British Broadcasting Corporation v Johns (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 05 March 1964 |
| Date | 05 March 1964 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income Tax, Schedule D - Exemption - Crown privilege - Trade - Mutuality - Deduction - Payment to associated company in respect of operating deficit.
The British Broadcasting Corporation (hereinafter called the B.B.C.) was established under a Royal Charter, granted for ten years, with the object of providing broadcasting services in accordance with a non-exclusive licence from the Postmaster-General, and with wide powers to own and administer property. Its members were Governors appointed by the Crown. It was required to apply funds granted by the Postmaster-General in accordance with the terms of the grant and to apply any other moneys in accordance with the Charter. On its dissolution its surplus assets were to be disposed of as the Postmaster-General should direct.
Under its licence from the Postmaster-General the B.B.C. accepted obligations, inter alia, to provide sound and television services every day during prescribed hours, to transmit broadcasts to foreign countries as prescribed and to monitor broadcast emissions. The Postmaster-General agreed to finance the current and capital requirements of the home services by a proportion (fixed for periods of several years at a time) of the net licence revenue received by the Exchequer, and to make grants for external services and services performed for Government Departments. The B.B.C. had a fairly wide discretion as to making reserves for future commitments. It had almost complete editorial liberty, and complete independence as regards selection of staff. Among its ancillary activities, it carried on publications, organised concerts, sold and hired films of television performances abroad and owned patents and copyrights. For the year 1957-58, after crediting net revenue on publications (calculated without charging for the use of capital or of copyright material) £706,956 and interest on investments £133,167, its accounts showed an excess of income over expenditure of £1,495,868. This balance, as adjusted for tax purposes, was assessed to Income Tax under Schedule D for the year 1958-59.
In October, 1957, the B.B.C. set up a newsfilm agency in conjunction with the Canadian and Australian broadcasting organisations and a film company. The B.B.C. and the film company each agreed to subscribe
for 48,000 shares and to pay, as an additional subscription, half the excess of the agency's operating costs over the subscriptions paid to it for its news service. The additional subscription was considered necessary initially to ensure that the agency produced an adequate service. The service was a vital part in the development of the B.B.C.'s news programmes. In 1957-58 it paid an additional subscription of £62,950On appeal to the Special Commissioners against the assessment for 1958-59, it was contended for the B.B.C. (a) that it was not subject to Income Tax because it represented the Crown in performing a public service required and created by the Government; (b) that the profit or surplus assessed was not an annual profit or gain within Schedule D because money not spent at the end of the financial year was required to be applied subsequently on behalf of the Government in the provision of broadcasting services or in the event of the B.B.C.'s dissolution would be subject to Government control; the profit from publications should be segregated in accordance with Carlisle and Silloth Golf Club v. Smith, 6 T.C. 48, 198; (c) alternatively, that a deduction should be allowed for the additional subscription to the newsfilm agency. For the Crown it was contended, inter alia, (i) that the B.B.C. was not entitled to Crown exemption; (ii) that its operations constituted the carrying on of a trade within Case I of Schedule D, and as between it and the Postmaster-General the principle of mutuality did not apply; (iii) that the additional subscription to the newsfilm agency was not wholly or exclusively laid out for the purposes of that trade. The Special Commissioners upheld these contentions of the Crown; as regards the additional subscription, they held that Odhams Press, Ltd. v. Cook, 23 T.C. 233, and Marshall Richards Machine Co., Ltd. v. Jewitt, 36 T.C. 511, applied.
Held, (1) that broadcasting services were carried on by the B.B.C. as an independent body under contract with the Crown; and
(2) that, since the Post-master-General both provided the finance and was ultimately entitled to any surplus, the surplus resulting in any year from failure by the B.B.C. to spend the whole of its grant was not a taxable profit; its profits from publications were severable.
Jones v. South-West Lancashire Coal Owners' Association, Ltd.,11 T.C. 790, and Carlisle and Silloth Golf Club v. Smith,6 T.C. 48 and 198, applied; Smart v. Lincolnshire Sugar Co., Ltd., 20 T.C. 643, distinguished.
