The Pemsel Case Foundation
On 20 July 1891, in the House of Lords in London, England, the judgment in the case of The Commissioners for Special Purposes of the Income Tax v John Frederick Pemsel was delivered. Those involved at that time probably did not realise the significance of this case, other than for the Moravians who had been seeking a refund of income tax for many years and had finally succeeded. For while the case finally provided clear guidelines as to what was considered to be charitable in law, the case also provided the basis for charities to be exempt from the payment of income tax, in spite of Lord Macnaghten having declared, in his judgment, “[w]ith the policy of taxing charities, I have nothing to do.”
The charitable purposes exemption from income tax
Why then were the Moravians seeking a refund of income tax in the first place? To answer that question we need to go back in time to England in 1798, which was embroiled in the Napoleonic Wars. Pitt was desperate for war funding, and having been unsuccessful in raising additional taxes through his Assessed Taxes Act of 1798, he turned to Duties upon Income, or income tax, as a temporary war-time measure. On 5th of January1799 Pitt’s Duties upon Income Act came into force. While the Duties upon Income Act provided that corporations, fraternities, or societies of persons established for charitable purposes only were exempt from the Duties, it was not until 1803 when Addington, who was then the Chancellor of the Exchequer, introduced the concept of deduction at source. The effect of this was to trap the charities in the tax net due to their funds, invested in such as the Bank of England, being required to have income tax deducted from the interest that had been earned. The application of the exemption was not a blanket authority, as it is today. The charities were required to file an application with the General Commissioners for the refund of any income tax that had been deducted. Such were the number of applications that in 1805 Pitt, once again the Chancellor of the Exchequer, created the Special Commissioners to deal with such claims. However, the unpopular temporary war-time tax was finally repealed on 18 March 1816, two years after the signing of The Definitive Treat of Peace and Amity on 30 May 1814.
What is a charitable purpose?
The relief from having to pay income tax was short-lived as, in 1842, Peel reintroduced income tax, once again as a temporary measure. The Special Commissioners resumed their work, most of which was undertaken by one man, a Mr Fuller, who answered to a Board of Special Commissioners. However, the problem faced by the Special Commissioners was that the income tax Acts had failed to provide a definition of charitable purpose. This unsatisfactory situation lead to the Treasury, in 1865, “[communicating] to Parliament the fact that they had come to the conclusion that the subject was ‘one which should be reserved to be dealt with by the Legislature’,”, a point which was noted also by Lord Macnaghten. The matter was raised again in 1888, by Lord Addington, who also favoured a legislative definition of charitable purpose. However, also in 1888, the Moravians had commenced their claim in the Courts for a refund of income tax of £73 8s 3d.
The role of the Commissioners for Special Purposes of the Income Tax
The United Brethren, also known as the Moravians, having been unsuccessful in the claim for a refund of income tax from the Special Commissioners, took their case to the Court of Appeal at the Queen’s Bench. The Moravians were unsuccessful in having a writ of mandamus enforced against the Commissioners for Special Purposes, which would have required the Commissioners to issue a certificate authorising the repayment of “property or income tax ... paid in respect of the year ending April 5, 1886. The Moravians appealed, and were successful. However, the Commissioners for Special Purpose of the Income Tax disagreed, and took their appeal against the decision of the Court of Appeal to the House of Lords. On 20 March, 1890, the Law Lords commenced hearing the arguments of first the Commissioners, then the Moravians through their legal counsel, Crackanthorpe QC, assisted by Russell Roberts. Crackanthorpe made an interesting comment regarding special exemptions provided for the British Museum and other institutions, declaring that “those exemptions were no doubt inserted ex abundanti cautelâ,” or as a matter of caution to ensure their exemption from income tax. Lord Macnaghten also considered that the clause “was probably introduced at the instance of the trustees of the [British] Museum” to ensure their exemption from income tax.
However, it was not until 16 months later, on 20 July 1891, that judgment was finally delivered in the House of Lords. The reason for this was the efforts of the Lord Chancellor, Halsbury:
who used the political power of his office to influence judicial decisions most actively. In the important tax and charity case of [Pemsel], Halsbury held up the decision for sixteen months in an effort to break the majority against his position (Emphasis added).
