Commissioners of Inland Revenue v Oldham Training and Enterprise Council

JurisdictionEngland & Wales
Judgment Date12 September 1996
Date12 September 1996
CourtChancery Division

Chancery Division.

Lightman J.

Inland Revenue Commissioners
and
Oldham Training and Enterprise Council

Michael Furness (instructed by the Solicitor of Inland Revenue) for Crown.

Timothy Lloyd QC (instructed by Wrigley Claydon, Oldham) for Oldham TEC.

The following cases were referred to in the judgment:

Crystal Palace Trustees v Minister of Town and Country PlanningELR[1951] Ch 132

Fox v Stirk and Bristol Electoral Registration OfficerELR [1970] 2 QB 463

Hadaway v HadawayWLR [1955] 1 WLR 16

Incorporated Council of Law Reporting for England and Wales v A-GELR [1972] Ch 73

IR Commrs v WhiteTAX (1980) 55 TC 651

IR Commrs v Yorkshire Agricultural SocietyELR [1928] 1 KB 611

Smith, ReELR [1932] 1 Ch 153

Tree, ReELR [1945] Ch 325

Verge v SomervilleELR [1924] AC 496

Corporation tax - Training and Enterprise Council - Council's memorandum of association provided for inter alia the promotion of trade, commerce and enterprise by advice to and for new businesses - Whether a charity -Income and Corporation Taxes Act 1988 section 506 subsec-or-para (1)Income and Corporation Taxes Act 1988, s. 506(1).

This was an appeal by the Revenue against a decision of the special commissioners that, on the true construction of its constitution, Oldham Training and Enterprise Council ("Oldham TEC") was established for "charitable purposes only" within the meaning of Income and Corporation Taxes Act 1988 section 506 subsec-or-para (1)s. 506(1) of the Income and Corporation Taxes Act 1988 and was accordingly exempt from corporation tax on interest received.

The result of the appeal affected some 80 other "TECs" whose constitutions contained identical objects clauses.

Oldham TEC was a company limited by guarantee. Its objects, as set out in its memorandum of association, included promotion and provision of education and retraining of the public as well as to promote trade, commerce and enterprise for the benefit of the community in and around Oldham and to advise new businesses.

It was accepted that the first object to provide education was charitable but the Revenue took the view that the other stated objects conferred private benefit on individuals and therefore could not be regarded as charitable.

Held, allowing the Revenue's appeal:

Although Oldham TEC was an altruistic organisation conferring no profit on its members, dedicated to assisting others, and its objects clauses stressed the benefit to the community in and around Oldham, the motives and intentions of the founders of the organisation were irrelevant. The objects of promoting trade, commerce and enterprise and giving advice to new businesses conferred private benefits on individuals disqualifying Oldham TEC from having charitable status. Notwithstanding that those activities might benefit the community by encouraging employment, the benefits to the community conferred by such activities were too remote to be regarded as charitable.

APPEAL

By originating motion pursuant to the Taxes Management Act 1970 section 56ATaxes Management Act 1970, s. 56A (as substituted by SI 1994/1813SI 1994/1813 with effect from 1 September 1994), the Revenue appealed to the High Court against the following decision of the special commissioners (Mr Peter Horsfield QC and Mr Timothy Everett).

DECISION
1. Introduction

1.1 Oldham Training and Enterprise Council ("Oldham TEC"), is a company limited by guarantee. It was incorporated, under another name, on 3 May 1989. Its present name and constitution derive from special resolutions passed on 13 March 1990. Save as regards an amendment to the remuneration provisions mentioned below, the appeal proceeded on the footing that we were not concerned with the constitution of Oldham TEC prior to these resolutions taking effect, that is to say that the appeal should be decided on the basis that there was no difference which was material to the appeal between the pre 1990 and the post 1990 constitutions.

1.2 Assessments to corporation tax have been raised against Oldham TEC under Case III of Sch. D in respect of deposit interest. These assessments are dated 5 September 1991, 23 September 1991 and 21 October 1992 and are in respect of the periods 1 July 1989 to 31 March 1990, (the first two assessments) and 1 April 1991 to 31 March 1992. There is a further assessment before us also dated 23 September 1991 underIncome and Corporation Taxes Act 1988Cases I and II of Sch. D. The net tax payable under this assessment is £37,992.96. However the Revenue concedes that this assessment was raised in error and should be discharged and we discharge it. Accordingly the appeal relates only to the three remaining assessments under Income and Corporation Taxes Act 1988Case III of Sch. D. All of these assessments are in respect of yearly interest of Oldham TEC. The Revenue did not seek to argue that Oldham TEC is taxable as a trader. It is only Oldham TEC's deposit interest which it has sought to tax.

