interestingly FA 1947 s 31 removed partnerships from proﬁ ts tax
by stipulating that the charge applied only to ‘a body corporate or by an unincorporated society
or other body’. From 1922 the close company rules equalised the treatment of distributed and
undistributed proﬁ ts for super-tax and surtax purposes.
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30 John F Avery Jones CBE
the member’s income for tax purposes, (b) if it did, how did this ﬁ t with the
absence of any charging provision for dividends? (c) how to deal with dividends
not paid out of the current year’s proﬁ ts, and the interaction of this with the
principle that dividends not paid out of taxable income were not taxable, and
(d) in consequence, it was not possible to deduct the tax paid by the body on
its current year’s proﬁ ts from dividends any more because there might be no
dividends. Nobody sat down and wrote a set of rules adapted to the new
circumstances. The most fundamental of these items is (a) as it is determinative
of transparency; this seems to have been decided by default based on the legal
effect of incorporation.
125
On (b) an attempt by a taxpayer to argue that in the
absence of a charging provision dividends did not form part of total income was
not accepted by the courts on the basis that total income did not depend on the
schedules, and dividends were clearly income and were derived from property in
the UK and thus within the territorial scope of Schedule D for a non-resident,
which the cases happened to concern.
126
On (c) whether a dividend was paid out
of taxable income depended on whether the income had ever paid tax. This gave
rise to problems over mismatches of the accounting and tax proﬁ t because of
such matters as the three-year average and the low Schedule A charge compared
to actual rents.
On (d) the amount of tax to be deducted had to be the tax referable to
the dividend, which was given statutory effect in the 1918 Act. Although a
consolidation Act, the change in wording was highly signiﬁ cant:
127
20. The proﬁ ts or gains to be charged on any body of persons shall be computed in
accordance with the provisions of this Act on the full amount of the same before any
dividend thereof is made in respect of any share, right or title thereto, and the body of
persons paying such dividend shall be entitled to deduct the tax appropriate thereto.
128

Instead of a ‘proportionate Deduction in respect of the Duty so charged’ [on the
body] we now had ‘the tax appropriate thereto’ [to the dividend]. Lord Wright
in Neumann noted that the new wording was more appropriate to incorporated
companies.
129
In practice tax was always shown to be deducted at the current
125
See the quotation from the 1955 Royal Commission in the text around fn 156.
126
Brooke v IRC (1917) 7 TC 261; Whitney v IRC (1925) 10 TC 88. But the same does not apply
to previously undistributed proﬁ ts on liquidation: IRC v Blott (1921) 8 TC 101, IRC v Burrell (1924)
9 TC 27.
127
In F H Hamilton v IRC (1931) 16 TC 213 at 228 Lord Hanworth MR said that one assumes that
a change in wording was intended to have a different effect; Lawrence LJ comments on the change
in wording at 233; and Romer LJ does so at 235 in relation to the Scottish Union case. In general,
one interprets a consolidation Act by its language without reference to the former legislation: IRC v
Joiner [1975] STC 657, 666 per Lord Diplock.
128
1918, All Schedules Rules r 20.
129
‘In 1842 the modern development of limited companies was not in contemplation;
‘proportionate’ was an apt word for the simple cases of corporators where each year the corporators
shared, in deﬁ nite proportions, the available net income. ‘Appropriate’ tax, which is more precisely
deﬁ ned by the Finance Act of 1927 as being at the standard rate of the year of payment, is clearly a
more apt term in connection with the dividends of a company’. Neumann v IRC (1934) 18 TC 332
at 369.
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Deﬁ ning and Taxing Companies 1799 to 1965 31
rate.
130
Following a recommendation of the 1920 Royal Commission,
131
a
statutory provision required the body to show the rate of tax deducted and the
gross and net amounts in a statement accompanying the dividend.
132
On the
introduction of surtax the concept of the standard rate
133
was introduced, and
section 39 of the Finance Act 1927 provided:
(1) Such of the provisions of the Income Tax Acts as provide…that there may be
deducted from any dividend the tax appropriate thereto…shall have effect as if they
provided that tax may be deducted…at the standard rate for the year in which the
amount payable becomes due.
The effect of these provisions on a dividend from an incorporated company were
tested for super-tax for 1927–28 in Gimson v IRC
134
in relation to a dividend out
of income that had fallen out of assessment for various reasons: ﬁ rst, being
paid out of discounts on government securities that had matured in earlier years
but were not taxable because the basis of assessment was the income of the
preceding year which was nil; secondly, out of foreign dividends paid in earlier
years that were taxable on a three-year average but the company had no income
from these sources in some of the three years after the foreign dividends was
paid
135
and so could not be assessed;
136
and thirdly, out of capital proﬁ ts (the
distribution of which was conceded not to be liable to super-tax). The company
had no taxable income in the year in which the dividend was paid. Rowlatt J
held that the ﬁ rst two items were not liable to super-tax. He reasoned on the
basis of the transparency of the company and tracing the income out of which
the dividend was paid. If the recipient of the dividend had been in receipt of the
underlying income he would not have been taxed, and the interposition of the
company made no difference.
130
The Special Commissioners in Hamilton (at p 219) described this as ‘the almost universal
practice’, with which the Court of Appeal agreed. Neumann v IRC (1934) 18 TC 332 at 360 per
Lord Atkin. The requirement to show the rate of deduction was contained in FA 1924 s 33. FA 1927
s 39(2) ‘In estimating under the Income Tax Acts the total income of any person, any income which
is chargeable with income tax by way of deduction at the standard rate in force for any year shall be
deemed to be income of that year…’ may have been intended to specify that the deduction was to be
at the current rate of tax for the year of payment (see Neumann at 361 per Lord Atkin) but this did
not apply to dividends because they were not themselves ‘chargeable with income tax’.
131
Cmd 615, para 173.
132
FA 1924 s 33.
133
This was the ordinary rate of income tax on investment income (earned income was subject
to a relief); rates of surtax were rates of tax in addition to the standard rate on the income liable to
surtax, rather than as at present higher rates on the band of income. Unlike super-tax, which was a
separate tax, surtax was part of income tax.
134
(1930) 15 TC 595.
135
As an example of the point, a foreign dividend paid in 1922–23 was taxed on one-third in
1923–24 but not taxed on the thirds due to be taxed in 1924–25 and 1925–26 because the company
had no income from this source in those last two years.
136
On the basis of Whelan v Henning (1926) 10 TC 263 which decided that if there was no income
from the particular shares in the year there was no liability to tax for the year, applying Brown v
National Provident Institution (1921) 8 TC 57, which related to Case III, to Case V and applying it
even though the source continued to be held in the year.
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32 John F Avery Jones CBE
…if this gentleman had received this money not from the company but direct, by
holding the source of income himself and had been liable to Income Tax in nil because
of the regulations affecting measurement, his income would not be subject-matter on
which he could get back tax which was small or pay Super-tax in case it was big. So
in the case of a company, although the Attorney-General very properly referred to
what I said in Blott’s case
137
which is a material case, although the case of a company
is different, in essence it is the same; he can only get back tax which the money he
received has suffered and he can only be liable to Super-tax in respect of a dividend
which is taxable.
He rightly dismissed out of hand the Crown’s contention that the dividend was
an annual payment made out of untaxed income and therefore taxable under
Rule 21 of the All Schedules Rules in the 1918 Act (the successor to what we have
called category [2] of charges on income
138
): ‘It is absolutely contrary to the idea
one has ever held and it is in my experience entirely novel’.
139
His decision was
entirely in accordance with Addington’s principles. If the body were transparent
these items would not have been taxable. In other words, transparency still
applied to determine whether something was taxable even though the timing of
the income was now clearly deferred until payment of the dividend.
Allied to this was a debate on whether a company paid tax as agent for its
members. Swinfen Eady LJ said in Brooke v IRC
140
that:
where the duty is paid by a ﬁ rm or a partnership or a company in respect of the gains
and proﬁ ts upon which they are assessed, the company pays the Income Tax as agents
for its shareholders, and in that way it is the shareholders, the persons beneﬁ cially
concerned, who bear the burden of the tax.
On the basis of Addington’s principles applied to predominantly unincorporated
bodies, this was correct. Viscount Cave disagreed, saying, ‘a company paying
Income Tax on its proﬁ ts, does not pay it as agent for its shareholders. …the
payment by the company operates in relief of the shareholder. But no agency,
properly so-called, is involved’.
141
Properly so-called this is undoubtedly true but
137
See fn 141.
138
See text at fn 81, following the amendment described in fn 80.
139
At p 601. The House of Lords conﬁ rmed this in Neumann v IRC (1934) 18 TC 332.
140
(1917) 7 TC 261, 272.
141
IRC v Blott (1921) 8 TC 101, 136. See also Neumann v IRC (1934) 18 TC 332, 368 in which
Lord Wright said ‘The shareholder and the company are, no doubt, separate entities; the company
is not an agent from the shareholder to pay tax on the dividend, nor is the company the collector for
the Revenue to deduct tax from the dividend….What is essential to the requirements of the Inland
Revenue is that all the proﬁ ts of the company should be taxed and, if that is done, the Revenue is
not concerned with what is done with these proﬁ ts… There is, in fact, only one proﬁ t, no new proﬁ t
being created from the fact that the shareholder gets his share; the tax is a tax on the proﬁ ts and
not on the dividend’. Also IRC v Cull (1939) 22 TC 603, 636 in which Lord Atkin said: ‘My Lords,
it is now clearly established that in the case of a limited company the company itself is chargeable
to tax on its proﬁ ts, and that it pays tax in discharge of its own liability and not as agent for its
shareholders. The latter are not chargeable with Income Tax on dividends, and they are not assessed
in respect of them. The reason presumably is that the amount which is available to be distributed
as dividend has already been diminished by tax on the company, and that it is thought inequitable
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Deﬁ ning and Taxing Companies 1799 to 1965 33
this is because Addington’s unincorporated companies were not legal persons
and could not be an agent, and incorporated companies, which could be an
agent, were treated in exactly the same way as unincorporated ones. Although
both of them were speaking of the situation before 1918, Viscount Cave’s
approach seems to be an example of thinking being coloured by bodies then
being all incorporated.
The taxpayer in F H Hamilton v IRC
142
tried unsuccessfully to rely on Gimson
claiming that where a company distributed more than its taxable income of the
year his income for surtax could not exceed the taxable income of the company.
Rowlatt J and the Court of Appeal rejected this on the basis of the plain words of
the 1918 Act. I have argued that in Addington’s time this is what the legislation lit-
erally said and historically the taxpayer was right. But in the meantime the think-
ing had become coloured by companies being incorporated. It made no sense to
look at one year’s income in isolation and so the only way to make the legisla-
tion work was to abandon the approach adopted for charges on income that one
looked at only the current year to see whether income had been taxed.
143
A pass-
ing remark of Rowlatt J
144
is interesting in showing the problems the tax fraternity
were having in adapting Addington’s system to incorporated companies:
Now, as I said during the argument, I do not think anybody has ever sat down to
really tackle exhaustively, so as to work out a complete system, the problems which
arise in relating the taxpayer’s individual income to the income of the company.
Those problems of course were very much in the background in 1842, but they came
into some prominence as soon as you got the growth of the Joint Stock commercial
companies, and their consideration has been one of the esoteric joys of the select
company of Income Tax lawyers for a long time.
The Finance Act 1931 duly reversed Gimson in relation to the ﬁ rst and second
items of income, restoring the generally accepted view and saving companies
from always having to trace the income out of which the dividend was paid:
7.—(1) The provisions of Rule 20 of the General Rules, which authorise the deduction
of the appropriate tax from any dividend paid by a body of persons, shall, in relation
to a dividend paid by any body of persons, whether before or after the commencement
of this Act, be construed as authorising the deduction of tax from the full amount
paid out of proﬁ ts and gains of the said body which have been charged to tax or which,
under the provisions of the Income Tax Acts, would fall to be included in computing
the liability of the said body to assessment to tax for any year if the said provisions
required the computation to be made by reference to the proﬁ ts and gains of that year
and not by reference to those of any other year or period.
to charge it again. At one time it was thought that the company, in paying tax, paid on behalf of
the shareholder: but this theory is now exploded by decisions in this House, and the position of the
share-holders as to tax is as I have stated it’.
142
(1931) 16 TC 213. This case also related to years before FA 1931 (see text at fn 146).
143
See fn 81.
144
At 222–3.
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34 John F Avery Jones CBE
(2) Subject as hereinafter provided, a dividend paid by a body of persons, whether
before or after the commencement of this Act, shall, to the extent to which it is paid
out of such proﬁ ts and gains as are mentioned in subsection (1) of this section, be
deemed, for all the purposes of the Income Tax Acts, to represent income of such an
amount as would, after such deduction of tax as is authorised by the provisions of the
said Rule 20, be equal to the net amount received:
145

