Taylor v. Provan (Inspector of Taxes)
[1975] A.C. 194(Judgment by: Lord Salmon J.)
Taylor (Appellant)
and Provan (Inspector of Taxes) (Respondant)
Judges:
Lord Reid
Lord Morris of Borth-y-Gest
Lord 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 Salmon J.
My Lords, I will not repeat all the relevant facts which have been so fully and lucidly stated by your Lordships. It is surely an irresistible inference from those facts that by 1960 Mr. Taylor must have long been generally recognised as the great expert in the brewing world on successful expansion by means of merger and amalgamation. That no doubt was why United Breweries Ltd. and the companies with which they subsequently merged were anxious to retain Mr. Taylor, and only Mr. Taylor in the hope that he might achieve for them a like success to that which he had achieved for Canadian Breweries; and in this they were not disappointed. Although Mr. Taylor was prepared to undertake this task without remuneration because he looked on devising and arranging mergers and amalgamations in the brewing industry as a "business recreation," there is no reason to suppose that his enthusiasm for this recreation was such that he was prepared to live permanently in the United Kingdom and thus give up his vast business interests on the other side of the Atlantic which he managed from his offices in Toronto and Nassau. Most of the investigation and planning and much of the general negotiation and arrangements for finance involved in Mr. Taylor's special assignment as director of the English companies in charge of mergers and amalgamations could conveniently be done in Toronto and Nassau. In fact, the bulk of this work was done there by correspondence and telephone; and finance was raised in Canada to the extent of £20 million for the English companies.
The arrangement between Mr. Taylor and the English companies was that he should receive no remuneration for his services, that he should render those services so far as he could from his offices in Canada and the Bahamas and that if and to the extent that it was necessary for him to come to the United Kingdom to carry out the duties of his special assignment he would be regarded as travelling on the business of the English companies and they would bear all the expenses of such visits to the United Kingdom. This arrangement, the bona fides of which no one disputes, seems to me in the light of the existing facts to have been a sensible business arrangement from the point of view of both parties. Mr. Taylor was able, at little if any expense to himself, to indulge in his "business recreation" and also to enhance his prestige as the great architect of brewery mergers and amalgamations. On the other hand, the companies, without having to pay any more than the comparatively small travelling expenses involved, were able to enjoy the extremely valuable services which Mr. Taylor uniquely could render.
Mr. Taylor did a good deal of travelling between Canada and England in the performance of his special assignment. His expenses in respect of these journeys were always repaid to him by the English companies. This appeal depends upon whether he was properly assessed to income tax for the years 1961/2 to 1965/6 in respect of fares repaid to him during those years. I respectfully agree with all your Lordships and the Court of Appeal that it is crystal clear that these sums repaid to Mr. Taylor were emoluments within the scope of Schedule E. The assessments are therefore correct unless these sums may be deducted under the rule stated in paragraph 7 of Schedule 9 to the Income Tax Act 1952.
The present appeal turns upon the true construction of this rule which has remained on the statute book with no material alteration since 1852. It was carefully considered by this House in Ricketts v. Colquhoun [1926] A.C. 1 and in Pook v. Owen [1970] A.C. 244 . Like my noble and learned friend, Lord Reid, I do not think that the interpretation of those two decisions is materially assisted by an examination of any of the numerous other reported cases in which the rule has been considered.
The rule lays down that travelling expenses may be deducted from emoluments to be assessed if "the holder of an office or employment of profit is necessarily obliged to incur ... the expenses of travelling in the performance of the duties of the office or employment." It seems to me that logically the first question must be - were the travelling expenses incurred in the performance of the duties of the office or employment? If they were not, they cannot be deducted, and that is the end of the matter, for if they are not so incurred they cannot be necessarily so incurred. If, however, the travelling expenses were incurred in the performance of the duties of the office or employment, that is not the end of the matter for the taxpayer would then also have to show that he was necessarily obliged so to incur the expenses before he could deduct them.
