Henry (Inspector of Taxes) v Foster; sub nom Dewhurst v Hunter (Inspector of Taxes)

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Warrington of Clyffe,Viscount Dunedin,Lord Atkin,.
Judgment Date14 April 1932
Judgment citation (vLex)[1932] UKHL J0414-1
Date14 April 1932

[1932] UKHL J0414-1

House of Lords

Viscount Dunedin.

Lord Warrington of Clyffe.

Lord Atkin.

Lord Thankerton.

Lord Macmillan.

Dawhurst and Another
and
Hunter (Inspector of Taxes).

After hearing Counsel, as well on Thursday the 25th, as on Friday the 26th, days of February last, upon the Petition and Appeal of Robert Cyril Dewhurst of Cuddington, Northwich, in the County of Chester, and Thomas Hopwood of 54, Mosley Street, in the City of Manchester, the Executors of the Will of Commander H. Dewhurst, deceased, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal, of the 1st of May 1931, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order might be reversed varied or altered or that the Petitioners might have such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of R. A. Hunter, one of His Majesty's Inspectors of Taxes, lodged in answer to the said Appeal; and due consideration being 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 His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 1st day of May 1931, complained of in the said Appeal, be, and the same is hereby, Reversed, and that the Judgment of the Honourable Mr. Justice Rowlatt, of the 8th day of December 1930, thereby Reversed, be, and the same is hereby, Restored: And it is further Ordered, That the Respondent do pay, or cause to be paid, to the said Appellants, the Costs incurred by them in the Court of Appeal, and also the Costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the King's Bench Division of the High Court of Justice, to do therein as shall be just and consistent with this Judgment.

Viscount Dunedin .

My Lords,

1

The question in this case is whether certain sums of money which were paid by a Company, G. & R. Dewhurst, Ltd., to the late Commander Dewhurst, who was a Director, were liable to be assessed for Income Tax under Schedule E. Commander Dewhurst was, as said, a Director of the Limited Company and his remuneration depended on two Articles of Association, 104 and 109, which were in the following terms:

"104. The Directors shall be paid out of the funds of the Company by way of remuneration for their services such sums as the Company in General Meeting shall from time to time determine. Such remuneration shall be divided among them in such proportions and manner as the Directors may determine and in default of such determination within the year, equally. Such remuneration may be either by way of fees or commission or participation in profits, or by any or all of those modes or otherwise as the Company in General Meeting shall determine. The Directors shall also be paid all hotel, travelling and other expenses incurred by them in connection with the business of the Company, including their travelling expenses of attending and returning from Board and Committee meetings."

"109. In the event of any Director dying or resigning his office or in the event of any Director ceasing to hold office for any cause other than misconduct, bankruptcy, lunacy or incompetence the Company shall pay to him or his representatives (as the case may require) by way of compensation for the loss of office a sum equal to the total amount of the remuneration which in his five years of office last preceding the commencement of the financial year in which his death, resignation or cesser of office shall occur, shall have been received by him under Clause 104 hereof, but so that in computing the amount of the remuneration so received there shall be excluded from account all sums received by him by way of commission or participation in profits or otherwise than by way of Directors' fees.

In computing for the purposes of this clause the amount of the fees received by any Director any sums deducted therefrom for Income Tax shall be reckoned as part of such fees. It shall rest solely with the Directors to determine for what cause any Director ceased to hold office and their decision shall be final and conclusive."

2

There were among the other Directors two Directors, Arthur and Joseph Foster.

3

At an Extraordinary General Meeting of the Company held on the 11th day of May 1920 the following resolution was passed:—

"That the remuneration of the Directors commencing from the 31st March 1920 shall be £12,500 per annum, to be divided in the proportions as fixed and approved of at the Directors' Meeting held 27th April last viz.:—

Per annum.

£

Harry Dewhurst

2,500

Gerard P. Dewhurst

2,500

Cyril Dewhurst

2,500

T. P. Shelmerdine

1,000

M. G. D. Melville

1,000

E. S. Arliss

1,000

Joseph Foster

1,000

Arthur Foster

1,000

all payable half yearly on the 31st March and the 30th September, Income Tax on the same to be borne by the Company."