Provided that the provisions of this subsection shall not apply to a preference dividend
to which section twelve of the Finance Act, 1930, applies, and shall have effect subject
to the provisions of subsection (3) of that section.
146

By referring to dividends ‘paid out of proﬁ ts and gains of the said body which
have been charged to tax’ the section conﬁ rms the basis the decision in Gimson,
reversing it only in relation to proﬁ ts that would have been charged if they had
been assessed on a current year basis. The dividend paid out of the ﬁ rst and
second category of income in Gimson would then be taxable, apparently on
a grossed-up basis, which was the issue to be decided in Neumann. But the
third category remained exempt so that one aspect of the original transparency
still remained. The section also added respectability to the concept of asking
whether the income had been taxed in any year rather than in the current year.
The next case, Neumann v IRC,
147
dealt with the effect of Fry v Salisbury
House
148
on the shareholder. The House of Lords had decided in Fry that rent
could be taxed only at the (much lower) annual value for Schedule A and that the
excess over the annual value could not be taxed under Schedule D. The Salisbury
House company then distributed as a dividend, without any deduction of tax,
the excess amount that was found not to be taxable. In the light of Gimson the
taxpayer in Neumann tried to apply the same principle to that dividend arguing
that it was not taxable as it had been paid out of income that was not taxable.
Initially Finlay J agreed but the Court of Appeal and the House of Lords did
not. The House of Lords approved Gimson in spite of the Court of Appeal
saying it was wrongly decided, but the facts were different. The rent had been
taxed although on a different basis from the full amount, rather than part of the
income not being taxable at all in the particular year. Accordingly the dividend
had been paid out of proﬁ ts or gains that had been taxed. Deduction of tax
from the dividend was authorised, although the company had not actually
145
This subsection corrects the lacuna in FA 1927 s 39(2), see fn 130.
146
FA 1931 s 7; 1952 s 184(2). The proviso refers to the deduction of tax pursuant to a resolution
under the Provisional Collection of Taxes Act 1913. FA 1930 s 12(3) provided: ‘(3) Where on
payment of a dividend (not being a preference dividend within the meaning of this section), income
tax has, under Rule 20 of the General Rules, been deducted therefrom by reference to a standard rate
of tax greater or less than the standard rate for the year in which the dividend became due, the net
amount; received shall, for all the purposes of the Income Tax Acts, be deemed to represent income
of such an amount as would, after deduction of tax by reference to the standard rate last-mentioned,
be equal to the net amount received, and for the said purposes there shall in respect of that income
be deemed to have been paid by deduction tax of such an amount as is equal to the amount of tax
on that income computed by reference to the standard rate last-mentioned’.
147
(1934) 18 TC 332.
148
(1930) 15 TC 266.
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Deﬁ ning and Taxing Companies 1799 to 1965 35
deducted any tax, and the dividend was liable to surtax. In what seems to be an
example of hard cases making bad law they held that section 7(2) of the Finance
Act 1931 did not apply to gross-up the dividend even though it had been paid
out of taxed income.
149
If this were not the case the grossed-up amount would
represent income to which the shareholder could never have become entitled.
Lord Wright thought that the reference to ‘the net amount received’ implied that
there had been a deduction of tax. The House of Lords later decided that this
decision was of general application to all cases in which there had been no tax
deduction in IRC v Cull
150
in which the company had brought forward losses
which meant that no tax was paid in the year the dividend was paid, and no tax
was deducted from the dividend. As in Neumann it was held that the dividend
should not be grossed-up. Cull was reversed by the following year’s Finance Act
so that grossing-up applied.
151
Thus rules designed and applying perfectly logically to unincorporated bodies
in Addington’s time had by then been badly adapted to deal with incorporated
companies resulting in the bizarre set of rules that Lord Wright described in
Neumann:
152
The scheme of these provisions as I understand them is to impose the tax on all
the proﬁ ts of the company at the source: if and so far as these proﬁ ts have been so
taxed, they are not liable to any further tax (other than surtax) in the hands of the
shareholder receiving the dividend. The shareholder and the company are no doubt
separate entities: the company is not an agent for the shareholder to pay tax on the
dividend, nor is the company the collector for the Revenue to deduct the tax from the
dividend. The company is the taxpayer. The shareholder has no right to any share
in the proﬁ ts till a dividend is declared: the company may use the proﬁ ts in any way
it pleases vis-a-vis any shareholder: it may put them to reserve or capitalize them or
use them for extensions or improvements: the proﬁ ts declared and paid as dividends
in one year may have been made in previous years when the standard rate of tax was
different: it is only very rarely and in exceptional cases that dividends are paid out of
any particular source of proﬁ t: usually they are paid out of the general revenue fund
of the company. What is essential to the requirements of the Inland Revenue is that
all the proﬁ ts of the company should be taxed and if that is done the Revenue is not
concerned with what is done with these proﬁ ts. The company is not bound but only
authorized to deduct tax in paying dividends: whether it deducts or not is left to its
discretion because the proﬁ ts once having been taxed in the company’s hands, do not
bear further tax (apart from surtax) in the shareholders’ hands. There is in fact only
149
So much so that the Codiﬁ cation Committee (see fn 17) at para 107–8 was unable to understand
it and therefore to codify it. Their draft Bill (cl 42) equated dividends paid free of tax with those
paid without deduction of tax. For example what if the company had paid a lower rate of tax in the
past and now distributed it when the rate was higher, the grossed-up amount was equally ﬁ ctitious.
They also made the point that if the same facts had applied to a discretionary trust the income
would be grossed-up, but this can be explained by the fact that the charges on income provision
would have applied and dividends were different.
150
(1939) 22 TC 603.
151
FA 1940 s 20.
152
[1934] AC 215, 236; (1934) 18 TC 332, 368.
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36 John F Avery Jones CBE
one proﬁ t, no new proﬁ t being created from the fact that the shareholder gets his
share: the tax is a tax on the proﬁ ts and not on the dividend. But if tax is deducted
from the dividend the Acts have provided that it is to be at the standard rate of tax
of the year of the dividend, in order to avoid obvious difﬁ culties which might arise
because proﬁ ts divided in one year may have been earned in other years.
The 1955 Royal Commission
153
said of the exemption from tax of dividends
paid out of capital proﬁ ts: ‘We regarded this theory with misgiving and some
surprise, for it seemed to us to rest upon a process of reasoning that had gone
astray’.
154
They pointed out the anomaly that a company with both taxable and
untaxed proﬁ ts could decide which to distribute ﬁ rst which had an important
effect on the shareholders.
155
They argued:
807….But from the tax point of view the exemption of such dividends from tax
appears to depend on two quite simple propositions, with neither of which we agree.
In the ﬁ rst place it may be said that proﬁ t that is a capital proﬁ t in respect of the
company as taxpayer cannot be a proﬁ t in the way of income when it is transferred to
a shareholder in the form of dividend. But the system of taxing company proﬁ ts as the
proﬁ ts of the company and not of the shareholders denies the validity of this argument.
If the company’s proﬁ ts were merely the shareholders’ proﬁ ts each shareholder’s
income would include his proportionate share of the company’s proﬁ ts as made. If
shareholders are not taxed in this way—certainly to the beneﬁ t of some of them—it is
not fair to claim that the capital proﬁ t of a company is necessarily a capital proﬁ t for
the individual shareholder to whom it is distributed. In fact it is a familiar principle
that what is capital in the hands of a payer may be income in the hands of the recipient.
Now that we had moved away from transparency on the timing of the
shareholder’s income,
156
the link between taxation of the company and that of
the shareholder had been sufﬁ ciently broken. What is interesting is that there
was no conscious decision in the legislation
157
to break the timing connection;
it just seems to have happened because of the change to incorporation of all
bodies by company law. They continued:
In the second place, it may be said that it is a fundamental rule of our tax system that
a shareholder’s dividends are not assessable to income tax. There is no question but
that, grossed up, they are, generally speaking, assessable income for the purposes of
surtax. But, as we understand it, this rule does not arise from any mysterious sanctity
attributable to the inherent nature of dividends. Its origin is simply that under the
system to which we have alluded the company, though it pays income tax on its proﬁ ts
as an independent taxpayer, is treated as having paid that tax in the name and on
behalf of its shareholders
158
once the proﬁ ts are transferred to them in the form of
dividends. Whatever the difﬁ culty of applying it consistently, that is the conception.
153
Cmd 9474.
154
Para 804.
155
Para 806.
156
This was proposition (a) in the text at fn 125.
157
Unless it was the change made by the 1918 Act from ‘proportionate Deduction in respect of the
Duty so charged’ [on the body] to ‘the tax appropriate thereto’ [to the dividend], see text at fn 128.
158
The agency argument was long outmoded by then, see fn 141.
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Deﬁ ning and Taxing Companies 1799 to 1965 37
Consequently the company’s payment of income tax, ‘franks’ the shareholder’s
dividend for that tax on those proﬁ ts; in that sense dividends are not assessable to
income tax. But we see nothing in the logic of this principle that requires it to be said
that if a company distributes by way of dividend a separate fund of proﬁ ts on which
no claim for income tax has arisen the tax cannot be assessed upon the shareholder
in respect of his dividend. To argue this way would seem to stand the principle on its
head; for it is to use the fact that there has been no payment of tax by the company
which would otherwise have franked the tax on the dividend as itself the justiﬁ cation
for claiming that the dividend should not be taxed.
808. Our view is that there is no sufﬁ cient ground for treating these ‘capital proﬁ t
dividends’ as if their nature was different from that of other dividends. All represent
beneﬁ ts accruing from time to time upon the shares which are the source of the
dividends. All arise while the company is a going concern: none involves any reduction
of the capital paid up on the share. We recommend accordingly that they should be
regarded as taxable income.
Treating the tax paid by the company as franking the dividends was merely a
collection mechanism, from which it did not follow logically that if the company
paid no tax on particular income then nor should the shareholder. Looked at
from the shareholder’s point of view a dividend was a dividend whatever its
source. Certainly when viewed without the beneﬁ t of history this follows.
But it was a consequence of moving away from transparency that caused it to
become merely a collection mechanism rather than an inevitable consequence
of transparency.
Professor Wheatcroft in his book published in 1962
159
just before the abolition
of these rules on the introduction of corporation tax, summarised them in this
way:
1. In computing its tax liability the company is not entitled to any deduction for a
dividend it has paid.
2. So far as it pays a dividend out of proﬁ ts chargeable to tax (or which would have
been chargeable on a current year basis) it may deduct and retain for itself tax at the
standard rate in force for the year when the dividend was due. The right to deduct is
permissive and not obligatory.
3. A dividend, other than a preference dividend,
160
paid out of such proﬁ ts is deemed
to represent income of the recipient equal to the grossed up amount of the net sum
received.
4. The dividend warrant must have annexed to it, or be accompanied by a statement
as to the gross amount, the rate and amount of tax appropriate the net amount and,
where appropriate, the net United Kingdom rate.
161
5. A dividend paid without deduction of tax, when such deduction is authorised, is
deemed to represent a net amount received in respect of its equivalent gross amount as
if such a deduction had been made.
159
The Law of Income Tax, Surtax and Proﬁ ts Tax (London, Sweet & Maxwell, 1962) paras
1–385 (footnotes omitted).
160
The provisions applying to preference dividends have not been reproduced.
161
The net UK rate was the rate that had actually paid UK tax rather than tax covered by double
taxation relief and was the maximum that could be repaid.
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38 John F Avery Jones CBE
6. A dividend other than a preference dividend from which tax has been deducted at
the wrong standard rate is deemed to represent a net amount received in respect of
the grossed up amount (at the current rate) of the actual net amount paid. Hence no
adjustment is necessary when a dividend (other than a preference dividend) is paid at
the beginning of a ﬁ scal year subject to deduction at the old standard rate before a
Ways and Means resolution alters the rate.
He comments, clearly correctly, that ‘These provisions were enacted originally in
different Finance Acts and do not form a logical code’. All this came to an end
with the introduction of corporation tax in 1965 which was designed for limited
companies rather than transparent bodies of persons.
162
Non-resident Bodies
There was originally no recognition in the legislation of the existence of
non-resident partnerships or bodies of persons, although the assessment of
partnerships with only non-resident partners was, as we have seen, dealt with
in relation to taxing its British proﬁ ts.
163
The charging provision for foreign
income treated such income as a source of its own, income from a foreign
possession, unrelated to the type of income (apart from interest on foreign
securities).
164
A membership interest, such as a share, in a non-resident body of
persons was a foreign possession
165
and so income from it was taxed under Case
V necessarily by assessment on the recipient, and until 1914 on the remittance
basis for everyone.
166
It would not have made sense to apply transparency: ‘The
ofﬁ cers of the Crown do not know and do not care what is the character of the
sources from which the money comes’.
167
The source of the income is therefore
the dividend itself and on ordinary trust principles if the share remains intact,
a dividend is income and is taxable whatever its underlying source. A dividend
162
The corporation tax deﬁ nition was that ‘“company” means, subject to sections 66 [which
exempts a local authority from corporation tax] and 67 [which treats an authorised unit trust as a
company for corporation tax] of this Act, any body corporate or unincorporated association, but
does not include a partnership’ FA 1965 s 46(5). Thus any remaining non-commercial unincorporated
bodies, mainly clubs, were made liable to corporation tax.
163
See text at fn 47.
164
This approach lasted until the Tax Law Rewrite dealt with foreign income of a particular type,
such as interest, at the same time as domestic income in Income Tax (Trading and Other Income)
Act 2005.
165
Bartholomay Brewing Co v Wyatt (1893) 3 TC 213; Nobel Dynamite Trust v Wyatt (1893)
3 TC 224; Gramophone and Typewriter Co v Stanley (1908) 5 TC 358, Singer v Williams (1920) 7
TC 419. Because of the remittance basis the issue of whether the dividend ﬁ xed the timing of the
income did not arise.
166
FA 1914 s 5 removed the remittance basis for income from foreign securities, stocks, shares and
rents, except for non-UK domiciled persons and non-ordinarily resident British subjects.
167
Bradbury v English Sewing Cotton Co Ltd (1923) 8 TC 481, per Lord Phillimore at 519, quoted
by Lord Simonds in Reid’s Trustees at 440. See fn 74 for the reason why the same was not the case
for a life interest trust in Archer-Shee v Baker (1927) 11 TC 749.
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Deﬁ ning and Taxing Companies 1799 to 1965 39
paid by a non-resident body out of a capital gain is therefore taxable.
168
The
statutory provisions dealing with resident bodies are irrelevant because they
proceed on the basis that the body is a transparent partnership, while the
taxation of a foreign possession proceeds on the opposite basis.
There was once a confusion of thought that treated a non-resident body
as paying tax on behalf of its members, known as the rule in Gilbertson v
Fergusson,
169
which had the result that a resident shareholder could obtain credit
for his proportion of tax paid by the non-resident company (or its subsidiary
170
)
on its UK source income against the tax on the dividend. This was eventually
overruled by the House of Lords
171
on the basis of the changed understanding of
whether a UK company paid tax as agent for its shareholders
172
but the rule from
the beginning should never have applied to non-resident companies because of
the different approach to their taxation for which the statutory provisions we
have been considering had no effect.
168
IRC v Reid’s Trustees (1949) 30 TC 431. For cases where the ‘tree’ remained intact, see Rae
v Lazard (1963) 41 TC 1 (partial liquidation under Maryland law, likened to cutting the tree in
two) and Courtaulds Investments Ltd v Fleming (1969) 46 TC 111 (Italian share premium reserve,
the distribution of which was treated as a return of capital). The 1955 Royal Commission at
para 809 used this difference as one of the advantages following from their recommendation of
making capital dividends paid by resident companies taxable. For a recent decision that payment of
dividends out of share premium account under Cayman Islands law were dividends in UK tax law,
see First Nationwide v HMRC [2011] STC 1540.
169
(1881) 1 TC 501 concerning the (non-resident: see Attorney General v Alexander (1874) LR 10
Exch 20) Imperial Ottoman Bank that had a branch in London. The confusion was no doubt caused
by the fact that the persons managing the branch were the same as the paying agents who deducted
tax on dividends paid to UK residents which, if one considered that the company paid tax on behalf
of its shareholders, appeared to be double taxation if the tax on one could not be credited against
the other. See David Oliver ‘The Rule in Gilbertson v Fergusson: 140 Years of Relief for Underlying
Tax’ in Studies in the History of Tax Law (vol 3, Hart Publishing, 2009) Ch 10 p 281.
170
Canadian Eagle Oil Co Ltd v The King (1945) 27 TC 205 is an example of the relief being
applied to dividends from UK subsidiaries of a non-resident company. It concerned UK resident
shareholders in a Canadian company holding three UK resident subsidiaries. The Gilbertson
deduction had been given in 1929 to 1931 (and one suspects earlier) but had been refused by the
Revenue for 1932 in respect of dividends on preference shares (rightly, as the House of Lords later
decided in Barnes v Healy-Hutchinson 22 TC 655, in which the Revenue had not argued that
Gilbertson was wrongly decided, see p 672) and in 1940 was restricted by the Revenue, in respect of
the ordinary shares, to tax paid directly by the Canadian company and not on dividends from the
subsidiaries, which gave rise to the case. But, as Lord Simonds pointed out in Canadian Eagle (p
262) if the rule applied it must apply to all classes of share. It appears from the claim in Canadian
Eagle (see p 213) that the relief was by reference to the income that had paid UK tax as a proportion
of the income that would have been charged to tax if the company had been resident. For the
difﬁ culties of the Singer family applying the rule, see David Parrott and the writer’s ‘Seven Appeals
and an Acquittal: the Singer Family and their Tax Cases’ (2008) BTR 1.
171
The rule was reversed in Canadian Eagle (see fn 170) on the basis that it was inconsistent
with later House of Lords cases that decided that the company paid tax on its own behalf and not
on behalf of its shareholders (see text around fn 140 above). The Codiﬁ cation Committee (see fn
17) were right in para 110 to be confused by the rule in the ﬁ nal years before the House of Lords
reversed it.
172
See text at fn 140.
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40 John F Avery Jones CBE
COMPANIES AND BODIES OF PERSONS IN TAX TREATIES
In the quotation with which we began ‘company’ may not have been deﬁ ned
in the ﬁ rst tax treaty with Australia but in all other early UK tax treaties it
is deﬁ ned as including any body corporate,
173
which demonstrates that there
was in fact no problem about deﬁ ning a company.
174
Bodies of persons still live
on in tax treaties. The ﬁ rst tax treaty with Australia contained the following
deﬁ nition:
In the present Agreement, unless the context otherwise requires…(e) the term ‘person’
includes any body of persons, corporate or unincorporate;
This follows the Interpretation Act 1889 deﬁ nition of person (which is repeated in the
current 1978 Act):
the expression ‘person’ shall, unless the contrary intention appears, include any body
of persons corporate or unincorporate.
175

