Bray v Best
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MAY,LORD JUSTICE BALCOMBE,LORD JUSTICE WOOLF |
| Judgment Date | 30 October 1987 |
| Judgment citation (vLex) | [1987] EWCA Civ J1030-7 |
| Docket Number | 87/1068 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 October 1987 |
[1987] EWCA Civ J1030-7
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(Mr. Justice Walton)
Royal Courts of Justice
Lord Justice May
Lord Justice Balcombe
and
Lord Justice Woolf
87/1068
MR. CHARLES POTTER, Q.C. and MR. MICHAEL HART, Q.C. (instructed by the Solicitor of Inland Revenue) appeared on behalf of the Respondent/Appellant.
MR. ANDREW PARK, Q.C. and MR. RICHARD BRAMWELL (instructed by Messrs Penningtons) appeared on behalf of the Appellant/Respondent.
This is an appeal against an order of Walton J. made on 20th January 1986 and entered on 18th February 1986 reversing in part the decision of a Special Commissioner upon an appeal by the Revenue by way of Case Stated under s.56 of the Taxes Management Act 1970.
On 30th and 31st January and 1st February 1984 the Special Commissioner heard the appeals of the taxpayer against 21 assessments to income tax under Schedule E set out in the Income and Corporation Taxes Act 1970 for the fiscal years 1958/59 to 1978/79 all inclusive (the "Employment Years").
On 2nd August 1984 the Special Commissioner determined the appeals by discharging the assessments for the years 1958/59 to 1977/78 all inclusive and by reducing that for 1978/79 to the agreed figure of £8,111, being the excess over £10,000 of the aggregate monies in dispute and accepted by the taxpayer as liable to tax pursuant to sections 187 and 188 of the 1970 Act.
The relevant statutory provisions are limited. Under Case 1 of Schedule E in s. 181(1) of the Act (although amended in immaterial respects in relation to foreign emoluments in 1974 and again in 1977), tax under the Schedule is chargeable in respect of any office or employment on any emoluments therefrom for a chargeable period. Section 183(1) defines "emoluments" as including "all salaries, fees, wages, perquisites and profits whatsoever". Section 526(5) defines "chargeable period" as "an accounting period of a company or a year of assessment". In the instant case, as the taxpayer is not a company, we are thus concerned with years of assessment.
The background to this case can be shortly stated in the words of the Special Commissioner in the Case Stated which I gratefully adopt. The taxpayer was employed from a date in the fiscal year 1958/59 to 1st April 1979 (in the fiscal year 1978/79) by A. Gallenkamp & Co. Ltd. ("the Company"). On the latter date he (and all the other employees of the Company) transferred to the employ of the Company's parent company. Just before that transfer, and in anticipation of it, the trustees of two trusts for the benefit of the Company's employees exercised their powers to bring into effect provisions leading to the winding-up of the trusts and the distribution of their net assets. In the course of the next fiscal year, 1979/80, the taxpayer became entitled, pursuant to the exercise of discretions vested in the trustees of each of the said trusts, to two sums totalling £18,111, a part of the trust funds. On those facts the taxpayer accepted liability to income tax for the year of assessment 1978/79 in respect of the said two sums under section 187 of the Income and Corporation Taxes Act 1970, that is to say to tax only on the excess over £10,000 (Section 188(3)). The Revenue, however, took the view that the sums were emoluments of or from the taxpayer's employment with the Company within the charge to tax under section 181 (to which the benefit of no special relief is attached). The questions for the Commissioner's decision were therefore:
(i) Whether, in relation to the taxpayers employment with the Company, the payments were "emoluments therefrom" within section 181(1), Schedule E, paragraph 1: and, if so,
(ii) Whether, in relation to the words "for the chargeable period" in Case 1 of Schedule E,
(a) the payments should be treated as income of different chargeable periods and spread accordingly over the whole of the period of the taxpayer's employment—the course actually adopted by the Revenue; or
(b) the year of assessment 1978/79 (the last year of such employment) was the sole chargeable period and the whole of the payments constituted income of that year; or
(c) the payments could not be attributed to any one or more of the years of assessment during which the taxpayer was employed by the Company and there was accordingly no chargeable period within the meaning of the statute.
