Hochstrasser (Inspector of Taxes) v Mayes

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeViscount Simonds,Lord Radcliffe,Lord Cohen,Lord Keith of Avonholm,Lord Denning
Judgment Date30 Nov 1959
Judgment citation (vLex)[1959] UKHL J1130-2

[1959] UKHL J1130-2

House of Lords

Viscount Simonds

Lord Radcliffe

Lord Cohen

Lord Keith of Avonholm

Lord Denning

Hochstrasser (Inspector of Taxes)
and
Mayes

After hearing Counsel, as well on Tuesday the 13th, as on Wednesday the 14th and Thursday the 15th, days of October last upon the Petition and Appeal of Eric John Lazare Hochstrasser of Darlington 1st District, Craig Lea, Uplands Road, Darlington, Co. Durham (one of Her Majesty's Inspectors of Taxes), 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 7th of July 1958, so far as therein stated to be appealed against, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order, so far as aforesaid, 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 printed Case of Leonard Harry Mayes, 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 7th day of July 1958, in part 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 Appellant 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.

Viscount Simonds

My Lords,

1

The question at issue in this appeal is whether the Respondent, who was at all material times an employee of Imperial Chemical Industries Limited (I.C.I.), was rightly assessed under Schedule E of the Income Tax Act, 1952, in the sum of £1,170, which included a sum of £350 paid to him in circumstances to be now stated.

2

I will first remind your Lordships of the relevant statutory provisions.

3

It is by section 156 of the Income Tax Act, 1952, provided as follows:

"The Schedule referred to in this Act as Schedule E is as follows—

Schedule E

1. Tax under this Schedule shall be charged in respect of every public office or employment of profit….

2. Tax under this Schedule shall also be charged in respect of any office, employment or pension, the profits or gains arising or accruing from which would be chargeable to tax under Schedule D but for the proviso to paragraph 1 of that Schedule."

"5. The provisions set out in the Ninth Schedule to this Act shall apply in relation to the tax to be charged under this Schedule."

4

The Ninth Schedule so far as relevant was as follows:

"Rules Applicable To Schedule E

1. Tax under Schedule E shall be annually charged on every person having or exercising an office or employment of profit mentioned in Schedule E, or to whom any annuity, pension or stipend chargeable under that Schedule is payable, in respect of all salaries, fees, wages, perquisites or profits whatsoever therefrom for the year of assessment, after deducting the amount of duties or other sums payable or chargeable on the same by virtue of any Act of Parliament, where the same have been really and bona fide paid and borne by the party to be charged."

5

I will now refer to the facts of the case, which I must do by reference to the Case Stated by the Commissioners for the General Purposes of the Income Tax, using so far as possible their own language.

6

The Respondent is a married man with two children who were born in 1949 and 1953. He has been employed by I.C.I. since 1941, at which time he lived with his parents at Welwyn. His first employment was as a laboratory assistant. In September, 1950, he was transferred to the I.C.I. works at Hillhouse in Lancashire on appointment as an assistant technical officer (chemist). During the first few months, which were a probationary period, he lived in rooms. On the 27th April, 1951, he entered into a service agreement with I.C.I., of which for the purpose of this case the salient feature was that he agreed to serve anywhere in the United Kingdom of Great Britain and Northern Ireland and that I.C.I. should be at liberty to change the locality of his employment within those limits. There was also a provision that should I.C.I. require him to change his residence they would pay him such removal and other expenses incidental thereto as they should consider fair and reasonable in the circumstances, and a further provision that the agreement, if not otherwise previously determined, might be terminated by either party by three months' notice in writing.

