Mason v Innes
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE DAVIES,LORD JUSTICE RUSSELL |
| Judgment Date | 02 May 1967 |
| Judgment citation (vLex) | [1967] EWCA Civ J0502-1 |
| Date | 02 May 1967 |
| Court | Court of Appeal (Civil Division) |
[1967] EWCA Civ J0502-1
In The Supreme Court of Judicature
Court of Appeal
Civil Division
From Mr Justice Goff
T.189
The Master of the Rolls (Lord Denning)
Lord Justice Davies and
Lord Justice Russell
MR H. H. MONROE, Q. C. and MR J. RAYMOND PHILLIPS (instructed by the Solicitor of Inland Revenue) appeared as Counsel for the Appellant.
MR R. E. BORNEMAN, Q. C. and MR R. A. WATSON, Q. C. (instructed by Messrs Field, Roscoe & Co.) appeared as Counsel for the Respondent.
Mr Hammond Innes is a writer of distinction who has for many years carried on the profession of an author. He has written many novels and travel books. He has kept his accounts on a cash basis and has submitted these to the Revenue for tax purposes. On the one side, he has included his receipts from royalties and so forth. On the other side, he has included the expenses of his travels overseas to gather material; the expenses of his study at home; and a small salary to his wife for her work for him.
In this case we are concerned with one particular novel which he wrote called "The Doomed Oasis". It was based on material which he had gathered in the Persian Gulf in 1953. He started to write it in September 1958 and worked on it up till 1959. He charged all the expenses in his accounts for those years. In 1960 he was about to publish it. But he felt he would like to do something to support his father who had retired on modest resources. So Mr Hammond Innes decided to transfer the copyright in the book, "The Doomed Oasis", to his father as a gift. By an assignment made on the 4th April, 1960, he assigned to his father "in consideration of natural love and affection" the copyright, performing rights and all other rights in "The Doomed Oasis".
The question arises whether he is liable to tax on the value of those rights in "The Doomed Oasis". If he had sold the rights at that time in 1960 their market value would have been £15,425. The Revenue say that that sum ought to be brought into his accounts and that he should be taxed on it, although he did not receive a penny for the rights because he had given them away. I may add that Mr Hammond Innes had also before publication assigned rights in two others of his novels, one to his mother and the other to his mother-in-law. So a like question may arise there.
I start with the elementary principle of income tax law that a man cannot be taxed on profits that he might have, but has not, made: Sharkey v. Wernher, 1956 Appeal Cases, page 68. At first sight that elementary principle seems to cover this case. Mr Hammond Innes did not receive anything from "The Doomed Oasis".
But in the case of a trader there is an exception to that principle. I take for simplicity the trade of a grocer. He makes out his accounts on an "earnings basis". He brings in the value of his stock-in-trade at the beginning and end of the year: he brings in his purchases and sales; the debts owed by him and to him; and so arrives at his profit or loss. If such a trader appropriates to himself part of his stock-in-trade, such as tins of beans, and uses them for his own purposes, he must bring them into his accounts at their market value. A trader who supplies himself is accountable for the market value. That is established by Sharkey v. Wernher itself. Now, suppose that such a trader does not supply himself with tins of beans, but gives them away to a friend or relative. Again he has to bring them in at their market value. That was established by Petrotim Securities Limited. v. Ayres, (1963) 41 Tax Cases, page 389.
Mr Monroe, on behalf of the Revenue, contends that that exception is not confined to traders. It extends, he says, to professional men, such as authors, artists, barristers, and many others. These professional men do not keep accounts on an "earnings basis". They keep them on a "cash basis": by which I mean that on one side of the account they enter the actual money they expend: and on the other side the actual money they receive. They have no stock-in-trade to bring intothe accounts. They do not bring in debts owing by or to them, nor work in progress. They enter only expenses on the one side and receipts on the other. Mr Monroe contended that liability to tax does not and should not "depend on the way in which a man keep his accounts. There is no difference in principle, he says, between a trader and a professional man. And he stated his proposition quite generally in this way: The appropriation of an asset, which has been produced in the ordinary course of a trade or profession, to the trader's or professional man's own purposes, amounts to a realisation of that asset or the receipt of its value, and he must bring it into account.
I cannot accept Mr Monroe's proposition. Suppose an artist paints a picture of his mother and gives it to her. He does not receive a penny for it. Is he to pay tax on the value of it? It is unthinkable. Suppose he paints a picture which he does not like when he has finished it and destroys it. Is he liable to pay tax on the value of it? Clearly not. These instances - and they could be extended endlessly - show that the proposition in Sharkey v. Wernher does not apply to professional men. It is confined to the case of traders who keep stock-in-trade and whose accounts arc, or should be, kept on an earnings basis, whereas a professional man comes within the general principle, that, when nothing is received, there is nothing to be brought into account.
I would only add that the legislature seems to have acted in this footing. Section 471 of the Income Tax Act 1952 applies where an author has spent more than twelve months in writing a book and sells it for a lump sum. He can "spread." the lump sum over two or three years; so that his tax on it does not fall all in one year. That provision only applies to lump sums received by him. If the legislature had thought he was liable for market value of books given away, surely they would have extended the "spread" to those cases also.
Take next the case of Peter Cheyney, 1959 Appeal Cases, page 412. The House of Lords held that "when an author dies or discontinues his profession, he is not taxable on moneys received after the date of discontinuance. That was altered by - Section 32 of the Finance Act 1960. He becomes chargeable on sums arising from his profession, even though he received them after he had discontinued it. This provision does not apply when he gives a book away. If the legislature had thought he was chargeable on its value, I should have thought it would have covered that case too.
I hold that Mr Hammond Innes is not chargeable with tax on gifts which he makes of copyright in his books. I think that Mr Justice Goff and the Commissioners came to a right decision. I would dismiss this appeal.
I agree. It is not in dispute that there is no specific provision in tax legislation to cover the present case. What is sought by the Revenue in this case is to extend what is said to have been the principle in Sharkey v. Wernher to what I, like my Lord, regard as being an entirely different set of circumstances. I too think that it is very remarkable that if the Crown were right in the present case, the result would inevitably follow that there could be no spread-over over a period of two or, as the case may be, three years under the provisions of Section 471 of the 1952 Act. If Mr Innes...
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