I beg to move the Second Reading of the first New Clause which stands in my name. I hope it will meet with sympathy, not only from the Government but from hon. Members in all parts of the House. The Clause is meant to cover charities that have been set up for the relief of poverty and have been established for other purposes of public good and public benefit. Under the Income Tax Act of 1842 certain exemptions of taxation are allowed in respect of rent and profits of land applied to charitable purposes. But the Section of the Act of 1842 dealing with this has been construed to mean that while property owned by a charity and let to a tenant, the rent being used for charitable purposes, is exempt from the tax, property in the occupation of the charity is not so exempt, unless those charities happen to be colleges, halls in universities, almshouses, literary institutions, and hospitals. Therefore in the case of a charity owning two properties, one in their occupation and the other let to a tenant, the one let to a tenant is exempt from the tax while the property in the actual occupation of the charity is not exempt. I do not see any sense in the distinction made between the two. If charities ought to be exempt in respect of property let, surely they ought equally to be exempt in respect of property which they actually own and occupy, and more so. I have got here, for instance, particulars of a hall in London carried on under a trust deed for the purposes of the very poor. It is admitted to be a charity under the Act. The hall in which entertainments are held is, of course, in the occupation of the charity—that is to say, of the trustees, and no revenue is derived from it. Next door to it is a coffee tavern owned by the same charity and let to a firm of public caterers whose customers belong to a very poor class of people. The rent received is devoted to charitable purposes. The tax on the hall is £8 10s. The tax on the coffee tavern is a little over £19, but because the coffee tavern happens to be let by the charity the tax is recovered, whereas the hall, being in the occupation of the trustees, the tax cannot be recovered at all.

I have one more case: it is a case of a denominational school and a denominational college, held by trustees under separate charitable trustees. Both are admitted by the Board of Inland Revenue to be charitable objects. The tax paid on the school is a little over £29; the tax paid on the college is a little over £19, together an amount exceeding £48 a year. But as the properties are in the occupation of trustees and do not happen to be let, the taxes cannot be recovered at all. On the other hand, both these trusts have incomes accruing from invested funds, from which the tax is deducted. Because it happens to be income from invested funds and not property in the occupation of the charity, the tax is repaid by the Board of Inland Revenue. It really seems to me—and I hope and believe hon. Members in all parts of the House will agree—that it is really a ridiculous position to make this distinction, and, in addition, there s no justification for making a distinction in the case of literary institutions, colleges, halls in universities, almshouses, and hospitals, and not applying the same principle to every charitable object which may do just as large an amount of public good. Take, for instance, the case of a charity the object of which is to befriend young men of the poorer class to look after them, to hold classes for their general advancement and to try and get them good situations. If a charity of this kind owns its own premises, it is taxed on the annual value of the property owned and occupied. But, on the other hand, take the case of a home founded for the relief of ladies in reduced circumstances, whose income is not more than a certain amount per year. If this charity owned the property as dwelling-houses, it would be exempted, on the ground that they happened to be almshouses, under Section 61 of the Act of 1842. Again, take the case of a certain school founded with the object of benefiting certain poor classes, the fees being made up out of voluntary contributions. That, being a charitable school, would not be exempt under the 1842 Act, as would a charity which owned property which does happen to be a public school. In the case of a public school, under the Act of 1842, if it owns and occupies the property, it is exempt from the tax. I might go through other instances, but the same principle holds good all through. I may mention that among other institutions the Courts have held that the following are charitable purposes, namely, a society for the protection of children from cruelty, a fund to establish lectures against cruelty to animals, and an institution for saving the lives of shipwrecked mariners. In each of these cases, under the existing law, although the objects are charitable, they would not be exempt from the tax, and they would have to pay it supposing they occupied the property in the shape of offices or for any other purpose. Finally, it seems to me that the position of these charities is all the more anomalous when one looks at the way charities are treated under the Chancellor of the Exchequer's own Finance Act, 1909–10, in respect of Land Value Duties. Perhaps the House will allow me to quote four or five lines of that Act to show the way in which charities are treated in respect of the Land Value Duties. Section 37 provides that—

"No Reversion Duty or Undeveloped Land Duty. … shall be charged in respect of land, or any interest in land, held by or on behalf of any governing body constituted for charitable purposes while the land is occupied and used by such a body for the purposes of that body."

The Section goes on to define the term "governing body":—

"The expression governing body constituted for charitable purposes' includes any person or body of persons who have the right of holding, or any power of government of, or management over, any property appropriated for charitable purposes."

The Section goes on further to define "governing bodies." In view of that the House will see that this exemption applies to land in the case of the Land Duties whether it is occupied or whether it is let by the charity, and the exemption not only applies to literary institutions, universities and almshouses, but to any person or body of persons who have any government of any property appropriated for charitable objects. As this was the Chancellor of the Exchequer's own provision in the Finance Act, 1909–10, it is quite clear that he agrees with the principle with regard to property occupied for charitable purposes. The new Clause merely asks that the treatment meted out to charities in respect of the Land Value Duties under the Finance Act, 1909–10, should also be meted out in equal measure to charities in respect of the Income Tax. I have given various instances to make the position clear as possible. The new Clause does not extend the term "charity" in any sort of way, but merely brings all objects of a charitable nature into the same line.

I desire to second the new Clause, not only because I agree with the arguments of my hon. Friend on general grounds, but because I particularly wish to bring before the Chancellor of the Exchequer and the Law Officers of the Crown the case of residential halls and hostels belonging to our modern universities. My hon. Friend in moving the Clause has pointed out that there are special exemptions with regard to colleges and universities, but he has left me to point out that the exemption, so far as resident halls and hostels are concerned, is limited to the public buildings and offices belonging to the colleges and halls not occupied by any individual member thereof or by any person paying rent for the same. What is the result of that exemption? That while the universities and colleges are, so far as their endowments are concerned, exempt from Income Tax they are liable to the tax under Schedule A on the halls and hostels occupied by them. The Solicitor-General, no doubt, knows that in the case of Bangor University and Essex Hall that was the result of the judgment of the Court. They were held to come within the definition of charities under this exemption which my hon. Friend proposes to extend, but they are only exempt so far as concerns the rents and profits of their lands and hereditaments which are not occupied by them. That is an absolutely illogical position.

4.0 P.M.

I should like to put before the House a case which will make it quite clear, which arises in the case of the University of Reading, of which I have an intimate knowledge. It is the case of Wantage Hall. That hall was built by the munificent generosity of Lady Wantage, and she also set aside a sum of money for its endowment. Out of the money it was proposed to spend upon building the hall there was a slight balance over, which she added to the purposes of the endowment. What is the result of the state of the law? The endowment fund of Wantage Hall is exempt from Income Tax, but Wantage Hall is assessed for its full value under Schedule A because it is occupied by the trustees of the charity, the Council of Reading University College. Supposing the Council of the College were to let the Hall and farm it out to any individual—a thing which to my mind would be disastrous to the discipline of the students there—no Income Tax would be paid upon it, because it would not be occupied by them themselves; yet because they are occupying it, and doing so in order that the best results may be obtained, Wantage Hall is at present liable to Income Tax. I only give the case of Wantage Hall as an example. It is symptomatic of others. In Reading University College we have three other halls. We are assessed for over £2,000 a year for all our halls. Anyone who knows anything about university management will understand that we have great difficulty in making two ends meet in regard to these halls. Taking them altogether, we run them at a loss, while we are liable to Income Tax upon all these halls. I only mention Reading, because it is a place I know personally, but there are other great universities which suffer in the same way—London, Leeds, Manchester, Sheffield, and the University of Wales at Aberystwyth. I wish the Chancellor of the Exchequer was in his place, so that I might appeal to him on the ground of the University of Wales. It is rather a curious position with regard to the University of Wales. They have two residential halls, one to hold 180 and the other to hold 30. They were assessed at £500 and £70 a year, and they have had to raise, in order to pay for these two halls, a loan of £20,000, and the interest on that is £800, and therefore that is set against the amount of £500 on which they are assessed. But supposing the time comes, as no doubt it may soon, when some generous donor in Wales gives a large sum towards paying off this debt on the University of Wales to enable this hall to be free, the result will be that as soon as that debt is paid off that hall would at once become liable to Income Tax under Schedule A, and that again shows how illogical the present position is.