This behaviour might be better understood once it is appreciated that “[i]ncreasingly, law lords developed their own philosophies with respect to tax cases, generally mirroring their political views.” According to Stevens:
[a]t the turn of the century the House was strongly under the dominance of Halsbury who, despite his conservatism, at that time saw nothing particularly desirable in helping a man avoid his share of taxation. In deciding tax cases, therefore, he took a “common sense” look at the taxing statute, and if he found the statute fairly applied, he found for the Crown. He refused to take a narrow view of the meaning of a tax category, although he was most satisfied when a case plainly fell within the relevant statute. While he was on record as encouraging the court to look at the words rather than the intent of the income tax Acts, the majority of his pronouncements were in favour of taking a broad look at the Acts. Indeed, in many cases, Halsbury specifically called on the House to look at the intent of the tax statutes or to look at the scheme of the taxing statutes to make sure they applied a sensible test. He also advised looking at the substance rather than the form of the transaction.
Paterson considered that even if one of the majority had changed his position:
Halsbury would not have triumphed even then in the normal course of events since in the eventuality of a tied vote the lower court judgment (of which Halsbury disapproved) would by tradition have been upheld. ... [I]t seems likely that Halsbury would have ordered a re-hearing if there had been a tied vote.
It was, however, Lord Macnaghten, described by Stevens as a “conservative,” but one who “at other times appeared to be in favour of taking a broad approach to tax problems,” who settled the matter at that time declaring that:
Charity in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads.
Lord Macnaghten also went on to say that “[t]he trusts last referred to are not the less charitable in the eye of the law, because incidentally they benefit the rich as well as the poor, as indeed, every charity that deserves the name must do either directly or indirectly.” Then, the often quoted remark, which highlights the complexity of charity law, that “[i]f a gentleman of education, without legal training, were asked what is the meaning of ‘a trust for charitable purposes,’ I think he would most probably reply, ‘[t]hat sounds like a legal phrase. You had better ask a lawyer’.” Ultimately, the Moravians were successful, the appeal having been “dismissed with costs.”
“With the policy of taxing charities, I have nothing to do.”
While Lord Macnaghten might not have considered that the case in which he delivered his seminal charity law judgment to be a tax case, nevertheless the case was also reported in a volume of “Reports of Tax Cases.” This report is significant in that before the judgment is reported, it records comments by the judges to various parties: “[Lord Macnaghten. – is this exemption of the British Museum in the older Acts?]”  Then: “[Lord Herschell. – The Charity Commissioners have to certify two things: that the funds are held for charitable purposes and that they are exempt from income tax],” as a statement rather than a question. Finally: “[Lord Halsbury: We need not trouble you, Mr Crackenthorpe, about the question of the mandamus.]”
The process of claiming the refund
In order to claim their refund of income tax, the Moravians were required, under s 61 Schedule A No. 6, of the Income Tax Act 1842, being a copy of the Act of 1806, to apply to the Commissioners who would grant them “on proof before the Commissioners for Special Purposes of the due application of the said rents and profits to charitable purposes only, and in so far as the same shall be applied to charitable purposes only.” The claim was to be submitted:
by any steward, agent, or factor acting for such school, hospital, or almshouse, or other trust for charitable purposes, or by any trustee of the same by affidavit ... stating the amount of the duties chargeable, and the application thereof, and are to be carried into effect by the Special Commissioners without altering the assessments which are to be levied notwithstanding such allowances.
The personalities in Pemsel: Lord Macnaghten, the Moravian Church and John Frederick Pemsel
Edward Macnaghten, Baron Macnaghten Bart., GCB, GCMG (3 February 1830 – 17 February 1913)
Lord Macnaghten, “a University First Class man and a University ‘Blue’, ... was called to the Bar at Lincoln’s Inn in 1857, practised as a Chancery barrister, was made a Q.C. in 1880, and became a leading counsel in the Court of the Master of the Rolls, then a Chancery judge.”  Ilbert records that Lord Macnaghten “represented his native county, Antrim, from 1880 [the year in which he took silk] to 1885, and the northern divisions of that county from 1885 to 1887 in the House of Commons.” In 1887 he was appointed as Lord of Appeals. Lord Macnaghten’s judgements were considered to be “not only good law but good literature. There is racy humour in them, in addition to their learning and their sound, solid, subtle reasoning [with] a flavour of fine scholarship.” 
