Jennings (Inspector of Taxes) v Barfield & Barfield
[1962] 2 All ER 957Between: Jennings (Inspector of Taxes)
And: Barfield & Barfield
Judge:
Pennycuick J
Subject References:
Income Tax
Deduction in computing profits
Expenses
Disbursements "wholly and exclusively laid out ... for the purposes of the ... profession"
Payment under guarantee
Solicitors temporarily guaranteeing client's overdraft
Ordinary activity of practice of solicitors to give such guarantees
Legislative References:
Income Tax Act, 1952 (15 & 16 Geo 6 & 1 Eliz 2 c 10) - s 137 (a), s 123, Sch D Case II
Case References:
Bentleys, Stokes & Lowless v Beeson - [1952] 2 All ER 82; 28 Digest (Repl) 98, 387
Bury & Walkers v Phillips - (1951), 32 Tax Cas 198; 28 Digest (Repl) 92, 355
Hagart and Burn-Murdoch v Inland Revenue Comrs - [1929] AC 386; 98 LJPC 113; 141 LT 97
sub nom Inland Revenue Comrs v Hagart and Burn-Murdoch - 14 Tax Cas 433; 28 Digest (Repl) 88, 332
Lunt v Wellesley - (1945), 27 Tax Cas 78; 28 Digest (Repl) 157, 617
Morley v Lawford & Co - (1928), 140 LT 125; 14 Tax Cas 229; 28 Digest (Repl) 93, 362
Reid's Brewery Co v Male - [1891] 2 QB 1; 60 LJQB 340; 64 LT 294, 55 JP 216; 55 JP 216; 3 Tax Cas 279; 28 Digest (Repl) 77, 291
Usher's Wiltshire Brewery Ltd v Bruce - [1915] AC 433; 84 LJKB 417; 112 LT 651; 6 Tax Cas 399; 28 Digest (Repl) 77, 293
Judgment date: 23 May 1962
ORDER
Following a message that a client for whom they had acted for many years, particularly in transfers of property, needed an overdraft to complete the lease of new showrooms, to pay a deposit on a house he was purchasing and to provide funds for carrying on his business, solicitors signed a guarantee of an overdraft by the client's bank of up to £500. The client subsequently went bankrupt and the solicitors were required to pay £412 under the guarantee. They sought to deduct that sum as a necessary expense of their profession for income tax purposes. On the hearing of their appeal against their assessment they called evidence that it was the practice of their firm and of other firms of solicitors to guarantee loans to enable clients to complete transactions, and the General Commissioners of Income Tax found that the guarantee was given and the loss of £412 was incurred in connexion with and arising out of the solicitors' practice and for the purposes of their profession as solicitors, that they "and some other solicitors are accustomed to give guarantees in favour of clients in certain circumstances, usually when the guarantee is required for what appears a temporary purpose", and that the £412 "was wholly and exclusively expended for the purposes of" their practice as solicitors. There was no finding that the solicitors received any consideration for giving the guarantee. They allowed the deduction. On appeal,
Held:
The payment under guarantee was a proper deduction in computing the solicitors' profits for income tax purposes under Case II of Sch D s 123 of the Income Tax Act, 1952, as money "wholly and exclusively expended for the purposes" of their profession within s 137 (a) of the Act of 1952, since on the evidence the giving of guarantees for deposits on houses and leases was a general or ordinary activity of solicitors, and in law it was not necessary to establish that a solicitor could not successfully carry on his profession without giving such guarantees (see p 965, letter i, and p 966, letter c, post.
Opinions of Lord Shaw of Dunfermline and Lord Warrington of Clyffe in Hagart and Burn-Murdoch v Inland Revenue Comrs ([1929] AC at pp 395, 398) followed, the decision in that case being distinguished.
Appeal dismissed.
Notes
As to deductions from profits of losses on loans, etc, for income tax purposes, see 20 Halsbury's Laws (3rd Edn) 177, 178, para 307; and for cases on the subject, see 28 Digest (Repl) 87-101, 329-401.
For the Income Tax Act, 1952, s 137, and s 123, Sch D, Case II, see 31 Halsbury's Statutes (2nd Edn) 134, 116.
Case Stated
The taxpayers appealed to the General Commissioners of Income Tax for the Strand Division of the Duchy of Lancaster against an assessment made on them under Case II of Sch D, s 123, of the Income Tax Act, 1952, for the year ending 5 April 1960, in the sum of £4,657, less capital allowances £92, in respect of the profits of their practice as solicitors. Their grounds of appeal were that they were entitled to deduct from the sum assessed the sum of £412 in respect of a loss sustained by reason of their guaranteeing the payment to Barclays Bank Ltd of the overdraft of a client, John Terence Knight, which resulted in their having to pay that sum. The commissioners held that the sum was properly deductible. The Crown appealed by way of Case Stated to the High Court.