Morgan v Tate & Lyle Ltd

JurisdictionEngland & Wales
JudgeLord Morton of Henryton,Lord Reid,Lord Tucker,Lord Keith of Avonholm
Judgment Date01 June 1954
Judgment citation (vLex)[1954] UKHL J0601-1
Date01 June 1954
CourtHouse of Lords

[1954] UKHL J0601-1

House of Lords

Lord Morton of Henryton

Lord Reid

Lord Tucker

Lord Asquith of Bishopstone

Lord Keith of Avonholm

Morgan (Inspector of Taxes)
and
Tate & Lyle Limited

Upon Report from the Appellate Committee, to whom was referred the Cause Morgan (Inspector of Taxes) against Tate & Lyle Limited, that the Committee had heard Counsel, as well on Monday the 5th, as on Tuesday the 6th, Wednesday the 7th, Thursday the 8th and Monday the 12th, days of April last, upon the Petition and Appeal of David Morgan, of City 10th District, 6th Floor, Ibex House, Minories, London, E.C.3, one of Her Majesty's Inspectors of Taxes, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 5th of May 1953, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the printed Case of Tate & Lyle Limited, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 5th day of May 1953, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellant do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.

Lord Morton of Henryton

My Lords,

1

The Respondent company (hereafter referred to as "the company") claims that a sum expended by it in carrying out a "campaign" against the nationalisation of the sugar refining industry was deductible in computing its profits, for the purpose of assessment to income tax under Case I of Schedule D of the Income Tax Act, 1918, for the year ended the 5th April, 1951. The amount claimed is £15,339 15s. 2d., but it is intended that the precise amount shall be agreed between the parties if your Lordships uphold this claim in principle

2

The case turns upon the wording of Rule 3 ( a) of the Rules applicable to Cases I and II of Schedule D, but other portions of the Income Tax Act, 1918, should be quoted. Section 209 (1) ( a) provides—

"In arriving at the amount of profits or gains for the purpose of income tax—

( a) no other deductions shall be made than such as are expressly enumerated in this Act."

3

Schedule D, paragraph 1 ( a) (ii) is as follows:—

"Tax under this Schedule shall be charged in respect of—

( a) the annual profits or gains arising or accruing …

(ii) to any person residing in the United Kingdom from any trade, profession, employment or vocation, whether the same be respectively carried on in the United Kingdom or elsewhere."

4

Paragraph 2 provides—

"Tax under this Schedule shall be charged under the following cases respectively; that is to say—

Case I. Tax in respect of any trade not contained in any other Schedule."

5

The Rule applicable to Case I of Schedule D is—

"The tax shall extend to every trade carried on in the United Kingdom or elsewhere, and shall be computed on the full amount of the balance of the profits or gains …"

6

The Rules applicable to Cases I and II, so far as relevant, are as follows:—

Rule 1 (1)—"The tax shall be charged without any other deduction than is by this Act allowed."

Rule 3—"In computing the amount of the profits or gains to be charged, no sum shall be deducted in respect of—

( a) any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade, profession, employment or vocation.

. . . .

( f) any capital withdrawn from, or sum employed or intended to be employed as capital in such trade, profession, employment or vocation."

7

I pause to say that I agree with the comment of Jenkins, L.J.—

"It has long been well settled that the effect of these provisions as to deductions is that the balance of the profits and gains of a trade must be ascertained in accordance with the ordinary principles of commercial trading, by deducting from the gross receipts all expenditure properly deductible from them on those principles, save in so far as any amount so deducted falls within any of the statutory prohibitions contained in the relevant Rules, in which case it must be added back for the purpose of arriving at the balance of profits or gains assessable to tax."

8

See Usher's Wiltshire Brewery, Limited v. Bruce [1915] A.C. 433, per Lord Loreburn at p. 444, Lord Parker of Waddington at p. 458, Lord Sumner at pp. 467-8, and Lord Parmoor at pp. 473-4.

