Commissioners of Inland Revenue v Educational Grants Association Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 16 February 1967 |
| Date | 16 February 1967 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)
COURT OF APPEAL-
Income tax - Charity - Whether income applied for charitable purposes only - Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), s. 447(1)(b).
The Respondent Association, a company limited by guarantee, was admitted to be established for charitable purposes only; its objects, as set out in its memorandum of association, were for the advancement of education, in particular by making educational grants and creating scholarships, etc. The Association had been promoted by a director of M Ltd.; its council of management consisted of the promoter, another director of M Ltd. and a member of the firm of solicitors then acting for M Ltd.; its secretary was an employee of M Ltd. and meetings of the council were held at the offices of M Ltd. The Association's income consisted of £3,000 a year less tax paid by M Ltd. under a deed of covenant for seven years from July 1954, and approximately £400 a year gross from gifts made by the chairman of M Ltd. and his brother in November 1955. In March 1954 the managing director of M Ltd. notified appropriate members of the company's staff of the benefits obtainable from the Association. It was not the Association's policy to give the scheme wide publicity, and outside publicity was confined to the personal contacts of the promoter with persons in the educational world and directors of other companies. In each of the relevant years of assessment between 75 and 85 per cent. of the Association's income was applied towards the education of children connected with employees or former employees of M Ltd.; the balance was applied in grants to educational establishments, and in certain relatively small grants to outside individuals.
On appeal against the refusal by the Commissioners of Inland Revenue of the Association's claims under s. 447(1)(b), Income Tax Act 1952, to exemption from income tax under Schedule D for the years 1958-59 to 1961-62 inclusive, it was contended, inter alia, by the Crown that the application of the Association's income for the benefit of employees of M Ltd. or their children, without inviting applications from other possible beneficiaries, was not an application for charitable purposes only within s. 447(1)(b). The Special Commissioners allowed the claims on the authority of Caffoor v. Commissioner of Income Tax, Colombo [1961] A.C. 584 and In re Koettgen's Will Trusts [1954] Ch. 252.
The Crown did not contest the claims to the extent of the income applied for the benefit of educational institutions or of individuals unconnected with M Ltd.
Held, that the claims failed to the extent that income had been applied for the education of children connected with M Ltd.
Stated under the Income Tax Act 1952, ss. 450 and 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At meetings of the Commissioners for the Special Purposes of the Income Tax Acts held on 23rd and 24th March 1964 Educational Grants Association Ltd. (hereinafter called "the Association") appealed against the refusal by the Commissioners of Inland Revenue of its claim made under the provisions of s. 447(1)(b), Income Tax Act 1952, to exemption from income tax under Schedule D for the years 1958-59, 1959-60, 1960-61 and 1961-62.
2. Shortly stated, the questions for our decision were:
(2) whether certain payments made to the Association by the Metal Box Co. Ltd. ("Metal Box"), under a deed of covenant dated 16th July 1954, were annual payments from which income tax was properly deductible;
(3) if the payments were such annual payments, whether certain payments to individuals made by the Association were applications of its income for charitable purposes only within the meaning of s. 447(1)(b)so as to entitle the Association to the exemption claimed.
It was admitted on behalf of the Commissioners of Inland Revenue that the Association was a body of persons established for charitable purposes only.
3. Mr. John Ryan gave evidence before us on behalf of the Association. He was a director of Metal Box from 1938 until July 1963. In 1953 he was a commercial director, and he became vice-chairman before the end of that year.
4. For some time previous to 6th November 1953 Mr. Ryan had been interested in the problem of education, and in particular in the difficulty people found in getting assistance when they were refused grants from local education authorities or had several children. He thought that there was a need for some organisation which could give assistance in this type of case. He talked to many people, including colleagues in Metal Box, to try to interest them in the idea. The people to whom he talked unconnected with Metal Box were people in the educational world and directors of other companies. Several thought the idea of some such organisation was a good one, and had said they were prepared to help.
