Allan v Commissioners of Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 29 September 1994 |
| Docket Number | No 8 |
| Date | 29 September 1994 |
| Court | Court of Session (Inner House - Second Division) |
SECOND DIVISION
RevenueIncome taxIncome assessableSched EEmoluments from employmentSupplementary redundancy paymentsPayments payable whether or not employees lost employmentWhether payments assessable to taxIncome and Corporation Taxes Act 1970 (cap 10), sec 181, 183, 187 and 1881
In 1982 a company (A) sold its share capital to another company (B). As part of the bargain, company A made redundancy payments to its employees, who were to receive the redundancy payments whether or not their employment was to continue with company B. One employee, Mrs C, received payment of 7,250; another employee, Mr A, received 11,500. Company A continued in business under the control of company B until September 1986. Both Mrs C
and Mr A continued to work for company A until, in Mr A's case, he was made redundant in April 1986 and, in Mrs C's case, the company ceased business in September of that year. The General Commissioners held that the sums paid to those employees were emoluments of their employment in terms of secs 181 and 183 of the Income and Corporation Taxes Act 1970 and were thus assessable to income tax under Sched E. Mr A and the husband of Mrs C thereafter appealed to the Court of Session against that determinationHeld (1) that a supplementary redundancy payment to employees whose services had been terminated was different in character from a payment which was made by employers to all existing employees irrespective of whether or not they were made redundant; (2) that since the payment was being made to all employees whether they lost their employment or not, the payments could not be regarded as compensation for anticipated loss of employment so that (3) the source of the payment having been the employer, the Commissioners had been entitled to hold that the sums paid were emoluments from employment; and appealsrefused.
Edwards v BairstowELR [1956] AC 14 (dicta of Lord Radcliffe at p 35) applied.
At a meeting of the Commissioners for the General Purposes of Income Tax, Robert A Allan and James M Cullen appealed against assessments under Sched E made on them in respect of payments received by Mr Allan and the wife of Mr Cullen in respect of their former employment with R W Forsyth Ltd.
The question of law in each case was whether, on the facts found by the General Commissioners, they had been entitled to determine the assessment in the figure stated in each case.
The relative averments of each party appear sufficiently from the opinion of the court.
Cases referred to:
Brumby v MilnerTAX (1976) 51 TC 534
Edwards v Bairstow and HarrisonELR [1956] AC 14
Hamblett v GodfreyWLR [1987] 1 WLR 357
Henry (Inspector of Taxes) v FosterTAX (1930) 16 TC 605
Herbert v McQuadeELR [1902] 2 KB 631
Hochstrasser v MayesELR [1960] AC 376
Inland Revenue v MorrisSC 1968 SC 153
Laidler v PerryELR [1966] AC 16
Mairs (Inspector of Taxes) v HaugheyELR [1994] 1 AC 303
Seymour v ReedELR [1927] AC 554
Shilton v Wilmshurst (Inspector of Taxes)ELR [1991] 1 AC 684
The cause called before the Second Division, comprising the Lord Justice-Clerk (Ross), Lord McCluskey and Lord Clyde for a hearing.
At advising, on 29 September 1994, the opinion of the court was delivered by the Lord Justice-Clerk (Ross).
Opinion Of The CourtThese two cases were set down for hearing together, and although they had been determined by different bodies of General Commissioners and the facts stated in the cases were not identical, counsel were agreed that the cases should be heard together. The appellant Mr Allan and the wife of the appellant Mr Cullen were employees of R W Forsyth Ltd (the company), and the question which arises is whether payments made to them of supplementary redundancy payments were chargeable to tax under Sched E. For the Inland Revenue it was contended that the payments were chargeable, whereas the appellants maintained that the payments were not chargeable to tax under Sched E.
In both cases it is narrated that the company was an old established family concern which traded as clothing retailers from two stores, one in Princes Street, Edinburgh, and the other in Renfield Street, Glasgow. The appellant Mr Allan had for some time been employed as a buyer of men's wear at the Glasgow premises, and Mrs Cullen, the wife of the appellant Mr Cullen, had been employed as senior fitter in charge of the workroom with responsibility for all tailoring alterations.
Early in 1981 it became clear to the directors and shareholders of the company that trading prospects were bleak, and they decided at that time to sell off their valuable premises and go into liquidation. In or about the summer of 1981 an offer was received for the Princes Street premises and on 7 August 1981 a decision to accept the offer was taken by the board. At the same meeting with the approval of the shareholders it was resolved to make supplementary redundancy payments over and above their statutory entitlements to all directors and employees whose services were terminated by redundancy. In August 1981 the company advised all its employees of the intention to sell both stores, that they would be made redundant, but that the company would make supplementary redundancy payments to them, based on salary and length of service.
The Princes Street business was closed in October 1981, the staff were made redundant, and the property was sold subject to planning permission and building consents. It was apparently appreciated by the company that it would have been advantageous to sell the share capital rather than liquidate, but at the time it was thought that the provisions of a trust known as the employees' trust precluded the transfer of the trust assets to other shareholders except in a winding up. Subsequently a different view was taken regarding this, and while seeking a buyer for the Renfield Street premises the company was approached by financiers acting for property developers with a proposal to acquire the whole of the issued capital of the company, other than that held by the employees' trust. The directors recommended acceptance of this offer which they considered to be superior to any likely outcome of a liquidation. As part of the sale arrangements the vendors were obliged to maintain the company's trading from the Glasgow premises until the date of sale.
On 31 December 1981 the chairman of the company wrote to shareholders inviting their approval for acceptance of the offer contrary to the earlier proposal to liquidate the company. In the penultimate paragraph of the letter, the chairman informed shareholders that it was proposed to include all the employees in the supplementary payments on the same basis irrespective of whether or not they are offered alternative employment by the purchaser.
The company's shareholders approved of these proposals and a sale agreement was drawn up and executed on 15 March 1982. The sale...
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