The deﬁ nition in other early tax treaties was slightly different:
The term ‘person’ includes any body of persons, corporate or not corporate;
Did the draftsman copy the Interpretation Act but updating the English to say
‘not corporate’ rather than ‘unincorporate’? Or did he amend the deﬁ nition
of body of persons in the Income Tax Act 1918 Act that comprised Pitt’s
and Addington’s list of bodies incorporated into a deﬁ nition, by deleting the
references to the historical bodies and making it into an inclusive deﬁ nition as it
was now a deﬁ nition of person that had to include more than bodies of persons?
The latter is quite possible as these are the only changes required to turn it into
the deﬁ nition in all early UK tax treaties:
176
[The term] ‘body of
persons’ means includes any body politic, corporate or collegiate,
and any company, fraternity, fellowship and society of persons whether corporate or
not corporate.
173
Later, as a result of the work of the OEEC (the predecessor of the OECD), this became an
exhaustive deﬁ nition with a second limb: ‘The term “company” means any body corporate or any
entity which is treated as a body corporate for tax purposes’. The second limb had no meaning in
the UK until corporation tax as we did not tax bodies corporate differently (except for proﬁ ts tax).
An example of the second limb is authorised unit trusts constituted as trusts which are not bodies
corporate but are taxed as such.
174
The estate duty charge on beneﬁ ts from companies under FA 1940 s 46 contained the following
deﬁ nition in s 59: ‘“Company” includes any body corporate, wheresoever incorporated’. Other tax
provisions relating to companies had been limited to companies incorporated under the Companies
Acts, such as the charge to super-tax on undistributed income of companies in FA 1922 s 21, and
Adaptations of Income Tax Provisions as to Computation of Proﬁ ts for Purpose of National
Defence Contribution (which became proﬁ ts tax) in FA 1937 Sch 4.
175
Interpretation Act 1889 s 19; Interpretation Act 1978 Sch 1.
176
A different deﬁ nition is found only in the early treaties with France (1951): ‘The term “person”
means: (i) any physical person; (ii) any unincorporated body of persons; and (iii) any body
corporate’ (this is the only example of an exhaustive deﬁ nition); and Switzerland (1955): ‘The term
“person” includes any individual, company, unincorporated body of persons, and any other entity
with or without juridical personality’.
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Deﬁ ning and Taxing Companies 1799 to 1965 41
Much later, the courts conﬁ rmed that the 1918 Act deﬁ nition of body of persons
was not itself intended to be incorporated into the treaty deﬁ nition:
If [the draftsman of the UK-Jersey Arrangement, ie the equivalent of a tax treaty]
was assuming that the statutory deﬁ nition of ‘body of persons’ would apply, I see no
reason why he should have added the words ‘corporate or not corporate’. They form
part of the [treaty] deﬁ nition itself, and their inclusion had no purpose if the statutory
deﬁ nition applied. I do not think that they can be dismissed as mere tautology. On
the face of the Arrangement, they are a speciﬁ c part of what is intended to be a self-
contained deﬁ nition for the purposes of the Arrangement. They are not, it seems to
me, consistent with an intention on the part of the draftsman to utilise the statutory
deﬁ nition. They indicate a contrary intention.
177
If that is the origin of the treaty deﬁ nition of person there is a direct link from
Pitt’s and Addington’s Acts to modern tax treaties.
178

