Abbott v Philbin (Inspector of Taxes)
| Jurisdiction | UK Non-devolved |
| Judge | Viscount Simonds,Lord Reid,Lord Radcliffe,Lord Keith of Avonholm,Lord Denning |
| Judgment Date | 21 June 1960 |
| Judgment citation (vLex) | [1960] UKHL J0621-1 |
| Date | 21 June 1960 |
| Court | House of Lords |
[1960] UKHL J0621-1
Viscount Simonds
Lord Reid
Lord Radcliffe
Lord Keith of Avonholm
Lord Denning
House of Lords
Upon Report from the Appellate Committee, to whom was referred the Cause Abbott against Philbin (Inspector of Taxes), that the Committee had heard Counsel, as well on Monday the 2d, as on Tuesday the 3d, days of May last, upon the Petition and Appeal of E. C. Abbott, of 4 Harley Place, Clifton Down, Bristol 8, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 6th of October 1959, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of A. J. Philbin (Her Majesty's Inspector of Taxes), lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty's the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 6th day of October 1959, complained of in the said Appeal, be, and the same is hereby, Reversed, and that the Order of the Honourable Mr. Justice Roxburgh, of the 19th day of March 1959, thereby reversed, be, and the same is hereby, Restored: And it is further Ordered, That the Respondent do pay, or cause to be paid, to the said Appellant the Costs incurred by him in the Court of Appeal, and also the Costs incurred by him in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the Chancery Division of the High Court of Justice, to do therein as shall be just and consistent with this Judgment.
My Lords,
This appeal relates to an assessment to income tax under Schedule E of the Income Tax Act, 1952, made upon the Appellant for the year of assessment 1955–1956 in respect of the emoluments of his office as secretary of E. S. & A. Robinson Ltd., which I will call "the company". The Court of Appeal decided the case against him in deference to a decision of the Court of Session— Forbes's Testamentary Trustees v. Commissioners of Inland Revenue, 1958 S.C. 177. Your Lordships will find it necessary to review that case.
The facts are not in dispute. At the Annual General Meeting of the company held on the 28th June, 1954, it was resolved that 250,000 of 290,319 unclassified shares of £1 each in the capital of the company be classified as Ordinary Shares and that the directors be authorised to grant options over such shares or any of them to executives of the company or its subsidiaries at such times and generally on such terms and subject to such conditions as the directors should think proper.
Pursuant to this resolution the directors of the company at a Board Meeting held on 6th October, 1954, resolved that options upon the terms contained in a draft letter then produced to subscribe for Ordinary Shares in the company at 68s. 6d. per share (being the middle price ruling on the Bristol Stock Exchange on that day) be granted to the executives. The Appellant accordingly as secretary of the company sent to each of the executives, including himself, a letter, of which the salient conditions were that he was granted at the price of £1 for every 100 shares an option to purchase a specified number of shares at the price of 68s. 6d. per share, such option to be exercisable at any time within ten years from the date of the grant of the option. The option was expressed to be non-transferable and was to expire upon the death or retirement of the executive (or employee, as I will call him) before the expiration of the ten years. If the employee desired to purchase the option he was required to send in a form of application (which accompanied the letter) together with his cheque for the price of the option, whereupon an option certificate would be issued to him. The Appellant, being included in the list as entitled to a grant of an option in respect of 2,000 shares, applied accordingly on the 7th October, 1954, for such option enclosing his cheque for £20 which was duly cashed. Some delay occurred in the issue of option certificates and he was not given his until the 6th May, 1955, but it bore on its face the statement that the option was granted on the 6th October, 1954. It was endorsed with the conditions as to the non-transferability and expiry to which I have referred.