It has long been generally accepted that, under the rule, a man's expenses of travelling to his work are not deductible; only his expenses of travelling on his work are deductible, for these alone are incurred in the performance of the duties of his employment. It is also well settled that if a man has several places of work, travelling between them constitutes travelling on his work. I think that in Ricketts v. Colquhoun [1926] A.C. 1 Viscount Cave L.C. rested his opinion chiefly on the ground that the appellant was not travelling on his work, only to his work. Viscount Cave said of the travelling expenses in question, at p. 4:
They are incurred not because the appellant holds the office of Recorder of Portsmouth, but because, living and practising away from Portsmouth, he must travel to that place before he can begin to perform his duties as recorder and, having concluded those duties, desires to return home. They are incurred, not in the course of performing his duties, but partly before he enters upon them, and partly after he has fulfilled them."
Viscount Cave gave no guide as to how the word "necessarily" was to be construed in its context in the rule. Nor did Lord Atkinson, Lord Buckmaster nor Lord Carson who all agreed with Viscount Cave. This, no doubt, was because if the travelling expenses were not incurred in the performance of the duties of recorder, ex hypothesi, they could not be necessarily so incurred. If, however, they had been incurred in the performance of those duties in the strict sense laid down by this House, it is difficult to see how they would not have been necessarily incurred unless it could be said that they were incurred by unduly extravagant modes of travel.
Viscount Cave's interpretation of the rule certainly makes it very rigid, but I doubt whether the language in which the rule was formulated by Parliament makes it possible to put a more flexible or reasonable interpretation upon it.
Lord Blanesburgh accepted Viscount Cave's interpretation of the rule (see p. 8). Nevertheless, he did lay down the sense in which he understood the words "necessarily obliged to incur" were used in the rule. He did so in a celebrated passage, which, however, has been the subject of some criticism such as that expressed by my noble and learned friend, Lord Pearce, in Pook v. Owen [1970] A.C. 244 , 258. Lord Blanesburgh said:
"... the language of the rule points to the expenses ... being only those which each and every occupant of the particular office is necessarily obliged to incur in the performance of its duties - to expenses imposed upon each holder ex necessitate of his office, and to such expenses only ... the terms [of the rule] are ... not personal but objective: the deductible expenses do not extend to those which the holder has to incur ... only because of circumstances in relation to his office which are personal to himself or are the result of his own volition."
This would have been highly relevant if "in the performance of the duties" meant for the purpose of performing or to enable the performance of the duties - which is precisely what this House held that it did not mean. If the wider meaning had been accepted, it would have covered travelling to work for a man clearly must travel to his work in order to enable him to perform it. If such had been the law, it would, no doubt, have been important to lay down that the expenses of travelling to work could be deductible only in respect of travelling between the place of work and the nearest place to it in which it would have been reasonably possible for the taxpayer to reside - and, maybe, that this should be judged objectively and not by the personal circumstances or wishes of the taxpayer.
Lord Blanesburgh (on the assumption that "in performance of ... duties" might have had the wider meaning which this House had rejected) went on to say that although the appellant's travelling expenses were incurred to enable him to perform his duties as Recorder of Portsmouth they were not necessarily so incurred. This, he said, was because the appellant could have retired from his busy London practice and gone to live in Portsmouth in order to sit there four times a year for a few days at a time with nominal remuneration in performance of an office which is generally regarded as a public duty. It may be that the principle enunciated by Lord Blanesburgh is unexceptionable. I find it difficult, however, to accept his application of the principle to the facts of the case he was considering.
In my view, the decision in Ricketts v. Colquhoun [1926] A.C. 1 does no more than confirm the proposition that "in the performance of the duties" must be given a strict interpretation and does not mean "in order to enable the duties to be performed." Expenses incurred in travelling to work are not deductible. This decision has been so long accepted and acted upon that it would be difficult to alter it except by legislation. It may well be, as my noble and learned friend, Lord Pearce, suggested, some review by the legislature would be appropriate. The days of 1852 are long past when persons were usually able to live very close to their work and rarely travelled except on foot or horseback or by horse-drawn vehicles. The continuous presence of the horse in the rule, in spite of its many re-enactments, hardly suggests that much attention has been given to bringing the rule up to date.