CONCLUSION
The history of taxing bodies of persons shows how tax law adapted to changes
in company law with the minimum of legislative changes. Bodies were originally
transparent in the same way as partnerships and merely had a different regime
for their assessment because of the larger number of members. Shortly after
income tax was reintroduced in 1842 changes in company law between 1844 and
1856 made it possible to incorporate companies easily with limited liability, but
no change was made to tax law. Since income tax was charged at a proportional
rate it made little difference whether companies were transparent or not.
This changed when super-tax was introduced in 1910 by which time it seems
to have been assumed that companies were non-transparent for tax purposes
presumably on the basis that they had for some time been incorporated bodies.
The taxation of the shareholder was assumed to be determined by the time
of payment of dividends contrary to their original transparency. Although
there was no charging provision for dividends this did not matter as they were
clearly part of total income for super-tax. The 1918 Act changed the permissive
deduction of tax on dividends from the ‘proportionate Deduction in respect
of the Duty so charged’ [on the body] to ‘the tax appropriate thereto’ [to the
dividend] in spite of being a consolidation Act. Other statutory provisions
dealt with distributions out of proﬁ ts that were not taxed because the income
fell out of the rules for assessment because of the three-year average basis or
differences between the amount of rent and the annual value. The last vestige
of their transparent past remained that dividends paid by a resident company
177
Padmore v IRC [1989] STC 493 at 499a per Fox LJ.
178
The deﬁ nition in the current OECD Model Tax Convention is: ‘the term “person” includes an
individual, a company and any other body of persons’.
Book 1.indb 41Book 1.indb 41 12/2/2011 8:21:33 AM12/2/2011 8:21:33 AM

42 John F Avery Jones CBE
otherwise than out of taxable proﬁ ts were not taxable. This did not apply
to non-resident companies that had never been transparent for tax purposes
no doubt for practical reasons for which the courts determined taxability by
analogy with fruit and trees. The distinction between resident and non-resident
companies caused the 1955 Royal Commission to recommend that all dividends
were taxable, which occurred on the introduction of corporation tax.
Book 1.indb 42Book 1.indb 42 12/2/2011 8:21:33 AM12/2/2011 8:21:33 AM

2
Public Health Imperatives and
Taxation Policy: the Window Tax as an
Early Paradigm in English Law
1

CHANTAL STEBBINGS
ABSTRACT
T
HE WINDOW TAX had consequences which were unanticipated
by the legislature when English society experienced rapid and intense
industrialisation from the early nineteenth century. The appalling living
conditions of the urban poor were exacerbated by the practice of blocking up
windows to avoid the effects of the tax. Medical practitioners, supported by the
miasmatic theory of the cause and spread of disease, maintained that a lack
of ventilation was directly responsible for the high levels of illness and death
among the urban poor. The public health arguments formed the basis of an
intense campaign for the abolition of the tax lasting over twenty years until its
repeal in 1851. This paper examines the interrelationship of the ﬁ scal, political,
legal, social, medical and scientiﬁ c factors operating in the implementation and
policy consideration of the window tax in the mid nineteenth century. It ﬁ nds
that while the tax was expressly repealed as a result of public health imperatives,
ﬁ scal considerations caused it to be maintained long after its wider dangers had
become apparent, and only when the tax had become politically untenable was
it ﬁ nally abolished. The paper concludes that the window tax had a formative
effect on modern ﬁ scal policy, subjecting the role of tax in national life to a
new intensity of scrutiny and criticism, and promoting an understanding that
the interaction of tax with wider non-economic purposes was socially and
politically essential.
1
The research on which this chapter is based was funded by a grant from the Wellcome Trust,
which support is gratefully acknowledged.
Book 1.indb 43Book 1.indb 43 12/2/2011 8:21:33 AM12/2/2011 8:21:33 AM

44 Chantal Stebbings
INTRODUCTION
The primary objective of taxation is to raise revenue for public purposes,
notably for law, order and defence. Other traditional purposes are to regulate the
economic life of the state, or to distribute its wealth equitably. Since the middle
of the twentieth century, however, it has become a feature of ﬁ scal law and
policy for taxation to have a prominent and potentially powerful role to play in
inﬂ uencing social behaviour so as to promote public health. The indirect taxes on
tobacco and spirits, dating from the seventeenth century, have come to acquire an
objective beyond their original and explicit revenue-raising. As the consumption
of both has been shown to be price-sensitive, so taxes are consciously imposed to
control their use.
2
Accordingly taxes have come to be levied on such commodities
not only for their economic consequences, but for their wider impact. So when
in 2009 over 10 per cent of the population of the United Kingdom were identiﬁ ed
as drinking alcohol at hazardous levels
3
with serious consequences for the public
health, social order and, consequently, the wider economy, the raising of taxes on
alcoholic drinks was promoted by most political parties and interest groups as
being the most effective remedial measure.
4

Today the imposition of taxation on substances shown by medical science to
be injurious to the public health forms part of a deliberate and considered ﬁ scal
policy. It is accepted as part of the essential function of government that it must
take measures to promote the health of the public. This is a modern phenomenon,
an expression of contemporary ﬁ scal thought. While the scale of such taxation
today is unprecedented, its rationale is not, because when in 1735 the government
could not ignore the social consequences of excessive and widespread gin
drinking, it imposed a heavy duty on spirits.
5
In all taxation, however, whether it is
designed to promote the public health or is ostensibly unconnected with it, there
lies the inherent danger of the unpredictability of its effects. Modern taxes on
spirits and tobacco had unforeseen consequences with respect to social inequality,
and revealed tensions between the government’s need for the signiﬁ cant public
revenue that the taxes raised and their impact on the public health.
6
Similarly,
2
See generally M Plant and M Plant, Binge Britain. Alcohol and the National Response (Oxford
University Press, 2006) 142–46; V Berridge, ‘Militants, Manufacturers and Governments: Postwar
Smoking Policy in the United Kingdom’ in E A Feldman and R Bayer (eds), Unﬁ ltered. Conﬂ icts
over Tobacco Policy and Public Health (Harvard University Press, Cambridge, Mass. 2004) 114–137
at 130–31.
3

NHS Information Centre, Statistics on Alcohol: England, 2009 (http://www.ic.nhs.uk/pubs/
alcohol09); National Audit Ofﬁ ce, Reducing Alcohol Harm: Health Services in England for Alcohol
Misuse (The Stationery Ofﬁ ce, 2008).
4
British Medical Association Board of Science, Alcohol Misuse: Tackling the UK Epidemic
(British Medical Association, 2008).
5
The Spirit Duties Act 1735 (9 Geo II c 23) imposed a duty of 20 shillings per gallon on spirits, in
addition to a licence duty on the retailer; Retailers of Spirits Act 1737 (11 Geo II c 26).
6
The debate on the effects of taxing tobacco was particularly active in the 1970s, and it was clear
that a wide cost-beneﬁ t analysis was necessary to address the breadth of factors involved in this ﬁ eld:
J A Kay and M A King, The British Tax System (2nd edn, Oxford University Press, 1980) 136–37.
Book 1.indb 44Book 1.indb 44 12/2/2011 8:21:33 AM12/2/2011 8:21:33 AM

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In the Senate, after the reading of the President’s message, so
much as related to the present agitated and distracted condition of
the country and the grievances between the slaveholding and the
non-slaveholding States, was referred to a select committee of
thirteen members. The composition of this committee was most
remarkable. It consisted of five Republicans: Senators Seward,
Collamer, Wade, Doolittle, and Grimes, all of them from non-
slaveholding States, and all prominent adherents of that “Chicago
platform” on which Mr. Lincoln had been elected; five members from
slaveholding States, Senators Powell, Hunter, Crittenden, Toombs,
and Davis, and three “Northern Democrats,” Senators Douglas,
Bigler, and Bright. It was understood that the three last named
Senators were placed upon the committee to act as mediators
between the Northern and the Southern sections which the ten other
members represented. Under ordinary circumstances, a committee
would have shaped its report by the decisions of a majority of its
members, if they could not be unanimous. But at the first meeting of
this committee, on the 21st of December, the day after that on
which South Carolina passed her ordinance of secession, an
extraordinary resolution was adopted, that no proposition should be
reported as the decision of the committee, unless sustained by a
majority of each of the classes comprising the committee, and it was
defined that the Senators of the Republican party were to constitute
one class, and Senators of the other parties were to constitute the
other class. Thus, while there were eight members of the committee
who might, by concurring in any proposition, ordinarily determine
the action of the body, it could not become the decision of that body
unless it was supported by the votes of a separate majority of the
five Republican members. It was said that the reason for this
restriction was that no report would be adopted by the Senate,
unless it had been concurred in by at least a majority of the five
Republican Senators. Valid or invalid as this reason may have been,
the restriction is a remarkable proof of the sectional attitude of the
Northern Senators, of the responsibility which they assumed, and of
the willingness of the majority of the Southern Senators to have the
Republican members of the committee exercise such a power and

bear such a responsibility. The sequel will show how a committee
thus composed and thus tied down was likely to act.
On the 22d, Mr. Crittenden, of Kentucky, a Senator whose name
will be forever venerated for the patriotic part which he took
throughout the proceedings of this Congress, submitted to the
committee a “Joint Resolution,” which he had already offered in the
Senate, and which became known as “the Crittenden Compromise.”
It proposed certain amendments of the Constitution which would
reconcile the conflicting claims of the North and the South, by
yielding to the South the right to take slaves into the Territories
south of the parallel of 36° 30´, and excluding slavery from all the
Territories north of that line: with the further provision that when
any Territory north or south of that line, within such boundaries as
Congress might prescribe, should contain a population requisite for a
member of Congress, it should be admitted into the Union as a State
with or without slavery, as the State constitution adopted by the
people might provide. When it is considered that the people of the
slaveholding States claimed that the Supreme Court of the United
States had already decided that slaves might be taken as property
into any Territory and be there held as property, under a
constitutional right resulting from the common ownership of the
Territories by the States composing the Union, the “Crittenden
Compromise,” if accepted, would be a sacrifice by the South with
which the North might well be content. Whatever were the technical
reasons which could be alleged to show that the Supreme Court had
not made a determination of this question that was binding as a
judicial decision, it was nevertheless true that a majority of the
judges had affirmed in their several opinions the claim of every
Southern slaveholder to carry his slaves into the Territories of the
United States and to hold them there as property, until the formation
of a State constitution. President Buchanan always regarded the
case of “Dred Scott” as a judicial decision of this constitutional
question. But whether it was so or not, the claim had long been
asserted and was still asserted by the people of the Southern States;
and if it was still open as a judicial question, as the Republican party
contended, and if it could be resisted as a political claim by one

section of the Union, it was equally open to the other section to treat
it as a political controversy, which required to be disposed of by
mutual concession between the slaveholding and the non-
slaveholding States. The Republican party, confined exclusively to
the non-slaveholding States, had, by their political platform in the
late Presidential election, treated the action of the Supreme Court as
a nullity, and had affirmed as a cardinal doctrine of their political
creed that slavery should forever be excluded, by positive law, from
all the Territories of the United States. The circumstances under
which the Democratic party came into the political field in that
election did not show that this party universally took the opposite
side; but the votes of the Southern States in the election show most
clearly that the people of those States still asserted the claim which
they held to have been affirmed by the highest judicial tribunal in
the country.
If, therefore, the Crittenden Compromise should be accepted by
the South, it could not be denied that the South would sacrifice a
claim which her people were practically unanimous in asserting as a
right. On the other hand, what would the North lose by that
compromise? It would lose nothing but an abstraction; for there was
no Territory south of 36° 30´ but New Mexico, and into that Territory
slave labor could never be profitably introduced, on account of the
nature of the country.
[103]
While, therefore, the North would by this
compromise yield nothing but a useless abstract concession to the
South, and would gain, in fact, all the vast territory north of the
compromise line as free territory forever, the Republican party would
undoubtedly have to sacrifice the dogma of the “Chicago platform.”
Whether that dogma ought to have been held paramount to every
other consideration, is a question on which posterity will have to
pass.
It was not yet too late to make this peace-offering to the South.
Mr. Crittenden’s proposition was offered to the committee before any
of the Government forts in the Southern States had been seized,
when no State excepting South Carolina had “seceded,” and when
no convention of the six other cotton States had assembled. Well
might Mr. Buchanan say that the moment was propitious. Well might

