Mitchell (HM Inspector of Taxes) v Rosay
| Jurisdiction | England & Wales |
| Judgment Date | 12 July 1954 |
| Date | 12 July 1954 |
| Court | Court of Appeal |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income Tax, Schedule D - Sums received as consideration for assignment of rights to exhibit film - Whether capital or income - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Schedule D, Cases III and VI.
Under an agreement dated 24th May, 1945, the Respondent acquired the sole rights to exhibit or otherwise exploit a film in the United Kingdom, Eire, the Channel Islands and the Isle of Man. The agreement provided that she should pay £1,000 and that receipts from the exploitation of the film should be divided equally between her and the other party to the agreement; she was entitled to reimburse herself out of the other party's share for the £1,000 she had paid to him.
On 1st January, 1946, the Respondent entered into an agreement with a company under which she granted to the company the rights she had acquired under the first agreement. This agreement provided that after the deduction of certain expenses and the payment of £1,000 in satisfaction of the amount paid by her under the first agreement, the gross receipts were to be shared, as to 30 per cent. to the company and as to 70 per cent. to the Respondent. The Respondent received, in all, £3,848 from the company. She retained £1,000 and half the balance of £2,848 for herself. Estimated assessments to Income Tax in the sum of £300 were made for each of the years 1945-46 to 1950-51 in respect of her share of the receipts.
On appeal to the Special Commissioners it was contended on behalf of the Respondent that the sums received by virtue of the agreement of 1st January, 1946, were the proceeds of the sale of all the rights she had in the film and that no part of these sums represented profits or gains assessable to tax. On behalf of the Crown it was contended that while the first £1,000 received by the Respondent was a capital receipt, the £1,424, being a half share of the balance, represented annual profits or gains assessable to tax under either Case III or Case VI of Schedule D. The Commissioners allowed the appeal and discharged the assessments. The Crown demanded a Case.
Held, that the sums received by the Respondent under the agreement of 1st January, 1946, (the £1,000 apart) were assessable to Income Tax under Case III of Schedule D.
Nethersole v. Withers, 28 T.C. 501, and Haig's Trustees v. Commissioners of Inland Revenue, 22 T.C. 725,distinguished.
Stated under the Income Tax Act, 1952, Section 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the Chancery Division of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 14th April, 1953, Madame Francoise Rosay appealed against estimated assessments to Income Tax made upon her under Schedule D in the sum of £300 for each of the years 1945-46 to 1950-51 inclusive.
The question for determination before us was whether certain sums received by Madame Rosay in respect of the rights of exhibition of a film were annual profits or gains assessable to Income Tax.
2. Madame Rosay gave evidence at the hearing of the appeal before us and the facts proved or admitted at that hearing are set out in paragraphs 3 to 9 of this Case.
3. Madame Rosay is a distinguished French actress. In the early months of the 1939-1945 war she played the leading part in a film made in Switzerland and entitled "Une Femme Disparait". Her husband was the producer of the film and the making of it was financed by a M. Guyot of Switzerland who became the owner of the film.
Madame Rosay left France when the Germans occupied Paris in 1940 and eventually came to England in 1943. She had always been anxious that the film "Une Femme Disparait" should first be shown in England, but by the time she reached England she had lost touch with the owner of it.
4. In 1945, Madame Rosay heard that a copy of the film had been brought to England by an American, Mr. Mann, who had acquired the sole right to exhibit and market the film in the United Kingdom and the United States of America. The film was shown to Madame Rosay and was found by her to have been altered in a way which was thought to have made it more suitable for showing in America.
Madame Rosay was anxious to have the film altered back to its original form and to have it exhibited in England. She accordingly acquired from Mr. Mann, by an agreement dated 24th May, 1945, for a period from that date to 31st December, 1950, the exclusive right and privilege to distribute, market, exhibit and otherwise exploit the picture "Une Femme Disparait" in the United Kingdom, Eire, Channel Islands and Isle of Man. A copy of this agreement, marked "A", is attached to and forms part of this Case(1).
5. This agreement provided, inter alia, that Madame Rosay should acquire a lavender print (or master print from which copies could be made) of the film and that she should pay £1,000 in cash on the signing of the agreement. She was given the right to prepare copies of the film, to alter it in any way and to superimpose English titles.
