LOWE (HM INSPECTOR of TAXES) v PETER WALKER (WARRINGTON) and Robert CAIN & SONS, Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 16 December 1935 |
| Date | 16 December 1935 |
| Court | King's Bench Division |
NO. 984-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)
COURT OF APPEAL
Income Tax, Schedule D - Deduction from profits - Employer's contribution to superannuation fund - Assets transferred from staff benefit fund of which trusts revoked - Finance Act, 1921 (11 & 12 Geo. V, c. 32), Section 32.
By an agreement in 1921, in pursuance of an agreement made on the formation of the Respondent Company and in exercise of powers in its Memorandum of Association, it was provided that a number of its ordinary shares should be set aside to form the nucleus of a benefit fund for its own employees and those of associated companies. The shares were duly allotted to trustees, and a deed between the Company and the trustees, setting out the trusts on which the fund was to be held, was executed in 1923; it provided that the Company might by instrument in writing under its common seal revoke or alter any of the trusts and might declare new trusts. The benefit fund was not capable of approval by the Commissioners of Inland Revenue as a "superannuation fund" within the meaning of Section 32 of the Finance Act, 1921.
In 1928, by which time the shares which formed the nucleus of the fund had been sold and the proceeds put into other investments, and substantial additional contributions had been made to the fund by the Company, the Company exercised its power of revocation in respect of the greater part of the assets of the fund and transferred that part to a new trust which was approved by the Commissioners of Inland Revenue as a superannuation fund under the said Section.
Held, that the assets transferred, whether derived from the sale of the shares originally forming the nucleus of the benefit fund or from cash contributions subsequently made by the Company, were paid by the Company by way of contribution towards the superannuation fund within the meaning of Section 32 of the Finance Act, 1921.
Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice.
1. At meetings of the Commissioners for the Special Purposes of the Income Tax Acts held on the 9th March and the 18th October, 1933, for the purpose of hearing appeals, Peter Walker (Warrington) and Robert Cain & Sons, Ltd. (hereinafter called the Company) appealed against assessments to Income Tax (Schedule D) in the sum of £250,000 for the year ending 5th April, 1930, and in the sum of £240,271 for the year ending 5th April, 1931, made upon them by the Additional Commissioners for the City of Liverpool in respect of the Company's trade as brewers.
2. The questions on which the opinion of the Court is desired are:-
(2) whether a sum of £78,303 transferred by the Company to certain Trustees on the 19th June, 1928, in the circumstances set out in this Case is or is not a "sum paid by "an employer .... by way of contribution towards "a superannuation fund" within the meaning of Section 32 (1) of the Finance Act, 1921, and, therefore, (subject to proviso (a) of that Sub-section) an allowable deduction in the computation of the Company's profits for the purposes of Case I of Schedule D, and
(3) if the said sum does constitute such a payment, whether it was made by the Company wholly in respect of the persons employed in its trade as laid down in paragraph 6 of the Statutory Regulations relating to superannuation funds (S.R. & O. (1921) No. 1699).
3. On the 28th September, 1921, the Company was a party to the following Agreement:-
Agreement dated the Twenty-eighth day of September "One thousand nine hundred and twenty-one Between Robert "Cain & Sons Limited and Ernest Cain of Wargrave Manor "Wargrave in the County of Berks Esquire Liquidator thereof "of the one part and Peter Walker (Warrington) and Robert "Cain & Sons Limited whose registered office is situate at "48 Cannon Street in the City of London hereinafter called "the Company of the other part Whereas it was agreed by the "several parties on the formation of the Company that out of "the capital of the Company a Benefit Fund should be created "for the staffs and employees
(2) "Now therefore in pursuance of such agreement and in "exercise of the powers contained in sub-clause 9 of paragraph "3 of the Company's Memorandum of Association(1) "fifty thousand fully paid Ordinary shares in the Company "credited as fully paid shall be set aside out of capital to form "the nucleus of a Benefit Fund for the staffs and employees of "the Company and of the other companies in which it is or "may be interested such Benefit Fund to be used for some one "or more of the following objects, viz.:-in making payments "or grants to the staffs or employees their wives widows "families and dependents in respect of sickness maternity "disablement widows pensions grants holidays and any other "object of a like nature.
