Commissioners of Inland Revenue v National Book League
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE PEARCE |
| Judgment Date | 30 May 1957 |
| Judgment citation (vLex) | [1957] EWCA Civ J0530-5 |
| Date | 30 May 1957 |
| Court | Court of Appeal |
[1957] EWCA Civ J0530-5
In The Supreme Court of Judicature
Court of Appeal
The Master of the Rolls
Lord Justice Morris
Lord Justice Pearce
MR GEofFREY CROSS, Q.C., SIR REGINALD HILLS and MR E.B. STAMP (instructed my the Solicitor of Inland Revenue, Somerset House, Strand, London, W.C.2) appeared as Counsel for the Appellants.
MR P.J. BRENNAN and MRS H. WILSON (instructed by Messrs Field, Roscoe & Co., 52, Bedford Square, London, W.C.l) appeared as Counsel for the Respondents.
: The Rational Book League is a Company limited by guarantee which was formed in the year 1925. As appears from paragraph 3 of the Special Case, it was not disputed that since September, 1951, the League has been a body established for charitable purposes only. The question on the appeal arises in relation to some 2,000 or more Deeds of Covenant in a common and well recognised form entered into by persons who were members - I have emphasised that word for reasons which will later appear - of the League whereby the covenanters covenanted to pay for a period of seven years if they so long lived such a sum as after deduction of income tax would leave the not figures of either one guinea or 10s.6d. The National Book League sought to recover the amount of tax which had boon deducted from the notional gross sums named in the goods of Covenant pursuant to section 447(l)(b) of the Income Tax Act, 1952. That subsection, so far as is relevant, provides that "Exemption shall be "granted.… (b) from tax chargeable.… under Schedule D in "respect of any yearly interest or other annual payment, forming part of "the income of any body of persons or trust established for charitable "purposes only, or which, according to the rules or regulations established by Act of Parliament," etc. "are applicable to charitable purposes "only, and so far as the same arc applied to charitable purposes only".
It is not in doubt that the tax chargeable falls under Schedule D. It is the contention of the League that the case is one which is comprehended by Case III of Schedule D, now enshrined in section 123, subsection (l), of the Act of 1952, whore it is stated: "Case III - tax in "respect of - (a) any interest of money, whether yearly or otherwise, or "any annuity, or other annual payment," etc. It is the contention of the National Book League that the gross sums in question are annual suns within the comprehension of Case III or section 123. and that the League is entitled, according to the terms of paragraph (b) of section 471, to recover the tax which has boon deducted by the covenanters.
I confess I have found the case somewhat troublesome, not least because of the conclusions to which the extremes of the argument on either side might appear to lead. It was, for example, on the one side observed by Mr. Cross that if the argument for the League were sustained it might be possible for a charity which, in accordance with well known practice, nay require each year to augment its funds or increase public interest by holding a dance, to invite well-disposed persons to enter into goods of Covenants for seven years for a figure in return for which they would he supplied with dance tickets for the charity dance in each of the following seven years. In such a case I do not myself feel much doubt that the substance of the matter would be an arrangement for buying in advance dance tickets for charity dances by means of a covenanted payment of that kind. That being the substance of the matter, it would be difficult to see, as it seems to me, how it could be brought within Case III and entitle the charity to recover tax.
On the other side and at the other extreme the instance was taken of well known charities, of which the National Art Collections Fund may be taken as an example. In such cases, as is will known, the donors, the covenanters in favour of such charities, get certain privileges. They may be allowed the use of certain reading rooms? they may be given the privilege of attending private exhibitions in private houses or elsewhere; and to many I do not doubt these privileges are by no means negligible. But although that case, again, is not before us, it seems to me, as at present advised, that it would altogether offend good sense and good law to say that the sums covenanted in such cases were not gifts to the charity in question, that they were not pure income profit, to use Lord Greene's phrase, in the hands of the charity. But the present case (and this is, of course, a truism applicable in all cases) must turn upon its own special facts; and, as I shall observe presently, I think the facts in the present case are special in a marked degree.
First, however, it must be stated that it is now clear that the fact that the National Book League is recognised as a body incorporated for charitable purposes only cannot be conclusive of the case in their favour. So much was clearly laid clown by the House of Lords in Inland Revenue Commissioners v. City of London, the case referred to commonly as the Epping Forest case, and reported in 1953, Weekly Law Reports, at page 652. But in that case the House, having rejected that answer to the claim for tax, proceeded to arrive at the same conclusion as this Court on the ground that when full examination was made into the facts it appeared that the sums paid by the Corporation of London for the purpose of maintaining the lapping Forest were paid without any conditions or counter stipulations being made in return.
I cite one paragraph of the speech of Lord Normand at page 664: "My Lords, I am satisfied with the way in which the Special Commissioners "have dealt with the question and with their reasons. I am also in "agreement with much that is said in the judgment of the Court of Appeal, "though I have differed from it on the actual ground of the decision. "The sum, in my opinion, is in no different position from a sum (having "the requisite quality of recurrence; paid without conditions or counter "stipulations out of taxed income under a covenant by a private individual "to any charitable body. The Crown would neither admit nor deny that "such a payment, would be an annual payment to the charity within the "meaning of III, or that the party paying it would be entitled to "retain the tax, or that the charity would be entitled to recover it. "We were implored to be guarded in our opinions on covenants in favour of "charities. I can only sky that I an compelled to follow where the "argument leads. If the payment under covenant were made by an individual "to a body not a charity it could still be an annual payment, but the "question whether it was in return for some consideration would probably "be much more prominent and acute If it were an annual payment the "payer would be entitled to deduct tax under rule 19 but the payee would "not be entitled to recover the tax."
That paragraph, it seems to me, states also the problem in this case. Applying to this case the sentences which I road, can it fairly be said the covenanted sums here, having, as they undoubtedly have, the requisite quality of recurrence, were paid, without conditions or counter stipulations, out of taxed income? In answering that question, it is clear that one must look at the facts of this case and at their substance and reality.
I have said that the facts, as it seems to me, are in many respects special. The National Book League is a League, in the sensible use of that phrase, of members who support its objects. It is a company limited by guarantee. Its funds, to a large degree at any rate, are obtained from membership, by getting from members their annual subscriptions. All the members become, as I understand the constitution of the League, members of the company, and their subscriptions, or at least their minimum subscriptions, as they arc called, and their rights and duties, arc regulated under the company's regulations, that is, its articles and byelaws made thorounder. Strictly speaking, the members, like members of other institutions, cannot resign save on giving some appropriate notice.
It is also to be observed, and this is another special feature of he case, that differential rates are applied to members who live or have their business in London and country members who live away from London. That, indeed, is not of itself necessarily surprising; I state it, however, as a fact. When the objects of the League are examined, it is to be noted that the first of the objects as stated in the Memorandum is: "To promote and encourage by all suitable means the habit "of reading and the wider distribution of books", and it cannot be doubted that since the company is established in London the means whereby the habit of reading can be encouraged will be found most naturally situated in London, so that its supporters, those who desire to benefit from the objects of the League and who live in London, will find the benefits more readily available than will persons who live a great distance from the Capital.
The next thing to observe is that at the end of the last war the League decided as a definite port of its policy to acquire a house of no little architectural merit in the West End of London at 7, Albemarle Street, and to use that not only as the headquarters of the League but also in some degree as club premises, providing in some degree what would be understood as club amenities.
Ono of the documents attached to this Special Case is a document called a brochure and lettered "H". The actual date when this document first was distributed does not anywhere appear. But it has boon referred to in the course of the argument, and I think it logitimate for present purposes to refer to it now. It states that the League is, as I have said that it...
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