It is not difficult to guess what is the reason how this position has grown up. It has grown up because in 1842 when the Income Tax Act was passed and when these exemptions were made there were only practically two Universities—Oxford and Cambridge, and it was then thought, possibly rightly, that it would be right to exempt only those public buildings which were not occupied by residents or by any of the members of the university. The others were, I suppose, to some extent a source of income. But that is all altered now these modern universities have grown up. You have them growing up in many of these towns, and during the last few years the residential system of these universities has been very largely developed, and though I should be out of order if I were to say anything to show how valuable that residential system is, I think I am entitled to recall to the mind of the House that that residential system has always met with approval from everyone who has considered at all the question of the true results which ought to be obtained from education at these universities. It is most essential that if students in these universities which are growing up all over the place now are to get good from the time they spend there, this residential system ought to be encouraged, and it is unfair that there should be any handicap whatever placed upon the setting up of these residential halls and hostels. I do not think the Chancellor of the Exchequer can make the excuse or give the reason which he is often able to give when appeals are made to him to accept new Clauses, that this new Clause at any rate is going to cost him a good deal of money. There are not a very large number of universities at present. They are growing in number, but there are not in them a large number of halls and hostels, though they are perhaps growing in number, too, but if they grow considerably more in number than they are at present I do not think there is any likelihood of their imposing a heavy charge upon the finances of this country or making a great claim upon the Chancellor of the Exchequer. It is because I think that this Clause, if it is added to the Bill, will relieve the difficulty under which universities are suffering that I beg to second it.

Everyone who has heard the speeches of the Mover and Seconder will agree that they have displayed great knowledge of this difficult subject, and have called attention to some undoubted anomalies in the present position of the law. I do not dispute that at all. The Income Tax law, as it exists at present, neither wholly exempts nor wholly taxes charities, and it is quite true that the line that is drawn is a line which is open to the criticism that it is not drawn in any very logical, or it may even be said in any very intelligible way. The matter stands, as it appears to me, very much as they have put it in the more general part of their speeches. There is no general exemption from the Income Tax law which attaches to properties belonging to charities, but there are certain cases where the exemption does operate. There may be said to be three classes of cases where the exemption occurs. There is the case where you are dealing with income from property that is held on trust for charitable purposes, so far as that income is used for charitable purposes, and that is the case which the hon. Member (Mr. G. Locker-Lampson) dealt with. There is, secondly, the case of certain specific kinds of charity—hospitals, public schools, almshouses, and so on—so far as the public buildings belonging to them are concerned, under certain conditions. There is a third case which is always, in practice, recognised, though I am not aware that you can find it very clearly laid down in the Income Tax law, and that is the case of property which is used wholly or mainly for religious purposes, of course religious purposes being a good deal narrower in what it covers than charitable purposes.

Then, say these hon. Members, if you go as far as that why do you not go further, and the more so, if you have to admit, as I do admit, that the present position involves anomalies. I have to say that I am not at all certain that the exemptions which the present law gives, in the case of what are broadly called charities, may not be quite wide enough, and conceivably even too wide. I am not at all certain that if this general subject came under review it would be thought necessarily right to say, Here are certain exemptions existing under the present law. If we are going to be consistent and logical, we must carry these exemptions out the whole way, and exempt all charities of every sort and kind. It is a very attractive thing to say so, and those who have these good causes particularly at heart are naturally anxious to urge it. But, after all, you have to face the fact that the more you create exceptions and exemptions for a particular class of case the more heavily has this tax got to fall upon the rest of the community, and the word "charity," though it is a word, I hope, which not only covers a multitude of sins, but easily inflames humane feeling in the heart of everyone, is an exceedingly wide word, and includes a number of things which certainly a considerable portion of the community does not necessarily approve of at all. It really is a large question whether, on the whole, it would be right to apply the doctrine of charity, as it is understood in the Chancery Court, and say that any undertaking or any fund which can bring itself within that conception is to find itself exempted from the Income Tax law. I am not prepared to say so, and therefore, while the two hon. Members who have spoken have undoubtedly made a very good case when they urge that there are anomalies, some of them rather remarkable, as between the case that is taken and the case that is left, I am not at all convinced that the proper way in which to deal with that would be, by one fell swoop, to include every single charity of every sort or kind within the four corners of the exemption.

Under the Act of 1910, dealing with the Land Duties, the Commissioners said what is a charity and what is not.

I am sure the hon. Member does not really mean that he proposes to confer upon the Executive in this country the power at their free-will and pleasure to pick and choose as to what institution is to be favoured with exemption and which is not.

They have it under the Act of 1910.

Does the hon. Member really suggest that that should be done here? I have often heard of attacks delivered from the other side of the House, and have always felt some sympathy with them so long as they had some foundation, against the danger of a Department or the Executive letting one man off and hitting another. But here the hon. Member now explains that after all this exemption will not be very serious because it will always be open to the Commissioners to say, "We have had enough of this and this particular charity we do not propose to exempt." If that is the proposal I am more opposed to it than ever. I thought the proposal, at any rate, had this advantage, that it was logical, that it proceeded on principle, and that the principle was that wherever I find an institution which the law regards as a charity—it may be educational, or religious, or humane—the Income Tax ought not to touch that institution at all. If the hon. Member says that, he has the full advantage of a man who has put forward a consistent proposal and he has this further advantage, chat the present law is not very consistent and contains undoubted anomalies; but I have to answer him by saying that we are not convinced that if the thing came to be investigated, as it would have to be, in a great deal of detail and from many points of view, all good judges will agree that charities should be universally exempt, and in these circumstances I feel that I have the more reason to resist the Amendment. The hon. Member (Mr. Mount) hoped he was not going to be told that this was going to cost a lot of money. If this was not going to cost money to someone, would anyone agitate for a new Clause to be passed? It is just because it is going to relieve someone from payment, and consequently to throw that burden on someone else, that it is worth while moving such a Clause. I do not know how much it would involve in loss of revenue, and am quite willing to believe that the amount is not anything like as large as the sort of figure which has been mentioned in connection with some other proposals for exemption.

It is perfectly obvious that no one would propose the Clause if it was not, because there were certain persons who wish to escape a tax which at present they have to pay, and just in proportion as they escape such a tax there is either a loss to the revenue or an increased burden thrown on other members of the community. I do not want, in dealing with a whole series of Clauses, to say every time that that would be a very proper matter to be discussed before the inquiry as to the Income Tax law which the Prime Minister has referred to. I quite understand that hon. Members who move new Clauses are not likely to be content with that answer, especially if it is repeated again and again. But if there ever was an example of a department of Income Tax law which would have to be examined in that sort of way in order that we may really see what cases would be covered by the change and how the change ought to be framed, surely it is a proposal of this sort, which turns on the whole law of Income Tax in relation to charities. Therefore, I am sorry that we cannot accept this proposal. I desire, as far as I may, to keep my mind open to the merits of the proposal that there should be an extension. I do not say there should not be, but I am quite satisfied that any change which takes place cannot take place simply as the result of moving that what now applies to some charities shall apply to all without knowing what it means, but will have to be dealt with as the result of a far more detailed investigation than that, and I should have thought it was a very suitable subject for the investigation into the Income Tax law which we are promised. For these reasons, though we all very greatly admire the skill and knowledge which the hon. Member has shown, I do not find it possible to agree to accept the Clause.

I congratulate the right hon. Gentleman upon the extraordinary skill he has shown in avoiding the point of the Amendment. He has the reputation of being a very clever advocate, and I suppose he finds it successful to glide over the real difficulty and to make a very admirable general statement upon a principle on which I think people on both sides of the House will agree, but which is not the proposal of the Amendment. All that this Amendment proposes is to do as to Income Tax exactly what the Government themselves carried out as to other taxes under the Act of 1910. My hon. Friend, in moving the Amendment, understated his case. All that the Amendment does is to say that property which belongs to a charity, and which is let, shall be exempt from Income Tax, and that the same exemption shall apply in the case of property which the charity itself occupies. The Attorney-General treats the proposal as though it were a wide general exemption of all charities in every case.

Will the hon. and gallant Gentleman give an example of a charity which, under this Clause, will not be exempted?