the patriotic Crittenden say, in addressing his colleagues on the
committee: “The sacrifice to be made for its preservation (the Union)
is comparatively worthless. Peace and harmony and union in a great
nation were never purchased at so cheap a rate as we now have it in
our power to do. It is a scruple only, a scruple of as little value as a
barleycorn, that stands between us and peace, and reconciliation,
and union; and we stand here pausing and hesitating about that
little atom which is to be sacrificed.”
But this admirable and unselfish statesman was then to learn that
there are states of men’s minds and characters when, fixed by the
antecedents and committals of party, eloquence does not convince,
facts are powerless; when the “barleycorn” becomes a great and
important object; when mole hills become mountains, and when fear
of constituents dominates over all other fears. Yet it cannot be
doubted that there was really very little reason to fear that the
constituencies of Northern Senators would hold them to a strict
account for voting in favor of the Crittenden Compromise. Public
feeling almost everywhere hailed it as the promise of peace and of
the perpetuity of the Union. Nevertheless, all the five Republican
members of the committee voted against it. This secured its
rejection, under the resolution that had been adopted by the
committee. But the singular fact is to be added that two Senators
from the cotton States, Messrs. Davis, of Mississippi, and Toombs, of
Georgia, also voted in the same way.
Readers will look in vain through Mr. Jefferson Davis’s recent work
for a satisfactory explanation of this vote. But an explanation may
perhaps be found in his whole course from the beginning of the
session to his withdrawal from the Senate in the month of January,
1861, after the State of Mississippi had seceded. No impartial person
can, it seems to me, read Mr. Davis’s own account of his public
conduct at this crisis, without reaching the conclusion that whatever
aid he may at any time have been disposed to render in the
pacification of the country was at all times neutralized by his attitude
in regard to the right of secession. From first to last he insisted that
South Carolina, after she had adopted an ordinance of secession,
should be regarded by the Government of the United States as an

independent power. He was active in promoting the objects for
which her commissioners came to Washington in the last week of
December. He demanded that the troops of the United States should
be withdrawn from the forts in Charleston harbor; that those forts
should be surrendered to the paramount sovereignty of a State now
become a foreign nation; and he scouted and ridiculed the idea that
the Federal Executive could employ a military force in executing the
laws of the United States within the dominion of a State which had
withdrawn the powers that she had formerly deposited with the
General Government. There was something singularly preposterous
in this demand that a great government, which had subsisted for
more than seventy years, and had always executed its laws against
all combinations of an insurrectionary character, whether created by
individuals or by State authority, should now “thaw and resolve itself
into a dew,” before the all-consuming energy of a State ordinance;
should accept the secession theory of the Constitution as the
unquestionable law of the land, at the peril of encountering a civil
war. How could measures of conciliation and concession be of any
value, though tendered by the Federal Government, if that
Government was in the same breath to admit that it had no
constitutional power to enforce its authority if the offer of
conciliation and concession should be rejected? Yet Mr. Davis’s
ground of quarrel with President Buchanan was that he would not
admit the right of secession. He could not either persuade or drive
the President into that admission; and surely there can be no
stronger proof of the integrity, fidelity and firmness of the President
than this one fact affords.
Mr. Davis takes credit to himself and other Southern Senators for
having intervened to prevent the authorities of South Carolina from
making any attack upon the forts, so that a civil war might not be
precipitated while measures for the settlement of the sectional
difficulties were pending. No one need deny that those Senators are
entitled to all the credit that justly belongs to such efforts. But why
were those efforts made, and by what were they all along
accompanied? They were made in order that there might be no
bloodshed brought about, which would cause the other cotton States

to recoil from the support of South Carolina in her assertion of the
right of secession; and they were always accompanied by the
demand that the Federal Government should permit the peaceable
secession of any State, even to the extent of refraining from
enforcing its laws and from holding its property within the dominions
of any State that should choose to secede. This idea of peaceable
secession, and all that it comprehended, was founded on the wild
expectation that the two classes of States, slaveholding and non-
slaveholding, after an experimental trial of separate confederacies,
would find some system of union, some basis of reconstruction,
other than the basis of the Constitution of the United States.
Whatever claims of statesmanship may belong to those who
entertained this chimerical project, they could hardly press it upon
others as a reason for treating the Constitution of the United States
as a system of government confessedly destitute of any authority or
power to execute its own laws or to retain its own existence. But this
is just what Mr. Davis denounced President Buchanan for not
admitting; and he therefore, to the extent of his influence,
counteracted the President’s great object of isolating the State of
South Carolina by measures that would quiet the agitation in other
slaveholding States, and at the same time would prepare the
necessary means for executing the laws of the United States within
the limits of that one State, in case she should adopt an ordinance of
secession.
On the other hand, the Republican Senators on the Committee of
Thirteen who voted against the Crittenden Compromise had no such
policy to actuate them as that which governed Mr. Davis. They had
no reason for refusing their aid to the President that could be
founded on any difference of opinion as to the constitutional duty of
the Executive. They knew that he was asking for means to uphold
the authority of the Constitution in South Carolina, at the same time
that he was urging measures which would prevent other States from
joining her in the secession movement. What explanation of their
conduct is possible and will leave to them the acquittal of patriotic
purposes, I am not aware. But the fact is, that at no time during the
session did a single Republican Senator, in any form whatever, give

his vote or his influence for the Crittenden Compromise, or for any
other measure that would strengthen the hands of the President
either in maintaining peace or in executing the laws of the United
States. Whether the spirit of party led them to refuse all aid to an
outgoing President; whether they did not believe that there would
be any necessity for a resort to arms; whether they did not choose,
from sectional animosity, to abate anything from the “Chicago
platform;” whatever was the governing motive for their inaction, it
never can be said that they were not seasonably warned by the
President that a policy of inaction would be fatal. That policy not
only crippled him, but it crippled his successor. When Mr. Lincoln
came into office, seven States had already seceded, and not a single
law had been put upon the statute book which would enable the
Executive to meet such a condition of the Union.
Not only is it manifest that the Crittenden proposition was
reasonable and proper in itself, but there is high authority for saying
that it ought to have been embraced by every Republican Senator.
While it was pending before the Committee of Thirteen, General Duff
Green, a prominent citizen of Mississippi, visited Mr. Lincoln, the
President-elect, at his home in Springfield, Illinois. Mr. Green took
with him a copy of Mr. Crittenden’s resolutions, and asked Mr.
Lincoln’s opinion of them. The substance of what Mr. Lincoln said
was reported on the 28th of December to President Buchanan, in the
following note:
[GENERAL DUFF GREEN TO PRESIDENT BUCHANAN.]
Springfield , Ill., December 28, 1860.
Dear Sir:—
I have had a long and interesting conversation with Mr. Lincoln. I
brought with me a copy of the resolutions submitted by Mr.
Crittenden, which he read over several times, and said that he
believed that the adoption of the line proposed would quiet, for the
present, the agitation of the slavery question, but believed it would
be renewed by the seizure and attempted annexation of Mexico. He
said that the real question at issue between the North and the South

was slavery “propagandism,” and that upon that issue the
Republican party was opposed to the South, and that he was with
his own party; that he had been elected by that party, and intended
to sustain his party in good faith; but added, that the question on
the amendments to the Constitution and the questions submitted by
Mr. Crittenden belonged to the people and States in legislatures or
conventions, and that he would be inclined not only to acquiesce,
but to give full force and effect to their will thus expressed. Seeing
that he was embarrassed by his sense of duty to his party, I
suggested that he might so frame a letter to me as to refer the
measures for the preservation of the Union to the action of the
people in the several States, and he promised to prepare a letter,
giving me his views, by 9 a.m. to-morrow. If his letter be
satisfactory, its purport will be communicated to you by telegraph.
Yours truly,
Duff Green.
I know of no evidence that Mr. Lincoln prepared the letter which
he promised. No account of it appears to have reached Mr.
Buchanan by telegraph or otherwise. It is probable that Mr. Lincoln,
feeling more strongly the embarrassment arising from his party
relations, reconsidered his determination, and excused himself to
General Green. But what his opinion was is sufficiently proved by the
note which General Green dispatched from Springfield, and which
must have reached Mr. Buchanan at about the time when the
committee of thirteen made their report to the Senate that they
were unable to agree upon any general plan of adjustment of the
sectional difficulties. This report was made on the 31st of December.
The last ten days of the year were thus suffered to elapse without
anything being done to arrest the rising tide of secession in the
seven cotton States. Most of these States had suspended or delayed
their action until it could be known whether there was to be any
concession made by the Republican party as represented in
Congress. They now rapidly accomplished their secession measures.
The conventions of Florida on the 7th of January, Mississippi on the
9th, Alabama on the 11th, Georgia on the 19th, Louisiana on the

25th, and Texas on the 5th of February, adopted ordinances of
secession by great majorities. These ordinances were followed by a
general seizure of the public property of the United States within the
limits of those States, after the example of South Carolina.
Among the discouraging influences which now operated with a
double mischief to counteract the efforts of those who aimed to
confine secession to the State of South Carolina, must be mentioned
the course of one of the most prominent papers of the North. No
journal had exercised a greater power in promoting the election of
Mr. Lincoln upon the “Chicago platform” than the New York Tribune.
It was universally and justly regarded as a representative of a large
section of the Republican party. Its founder and chief editor, Horace
Greeley, was a man of singular mould. Beginning life as a
journeyman printer, he learned in the practice of type-setting the
compass and power of the English language. In the course of a long
experience as a public writer, he acquired a style of much energy,
and of singular directness. But, without a regular education and the
mental discipline which it gives, he never learned to take a
comprehensive and statesmanlike view of public questions. His
impulses, feelings, and sympathies were on the side of humanity and
the progress of mankind. But these generous and noble qualities
were unbalanced by a sense of the restraints which the fundamental
political conditions of the American Union imposed upon
philanthropic action. He was, therefore, almost incapable of
appreciating the moral foundations on which the Union was laid by
the Constitution of the United States. He felt deeply the inherent
wrong of African slavery, but he could not see, or did not care to
see, that the Union of slaveholding and non-slaveholding States
under one system of government for national purposes was caused
by public necessities that justified its original formation, and that
continued to make its preservation the highest of civil obligations. He
did not, like many of the anti-slavery agitators, renounce the whole
of the Constitution. But while he was willing that the North should
enjoy its benefits, he was ever ready to assail those provisions,
however deeply they were embedded in the basis of the Union,
which recognized and to a qualified extent upheld the slavery

existing under the local law of certain States. When, therefore, the
long political conflict between the two sections of the country
culminated in a condition of things which presented the alternatives
of a peaceful separation of the slave and the free States, or a denial
of the doctrine of secession and the consequences claimed for it, Mr.
Greeley threw his personal weight, and the weight of his widely
circulated journal, against the authority of the General Government
to enforce in any way the obligations of the Constitution. He did not
much concern himself with the distinction between coercing a State
by force of arms from adopting an ordinance of secession, and
coercing individuals after secession to obey the laws of the United
States. From the period immediately before the election of Mr.
Lincoln, after his election, and for a time after his inauguration, Mr.
Greeley opposed all coercion of every kind. He maintained that the
right of secession was the same as the right of revolution; and after
the cotton States had formed their confederacy and adopted a
provisional constitution, he tendered the aid of his journal to forward
their views. He thus, on the one hand, joined his influence to the cry
of the professed abolitionists who renounced the Constitution
entirely, and on the other hand, contributed his powerful pen in
encouraging the secessionists to persevere in separating their States
from the Union.
Mr. Greeley’s secession argument, drawn from the Declaration of
Independence and the right of revolution, was a remarkable proof of
the unsoundness of his reasoning powers. Because the right of self-
government is an inherent right of a people, he assumed that men
cannot be required to perform their covenanted obligations. He
could not see, he said, how twenty millions of people could rightfully
hold ten, or even five, other millions in a political union which those
other millions wished to renounce. But if he had ever been in the
habit of reasoning upon the Constitution of the United States as
other men reasoned, who did not accept the doctrine of State
secession, he could have seen that when five millions of people,
exercising freely the right of self-government, have solemnly
covenanted with the twenty millions that they will obey the laws
enacted by a legislative authority which they have voluntarily

