Taylor v. Provan (Inspector of Taxes)
[1975] A.C. 194(Judgment by: Lord Morris of Borth-Y-Gest J.)
Taylor (Appellant)
and Provan (Inspector of Taxes) (Respondant)
Judges:
Lord Reid
Lord Morris of Borth-y-GestLord Wilberforce
Lord Simon of Glaisdale
Lord Salmon
Subject References:
Revenue
Income tax
Employment
Emolument
Canadian resident unpaid director of company in England
Special assignment involving travelling to England
Whether travelling expenses 'necessarily incurred' in performance of duties of office
Whether duties in respect of special assignment to be differentiated from duties as director
Whether payments in respect of duties performed in United Kingdom
Legislative References:
Income Tax Act 1952 - (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), ss. 156, 160(1); Sch. 9, para. 7 1
Case References:
Commissioner of Stamp Duties v. Atwill - [1973] A.C. 558; [1973] 2 W.L.R. 327; [1973] 1 All E.R. 576, P.C.
Cook v. Knott - (1887) 2 T.C. 246
Newsom v. Robertson - [1953] Ch. 7; [1952] 2 All E.R. 728; 33 T.C. 452, C.A.
Pook v. Owen - [1970] A.C. 244; [1969] 2 W.L.R. 775; [1969] 2 All E.R. 1; 45 T.C. 571, H.L.(E.).
Practice Statement (Judicial Precedent) - [1966] 1 W.L.R. 1234; [1966] 3 All E.R. 77, H.L.(E.).
Reg. v. National Insurance Commissioner, Ex parte Hudson - [1972] A.C. 944; [1972] 2 W.L.R. 210; [1972] 1 All E.R. 145, H.L.(E.).
Revell v. Elworthy Brothers & Co. Ltd. - (1890) 3 T.C. 12
Ricketts v. Colquhoun;. - [1925] 1 K.B. 725, C.A.;; [1926] A.C. 1; 10 T.C. 118, H.L.(E.)
Judgment date: 13 March 1974
House of Lords, UK
Judgment by:
Lord Morris of Borth-Y-Gest J.
My Lords, the first question which arises is whether the sums now under consideration (i.e. the sums which were paid to the appellant to reimburse him for the cost of his flights to and from England) were sums paid in respect of expenses by a body corporate to one of its directors (or to a person employed by it in an employment to which Chapter II of Part VI of the Income Tax Act 1952 applied) within the meaning of section 160 (1) of the Income Tax Act 1952. The first part of that subsection provides as follows:
"(1) Subject to the provisions of this chapter, any sum paid in respect of expenses by a body corporate to any of its directors or to any person employed by it in an employment to which this chapter applies shall, if not otherwise chargeable to income tax as income of that director or employee, be treated for the purposes of paragraph 1 of Schedule 9 to this Act as a perquisite of the office or employment of that director or employee and included in the emoluments thereof assessable to income tax accordingly:"
On behalf of the appellant it was contended that the section only referred to sums paid to a director "as such" or in other words paid to him in respect of the performance of his ordinary duties as a director. It was urged that the appellant was only appointed a director for reasons of prestige and that his real and sole function in each company was to carry out the special assignment of planning and arranging mergers and that he had none of the normal duties of a company director and never attended board meetings unless he happened to be in England on the business of his special assignment and not always then. So it was urged that the reimbursements were not made to him as a director or because he was a director but were made in respect of his position as one to whom certain special duties were assigned. He was, however, appointed a director albeit one with limited and special duties. It was because he undertook the special assignment that he was made a director, and the result of this was to link rather than to separate his position as a director with his position in carrying out his specially assigned duties. I see no warrant for saying that the sums paid to him in respect of expenses were other than sums paid by a body corporate to one of its directors within the words of section 160 (1).
He was a member of the board of directors and by section 163 (1) (a) it is provided that "director" means "in relation to a body corporate the affairs whereof are managed by a board of directors or similar body, a member of that board or similar body."
If the sums came within the opening words of section 160 then for the purposes of paragraph 1 of Schedule 2 to the Finance Act 1956, they were to be treated as "perquisites" of the office or employment and included in the emoluments thereof assessable to income tax. The result of this was (see paragraph 1 of Schedule 2 to the Finance Act 1956) that tax under Case I, II or III of Schedule E became, subject to certain exceptions, chargeable on the full amount of the emoluments, falling under the particular Case, subject to such deductions as might be authorised by the Income Tax Acts: the expression "emoluments" including all salaries, fees, wages, perquisites and profits whatsoever.
