Anti-avoidance rules captured partnership profits as income payable where asset transfers and related operations diverted taxable income.

Section 18 of the Finance Act, 1936 was discussed as an anti-avoidance provision aimed at transfers of assets that diverted income outside the United Kingdom. The text explains that the transferred assets must be read together with associated operations, and that partnership profits can still be income "payable" within the section because a partner may enforce payment through the partnership machinery and the undrawn share can appear as a debt in the accounts. On the facts described, the arrangement was treated as an artificial scheme designed to divert profits while avoiding British income-tax and surtax, and the provision was applied broadly to catch it.

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Issues: Whether the arrangement fell within Section 18 of the Finance Act, 1936 so that partnership profits received through a transfer of assets and associated operations were income "payable" within the meaning of the section and could be treated as the resident individual's income for tax purposes.

Analysis: Section 18 was enacted to prevent avoidance of income-tax by transfers of assets through which income became payable to persons outside the United Kingdom. The relevant transfer had to be read with any associated operations. The partnership share of profits was not outside the scope of the provision merely because it arose from a partnership relationship. A partner entitled to a share of profits could enforce payment through the partnership machinery, and the undrawn share appeared as a debt owing in the accounts. The turning of transferred assets to account by the partnership was an associated operation within the wide language of the section. On the facts, the arrangements were highly artificial and were designed to divert profits while avoiding British income-tax and surtax.

Conclusion: The section applied, the partnership profits were income payable within the provision, and the appeal failed.

Final Conclusion: The anti-avoidance provision was construed broadly enough to catch the scheme, so the tax liability was upheld and the challenge to assessment was rejected.

Ratio Decidendi: For the purpose of an anti-avoidance provision directed at transfers of assets and associated operations, partnership profits may constitute income "payable" to a partner, and operations turning transferred assets to account may be treated as associated operations bringing the arrangement within the charging provision.

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