If that is so, and if this covers all the ground, then I think the Attorney-General is ever so much more wrong than I thought he was in dealing with the question as one of great magnitude. The Attorney-General treats it as a question of great magnitude, but it is simply a question of extending to property occupied by a charity the same law which applies to property owned and let by a charity. That is the whole point, and I think the Attorney-General is not justified in dealing with it on general grounds. He never referred once to the point which was raised except by paying a eulogy to the general line of the argument of my hon. Friends and praising the style of their speeches. He dealt in general terms with large exemptions which would have to be given to other forms of charity. I should have thought more of his speech if the same point had not been dealt with in relation to the Land Duties which were imposed under the Budget of 1909. What was the course taken by the Government? It was the exact opposite to what is taken under the Income Tax Acts I do not know whether the Attorney-General has Clause 37 of the Act of 1910 in his mind, but if not, and if he looks at the Clause, he will see that it exempts from the Land Value Duties—Reversion Duty and Undeveloped Land Duty—all property owned by charities, and which is occupied by them, but it does not exempt property which is let. Evidently the principle in their minds is that property which is owned and occupied by a charity is more deserving of relief than property which is owned and let. All that my hon. Friend asks is that property which is occupied shall not be given differential treatment as compared with property which is let, but that it shall have exactly the same exemption. The Attorney-General has not dealt with that point at all. He has passed the whole thing over on general grounds and given a general answer. We can only come to one conclusion. We think we have grave cause of complaint that the Chancellor of the Exchequer is not present to-day. The Chancellor of the Exchequer has restricted the time available for discussion.

The Members of your own Front Bench are not present.

We are not responsible for the Finance Bill. If the Attorney-General cannot answer the arguments of one man, what is the use of more Members being here? The Chancellor of the Exchequer is not only responsible for the Finance Bill, but he is responsible for the Closure under which we are discussing it. He has restricted the time available for debate to a very few hours, and in these few hours we should have some opportunity of making a case for changes in the law. He alone has the power to hear the arguments and to give a reply. The Attorney-General has no authority—

With great respect, I have the Chancellor of the Exchequer's authority.

To concede any of these Amendments? It is a large order for the Chancellor of the Exchequer to pass his authority over to another Member of the Government to concede Amendments on finance of the highest importance before he has even heard the arguments upon them. The way this House is treated, and the way one Minister shuffles responsibility from one to another has become very extraordinary. We do not know where we are. One thing we know is that we can never pin the Government to anything. We might as well be dealing with eels of a very slippery kind. I think it would be more proper and respectful to the House if the Chancellor of the Exchequer were present, and I see no reason why he should not be here. Even with all our respect for the Attorney-General, who is very competent to deal with public business, I say that the Chancellor of the Exchequer has no right to transfer such a grave responsibility in regard to Amendments on the Finance Bill, to absent himself from the House, and to leave the right hon. and learned Gentleman to exercise his discretion. If it were not that we are working under the gag Closure, which makes it ever so much worse, we should be entitled under the ordinary rules to move the adjournment of the Debate in order that the Chancellor of the. Exchequer might be present, and I should certainly take that course if it were possible to do so. We are prevented from doing that by this Closure, and therefore that imposes, to my mind, the duty upon the Chancellor of the Exchequer of being here. The House is unable to defend itself in the ordinary way owing to the manner in which the Government are tampering with the procedure of this House for their own benefit. They are taking advantage of that tampering with the rules of the House in order, for their own present convenience, to absent themselves from the Debate. It is a perfect scandal. It is perfectly useless to attempt to debate this question. First of all, time is taken from us, and then in the little time that is given to us the whole thing is treated with contempt, and the Government think that it is not worth while for them to answer arguments advanced on this side of the House on these financial matters. It is a perfect farce that we should be here wasting our time discussing these matters, and I hardly know what course to advise my hon. Friend to take.

I think Members of the Government are not present on the Front Bench so often as they ought to be, and yesterday I gave expression to my views on that subject. To-day I am sure the hon. and gallant Gentleman (Mr. Prety-man) has no case whatever. His first complaint was that the Attorney-General is too clever, and that his arguments are so piercing and powerful as to convince the House. A few minutes later he complains that the arguments advanced on the other side are treated with contempt.

The House is treated with contempt.

Both statements cannot be correct. I, myself, would like to see a, better attendance on both Front Benches. I submit in all seriousness that the Attorney-General, who is a Cabinet Minister, is of sufficient rank to meet the hon. and gallant Gentleman himself on any question. Those complaints are very much resented on this side of the House. [Laughter.] Certainly, hon. Members opposite think they may indulge in gibes as to the absence of the Chancellor of the Exchequer, but the hon. and gallant Gentleman knows very well that at the present time there are matters of vital concern engaging the attention of the right hon. Gentleman. What is the complaint in regard to this Amendment? He complains that it is treated with contempt. Nothing of the kind! If there had not been a serious answer given by the Attorney-General, there would have been no need for a speaker on the Front Bench to reply. It is because the Attorney-General answered the arguments advanced by the Mover and Seconder of the Amendment that the hon. and gallant Gentleman rose. The Mover admitted in the course of his speech that there was a power vested in certain Commissioners to exempt certain charities from taxation. The point was a very proper one to take, but I think the hon. and learned Gentleman met that argument. If you are going to exempt these charities simply out of sympathy with the objects of the charities, are you going to exempt a Mormon charity—a charity in favour of the Latter Day Saints? If you pick and choose, we shall be in confusion about all kinds of religious charities. Suppose the case of a charity which is left for illegitimate children of a certain type—

May I point out—

I do not want any corrections until a little later on. I am in the middle of my point and I wish to be allowed to state it.

You are going to extend the exemption to any charity now exempted only in respect of the property it occupies.

I am dealing, not with what is intended, but with what the Clause will do. Hon. Members opposite are appealing to the House for sympathy for charities. I want the House to see that there are many things called charities in the legal sense which may be something very different. There was a charity left for the benefit of illegitimate children; that is a very good object, but it did not occur to the founder of the charity that it might lead to many couples hesitating about getting married, so that the children born might get the advantage of the charity. As the result of their experience, the trustees of the charity had to come to Parliament to get an alteration made. I remember that Booth the elder and Booth the younger left property for charitable purposes, having in mind a small area in the borough of Salford. That property became very valuable, and the consequence was that large funds were available for the poor within the area. The poor of Salford drifted into that particular area, and instead of blessing the area in which they were born, those who were born there cursed it. The representatives of that charity had to come here in order to get power to divert the charity to another purpose. The hon. Gentleman opposite proposes to introduce a dangerous doctrine, namely, that State officials should be able to pick and choose the charities which are and the charities which are not to be exempt. I am not in favour of giving these increased powers to State officials. I am grieved to see a Conservative Member getting up and proposing that. What would be the result of a large increase of their powers to exempt people from taxation? I do not say that is the dominating point of the Amendment, but a principle in the new Clause is that State officials should be able to pick and choose the charities they would exempt. Some officials may have leanings one way and others may have leanings in other directions, and I think a sufficient case has been made out for rejecting the Clause.

The hon. Member seems to think that it is a sufficient argument against the proposal in the new Clause to assert that there may be charities which are not worth considering, and that the ultimate effect of the proposal might not be altogether of advantage, and that for that reason the whole exemption of charities should be struck out. If that was not his argument, I do not know what it was. He cited a certain case in which the charity was given to nourish illegitimate children, in which it was found that the effect was to some extent not what was desired. But would he have allowed these children meanwhile to starve? Does he think that the charity was altogether "wrong in procuring for these poor creatures the advantages of education, and so on? The Attorney-General's speech had all the appearance of presenting a skilful argument, which he, as a lawyer, knows very well how to do, but he really brought forward not one single valid argument in the course of his speech. He first said, "We cannot do this, because if you exempt charities you must put this upon somebody else." If that be so, then we must not discuss any change in the incidence of taxation at all. Was there ever a more misleading and unsubstantial argument against an Amendment proposed with such solid reasons? Another argument which he used is, "Charity is not well defined. We, as lawyers, have attempted to do the best we can, but it is not properly defined, and therefore we cannot give this exemption." He forgets that the same argument applied to his own Chancellor of the Exchequer, whose full power of discretion he tells us he now wields. It applies to Section 37 of the Finance Act of 1910, which the Chancellor of the Exchequer adopted himself. If there was no possibility of defining what charity was, why did he put in Section 37? And why did he give expression to the definition of charity if it is so vague and so impossible of definition that, as we are told by his leading lawyer, it would be useless to try to define it? My hon. Friend suggested means by which charity might be defined, and pointed out that the local Income Tax Commissioners had that power given to them. The right hon. and learned Gentleman says that it is a very dangerous thing to suggest. But they have it now. When that was pointed out he simply evaded the point, but he did not give an answer.