established over themselves and over all the inhabitants of the
country, the moralist and the publicist can rest the right to use
compulsion upon a basis which is perfectly consistent with the
principles of the Declaration of Independence, and which those
principles do in truth recognize.
In fact, however, Mr. Greeley, by his public utterances at this great
crisis, bettered the instructions of the secessionists themselves. He
taught them that the Crittenden Compromise, or any other measure
of conciliation, need not be considered. They had only to will that
they would leave the Union, and they were out of it, and at liberty to
care nothing about concessions from the North. And in the same
way, he taught those of the North, on whom rested the immediate
duty of preventing the spread of the secession movement, that all
measures of conciliation were useless, for the right of secession, as
he maintained, was bottomed on the Declaration of Independence,
and neither persuasion nor coercion ought to be used against the
exercise of such a right. Such political philosophy as this, proclaimed
by a leading organ of the Republican party, created difficulties for a
President situated as Mr. Buchanan was after the election of his
successor, which posterity can not overlook.
[104]
Seeing how fatally wrong was the course of this erratic journalist,
and how much depended on the success of the Crittenden
Compromise, the President endeavored to enlist in its behalf another
great journal of the North, which was conducted by a person on
whom he thought he could rely, and whose paper was professedly
independent of party politics. The following private letter to the
editor of the New York Herald attests how earnestly Mr. Buchanan
was bent upon the improvement of every chance by which the
spread of secession might be prevented:
[MR. BUCHANAN TO JAMES GORDON BENNETT.]
(Private and confidential.) Washington, December 20, 1860.
My Dear Sir:—
You wield the most powerful organ in the country for the
formation of public opinion, and I have no doubt you feel a

proportionate responsibility under the present alarming
circumstances of the country. Every person here has his own remedy
for existing evils, and there is no general assent to any proposition.
Still, I believe the tendency is strong, and is becoming stronger
every day, towards the Missouri Compromise, with the same
protection to slaves south of 36° 30´ that is given to other property.
The South can lose no territory north of this line, because no portion
of it is adapted to slave labor, whilst they would gain a substantial
security within the Union by such a constitutional amendment. The
Republicans have for some years manifested indignation at the
repeal of this compromise, and would probably be more willing to
accept it than any other measure to guarantee the rights of the
South. I have stated my favorite plan in the message, but am willing
to abandon it at any moment for one more practicable and equally
efficacious. If your judgment should approve it, you could do much
by concentrating and directing your energies to this single point. My
object, when I commenced to write, was simply to express my
opinion that existing circumstances tended strongly toward the
Missouri Compromise; but, with pen in hand, I shall make one or
two other remarks.
I do not know whether the great commercial and social
advantages of the telegraph are not counterbalanced by its political
evils. No one can judge of this so well as myself. The public mind
throughout the interior is kept in a constant state of excitement by
what are called “telegrams.” They are short and spicy, and can easily
be inserted in the country newspapers. In the city journals they can
be contradicted the next day; but the case is different throughout
the country. Many of them are sheer falsehoods, and especially
those concerning myself......
With my kindest and most cordial regards to Mrs. Bennett, I
remain, very respectfully, your friend,
James Buchanan .
Although defeated before the Committee of Thirteen, Mr.
Crittenden did not abandon the cause of peace and Union. His
proposed compromise, it was now apparent, could not be carried as

an amendment of the Constitution by the requisite two-thirds vote of
Congress. But an appeal could be made to the people, if a majority
of both Houses would send the question to them; and if this majority
could be obtained in time, he and others had good reason to believe
that the course of secession in the six remaining cotton States could
be stayed. He therefore postponed by his own motion the further
consideration of his proposed amendment, and on the 3d of January,
1861, before any State excepting South Carolina had seceded, he
introduced a substitute for it, in the shape of a joint resolution, by
which he proposed to refer his compromise to a direct vote of the
people in the several States, so that they could instruct their
representatives to give it the initiatory shape of a constitutional
amendment. This course of action was not provided for in the
amending clause of the Constitution, and it was, without doubt,
extraordinary. But there was nothing in the Constitution inconsistent
with it; it would not set aside any of the forms by which
amendments of the Constitution must be initiated and adopted; and
the circumstances of the country were so extraordinary that any
means of reaching public opinion would be entirely proper. Moreover,
it was not an unprecedented step, for State legislatures and other
public bodies had frequently recommended various amendments of
the Constitution. Mr. Crittenden’s resolution justified itself by its own
terms. It read as follows:
“Whereas, the Union is in danger, and, owing to the unhappy
divisions existing in Congress, it would be difficult, if not impossible,
for that body to concur in both its branches by the requisite majority,
so as to enable it either to adopt such measures of legislation, or to
recommend to the States such amendments to the Constitution, as
are deemed necessary and proper to avert that danger; and,
whereas, in so great an emergency, the opinion and judgment of the
people ought to be heard, and would be the best and surest guide to
their representatives: Therefore, Resolved, That provision ought to
be made by law, without delay, for taking the sense of the people
and submitting to their vote the following resolution [the same as in
his former amendment], as the basis for the final and permanent

settlement of those disputes that now disturb the peace of the
country and threaten the existence of the Union.”
The President now interposed the weight of his office, by a special
message to Congress, dated on the 8th of January. What had
occurred between him and the South Carolina commissioners has
been detailed. Of this occurrence, and of the position of affairs in
Charleston harbor, Congress was now officially informed by the
special message; the residue of it was devoted to the expediency
and necessity of allowing the people to express their sentiments
concerning the proposition of Mr. Crittenden.
To the Senate and House of Representatives:
At the opening of your present session I called your attention to
the dangers which threatened the existence of the Union. I
expressed my opinion freely concerning the original causes of those
dangers, and recommended such measures as I believed would have
the effect of tranquilizing the country and saving it from the peril in
which it had been needlessly and most unfortunately involved. Those
opinions and recommendations I do not propose now to repeat. My
own convictions upon the whole subject remain unchanged.
The fact that a great calamity was impending over the nation was
even at that time acknowledged by every intelligent citizen. It had
already made itself felt throughout the length and breadth of the
land. The necessary consequences of the alarm thus produced were
most deplorable. The imports fell off with a rapidity never known
before, except in time of war, in the history of our foreign
commerce; the Treasury was unexpectedly left without the means
which it had reasonably counted upon to meet the public
engagements; trade was paralyzed; manufactures were stopped; the
best public securities suddenly sunk in the market; every species of
property depreciated more or less; and thousands of poor men, who
depended upon their daily labor for their daily bread, were turned
out of employment.
I deeply regret that I am not able to give you any information
upon the state of the Union which is more satisfactory than what I

was then obliged to communicate. On the contrary, matters are still
worse at present than they then were. When Congress met, a strong
hope pervaded the whole public mind that some amicable
adjustment of the subject would speedily be made by the
representatives of the States and of the people, which might restore
peace between the conflicting sections of the country. That hope has
been diminished by every hour of delay; and as the prospect of a
bloodless settlement fades away, the public distress becomes more
and more aggravated. As evidence of this, it is only necessary to say
that the Treasury notes authorized by the act of 17th December last
were advertised, according to the law, and that no responsible
bidder offered to take any considerable sum at par at a lower rate of
interest than twelve per cent. From these facts it appears that, in a
government organized like ours, domestic strife, or even a well-
grounded fear of civil hostilities, is more destructive to our public
and private interests than the most formidable foreign war.
In my annual message I expressed the conviction, which I have
long deliberately held, and which recent reflection has only tended
to deepen and confirm, that no State has a right by its own act to
secede from the Union, or throw off its Federal obligations at
pleasure. I also declared my opinion to be that, even if that right
existed and should be exercised by any State of the Confederacy, the
Executive Department of this Government had no authority under
the Constitution to recognize its validity by acknowledging the
independence of such State. This left me no alternative, as the Chief
Executive officer under the Constitution of the United States, but to
collect the public revenues and to protect the public property so far
as this might be practicable under existing laws. This is still my
purpose. My province is to execute, and not to make the laws. It
belongs to Congress, exclusively, to repeal, to modify, or to enlarge
their provisions, to meet exigencies as they may occur. I possess no
dispensing power.
I certainly had no right to make aggressive war upon any State,
and I am perfectly satisfied that the Constitution has wisely withheld
that power even from Congress. But the right and the duty to use
military force defensively against those who resist the Federal

officers in the execution of their legal functions, and against those
who assail the property of the Federal Government, is clear and
undeniable.
But the dangerous and hostile attitude of the States toward each
other has already far transcended and cast in the shade the ordinary
executive duties already provided for by law, and has assumed such
vast and alarming proportions as to place the subject entirely above
and beyond executive control. The fact cannot be disguised that we
are in the midst of a great revolution. In all its various bearings,
therefore, I commend the question to Congress, as the only human
tribunal, under Providence, possessing the power to meet the
existing emergency. To them, exclusively, belongs the power to
declare war, or to authorize the employment of military force in all
cases contemplated by the Constitution; and they alone possess the
power to remove grievances which might lead to war, and to secure
peace and union to this distracted country. On them, and on them
alone, rests the responsibility.
The Union is a sacred trust left by our revolutionary fathers to
their descendants; and never did any other people inherit so rich a
legacy. It has rendered us prosperous in peace and triumphant in
war. The national flag has floated in glory over every sea. Under its
shadow American citizens have found protection and respect in all
lands beneath the sun. If we descend to considerations of purely
material interest, when, in the history of all time, has a confederacy
been bound together by such strong ties of mutual interest? Each
portion of it is dependent on all, and all upon each portion, for
prosperity and domestic security. Free trade throughout the whole
supplies the wants of one portion from the productions of another,
and scatters wealth everywhere. The great planting and farming
States require the aid of the commercial and navigating States to
send their productions to domestic and foreign markets, and to
furnish the naval power to render their transportation secure against
all hostile attacks.
Should the Union perish in the midst of the present excitement,
we have already had a sad foretaste of the universal suffering which
would result from its destruction. The calamity would be severe in

every portion of the Union, and would be quite as great, to say the
least, in the Southern as in the Northern States. The greatest
aggravation of the evil, and that which would place us in the most
unfavorable light both before the world and posterity, is, as I am
firmly convinced, that the secession movement has been chiefly
based upon a misapprehension at the South of the sentiments of the
majority in several of the Northern States. Let the question be
transferred from political assemblies to the ballot-box, and the
people themselves would speedily redress the serious grievances
which the South have suffered. But, in Heaven’s name, let the trial
be made before we plunge into armed conflict upon the mere
assumption that there is no other alternative. Time is a great
conservative power. Let us pause at this momentous point and afford
the people, both North and South, an opportunity for reflection.
Would that South Carolina had been convinced of this truth before
her precipitate action! I, therefore, appeal through you to the people
of this country to declare in their might that the Union must and
shall be preserved by all constitutional means. I most earnestly
recommend that you devote yourselves exclusively to the question
how this can be accomplished in peace. All other questions, when
compared with this, sink into insignificance. The present is no time
for palliatives; action, prompt action, is required. A delay in Congress
to prescribe or to recommend a distinct and practical proposition for
conciliation may drive us to a point from which it will be almost
impossible to recede.
A common ground on which conciliation and harmony can be
produced is not unattainable. The proposition to compromise by
letting the North have exclusive control of the territory above a
certain line, and to give Southern institutions protection below that
line, ought to receive universal approbation. In itself, indeed, it may
not be entirely satisfactory; but when the alternative is between a
reasonable concession on both sides and a destruction of the Union,
it is an imputation upon the patriotism of Congress to assert that its
members will hesitate for a moment.
Even now the danger is upon us. In several of the States which
have not yet seceded, the forts, arsenals, and magazines of the

