Case K34

Members:
HP Stevens Ch
CF Fairleigh QC

Tribunal:
No. 1 Board of Review

Decision date: 14 June 1978.

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H.P. Stevens (Chairman): The question at issue in this case is whether amounts in respect of car expenses and depreciation applicable to the use of the taxpayer's vehicle by its manager/director/shareholder for his own private purposes have been correctly disallowed as deductions.

2. Mr. Fairleigh in his reasons has traversed the evidence in relation to the case and the role cross-examination has played in the decision reached by him. I do not dissent from his conclusion but should record my own hesitancy in accepting that there was in the years in question not a tacit but a specific oral agreement between the employer and employee relating to the employee's use of the employer's car - such agreement being basic to the decision reached.

3. From the objection quoted (para. 7 Mr. Fairleigh) it will be seen that it was not claimed that the individual received the use of the taxpayer's car as part of a contract of service or because his salary was less than reasonable and it will be appreciated that the taxpayer's representative in his written submission on law felt able to rely only on a ``tacit service agreement''. In these circumstances (particularly as the disallowances apparently first commenced in relation to the year ended 30 June 1970) it is difficult to accept - even allowing for English not being the representative's native language - that, if there had in fact been an informal directors' meeting at which the use of the car had been discussed and decided, the representative would not have put an appropriate leading question to the employee in chief.

4. In fact, in discussion before the employee was finally called to give evidence (he was at all times present in the board room), the taxpayer's representative said: -

``I will call Mr.... because the only person who could make an agreement on the part of the company was him, and the only person against him was himself so he had to make an agreement with himself.''

Later in answer to a question as to whether there was an ``actual service agreement'' he said ``He would not speak with himself, of course.'' Subsequently the manager/director was called as a witness and the only questions asked and answered in chief were: -

``When you started... in 1961, have you had the use of the car for your private purposes since the beginning of the business? - Yes.

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ATC 301

From the beginning you regarded the use of the car as part of your salary or remuneration? - I use the car sometimes because the salary is down, it is very low.

Do you regard it as part of your remuneration? - Yes.

When did you think of this, to make such an agreement to use the car? Was it in the sixties and then it went on for years or was it at a certain date in 1969 when the taxation department started to tax this private use? - Roughly in 1969.''

Although the final question referred to ``an agreement'' there was no suggestion this was one reached at an informal directors' meeting.

5. The reference to the manager/director having the use of the car since 1961 but the agreement only commencing ``roughly in 1969'' when the ``department started to tax this private use'' does not ring true as it would appear the initial disallowance was for the year ended 30 June 1970. In the normal course of events the taxpayer would not be advised of this situation until sometime in 1971 so that any ``agreement'' would operate only for the 1972 year of income at the earliest.

6. Further, whilst the inclusion of the value of the use of the car in the individual's 1974 return was sought to be relied upon as proof of the existence of ``an agreement'' and the non-inclusion in later years was explained (see para. 20 Mr. Fairleigh's reasons), no explanation was given for the non-inclusion in earlier years - query non-inclusion was because no ``agreement'' existed in those earlier years.

7. Finally, the explanation of the salary being ``very low'' or ``rather low'' as being the reason for the use of the car carries with it the inference that, if his salary had been higher, the taxpayer's car (admittedly only 50% used in connexion with the bakery business) would have not been used by him for his own private purposes. Presumably it would have been left idle whilst the individual used public facilities or acquired private transport of his own.

8. Having regard to the above matters and to the individual, who could not speak English, nodding his vigorous assent to all points made in the taxpayer's favour by its representative, I have considerable doubt as to whether there ever was a tacit agreement let alone a specific oral agreement covering each and every year of income at issue. However, in view of the fact that credibility was not put in issue (see para. 25 Mr. Fairleigh's reasons) and the taxpayer's case has been established, in my view, not by the evidence in chief and agreed facts but by the cross-examination set out by Mr. Fairleigh (para. 21), I have resolved this doubt (not without some hesitation) in favour of the taxpayer.

9. For the above reasons I join with my colleague in allowing the taxpayer's objections.