Tax under Schedule E is charged (see section 10 of the Finance Act 1956) in respect of any office or employment on emoluments therefrom which fall under one or more of Cases I, II and III. The present appellant was not resident or ordinarily resident in the United Kingdom, so under Case II tax would be charged - unless an exception applied - in respect of the appellant's office or employment on emoluments for the year of assessment "in respect of duties performed in the United Kingdom." It was submitted that the appellant's travelling expenses to and from the United Kingdom (which as I have indicated must be treated as perquisites and within the word emoluments) were in any event not emoluments "in respect of duties performed in the United Kingdom." I am unable to accept this submission. The appellant was not resident in the United Kingdom, and when he travelled to and from the United Kingdom in order to perform such part of his duties as had to be performed in the United Kingdom he was reimbursed his travelling expenses. I consider that the sums that he received were emoluments "in respect of" his duties performed in the United Kingdom.
This brings me to the question whether the appellant can claim to make a deduction from the emoluments to be assessed so as to reduce the assessment to nil. Section 160 (1) of the Income Tax Act 1952 contains a proviso "that nothing in this subsection shall prevent a claim for a deduction being made under paragraph 7 of the said Schedule 9 in respect of any money expended wholly, exclusively and necessarily in performing the duties of the office or employment."
By paragraph 9 of Schedule 2 to the Finance Act 1956, the above-mentioned paragraph 7 is maintained as applicable. Paragraph 7 of Schedule 9 to the Income Tax Act 1952 is in the following terms:
"7. If the holder of an office or employment of profit is necessarily obliged to incur and defray out of the emoluments thereof the expenses of travelling in the performance of the duties of the office or employment, or of keeping and maintaining a horse to enable him to perform the same, or otherwise to expend money wholly, exclusively and necessarily in the performance of the said duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed."
The circumstance that when referring to paragraph 7 of Schedule 9 the proviso to section 160 uses the words "in performing the duties" whereas the words in paragraph 7 are "in the performance of the duties" shows that there is no variation of meaning between the two sets of words.
In considering in any particular case whether the wording of paragraph 7 is applicable it seems to me that it is first essential to have clear and explicit findings of fact. Thereafter the application of the words of the paragraph should not in most cases present much difficulty. I regard many of the reported cases as being no more than illustrative of the divergent sets of circumstances that may arise and of the way in which in reference to particular facts the words of paragraph 7 have in particular cases been applied. Most of the words are, as words, well understood. I refer to the words "necessarily" and "wholly" and "exclusively." There is little room for doubt as to the meaning of those words. They are not ambiguous.
It will, however, always be essential to have clear findings of fact on certain matters. In the first place, it will be necessary to know what exactly was the office or employment that a person held. In the second place, it will be necessary to know what exactly were the duties of the office or employment. In a great many cases it might be determined that a person's obligations were to be in an office at a certain place at certain appointed times and in that office to perform certain duties. The person concerned would probably reside elsewhere. But the position of his home would be a matter for him to decide. For reasons personal to himself he might wish to live near to his work or he might wish to live far away from his work. How much time or how much, if any, expense would be involved in getting to his work would be entirely his affair. If of two such men who had to be in an office at a certain place at certain appointed times so as there to perform similar duties one lived within walking distance and had no travelling expenses while the other chose to live a long distance away with consequent heavy travelling expenses it could not successfully be argued that the latter as the holder of an office or employment of profit was "necessarily obliged" to incur travelling expenses nor that he was necessarily obliged to incur such travelling expenses in performing the duties of his office or employment. The phrases "in the performance of the duties" or "in performing the duties" may to some extent be inexact. There may be cases in which someone who has performed certain duties at place A is then obliged to go on to place B and to perform certain duties there. While actually travelling between A and B he might or might not be able to perform any of his specifically assigned duties but yet he might be incurring travelling expenses in the performance of or in performing the duties of his office or employment. On those facts he would be necessarily obliged to get from A to B: his duty would require him to travel.
He would be travelling on his work.
In the present case the question that arises is whether on the facts as found the appellant "wholly, exclusively and necessarily" incurred the travelling expenses (for we are not concerned with any other expenses) in performing his duties. If his duties were such that some of them were to be performed in Canada (or Nassau) and some of them (perhaps consequentially or by way of continuation) were to be performed in the United Kingdom it seems to me to follow that his journeys to and from the United Kingdom were made necessary by the very nature of his office or employment and of his assigned duties. The fact that his skilled and specialised services were being obtained without any remuneration had the result that there was no formal document of appointment with formulation of duties couched in precise language. Apart from the fact that unique services were being given without reward the status of the appellant was such that certain decisions (such as a decision as to when and whether merger discussions had reached such a point that his presence in the United Kingdom became requisite) were for him to take without waiting for the specific direction or permission of the board.