7

It was at the time of his transfer to Hillhouse that the Respondent first learned of a scheme established by I.C.I. to assist their married employees to purchase houses for their own occupation, a summary of which was given to him. At first he found trouble in purchasing a house owing to the limitations on price with which he had to comply in order to be eligible for assistance under the scheme, but in June, 1951, he purchased No. 16, Ribble Road, Fleetwood, for the sum of £1,850, of which £90 was provided by himself. £1,460 was borrowed on First Mortgage from a building society and £300 was borrowed on Second Mortgage from I.C.I. This purchase was made pursuant to a so-called Housing Agreement, the terms of which have been considered to be of vital importance to this case. It was dated the 1st June, 1951, and was in the standard form for which the scheme provided. The agreement is very elaborate in character, defining with great nicety the conditions upon, and the limits within which. I.C.I. will implement the guarantee against loss upon resale which is its main purpose. Its provisions have been summarised by Lord Justice Jenkins and I am glad to adopt his summary, which is as follows:

"(i) In the event of the employee being transferred to a new place of employment in the service of I.C.I. and consequently desiring to sell or let the house, the employee must offer to sell the house to I.C.I. If I.C.I. accepts, then the house is to be bought by I.C.I. at the current market value ascertained by valuation; and if such value is less than the employee's expenditure on the house I.C.I. becomes liable to pay the difference to the employee. If I.C.I. declines, then the employee is at liberty to sell to a third party and I.C.I. becomes liable to pay the employee the amount, if any, whereby the price realised falls short of his expenditure on the house. (See Clause 2 of the Agreements.)

(ii) In the event of the sale of the house by the employee or his personal representatives within twelve months after (A) the refusal by I.C.I. of an offer made on transfer under (i) above, or (B) the retirement of the employee, or (C) the death of the employee (whichever first happens) I.C.I. becomes liable to pay to the employee or his personal representatives the amount if any whereby the price realised on such sale falls short of the employee's expenditure on the house. (See Cause 3 (1).)

(iii) If the house is not sold before the expiration of the period of twelve months mentioned in (ii) above then there is to be a valuation of the house and I.C.I. becomes liable to pay to the employee or his personal representatives the amount (if any) whereby the employee's expenditure on the house exceeds the amount of the valuation. (See Clause 3 (2).)

(iv) If at any time before such one of the three events mentioned in (ii) above as shall first happen the employee while still in the service of I.C.I. desires to sell the house he may do so, but in that case he is only to be entitled to the benefit of I.C.I.'s guarantee against capital loss if he obtains I.C.I.'s consent to the sale and offers to sell the house to I.C.I. If I.C.I. accepts the offer then the house is to be bought by I.C.I. on similar terms to those stated in (i) above (i.e., with the benefit of the guarantee). If I.C.I. declines the offer then the employee may sell to whom he pleases and I.C.I.'s guarantee is to apply to any resulting capital loss. (See Clause 4.)

The Agreement is to continue in force for a period expiring twelve calendar months after the death of the employee, but subject to fulfilment of accrued rights it ceases automatically upon such one of the following events as shall first happen, that is to say, if the employee shall:—

(A) Be transferred for service with I.C.I. elsewhere and offers to sell the house to I.C.I.

(B) Retire from the service of I.C.I. on pension.

(C) Cease to be employed by I.C.I. for any other reason.

(D) Sell or let the property or any part thereof.

(E) Cease to use the house as a permanent residence. (See Clause 11.)

It is a conditon precedent to I.C.I. affording to the employee a guarantee against any capital loss he may suffer that the employee shall at all times keep the house in good tenantable repair. (See Clause 6.)"

8

In October, 1954, the Respondent was transferred to Wilton Works in the County of York and thereupon offered his house for sale to I.C.I. under the Housing Agreement. I.C.I. declined the offer and the Respondent sold it with their consent for £1,500. The sum of £350 (being the loss for which I.C.I. admitted liability on resale) was duly paid or credited to the Respondent by I.C.I. This is the sum in respect of which tax under Schedule E is claimed to be exigible from the Respondent.

9

It is right that I should add one further paragraph from the Case Stated upon which reliance was placed by the Appellant or the Respondent. It was as follows:

"(G) 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....

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