Willmer and Danckwerts, L.JJ., Diplock, L.J., dissenting, considered (approving the decision of Wilberforce, J., in the Chancery Division on this point) that, if the surplus had constituted a taxable profit, a deduction would have been admissible for the additional subscription to the newsfilm agency.
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 22nd to 26th January, 1962, the British Broadcasting Corporation (hereinafter called "the B.B.C.") appealed against an assessment for the year 1958-59 made upon it under Schedule D of the Income Tax Act, 1952, in the sum of £4,000,000 in respect of broadcasting.
2. Two main questions arose for our decision:
(a) whether the B.B.C. was taxable under either Case I or Case VI of Schedule D in respect of the surplus arising from its operations;
(b) whether, if it was so taxable, it was entitled in computing its profits to deduct as an expense sums paid as hereinafter appears to British Commonwealth International Newsfilm Agency, Ltd. (B.C.I.N.A.).
3. Evidence was given before us on behalf of the B.B.C. by Mr. Hugh Carleton Greene, director-general of the B.B.C.; Lt.-General Sir Ian Jacob, a former director-general; Mr. J. G. L. Francis, controller of finance; and by Mr. D. I. Edwards, the editor, news and current affairs. A number of documents were put in evidence before us, most of which are hereto annexed(1) . A full list of such documents is hereto annexed, marked "H"(1), and such of them as are not hereto annexed are available for the use of the Court if required.
4. As a result of the evidence adduced before us, both oral and documentary, we find the following facts proved or admitted.
(a) From the earliest days of wireless broadcasting in the United Kingdom the Crown has assumed control over its operation. The first wireless transmissions were made by Signor Marconi in 1896, and the Marconi Co. was incorporated in 1897. Under the provisions of the Wireless Telegraphy Act, 1904, no person was to establish or work any wireless telegraph station in any place or on board any British ship except in accordance with a licence granted in that behalf by the Postmaster-General (Section 1). Under Section 1 (6) the Postmaster-General was empowered to make regulations. The fees received in respect of wireless licences have from the beginning been kept separate from the general funds of the Post Office and are paid to the Exchequer.
(b) Under the provisions of the Wireless Telegraphy Act, 1949, which governed the operations of the B.B.C. so far as the year 1958-59 before us is concerned, the prohibition on establishing or using any station for transmission without a licence contained in the 1904 Act was repeated, and under Section 2 (1) licence fees were to be paid to the Postmaster-General. At no time were licence fees payable direct to the B.B.C. Under Section 3 the Postmaster-General was empowered to
make regulations…prescribing the things which are to be done or not to be done in connection with the use of any station for wireless telegraphy… and, in particular, requiring the use of any such station or apparatus to cease on the demand in that behalf of any such persons as may be prescribed by or under the regulations.
(c) Under Section 17 of the 1949 Act, the moneys necessary for the provision of a broadcasting service were to be paid out of moneys provided by Parliament, and the wireless licence fees were to be payable to the Exchequer. These provisions were continued in the Post Office Act, 1961, which was passed subsequently to the year with which we are dealing.
(d) The B.B.C. was first established with effect from 1st January, 1927, by Royal Charter dated 20th December, 1926, and successive Charters have been granted. The Charter operative in the material year was one granted in 1952, a copy of which is hereto annexed, marked "A"(1). By it (to give the briefest summary) the B.B.C. is incorporated with perpetual succession and is to apply the whole of its income solely in promoting its objects. The governors are to be its members. It is to provide as
public services sound and television broadcasting both to the United Kingdom and abroad in accordance with a non-exclusive licence to be obtained from the Postmaster-General, and is to observe the conditions under which such licence is to be granted. It is to receive and apply such funds as may be granted to it by the Postmaster-General in accordance with the terms and conditions which might be attached to such grant, and to apply in accordance with the terms of the Charter any other moneys which it might obtain. It is not to distribute any funds as profit among its members. Upon the voluntary or compulsory dissolution of the Corporation, any surplus funds are to be disposed of in accordance with the directions of the Postmaster-General. The attention of the...To continue reading
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