Lawrance v Ridsdale's Executrix
| Jurisdiction | England & Wales |
| Judgment Date | 27 February 1976 |
| Date | 27 February 1976 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income Tax - Schedule D - Earned income relief - Whether annuity paid to retired partner under provisions of partnership agreement earned income - Income and Corporation Taxes Act 1970 (c. 10), s. 530(1)(c).
H and R were both former partners in a firm of accountants. On their retirement in 1969 H and R were paid annuities (of £5,500 and £7,000 respectively) under the terms of a partnership agreement drawn up in 1961 which the Inspector assessed to tax under Case III of Schedule D. They appealed to the General Commissioners against the Inspector's refusal of their claims to earned income relief under s. 9, Income and Corporation Taxes Act 1970. The Commissioners held that the annuities were income immediately derived from their professions in accordance with s. 530(1)(c), Income and Corporation Taxes Act 1970, and thus qualified for earned income relief under s. 9 of the Act.
Held, that the annuities were not receipts immediately derived from the carrying on of their professions, but were receipts derived from the terms of the partnership agreement as modified by the precise agreements reached on actual retirements, and hence did not qualify for earned income relief.
(1) Lawrance (H.M. Inspector of Taxes) v. Ridsdale's Executrix
CASE
Stated under the Taxes Management Act 1970, s. 56, by the Commissioners for the General Purposes of the Income Tax for the Division of Paddington for the Opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax for the Division of Paddington held on 8 March 1974 for the purpose of hearing appeals, Wilfred Edwin Ridsdale F.C.A., of Flat 17, 100 Lancaster Gate, London, W.2. ("Mr. Ridsdale") appealed against the refusal by H.M. Inspector of Taxes of a claim under s. 9 of the Income and Corporation Taxes Act 1970 ("the Act") for earned income relief in respect of income tax for the year 1970-71. Mr. Ridsdale's appeal was heard together with the appeal of Charles Christopher Hayman F.C.A., of Cobblestone, The Thatchway, Rustington, Sussex, BN16 2BN ("Mr. Hayman") by agreement between the parties. Mr. Ridsdale was unable to attend the hearing due to ill health.
2. The question for our determination was whether a payment of £7,000 in the year 1970-71 made by Messrs. Moore Stephens & Co., chartered accountants, of Bucklersbury House, Bucklersbury, London, E.C.4. ("Moore Stephens") was "earned income" within the definition contained in s. 530(1)(c) of the Act.
The payment was assessable as an annuity under Schedule D, Case III (s. 109(2) of the Act).
3. The following documents are exhibited hereto and form part of this Case(1):
(A) "Heads of agreement" dated 28 April 1961.
(B) A note with attached computation from Mr. Hobart Moore, senior partner in Moore Stephens, to Mr. Ridsdale dated 3 June 1969.
(C) A memorandum from Mr. Ridsdale to Mr. Hobart Moore dated 6 June 1969.
(D) A letter from Mr. Hobart Moore to Mr. Ridsdale dated 25 July 1969.
(F), (G) & (H) Lists of attendances by Mr. Ridsdale upon clients of Moore Stephens in the years ended 5 April 1971, 1972 and 1973 respectively.
4. In addition to the above exhibits, an agreed bundle of correspondence between Mr. Ridsdale and his solicitors on the one hand and the Inspector of Taxes on the other hand was placed before us. This bundle is not an exhibit to this Case, but is available for the use of the Court if required.
5. No evidence was adduced, but the parties placed before us an agreed statement of facts which, so far as now relevant, was as follows:
(2) Mr. Ridsdale was born on 2 January 1903. He joined Moore Stephens on 2 December 1919 as an employee. He continued in that capacity until, after qualifying as a chartered accountant in 1925, he was taken into partnership under a partnership deed dated 31 January 1934 ("the 1934 deed"). The whole of his working life since 1919 was spent in professional practice with Moore Stephens until his retirement on 25 August 1969, but such retirement was to take effect as from 30 April 1969 (See exhibit E). Since the latter date Mr. Ridsdale has received a retirement annuity paid under the agreement of partnership which was then in force.
(3) No provision was made in the 1934 deed, under which Mr. Ridsdale became a partner in Moore Stephens, for the payment of a pension or retirement annuity to him. There were two deeds of partnership supplementary to the 1934 deed. First there was a deed dated 27 January 1941, which is of no relevance for the present purposes, but a second supplementary deed dated 1 September 1945 provided that the two senior partners should retire on 31 December 1945 and 31 December 1946 and that from those dates they should be entitled to receive life annuities of £3,000 per annum and £2,000 respectively. No provision was made under that supplementary deed for the payment of a retirement annuity to Mr. Ridsdale.