The fact is that you cannot take these quibbles as to the difficulty of defining charity, or the still vaguer argument that if you take taxation off charity you must put it on the shoulders of somebody else. You must look on this on broad public grounds, and this is what the Amendment moved by my hon. Friend does. If you take away what a man gives for public purposes, you are simply discouraging the extension of these charities. Can there be anything more absurd than to say that when a man leaves his money for the public benefaction of a locality, then because he saves the State a certain amount by means of his charity, either in the form of poor rate or otherwise, therefore: you are to take vengeance on him and punish him by taking some of that which he has left for charitable purposes? Already the general principle is conceded that charities should be exempt. We are now making only this very clear, and I would have thought self-evident demand, that if you exempt that income which a charity draws from lands or tenements which it does not occupy itself, it should still more be exempt if it is under the necessity of using these tenements for the immediate purposes of the charity. I have known many cases in my own experience where this differentiation does exist, and where, if you are obliged to occupy certain premises instead of using the income for the purposes of the charity, you immediately find yourself under a heavy burden of taxation. I may take the case of Westminster School, of the governing body of which I am a member. We hold a number of houses round about the neighbourhood. So long as we have these houses we can draw the income, and they are exempt, though they are part of the endowment. But if we are obliged to use one of these houses for the immediate purposes of the school, we are then brought under heavy taxation, and obliged to diminish the value of the charity. That is a sound argument, and requires some answer more than the mere statement by the right hon. Gentleman that other people will suffer if you take this off, and that charity is very difficult to define, and that if we open the door too widely we do not know where it will end. That is an argument which would make any rectification of injustice in the incidence of taxation absolutely hopeless. We put forward what we say as a sound argument in the public interest, and we ask the right hon. Gentleman, or some of his colleagues at least, to give us an answer to those arguments before setting aside our demand.

I should like to have heard some financial argument, which the House has not heard, upon this Amendment of my hon. Friend. Suppose that the arguments of my hon. Friends are right, and that the Clause is passed, what effect would that have upon the revenue? That is very important, because I believe that we are supposed to be discussing finance, and the representatives of finance on the Government Bench are two extremely able lawyers. When we want a legal question decided, they are always away in other places, and when we want a financial authority we cannot get him. I now see the Secretary to the Treasury, but he was absent when I began speaking.

indicated dissent.

I do think, at any rate, especially when we are debating under a Guillotine Resolution, that we should have the presence of the Chancellor of the Exchequer. It is all very well to say that he is engaged in other things. My hon. Friend is engaged in other things, but he is able to be present, and I do not see why the Chancellor of the Exchequer cannot be here too. There is no obligation to put this business down for this particular day. We cannot get more than two days, and it might easily be put down for a day on which the Chancellor of the Exchequer can attend. If we were not working under the guillotine I should certainly move the adjournment of the Debate. The hon. Member opposite for the last two or three days has taken a very sound view of these questions. I do not know whether the sound view which he took yesterday led him into collision with a certain officer in the Lobby. But it is merely sound common sense to say that when we have a financial question like this to deal with we should be able to hear the Chancellor of the Exchequer, and not be put into the hands of two lawyers.

There seems to have been a great deal of laborious trifling over this subject. The Amendment is a very reasonable one from the point of view which has been explained in the reference which was made to Westminster School. But the whole case is very clearly put that certain charities are not exempt because they are occupied for the purposes of the charity. Some Gentlemen who support that view have done so simply by abusing the absent Chancellor of the Exchequer for not being here. That is hardly relevant. I listened with a great deal of interest to what the Attorney-General had to say, but he did not seem to come to grips with it, and the reason seems to me to be because he is bound to continue the exemption of charities from Income Tax. That is part of the scheme of our finance, and he is obliged to find some other reason for this than the real reason. A very admirable summary of all the discussions which took place on this subject were contained in a letter written to the "Times" about twenty years ago, in which were pointed out the efforts which the late Mr. Gladstone made in this House to get this exemption of charities from Income Tax repealed. In Mr. Gladstone's time it was a very small matter. The income of the charities was not very large. But now they have grown so greatly that the question has come to be a very important one. The only effect of this particular Amendment would be to extend the mischief which already exists. In Mr. Gladstone's time the income of the charities amounted to £2,000,000 per year. Now the income amounts to £11,000,000 or £12,000,000 per year, which is exempt altogether from Income Tax.

It is a most unreasonable distribution of the national burden that all that public property should not pay Income Tax in the ordinary course. There is no kind of argument in it, except that sentimentalism which says that the income of these charities should be allowed to do some good to the community at the expense of the national revenue. The largest charities would be the most benefited by the exemption. Take the case of the Westminster School. Why should it be exempt from Income Tax on its foundation income? It should not be exempt. The property itself should pay. And the same principle should apply to the whole £11,000,000 income of charity property. I could give a vast number of instances to show that these exemptions from Income Tax are pure folly and have no financial reason in them whatever. In regard to the Income Tax, every parcel of income in the country ought to pay its regular share towards the general expenses of the State. If you want to benefit these charities in any way, it would be for Parliament to do something in their behalf, though I should say that it is an unwarrantable proposition for this House to make any Grants. Another reason why exemption should be done away with is that the State has to pay the expenses of the Charity Commissioners for keeping these properties in order. We spend £40,000 a year, or more, for looking after those charities, which are exempt from Income Tax.

I think the hon. Member is going beyond the Clause under discussion.

I have already stated my reasons for opposing this Amendment, and I shall not pursue the subject further.

My hon. Friend and the hon. Gentleman who has just sat down have both addressed their remarks—or, at any rate, some of their remarks—rather pointedly to me. I wish to be absolved from the obligation of advising what course should be taken as regards this Bill; I am not in charge of the Bill; I am not responsible for the finance of the country, and it does not fall to me to take note of the observations and suggestions which hon. Members offer—nor, indeed, unless I should feel inclined to make observations on their points of view, is it part of my duty to give guidance to the Committee. I do venture to join in the protest which has already been made by hon. Friends of mine against the growing practice of the Chancellor of the Exchequer to absent himself from the House during discussions on the Budget. Putting myself out of the question, I venture to say that of all the predecessors of the Chancellor of the Exchequer whom I have known, none spent so small a proportion as he of the time occupied by the Budget on that Bench listening to the discussion. The House will recall the fact that in speaking of the growing impotence of this House, of its lessened power to exert authority, or to make its will effective, my right hon. Friend the senior Member for the City of London (Mr. Balfour) adduced, as one of the reasons, the practice of Ministers—I am now speaking of Ministers specially responsible for Bills—not themselves to be present during the discussion. I do not wish to say anything discourteous of the right hon. and learned Gentleman opposite or of the Financial Secretary to the Treasury. I held the latter position myself under Sir Michael Hicks-Beach. I know what I did. I sat beside Sir Michael Hicks-Beach during the whole discussion except at such times as he had to withdraw to receive deputations, or confer with his officers, or during the short interval in which he was necessarily absent for his dinner. Except for those brief intervals, it was the uniform practice of previous Chancellors always to be present to listen to the Debate, and always to be ready to give the House the benefit of their counsel and knowledge. The question which is raised by this particular Amendment is one of great complexity and great difficulty. I do not think it can be laid down off-hand, as the last speaker attempted to do, that all charity funds should be brought within the ambit of the Income Tax. I, for my part, should not like to commit myself finally and definitely to the extension of the exemptions, or to financial results I do not foresee. I confess that this is one of the points on which the Income Tax law is in an unsatisfactory position—whatever the solution of the difficulty ought to be—because it is illogical in itself. I do not think it is possible to defend at one and the same time the exemptions which are now accorded or the refusal of exemptions which is now made. There is no common principle underlying these two things. I am not quite certain that the House knows, or that even the learned Attorney-General or anyone knows, exactly what the law is on this subject. Reference has been made by my hon. Friend to the case of Westminster School. I also am interested as governor in another great public school, and we have had the case of the Westminster School brought to our attention, and, unless I am under a misapprehension, the authorities of Westminster School are appealing against the assessment of particular properties with which they are concerned, and it may be that the Courts will decide that they are not liable to assessment on those properties.