4

Arthur Foster resigned on 1st January, 1926, and Joseph Foster on 10th November, 1927. In both cases sums were calculated under the terms of Article 109 and paid. As to Arthur no question was raised. As to Joseph there were certain questions, but they may be disregarded. In the end he was paid the sums which were agreed to be due under Article 109.

5

Commander Dewhurst wished to retire in 1923 but the other Directors wished to keep him although he was going to change his residence and would not be able to attend the Company's meetings with the same regularity as before. Commander Dewhurst, on July 10th, 1923, wrote the following letter:

"July 10th, 1923.

My Dear Powys,

I wish to give you notice that, at the next meeting of the Directors of the Company, it is my intention to resign my office as Chairman.

With regard to my future position in the Company, and to the suggestions you submitted a short time ago, I have carefully considered these and venture to put the following proposal before you and my fellow Directors:—

I waive any future claim under Section 109 in the Articles of Association.

I be paid the sum of £10,000 (Ten thousand) in cash.

I remain on the Board of the Company, with a remuneration of £250 (Two hundred and fifty) per annum free of Income Tax.

Will you be good enough to submit these proposals at the next meeting.

Yours ever,

(Signed) HARRY DEWHURST."

6

The following resolution was passed at the Meeting of Directors held 9th August, 1923:—

"That the Board accept with great regret the resignation of Commander Harry Dewhurst as Chairman of the Company and that he be paid the sum of £10,000 as compensation for loss of office, in lieu of the provisions under Clause 109 of the Articles of Association of the Company and that he be paid the sum of £250 per annum free of Income Tax as Director of the Company as from the 1st August last."

7

In pursuance of the above resolution £5,000 was paid to the Appellant on 1st December, 1923, and a further £5,000 on 31st December, 1923.

8

When the Fosters were both settled with, the Directors, without any application by Commander Dewhurst, on 2nd February, 1926, passed the following Resolution:—

"That the sum of £2,900 be paid to Mr. Harry Dewhurst representing 5 years' Income Tax in respect of the amounts paid to him on the 1st and 31st December, 1923, as compensation for loss of office in full settlement of any sum due or to become due to him under Article 109 of the Articles of Association of the Company."

9

The Additional Commissioner for the City of Manchester assessed for Income Tax the said sums of £10,000 and £2,900, and also the sums paid to the Fosters. All three appealed to the Commissioners for Special Purposes who discharged the assessments but stated a special Case.

10

Rowlatt J. confirmed the judgment of the Special Commissioners. Appeal being taken by the Inspector of Taxes, the Court of Appeal reversed the judgment of Rowlatt J. and restored the amount taxed by the Additional Commissioner.

11

The two Fosters have not appealed but Commander Dewhurst has appealed. He has since died and his Executors are substituted for him.

12

Rowlatt J. treated all three cases as raising the same point and decided them on that point. He considered that the sums in question did not fall within the description in Schedule E., holding that they were not paid in respect of the office of Director but were compensation for retirement from the office. He considered that what he was holding was in accordance with what had been laid down in the case of Duncan v. Farmer, 1909, Sess. Cas. 1212, and alluded to a sentence of mine in my judgment on that case. The sentence in question is, I believe, the following:—

"I confess I have never been able to see how it could possibly be said to be in respect of his office when the whole reason it was given to him was that he was no longer in the office".

13

My Lords, the case of Duncan v. Farmer is not binding on your Lordships but I think it was rightly decided and I had in accordance with my own view the weighty authority of Lord Kinnear. But what were the facts? A completely extraneous society granted Mr. Duncan, the Minister of the parish of Crichton, an annuity of £100 a year on condition of his complete resignation of the position of Minister. He did resign and was then given the annuity. Applied to the facts, I think the sentence quoted was correct. The payment came to him in no sense by virtue of his office, but I...

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