A less well known but interesting comment was made in 1901 by Lord Macnaghten that “[i]ncome tax, if I may be pardoned for saying so, is a tax on income. It is not meant to be a tax on anything else.” Lord Macnaghten also sat in another famous case, Salomon v Salomon & Co., which laid down the rules governing corporate personality. Lord Macnaghten had been elected, in 1880, as a Conservative MP for County Antrim and it was on Irish matters that he “generally, but by no means always, spoke.” An Anglo-Irish barrister, and Conservative-Unionist politician, he was described “[a]s a judge [who] listened with patience and decided without hesitation [and one who used] simple yet exact terms. [He possessed the] ability to produce a literary essay from a dry and technical session.” On his death in 1913 Lord Macnaghten was described as “one of the most learned and distinguished barristers in England, having been a Lord of Appeal-in-Ordinary since 1887.”
The Moravian Church in England
The first contact the Moravians had with England was in 1728, when three representatives of the church were sent in a failed attempt to meet with the Society for the Promoting of Christian Knowledge. Finally, in 1742, the work of the church began with the establishment of a congregation in Fetter Lane, in London. Then, “on 12 December 1817, ‘The London Association in Aid of the Missions of the United Brethren’ came into existence, destined to become a very important factor in the history of the Moravian Missions.” Was it as a consequence of the Moravian’s appeal for funds that Elizabeth Mary Bates made provision for the Moravians, when lands were conveyed by deed in 1813 “to trustees upon trust ... for the general purposes of maintaining, supporting and advancing the missionary establishments among heathen nations of ...the Moravian Church”?
The Pemsel case was not the first time that the Moravians had been confronted with tax liabilities. In 1797, during the debate on the Assessed Taxes Bill, William Wilberforce had “proposed a clause to exempt the Moravians” from the Bill, on the grounds that they were:
a quiet set of people who lived in societies, the men employing themselves as artisans and the women with tambour work. They supported their aged by charity, and were otherwise exemplary in their morals. They dwelt together in large houses instead of cottages, which they were enabled to do by their mutual industry and economy, but [Wilberforce] believed their institution must be given up if they were not exempted, while the Revenue would receive rather less than more by forcing them to such a measure.
Pitt rejected Wilberforce’s plea, and “ridiculed the romantic idea of such a clause being added.” In attempting to justify his comment, Pitt stated that “these good people were very economical, and in these houses they must live much cheaper than if each individual kept house himself.” How ironic then that nearly one hundred years later the Moravians were to have the last laugh, when Lord Macnaghten gave his judgment in Pemsel. How ironic also that in 1798, not being excused the Assessed Taxes, a community of Moravians “of Fulneck, near Leeds,” made a “voluntary contribution for the defence of the country [by way of] a free gift of £125.”
The basis of the issue concerning income tax lay in a gift by way of bequest to the Moravians under a deed dated 11 February 1813, the details of which were recited in Pemsel. A further deed to the Moravians was signed by Mrs Bates on 25 July 1815, “for the maintenance and general benefit of the establishment of the protestant Episcopal Church” in Antrim. Mrs Bates (d. 1835), who had married Ely Bates in 1788, was a widow by 1813 when she settled the estate on the Moravian Church.
John Frederick Pemsel
John Frederick Pemsel was the Treasurer of the Moravian Church, the Protestant Episcopal Church, otherwise known as the Unitas Fratrum or United Brethren, and who no doubt had been responsible for filing the claim for a refund of income tax which resulted in the case which bears his name.
Pemsel was born in the West Indies, in Jamaica in 1833. The Census of 1861 recorded his occupation as a Commercial Clerk, at Manchester Shipping House. He married Eleanore Sophia Shawe in [about] 1870. In 1881 he was the Accountant at the Moravian Missionary Society, and by 1891 was its Manager. The 1911 Census recorded that three of their five children were still living, with one of the children, Harold, 30 years of age, residing with his parents, who also employed a servant. Pemsel died at the age of 85, at his home at 15 Oakfields Road, Stroud Green, Finsbury Park, in the county of Middlesex, on 14 October 1918. His wife, Eleanor (b. 1838), pre-deceased him on 7 May 1916, dying at the age of 78.
Pemsel, who was actively involved with the Moravian Church for many years, was recorded in The Moravian Messenger of October 1908 as “the congregation steward.” He lived to see the centenary celebrations of the formation of the London Association, which in its 100 years had raised over £730,000 for its work, the Association having established “between 300 and 400 stations; ... 422 days schools, with 32,425 scholars; and 195 Sunday schools, with 25,240 Sunday scholars.” John Frederick Pemsel, no doubt a humble man, would probably be very surprised to know that his name has been immortalised, along with that of Lord Macnaghten, in charity law throughout the world of common law.
