O'Brien v Benson's Hosiery (Holdings) Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Diplock,Viscount Dilhorne,Lord Simon of Glaisdale,Lord Fraser of Tullybelton,Lord Russell of Killowen |
| Judgment Date | 25 October 1979 |
| Judgment citation (vLex) | [1979] UKHL J1025-2 |
| Date | 25 October 1979 |
| Court | House of Lords |
[1979] UKHL J1025-2
House of Lords
Lord Diplock
Viscount Dilhorne
Lord Simon of Glaisdale
Lord Fraser of Tullybelton
Lord Russell of Killowen
Upon Report from the Appellate Committee to whom was referred the Cause O'Brien (Inspector of Taxes) against Benson's Hosiery (Holdings) Limited, That the Committee had heard Counsel as well on Monday the 2nd as on Tuesday the 3rd days of July last upon the Petition and Appeal of Lawrence O'Brien (Her Majesty's Inspector of Taxes) of Somerset House, The Strand, London, WC2 1LB 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 12th day of May 1978 so far as regards the words "of opinion that the determination of the Commissioners for the Special Purposes of the Income Tax Acts is correct and Allowing the Appeal of the Respondent Reverses the said Order and Affirms such determination" might be reviewed before Her Majesty the Queen in Her Court of Parliament and that the said Order so far as aforesaid 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 Benson's Hosiery (Holdings) Limited 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 the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 12th day of May 1978 in part complained of in the said Appeal be, and the same is hereby, Reversed and that the Order of Mr. Justice Fox of the 17th March 1977 be, and the same is hereby, Restored: And it is 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,
I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Russell of Killowen. I agree with it and, for the reasons stated by him, I think this appeal should be allowed.
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Russell of Killowen. I agree with it and have nothing to add. For the reasons stated by him, I think this appeal should be allowed.
My Lords,
I have had the privilege of reading in draft the speech about to be delivered by my noble and learned friend, Lord Russell of Killowen. I agree with it; and for the reasons which he gives I would allow the appeal and concur in the order which he proposes.
My Lords,
I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Russell of Killowen. I agree with its reasoning and conclusions, and I also would allow this appeal.
My Lords,
In September 1968 the respondent company ("the taxpayer") entered into a written agreement with a Mr. Behar ("Behar") under which Behar agreed to serve the taxpayer as sales and merchandise director in exchange for an annual remuneration for a period of seven years. In April 1970 by a further written agreement the taxpayer released Behar from any obligation further to serve the taxpayer in consideration of payment by Behar to the taxpayer of £50,000. The question in this appeal is whether that sum (subject perhaps to some deduction) is to be brought into the computation of the taxpayer's profit for corporation tax: and that question in turn depends upon whether it was a capital gain accruing to the taxpayer on the disposal of an asset within that part of the Finance Act 1965 that introduced capital gains tax. Hereunder the primary question is whether the right of the taxpayer under the contract to require the personal services of Behar was an "asset" within the 1965 Act.
Before turning to the language of the statute I will summarize the facts and the two agreements involved.
In 1968 a company called Benson's Hosiery Ltd. ("Hosiery") was carrying on a business of selling hosiery through thitherto unexploited outlets, such as shops not usually associated with such goods. Behar owned 25 per cent of Hosiery's issued share capital, had been for some years its sales and merchandise director, and had pioneered and exploited with conspicuous success their novel method of hosiery marketing. The taxpayer (a holding company) in 1968 acquired the issued share capital of Hosiery in exchange for shares in the taxpayer. At the same time it acquired the issued share capital of another company, South Coast Warehousemen Ltd. It was in those circumstances that the taxpayer entered into a service agreement with Behar, who, it will have been observed, became a shareholder in the taxpayer.
By that service agreement Behar was appointed sales and merchandise director of the taxpayer for seven years at a salary of £4,000 per annum. There was no provision for commission or bonus, though it appears that some bonus was paid. Thereunder Behar was required to perform the duties assigned to him by the board of the taxpayer including rendering services to any subsidiary of the taxpayer: these services would no doubt be within the scope of a sales and merchandise director. His major function...
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