Fitzpatrick v Commissioners of Inland Revenue (No.2)
| Jurisdiction | Scotland |
| Judgment Date | 14 February 1992 |
| Date | 14 February 1992 |
| Docket Number | No. 20. |
| Court | Court of Session (Inner House - First Division) |
FIRST DIVISION.
RevenueIncome taxEmoluments from office or employmentExpenses wholly, exclusively and necessarily incurred in the performance of duties of office or employmentJournalists required to purchase newspapers for background readingWhether deductible expensesIncome and Corporation Taxes Act 1970 (cap. 10), sec. 189 (1).1
The appellant taxpayers were all journalists for a national newspaper in the tax year 1985-86. They each received from their employers an allowance for the purchase of newspapers and periodicals during that year. The taxpayers' claims for the deduction of that expenditure from their assessable emoluments under sec. 189 (1) of the Income and Corporation Taxes Act 1970 were refused by the Inland Revenue Commissioners and they appealed to the Special Commissioners against that decision. The purchases were not made by the taxpayers for the purpose of any particular assignment they had to carry out and no editorial direction or control existed in respect of what newspapers or periodicals they ought to have bought. The taxpayers found it necessary for them to read these bought items in order for them to perform their jobs effectively. One taxpayer, who was a features writer and weekly columnist, presented evidence that she used pieces from other newspapers as a direct foundation for commentaries on topical events. The Special Commissioners refused the appeals and held, inter alia, that it was not an implied condition of the taxpayers' employment that they had to indulge in background reading even though such background reading was common practice and the taxpayers would have been reprimanded by their employers if they did not purchase and read other newspapers and periodicals. In these circumstances, although the test of "wholly and exclusively" had been satisfied by the purchase and reading of the material, the expenditure incurred had not been incurred "necessarily in the performance [of the taxpayers' duties]". The taxpayers thereafter appealed to the Inner House.
Held (diss. Lord McCluskey) (1) that the starting point for an examination of the facts in the taxpayers' cases had to be to ask whether the expenditure was incurred "in the performance of the duties" which involved distinguishing between what was done in performance of the duties and what was done in qualifying or preparing to perform them; (2) that whether expenditure was incurred in preparation for or in the performance of the taxpayers' duties of employment was a question of fact and degree; (3) that, on the evidence, it had not been a condition of the taxpayers' employment that they had to buy and read newspapers and periodicals; (4) that the activity of reading and cutting newspapers and periodicals had been preparatory to the performance of the taxpayers' duties and had not been "in the performance of" those duties; and
(5) that, in the case of the features writer and weekly columnist, the expense of buying material for use in her column had not been separately identified and when looked at as a whole could not be said to have been incurred "wholly and exclusively" for use in the performance of her duties of employment; and appeals refusedSmith v. AbbottWLR [1992] 1 W.L.R. 201distinguished.
Opinion per Lord McCluskey (dissenting) (1) that when a person seeks a deduction under sec. 189 (1) of the 1970 Act he must establish the following facts: (a) that he holds an office or employment; (b) that as holder he expends money; (c) that he does so because, as holder, he is "necessarily obliged to" (i.e. he has to, he is not free to refrain from expending the money); (d) that the spending is in the performance of the duties of the office or employment; (e) that the whole expenditure claimed is incurred in meeting demands flowing directly from such performance; and (f) that the expenditure claimed is incurred for no purpose other than in meeting those demands; (2) that in a properly stated case there should be comprehensive findings in fact relating to each of those six matters so as to enable clear, explicit and complete findings to be made, whether simply or by inference, as to each of them; (3) that the Special Commissioners had not addressed the correct questions in the correct way for although their conclusion was one which purported to relate to all the material facts it did not rest upon a consideration of or even an addressing of all the material facts; (4) that, accordingly, the appeal court was free to come to its own conclusions upon the taxpayers' claims; and (5) that, on assessing the evidence it could not be said that the taxpayers would have been performing their duties of their employment if they had been doing them so ineffectively that they would have been reprimanded and put their jobs in peril and, in the nature of their work, research was an integral part of the duties to be performed even if it was also a preparation for a particular aspect of that performance so that the appeals ought to have been allowed.