Though there was no formal document recording the terms upon which the appellant was employed it is accepted that the resolution of September 21, 1967 (which is set out in the case stated) accurately and in good faith recorded what had throughout been the position. The arrangement that had been made was "that he would perform his duties on behalf of this company so far as he could from his offices in those countries, but that it was necessarily envisaged that he would be required to visit the United Kingdom from time to time as well": so also "that it was recognised that he did not reside in the United Kingdom and that, accordingly, his duties were to be performed so far as possible from his residence abroad."
It was found as a fact that the bulk of the appellant's work was done outside the United Kingdom. Had the arrangement been phrased in the language of contract it would have provided that the appellant would so far as he could perform the duties of his employment in planning and negotiating mergers from his office or residence abroad and that he would when necessary travel to the United Kingdom in order to continue or complete any merger negotiations. In my view, it follows that the travelling expenses now under consideration were wholly, exclusively and necessarily incurred in the performance of the duties of the office or employment held by the appellant. It was because of the nature of and the duties and obligations of the office or employment that he held that the appellant had of necessity to travel to and from the United Kingdom.
On its facts the present case is essentially different from Ricketts v. Colquhoun [1926] A.C. 1 . I would not wish in any way to question the reasoning which guided the decision in that case. On the facts as there found the duties of the recorder were all to be performed in Portsmouth. I do not find it necessary to speculate whether there might have been some additional findings of fact and whether they might have produced a different result. As Lord Blanesburgh pointed out, the expenses of travelling from London to Portsmouth and back were not expenses which each and every recorder would be obliged ex necessitate of his office to incur. Such expenses would be incurred because of circumstances which were entirely personal to himself and the result of his own volition. On the facts as found the activities in London of the particular recorder had nothing to do with the performance of his duties as recorder in Portsmouth.
In the present case the facts are entirely different. The office or the employment was very special. There was probably no one else who could have filled it. It was an office created to be held by one particular person, i.e., a person living in Canada who had unique and unrivalled experience and knowledge in regard to arranging mergers of brewery companies.
The facts as found show that one of the appellant's achievements had been to persuade Canadian Breweries of which he had been president to finance the British brewery companies with which he was concerned to the extent of some 20 million pounds and that in some cases mergers had as a result been assisted. The office was only created because the appellant in Canada was specially and personally equipped and was willing to make his services available in Canada and also in England. The office was to be held in Canada by a Canadian and the duties of the office were to be performed largely in Canada but partly also in England. The feature of there being in a real sense a dual location of the performance of the duties is more pronounced than it was in the case of Pook v. Owen [1970] A.C. 244 .
When analysed it seems to me that the contention of the revenue must amount to a contention that the company (or companies) need not have made the arrangement that they did make and might have made an arrangement that the appellant would do all his work in England. But there is no evidence that they ever could have made such an arrangement. All the indications are that they would never have secured the appellant's services on terms other than those which were made: and the fact remains that they did make the arrangement as found.
It is accepted that the resolution recorded faithfully what the arrangement was. There was nothing spurious or colourable about the arrangement. This is important because any fact-finding body must be on guard to ensure that no device or form of words is used so as to disguise as expenses ex necessitate of an office those which in reality are only the result of personal volition.
On the facts as found by the commissioners I do not think that it was open to them to say that they were not satisfied that the appellant's offices in Toronto and Nassau were or should be regarded as places of work for the purposes of his special assignment. It was the very centre of the arrangement that they were.
It is suggested that the appellant could in fact have come to live in England or could have stayed in England for such periods as would enable him to do all his work in England. But these are mere speculations. The appellant never agreed so to operate. Doubtless the companies would not have objected had the appellant found it possible to abandon Canada as the place where he would work on his special assignment but that would have involved a complete departure from the arrangement made. If it is even conceivable that the appellant could have done all that was expected of him in Canada without ever coming to England it is sufficient to say that that was never contemplated and there are no facts which warrant any supposition that he need never have come to England.
On the facts as found I consider that the money which the appellant spent in travelling was money expended wholly, exclusively and necessarily in performing the duties of his office or employment.
I would allow the appeal and restore the judgment of the learned Vice-Chancellor.