Tilley v Wales (Inspector of Taxes)
[1943] A.C. 386(Judgment by: Lord Thankerton)
Between: Tilley - Appellant
And: Wales (Inspector of Taxes) - Respondent
Judges:
Viscount Simon LC
Lord Atkin
Lord ThankertonLord Russell of Killowen
Lord Porter
Subject References:
REVENUE
INCOME TAX
ASSESSMENT
Managing director
Agreement releasing pension rights and accepting reduced salary for the future
Lump sum consideration
Legislative References:
Income Tax Act, 1918 (8 & 9 Geo. 5, c. 40) - sch. E
Judgment date: 11 February 1943
Judgment by:
Lord Thankerton
My Lords, the Crown claims that the sum of 40,000l. paid to the appellant in two instalments at a year's interval under the agreement of April 6, 1938, is chargeable to income tax under sch. E of the Income Tax Act, 1918, as paid to him in respect of his office of director and coming within the words of r. 1 of sch. E, namely, "all salaries, fees, wages, perquisites or profits whatsoever therefrom."
My noble and learned friend on the woolsack has made sufficient reference to the various agreements, and I agree that, to appreciate the two-fold consideration in return for which the 40,000l. was agreed to be paid, it is necessary to refer to the agreement of June 28, 1937, the terms of which equally necessitate a reference to the earlier agreement of December 19, 1921. The Crown failed before the Special Commissioners on the ground that the payment of 40,000l. was not made to the present appellant "as remuneration for services rendered or to be rendered by him in his office as a managing director of the company."
On appeal, by stated case, Lawrence J. decided in favour of the Crown, holding that both in form and substance the payment was made in consideration both of the release from the company's obligation to pay the pension and the present appellant's agreement to serve at a reduced salary of 2000l. per annum. As regards the latter element, the learned judge held that it was clearly a profit from the office, and, as regards the ten-year pension, he held that, as the pension would have been assessable under sch. E by virtue of s. 17 of the Finance Act, 1932, the sum payable in commutation thereof was assessable under sch. E, and he based this finding on the decision in Short Brothers, Ld. v. Inland Revenue Commissioners. [F22]
An appeal by the present appellant to the Court of Appeal was dismissed, but partly on grounds materially different from those of Lawrence J. All the learned judges differed from his statement as to the assessability of a sum paid in commutation of a pension and the Master of the Rolls pointed out [F23] that Short Brothers, Ld. v. Inland Revenue Commissioners [F22] did not support the view of the learned judge. Further, all the learned judges of the Court of Appeal were of opinion that, if the agreement of 1938 had expressly apportioned the consideration of 40,000l. between cl. 1 and cl. 2, the portion referable to cl. 1, which released the pension obligation, would not have been chargeable to tax, but that the portion referable to cl. 2, which contained the agreement to serve as managing director at a reduced salary, was chargeable to tax, as it fell directly within the decision of this House in Cameron v. Prendergast, [F24] but the learned judges - MacKinnon L.J. dubitante - held that, as the parties themselves had refrained from apportionment, an apportionment by the court was not permissible. Goddard L.J. appears to have further held that, in view of the conditions attached to the payment of the pension, it would be impracticable to make such an apportionment.
My Lords, in common with all the learned judges below, I have no doubt that, in so far as the payment of the 40,000l. may be referable to the agreement to serve as managing director at a reduced salary, there is liability to tax, the decision in Cameron v. Prendergast [F24] being directly in point. It satisfies, in my opinion, the two tests, namely,
- (i.)
- whether it arose from the office of director within the meaning of r. 1, and
- (ii.)
- whether it is in the nature of income.
I may add that I doubt whether the word "capital" is the exact antonym to the latter test. While I would agree that, according to common experience, any consideration given in return for services in the office of director is likely to be in the nature of income, I am not prepared to state dogmatically that it must in every conceivable case be so, whatever form it takes, as the learned Master of the Rolls and Goddard L.J. appear to think. It is enough that there is no difficulty in the present case.
In so far as the payment of the 40,000l. may be referable to the agreement to accept a sum in commutation of the liability to pay a pension, I have nothing to add to the view expressed by my noble and learned friend on the woolsack. As in Dewhurst's case [F25] this payment did not arise from the office of director, but in spite of it. I also agree with the view expressed by my noble and learned friend on the question of apportionment. I would desire to note, on the question of practicability, referred to by Goddard L.J., that the present appellant's accountants appear to have provided the basis for the agreed sum of 40,000l. I concur in the motion proposed by my noble and learned friend.