Fleming (HM Inspector of Taxes) v Associated Newspapers Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 09 May 1972 |
| Date | 09 May 1972 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax, Schedule D - Profits of trade - Deduction - Expenses - Business entertainment - Newspaper publisher - Entertainment expenses incurred in collecting news - Whether allowable as being incurred "in the provision by any person of anything which it is his trade to provide" - Finance Act 1965 (c. 25), s. 15.
The Respondent Company's business included the printing and publication of two newspapers and a magazine. In order to obtain material for publication the journalists on its staff often found it necessary to provide potential informants and contributors with food or drink or both at hotels, restaurants, etc. In the period from 6th April 1965 to 31st March 1966 £67,143 was spent on hospitality for this purpose. That sum was disallowed in a claim by the Company to relief in respect of losses under s. 341, Income Tax Act 1952, for the year 1965-66 as being expenses incurred in providing business entertainment within the meaning of s. 15, Finance Act 1965.
On appeal, the Company contended that the expenses were, within the meaning of s. 15(9), incurred in the provision by it of something (namely, its newspapers and magazine) which it was its trade to provide and which was provided by it in the ordinary course of that trade for payment. For the Crown it was contended that s. 15(9) was limited to expenses incurred in the provision of entertainment by a person the substance of whose trade was to provide such entertainment and those incurred in the provision by a trader of free samples. The Special Commissioners held that the plain reading of s. 15(9) supported the Company's contention, and allowed the appeal.
Held, that the Company was not entitled to the relief claimed.
Stated under the Income Tax Management Act 1964, s. 12(5), and the Income Tax Act 1952, s. 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 5th and 6th May 1969 Associated Newspapers Ltd. (hereinafter called "the Company") appealed under s. 9(5), Income Tax Management Act 1964, against the disallowance in part of its claim under s. 341, Income Tax Act 1952, for the year 1965-66 for relief in respect of a loss sustained in its trade.
2. Shortly stated, the question for our decision was whether or not under the terms of s. 15, Finance Act 1965, a sum of £67,143 forming part of a larger sum expended by the Company in the year ended 31st March 1966 (hereinafter called "the accounting period") in providing business entertainment was deductible in computing the Company's profits or gains for the purposes of income tax, Schedule D.
3. The following facts were admitted between the parties:
(2) The trade carried on by the Company includes and during the accounting period included: (a) the printing and publication of the "Daily Mail", the "Evening News" and "Weekend"; (b)syndicating (i.e. for a fee licensing third parties to reproduce) news items, feature articles and other copyright material which is published in the above-mentioned journals. The Company also, inter alia,manages and prints the "Daily Sketch" under a contract made with the Daily Sketch and Daily Graphic Ltd. (96 per cent. of whose shares are owned by the Company), prints other newspapers under contracts made with third parties, promotes exhibitions-including the Daily Mail Ideal Home Exhibition-publishes other publications, such as the "Daily Mail Year Book" and the "Daily Mail Motor Show Review", and holds shares in subsidiary companies. During the accounting period the subsidiary companies included 24 provincial newspaper companies.
(3) In addition to a considerable number of other departments, the "Daily Mail" and the "Evening News" each has its own editorial department headed by the editor with a team of assistant editors. In each of the said editorial departments there are specialists for such subjects as diplomatic matters, Parliament, sport, the arts, industry, agriculture, education, crime, science, aviation and finance. In addition, in each such editorial department there are general reporters-men capable of covering any assignment, whose duties are to cover assignments delegated daily by the news editor of their paper. Each of these specialists and general reporters works exclusively for only one of the newspapers. "Weekend" also has its own editorial department.
(4) The "Daily Mail" and the "Evening News" contain among other things straightforward news, feature articles, comment and photographs. The greatest part of the information and feature articles published in the Company's said newspapers and in "Weekend" is obtained after the Company has for the purpose of obtaining it incurred expense over and above the salary and travelling costs of the Company's editorial staff. In many instances the Company acquires the information or article by means of a direct payment-such as payments to a news agency or to an individual informant or contributor. In many instances, however, the information is acquired as a result of providing meals or drinks or both to the informant, who may or may not also receive a cash payment. In each of the cases described below the Company meets the cost of such hospitality provided that the journalist produces results which are considered to be commensurate with the expenditure which he incurs in this way.
(5) In some cases the hospitality is provided because a hotel or restaurant is the only convenient place for interviewing a potential informant in conditions in which he or she will relax and offer the greatest assistance. In some cases a hotel or restaurant is chosen for an interview, and the hospitality is provided, because it is known or anticipated that the potential informant will expect some quid pro quo if he is to help the journalist but would not welcome a more mercenary approach. In other cases the informant is found in a hotel or public house or other such place, and the purchase of a round or two of drinks, or a round or two of drinks followed by a meal, helps the reporter to establish good relations and obtain the information which he is seeking. For example, when covering an industrial dispute the reporter must meet both employees and union officials as well as management: at such times employees are often to be found in public houses and unions frequently use public houses as a strike headquarters, and it is over drinks that reporters are able to discuss the issues and obtain the current news together with background information on which to build their reports.
(6) In other cases the information is acquired as a result of the journalist keeping in close touch with numerous "contacts"-that is, men and women of affairs generally, or men and women working in the particular field in which the journalist specialises. Such "contacts" are particularly important to the specialists. The specialists must have a wide knowledge of their subjects and must often probe deeply to find the information which is of real interest to the public, and which will sometimes provide them with exclusive stories which will put their newspaper and its readers ahead of the others. Experience has shown the Company that the desired relationship with such "contacts" can best be built up and maintained over an occasional meal or drink, or, depending on the circumstances, regular or bi-weekly meals or drinks, at a suitable hotel or restaurant or at the journalist's home. In the course of a general discussion an informed "contact" often not only passes on information or comment whose relevance is self-evident but also mentions casually something whose news value was not apparent to him, but which he is prepared to give the journalist permission to publish, or mentions some other matter which helps the journalist to complete his picture of what is happening. Once the right kind of relationship has been built up with the help of such meetings a "contact" will turn to that journalist rather than to someone on another newspaper when he has some news to impart.
(7) In the majority of cases outside contributors of feature articles are ready and willing to write articles either with a view to financial reward or with a view to obtaining a wider audience for the matters which they wish to publicise or for a combination of those reasons. On some occasions, however, tactful persuasion has to be exercised by the editorial staff for the purpose of persuading a potential contributor to write at all, or to agree on the form that the article should take, or to write for one of the Company's papers rather than for a rival publication: here too experience has shown the Company that a friendly meeting at a restaurant is most likely to yield the material which the Company needs for its papers.
(8) During the part of the accounting period which fell after 6th April 1965 the expenditure on hospitality which the Company incurred for the purpose of obtaining information and articles which it required for presentation or inclusion in the "Daily Mail", the "Evening News" and "Weekend" as explained in the foregoing sub-paragraphs amounted to £67,143. Of this sum (a) £45,540 was reimbursed to journalists who were not in receipt of a round sum allowance and who had incurred expenditure in the circumstances described in sub-paras. (4) and (5) above. £16,540 of this £45,540 was attributable to expenditure on occasions when the hospitality provided by the journalist included a meal, and the remaining £29,000 was attributable to drinks and other small items provided on occasions when the hospitality did not include a meal. (b) £21,603 was paid to senior members of the editorial staff by way of round sum allowances for the purpose of meeting the expenditure which they incurred in...
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