Observed per the Lord President (Hope) (1) that the approach of Lord McCluskey was at variance with the law and practice to be applied by the Inner House to appeals from the Commissioners; the onuswas on the taxpayer to satisfy the Commissioners that the assessment against which he had appealed was wrong and the question at the appeal stage before the Inner House was whether on the facts found by the Commissioners they were entitled to arrive at their decision; it was not the practice for the Commissioners to set out facts which had not been established by the evidence and sec. 189 (1) of the 1970 Act had not been previously analysed in the way he had suggested; and (2) that Lord McCluskey's criticisms formed no part of the argument of counsel for the taxpayers in support of their appeals.
Thomas Fitzpatrick, Rosemary Long, Cameron Simpson, James Traynor and Barclay McBain appealed by stated case against certain decisions of the Special Commissioners of Income Tax. The following narrative is taken from the opinion of the Lord President (Hope):
"The taxpayers were all employed as journalists by George Outram & Co. Ltd. during the year of assessment, which was 1985-86. They each received from the company during that year an allowance of 1,063 for the purchase of newspapers, which formed part of their assessable emoluments. It was agreed between the parties in each case that the whole allowance was spent on purchasing newspapers and periodicals during the year. The taxpayers' claims for the deduction of that expenditure from their assessable emoluments under sec. 189 (1) of the Income and Corporation Taxes Act 1970 (the 1970 Act) were refused, and it was against that refusal that they appealed to the Special Commissioners. Their appeals were all heard together at a single hearing, since they had been selected as test cases for a number of other similar appeals, and it was agreed that the evidence given in each case could be treated as evidence in the other four. Each of the taxpayers was employed in a different capacity, so although the background to the question of law was the same in each case the facts of each case required to some extent to be considered separately. Each taxpayer gave evidence in support of his or her own appeal in order to explain the work which was done and the purposes for which the expenditure was incurred. Various documents were produced in each case, but there was no other evidence. It was held by the Special Commissioners that no deduction could be made for the expenditure because the evidence had not established that it fell within the terms of the subsection. The reasons for their determination were set out in a single written decision which they issued on 18th May 1989. The taxpayers expressed dissatisfaction with the determination as being erroneous in point of law and requested the commissioners to state a case for the opinion of this court. The question of law which we now have to decide is whether, on the facts found by them to be admitted or proved, the Special Commissioners were entitled to conclude that the deduction claimed in each case could not be made.
It was necessary for the Special Commissioners to prepare a separate stated case for the purposes of each appeal in terms of sec. 56 of the Taxes Management Act 1970. But the cases which they signed on 28th August 1990 were extremely brief because they contained no findings of fact and were confined largely to matters of form and procedure. A copy of the decision of 18th May 1989 was appended to each case. When the appeals first came before the court in the Single Bills the taxpayers claimed that the cases were defective in two respects. The first was that the commissioners had failed to include sufficient questions in each case to focus the issues of law between the parties. The second was that they had failed to set out in each case their findings of fact. There appeared to us to be no substance in the first point, but we were satisfied that the commissioners had failed to fulfil their statutory duty in terms of sec. 56 (4) to set forth in the cases stated the facts on which the cases were being stated for our determination. On 28th September 1990, for reasons given in the opinion of that date, we remitted each case to the commissioners for amendment (seeFitzpatrick v. I.R.CUNK. 1991 S.L.T. 841). The cases which are now before us have been amended in accordance with our interlocutor by the setting out in the body of each stated case in separate numbered paragraphs the facts which the commissioners found admitted or proved and the contentions of each party to these appeals. The taxpayers were at first dissatisfied with the cases as so amended, and on 4th July 1991 they appeared again in the Single Bills on a motion which sought to have the cases remitted again to the commissioners so that findings of fact in respect of all the witnesses could be...
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