Hochstrasser (HM Inspector of Taxes) v Mayes
| Jurisdiction | England & Wales |
| Judgment Date | 30 November 1959 |
| Date | 30 November 1959 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax, Schedule E - Employer's housing scheme - Employee transferred in course of employment - Compensation for loss on sale of house - Income Tax Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 10), Sections 156 and 160 and Ninth Schedule, Paragraph 1.
A company operated a housing scheme for married employees whom it transferred from one part of the country to another. Under the scheme an employee might be offered a loan to assist in the purchase of a house and, provided the house was maintained in good repair, payment of the amount of the loss due to depreciation in its value in certain events, including, subject to an option to the company to buy the house at a valuation, its sale for less than the original purchase price in consequence of the employee's being transferred. M and J entered into agreements under the scheme, of which they had not known when they joined the company. Having sold their houses at a loss on transfer they received payments from the company, and were assessed thereon to Income Tax under Schedule E for the years 1954-55 and 1953-54 respectively.
On appeal it was contended for the Crown that the payments were profits from an employment, or alternatively, in J's case, chargeable by virtue of Section 160, Income Tax Act, 1952. The General Commissioners held in M's case that the payment was not assessable; other General Commissioners held in J's case that the payment was a profit from his employment.
Held, (1) in the House of Lords in M's case and in the Court of Appeal in J's case, that the payments were not profits accruing by virtue of an office or employment;
(2) in the Chancery Division, that the payment in J's case was not made in respect of expenses within the meaning of Section 160.
Hochstrasser (H.M. Inspector of Taxes) v. Mayes
CASE
Stated by the Commissioners for the General Purposes of the Income Tax for the Division of Langbaurgh East in the County of York pursuant to Section 64 of the Income Tax Act, 1952, for the opinion of the High Court of Justice.
1. At a meeting of the said Commissioners held at Redcar in the said County of York on 16th May, 1956, Leonard Harry Mayes, of Marske-by-the-Sea in the said County of York, chemist (hereinafter called "the Respondent"), appealed against an assessment to Income Tax made on him under Schedule E of the Income Tax Act, 1952, for the year 1954-55 in the sum of £1,170 which included a sum of £350 paid or credited to him in the circumstances hereinafter referred to.
2. The sole question for our determination was whether the Respondent was assessable to Income Tax under Schedule E in respect of the said sum of £350 received by him from his employers, namely, Imperial Chemical Industries, Ltd. (hereinafter called "I.C.I."), under an agreement dated 1st June, 1951 (hereinafter called "the housing agreement"), and made between I.C.I. of the one part and the Respondent of the other part, a copy of which is attached hereto, marked "A"(1).
3. The Respondent and Mr. Lewis A. Inglis, asssitant head of the I.C.I. central staff department, gave evidence, and the following facts were proved or admitted:
(a) The Respondent is a married man and has two children, born in 1949 and 1953 respectively. The Respondent has been employed by I.C.I. since December, 1941, at which time he lived with his parents at Welwyn. His first appointment was as a laboratory assistant.
(b) The Respondent was transferred in September, 1950, from Welwyn to the I.C.I works at Hillhouse in the County of Lancaster on appointment as an assistant technical officer (chemist). During the first few months, which were a probationary period, the Respondent lived in rooms. On 27th April, 1951, the Respondent entered into a service agreement with I.C.I., a copy of which is attached hereto, marked "B"(1).
(c) The Respondent found trouble in purchasing a house owing to the limitations on price with which the Respondent had to comply in order to be eligible for assistance under the I.C.I. housing scheme.
(d) The Respondent was first informed of the said scheme at the time he was transferred to Hillhouse. A copy of a summary of the said scheme was produced and is attached hereto, marked "C"(1).
-
(e) In June, 1951, the Respondent purchased 16, Ribble Road, Fleetwood, in the said County of Lancaster, for the sum of £1,850. He was offered and accepted the housing agreement with respect to the said house. The purchase money for the said house was provided as set out hereunder.
£
£
Purchase price
1850
Provided by Respondent
90
Borrowed on first mortgage from Abbey National Building Society
1460
Borrowed on second mortgage from I.C.I.
300
£1,850
£1,850
-
(f)
(g) I.C.I. paid all legal costs, including stamp duties, and also paid the Respondent's removal expenses to Fleetwood. A copy of the second mortgage dated 1st June, 1951, to I.C.I. is attached hereto, marked "D"(1).