It is not on this point.

I thought it was the Income Tax. The learned Attorney-General has been good enough to correct me, and to tell me that the case I have in mind does not deal with the point that has been raised.

I think not.

I accept that at once; my memory or my information was at fault. I did not intend to take part in this discussion. I confess my inability to give the House any clear guidance as to what is the best course to pursue in this matter at the present time. I would submit again, however, that it is not to me that the House has a right to look for guidance on this matter, and it is a subject for legitimate complaint by Members in all quarters of the House that on a Bill of this importance they cannot address their arguments directly to the Chancellor of the Exchequer, and have his attention given personally to them.

I do not think the right hon. Gentleman was in the House when my right hon. Friend the Attorney-General addressed it.

I was not.

If he had been, he would have heard that, having been appealed to by hon. Friends behind him, my right hon. Friend the Attorney-General used almost exactly the same arguments as the right hon. Gentleman himself has put before the House. My right hon. and learned Friend acknowledged that there are certain anomalies under the existing law, and he pointed out that this was one of the points particularly appropriate for inquiry with a view to making the Income Tax more logical and more workable. He did not go so far as the hon. Member below the Gangway in condemning the practice of exempting charities, and he would certainly not go so far as to extend the number of exemptions, in view of the fact that we are promised an inquiry into the Income Tax which is going to be set up immediately. It was for that reason he suggested that it would not be wise, when he himself could not foresee exactly the extent of the expenditure, nor could the right hon. Gentleman, that would be caused by extending the exemptions.

I could not foresee, but the Chancellor of the Exchequer ought to be in a position to foresee.

The right hon. Gentleman knows it is very difficult to make exact estimates on these matters. My right hon. Friend said that he agreed with those who moved this Clause that it would not be a very expensive matter. The law at the present moment exempts certain charities from taxation on the lands they occupy; but the Clause now before us seeks to exempt all charities from taxation on the lands they occupy. My right hon. and learned Friend suggested that that was a very proper matter to leave to the Committee of Inquiry, because it might turn out to be wise, rather than to extend the exemption, to withdraw them altogether. I do not think the right hon. Gentleman was justified in the attack he made on the Chancellor of the Exchequer, who, I think he will find, has been present throughout the discussions on the Budget in all its stages until this afternoon, when it is not difficult to understand the reason for his not being here.

I should like to refer to the case the Attorney-General made in reply to the hon. Member for Salisbury. To me he did not seem to reply to the point, and he drew the attention of the House away from the Amendment—to all charities. The Amendment, as I read it, is confined to those charities where there is property invested in the trustees, but the right hon. Gentleman attempted to make the House think that it was going to include all charitable institutions of whatever kind.

Why not?

Because the exemption is to extend to a great number of charities in the country with lands or property vested in trustees.

Look at the words of the Amendment.

The words of the Amendment are quite clear, but I am afraid they are regarded from the financial point of view. We are representatives of the people in this House, and numbers of Members must know from their own personal experience as governors the great difficulty there is in obtaining the necessary finances to carry on these charitable institutions, and with this extra burden, as the hon. Member for Salisbury showed, charitable activity is decreased. That is a point which surely the Chancellor of the Exchequer ought to take into account. We who represent the people of the country, we who are governors and trustees of charitable institutions, ought to see, if we are to represent the feeling of the country, that these exemptions are made. Surely it is for us to enforce our views on the Chancellor of the Exchequer, and to point out that this would not affect the revenues of the country so adversely that he could not afford to meet the wishes and feelings of an enormous number of people, whatever their political views, by remedying this anomaly in the Income Tax. I would point out to the Attorney-General that he should take into consideration the fact there is a feeling on his own side of the House that this anomaly should be put right. We have been told that there is to be an inquiry, but that answer might be given over and over again to later Amendments, and the House is not satisfied to be told simply that their Amendments shall be referred to some Committee.

May I ask the Attorney-General whether the exemption proposed in this Clause would be referred to the Committee of Inquiry?

I should say it would be a very proper question.

I should like to ask, further, whether the Committee will take into consideration the primary question that there should be no exemption of charities?

I am inclined to think that one of the principal reasons for an inquiry is to see that the Income Tax laws are made more consistent as a whole. I cannot imagine a more obvious example of the need for such an inquiry than the present state of the law which exempts some charities and docs not exempt others.

I bog to move, "That the Clause be read a second time."

At present only six months is allowed after the end of the year in which Income Tax is charged within which a claim may be made in respect of deduction of Income Tax on the income arising from securities in a foreign State or British Possession in the case of the person owning them being resident outside of the United Kingdom. The dividends are paid over here. The issue is probably through a British bank and paid through that bank for the sake of convenience. Under the Income Tax law the paying bank is compelled to deduct the tax before the money is paid, whether the person is actually liable or not and quite irrespective of where the person resides. My point is that the limit of six months is often very unreasonable as the limit within which a claim for abatement may be made. In practice a large number of people lose the tax which has been deducted, and which in reality they are not liable to pay. For instance, take the case of a person resident in Australia or New Zealand with stocks of the description I have mentioned, the Income Tax being collected here by the bank. The dividend may be placed in the man's account towards the end of March and the bankers may advise him that the tax has been deducted. The man cannot possibly receive that information until well into May. I am very glad I have the privilege of putting my case before the Chancellor of the Exchequer. The man may be away from home at the time. He has to write to Somerset House for a form of claim, and that takes another six weeks. Probably there is a delay of a week at Somerset House, and another six weeks elapses before the man in Australia or New Zealand receives the form. He has to complete it and go before a justice of the peace or magistrate and swear as to the form which is returned to Somerset House. That makes altogether twenty-four weeks out of the twenty-six, even if everything is dealt with by return of post.

Perhaps it may save the time of the House if I state I am going to accept this new Clause in the form in which it is moved.

I beg to second the Motion.

I am prepared to accept this new Clause. The matter is very simple. Suppose interest or dividend on securities of a foreign State or British Possession are paid in London, as I am glad to think many of them are, and supposing that they are payable to persons who are not resident in the United Kingdom, though the Income Tax is deducted at the source the person entitled to the income or dividend, since he is not resident, is entitled to have it back. Under the existing law he has to claim it within six months, and I am quite prepared to agree that he ought to be given a longer term.

I beg to move, "That the Clause be read a second time."

The object of the Clause is to remove what I believe to be a very substantial grievance. Foreign income is assessed under two rules. Income received from Government securities in foreign States, or from loans of foreign States or municipal authorities is assessed on the amount received in the year of assessment; but income received from what are termed "possessions" abroad—that is to say, shares in trading concerns, rents of land, or rents of houses—is assessed like income accruing to a person from trade, business, or profits of employment received in this country. Income from securities in foreign countries is assessed only on the amount which has accrued in the year, while income from possessions in foreign countries is assessed on the average system. This procedure frequently leads to great injustice in the first three years of liability. Possessions in foreign countries are assessed like trading profits. Under the Finance Act, 1907, Section 24 (2) in the case of income in this country accruing from a trade, profession or vocation which has been set up within the three years during which the average is taken under the Income Tax law, the taxpayer has the right to ask the Commissioners to adjust the liability to the actual amount received in the year of assessment. But this advantage does not apply to income from possessions in foreign countries. Say a man's income from possessions in other countries during the first three years was £5,000, £3,000 and £2,000—that is to say, £10,000 in all. He can be taxed on £5,000, £5,000, and £1,000, or £14,000 in all—that is, £4,000 above his actual income from his possessions. If he had actually the same income from trade or business over here, he would be taxed on £5,000, £3,000, and £2,000, or £10,000 in all—that is to say, he would be taxed on the actual income that he had received. It cannot be considered that there is any justice in this distinction between income from possessions abroad and income from ordinary trading profits arising in this country. Unless something is done a very real grievance will arise in the case of assessments under Clause 5 of the Finance Bill, which presumably will be based on the income of the three preceding years, in the case of income from foreign Government securities.

