Taylor v. Provan (Inspector of Taxes)
[1975] A.C. 194(Judgment by: Lord Reid J.)
Taylor (Appellant)
and Provan (Inspector of Taxes) (Respondant)
Judges:
Lord ReidLord 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 Reid J.
My Lords, the appellant is a Canadian who has never resided in England. After acquiring experience in brewing and finance he was successful in bringing about several brewery amalgamations in Canada and he became a wealthy man. In 1958 he became involved in the affairs of a brewery in Sheffield which wished to expand. "As a kind of business recreation" he enabled them to acquire three other breweries. They then became United Breweries Ltd. Then in 1962, as a result of his further efforts, United Breweries merged with Charrington and in 1967 there was a further merger to form Bass Charrington Ltd.
Throughout this period the appellant resided in Canada. In later years he also resided for considerable periods in the Bahamas. He had offices in both places from which he directed his Canadian interests. He did most of his work in connection with the English amalgamations in Canada or the Bahamas but made frequent visits to England.
He neither sought nor received remuneration from these English companies but they repaid to him the expenses of his visits to England. "For reasons of prestige" he was made a director of each of these companies but he did none of the ordinary work of a director. He was given "special assignments" to deal with the work involved in these mergers and amalgamations.
In 1967 he was assessed to income tax in respect of the sums which he had received as repayment of his expenses during the years 1961-62 to 1965-66. Later the assessment was limited to the sum which he had received in repayment of fares for journeys between Canada and England, the total for the five years being over £8,000.
Two questions arose (1) whether these sums were emoluments within the scope of Schedule E and (2) if they were, were they deductions allowable under paragraph 7 of Schedule 9 of the Income Tax Act 1952.
I have no doubt that these sums were emoluments. It was argued that they were not paid to the appellant as a director because they were paid under special assignments independent of his directorships. I can see no ground for splitting up his duties in that way. He was made a director with a special assignment. There was one appointment not two. Section 160 of the Act of 1952 provides that any sum paid to a director in respect of expenses shall be treated as a perquisite of the office and included in the emoluments thereof assessable to income tax.
The substantial question in the case is whether these expenses of travelling are a permissible deduction. If so, then the whole of the sum assessed to tax is deductible and the appeal succeeds. This depends entirely on the proper construction of paragraph 7 of Schedule 9:
"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."
Before proceeding further it is necessary to deal with the precise terms of the special assignment. This was not set out in writing until 1967 but it is admitted that a resolution of the board of Charrington United Breweries of September 21, 1967, sets out the terms of the agreements between the appellant and each of the successive companies of which he was a director. The resolution was in the following terms:
"Mr. E. P. Taylor The board recalled its decision to set up the expansion committee of the board on July 10, 1962, and formally resolved that in view of the company's merger with Bass, Mitchells & Butlers Ltd., this committee be and is hereby dissolved. The board wished to express its appreciation to Mr. Taylor of the special services he has contributed in guiding the expansion committee in the continuous work upon which it has been engaged over the last five years and in particular for the many journeys he has made to the United Kingdom for this purpose.
"The board recalled that the principal business commitments of Mr. Taylor were in Canada and the Bahamas and the consequent arrangement that he would perform his duties on behalf of his company as 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. The board having felt that a reconfirmation of its arrangements with Mr. Taylor was desirable, it was resolved:
"(1) that he was to receive no remuneration for his services; (2) that he had no day to day administrative duties and was not normally required to attend the company's offices or routine board meetings; (3) that his special assignment was the expansion and development of the group, and, in particular, to take charge of negotiations for other brewery companies to join the group; (4) 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. 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 company, and consequently the company would bear all expenses of such visits to the United Kingdom."
The case for the revenue is that the appellant was not "necessarily obliged" to incur these travelling expenses because if he had so chosen he could have resided during these five years in England and then there would have been no need to cross the Atlantic. To that the appellant replies that the terms of his office or employment were that he was to perform his duties so far as he could in Canada or the Bahamas and only to visit the United Kingdom when necessary. Then the revenue say that the test is not what the parties had agreed, however reasonable their agreement might be, but what his work required. Here they say that all his work could equally well have been done if he had resided throughout in England. There is no finding to that effect but I shall assume that that is so.
I can understand a distinction between what the parties' contract requires and what the work requires when the office has an independent existence so that if this man had not been appointed someone else would have been.
But here the office or employment was created for the appellant because of his special qualifications and there is nothing to suggest that if he had not been available anyone else would or could have been appointed for this very special work. The appellant clearly would not have agreed to reside in England. So I do not see how in any reasonable sense it can be said that this travelling was unnecessary if this peculiar work was to be done. I think that the Court of Appeal were in error in saying [1973] Ch. 388, 398: "There is no evidence that no one could hold the office and perform its duties other than a person living across the Atlantic."
It was argued that the special commissioners had found otherwise. They say in their decision:
"Having considered the facts as a whole we are 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 and we have reached the conclusion that the travelling expenses in question arose, not from the nature of the appellant's office, but from circumstances personal to himself."
But that is not a finding of fact. It is an inference which they draw from the findings which precede the decision in the case stated, and their inference flows largely from what I think was an unduly narrow reading of the authorities.
At first sight it might seem a simple matter to determine whether an officer or employee was necessarily obliged to incur certain travelling expenses. The first question would be whether it was necessary to make the journeys in respect of which the claim to deduct expenses is made. But everyone is agreed that it is not enough to show that on the facts as they existed the man's duties could not have been performed if he had not made the journeys. Something more is needed. But what? That can only be discovered by a careful examination of two decisions of this House: Ricketts v. Colquhoun [1926] A.C. 1 and Pook v. Owen [1970] A.C. 244 . I do not think that the interpretation of these two decisions is materially assisted by a consideration of other reported cases and I propose to confine my attention to them.