9

My Lords, the Commissioners held that "the sum in question was money wholly and exclusively laid out or expended for the purposes of the company's trade and was an admissible deduction from its profits for income tax purposes" and their decision was upheld by Harman, J. and by the Court of Appeal (Jenkins and Hodson, L.JJ., Singleton, L.J. dissenting).

10

The Commissioners are the judges of fact, but they have not found for what purpose or purposes the sum in question was in fact laid out. Accordingly, your Lordships have first to decide this question, and have then to decide, as a question of law, whether expenditure for that purpose is or is not deductible for income tax purposes.

11

The facts are fully set out in the Case Stated, and for the present purpose I need only quote two paragraphs thereof, prefacing them by stating that in the year 1949 the directors of the company formed the view, for reasons set out in the Case, that the nationalisation of the sugar refining industry would become part of the Labour Party's considered official programme and they endeavoured, without success, to persuade the Policy Committee of the Labour Party to receive a deputation.

12

Paragraphs 8 and 10 of the Stated Case are as follows:—

"8. Efforts to obtain consent to the said deputation having failed, the directors were more than ever convinced that nationalisation of the industry was intended and that the company would thereby lose its business and assets. Accordingly, at an Extraordinary Meeting of the stockholders of the company which was held on 15th September, 1949, the following resolution was proposed and passed:—

"'Believing as we do that nothing but harm to workers, consumers and stockholders alike can spring from the nationalisation of the sugar refining industry, the members of this company hereby empower the Board of Directors to do everything in their power to meet the threats of the nationalisers who, learning nothing from the chaos, losses and labour unrest that they have created in other industries, now wish to seize the assets of this company.'"

13

There follows a reference to Lord Lyle's speeches at the meeting, a report whereof is annexed to the Case.

14

Paragraph 10 is as follows:—

"In fulfilment of the obligation imposed upon them by the resolution referred to in paragraph 8 hereof, the Directors decided to intensify their anti-nationalisation propaganda campaign, which was of national dimensions and which was in the hands of Aims of Industry Limited, in order to try to preserve the business and assets of the company intact."

15

My Lords, the purpose for which a company expends money can only be either the purpose of the directors, if they expend it under the powers conferred upon them by the Memorandum and Articles without the express sanction of a general meeting, or the purposes of the shareholders if these purposes are expressed at a general meeting. Here there is no conflict between the purpose of the directors and the purpose of the shareholders in general meeting. The passages which I have quoted from the Case Stated show that these bodies had one purpose only, namely, to prevent the seizure of the "business and assets" of the company. The sum in question was spent for that purpose. It would appear likely, from the documents exhibited to the Case Stated, that part of the sum was spent by the directors before the 15th September, 1949, but to my mind this fact is immaterial, as the purpose for which it was spent was the same throughout.

16

The Solicitor-General pointed out that nationalisation of the sugar refining industry might have taken one or other of two forms, in the case of the company and of every other company in the industry, either ( a) the acquisition of the business and assets of the company by a national body or ( b) the acquisition of the company's capital stock by a national body. He contended that the propaganda campaign had the dual purpose of ( a) preventing the former type of nationalisation and ( b) preventing the latter type of nationalisation, and that expenditure for either of these purposes was not expenditure for the purposes of the company's trade, within the meaning of Rule 3 ( a).

17

Mr. Millard Tucker for the Respondents conceded that if the Labour Party had intimated that nationalisation would take the form of acquisition of the company's capital stock by a national body, and if the expenditure had been directed to avoiding this form of nationalisation, it would not have answered the test laid down by Rule 3 ( a). He accepted the Solicitor-General's argument that money laid out merely for the purpose of preventing a change in the identity of the stockholders could not be regarded as being laid out for the purposes of the trade.

18

My Lords, I am content to assume that the argument so accepted was correct in law, for there is no evidence that any such intimation was given, and...

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