In so far as the last sub-paragraph is concerned, the issue was whether the receipt of the £18,111 by the taxpayer should properly to be attributed to the fiscal year 1979/80 (the "Distribution Year"), during which period there was no employment, that is to say no source for any emolument which would mean that the receipt could not be chargeable to tax.
The Special Commissioner first held that the monies received by the taxpayer from the trustees were emoluments from his employment. This point is no longer disputed. But the Special Commissioner then held that the emoluments could not be attributed to any one or more of the relevant Employment Years from 1958 to 1979. It followed that there could be no chargeable period for the reason I have indicated.
The Revenue then asked for a Case Stated and appealed the Special Commissioner's findings against them. It seems that the taxpayer in his turn also argued before Walton J. that the monies he had received were not emoluments from his employment. The judge rejected this contention and, as I have said, it is no longer persisted in.
On the other point, however, the learned judge allowed the appeal against the Special Commissioner's decision. He expressed his reason for allowing the appeal in these terms:
"….. given that the payments in question are emoluments arising from [the taxpayer's] employment by the Company, is it possible to attribute a year or years of assessment to such payments? The learned Special Commissioner decided this question in the negative, and I have a great deal of sympathy with him in this conclusion. But I find [counsel for the Crown's] simple submission that this conclusion is logically indefensible wholly convincing. If paid for service as an employee, it must be paid in respect of some period of service, whether that be a definable special period or whether, on the other hand, the payments have to be regarded as spread over the whole of the period of service of the employee. Of course, having regard to the precise facts of this case it may be (and, indeed, I think it is) extremely difficult to say in respect of precisely what period of service these payments were made; that is to say, the additional emoluments were paid. But that they must be attributed to some is, in my view, inescapable."
He went on to say that he regarded the matter as being a pure question of fact and one which the Special Commissioner had to determine notwithstanding that the latter had expressly said that this was very difficult, if not impossible.
The taxpayer now appeals, seeking to have the learned judge's decision on the second principal point set aside and the Special Commissioner's order reinstated.
For the purposes of this judgment I think it unnecessary to refer to the detailed terms of the two relevant trust deeds and Deeds of Variation. These details are very helpfully set out in the learned judge's judgment to which reference can be made if necessary. Under the first trust deed as amended over the years, the employees of the company eligible to become beneficiaries upon the determination of the trust were in general those who were employees on both 31st December 1977 and the Termination Date (1st April 1979). Under the second trust deed as similarly amended, the eligible employees were those who were such on both 31st December, 1975 and the Termination Date. The resolutions of the trustees of each fund allocating specific sums to the respective eligible employees were not made until 21st December 1979.
As will have been seen, the Special Commissioner relied on what is known as the "source doctrine". There is no doubt that it exists and is established by authority: it was not challenged by the Revenue in this appeal. See Whiteman and Wheatcroft on Income Tax, 2nd Ed., para. 1—28:
"…..most types of income are classified by reference to the source from which they come. From this it was held to follow that if a taxpayer ceased to possess a particular source of income he could not be taxed on delayed receipts from that source unless these were referable to, and could be assessed in respect of, a period during which he possessed the source."
The reason the learned judge gave for allowing the second part of the appeal, which I have quoted, reflected a submission made to him by counsel for the Revenue and repeated before us. The submission was based on what was said to be both logic and authority. It was contended that "An emolument which is a reward for services is an emolument for that period during which the services were rendered. Where the period of the services extends into two or more years, then a fair apportionment on all the facts is necessary. In the present case the emoluments were a reward for services rendered during the period of employment, which was either the whole 21 Employment Years or at least, in the alternative, the period of eligibility stipulated for each trust." The authorities relied on were principally Hunter v. Dewhurst 16 TC 605, Dracup v. Radcliffe 27 TC 188, Heasman v. Jordan [1954] 1 Ch. 744, 35 TC 518 and Board of Inland Revenue v. Suite ...
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