In many cases where people have retired from India or the Colonies they send a considerable portion of their capital to this country, and the income arising from shares or rents abroad may, therefore, be considerably diminished by the time the actual year of assessment comes round—that is, the fourth year. Owing to remittances of capital here, the income from shares or rents accruing abroad may be, say, £1,000, whereas the actual income accruing abroad for the current year may be only £450. Supposing the capital which has been sent over here brings in in this country in the current year an income of £550. The tax of the current year will be paid not on the £450 accruing abroad and the £550 at home, but on the average of £1,000 of the three preceding years, and also the £550 accruing on the capital sent over to this country—that is to say, on £1,550 in all. The result is that although the capital has been invested here and produces an income subject to the deduction of tax over here in the current year, the tax is also based on the income which that capital produced before it was sent over here at all. I do not know whether I have made myself quite clear. The income to the extent of the £550 which accrues from the capital sent over here has practically been taxed twice over—once here, and then again on taking the average of the three preceding years before it was sent over. If this provision of Section 24 (2) of the Finance Act, 1907, is extended, it will absolutely meet this particular grievance. I hope, therefore, the Government will accept my proposal.

I beg to second the Motion.

The hon. Gentleman has moved his Clause with words at the end which I do not quite understand. I cannot help thinking that it has been transplanted bodily from something put down as an Amendment at an earlier stage. The words at the end, "and the provisions of this Section," do not convey any meaning to my mind at all. Perhaps the hon. Gentleman will explain that?

As a matter of fact, these words are unnecessary. The proposal was put down as an Amendment to a Clause in the Bill, and was then made into a new Clause.

I understand that the new Clause is intended to stop after the words "Income Tax Act, 1842."

Yes.

It follows, therefore, that the hon. Gentleman does not propose to apply the principles contained in the new Clause to Clause 5 of the present Finance Bill at all.

I do propose that.

Where will that be? Perhaps the hon. Gentleman will explain that.

I should have to add the words "and the provisions of Section 5 of this Act."

Then I understand that the. Clause is not to stop at the words "Income Tax Act, 1842," but is to run on with the words "and the provisions of Section 5 of this Act." That is what I expected the hon. Gentleman would say, but, of course. I wanted to know. Let me assure the hon. Gentleman that I under-stand what he proposes, but I think there are good reasons against accepting the Clause. As things stand at present, you have the calculation on the average of three years applied in various cases under the Income Tax Acts. One of the best known to most of us is the case where you have the three years' average applied for the purpose of charging Income Tax in respect of profession, trade, or vocation. But that is by no means the only case where the average is applied. There is one case where a five years' average is taken, and another where a seven years' average is taken. There are many cases in which you do not take the actual year of charge, but some other year. As the law stands, in one case, and in one case only, out of all the cases where averages are taken, the taxpayer is allowed to say, "It is true that the law applies an average of, say three years to my case, but I have not been carrying on my profession, trade, or vocation for three years. This is only the second or perhaps the first year, and I wish to substitute the actual experience of the year of charge for the normal application of the average." That is permitted by Section 24 (2) of the Finance Act, 1907. I do not understand whether the hon. Gentleman proposes to limit this substitution of a given year for an average to cases in which the source of income has begun within the period over which the average is calculated. Does the hon. Gentleman propose to do that?

I think it is quite plain from the Section in the Act. I want that Section to apply in its completeness to this particular case.

I hope the hon. Gentleman does not think that I am merely making points for the purpose of quarrelling with him. The subject is a complicated one, and I must know exactly what he means.

Whatever that Section covers, I want it to extend to this.

The Section provides, in the case of an ordinary individual paying Income Tax on the three years' average, that he shall be entitled to say, so far as the figures for the particular profession, trade, or vocation are concerned, "Please, take a given year, and not the average of the three years." That has no application to the case of a man who has been carrying on his profession for four or five years. It applies only at the beginning, and the reason it applies at the beginning is that it may happen that a man in his first year does exceptionally well. His friends give him a considerable amount of support. A friendly solicitor, for instance, gives a young barrister some briefs. But the hon. Gentleman is really proposing a very much bigger thing than would appear from his speech. He is proposing that wherever an average is required by the present Income Tax law, and the taking of an individual year would be preferable to the taxpayer, that substitution shall be available—for instance, under Rule 5 of Section 100, or under Clause 5 of the present Bill—and thereby he would greatly extend what is at present a most exceptional provision. There is very good reason why it should not be so extended. It is comparatively safe to say, in the case of a man with a profession or vocation during the first three years, "I will take your actual figures for the present year, instead of taking an average." At any rate, his profession is definite; you know what you are dealing with. But the hon. Gentleman says, "I want to substitute the receipts of the current year of charge for the average in, for instance, case five of Section 100"—which is the foreign possessions case. Does not the hon. Member see that if you do that you put it in the power of the taxpayer to manipulate—I am not using the word in an offensive way—to vary from time to time the way in which he chooses to employ his capital, with the result that the revenue may lose taxes to which it is entitled, because he has so varied his investments, or varied the form in which he receives his money as to get the advantage of this new Clause? For example, supposing you say to the taxpayer you have got foreign possessions at present and pay income Tax on profits on those foreign possessions remitted to this country on an average of three years. That is the provision to which the hon. Member referred. If you say to the taxpayer, "You can substitute in any given year at your will and pleasure if you like, not what the revenue likes, the actual receipts for the given year"; if the taxpayer in that case wants to reduce his liability to pay to a minimum, there is a very obvious way in which he may do it. He may in that year refrain from having his income remitted to this country so that it is kept under old case five. Even supposing he is none the less hit under our new Clause 5—which has nothing to do with remittance—he none the less may vary his form and may still invest instead in the securities in the home market, with the result that it is at his own will and pleasure to vary the amount which in a given year will come under that particular case. That is the reason why this was not extended at all. It was quite deliberate in 1907, even though it was not under this Government—

It was your Government.

The right hon. Gentleman is quite right, but whoever was responsible, it was done in this way. It was not because the Government or the House of Commons—I hope—or the revenue imagine that the only case where you have an average was the case where you taxed a profession, trade, or vocation. There were a lot of other cases, but so long as you confined the concession to this it was all right, because a man cannot go on shifting his work about merely in order to save himself a little money in a given year. If you say you may substitute the amount received from foreign possessions in a given year for an average of three years, that will enable the person, by variations in the form of his investments, to present you a figure for a given year which is really not a fair figure.

Will the right hon. Gentleman point out how you can do that under the new Clause 5?

Assume the taxpayer takes his interest by cashing coupons, in which case the income would be taxed at its source. In that case it would not come under our new Clause 5; it would be taxed at the source. It might, on the other hand, be remitted home, in which case it would come under our Clause 5. In the second case you can vary the way in which you are paid, so that at your will and pleasure you may tax the income at the source or later.

Will the right hon. Gentleman make it quite clear? A man has the same source of income and investments, which may be foreign or may be home. The same kind of investment in foreign securities, which is a coupon investment, would be treated as a foreign investment. An investment of the same character payable in London would be a home investment. If it is a foreign investment is it assessed on an average of three years? Is that the position or not?

No, it is not. If the hon. and gallant Gentleman will look at either the Income Tax Acts or the book of Mr. Dowell, he will see it is not so really, because the case that applies is that known as Case 4 under the Statute, not Case 5. The hon. Member who moved—quite accurately, if I may say so—confined himself to Case 5, which relates to foreign possessions, and not to the case of industrial securities. What I am pointing out is that if you take our new Clause, and if you say that a man is at liberty to substitute the amount he receives either for one year or an average of three years—in cases where the average applies—you are, as a matter of fact, presenting him with a choice of two alternatives, and, of course, he will always choose the one that suits him best. That does not apply in the one case under the Act of 1907, where concession is made, and for the practical reason that a man cannot say to himself, "I will be a barrister to-day, an architect tomorrow, and something else the next day." merely at his own will and pleasure, to avoid the average and to take a single year. That is the practical reason why the concession is made in that case. The hon. Member gave as an illustration the case of a man receiving £5,000 from foreign possessions in the first year, £3,000 the second year, and £2,000 the next year—the case of a dropping income—

That is transferred here?

