McMillan v Guest
[1942] A.C. 561(Judgment by: Lord Atkin (including background))
Between: McMillan - Appellant
And: Guest - Respondent
Judges:
Lord AtkinLord Wright
Lord Roche
Lord Porter
Subject References:
REVENUE
INCOME TAX
Public office
Director of company
Residence abroad
No duties performed in England
Voluntary work for the company abroad
Assessability
Legislative References:
Income Tax Act, 1918 (8 & 9 Geo. 5, c. 40) - sch. E; Rules applicable to sch. E, r. 6 (h)
Case References:
Pickles v. Foster - [1913] 1 K. B. 174
Proctor v. Ryall - (1928) 14 Tax Cas. 204
Judgment date: 27 April 1942
Judgment by:
Lord Atkin (including background)
The director of an English company, whether public or private, which is resident in the United Kingdom, wherever he resides and whether or not he takes any part in directing the affairs of the company, holds a "public office within the United Kingdom" and is liable to be charged to income tax in respect of the profits of his office under sch. E to the Income Tax Act, 1918.
Pickles v. Foster [1913] 1 K. B. 174, and dictum of Rowlatt J. in Proctor v. Ryall (1928) 14 Tax Cas. 204, 214, dissented from.
Decision of the Court of Appeal [1941] 1 K. B. 258 affirmed.
Appeal from the Court of Appeal.
The facts, stated by Lord Porter, were as follows: The appellant was a director of A. Wander, Ld., a private company which was resident and controlled in the United Kingdom. He was appointed a director by the articles of association and had no contract of service with the company. By art. 90 the remuneration of the directors was a sum equal to ten (originally fifteen) per cent. of the net profits of the company in every year, and was divisible among the directors in such proportion as they might agree, and, in default of agreement, equally. Since 1919 the appellant had been resident in the United States of America, and in 1938 he became a naturalized American citizen. He went to America to take over the management of a company in Chicago allied to the predecessors of A. Wander, Ld., for whom he opened a Canadian office, and concerned himself in the administrative and selling organization there.
In 1930, largely as a result of his advice, a Canadian factory was built. The appellant superintended its building and afterwards continued to advise its manager on matters relating to the conduct of the business. The appellant, as managing director of the Chicago company, consulted with the managing director of the English company or any other director of the latter company when they were in Chicago regarding anything to the advantage of the English, Chicago or Canadian businesses, and had assisted in Canada in engaging the Canadian staff. Copies of all minutes, annual balance sheets and managing directors' and auditors' reports of A. Wander, Ld., were sent regularly to the appellant in America, but he attended no board meetings in England except one in 1931, and only one in Chicago in 1925. He was not required to attend board meetings of the English company, and notices of such meetings were not sent to him. He was assessed by the General Commissioners of Income Tax in respect of his income as director of the English company under sch. E to the Income Tax Act, 1918, for the years 1937-38 and 1938-39, but, being dissatisfied with the decision in point of law, required a case to be stated. The case was heard first by Lawrence J., who overruled the commissioners, and afterwards by the Court of Appeal who restored their assessment. The appellant appealed to the House of Lords.
Tucker K.C. and Donovan for the appellant. On the charging words of sch. E tax is only payable under it on remuneration derived from an office or employment which is situate within the United Kingdom. The appellant's office was not "within the United Kingdom" within the meaning of r. 6 of the Rules applicable to sch. E, for the situation of any office or employment for the purposes of sch. E is the place where the duties of the office are to be performed or where the office is exercised: Proctor v. Ryall, per Rowlatt J. [F1]
[They also referred to Pickles v. Foster; [F2] Barson v. Airey; [F3] Robinson v. Corry. [F4] ]
In the present case, the place of the exercise of the office was abroad. The special provision in r. 18, sub-r. 2, of the rules supports the view that, save in cases to which it applies, a person exercising his office abroad is not liable to tax. It is a mistake to take a narrow view of directors as persons who only attend board meetings. Where, as here, the company's business is partly within the United Kingdom and partly abroad and the duties of a director managing the business abroad are wholly performed abroad, they cannot be treated as exercised here. Further the director of a private company does not hold a "public office" within r. 6. [They referred to Bowers v. Harding; [F5] Langston v. Glasson; [F6] Watson v. Rowles; [F7] Great Western Ry. Co. v. Bater. [F8] ]
Sir Donald Somervell A.-G. and R. P. Hills for the respondent. The salary received by the appellant was derived from a public office or employment within the United Kingdom within r. 6. If he held an office there, it was not necessary that he should exercise it there. The source of his income was in the United Kingdom. The company was controlled and managed here, and therefore the appellant is taxable: Bennett v. Marshall. [F9] A director has a title and function in the company's permanent structure, and the duties of a director of a company which has its seat and management in the United Kingdom are exercisable properly speaking only there. A director holds a public office since incorporation of a company is a statutory privilege obtained under a public Act of Parliament. The director of a private company is, for this purpose, in the same position as the director of a public company.