Up to a point the facts in these two cases were similar. Both concerned part-time offices or employments. In the first a barrister practising in London was appointed Recorder of Portsmouth and on at least four occasions in each year he travelled from London to Portsmouth to perform his official duties there. In the second a doctor practising in Fishguard was given an appointment in a hospital at Haverfordwest and he made frequent journeys from Fishguard to Haverfordwest to perform his duties there. But the barrister was held not to have necessarily incurred his travelling expenses, whereas the doctor was held to have necessarily incurred his travelling expenses.
In Ricketts' case [1926] A.C. 1 the findings of fact of the commissioners were very short, containing nothing material beyond what I have already stated. Reasons were given in only two speeches in this House - those delivered by Viscount Cave L.C. and Lord Blanesburgh. The speech of Lord Blanesburgh has generally been regarded as best expressing the ratio of the decision. He said, at p. 7:
"... the language of the rule points to the expenses with which it is concerned 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 on each holder ex necessitate of his office. and to such expenses only."
Then, having pointed out that the terms of the rule are not personal but objective, he continued:
"... the deductible expenses do not extend to those which the holder has to incur mainly and, it may be, only because of circumstances in relation to his office which are personal to himself or are the result of his own volition."
Mr. Ricketts had no finding to show either that he had to reside at a distance from Portsmouth or that no one could have been appointed to the office who could reside in Portsmouth. So it was true to say on the facts found in the case that his continuing to reside in London was "the result of his own volition."
Lord Cave's speech was on the same lines. He put the matter rather differently in one passage, at p. 4:
"they must be expenses which the holder of an office is necessarily obliged to incur - that is to say, obliged by the very fact that he holds the office and has to perform its duties - and they must be incurred in - that is, in the course of - the performance of those duties. The expenses in question in this case do not appear to me to satisfy either test."
Then apparently explaining what he meant by "in the course of," he said that the expenses were incurred because he travelled to Portsmouth before he could begin to perform his duties and travelled home after concluding them.
I have considerable doubt whether Lord Cave's second test is not too rigid. He does not refer to the fact that the rule also authorises the deduction of the expenses "of keeping and maintaining a horse to enable him to perform" the duties of the office. The holder of the office would keep his horse at his home, so he would use it to get from his home to the various places where his duties had to be performed. So this part of the rule must mean to enable the holder of the office to get from his home to the place where his duties are to be performed as well as to enable him to get from one place to another in the course of performing his duties. There is no suggestion of a distinction between travelling from his home to the place of work and travelling between places of work. He can deduct the whole cost of keeping his horse - not merely part of it.
Lord Cave recognises that the holder of an office may have to travel if his duties have to be performed in several places in succession. I would doubt whether such travelling is always "in the course of" the performance of his duties. If a part-time officer has to work at A today and at B a week hence he is not on duty meanwhile and can travel whichever day he chooses. He is entitled to deduct the expense of travelling from A to B but it seems to me unreal to say that during the hours he is travelling he is on duty. He is travelling not in the course of performing his duties but to enable him to perform his next duty when the time comes.
In Pook v. Owen [1970] A.C. 244 the findings of the commissioners were also comparatively short. In addition to the facts which I have mentioned they found that there was a scarcity in the area of persons duly qualified to do the work and they found facts with regard to the nature of the work which enabled the majority in this House to hold that Dr. Owen had two places of work: some of his work had to be done at his home in Fishguard and some at the hospital in Haverfordwest. The question whether he had two places of work was the main question at issue.
But I do not see how consistently with the main ratio in Ricketts' case [1926] A.C. 1 that could in itself be sufficient to justify the decision. And no one suggested that the House was reaching a decision inconsistent with Ricketts. Ricketts decided that if the place where a man resides is his personal choice he cannot claim with regard to expenses made necessary by that personal choice. If the holder of an office or employment has to do part of his work at home the place where he resides is generally still his personal choice. If he could do his home work equally well wherever he lived then I do not see how the mere fact that his home is also a place of work could justify a departure from the Ricketts ratio.
I do not find it easy to discover the ratio decidendi of Pook's case. But that does not diminish the authority of the decision. I am sure that the majority did not intend to decide that in all cases where the employee's contract requires him to work at home he is entitled to deduct travelling expenses between his home and his other place of work. Plainly that would open the door widely for evasion of the rule. There must be something more.
I think that the distinguishing fact in Pook's case was that there was a part time employment and that it was impossible for the employer to fill the post otherwise than by appointing a man with commitments which he would not give up. It was therefore necessary that whoever was appointed should incur travelling expenses. It was theoretically possible for Dr. Owen to give up his practice and go to live in Haverfordwest. His employer would not have objected. The nearer to the hospital Dr. Owen lived the better. But the majority disregarded that theoretical possibility and had regard to the realities of the situation. I do not think that there was any departure from the ratio in Ricketts' case in deciding in favour of Dr. Owen. He contracted on the basis that he would continue to live at Fishguard and be paid expenses of travelling. He would not have contracted on any other basis. And it was impossible to find an appointee who was free to avoid incurring travelling expenses. I find nothing in Ricketts which necessarily excludes such a case.
Turning then to the present case, I think that it is covered by Pook's case. It was not enough that the appellant contracted to do the most of his work in Canada, and would not have taken the employment otherwise. It was impossible for the companies which contracted with him to get the work done by anyone else. That I regard as the essential feature. That made it necessary that these travelling expenses should be incurred, and that is what is required to satisfy the rule.
I would allow this appeal.