On the 28th March, 1956, the price of the company's shares having then risen to 82s., the Appellant exercised pro tanto his option by applying to the company for the issue to him of 250 shares at the price of 68s. 6d. per share and sent with his application his cheque for £856 5s. 0d. The shares were duly issued to him. He was subsequently assessed to tax under Schedule E for the year 1955–56 in ( inter alia) the sum of £166 which was made up as follows:
| £ s. d. | £ s. d. | |
| 250 shares taken up on 28th March, 1956, when the middle market price was 82s. … … … … | 1,025 0 0 | |
| Deduct: Option price 68s. 6d. … | 856 5 0 | |
| Cost of option at £1 per 100 shares … … | 2 10 0 | 858 15 0 |
| £166 5 0 |
The Special Commissioners upheld the assessment considering the case indistinguishable from Forbes's case to which I have referred, Mr. Justice Roxburgh, if I understand his judgment, thought it possible to distinguish that case and upon Case Stated allowed the present Appellant's appeal. The Court of Appeal, as I have already said, decided in favour of the Crown.
My Lords, once more your Lordships have to consider the words of Rule 1 of the Rules applicable to Schedule E contained in the Ninth Schedule to the Income Tax Act, 1952, which is as follows:
"Tax under Schedule E shall be annually charged on every person having or exercising an office or employment mentioned in Schedule E … in respect of all salaries, fees, wages, perquisites or profits whatsoever therefrom for the year of assessment …"
Summarily the question is: Was the difference betwen ( a) the market price on the 28th March, 1956, £1,025, and ( b) the option price, £856 5s. 0d., plus a proportionate part of the cost of option, £2 10s. 0d., a "perquisite or profit therefrom", that is, from the office of secretary held by him, for the year of assessment?
The curious feature of this case is that the Crown appears to reach the conclusion that the sum of £166 was assessable for the year 1955–56 by first denying that the grant of the option was itself a perquisite or profit of the year 1954–55, and this is, I think, the aspect of the case that must first be examined. For it would not, as I understand the argument of learned counsel for the Crown, be contended that, if the grant of the option was itself a perquisite or profit arising from the office, the subsequent exercise of it would be another perquisite or profit.
My Lords, I cannot entertain any doubt that, when the company granted the option to the Appellant, he acquired something of potential value. I do not think that it matters whether it falls into the category of proprietary or contractual right or into some dim twilight that divides those juristic conceptions. We are concerned with a taxing statute whose language is to be reconciled with the law of England and Scotland alike, and the chosen words "perquisite or profit whatsoever" are as wide and general as they well could be. I can concede no relevant limitation of their meaning except in the oft cited words of Lord Watson in Tennant v. Smith [1892] A.C. 150 at p. 159 that they denote "something acquired which the acquirer becomes possessed of and can dispose of to his advantage—in other words, money—or that which can be turned to pecuniary account."
How, then, can it be said that an option to take up shares at a certain price is not a valuable or at least a potentially valuable right? Its genesis is in the desire of the company to give a benefit to its employees and at the same time no doubt to enhance their interest in its prosperity. It is something which the employee thinks it worth his while to pay for: not a large sum truly, but £20 deserves a second thought. And it is something which can assuredly be turned to pecuniary account. This was challenged because the option was itself not transferable, but this objection is without substance. There was no bar, express or implied, to a sale of the shares as soon as the option was exercised and there could be no difficulty in the grantee arranging with a third party that he would exercise the option and transfer the shares to him. It was further challenged on the ground (to quote the language of Lord Justice Sellers in the Court of Appeal) that "a notional use of the option or a use unintended and undesired by the company, unrealised and unvalued," does not have the quality required by the accepted standard set by Lord Halsbury and Lord Watson in Smith v. Tennant "to make it a taxable perquisite, if indeed, it was a perquisite at all at that date". With great respect to the learned Lord Justice and to counsel who put it in the forefront of his argument, I find great difficulty in giving any weight at all to this consideration. It is mere guesswork what use of the option was intended or desired. I would not myself assume that the company intended that the grantee of an option should for ever, or for a day longer than he wished, hold the shares that he took up, or that he should not at once, if he wished, reap the benefit of a rise in price. But, guess right or wrong, there is...
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