Dale (HM Inspector of Taxes) v de Soissons
| Jurisdiction | England & Wales |
| Judgment Date | 03 July 1950 |
| Date | 03 July 1950 |
| Court | High Court |
NO. 1459-HIGH COURT OF JUSTICE-
COURT OF APPEAL-
Income Tax, Schedule E - Emoluments of office - Three-year service agreement terminable by employer at end of first or second year on payment of sum as "compensation for loss of office" - Agreement terminated by employer at end of first year - Whether sum payable to employee assessable.
The Respondent was employed as assistant to the managing director of a company, his remuneration consisting of a fixed salary of £3,000 per annum and a commission calculated on profits. Under the terms of his service agreement, the Respondent's appointment was to be for three years from 1st January, 1945, but the company was entitled to terminate the agreement at 31st December, 1945, or 31st December, 1946, on payment of £10,000 or £6,000 respectively, as "compensation for loss of office". The company terminated the agreement at 31st December, 1945, and paid the £10,000 to the Respondent.
On appeal to the Special Commissioners against an assessment for the year 1945-46 under Schedule E, the Respondent contended that the £10,000, being paid as compensation for loss of office, was not assessable. For the Crown it was contended that the sum was remuneration and not compensation for loss of office. The Commissioners allowed the appeal.
Held, that the £10,000 was not compensation for loss of office; it was assessable to tax.
Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 1st November, 1948, Colonel Pierre de Soissons (hereinafter called "the Respondent") appealed against an assessment for the year 1945-46 raised upon him under Rule 1, Schedule E, Income Tax Act, 1918, in the sum of £10,000. The said assessment of £10,000 was in respect of a sum of like amount paid to the Respondent by his employers, a limited company, on the termination of his service agreement as assistant to the managing director of that company.
2. Evidence was given before us at the hearing of this appeal by Mr. Cecil Ward Mason, managing director of Gallaher, Ltd., hereinafter called "the company"; and the facts found by us on that evidence or accepted between the parties are set forth in the following paragraphs numbered 3 to 5 inclusive.
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(2) The Respondent was first employed by the company in the year 1929, and his duties had thenceforward been substantially
the same and consisted of assistance to the managing director in the general administration of the company, more particularly in its sales and advertising departments in respect of its distributing agencies. (3) The Respondent's remuneration and terms of employment were governed by a number of service agreements. By the first such agreement, made 26th November, 1929, (Exhibit 1) (1) the Company appointed the Respondent as assistant to the managing director for a period of two years from 1st October, 1929, at an annual salary of £2,500 per annum and a commission equal to one per cent. of the excess (if any) over £200,000 of the profits of the company available for distribution by way of dividend. (Clause 2 (a) and (b).)
(4) By a second agreement supplemental to the first, dated 27th May, 1930, (Exhibit 2) (1) the period of service with the company was extended to five years from 1st October, 1929, and the commission to which the Respondent was contingently entitled under clause 2 (b) of the first agreement was increased to two per cent. (Clause 2.)
(5) By a third agreement, dated 31st March, 1933, (Exhibit 3)(1) the provisions whereby the commission was to be calculated (clause 2 (b) of the first agreement) and increased to two per cent. (clause 2 of the second agreement) were revoked as from 1st January, 1932, and by clause 2 (b) of the third agreement the said commission was thereafter to be calculated at a sum equal to one per cent. of the annual profits of the company as assessed for Income Tax.
(6) By a fourth agreement, dated 5th February, 1935, (Exhibit 4)(1) the company re-appointed the Respondent a member of the board of management of the company (to which board he had been appointed during the currency of the first and second agreements) for a period of five years from 1st January, 1935 (clause 1). Under clause 2 (a) the Respondent's salary was fixed at £3,000 per annum, and under clause 2 (b) his commission continued to be payable at a sum equal to one per cent. of the annual profits of the company as assessed to Income Tax. Under clause 4, in the event of the Respondent being prevented by ill health from attending to his duties for a consecutive period of six calendar months the Company was to be at liberty immediately to determine this agreement on payment of a sum equal to one year's salary in lieu of notice.
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(7) By a fifth agreement, dated 7th April, 1939, (Exhibit 5)(1)the company continued the Respondent's appointment as assistant to the managing director for a period of five years from 1st January, 1940 (Clause 1). Under clause 2 (a) the Respondent's fixed salary remained at £3,000 per annum and under clause 2 (b) his commission was to be computed at a sum equal to one per cent. of the total aggregate annual profits of the company as assessed to Income Tax, and of two other companies, not otherwise material to this case. By a provision in clause 4 similar to that contained in clause 4 of the
fourth agreement the Respondent was to receive a sum equal to one year's salary in lieu of notice if he were prevented by ill health from attending to his duties for a consecutive period of six calendar months. (8) By a sixth, and, in the events which happened, the last agreement, dated 5th July, 1944 (Exhibit 6) (1) the Respondent's appointment as assistant to the managing director was continued for a period of three years from 1st January, 1945 (Clause 1). Under clause 2 (a) the annual fixed salary was continued at £3,000 per annum and under clause 2 (b) the commission was to be calculated at one per cent. of the total aggregate annual profits of the three companies as assessed to Income Tax. There was also, under clause 4, a provision similar to that in the fourth and fifth agreements for payment by the company to the Respondent of a year's salary in lieu of notice in the event of the termination of his agreement on account of ill health.
(9) In this sixth and last agreement was a further clause, which gave rise to the issues raised in the appeal before us, and was as follows:
(10) Clause 5-
(11) "If in the opinion of the Board of Directors of the "Company it is desirable for the better or more economical "working of the Company and conducive to the interests "of the Company so to do the Company shall be entitled to "terminate Mr. de Soissons' appointment hereunder as "Assistant to the Managing Director on 31st December 1945 "or 31st December 1946, on giving to him three months' "previous notice in writing, and on such termination of the "said appointment becoming effective, Mr. de Soissons' appointment "hereunder shall be forthwith terminated, and in "the event of Mr. de Soissons' appointment hereunder being "so terminated there shall be paid to Mr. de Soissons by "way of compensation for loss of office the amounts following:
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(12) "If the Agreement is terminated
"on 31st day of December
Amount payable
"1945
£10,000
"1946
6000".
4. Mr. Cecil Ward Mason, managing director of the company, gave the following evidence before us, which we accepted.
(2) He said that the Respondent was appointed a director of the company on 7th July, 1936, but received no fees while the service agreements were running. After outbreak of war he volunteered for full-time service with the Home Guard and the company made his army pay up to the amount of his full remuneration. During the war he attended board meetings but took no other part in the affairs of the company.
(3) As the company's fifth agreement with the Respondent (videExhibit 5 and paragraph 3 (6) supra) was due to terminate on 31st December, 1944, certain discussions took place between members of the board of the company as to what should...
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