The decision and the reasons for it given in the first four speeches in Ricketts v. Colquhoun must, I think, be accepted. It is unnecessary to question the principle enunciated by Lord Blanesburgh and, for the purposes of this appeal, I am prepared to assume that it is correct. That case, however, was very different from the present and affords little guidance to how this appeal should be decided. The duties of the recorder were not itinerant. They were all performed in one place. The position of a taxpayer whose duties have to be performed in several places so that he must necessarily travel from one place to another was not in question. In Pook v. Owen [1970] A.C. 244 , however, it was conceded by each member of this House that in such a case the taxpayer's travelling expenses would be deductible under the rule. The majority of this House held the taxpayer had two places of work between which he had to travel. The minority, however, considered that the primary facts set out in the case did not justify such a finding.
In my view, the only possible inference from the primary facts as found in the present case (which are more strongly in favour of the taxpayer than were the facts in Pook v. Owen) is that the places in which Mr. Taylor was required to work were Toronto and Nassau as well as the United Kingdom. This was spelt out in the terms of his employment which required the work to be done in Toronto and Nassau so far as possible and only, when necessary, in the United Kingdom. When you are considering where the duties of a man's employment require him to work, you look first at the terms of his employment. These normally are conclusive. A term which may appear to be rather more for the man's benefit than for the benefit of his employers is still a term of the employment. The fact that you may suspect that the employers might waive it is, in my view, irrelevant.
I am not suggesting that the terms of employment are conclusive in every case. It is easy to imagine a case in which, for instance, an English resident employed by an English company as a director to do work unconnected with France has a term inserted in his contract which provides that he shall do part of his work in an hotel on the French Riviera and that his employers shall pay all the expenses involved, including travelling expenses. This would obviously be colourable - a mere device to satisfy his wish to spend some time in the sun with his expenses paid tax free. The term could be of no benefit to the company which he serves and the job could, no doubt, be filled by persons of no less competence but less greed.
The present case, however, is very different. The English companies required Mr. Taylor's services and no one else's. The terms agreed were as beneficial to the companies as they were to Mr. Taylor, and probably more so. Assuming that all the services could have been rendered in England and that the terms of employment had provided that they should be, Mr. Taylor would have had to come and live here or fly here whenever any of the work was to be done. Assuming, which is unlikely, that he would have agreed to either alternative, the first would probably have cost the companies vast fees, and the second much more in travelling expenses than the present arrangement. It follows that the English companies obtained the benefit of Mr. Taylor's services more cheaply under the terms actually agreed than they would have done under any other terms which might possibly have been agreed. That is why I think that the parties, to their mutual commercial benefit, made a sensible business arrangement in requiring that the bulk of Mr. Taylor's work should be done in Toronto and Nassau.
Rigidly to apply the dicta of Lord Blanesburgh and hold Mr. Taylor's expenses are not deductible on the ground that all his work might possibly have been done in England and that the very exceptional facts of this case might have been different from what they are is to go further than I am prepared to travel in preferring theoretical possibilities to practical reality.
I agree with the learned Vice-Chancellor that the inference of fact set out at the end of paragraph 9 of the case is irreconcilable with the commissioners' findings of primary fact stated earlier in the case, and cannot be supported. I think that the primary facts as found prove that, in reality, there were at least two places of work required by Mr. Taylor's very special employment. I am satisfied that the travelling expenses in question were necessarily incurred whilst Mr. Taylor was travelling between Canada and the United Kingdom on the English companies' business. I would accordingly allow the appeal.
Solicitors: Allen & Overy; Solicitor of Inland Revenue.