ABSTRACT
§ 1. THE relation between the Income-Tax and the group of taxes upon Estates, Probate, Legacies and Succession, commonly designated Death Duties, is one of intimacy and importance. For the two forms of taxation are both complementary and substitutional. The capital wealth that passes at death may be regarded as the accumulation of wealth which has figured in the income of the deceased or some predecessor, and has not been spent or taken in taxation. Though certain special instances of increment of capital value, viz., profits on the sale of ships and on the sale of controlled establishments have recently been brought within the income-tax, a great deal of these gains will have escaped entirely the incidence of taxation when they came into existence. For there are various additions to the wealth which a man may obtain within a given year that lie outside the purview of the Inland Revenue Authorities. A landowner may find the value of his land growing every year, but that growth escapes taxation, though it is an enlargement of his income for all effective purposes. No attempt at all is made to levy taxation upon certain other increments of capital value, such as rises in the market value of securities, or profit from their sale, or from deductions from gross business earnings which under the head of renewals, reserves, etc., enhance the capital value of a business, or from various windfalls that lie outside the routine operations of the business. Various forms of what is termed ‘ cutting the melon,’ i.e. distribution of gains outside the ordinary declaration of dividends, are devised for the purpose of escaping publicity and income-tax. Sometimes this takes shape in ‘ bonuses,’ sometimes in duplication of shares, sometimes in preferential terms for the taking up of new share capital. In periods of rapid industrial and commercial growth and in periods of turmoil, when speculative enterprise and rapid strategic finance find favourable scope, an immense quantity of fresh values escape from ever figuring as taxable income. It is, of course, true that the annual interest, rent or profit, which this enhanced wealth procures for its owner may pay income-tax. But the corpus itself, though at some time or another it came as an addition to the year's gain of the owner, was not taxed as income in that or any other year.
