Fleming (Inspector of Taxes) v Associated Newspapers Ltd
Jurisdiction | England & Wales |
Judge | Lord Reid,Lord Morris of Borth-y-Gest,Lord Diplock,Lord Simon of Glaisdale,Lord Kilbrandon |
Judgment Date | 09 May 1972 |
Judgment citation (vLex) | [1972] UKHL J0509-1 |
Date | 09 May 1972 |
Court | House of Lords |
[1972] UKHL J0509-1
House of Lords
Lord Reid
Lord Morris of Borth-y-Gest
Lord Diplock
Lord Simon of Glaisdale
Lord Kilbrandon
Upon Report from the Appellate Committee, to whom was referred the Cause Associated Newspapers Group Limited (formerly Associated Newspapers Limited) against Fleming (Inspector of Taxes), that the Committee had heard Counsel, as well on Thursday the 23d, as on Monday the 27th and Tuesday the 28th, days of March last, upon the Petition and Appeal of Associated Newspapers Group Limited (formerly Associated Newspapers Limited) of Carmelite House, Carmelite Street, London, E.C.4, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 12th of May 1971, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of Clifford Gordon Victor Fleming (Her Majesty's Inspector of Taxes), lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 12th day of May 1971 complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondent the Costs incurred by him in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
The Appellants publish a number of newspapers including the "Daily Mail", the "Evening News" and "Weekend". They have a large staff of reporters and others engaged in gathering items of news and other items suitable for publication in their newspapers. Their success depends largely on their having established cordial relations with a variety of people likely to be able to give them the kind of information they require. To establish and maintain such relations they often find it necessary to provide entertainment to their informants in the shape of drinks, meals, etc. The expense of providing such entertainment is paid by the Appellants.
During the year 1965-66 the sum provided by the Appellants for this purpose amounted to £67,143. They claim that this sum is an allowable deduction in computing their profits for the purposes of income tax. It is admitted by the Respondent that this expenditure was not excessive in amount and that the whole of it would have been allowable as a deduction but for the provisions of section 15 of the Finance Act, 1965. Before dealing with its specific provisions it is necessary to have in mind the mischief which it is obviously designed to prevent. For a number of years there had been much public criticism of the lavish expenditure daily to be seen in restaurants and elsewhere on business lunches and the like, and of other methods of business entertainment which had become notorious. It must have been found to be impracticable for the tax authorities to separate entertainment which was reasonable from that which was not. Normally where traders do not derive any personal benefit from business expenditure no question arises. But here the givers of the entertainment benefited as well as the guests so that to a large extent they were really entertaining themselves at the public expense. In 1965 Parliament thought it necessary to take drastic action so that, as often happens in such cases, the innocent must suffer as well as the guilty. As I have said, no criticism is made that the Appellants are other than innocent.
Section 15 provides as follows:
"(1) Subject to the provisions of this section—
( a) no deduction shall be made in computing profits or gains chargeable to tax under Schedule D for any expenses incurred in providing business entertainment, and such expenses shall not be included in computing any expenses of management in respect of which relief may be claimed under the Income Tax Acts;
( b) no deduction for expenses so incurred shall be made from emoluments chargeable to tax under Schedule E; and
( c) for the purposes of Chapter II of Part X of the Income Tax Act 1952 (capital allowances for machinery and plant) the use of any asset for providing business entertainment shall be treated as use otherwise than for the purposes of a trade.
(2) Subsection (1) of this section shall not apply to expenses incurred in, or the use of an asset for, the provision by a person carrying on a trade in the United Kingdom (in this section referred to as a 'United Kingdom trader'), or by a member of his staff, of entertainment for an overseas customer of that person, being entertainment of a kind and on a scale which is reasonable having regard to all the circumstances.
(3) The expenses to which paragraph ( a) of subsection (1) of this section applies include, in the case of any person, any sums paid by him to, or on behalf of, or placed by him at the disposal of, a member of his staff exclusively for the purpose of defraying expenses incurred or to be incurred by him in providing business entertainment, but where—
( a) any such sum falls to be included in his emoluments chargeable to tax under Schedule E; and
( b) the deduction or inclusion of that sum as mentioned in that paragraph falls to be disallowed in whole or in part by virtue of this section;
paragraph ( b) of that subsection shall not preclude the deduction of any expenses defrayed out of that sum.
(4) Where by virtue of subsection (2) of this section a person claims to deduct or include any expenses as mentioned in paragraph ( a) or ( b) of subsection (1) of this section or claims any allowance under the provisions mentioned in paragraph ( c) of that subsection he shall, if the inspector so requires, furnish particulars of the entertainment in question and of the person for whom it was provided; and Part III of the Finance Act 1960 (penalties) shall have effect as if this subsection were included among the provisions specified in column 3 of Schedule 6 to that Act.
(5) For the purposes of this section 'business entertainment" means entertainment (including hospitality of any kind) provided by a person or by a member of his staff in connection with a trade carried on by that person, but does not include anything provided by him for bona fide members of his staff unless its provision for them is incidental to its provision also for others.
(6) For the purposes of this section 'overseas customer" means, in relation to any United Kingdom trader—
( a) any person who is not ordinarily resident or carrying on a trade in the United Kingdom and avails himself, or may be expected to avail himself, in the course of a trade carried on by him outside the United Kingdom, of any goods, services or facilities which it is the trade of the United Kingdom trader to provide; and
( b) any person who is not ordinarily resident in the United Kingdom and is acting, in relation to such goods, services or facilities, on behalf of an overseas customer within paragraph ( a) of this subsection or on behalf of any government or public authority of a country outside the United Kingdom.
(7) In this section any reference to expenses incurred in, or to the use of an asset for, providing entertainment includes a reference to expenses incurred in, or to the use of an asset for, providing anything incidental thereto; references to a trade include references to any business, profession or vocation; and references to the members of a person's staff are references to persons employed by that person, directors of a company or persons engaged in the management thereof being for this purpose deemed to be persons employed by it.
(8) This section shall apply in relation to the provision of a gift as it applies in relation to the provision of entertainment, except that it shall not by virtue of this subsection apply in relation to the provision for any person of a gift consisting of an article incorporating a conspicuous advertisement for the donor, being an article—
( a) which is not food, drink, tobacco or a token or voucher exchangeable for goods; and
( b) the cost of which to the donor, taken together with the cost to him of any other such articles given by him to that person in the same year, does not exceed £1.
(9) Nothing in this section shall be taken as precluding the deduction of expenses incurred in, or any claim for capital allowances in respect of the use of an asset for, the provision by any person of anything which it is his trade to provide, and which is provided by him in the ordinary course of that trade for payment or, with the object of advertising to the public generally, gratuitously.
(10) Paragraphs ( a) and ( b) of subsection (1) of this section apply to expenses incurred after 6th April 1965, and paragraph (c) of that subsection applies to use after that date."
The first eight subsections appear to me to be clear and well drafted. But subsection (9) is very different. The Appellants admit that but for subsection (9) they would have no case and they seek to rely on it as affording them relief. On reading it my first impression was that it is obscure to the point of unintelligibility and that impression has been confirmed by the able and prolonged arguments which were submitted to us. I shall do my best to indicate the meanings which counsel sought to extract from it. But first I must give an account of the gist of the preceding...
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