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Issues Involved:
1. Whether the interest of the deceased in the residuary estate was only an interest as holder of an office. 2. Whether estate duty became payable in respect of the deceased's death on that part of the residuary estate. Issue-wise Detailed Analysis: 1. Interest as Holder of an Office: The appellant, the Public Trustee, contended that Mr. Arnholz's interest in the residuary estate was "only an interest as holder of an office" within the meaning of section 2(1)(b) of the Finance Act, 1894. This interest was derived from a bequest in Lord Northcliffe's will, which granted Mr. Arnholz a fractional share of the income "during his life so long as he shall act as executor and trustee of this my will by way of remuneration for so doing." The respondents argued that the exception in section 2(1)(b) applied only to that paragraph and not to property which passes on death within the meaning of section 1. They contended that Mr. Arnholz's interest was given to him as an individual while he was living and held the office of trustee, and was not attached to the office of trustee. The Court of Appeal and Danckwerts J. initially rejected the appellant's contention, holding that the words of exclusion in section 2(1)(b) had no relevance to a life interest enjoyed by a person as holder of an office. However, the House of Lords found that Mr. Arnholz's trusteeship was indeed an office and that he received his remuneration in the form of a share of the income of the residuary estate only as the holder of that office. 2. Liability to Estate Duty: The main question was whether the property in question, which would pass under section 1 even if section 2(1) were omitted from the Act, was liable to estate duty. The respondents relied on the dictum of Lord Macnaghten in Earl Cowley v. Inland Revenue Commissioners, which suggested that sections 1 and 2 of the Finance Act, 1894, were mutually exclusive. This interpretation would mean that the excluding provisions in section 2(1)(b) did not apply to property passing under section 1. However, the House of Lords re-examined this interpretation and found it to be incorrect. They concluded that sections 1 and 2 were not mutually exclusive and that the excluding words in section 2(1)(b) were operative in regard to property which falls within that subsection, even though that property may also fall within the wide words of section 1. The House of Lords held that the exclusion in section 2(1)(b) applied to the case, and thus, the interest of Mr. Arnholz in the residuary estate was exempt from estate duty. Conclusion: The House of Lords reversed the judgment of the Court of Appeal, holding that the interest of Mr. Arnholz was only an interest as holder of an office and was therefore exempt from estate duty under section 2(1)(b) of the Finance Act, 1894. The respondents were ordered to pay the appellant's costs.
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