(3) "The Directors of the Company shall formulate a "scheme within the meaning of the said sub-clause 9 for the "purpose of carrying such objects into effect either upon a "contributory or non-contributory basis and thereupon the said "fifty thousand shares shall be allotted as fully paid up into "the names of the Trustees for the purpose of such scheme and "either this Contract or some other sufficient Contract shall "be registered in respect thereof.
4. On the 23rd May, 1923, an Indenture was entered into between the Company of the one part and five Trustees of the other part which, after referring to the aforesaid Agreement of the 28th September, 1921, recited that the Company had decided that the scheme should be carried out on a non-contributory basis, and that fifty thousand ordinary shares of the Company had been allotted to the Trustees.
The Indenture contained, among others, the following provisions:-
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5. The fund will consist of the said 50,000 shares and any "payments or contributions of money or securities which may "be made from time to time by the Company or any other "person or persons or company to the Trustees to be held upon "the Trusts of these presents and shall be known as the ""Walker-Cain Staff Benefit Fund" ....
7. "The Trustees shall hold the fund upon trust both as to "capital and income in the first place to pay and discharge all "expenses properly incurred by them and by the Committee in "the execution of the powers and duties hereby vested in them "and in the next place to apply the income of the fund in "accordance with the resolutions of the Committee to or for "the benefit of such aged deserving or necessitous or "incapacitated persons who are or have been employed by the "Company or any other company or companies in which the "Company is interested or in making maternity disablement "or holiday grants or grants for other objects of a like "nature ....
12. "The Committee are hereby invested with the power of "determining that grants shall be made out of the fund to or "for the benefit of sick or aged or deserving or necessitous or "incapacitated persons who have been or are in the employ of "the Company or of any other company in which the Company "is interested or the dependents of such persons respectively or "in making maternity disablement or holiday grants or grants "for other objects of a like nature. Such grants may be made "of such amounts and payable in such manner and to such "persons and at such time or times as the Committee in their "absolute discretion may determine excepting always a discretion to the Trustees in respect of any payment involving the "capital of the Trust Fund ....
22. "The Company may from time to time by instrument "in writing under its Common Seal revoke or alter all or any "of the trusts powers and provisions contained in these presents "and may declare new trusts to the exclusion of or in addition "to all or any of the trusts powers and provisions herein "contained ....
A copy of the Indenture of the 23rd May, 1923, marked "A", is attached to and forms part of this Case(1): this document contains in a Schedule thereto a copy of the afore-mentioned Agreement of the 28th September, 1921.
5. The "Walker-Cain Staff Benefit Fund" thus founded in 1923 under the provisions of the Indenture dated 23rd May, 1923, grew until by the year 1928 its assets amounted to about £95,000, of which about £80,000 had been contributed by the Company. The 50,000 ordinary shares of the Company with which the Fund had been started had by then been sold and the proceeds put into other investments.
6. The "Walker-Cain Staff Benefit Fund" was not capable of being approved by the Commissioners of Inland Revenue as a "superannuation fund" within the meaning of Section 32 of the
Finance Act, 1921, and contributions to the Fund, whether by the Company or by its employees, were denied the Income Tax privileges which were by that Section granted to contributions to duly approved superannuation funds. It was, therefore, decided that the Company should (as to certain investments having a market value of £78,303 then forming part of the assets of the Staff Benefit Fund) exercise the power of revocation given to the Company by Clause 22 of the Deed of the 23rd May, 1923, and that with the sum so withdrawn a new Superannuation Fund should be set up which should be of such a nature as to be capable of approval by the Commissioners of Inland Revenue as a "superannuation fund" under Section 32 of the Finance Act, 1921.7. With this object a Supplemental Deed was executed on the 19th June, 1928, in the following terms:-
"This Supplemental Deed made the Nineteenth of June "1928 between Peter Walker (Warrington) and Robert Cain & "Sons Limited (hereinafter called "the Company") whose "registered office is at 105 Duke Street in the City of Liverpool "of the one part and Sir Charles Alexander Nall-Cain of "Brocket Hall Hatfield in the County of Herts Baronet and "the Right...
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