Which is transferred here under the old law. The hon. Member said that it was hard to tax a man in the third year on the average of the three years. We took him, I may say, on the second year on the average of two years. Of course it is quite true there may be such cases, but the answer to that is that it is really a criticism of the whole principle of averages, wherever applied. If your income is a dropping income, your average tends to keep up the figure longer than you like. If your income is a rising income, the average tends to keep the figure down after the time when some people think it ought to be higher. That, really, is not a peculiar hardship of the Income Tax law: it is due to the law of averages, and the result is the same whether you apply it to this or to cricket or to any other averages. The hon. Member, if he follows me, will see that we cannot really apply this system of the substitution of a single year for the average of three years in cases except the one case where it is substituted now. I know the subject is a very difficult and complicated one, but I think I understand what the hon. Member proposes, and I hope he sees that I understand it, and sees my reasons against the Amendment.

I do not think the right hon. Gentleman does quite understand. He tries to make out that my Amendment wants to give the benefit of being assessed on income received in the year of assessment. I am merely trying to give the benefit of the one case which relates to a profession, trade, or vocation to other persons to whom the Section in the Act of 1907 might be made applicable.

If we were going to adopt the Clause at all it would need to be very carefully considered from that point of view. The hon. Member has explained what he has in his mind, and I am not going to squabble about words. Whatever you do, I do not believe you will find if you look into it closely—that it is possible to say to a man, even in the first three years, that you are going to give him an alternative of taking a year, the last year, and taxing him on that instead of applying the general principle of the three years' average. For one thing, I think you will find it more difficult than usual to discover that he has really began this form of income within the last three years—not an easy thing in regard to foreign investments—and in the second place, if you look at the thing broadly you will see that it does not work out unfairly. I agree that in every system of averages there is this, that some people will be required to pay more than they think they should pay, and some less. The matter is not one easy to explain, but I think the House will find that that really is the way this House arrived at it At any rate, when the revenue made that concession in 1907 it was not a concession that there was any difficulty with; they chose a case in which it could be safely done, and I suggest to hon. Members that it really is not a practicable or a wise thing to alter the machinery so that we should apply it to other cases.

There are three distinct questions which arise out of the discussion which my hon. Friend behind me has initiated. We have had a reply from the right hon. and learned Gentleman upon it. I would like to deal with the questions in their order separately. As regards my hon. Friend's Amendment, the wording of it appears to me to carry out the option which is allowed to the investor at home in certain peculiar circumstances—not merely to some people if they are deriving their income from abroad—but to others. Therefore, if my hon. Friend's Amendment were carried in this form, people resident abroad would have an option in more cases than people resident at home. That is the first point. I agree with my hon. Friend that that would be the effect. When the words of Section 24 are confined to persons chargeable in respect of any profession, trade or vocation, my hon. Friend's Amendment applies it to income from stocks, shares, rents, or other sources arising in any place out of the United Kingdom. That does not confine it to home, but does confine it again in respect of any profession, trade or vocation. My first observation—if I am right in my interpretation—as to which Heaven forbid that I should speak dogmatically— I am not a lawyer and it is a very difficult matter—if I am right in my interpretation I think my hon. Friend's Amendment in that respect goes too far. The second question that is raised is: should not exemption, such as it is, which is now given to persons under these special circumstances—that is in the first three years of a profession, trade or vocation abroad, be extended having regard to the new Section spoken of, to people who derive similar incomes and under similar conditions from abroad? I think the learned Attorney-General made no answer to that point.

Forgive me, our new Clause 5 does not tax anybody in respect of a profession, trade or vocation; it taxes stocks, shares, rent. It does not tax professional people qua professional people, or trading people qua trading people at all. There is nothing corresponding to that.

Suppose a man starts a manufacturing business in this country he will be entitled for the first three years to have an option given him under Section 24, Sub-section (2) of the Finance Act of 1907. Supposing the same person elected his factory, not in Lancashire, but in India, will he be entitled to the same concession? Will he be taxed on any profits that he brings home? Supposing he brings the whole of his profits of the manufactory home, or suppose he accumulates them in India, under Section 5 you tax him on those profits if he is resident here. Is that so?

The answer is, on stocks, shares, rents, yes, whether he brings them home or not; bat nothing on other income.

That is very important. I think that is certainly not understood by the people concerned, as I could illustrate from the correspondence I have. I think I am taking a perfectly clear case. I take the illustration of a man who is making cotton goods for the Indian market, and who has the option of establishing a new mill in Lancashire or in India. If he establishes his new mill in Lancashire he gets the benefit of the option under the Act of 1907. Does the hon. and learned Gentleman tell me that if he establishes the mill in India the profits of that mill in India will not be assessed and are not assessable to Income Tax in India under Section 5? He says "unless received." In your new Section 5 there is the phrase "whether they are received or not." Then, in the case of a business establishment, if he does not bring his profits home, they are assessable?

Not under our new Clause.

I am very glad to get that assurance, because my correspondence has brought me many letters from people very much concerned about a particular case, and they were under the impression, as I was, that profits of a trade were included under the new Subsection. But I now understand from the Government Bench, and I am very much obliged for the explanation, that if a private resident in this country derives his trade profits from an enterprise abroad, and does not bring them home, he is not assessable to taxation under the new law.

I agree this is very important, and it is extremely important that I should not mislead anyone—accidentally, of course—as to what the position is. The right hon. Gentleman is referring to an individual. He is not speaking about a limited company, or any of the complicated questions that arise as to where a limited company is resident. Our Section 5 does not in the least bring in the profits of business carried on abroad. It is strictly limited to what you may broadly call investments, namely, securities, stocks, shares, or rents, and deliberately so. Of course, incorporated companies raise several difficulties of their own, which I do not understand the right hon. Gentleman to be referring to. His case is that of an individual.

That is satisfactory. I certainly did not mean to invite the Attorney-General into the technicalities of where a company is domiciled, or anything of that kind. I wanted to take a clear case of an individual who has, say, a mill in India or somewhere else abroad, and to see the effect of this legislation upon that. That disposes, and disposes satisfactorily, of the second point I wish to bring before the House. The third point arises rather from an answer of the right hon. and learned Gentleman, and I want to ask him for information upon the subject to see whether I have correctly under stood what he said in reply to my hon. and learned Friend. Supposing that some body resident in this country has his money invested, partly in this country and partly abroad, and suppose that for perfectly legitimate reasons he lessens the proportion of his capital invested abroad and in creases the proportion of his capital in vested at home, in the kind of securities of different sorts which are embraced in the purview of the Amendment and of the Sub-section to which it refers. Do I understand the right hon. and learned Gentleman to say, in the first place, that it is the law, and, in the second place, that it ought to be the law; that, although he has transferred capital, he is to be assessed upon the average of the profits which were actually received—that is to say, suppose that at the commencement of the three years he had £10,000 abroad, and that at the end of the year he sold £5,000 of the foreign investments and invested it at home, does the right hon. and learned Gentleman mean to say when you come to assess him for Income Tax in the second year in the securities dealt with here—

Under Section 5?

I am following, I think, the case put by the Attorney-General himself. What we understood him to say was that in cases of such a transfer of investment where you were dealing, not with income fluctuating by the chances of the fortunes of the year, but with income diminishing owing to the transfer of part of the capital to another investment, you would still assess that holder upon the average of three years, and that if his income from £10,000 was £500 in the first year, but owing to the transfer of the capital it was £250 in the second, you would call upon him to make an average of £750. That surely cannot be what the Attorney-General meant to say, because, of course, capital so transferred to this country is going to pay Income Tax here upon the profits it makes, and you would then be charging the same capital twice over. I think my hon. Friend said it was the law, and I thought the Attorney-General confirmed the view of my hon. Friend and said it was not only the law, but that it should be the law.