United States have been seized. This is by far the most serious step
which has been taken since the commencement of the troubles. This
public property has long been left without garrisons and troops for
its protection, because no person doubted its security under the flag
of the country in any State of the Union. Besides, our small army has
scarcely been sufficient to guard our remote frontiers against Indian
incursions. The seizure of this property, from all appearances, has
been purely aggressive, and not in resistance to any attempt to
coerce a State or States to remain in the Union.
At the beginning of these unhappy troubles, I determined that no
act of mine should increase the excitement in either section of the
country. If the political conflict were to end in a civil war, it was my
determined purpose not to commence it, nor even to furnish an
excuse for it by an act of this Government. My opinion remains
unchanged, that justice as well as sound policy requires us still to
seek a peaceful solution of the questions at issue between the North
and the South. Entertaining this conviction, I refrained even from
sending reinforcements to Major Anderson, who commanded the
forts in Charleston harbor, until an absolute necessity for doing so
should make itself apparent, lest it might unjustly be regarded as a
menace of military coercion, and thus furnish, if not a provocation, a
pretext for an outbreak on the part of South Carolina. No necessity
for these reinforcements seemed to exist. I was assured by
distinguished and upright gentlemen of South Carolina
[105]
that no
attack upon Major Anderson was intended, but that, on the contrary,
it was the desire of the State authorities, as much as it was my own,
to avoid the fatal consequences which must eventually follow a
military collision.
And here I deem it proper to submit, for your information, copies
of a communication, dated December 28, 1860, addressed to me by
R. W. Barnwell, J. H. Adams, and J. L. Orr, “commissioners” from
South Carolina, with the accompanying documents, and copies of my
answer thereto, dated December 31.
In further explanation of Major Anderson’s removal from Fort
Moultrie to Fort Sumter, it is proper to state that, after my answer to
the South Carolina “commissioners,” the War Department received a

letter from that gallant officer, dated December 27, 1860, the day
after this movement, from which the following is an extract:
“I will add, as my opinion, that many things convinced me that the
authorities of the State designed to proceed to a hostile act”
[evidently referring to the orders dated December 11, of the late
Secretary of War]. “Under this impression, I could not hesitate that it
was my solemn duty to move my command from a fort which we
could not probably have held longer than forty-eight or sixty hours
to this one, where my power of resistance is increased to a very
great degree.” It will be recollected that the concluding part of these
orders was in the following terms: “The smallness of your force will
not permit you, perhaps, to occupy more than one of the three forts;
but an attack on, or attempt to take possession of either one of
them, will be regarded as an act of hostility, and you may then put
your command into either of them which you may deem most proper
to increase its power of resistance. You are also authorized to take
similar defensive steps whenever you have tangible evidence of a
design to proceed to a hostile act.”
It is said that serious apprehensions are, to some extent,
entertained, in which I do not share, that the peace of this District
may be disturbed before the 4th of March next. In any event, it will
be my duty to preserve it, and this duty shall be performed.
In conclusion, it may be permitted to me to remark that I have
often warned my countrymen of the dangers which now surround
us. This may be the last time I shall refer to the subject officially. I
feel that my duty has been faithfully, though it may be imperfectly,
performed; and whatever the result may be, I shall carry to my
grave the consciousness that I at least meant well for my country.
James Buchanan .
Washington City, Jan. 8, 1861.
It is a painful part of an historian’s duty to reflect upon the
conduct of public men, who had it in their power at least to show a
willingness to save their country from the calamity of civil war, and
who appear to have been indifferent to everything but the dogmas
of a party platform. This special message of President Buchanan, in

the circumstances of the moment, was entitled to the gravest
attention and respect. It ought to have produced immediate assent
to its recommendation, on the part of Republican Senators, whom it
would have relieved from their previous committals to the “Chicago
platform” by a reference of the questions in dispute to the people of
the country. The venerable age of the President, his long experience
in public affairs, his unquestionable patriotism, his approaching
retirement from public life, his manifest desire to leave the
Government to his successor unembarrassed by anything but the
secession of South Carolina, should have conciliated the support of
some at least, if not of all, of the Republican Senators. But, as it is
now my melancholy duty to show from the record, not one
Republican Senator ever voted for Mr. Crittenden’s resolution, the
adoption of which the President so strongly recommended.
Memorials of the most earnest character, coming from all quarters of
the North, even from New England, urging the passage of the
Crittenden Compromise, were heaped upon the table of the Senate.
[106]
On the 14th of January, Mr. Crittenden made an unsuccessful
effort to have his resolution considered. It was postponed to the
following day. On the 15th, every Republican Senator voted for its
further postponement, to make room for the Pacific Railroad Bill. On
the 16th, Mr. Crittenden obtained, by a majority of one vote—all the
Republican Senators voting nay—the consideration of his resolution.
Parliamentary tactics were then resorted to by the Republicans to
defeat it. Mr. Clark, a Republican Senator from New Hampshire,
moved to strike out the whole preamble and body of the resolution,
and to substitute in its place another preamble and resolution of an
entirely opposite character, and affirming the dogma of the Chicago
platform in relation to slavery in the Territories. For this motion there
were 25 yeas to 23 nays; all the Republican Senators voting in the
affirmative.
[107]
Buried under the Clark amendment, Mr. Crittenden’s
resolution remained for more than six weeks, until the 2d of March,
when it was too late for final action upon it. But on that day a vote
was taken upon it, and it was defeated by 19 votes in the affirmative
and 20 in the negative.
[108]

CHAPTER XXII.
1861—January, February, and March.
THE “PEACE CONVENTION”—FORT SUMTER—THE STAR OF THE
WEST FIRED UPON IN CHARLESTON HARBOR—ANDERSON’S
TEMPORARY TRUCE—THE HARBOR OF PENSACOLA AND FORT
PICKENS—THE COMMUNICATIONS BETWEEN EX-PRESIDENT
TYLER AND PRESIDENT BUCHANAN.
The vote of the Senate on the 16th of January, by which Mr.
Crittenden’s resolution was defeated by the tactics of the
Republicans, aided by six of the Southern Senators, made it
apparent that some extraordinary interposition could alone save the
Union. For such interposition there was still time, if it could be
promptly exerted, and Congress could be induced to listen to it. It
came from the State of Virginia, and as Mr. Buchanan has given a
succinct and accurate account of this movement, which resulted in
the assembling at Washington of the body called “The Peace
Convention,” I transcribe it into these pages:
These great and powerful commonwealths [the border States] still
remained faithful to the Union. They had hitherto stood aloof from
secession, and had manifested an earnest desire not only to remain
in the Union themselves, but to exert their powerful influence to
bring back the seceding sisters. Virginia had ever ranked as chief
among the Southern States, and had exercised great influence over
their counsels. She had now taken the lead in the grand design to
save the Union, and it became the duty of the President to render

her all the aid in his power in a cause so holy. Every reflecting man
foresaw that if the present movement of Virginia should fail to
impress upon Congress and the country the necessity for adopting a
peaceful compromise, like that proposed by Mr. Crittenden, there
was imminent danger that all the border slave States would follow
the cotton States, which had already adopted ordinances of
secession, and unite with them in an attempt to break up the Union.
Indeed, as has been already seen, the Virginia legislature had
declared that, in case of failure, such a dissolution was “inevitable.”
The Peace Convention met on the 4th February.
[109]
It was
composed of one hundred and thirty-three commissioners,
representing twenty-one States. A bare inspection of the list will
convince all inquirers of the great respectability and just influence of
its members. Among them there were many venerable and
distinguished citizens from the border States, earnestly intent upon
restoring and saving the Union. Their great object was to prevail
upon their associates from the North to unite with them in such
recommendations to Congress as would prevent their own States
from seceding, and enable them to bring back the cotton States
which had already seceded. It will be recollected that on the 4th
February, when the Peace Convention assembled, six of the cotton
States, South Carolina, Alabama, Mississippi, Georgia, Louisiana, and
Florida, had already adopted ordinances of secession; and that but
four days thereafter (8th February) deputies from these States had
adopted and published at Montgomery, Alabama, a Provisional
Constitution for the so-called Confederate States. The Union was
then crumbling to pieces. One month only of the session of Congress
remained. Within this brief period it was necessary that the
Convention should recommend amendments to the Constitution in
sufficient time to enable both Houses to act upon them before their
final adjournment. It was also essential to success that these
amendments should be sustained by a decided majority of the
commissioners both from the Northern and the border States. It
was, however, soon discovered that the same malign influence which
had caused every Republican member of Congress to oppose the

Crittenden Compromise, would probably defeat the patriotic purpose
for which the Convention had assembled.
On Wednesday, the 6th February, a resolution was adopted,
[110]
on
motion of Mr. Guthrie, of Kentucky, to refer the resolutions of the
General Assembly of Virginia, and all other kindred subjects, to a
committee to consist of one commissioner from each State, to be
selected by the respective State delegations; and to prevent delay
they were instructed to report on or before the Friday following (the
8th), “what they may deem right, necessary, and proper to restore
harmony and preserve the Union.”
This committee, instead of reporting on the day appointed, did not
report until Friday, the 15th February,
[111]
and thus a precious week
was lost......
The amendments reported by a majority of the committee,
through Mr. Guthrie, their chairman, were substantially the same
with the Crittenden Compromise; but on motion of Mr. Johnson, of
Maryland, the general terms of the first and by far the most
important section were restricted to the present Territories of the
United States.
[112]
On motion of Mr. Franklin, of Pennsylvania, this
section was further amended, but not materially changed, by the
adoption of the substitute offered by him. Nearly in this form it was
afterwards adopted by the Convention.
[113]
The following is a copy:
“In all the present Territory of the United States north of the parallel
of thirty-six degrees and thirty minutes of north latitude, involuntary
servitude, except in punishment of crime, is prohibited. In all the
present Territory south of that line, the status of persons held to
involuntary service or labor, as it now exists, shall not be changed;
nor shall any law be passed by Congress or the Territorial legislature
to hinder or prevent the taking of such persons from any of the
States of this Union to said Territory, nor to impair the rights arising
from said relation; but the same shall be subject to judicial
cognizance in the Federal courts, according to the course of the
common law. When any Territory north or south of said line, within
such boundary as Congress may prescribe, shall contain a population
equal to that required for a member of Congress, it shall, if its form
of government be republican, be admitted into the Union on an

equal footing with the original States, with or without involuntary
servitude, as the Constitution of such State may provide.”
Mr. Baldwin, of Connecticut, and Mr. Seddon, of Virginia, on
opposite extremes, made minority reports, which they proposed to
substitute for that of the majority. Mr. Baldwin’s report was a
recommendation “to the several States to unite with Kentucky in her
application to Congress to call a convention for proposing
amendments to the Constitution of the United States, to be
submitted to the legislatures of the several States, or to conventions
therein, for ratification, as the one or the other mode of ratification
may be proposed by Congress, in accordance with the provisions in
the fifth article of the Constitution.”
[114]
Of the two modes prescribed by the Constitution for its own
amendment, this was the least eligible at the existing crisis, because
by far the most dilatory. Instead of calling upon Congress, then in
session and which could act immediately, to propose specific
amendments to the legislatures of the several States, it adopted the
circuitous mode of requesting these legislatures, in the first instance,
to apply to Congress to call a convention. Even should two-thirds of
them respond in the affirmative to this request, the process would
necessarily occasion a delay of years in attaining the object, when
days were all-important. This would entirely defeat the patriotic
purpose of the Peace Convention. It was called to obtain, if possible,
a direct vote of two-thirds of both Houses before the end of the
session in favor of such amendments as it might recommend. Could
such a vote be obtained, it was confidently expected by the friends
of the Union that its moral influence would, for the present, satisfy
the border States; would arrest the tide beginning to rise among
their people in favor of secession, and might enable them to exercise
an effective influence in reclaiming the States which had already
seceded. Affairs were then so urgent that long before the State
legislatures could possibly ask Congress to call a convention as
required by Mr. Baldwin’s proposition, the cause of the Union might
be hopeless. It was, therefore, rejected.
This proposition of Mr. Baldwin, evasive and dilatory as it was,
nevertheless received the votes of eight of the twenty-one States.