Tucker K.C. replied.
The House took time for consideration.
1942. April 27. Lord Atkin -
My Lords, this is an appeal from an order of the Court of Appeal reversing a decision of Lawrence J. who allowed an appeal by the appellant from a determination of Commissioners for the General Purposes of Income Tax upholding an assessment of the appellant for income tax under sch. E. The sole question is whether the appellant, who in the years of assessment was a director of a limited company, A. Wander, Ld., had held a public office of profit within the United Kingdom. The facts are not in dispute.
Schedule E to the Income Tax Act, 1918, provides that
"tax under sch. E shall be charged in respect of every public office or employment of profit."
By r. 6:
"The tax shall be paid in respect of all public offices and employments of profit within the United Kingdom .... viz. ...
- (h)
- offices or employments of profit under any company or society whether corporate or not corporate."
It is necessary to consider whether the appellant
- (1.)
- held an office;
- (2.)
- held a public office;
- (3.)
- held a public office within the United Kingdom.
(1.) On the first point there was no dispute. There is no statutory definition of "office." Without adopting the sentence as a complete definition one may treat the following expression of Rowlatt J. in Great Western Ry. Co. v. Bater, [F10] adopted by Lord Atkinson, [F11] as a generally sufficient statement of the meaning of the word:
"an office or employment which was a subsisting, permanent, substantive position which had an existence independent of the person who filled it, which went on and was filled in succession by successive holders."
There can be no doubt that the director of a company holds such an office as is described.
(2.) It was contended by the appellant that, while he held an office, yet it was not a public office within the meaning of the Income Tax Act, 1918.
It can hardly be said to be obvious that the position of director of a trading company which may carry on business with a very small capital on a very small scale is necessarily a public office, but it is impossible to give effect to the words of r. 6 (h) "any company" so as to distinguish between those whose offices are public and those whose offices are not. In particular, in reference to companies incorporated under the Companies Acts it has to be remembered that the legislature has thought fit to impose duties on their officers which attach to them as such and are not imposed on private partnerships as, for instance, s. 27, sub-s. 2; ss. 37, 112, 122, 217 of the Companies Act, 1929. I can find no reason for distinguishing in this respect between offices held in a private company within the meaning of the Companies Acts (which this is) and a public company. Some of the above sections, though not all, apply to both. The office of director of this company was for the above reasons a public office."
(3.) Was, then, the office held by the appellant a public office "within the United Kingdom"? As to this I am completely satisfied by the reasoning of the Master of the Rolls in his judgment delivered in the Court of Appeal. I will only add that we are here dealing with an "office," not with an "employment," the locality of which may be governed by different considerations. The office of director of an English company, the head seat and directing power of which is admitted to be in the United Kingdom, seems to me of necessity to be located where the company is. It is, in fact, part of the organic structure of the corporation. In such a case I do not think that it is true, as suggested by Rowlatt J. in Proctor v. Ryall, [F12] that "the place of exercise governs."
The appellant, though resident in the United States of America, while there held office in the United Kingdom, and, though he may have taken his share of the directing power only in attending to the activities of the English company in the United States of America and in Canada, he did so by virtue of his English office. From this point of view I think that too much emphasis may be laid on the source from which the office was remunerated, but the fact that it was English reinforces the view that the locality of the office was in fact English. Like the Master of the Rolls, I derive little assistance from previous cases. I consider it to be clear that the director of an English company which is resident in the United Kingdom, wherever he resides and whether or not he takes any part in directing the affairs of the company, holds an office in the United Kingdom.
For these reasons I am of opinion that the appeal fails and should be dismissed with costs.