McMillan v Guest
[1942] A.C. 561(Decision by: Lord Wright)
Between: McMillan - Appellant
And: Guest - Respondent
Judges:
Lord Atkin
Lord WrightLord 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
Decision by:
Lord Wright
My Lords, the appellant was not resident in this country during the years of charge. Accordingly, the emoluments derived from his directorship in A. Wander, Ld., are not taxable unless they fall within the words of sch. E, nor are they affected by the provisions of s. 18 of the Finance Act, 1922, because they could not have been charged under sch. D. The Crown has, therefore, to establish that they are profits of a public office or employment within the United Kingdom, which last condition is specified in r. 6.
As r. 6 (h) expressly includes offices or employments of profit under a corporate company, and as A. Wander, Ld., is a company registered in England under the Companies Acts, the requirements of sch. E would seem so far to be satisfied. The company, further, is one which, as the case finds, is resident and controlled in the United Kingdom. I limit my observations to such a company without considering what is the position of a company registered in the United Kingdom but controlled and managed abroad.
The next matter to be examined is whether the directorship held by the appellant is an office or employment within the meaning of sch. E. The word "office" is of indefinite content. Its various meanings cover four columns of the New English Dictionary, but I take as the most relevant for purposes of this case the following: "A position or place to which certain duties are attached, especially one of a more or less public character." This, I think, roughly corresponds with such approaches to a definition as have been attempted in the authorities, in particular, Great Western Ry. Co. v. Bater, [F13] where the legal construction of these words, which had been in sch. E since 1803 (43 Geo. 3, c. 122, s. 175), was discussed.
It was there held that the position of a clerk in a railway company was not an office or employment of profit of a public nature within sch. E. Lord Wrenbury was content so to hold without attempting to define what type of office or employment would satisfy the language of the schedule. [F14] Lord Sumner [F15] said that to hold otherwise would be "an abuse of language." To hold that the director of a company such as A. Wander, Ld. (though it is what is called a private company), does not have an office within the meaning of the schedule would equally, in my opinion, be an abuse of language. Everyone, I think, would say that as director he held an office in the company.
The word "employment," in my opinion, has to be construed with and takes its colour from the word "office." If I may adopt the words of the Master of the Rolls, it is too late to say that the director of a company like this does not hold an office within sch. E. I do not attempt what their Lordships did not attempt in Bater's case, [F16] that is, an exact definition of these words. They are deliberately, I imagine, left vague. Though their true construction is a matter of law, they are to be applied in the facts of the particular case according to the ordinary use of language and the dictates of common sense with due regard to the requirement that there must be some degree of permanence and publicity in the office.
In Bater's case, [F17] Lord Wrenbury seemed to disapprove of the opinion of Bankes J. in Berry v. Farrow, [F18] that a director held an office within the schedule, but I cannot think that his disapproval was justified or has been supported. In Watson v. Rowles, [F19] a director of a "private" limited company was held to be taxable under sch. E. The public character of the company is sufficiently established by its being incorporated under the statutory machinery of the Companies Acts and by its being subject to the provisions of these Acts. It is, however, clear that not all officers, and still less all employees, of a limited company or of any corporate body are holders of an office or employment under sch. E. This is illustrated by Bater's case, [F16] and much earlier by Attorney-General v. Lancashire and Yorkshire Ry. Co. [F20] I do not think that the agency considered in Pickles v. Foster [F21] was correctly treated as an office or employment within sch. E.
There still remains the question whether the appellant's office or employment, though it is public, is one within the United Kingdom as required by r. 6 of sch. E. The commissioners held that it was, because the appellant retained the right and duty to exercise the power of a director. That decision was reversed by Lawrence J. on the ground that the place of exercise governed. For that principle he relied on Pickles v. Foster, [F21] and on the dictum of Rowlatt J. in Proctor v. Ryall. [F22] That dictum , however, was not necessary to the decision of the case and is qualified in its scope. For instance, Rowlatt J. refers to the case of a sinecure which is not exercised anywhere at all.
I do not think that Rowlatt J. was right if or so far as he held that the place of exercise governed. The office of a director is something notional. Its locality is one degree, if that is possible, even more notional. In my opinion, the place where it is exercised, if it is exercised anywhere at all, is not necessarily the test. As obvious illustrations, I may refer to heads (d), (e), (f), under which come officers in the Armed Forces of the Crown. To them r. 18, sub-r. 2, of the schedule clearly applies, at least as machinery for the assessment which is to be at the head office of the department, but, in any case, the words of r. 1 are not simply "exercising," but "having or exercising," the office or employment. Exercising, no doubt, does involve activity in the office or employment, but a man may have an office and draw the emoluments without doing any work at all. For instance, a director may in certain cases be properly allowed to retain his emoluments when for good reasons he may be relieved from any active duties at all. I have already mentioned the case of a sinecure.
The peculiarity of this case is that the appellant has all the time been rendering in the United States and in Canada services of great value to the company, while at the same time he has been released from and has not performed the normal duties of a director, such as attending at board meetings, but he has still remained a director, and as such cannot be in a different position from what he would have been in if he had not rendered those services abroad. I agree with the Master of the Rolls that it is in the office of director that the crucial test is to be found, because "every right which a director has and every duty which the law, general or special, imposes on him is to be exercised in this country and nowhere else."
That is the test accepted in substance by the commissioners. It is, I think, the true test in a case like this. The appellant had or held all through the years of charge the office of director in the United Kingdom. That, in my opinion, is sufficient to satisfy the schedule. The cases cited do not afford any strict parallel. In Robinson v. Corry, [F23] the taxpayer, who was deputy cashier at the naval base at Singapore, was not only outside the United Kingdom during the period of charge, but exercised all the duties of the employment there, as its nature required. The Master of the Rolls, I think correctly, treats the liability of the taxpayer there as depending on r. 18, sub-r. 2, which relates to employment under government. Pickles v. Foster [F24] could be sufficiently decided against the Crown on the ground that the agency in West Africa was not an office or employment within sch. E. The ruling that the office or employment to come within sch. E must be exercised in the United Kingdom was not necessary to the decision and cannot, I think, be supported. I think that the appeal should be dismissed.