[115]
These consisted of the whole of the New England States, except
Rhode Island, and of Illinois, Iowa and New York, all being free
States. This was an evil omen.
The first amendment reported by Mr. Seddon differed from that of
the majority, inasmuch as it embraced not only the present but all
future Territories.
[116]
This was rejected.
[117]
His second amendment,
which, however, was never voted upon by the Convention, went so
far as distinctly to recognize the right of secession.
It cannot be denied that there was in the convention an extreme
Southern rights element, headed by Mr. Seddon. This manifested
itself throughout its proceedings. These show how naturally
extremes meet. On more than one important occasion, we find the
vote of Virginia and North Carolina, though given in each case by a
bare majority of their commissioners, side by side with the vote of
Massachusetts and Vermont. It would be too tedious to trace the
proceedings of the Convention from the report of the committee
made by Mr. Guthrie until its final adjournment. It is sufficient to say
that more than ten days were consumed in discussion and in voting
upon various propositions offered by individual commissioners. The
final vote was not reached until Tuesday, the 26th February, when it
was taken on the first and vitally important section, as amended.
[118]
This section, on which all the rest depended, was negatived by a
vote of eight States to eleven. Those which voted in its favor were
Delaware, Kentucky, Maryland, New Jersey, Ohio, Pennsylvania,
Rhode Island and Tennessee. And those in the negative were
Connecticut, Illinois, Iowa, Maine, Massachusetts, Missouri, New
York, North Carolina, New Hampshire, Vermont and Virginia. It is but
justice to say that Messrs. Ruffin and Morehead, of North Carolina,
and Messrs. Rives and Summers, of Virginia, two of the five
commissioners from each of these States, declared their dissent
from the vote of their respective States. So, also, did Messrs.
Bronson, Corning, Dodge, Wool and Granger, five of the eleven New
York commissioners, dissent from the vote of their State. On the
other hand, Messrs. Meredith and Wilmot, two of the seven
commissioners from Pennsylvania, dissented from the majority in
voting in favor of the section. Thus would the Convention have

terminated but for the interposition of Illinois. Immediately after the
section had been negatived, the commissioners from that State
made a motion to reconsider the vote, and this prevailed. The
Convention afterwards adjourned until the next morning. When they
reassembled (February 27), the first section was adopted, but only
by a majority of nine to eight States, nine being less than a majority
of the States represented. This change was effected by a change of
the vote of Illinois from the negative to the affirmative, by Missouri
withholding her vote, and by a tie in the New York commissioners,
on account of the absence of one of their number, rendering it
impossible for the State to vote. Still, Virginia and North Carolina, in
the one extreme, and Connecticut, Maine, Massachusetts, New
Hampshire and Vermont, in the other, persisted in voting in the
negative. From the nature of this vote, it was manifestly impossible
that two-thirds of both Houses of Congress should act favorably on
the amendment, even if the delay had not already rendered such
action impracticable before the close of the session.
It would be useless to refer to the voting on the remaining
sections of the amendment, which were carried by small majorities.
[119]
The Convention, on the same day, through Mr. Tyler, their
president, communicated to the Senate and House of
Representatives the amendment they had adopted, embracing all
the sections, with a request that it might be submitted by Congress,
under the Constitution, to the several State legislatures. In the
Senate this was immediately referred to a select committee, on
motion of Mr. Crittenden. The committee, on the next day (28th
Feb.),
[120]
reported a joint resolution (No. 70) proposing it as an
amendment to the Constitution, but he was never able to bring the
Senate to a direct vote upon it.
[121]
Failing in this, he made a motion
to substitute the amendment of the Peace Convention for his own.
[122]
This he prefaced by declaring that he looked upon the result of
the deliberations of that body “as affording the best opportunity for
a general concurrence among the States, and among the people.”
He, therefore, “had determined to take it in preference to his own
proposition, and had so stated to many of the members of the
Convention.” He further said that he had “examined the propositions

offered by that Convention; they contain, in my judgment, every
material provision that is contained in the resolution called the
Crittenden Resolution.” He also had adopted this course “out of
deference to that great body of men selected on the resolution of
Virginia, and invited by Virginia herself. The body having met, and
being composed of such men, and a majority of that Convention
concurring in these resolutions, I think they come to us with a
sanction entitling them to consideration.” Mr. Crittenden’s reasons
failed to convince the Senate, and his motion was rejected by a large
majority (28 to 7).
[123]
Then next in succession came the memorable
vote on Mr. Crittenden’s own resolution, and it was in its turn
defeated, as we have already stated, by a majority of 20 against 19.
We cannot take leave of this venerable patriot, who so wisely
appreciated the existing danger, without paying a just tribute to the
vigor and perseverance of his repeated efforts to ward off from his
country the direful calamity of disunion and civil war. Well did he
merit the almost unanimous vote of the Virginia Convention, on the
11th March, tendering him the thanks of the people of Virginia for
“his recent able, zealous, and patriotic efforts in the Senate in the
United States, to bring about a just and honorable adjustment of our
national difficulties.”
[124]
This vote, we may remark, was far from
being complimentary to the conduct of a majority of their own
commissioners (Messrs. Tyler, Brockenbrough, and Seddon) in the
Peace Convention.
In the House of Representatives, the amendment proposed by the
Convention was treated with still less respect than it had been by the
Senate.
[125]
The Speaker was refused leave even to present it.
[126]
Every effort made for this purpose was successfully resisted by
leading Republican members. The consequence is that a copy of it
does not even appear in the Journal.
Although the amendment was somewhat less favorable to the
South, and ought, therefore, to have been more acceptable to the
North than the Crittenden amendment, yet, like this, it encountered
the opposition of every Republican member in both Houses of
Congress. Nevertheless, it presented a basis of compromise which,
had it been conceded by the North, might and probably would, have

been accepted by the people of the border States, in preference to
the fearful alternative of their secession from the Union.
However urgent were the reasons for the adoption by Congress of
the Crittenden Compromise, or the propositions submitted to it by
the Peace Convention, the question now recurs whether the
President in the meantime did his duty and his whole duty, in
keeping a vigilant eye upon the proceedings in South Carolina and
other Southern States. To answer this question, it is necessary to go
back to the point of time at which the first commissioners from
South Carolina left Washington without having obtained from the
President a promise to withdraw Major Anderson’s force from the
harbor of Charleston, or any stipulation not to send him
reinforcements. This point of time is the 2d day of January, 1861,
the day on which the commissioners dated their reply to the
President’s letter of December 31st; a reply couched in terms so
disrespectful and arrogant that by the unanimous advice of the
cabinet it was returned to them as a paper unfit to be received.
“From that time forward,” says Mr. Buchanan, “all friendly political
and personal intercourse finally ceased between the revolutionary
Senators and the President, and he was severely attacked by them
in the Senate, and especially by Mr. Jefferson Davis. Indeed, their
intercourse had been of the coldest character ever since the
President’s anti-secession message at the commencement of the
session of Congress.”
[127]
The first event occurring at this time in the Executive Department,
which it is important to notice here, was an application made by
General Scott to the President, on Sunday, the 30th of December, by
the following note:
December 30, 1860.
Lieutenant General Scott begs the President of the United States
to pardon the irregularity of this communication. It is Sunday, the
weather is bad, and General Scott is not well enough to go to
church. But matters of the highest national importance seem to

forbid a moment’s delay, and, if misled by zeal, he hopes for the
President’s forgiveness.
Will the President permit General Scott, without reference to the
War Department, and otherwise as secretly as possible, to send two
hundred and fifty recruits, from New York harbor, to reinforce Fort
Sumter, together with some extra muskets or rifles, ammunition, and
subsistence stores?
It is hoped that a sloop-of-war and cutter may be ordered for the
same purpose as early as to-morrow.
General Scott will wait upon the President at any moment he may
be called for.
The President’s most obedient servant,
Winfield Scott.
General Scott was evidently not aware, when he wrote this note,
that the late Secretary of War, Floyd, was out of office. The
President, having substituted Mr. Holt in his place as Secretary ad
interim, was under no necessity whatever to act without the
knowledge of that Department. He proceeded therefore to act
promptly and in the usual manner upon the General’s
recommendation. He received the General’s note on the evening of
Sunday, the 30th of December. On the morning of Monday, the 31st,
he gave instructions to the War and Navy Departments; the orders
were issued on that day; and in the evening General Scott called
upon the President and informed him that the Secretaries had issued
the orders and that they were in his (the General’s) possession. The
orders were that the sloop-of-war Brooklyn, with troops, military
stores, and provisions, was to sail forthwith from Fortress Monroe to
Fort Sumter. It could not be true, therefore, as was afterwards
asserted by General Scott, that “the South Carolina commissioners
had already been many days in Washington and no movement of
defence (on the part of the United States) was permitted.” The
commissioners arrived in Washington on the 27th of December. On
the 30th they received the President’s answer. General Scott’s
request was made to the President on the 30th, and on the 31st the
orders for the Brooklyn to sail were in his hands. The commissioners’

insolent reply to the President was not delivered to him until the 2d
of January. The Brooklyn was already under orders, but the orders
were not despatched from Washington on the 31st for a reason that
will presently appear.
It is now to be stated how a mercantile steamer, The Star of the
West, came to be substituted for the Brooklyn, and to sail on this
expedition. And here General Scott’s memory was utterly at fault in
1862. He then publicly stated that the President refused to allow any
attempt to be made to reinforce Fort Sumter, because he was
holding negotiations with the South Carolina commissioners; and
that “afterwards Secretary Holt and myself [General Scott]
endeavored, in vain, to obtain a ship-of-war for the purpose, and
were finally obliged to employ the passenger steamer Star of the
West.” It is most extraordinary that the General should have made
this misstatement. The Star of the West was substituted for the
Brooklyn by his own advice. “At the interview already referred to,”
says Mr. Buchanan, “between the General and myself, on the
evening of Monday, the 31st of December, I suggested to him that,
although I had not received the South Carolina commissioners in
their official capacity, but merely as private gentlemen, yet it might
be considered as an improper act to send the Brooklyn with
reinforcements to Fort Sumter until I had received an answer from
them to my letter of the preceding day; that the delay could not
continue more than forty-eight hours. He promptly concurred in this
suggestion as gentlemanly and proper, and the orders were not
transmitted to the Brooklyn on that evening. My anticipations were
correct, for on the morning [afternoon] of the 2d of January I
received their insolent note, and sent it back to them. In the
meantime, however, the General had become convinced, on the
representations of a gentleman whom I forbear to name, that the
better plan, as the Secretaries of War and the Navy informed me, to
secure secrecy and success, and reach the fort, would be to send a
fast side-wheel steamer from New York with the reinforcement.
Accordingly, the Star of the West was selected for this duty. The
substitution of this steamer for the Brooklyn, which would have been

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Studies In The History Of Tax Law John Tiley

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