The agreement also provided that any and all revenue receipts derived by Madame Rosay from all the distribution, marketing, exhibition, exploitation and other turning to account of the film should belong to and be divided equally between Madame Rosay and Mr. Mann, provision being made for certain expenses to be borne between the parties in equal parts. Madame Rosay was also authorized to reimburse herself out of Mr. Mann's share for the said sum of £1,000 paid to him thereunder.
6. Madame Rosay borrowed the sum of £1,000, duly paid it to Mr. Mann and acquired a lavender print of the film. She took no steps herself to make copies of, alter, or exhibit the film.
7. On 1st January, 1946, Madame Rosay entered into a further agreement with Film Traders, Ltd., whereby she granted to that company the exclusive right to exploit the film "Une Femme Disparait" which she had acquired from Mr. Mann under the agreement of 24th May, 1945. A copy of the agreement of 1st January, 1946, marked "B", is attached to and forms part of this Case(1).
8. Under this agreement of 1st January, 1946, Madame Rosay undertook to supply to Film Traders, Ltd., a new lavender print of the film and the company agreed to advance the cost of preparing films therefrom for exhibition. It was further provided in the agreement that, after payment of the costs of preparing the film for exhibition, the first charge on the gross receipts from showing it should be the payment of £1,000 to Madame Rosay in satisfaction of the amount paid by her to Mr. Mann under the agreement of 24th May, 1945. Thereafter the gross receipts from the exhibition of the film were to be shared as to 30 per cent. to Film Traders, Ltd., and as to 70 per cent. to Madame Rosay.
9. A revised copy of the film was duly prepared by Film Traders, Ltd., and exhibited in London and other parts of the United Kingdom. By virtue of the agreement Madame Rosay received from Film Traders, Ltd., sums totalling £3,848. £1,000 of this total was retained by Madame Rosay and the remainder totalling £2,848 was divided between her and Mr. Mann in accordance with the terms of the agreement between them dated 24th May, 1945.
10. It was contended on behalf of Madame Rosay:-
(a) that the sums received by her from Film Traders, Ltd., by virtue of the agreement dated 1st January, 1946, were the proceeds of the sale by her to that company of all the rights which she possessed in the film "Une Femme Disparait";
(b) that no part of the said sums represented annual profits or gains assessable to Income Tax; and
(c) that the Income Tax assessments should be discharged.
Reliance was placed on the cases of Nethersole v. Withers, 28 T.C. 501, and Trustees of Earl Haig v. Commissioners of Inland Revenue, 22 T.C. 725,
11. It was contended on behalf of the Crown that, while the first £1,000 received by Madame Rosay was a capital receipt not assessable to Income Tax, the sums totalling £1,424, being the half-share of the balance retained by her, represented annual profits and gains assessable to Income Tax under either Case III or Case VI of Schedule D.
The Crown's argument was supported by reference to the dictum of Jenkins, L.J., on pages 401-2 of Purchase v. Stainer's Executors, 32 T.C. 367, viz.:-
It may well be that if Mr. Howard…while the lump sums would have been capital.
12. We, the Commissioners who heard the appeal, gave our decision as follows:-
We have come to the conclusion that we cannot distinguish this case sufficiently from the cases of Nethersole v.Withers(1) and Trustees of Earl Haig v.Commissioners of Inland Revenue(2). We have been influenced to some extent by the fact that the Crown admitted that some of the payments made under the agreement of 1st January, 1946, were not assessable. We accordingly hold that the payments are not assessable under Cases III or VI of Schedule D and we discharge the assessments.
13. The Appellant immediately after the determination of the appeal declared to us her dissatisfaction therewith as being erroneous in point of law and in due course required us to state a Case for the opinion of the High Court pursuant to the Income Tax Act, 1952, Section 64, which Case we have stated and do sign accordingly.
W.E. Bradley, B. Todd-Jones, Commissioners for the Special Purposes of the Income Tax Acts.
Turnstile House,
94-99, High Holborn,
London, W.C.1.
5th October, 1953.
The case came before Wynn-Parry, J., in the Chancery Division on 9th and 10th March, 1954, and on the latter date judgment was given in favour of the Crown, with costs.
Wynn-Parry, J.-This case raises a question which so often has to be debated in this Court-namely, whether in the hands of the recipient the proceeds of the transactions are to be regarded, as she contends, as capital, or, as the Crown contends, as income. Both Mr. Borneman, for the Crown, and Mr...
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