-
(4) Following the retirement of those two senior partners a further deed of partnership was entered into dated 31 December 1946 ("the 1946 deed") between Mr. Hobart Harold de Courcy Moore (herein referred to as "Mr. Hobart Moore"), Mr. Ridsdale and Mr. Hayman. This 1946 deed provided (inter alia) for the continuation of the firm, for the introduction of Mr. Hayman as a partner and for the payment of various sums to Mr. Hobart Moore and Mr. Ridsdale in the event of either of them retiring. It did not, however, make provision for the payment of a retirement annuity or annuities to any of the parties to it. There were various deeds which were supplemental to the 1946 deed but none of them either made any provision for the payment of retirement annuities.
(5) The 1946 deed was followed by a deed of partnership dated 20 December 1948 ("the 1948 deed") made between Mr. Hobart Moore, Mr. Ridsdale, Mr. Hayman and five others on the occasion of the introduction of the latter persons as partners in the firm of Moore Stephens. The 1948 deed made provision for the payment of annuities to Mr. Hobart Moore, Mr. Ridsdale and Mr. Hayman as and when they retired and replaced all the earlier deeds except to the extent that annuities were payable to Sir Harold Moore, John Robinson Stephens and to any widow of John Robinson Stephens as mentioned in clause 3 of the 1961 heads of agreement next hereinafter referred to.
(6) In 1961 heads of agreement for a new partnership deed for Moore Stephens were prepared and dated 28 April 1961 ("the 1961 heads of agreement") (exhibit A). In these provision was made, under para. 24, for Mr. Hobart Moore and Mr. Ridsdale to retire from the partnership at any time on six months' notice and for Mr. Hayman to retire at any time after 31 December 1970 on six months' notice. Provision was also made, under para. 26, for the payment of pensions. Mr. Hobart Moore, Mr. Ridsdale and Mr. Hayman were each to receive a pension for life equal to one third of the average share of net profits received by each of them during the three complete years preceding their retirement, with a minimum of £7,500 and a maximum of £12,000 in the case of Mr. Hobart Moore, and a minimum of £5,000 and a maximum of £8,000 in the case of Mr. Ridsdale. In the case of any other partner, the payment was to be a pension for life equal to one quarter of such average share. Provision was also made by clause 26(c) for the payment of a pension to a widow of a partner who died in service or after retirement.
(7) A draft of a deed to give effect to the 1961 heads of agreement was prepared but not completed and at the time Mr. Ridsdale retired the partnership was operating under the 1961 heads of agreement (exhibit A). Several amendments were made to the 1961 heads of agreement on the introduction of new partners but the supplemental heads of agreement on the introduction of such new partners did not affect the provisions of paras. 24 and 26 referred to above. The 1961 heads of agreement by clause 1 expressly stated that there should be a new deed of partnership with effect from 1 May 1960 in accordance with such heads of agreement which should take the place of the 1948 deed (as varied). The parties to such heads of agreement were bound with effect from 1 May 1960 by the terms thereof, regardless of the execution of a deed giving effect to such terms, and such terms replaced the terms of the earlier deeds.
(8) During or about May 1969 Mr. Hobart Moore suggested to Mr. Ridsdale that a new partnership agreement should be entered into. Mr. Ridsdale was prepared at that time either to continue to work receiving a salary equivalent to what his pension would be or to retire. Following these discussions Mr. Hobart Moore wrote to Mr. Ridsdale a note dated 3 June 1969 (exhibit B) giving some pension computation figures for Mr. Ridsdale and Mr. Hayman in accordance with the provisions of para. 26 of the 1961 heads of agreement. Mr. Ridsdale's pension entitlement was shown to be £7,081 per annum.
(9) Mr. Ridsdale replied to Mr. Hobart Moore by letter dated 6 June 1969 (exhibit C). He set out his proposals in connection with his proposed retirement and made an offer to retire which was accepted by Mr. Hobart Moore by letter dated 25 July 1969 (exhibit D). This acceptance resulted in the preparation of a letter written by Mr. Hobart Moore to Mr. Ridsdale on 25 August 1969, the terms of which were accepted by Mr. Ridsdale on the same date (exhibit E). The pension computations attached to Mr. Hobart Moore's note of 3 June (exhibit B) showed that Mr. Ridsdale would be entitled to a pension of £7,081 but he agreed to accept a pension of £7,000 in order that it should be a round sum. The letter of 25 August 1969 (exhibit E) provided for an "undertaking" by Mr. Ridsdale in the following terms:
I rely upon your assurance that notwithstanding your retirement you will conclude or...
To continue reading
Request your trial