Taylor v. Provan (Inspector of Taxes)
[1975] A.C. 194(Judgment by: Lord Wilberforce J.)
Taylor (Appellant)
and Provan (Inspector of Taxes) (Respondant)
Judges:
Lord Reid
Lord Morris of Borth-y-Gest
Lord WilberforceLord 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 Wilberforce J.
My Lords, Mr. Taylor is a brewery magnate. He is a Canadian citizen who, before the war of 1939-45, built up a powerful business called Canadian Breweries, and succeeded in reducing by amalgamation the breweries in Canada from over 100 to about 20. After the war he continued, as President of Canadian Breweries, to enlarge that company by mergers and amalgamations in North America. Recently he has taken to arranging brewery amalgamations as a "business recreation."
The pattern of (is activities has been clear for many years. In 1958 he became involved, as a consultant without reward, in negotiations for amalgamation of a Sheffield brewery with others. His efforts were successful and brought about the formation of United Breweries Ltd. He became a director of that company with a special assignment to expand the group by further mergers. This he did without any remuneration but his expenses were reimbursed.
In 1962 United Breweries merged with Charrington Ltd. and became Charrington United Breweries Ltd. Mr. Taylor became a director with a similar unpaid special assignment as before; in 1967 the process was repeated when Charrington United Breweries Ltd. merged with Bass Mitchells & Butlers Ltd. becoming Bass Charrington Ltd. Mr. Taylor became a director of all these companies "for reasons of prestige." He had none of the normal duties of a company director: his only function was the special assignment described above.
The present appeal relates to assessments to income tax for the years 1961/2 to 1965/6. During this time he had no written agreement with any of the companies. But the terms of his employment were set out ex post facto in a board resolution of Charrington United Breweries Ltd. and of United Breweries passed on September 21, 1967. It is accepted that there is nothing fictitious in the resolutions but the fact that Mr. Taylor served the companies for several years without any written or formal definition of the terms of his employment throws some light on the question, later to be developed, to what extent his duties, and the manner of their performance, were permissive or obligatory. Since, in my opinion, the whole case turns upon the terms on which Mr. Taylor was employed or held his office it is necessary to set out the resolution in full. [His Lordship read the resolution, set out in Lord Reid's opinion, ante, pp. 399D - 400A. and continued:] Certain further facts were found by the special commissioners as to the manner in which Mr. Taylor carried out his assignment. These are fully set out in the case stated, paragraph 5. sub-paragraph 8. I mention those which I regard as material. He had no fixed base for working. He did his thinking and planning described by the Vice-Chancellor as his peripatetic musing wherever he happened to be. He had a library of useful material including accounts, lists of shareholders, and company reports which he carried round with him. Planning a merger included viewing the premises, discussions with directors, usually in London, working with a merchant bank, securing his board's agreement to his proposals, and making an offer for the company to be taken over, sometimes through his merchant bank. The bulk of his work was done outside the United Kingdom by correspondence or telephone. In the earlier years of assessment he worked largely from Toronto, either from his farm, or from an office at Canadian Breweries, or, after 1965, from an office at Argus Corporation. In 1963 he acquired residential status and in 1965 a residence in the Bahamas. On the yearly average he spent between 100 and 150 days in Canada and 50 to 85 days in the United Kingdom and the remainder in the Bahamas.
The subject matter of the assessments was Mr. Taylor's travelling expenses between Toronto, Nassau and London. It may appear hard to Mr. Taylor that, after he had worked for nothing, or at least for no salary, his travelling expenses should be taxed. But the law as to expenses is severe upon directors of companies and we have to apply the law as enacted. The assessments were made under Schedule E, Case II, Mr. Taylor being neither resident nor ordinarily resident in the United Kingdom and on the basis that section 160 (1) of the Income Tax Act 1952 applied. This, so far as relevant, is as follows:
Subject to the provisions of this chapter, any sum paid in respect of expenses by a body corporate to any of its directors ... shall, if not otherwise chargeable to income tax as income of that director ... be treated for the purposes of paragraph 1 of Schedule 9 to this Act as a perquisite of the office ... of that director ... and included in the emoluments thereof assessable to income tax accordingly: Provided that nothing in this subsection shall prevent a claim for a deduction being made under paragraph 7 of the said Schedule 9 in respect of any money expended wholly, exclusively and necessarily in performing the duties of the office ..."
