Elwood (HM Inspector of Taxes) v Utitz
| Jurisdiction | Northern Ireland |
| Judgment Date | 16 June 1965 |
| Date | 16 June 1965 |
| Court | Queen's Bench Division (Northern Ireland) |
QUEEN'S BENCH DIVISION (NORTHERN IRELAND)-
COURT OF APPEAL (NORTHERN IRELAND)-
Income Tax, Schedule E - Deduction - Expenses - Club subscriptions paid to avoid staying at hotels - Income Tax Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c.10), Section 161 and Ninth Schedule, Paragraph 7.
The Respondent was managing director of a company operating in Northern Ireland. He was obliged in the performance of his duties to visit London from time to time, and stay at a first-class hotel or similar establishment. With the sole object of obtaining the requisite accommodation and facilities at the lowest possible cost he joined two clubs there, the cost of his subscriptions to which was borne by the company. There was a consequent saving to the company of £64 in the year 1958-59 and £22 in the year 1959-60 as compared with the cost of paying for suitable hotel accommodation for the Respondent.
On appeal against assessments to Income Tax under Schedule E for the years 1958-59 and 1959-60 in amounts which included the club subscriptions, the Respondent contended that they were spent wholly, exclusively and necessarily in the performance of the duties of his office or, alternatively, were expenses of travelling in the performance of those duties. For the Crown it was contended that the subscriptions entitled him to amenities which were personal to him and not connected with the performance of his duties. The Special Commissioners found that in the unusual circumstances the subscriptions were no more than a retaining fee paid to secure suitable inexpensive accommodation for the Respondent on his visits to London and were money spent wholly, exclusively and necessarily in the performance of his duties.
Held, that the Commissioners' decision was justified.
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 in Northern Ireland.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 28th June, 1963, Mr. E.E. Utitz appealed against the following assessments to Income Tax, Schedule E, in respect of his office as managing director of United Chrometanners, Ltd.:
1958-59 |
1959-60 |
|||
Salary and bonus |
… |
… |
£3,900 |
£3,400 |
Benefits in kind |
… |
… |
522 |
517 |
Expenses reimbursed |
… |
… |
3,868 |
1,874 |
£8,290 |
£5,791 |
|||
Less expenses |
… |
… |
£3,768 |
£1,800 |
The sole question in issue concerned the total amount of the expenses allowable under Paragraph 7 of the Ninth Schedule to the Income Tax Act, 1952. Subsequently to the making of the assessments it had been agreed between the parties that the amount allowable for expenses should be increased to at least £3,833 for 1958-59 and £1,874 for 1959-60; the question in issue concerned a further sum of £34 in each year claimed by Mr. Utitz and resisted by the Inspector of Taxes.
2. At all material times Mr. Utitz was managing director of United Chrometanners, Ltd. (hereinafter called "the company") on the terms of a service agreement dated 8th March, 1950 (as varied on 20th December, 1954), a copy of which (together with the variation) is annexed hereto and marked "A"(1).
3. The company is a private company registered in Northern Ireland, and manufactures leather. A copy of its memorandum and articles of association is annexed hereto and marked "B"(1). Mr. Utitz is the only director who devotes all his time to the company's affairs. He is a substantial shareholder, but does not control the company; at the material time his own shareholding was matched by holdings of banks and an assurance company.
4. The company operates a tannery at Killyleagh, Co. Down, where it produces high quality leather for sale to manufacturers of ladies' shoes. It holds a leading position as developer and producer of new and very high quality leathers, and at all material times was co-operating with certain leading couture houses in Paris and London in producing special light leathers for use in shoes worn with fashion collections.
(a) During the years in question Mr. Utitz (who lives at Killyleagh) made the following visits to London:
(b) 1958-59, 14 visits involving 43 nights in London;
(c) 1959-60, 12 visits involving 29 nights in London.
(d) Mr. Utitz was necessarily obliged in the performance of his duties as managing director of the company to travel to London for these visits and to stay there for the periods specified, and the cost of travelling and staying in London was incurred by him wholly, exclusively and necessarily in the performance of his said duties.