I will put it as plainly as I can There are three things that must be distinguished. There is first the provision of the old law by which you tax an income from foreign securities, so far as they are remitted to this country. They are not taxed upon the average under the old law, but upon the amount you receive in the year. In the second place, also under the old law, there is the case of remitting to this country the proceeds of what are called foreign possessions—not the same thing as securities. For instance, the best known case in regard to foreign possessions, the one argued in the Courts a great deal, is the case of a wool business in Australia. There, of course, you may remit to this country in specie or in money. Under the old law you tax upon the average that is remitted to this country. Under the old law and under the present law you tax upon the average, the reason being that it might happen a person did not send here the whole of the product in any given twelve months, and therefore it was thought right to take the average The third thing is under our new Clause, and that, of course, has nothing to do with whether income is remitted to this country or not, though on the other hand I think it is quite clear it is limited to the case of securities, stocks, shares, and rents, and does not include profits on an ordinary business abroad. There again there is no question of average. You tax year by year on the interest of your investment abroad just as you are taxed year by year on the interest of your investments at home. At home you would be taxed at the source, whereas abroad you are not; but that is merely a matter of machinery. Out of the three cases—two under the old law, and one under the new—there is only one in which the average can apply. This new Clause cannot possibly have any reference to the first case of the remittance to this country of foreign securities, nor to the last case I have mentioned, namely, that under Clause 5. The only case to which it can possibly have reference would be the case of the remittance to this country of the proceeds of foreign possessions, and there what I say is, that it is right to stick to the average, and that it would be wrong to give the taxpayer an option, because, of course, that would obviously mean that the taxpayer, either by choosing the time when he remitted or by limiting in some other form the amount, in any one year it might be a very small thing, whereas, as a matter of fact, the average would not correspond to the small figure which was produced in one year by manipulation. I do not know whether I make it clear, but two out of the three cases could not possibly be affected.

I think I understand the right hon. and learned Gentleman, and I am much obliged for his explanation. If I do not understand it, it is not for want of courtesy or want of knowledge on his part. But I take that case of foreign possessions, and I want to put a specific instance in that connection. I think the right hon. Gentleman said that the standard case was the case of a wool business in Australia. Take a man who is resident in London and making £5,000 a year by a wool business in Australia. He would be resident in London and he would have the whole of that £5,000 whether he brought it home or not. I understand in that case he will be assessed on the average of three years.

The new Section will have nothing to do with that. It only deals with securities, stocks, shares, and rents. It has nothing to do with that.

The right hon. and learned Gentleman gave three cases. Is there not a fourth case in which this new Clause applies, namely, the case that, if a business is set up, at the end of three years, instead of being assessed on the average, it is assessed at the end of the year? That is what I want to apply to foreign possessions.

May I ask the right hon. and learned Gentleman whether it is not the case that you have a distinction between separate cases—the case of an individual, the case of a partnership, and the case of a company? My right hon. Friend put the case of an individual who has a business in Australian wool and who is resident in this country. I would ask the right hon. and learned Gentleman whether it is not the case that under the existing law that individual, however his business is managed, as an individual would be liable for the whole of the profits?

That is not under the new Section 5.

No, under the existing law. The case of an individual who owns the whole business is deemed to control the whole business, however much it passes into the hands of agents, for he can always dismiss his agents. Under the existing law a single individual—I am distinguishing the care of an individual—is liable on the whole profits of that business carried on abroad, whether remitted to this country or not. Whatever arrangement he makes in regard to agents he has the control of that business. Then you come to the case of a partnership and a company, where I think you are raising up most illogical provisions by your two new Sections. What you provide is this: Take the case of a partner in that wool business living in this country, and that partnership is controlled abroad; if I own half the shares in that partnership, you provide by Clause 10 that I am to be liable in respect to profits I do not bring back to this country.

I treated the new Clause as meaning what it says. The hon. and learned Gentleman is talking of a partnership. What on earth has this Clause to do with any question of partnership?

We are not dealing here with Clause 5 or Clause 10. We must keep to the subject raised by the proposed new Clause.

The only reason I rose was in consequence of the case which my right hon. Friend put, and with reference to which it is essential to understand the position in order to realise the difference between the case of an individual and the partnership and a company. The individual under the existing law is liable. In the case of a partnership under the new Section 10 he is not liable in respect of that which he does not bring back. If that same partnership is transformed into a limited company in which he has a half share, he is liable on the dividends on that company although he does not bring them back. The result of these two Sections is to leave the matter in a hopelessly illogical position, and the right hon. Gentleman had better refer this matter to a Royal Commission.

I think the Attorney-General is perfectly right in the statement of the law which he made, but it does not meet this Amendment. My hon. Friend's Amendment is very simple, but it is impossible to understand it without going back a little. My hon. Friend asks for an extension of the exemption granted under Section 24, Sub-section (2), of the Act of 1907. I am going behind that to remind the House what that Section was passed for. The Attorney-General, who is familiar with the Report of the Income Tax Act, 1905, will recollect that Clauses 81 to 111 deal specifically with this question of the three years' average. What was the position before the Act of 1907? There was Section 133 of the old Income Tax Act, which provided for an adjustment of the assessment at the end of the year by dispensing with all estimates which were based on the preceding year, or the average, and substituting the actual profits of the year by assessment as soon as ascertained. For good reasons, which are pointed out, it was held that the old form of adjustment was insufficient and ineffective, and was not fair to the Crown and the Income Tax Commissioners proposed that Section 133 should be repealed and a new mode of adjustment introduced. In consequence of their recommendation a new Clause was put in, and Section 24, Sub-section (2), and Section 133 of the old Act was repealed, and so now we have got the adjustments which can be made in respect of the three years' system brought up to a more modern system by means of Section 24, Sub-section (2), of the old system, and the old Section 133 of the Act of 1842 no longer stands good.

What is the effect of that? It is that by means of this adjustment it is possible now for a man to say to the Commissioners that by reason of the three years' system he has paid more by taking this Act than he would have paid if he had taken the real sum he had received. That is the adjustment given in Section 2 and Sub-section (3). Now, my hon. Friend the Member for Salisbury comes forward with a very simple Amendment, and he gave a very good illustration of what it was sought to do. He said, "Let us take the three years' average. A man has to return his whole income. Suppose he has returned it for a given year, say, 1914–15, and in that there is a certain amount comes to him from abroad. He has to return that because it is a part of the income from other sources which is to be found in the Income Tax returns we have to make. Having made his average based upon the sum of money he has received from foreign sources, he has returned his average. Having done that, he finds also that he is taxed particularly by another side wind or imposition in respect of this portion of the money which comes from abroad," and so my hon. Friend says that during a period of three years there ought to be an opportunity for exemption in respect of duty which has already been taken into account, and which is only being taxed by means of a direct imposition, and being foreign income there ought, therefore, to be an exemption from the three years' system. I think I have correctly explained the purpose of my hon. Friend's Amendment.

The illustration which he gave to meet the point made it perfectly plain that this is all he desires to do. The Attorney-General several times over gave a clear exposition of the law, but I am sure he would not resist what I have said, because it is a pure act of justice. I agree that this Clause might have to be framed again or have introduced into it other words in order to make it accord with the Income Tax Act, but that is no reason why we should not read this Clause a second time. At the present moment no adjustment can be made in respect of this income coming from abroad. My hon. Friend suggests an adjustment, particularly in the last line or two. He says there are certain cases in which the hardship will be emphasised by reason of the passage of Clause 5 of this Bill. That Clause provides that whether the money comes over here or does not, it has equally got to be returned and there can be an assessment in respect of money which does not come over here. My hon. Friend proposes to give the exemption in respect both of money which is remitted from abroad and which is taxed, as I say, by a side wind, and which has already found its place in the three years' average and also in respect to the Income Tax which could be imposed by virtue of Clause 5 of the Finance Act of this year. This Amendment is to give that exemption during the same period, and no longer than Clause 24, Sub-section (2) gives it at the present time in respect of an average year's income. It is merely ingrafting upon Section 24 a system which is required for the purpose of meeting an injustice by reason of income which is remitted and sent from abroad, and which, although not remitted, is taxed by means of Clause 5. All the other problems and conundrums which have been put have nothing whatever to do with that simple proposition.

The Attorney-General says that foreign securities are taxed at the year of assessment, and that is the difficulty which makes my hon. Friend's Clause necessary. If they were not taxed on the year of assessment the difficulty might not arise, but inasmuch as they are so taxed, and you have to adopt a three years' average, and although they have been taxed in the year of assessment, they have to find a place in the average system. That system works unfairly, because you get an average of a certain amount of income which has been taxed, and will be taxed, although you are, by means of the average system, submitting them to taxation. I do not think that the Attorney-General was very clear in his answers as to why that