Holland (HM Inspector of Taxes) v Geoghegan
| Jurisdiction | England & Wales |
| Judgment Date | 01 January 1973 |
| Date | 01 January 1973 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income tax, Schedule E - Municipal refuse collector - Termination of right to sell salvaged materials for own profit - Payment in compensation - Whether an emolument - Finance Act 1956 (4 & 5 Eliz. 2, c.54), Sch. 2, para. 1.
The Respondent was a refuse collector in the service of the council of a local authority, and was a member of a trade union. Under an agreement made in 1959 between the council and the union refuse collectors were entitled to extract salvageable materials from the refuse and sell them for their own profit. In August 1968 the council gave notice to determine the agreement as provided by the terms thereof, and made an offer to the union of additional payments in lieu. No agreement on the offer had been reached by 24th January 1969, when the notice of termination became operative. The council's refuse collectors, including the Respondent, thereupon came out on strike. On 27th February 1969 the dispute was settled on the terms that each refuse collector in post at both 24th January and 27th February should receive £450 to compensate him for loss of earnings due to the termination of the salvage scheme.
On appeal against an assessment to income tax under Schedule E for the year 1968-69 in a sum including the £450 received as aforesaid, the Respondent contended that the payment was made to him by way of compensation for the loss of his rights under the salvage agreement, and that since it did not secure any future services by him it was not an emolument of his employment. For the Crown it was contended that the Respondent's rights under the salvage agreement had ceased on 24th January 1969, when it was lawfully determined, and that the payment was an emolument. The Special Commissioners held, applying Jarrold v. Boustead 41 T.C. 701, that the payment was made to the Respondent for giving up an advantage, not being a legal right, and was not an emolument.
Held, that the £450, having been paid to the Respondent for the main purpose of getting him back to work and received by him as a form of substituted remuneration for his former rights in the proceeds of the sale of salvage, was an emolument of his employment notwithstanding that he undertook no obligation to remain in the council's service.
Stated under the Taxes Management Act 1970, s. 56, 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 17th December 1970 Stephen Geoghegan (hereinafter called "the Respondent") appealed against an assessment to income tax, Schedule E, in the sum of £1,461 for the year 1968-69.
2. Shortly stated, the question for our decision was whether the Respondent was assessable in respect of a sum of £450 received from his employers, the Lambeth Borough Council (hereinafter referred to as "the Council"), in the circumstances mentioned below.
3. The following witnesses gave evidence before us: Mr. Peter Evans, group secretary of the Transport and General Workers Union (hereinafter referred to as "the Union"); Mr. John Handel, Director of Management Services of the Council.
4. The following documents were proved or admitted before us:
(a) Rules of the Council relating to the collection of refuse (exhibit 1).
(b) Correspondence between the Council and the Union.
(c) Extract from schedule of wages and working conditions.
(d) Statement of intentions and proposals for settlement (exhibit 2).
Copies of documents (a) and (d), respectively marked "exhibit 1" and "exhibit 2", are attached to and form part of this Case(1). The other two are available for inspection by the Court if required.
5. As a result of the evidence, both oral and documentary, adduced before us we find the following facts proved or admitted:
(a) The Respondent during the year 1968-69 was employed by the Council as a refuse collector. His terms and conditions of service were regulated by the Rules of the Council (exhibit 1) and the Wages and Working Conditions of the Local Authorities of the Greater London Area.
(b) The Respondent was at all material times a member of the Union, which negotiated on his behalf his terms and conditions of employment. He adopted the actions of the Union performed on behalf of its members in connection with the dispute with the Council referred to below and in all other material respects.
(c) Refuse collected by the Council contained articles of value, which are referred to in the Rules (exhibit 1) as "salvageable materials". Rule 11 forbade "totting" (that is to say, the unregulated sale of salvageable materials) by employees. Instead, the "salvage agreement" contained in the schedule to the rules (exhibit 1) provided for the sale of salvageable materials and the division of the proceeds of sale thereof amongst the refuse collectors.
(d) The salvage agreement provided that the Council should provide and maintain two trailers for the use of each team of refuse collectors for the transport of salvage. Salvage collected by each team was stored in space provided by the Council, where it was sorted by such members of the team who had decided to participate in reclamation of salvage, and thereafter sold. The proceeds of sale were divided between participating members of the team in agreed proportions. Not all refuse collection employees participated in the salvage scheme, but the Respondent was in the year 1968-69 a participant, and a sum of £100 was included in the assessment of his emoluments for that year in respect of his receipts under the salvage agreement. The salvage agreement was determinable by the Council on one month's notice (para. (h) of the schedule).
(e) In the year 1968 the Council, in pursuance of its policy of improving the efficiency of its refuse collection service, began to use bulk containers for the collection and disposal of refuse. The use of such containers was incompatible with the existing method of collecting, sorting and disposal of salvage, because refuse was partly inaccessible when placed in such containers. As a result the Council viewed the salvage agreement, which had hitherto worked satisfactorily, as an anachronism and a hindrance to efficiency. One effect of the use of bulk containers was that any refuse collectors in a team employed to use them were not able to enjoy the benefits of the salvage agreement.
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(f) By letter dated 26th August 1968 the Council gave to the Union notice of its intention to determine the salvage agreement. The date of determination was deferred by a letter dated 18th September 1968, and by a further letter dated 18th December 1968 such notice became operative to determine the salvage agreement on 24th January 1969.
(g) Although the Council for the reasons stated in sub-para. (f) above had resolved to determine the salvage agreement, it recognised that if it wished to retain a force of refuse collectors it would not be able to deprive its employees of the benefits of the agreement without some form of substituted payments. Discussions on the form of such payments took place between the Council and the Union. The Council intimated that it did not wish its employees to be any worse off because of the termination of the salvage agreement, and the Union was anxious to protect its members. Various formulae were proposed and discussed. The Council offered a weekly payment of £2 15s. in lieu of salvage rights to each employee employed by it at the termination of the salvage agreement. The Union did not accept this proposal because it was thought to be unfair to future employees or employees retiring in the near future. Also there were difficulties over payment of a weekly sum during sickness and holiday periods. The Union accordingly proposed payment to each employee of a lump sum of £500.
(h) No agreement having been reached between the Union and the Council on the terms of compensation by the time of the ending of the salvage agreement on 24th January 1969, the Council's refuse collectors, including the Respondent, came out on strike. During the strike negotiations continued. The Council, with a view to getting the men back to work, intimated that it would be prepared, with the approval of the District Auditors, to offer a global sum in compensation to its employees for loss of their perquisites on termination of the salvage agreement. The Union for its part appreciated that uncollected salvage constituted a public nuisance and a menace to health, as a result of which an early end to the strike was desirable. Agreement on the terms on which the dispute was to be settled was reached on 27th February 1969, and embodied in a document headed "Statement of Intentions and Proposals for Settlement" (exhibit 2) (hereinafter referred to as "the agreement").
(i) Under the terms of the agreement each employee of the refuse collection service of the Council who was employed on...
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