(e) The purpose of these visits to London was to meet representatives of the suppliers of the company's raw materials, manufacturers who buy the company's products, heads of fashion houses, trade journalists and fashion writers and other persons having or likely to have business dealings with the company, and to attend at or make arrangements in connection with leather fairs at which the company was an exhibitor.
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(f) Because of the status of the company and the close connections between the company's business and the world of fashion, it was essential for Mr. Utitz, if he was to perform his duties efficiently in London, to reside and have all the facilities necessary for meeting business people (of both sexes) in suitable surroundings, i.e., an establishment with prestige attached to it, such as a
first-class hotel. For this reason he had stayed at such places as the Connaught Hotel, at a cost of five and a half guineas for bed and breakfast. It was accepted by the Inspector of Taxes that the cost of staying at such hotels was an allowable expense for Income Tax purposes(2) Mr. Utitz became concerned about the high cost to the company of his accommodation at hotels in London and determined to find other suitable accommodation and facilities there which would cost the company less. For this reason only he became a member in 1956 of the Constitutional Club and in 1958 of the Lansdowne Club. There is attached to each of the clubs the prestige which Mr. Utitz required for the efficient performance of his duties, and both of the clubs provide facilities whereby members can obtain bed and breakfast, for about £1 12s. at the Constitutional and £1 15s. at the Lansdowne. Both clubs also provide ordinary club facilities for members and their guests (including, in the case of the Lansdowne Club, lady guests) so that Mr. Utitz was able to, and did in fact, meet business associates in the club premises. The Lansdowne Club also has a room called the "business room" which he was able to use, and did in fact use, free of charge for business discussions; at the Connaught or other first-class hotel he would have had to pay at least five guineas for the use of a similar room.
(3) (Apart from the fact that Mr. Utitz's membership of the clubs saves the company money, it was of advantage to the company that Mr. Utitz became a member of the two clubs because of the facilities for meeting business associates and (as regards the Lansdowne) holding formal business discussions in suitable surroundings. The company did not require or direct him to join the clubs, but his sole object in doing so was to obtain, at the lowest possible cost, the accommodation and facilities he needed to perform his duties in London.
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(4) (The annual subscription (which was paid or reimbursed by the company) to the Constitutional Club was £13 2s. and to the Lansdowne 20 guineas- £34 2s. in all. The £34 in dispute in this appeal is the amount he claimed in respect of such annual subscriptions.
(a) On his visits to London for the years under appeal Mr. Utitz stayed at one or other of the clubs, except on occasions when some particular business made it necessary for him to stay at an hotel (for example when a leather fair was held at a particular hotel) or when bedroom accommodation at the clubs was already fully booked by other members. Members requiring residential accommodation in the clubs have to book it in advance.
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(b) Of the 43 nights spent in London in 1958-59, 21 were spent at one or other of the clubs. These 21 nights cost approximately £35 plus the subscriptions of £34, i.e., about £69 in all; 21 nights at the Connaught Hotel would have cost about £133, and there was thus a saving to the company (and a consequent increase in the company's profits) of about £64. Of the 29 nights spent in London in 1959-60, 12 were spent at one or other of the clubs, resulting in a saving to the company for that year of about £22.
(a) The rules and byelaws of the Constitutional Club and of the Lansdowne Club are annexed hereto, marked "C" and "D" respectively(1).
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(b) Rule 3 of the rules of the Constitutional Club, which sets out its objects, makes reference to the Conservative and Unionist Party. Mr. Utitz was never required to say whether he was a member of or supported that party, either before or after he became a member, although he was required to state that he was not opposed to Unionism; he took no part in any political activity within the club and there was no evidence that any part of his annual subscription was applied to any political object or activity.
(c) Rule 19 of the rules of the Lansdowne Club contains restrictions on the business activities of members on the club premises. The club has, however, as above stated, a room called the "business room" which members can use for business discussions with their guests.
(d) The Lansdowne Club has a ballroom, swimming pool, gymnasium and squash court; Mr. Utitz never used these facilities.
(e) Mr. Utitz has never sought election to the committee of either club, nor has he ever taken any part in the direction of either club or put in a ballot or election paper.
9. In 1958-59 Mr. Utitz himself paid the annual subscription to the Lansdowne Club, and the company reimbursed him. The other subscriptions were paid by the company. The amounts of all...
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