1.3 Oldham TEC appeals against the assessments on the grounds that it is entitled to exemption under the Income and Corporation Taxes Act 1988 section 505Income and Corporation Taxes Act 1988, s. 505 as a charity, within the definition in Income and Corporation Taxes Act 1988 section 506 subsec-or-para (1)s. 506(1) of the Act. (Income and Corporation Taxes Act 1988 section 505Section 505 is made applicable to corporation tax byIncome and Corporation Taxes Act 1988 section 9 subsec-or-para (4)s. 9(4) of the Act). The definition of charity inIncome and Corporation Taxes Act 1988 section 506 subsec-or-para (1)s. 506(1) provides that "charity" "means any body of persons or trust established for charitable purposes only". The Revenue contests the appeal on the grounds that, as the Revenue contends, the Oldham TEC is not established for charitable purposes only.

1.4 We should mention at this point that, in order to obtain exemption under Income and Corporation Taxes Act 1988 section 505s. 505 of the Act in respect of any yearly interest, it is not sufficient for the relevant body or trust simply to satisfy the condition of being established exclusively for charitable purposes. It is also necessary for the interest in question to be "applied to charitable purposes only". However, in the present case, the sole issue before the tribunal is whether or not the first condition ofIncome and Corporation Taxes Act 1988 section 505s. 505 is satisfied. It is not contended by the Revenue that, if Oldham TEC is a Income and Corporation Taxes Act 1988 section 505s. 505 charity, the relevant interest is still taxable on the basis of non-charitable application.

2. The facts

2.1 The relevant facts are set out in an agreed statement supported by an agreed bundle of documents. The facts in the agreed statement, so far as material to our decision, are as follows:

  1. (2) In December 1988 the government issued a White Paper called "Employment in the 1990s" (CM 540), a copy of which is in the agreed bundle. One of the proposals in the White Paper was the creation of "Training and Enterprise Councils" ("TECs") such as Oldham TEC.

  2. (3) The Employment Act 1989 enacted some of the proposals in the White Paper, but did not place TECs on a statutory footing. They were to be private law bodies which contracted with the government, through the training agency to attain the objectives envisaged by the White Paper.

  3. (4) As already mentioned, Oldham TEC was incorporated on 3 May 1989 and reconstituted on 13 March 1990.

  4. (5) At all material times the members of Oldham TEC have also been directors.

  5. (6) Oldham TEC's activities fall under three main headings as follows:

    1. (a) Enterprise services, which include information and advice to businesses, diagnostic services (assessment of a businesses' strengths and weaknesses and opportunities for development) and business skills training (planning, financial management, identification of new markets etc.).

    2. (b) Business start-up services, which include a free enterprise training scheme for anyone thinking of setting up a new business (in such subjects as marketing and bookkeeping) and a cash allowance of up to £60 per week for people setting up new businesses (such allowance not to exceed £2,800 in total in the case of any one individual). To qualify for such an allowance (which is in lieu of any unemployment or social security benefits) the recipient must:

      1. (i) have been unemployed for at least six weeks,

      2. (ii) be starting a business judged by Oldham TEC to have potential for the employment of more people,

      3. (iii) have attended a business training scheme and be able to produce an acceptable business plan and

      4. (iv) have access to sufficient capital.

(c) Training, which includes training young people for work and re-training unemployed people.

(7) foreshadowed in the White Paper the provision of the above services is generally made by sub-contractors - mainly private sector firms and universities and colleges. Where the services are not provided free, the cost is shared between the recipient business and Oldham TEC.

(8) The activities of Oldham TEC are funded by government grants and are covered by operating agreements made with the relevant Secretaries of State.

(9) The determination which is the subject of this appeal is contained in a notice from the deputy controller FICO (trust and charities) dated 20 June 1994 to the effect that Oldham TEC is not entitled to exemption from tax under Income and Corporation Taxes Act 1988 section 505s. 505 of the Act for the period 1 August 1989 to 31 March 1992.

(10) Oldham TEC has not sought registration as a charity and the charity commissioners have expressed the view (in a letter to Mr Syd Stagg of the Revenue office who is making the determination) that Oldham TEC is "not established for charitable purposes exclusively".

2.2 In addition to the documents in the agreed bundle, two further documents were produced at the hearing. One of them was a pro forma "TEC...

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