5. On 6th November 1953 the Association was incorporated, and a copy of its memorandum and articles is annexed hereto, marked "A", and forms part of this Case(1).
The positions held by the seven subscribers to the memorandum were as follows: (1) Robert Barlow (now Sir Robert Barlow), chairman of Metal Box; (2) John Cartner, director and secretary of Metal Box; (3) H. Jephcott (now Sir Harry Jephcott), director of Metal Box and Glaxo; (4) Keith Lomas, member
of the firm of solicitors then acting for Metal Box; (5) C.G. Porter, member of the firm of solicitors then acting for Metal Box; (6) F.W. Rankin, director of Metal Box; (7) John Ryan, director of Metal Box.The members of the council of management of the Association at all relevant times were Messrs. John Ryan, John Cartner and C.G. Porter. Mr. W.E. Kent was appointed secretary: he was employed in the secretariat of Metal Box.
The meetings of the council of management were held at the offices of Metal Box, and because of this arrangement the expenses of the Association were kept at a low level.
At the date of the incorporation of the Association there were eight directors of Metal Box, of whom five were subscribers to the Association's memorandum as enumerated above, but during the years under appeal as many as 13 different persons served as directors of Metal Box, and some of them would never have heard of the Association.
6. The idea of the Association and the principles which would govern grants were Mr. Ryan's and in the first instance these principles were not discussed with anyone. From verbal discussions between Mr. Ryan and the managing director of Metal Box that company would know that the Association was going to be founded and, broadly, what its purposes would be. It had never been Mr. Ryan's intention to give the Association wide publicity.
7. At an early stage Mr. Ryan had indicated to the managing director of Metal Box the sort of income the Association would require, and it was understood that Metal Box would contribute, but no conditions of any kind for the making of any contribution were laid down. Mr. Ryan had made it known to some of the directors of Metal Box that the Association would be willing to consider applications from employees of the company, and at the first meeting of the Association's council of management, on 30th November 1953, it was reported that a grant would shortly be made to the Association by Metal Box. The secretary was asked to advise Metal Box that the council would be willing to consider applications for grants made in respect of the children of its employees, but no assurances were given that applications would be granted. In the event several applications from employees had been turned down. The council of management had never made a report to Metal Box. Mr. Ryan had tried to get money from sources other than Metal Box, but had failed. About November 1955 he did obtain gifts for the Association from Sir Robert Barlow and his brother.
8. On 16th July 1954 Metal Box entered into a deed of covenant to pay annually to the Association £3,000 less income tax. A copy of this deed is annexed hereto, marked "B", and forms part of this Case(1). This £3,000 and a further gross income of about £400 from the gifts made by Sir Robert Barlow and his brother in about November 1955 constituted the whole of the annual income of the Association in the years under appeal.
9. There is annexed hereto a copy of extracts from the minutes of meetings of the council of management, marked "C", and forming part of this Case(1). The following items from these extracts were particularly stressed:
From the meeting of 30th November 1953, item 7.
7. The Council's decision on any application would be final. These proposals were considered to be admirable as initial principles, but the Council would be prepared to revise them in the light of experience, which could only be gained as time went by.
7. It was felt that it would be advisable not to confine the Association's activities to making grants to individuals, but, as suitable opportunities offered themselves, to make payments direct to schools, for example, Christ's Hospital, or to other educational bodies, for example, the London Chamber of Commerce Education Committee.
7. Mr. Ryan went on to give brief details of discussions he had had with certain persons in the educational world, as he felt it was most desirable that the Council should get the best possible advice on what financial help could be obtained from Local Education Authorities and the Central Government, and the Council would also need expert assistance in the selection of individuals for whom grants would be approved.
7. He had already discussed the matter with Sir John Maude (formerly Permanent Secretary to the Ministry of Education), Sir Griffith Williams (Under-Secretary at the Ministry of Education), and Mr. J.F. Wolfenden (Vice-President of Reading University). He was hoping shortly to...
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