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(h) In October, 1954, the Respondent was offered and accepted a transfer to Wilton works in the said County of York and thereupon offered his house for sale to I.C.I. under the housing agreement. I.C.I. declined to accept and the Respondent sold it, with their consent, for £1,500. The loss on sale, namely £350, was credited to the Respondent as follows:
£
s.
d.
£
s.
d.
Sale Price
1500
0
0
Repaid Abbey National Building Society
1482
1
3
Loss on sale (i.e. difference between original purchase price and sale price) paid under housing agreement
350
0
0
Repaid to I.C.I. on second mortgage
300
0
0
Retained by Respondent
67
18
9
1,850
0
0
1,850
0
0
(i) Again I.C.I. paid all legal costs and the Respondent's removal expenses to Wilton.
(j) I.C.I. have to move a great number of their staff from one part of the country to another. The company recognises that the transfer of a married man involves him in domestic upheaval. Although a man might be willing to buy a house in the new location, his chief worry was the loss he might make if he had to sell the house. I.C.I. try to operate a staff policy which results in a contented staff. Unless the staff are contented they do not do their best work. I.C.I. therefore introduced the housing scheme so that they should have employees whose minds were eased to some extent of the worry of possible financial embarrassment in the future arising out of the removal occasioned by the company's action. The agreement cannot operate unless and until the house is sold for less money than it costs to buy. Under the housing agreement the employees cannot make a profit as a result of the housing agreement. An employee's salary is calculated quite independently of anything he might receive under the housing agreement. I.C.I. salaries compare favourably with salaries paid by other employers not operating a housing scheme.
4. It was contended on behalf of the Respondent:
(i) that any benefit received by the Respondent under the housing agreement was to meet a loss of capital and therefore not taxable;
(ii) that the Respondent did not receive any benefit in the nature of taxable money's worth under the housing agreement;
(iii) that if there was any benefit in the nature of taxable money's worth received by the Respondent it should have been assessed for 1950-51;
(iv) that if there was any taxable benefit received by the Respondent it was countervailed by an expense of a like amount incurred by him "wholly, exclusively and necessarily in the performance of the duties of his employment".
5. The following cases were referred to on behalf of the Respondent:
Stott v. Hoddinott, TAX7 T.C. 85.
Reed v. Seymour, TAX11 T.C. 625.
Wales v. Tilley, TAX25 T.C. 136.
Hunter v. Dewhurst, TAX16 T.C. 605.
Tennant v. Smith, TAX3 T.C. 158
6. It was contended on behalf of H.M. Inspector of Taxes:
(a) that the sum of £350 paid or credited to the Respondent under the terms of the housing agreement represents a profit from his employment for which he is chargeable to Income Tax under the Income Tax Act, 1952, Section 156, Schedule E, and Ninth Schedule, Rule 1;
(b) that no deduction in respect of the said sum is allowable under Rule 7 of the said Ninth Schedule. Accordingly the assessment is rightly made and should be confirmed.
7. The following cases were referred to on behalf of the Inspector:
Herbert v. McQuade, TAX4 T.C. 489.
Fergusson v. Noble, TAX7 T.C. 176.
Hartland v. Diggines, TAX10 T.C. 247.
Corry v. Robinson, TAX18 T.C. 411.
Nicoll v. Austin, TAX19 T.C. 531.
Prendergast v. Cameron, TAX23 T.C. 122.
Bolam v. Barlow, TAX31 T.C. 136.
Nolder v. Walters, TAX15 T.C. 380
8. We, the Commissioners, after hearing and considering the evidence are of the opinion that:
(a) the Respondent, under the terms of the service agreement dated 27th April, 1951, was bound to comply with the offer by I.C.I. of the position at Wilton works;
(b) the Respondent complied with the terms of the housing agreement dated 1st June, 1951, offering to sell the property to I.C.I. and, on their declining, with their permission selling for £1,500;
(c) the payment of £350 under the housing agreement was made against a total capital loss by the Respondent of £372 1s. 3d.incurred as a result of his move under the service agreement;
(d) the payment, being to meet a capital loss, was not assessable to Income Tax;
(e) that we the Commissioners are of the unanimous opinion that the payment of £350 by I.C.I. to the Respondent is to meet loss in fulfilling the obligations of his employment and is therefore not assessable to Income Tax.
9. Immediately after the determination of the appeal dissatisfaction therewith as being erroneous in point of law was declared to us on behalf of H.M. Inspector of Taxes and in due course we were required to state a Case for the opinion of the High Court pursuant to the Income Tax Act, 1952, Section 64, which...
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