Associated Artists Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Date | 1956 |
| Year | 1956 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income Tax - Exemption - Charitable purposes - Income Tax Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 10), Section 448 (1) (c) and (3).
The Appellant Company was incorporated in 1946 as a company limited by guarantee. Its objects as set out in clause 3 of its memorandum of association included:-"(a) To present classical, artistic, cultural and educational dramatic works in the United Kingdom of Great Britain and Northern Ireland and elsewhere. (b) To foster, promote and increase the interest of the public in the dramatic art and in the co-related arts…(c) To encourage and promote the creation of, and to arrange for the presentation of new dramatic works and to foster and enhance the art of affording advanced students facilities for training, and for gaining practical stage experience…(l) To do all such other things as are incidental or which the Association may think conducive to the attainment of any of the above objects".
The Company claimed exemption from Income Tax under Section 448 (1) (c), Income Tax Act, 1952, in respect of its profits from drama production for the years 1950-51 to 1953-54 inclusive, on the grounds that its objects were wholly charitable, or, alternatively, that those objects which were not charitable could be disregarded through the application of the Charitable Trusts (Validation) Act, 1954. The claim was refused by the Commissioners of Inland Revenue and, on appeal, by the Special Commissioners, who held that the Company was not established for charitable purposes only and that the Act of 1954 did not apply.
Held, that the Company was not established for charitable purposes only.
Stated under the Income Tax Act, 1952, Section 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 15th July, 1955, Associated Artists, Ltd., hereinafter called "the Appellant Company", being aggrieved by a decision of the Commissioners of Inland Revenue on a claim made for exemption from Income Tax under the provisions of Section 448 (1) (c) of the Income Tax Act, 1952, in respect of profits derived from drama production for the years 1950-51 to 1953-54 inclusive, applied to have the said claim for exemption heard and determined by the Special Commissioners. The question for our determination was whether or not the Appellant Company was a body established for charitable purposes only.
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(a) The following documents were produced and admitted or proved at the hearing of the appeal:
(A) Copy of the memorandum (as altered by special resolution of the Company passed 5th April, 1950) and articles of association of the Appellant Company.
(B) Copy of the standard drama agreement made between the Arts Council of Great Britain and the Appellant Company on 2nd June, 1950.
(C) Copies of the annual reports of the council of management of the Appellant Company for the years 1947 to 1953 inclusive.
(b) Such of these documents as are not attached to and do not form part of this Case are available if required for the use of the High Court(1)..
(c) Oral evidence was given by the following:
(i) Mr. John Selby Clements, actor and producer, who conceived the idea of forming the Appellant Company and who has been the administrator of the Appellant Company ever since its incorporation;
(ii) Sir Kenneth Ralph Barnes, for forty-six years principal of the Royal Academy of Dramatic Art, trustee of the Shakespeare Memorial Fund, member of the Joint Council of the Old Vic, and a member of the council of management of the Appellant Company since its incorporation;
(iii) Mr. John Percivale Moody, drama director of the Arts Council of Great Britain from April, 1949, to July, 1954, and now director of the Bristol Old Vic;
(iv) Mr. Matthew James McRobert, deputy secretary of the Arts Council of Great Britain since 1951.
The facts proved or admitted before us are as hereinafter set out in paragraphs 3 to 8 inclusive.
3. The Appellant Company was incorporated on 23rd January, 1946, as a company limited by guarantee. The idea of forming such a company was conceived by Mr. John Clements who, whilst playing in the commercial theatre, considered that there was a need for a non-profit-making organisation with a policy of putting on plays of the highest standard both in London and in the provinces, with a bias towards classical plays. Such an organisation should provide opportunities to young players of ability to play in better class works. At that time there were few such opportunities for young players except at the Old Vic and the Stratford Memorial Theatre, which specialised mainly in Shakespeare's works. The Arts Council of Great Britain, hereinafter called "the Arts Council", approved of Mr. Clement's idea and from its incorporation the Appellant Company has worked very closely with the Arts Council. He has, in fact, produced and acted in all the plays put on by the Appellant Company.
4. The objects for which the Appellant Company was established are set out in clause 3 of its memorandum of association. A copy of the memorandum and articles of association is annexed hereto, marked "A", and forms part of this Case(1). Our attention was drawn in particular to clauses 3 (a) and 3 (c) of the memorandum of association (although other clauses were referred to in argument), which read as follows:
(a) To present classical, artistic, cultural and educational dramatic works in the United Kingdom of Great Britain and Northern Ireland and elsewhere.
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(a) * * * *
(c) To encourage and promote the creation of, and to arrange for the presentation of new dramatic works and to foster and enhance the art of affording advanced students facilities for training, and for gaining practical stage experience.
5. The defined purpose of the Arts Council, as set out in its standard drama agreement, a copy of which is annexed hereto, marked "B", and forms part of this Case(1), is
to extend the knowledge and practice of the arts, to make them more accessible and to maintain the highest possible artistic standards. The Council hopes to enlist in this policy the co-operation of theatre companies which have before them the same ideals of service to the community; which are anxious to spread the knowledge and appreciation of all that is best in the theatre, and thus to bring into being permanent educated audiences all over the country.
This agreement stipulates that
Only properly constituted non-profit-sharing companies and bodies functioning under charitable trusts are eligible for association with the Council.
6. The Appellant Company entered into association with the Arts Council and, in accordance with the obligations set out in clause 4 of the standard drama agreement, the drama director of the Arts Council acted as an assessor and approved of the activities of the Appellant Company. The Arts Council provided an interest-free loan of £1,500 to the Appellant Company. Mr. Clements provided £1,500 and two commercial theatrical enterprises each provided £3,000 as interest-free loans to the Appellant Company.
(a) The Appellant Company produced "The Kingmaker" and "Marriage à la Mode" in 1946. The former was the first and only new play produced by the Appellant Company. It was chosen because, besides having artistic merit and being historically accurate, it had thirty-four speaking parts. Such a production could not have been attempted in the commercial theatre. Neither of these plays was successful, and, in order to enable the Appellant Company to continue, the Arts Council gave a further interest-free loan of £2,000 and Mr. Clements agreed to waive his salary as administrator of the Appellant Company and also his fees as producer. At this time the British Council suggested that these two plays should be taken on a tour of the United States of America and Canada but this proposal was turned down by the Appellant Company with the approval of the Arts Council.
(b) In 1947 rehearsals were started of "The Beaux Stratagem", but owing to the illness of the leading lady, Mr. Clements's wife, Miss Kay Hammond, its production was postponed. After touring the provinces for five months "The Beaux Stratagem" was produced in London in May, 1949. It started badly but the Appellant Company considered it a good play and Mr. Clements again waived his salary as administrator and his fees as producer and also agreed to take only half his salary as an actor. The Appellant Company made further borrowings to meet current expenses, and subsequently the play was very successful and resulted in a profit of £26,000.
(c) In 1951 the Appellant Company produced "Man and Superman" during the Festival of Britain and included the "Don Juan in Hell" scene; although this was acclaimed as a great...
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