The first question is whether, by virtue of the section (which precludes, in the case of directors, any such argument as was accepted in Pook v. Owen [1970] A.C. 244 ) Mr. Taylor's travelling expenses are to be included in the emoluments of his office or of his employment (I do not think that it matters which description is applied). The only ground on which the contrary was asserted was that the relevant sums were paid to him not qua director but by virtue of his special assignment. Both courts below have rejected this argument, and I need say no more than that I agree with them. A director with a special assignment is none the less a director, and the section warrants no distinctions as to the duties in respect of which the relevant payments were made.
The critical question is whether Mr. Taylor is entitled to the benefit of the proviso. If its requirements are satisfied, the potential charge on emoluments is cancelled out by deduction of the expenses. But the wording is strict and narrow. It introduces the test from rule 7 of Schedule E (paragraph 7 of Schedule 9 to the Income Tax Act 1952) whether the expenses were wholly, exclusively and necessarily incurred in performing the duties of the office or employment.
The relevant word for the purpose of this case is "necessarily." It is a word which has a long history of interpretation and application. It does not mean what the ordinary taxpayer might think it should mean. To do any job, it is necessary to get there: but it is settled law that expenses of travelling to work cannot be deducted against the emoluments of the employment. It is only if the job requires a man to travel that his expenses of that travel can be deducted, i.e. if he is travelling on his work, as distinct from travelling to his work. The most obvious category of jobs of this kind is that of itinerant jobs, such as a commercial traveller. It is as a variant upon this that the concept of two places of work has been introduced: if a man has to travel from one place of work to another place of work, he may deduct the travelling expenses of this travel, because he is travelling on his work, but not those of travelling from either place of work to his home or vice versa. But for this doctrine to apply, he must be required by the nature of the job itself to do the work of the job in two places: the mere fact that he may choose to do part of it in a place separate from that where the job is objectively located is not enough. The case of Pook v. Owen [1970] A.C. 244 brought out this distinction. The basis of the decision of the majority in that case (the minority holding the opposite) was that the nature of the office, or employment, of part-time anaesthetist and obstetrician required the doctor to work partly at his surgery and partly at the hospital. This was what the general commissioners found and the finding was accepted in this House. The words which I used in that case, and which have been invoked on the present appeal, presuppose, as the context would show, that the matter must be viewed objectively and were intended to provide a test whether the office or employment in question so regarded was such as to require that its duties be performed in two places.
The question then, in this case, is whether the element of "necessity" in the objective sense existed. Necessity from the personal circumstances of the taxpayer is not enough. Necessity for the employer to agree to Mr. Taylor's terms if it was to get his services, even if proved, which it certainly was not, is not enough - still less is a demonstration either that Mr. Taylor was the best, or only, man for the job, or that to obtain his services was beneficial to the company. This sort of consideration, even if proved, is irrelevant to the question whether Mr. Taylor should be taxed. The only necessity which is relevant is an objective necessity arising from the nature of the job itself to travel in the performance of its duties.