Adapted from MJ Gousmett, The Charitable Purposes Exemption from Income Tax: Pitt to Pemsel 1798-1891. Unpublished Doctoral thesis, University of Canterbury (2009) available at http://hdl.handle.net/10092/3448.
 The Commissioners for the Special Purposes of Income Tax v Pemsel AC 531  (“Pemsel”).
 Pemsel, above n 2, 591.
 [Assessed Taxes] 38 Geo. III c. 16 [12 January 1798].
 [Duties upon Income] 39 Geo. III c. 13 [9 January 1799]. As the Acts of the late 18th and early 19th century had convoluted names, I have abbreviated them for convenience.
 [Duties], above n 5, s. 5.
 [Duties upon Income] 43 Geo. III c. 122 [11 August 1803].
 [Duties upon Income] 45 Geo. III c. 49 [5 June 1805].
 [Duties upon Income] 5 & 6 Vict. c. 35 [22 June 1842].
 See Gousmett, above n 1, 377.
 Journals of the House of Lords, Return of Income Tax on Charities (27 November 1888) Vol. CXX, 426; Pemsel, above n 2, 590 and 591.
 See Gousmett, above n 1, 375.
 The Queen on the Prosecution of J.F. Pemsel v Commissioners of Income Tax 22 QBD 296 .
 The Queen, above n 14, 297.
 The Queen, above n 14, 297.
 Pemsel, above n 2, 539.
 Pemsel, above n 2, 589.
 Robert B. Stevens, Law and Politics: The House of Lords as a Judicial Body, 1800-1976 (1979) 87.
 Stevens, above n 18, 170.
 Stevens, above n 18, 171.
 A.A. Paterson, “Judges: A Political Élite?” 1 British Journal of Law and Society 118 (1974) at 122.
 Stevens, above n 18, 171.
 Stevens, above n 18, 172, as in, for example, LCC v Attorney-General  A.C. 26, 35-40 (1900).
 Pemsel, above n 2, 583.
 Pemsel, above n 2, 584.
 Pemsel, above n 2, 592.
 Reports of Tax Cases, Volume III 1891-1898 (reprinted 1981).
 Reports, above n 27, 57.
 Reports, above n 27, 58.
 Reports, above n 27, 59.
 Pemsel, above n 2, 588.
 Pemsel, above n 2, 584.
 Pemsel, above n 2, 584.
 C.P. Ilbert, “The Right Hon. Lord Macnaghten,” 8:1 Journal of the Society of Comparative Law (1907) 9.
 Ilbert, above n 35, 9.
 Ilbert, above n 35, 9.
 Ilbert, above n 35, 9.
 London City Council v Attorney-General  A.C. 26, at 36.
 Salomon v Salomon & Co. Ltd (1896),  A.C. 22 (H.L.). See also Companies Act 1862.
 H.C.G. Matthew and Brian Harrison (eds), 35 Oxford Dictionary of National Biography [ODNB] (2004) 927.
 ODNB, above n 41, 927.
 [Obituary], ‘England’s Great Judge Dead’, The New York Times (New York), 18 February 1913 (page not cited).
 Hamilton, above n 44, 128.
 Hamilton, above n 44, 312.
 Pemsel, above 2, 531.
 [Untitled], Evening Mail (London), 20 December 1797, [unpaginated].
 Parliamentary Intelligence, ‘Assessed Taxes’, Whitehall Evening Post (1770) (London), 20 December 1797, Issue 7978.
 Parliamentary Intelligence, above n 49.
 MJ Gousmett, The Charitable Purposes Exemption from Income Tax: Pitt to Pemsel 1798-1891, Unpublished Doctoral Thesis, University of Canterbury (2009), 454, available at http://hdl.handle.net/10092/3448 ; ‘Voluntary Contributions’, True Briton (London), 10 April 1798, Issue 1652.
 Pemsel above n 2, 532.
 Pemsel, above n 2, 531.
 [Public Notice], The London Gazette, 3 January 1919, 238.
 [News], Moravian Missions Centenary, The Times (London) 10 May 1918, p. 3.