I have stated these propositions rather dogmatically because I regard them as firmly established by the authority of this House in Ricketts v. Colquhoun [1926] A.C. 1 and Pook v. Owen [1970] A.C. 244 . Not for the first time your Lordships were invited to examine, which I take to be a euphemism for depart from, Ricketts v. Colquhoun. But it is one thing to say that Ricketts v. Colquhoun reached a wrong conclusion on the facts, if not on the facts as proved (which I would not agree), at least on the facts as they could have been proved (as to which I offer no opinion). But that is not the question. The question is what proposition of law was laid down by this House and whether that proposition should be regarded as incorrect. For my part I regard the case as an authority for the proposition that, for the purposes of rule 7 of Schedule E, the office (for that was a case of an office, but the same principle must apply to employments) must be objectively considered: what is its nature? what did it call for, or involve, in the way of duties? and as an authority against the proposition that the individual's personal circumstances can be brought in as part of the duties of the office, or as indicating what is necessary for its performance. The latter view was that of Warrington L.J. He interpreted the word "necessary" to mean necessary in regard to the circumstances of the individual concerned [1925] 1 K.B. 725, 735-736 and it may well be that this would represent a fair and reasonable view of what the law might be. But this House held that it was not the law, on the wording of the rule. The appellant's essential submission in this appeal in my opinion rests on Warrington L.J.'s judgment, and cannot be upheld unless that judgment is the law. But Rowlatt J., the majority of the Court of Appeal and this House took the other view. On this point, vital in the application of rule 7, Ricketts v. Colquhoun [1926] A.C. 1 has stood for nearly half a century, through several revisions of the Income Tax Code, was accepted in Pook v. Owen [1970] A.C. 244 and, on the point I have stated, cannot now be departed from. It does not of course follow that, as a decision on its set of facts, it necessarily applies to other situations. I turn, therefore, to consider the situation of Mr. Taylor.
In general terms there is no doubt what the duties of his employment were. They must be sought in the board resolutions and the factual circumstances of the parties to the contract. Mr. Taylor's duties were, by the use of his special experience, expertise and negotiating skill, to bring about further mergers between his company and other United Kingdom companies. The centre of gravity of his work was clearly in the United Kingdom. As regards the location of his work and the manner of performing it the situation seems to me to be clear enough. Mr. Taylor was a Canadian citizen, resident in Canada and/or the Bahamas, with business interests in both places. No doubt to become resident in the United Kingdom would for him involve unpleasant fiscal consequences. The companies did not, in these circumstances, require him to come to the United Kingdom and establish himself there. They therefore made it clear that he could operate, so far as practicable, overseas, only coming to the United Kingdom when necessary. There is nothing more here, as I understand it, than a recognition by the company of Mr. Taylor's personal circumstances, and consequently a permission to Mr. Taylor to do his planning, and possibly his negotiating, where he pleased. This is quite a different thing from a contractual agreement that his duties or any of them should or must be carried out abroad. Indeed, only the clearest wording to that effect could support a conclusion that so unlikely an arrangement was made. The company had no interest in binding Mr. Taylor to operate outside the United Kingdom, all it desired was to secure his services: and all it needed in order to secure his services, was to give him liberty of action. But merely giving him liberty of action, even coupled with a recognition that he was likely to exercise this in the way he did, does not involve that expenses of travelling to the United Kingdom were expended wholly, exclusively and necessarily in performing the duties of his office. He was given the choice where to operate: he exercised his choice according to the requirements of his personal circumstances. The Court of Appeal neatly summed up the situation in the words "the arrangement did no more than to recognise the particular and personal situation of the taxpayer and was in no way dictated by the nature of the tasks involved in the office."
This was the view taken by the special commissioners - the judges of fact. In their words "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."
I think, and I regret to differ from the Vice-Chancellor on this point, that this conclusion correctly reflects the facts - and if so the appeal must fail.
In my opinion then the taxpayer clearly fails in this case on the terms of his contract. But I must make it clear, in view of some of the arguments used, and which have appeared to find some favour in this House, that even if the contract had been drafted so as to impose a duty on Mr. Taylor to work in the Bahamas I could not accept that this was enough to bring him within the proviso. If, as I believe to be the law, expenses incurred on account of personal circumstances are not deductible under the rule, they cannot be made so merely by the technique, or device, of injecting them into the contract of employment. To hold that they could, would invite the creation of arrangements which might not correspond with reality and which would produce gross inequality of treatment. The commissioners must always have the right to examine the whole circumstances and to decide what, objectively, the duties of the office or employment were and what was necessary in their performance. It was this kind of situation that I had in mind when I used, no doubt imperfectly, the words "in a real sense" in Pook v. Owen [1970] A.C. 244 , 262. The commissioners' findings of fact in the present case, in my opinion, effectively negative the reality of any argument that by the nature of his employment Mr. Taylor was required to work in two or more places.
I would dismiss the appeal.