Scott v Ricketts
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE DAVIES,LORD JUSTICE RUSSELL |
| Judgment Date | 05 April 1967 |
| Judgment citation (vLex) | [1967] EWCA Civ J0405-3 |
| Date | 05 April 1967 |
| Court | Court of Appeal (Civil Division) |
[1967] EWCA Civ J0405-3
In The Supreme Court of Judicature
Court of Appeal
Civil Division
From Mr Justice Cross
T. 187.
The Master Of The Rolls
(Lord Denning)
Lord Justice Davies and
Lord Justice Russell
Mr H.H. MONROE, Q.C. and MR MICHAEL NOLAN (instructed by Messrs Robbins; Olivey & Lake, Agents for Messrs Burges, Salmon & Co., Bristol) appeared as Counsel for the Appellant.
Mr W.A. BAGNALL, Q.C. and MR J. RAYMOND PHILLIPS (instructed by the Solicitor of Inland Revenue) appeared as Counsel for the Respondent.
Mr Ricketts is an auctioneer and estate agent in Bristol. In 1959 a Company called Ravenseft Properties Limited. paid him the sum of £39,000. The question is whether he is taxable on it or not. The Revenue sought to charge him under Case I or Case II of Schedule D. They said it was part of the profits of his trade or profession. That claim was rejected by the Special Commissioners. The Revenue accept their decision on that point. Alternatively, the Revenue sought to charge him under Case VI of Schedule D. They said that the £39,000 was an "annual profit or gain" not falling under any other head. The Special Commissioners rejected this claim. They held that it was a gratuitous payment of a non-revenue nature. The Judge reversed their decision. He held that the £39,000 was taxable under Case VI as an annual profit. Mr Ricketts appeals to the Court.
The facts relating to it are set out in the Special Case and in the report, 1967, 1 Weekly Law Reports, page 90. I need only summarise them here.
The Bristol Co-operative Society employed Mr Ricketts in very complicated negotiations with the Bristol Corporation. The Bristol Co-operative Society's shop in Castle Street had been destroyed by bombs. The Corporation proposed to acquire that site compulsorily for £575,000. Having been bombed out of Castle Street, the Co-operative Society had a strong claim that the Corporation should provide them with another site. The Corporation realised this and offered to let the Co-operative Society a site in Merchant Street for 99 years at a rent of £25,000. But before that deal went through, Mr Ricketts discovered a site called the Jacey site which would suit the Cooperative Society much better. It was half the rent of the proposed Merchant Street site. So the Co-operative Society got Mr Ricketts to negotiate for the Jacey site in his own name. If they were successful in getting the Jacey site, they would not need the Merchant Street site. So Mr Ricketts proposed that he, with his father, should form a company to take over the Merchant Street site. But about the same time there was another company interested in the Merchant Street site called Ravenseft Properties Limited: and it was proposed that they might come in jointly with the Ricketts in acquiring it. Eventually a settlement was reached whereby: (i) the Corporation paid over £500,000 to the Co-operative Society for the old Castle Street site; (ii) the Corporation let the Jacey site to the Co-operative Society; (iii) the Corporation let the Merchant Street site to Ravenseft Properties Limited. The Co-operative Society paid Mr Ricketts' fees for his professional services in these respects. These fees were included in his profits and gains, and he has paid tax on them. But, in addition to that remuneration, Ravenseft Properties Limited. also paid him a sum of £39,000. The reason for this payment appears to be as follows: The parties thought that Mr Ricketts had some sort of claim to an interest in the Merchant Street site. The reason was because at one stage in the negotiations it was proposed that he should take over the Merchant Street site, either on his own or jointly with Ravenseft. In the result Ravenseft took over the site themselves, and Mr Ricketts was left with no interest in it. His ensuing claim may have been a business claim, a moral claim, or a legal claim. But whatever it was, he was bought out for £39,000. The reason for this payment was stated in this way in a letter of the 18th November, 1958, from Ravenseft to Mr Ricketts: "In consideration of your withdrawing any claim you might have had to participate, and accepting the settlement between the Bristol Corporation and the Bristol Co-operative Society Limited. on the terms outlined above and agreeing at our request to execute such documents as we may be advised are necessary to record such withdrawal and acceptance, we areprepared to compensate you for the loss of your investment on the following basis"; and then there follows terms under which the sum of £39,000 was to be payable to Mr Ricketts. Mr Ricketts signed the letter accepting that proposal. So he withdrew any claim he might have had to participate in this proposed investment in return for the sum of £39,000. The one point now is whether this £39,000 is chargeable under Case VI. That Case is a "sweeping up" provision. It catches "annual profits or gains" which have not been caught by the other provisions. It is difficult to construe and we have to go by the decided cases.
In Ryall v. Hoare, 1923, 2 King's Bench, page 447, at page 454, Mr Justice Rowlatt staked out the guide-lines: and there have been other cases following it. Some things are clear. "Annual" profits does not mean profits which are made year by year. It is satisfied by profits made in one year only. "Profits and gains" include remuneration for work done, services rendered, or facilities provided. They do not include gratuitous payments which are given for nothing in return. Nor do they include profits in the nature of capital gains. So they do not include gains made on purchase and sale of an asset. Such gains (except for recent legislation) are only taxable if the transaction was an adventure in the nature of trade.
The crux of the present case is that Mr Ricketts had no legal ground to be paid anything. All he had - to use the Judge's words - was a moral claim or a nuisance value. Ravenseft paid him £39,000 in order that he should not feel aggrieved: and to get rid of any possible claim. If they had paid this sum over to him as a gratuitous payment, it would not have come within Case VI. But because it was "dressed up" as a contract - to use the Judge's own words - he has held that it is caught by Case VI. I do not think that is right. Take the case where a man has a good legal claim which he agrees to forego in return for a sum of money. Such as a claim for personal injuries which is compromised by payment of a lump sum. That is not an annual profit or gain within Case VI. It is the sale of an asset - namely, his legal claim - for a price. Next, suppose that the man has a claim which he believes to be good but which is in fact unfounded - and he agrees to forego it in return for a sum of money. It might be a claim for personal injuries when he has no evidence of negligence. It is not strictly an "asset", because it would not stand up in the Courts. But the compromise is binding. The payment has the same quality as if the claim were well-founded. It is not an annual profit or gain within Case VI. Finally, take a man who has a moral claim but knows that he has no legal claim. He tries it on so as to see if the defendants will pay him something. They agree to buy him out so as to save the cost of fighting it. It seems to me that the payment for tax purposes has the same quality as that in a compromise. It is not an annual profit or gain within Case VI.
The Judge seems to have thought that, as the payment was made under a contract, that was enough to bring it within Case VI. I cannot agree with him. It must be a contract for services or facilities provided, or something of that kind.
The present case is rather like Leeming v. Jones, in the House of Lords, 1930, 15 Tax Cases, page 333. If the sum was taxable at all, it was taxable as part of the profits of Mr Ricketts' trade or profession. Once that is negatived, it becomes simply a sum received in compromise of a disputed claim: whether legal or moral makes no difference.
I think that this case does not fall within Case VI.I would allow the appeal and restore the decision of the Commissioners.
In the course of expressing my agreement with the judgment which has been delivered by the learned Master of the Rolls, I would add a few facts as to the history...
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Shop Direct Group and Others v Revenue and Customs Commissioners
...specified in the other cases. He also drew my attention to the judgment of Lord Denning MR in Scott (HM Inspector of Taxes) v RickettsTAX(1967) 44 TC 303. The case concerned whether the sum of £39,000 paid to an auctioneer and estate agent was taxable under Case VI. The payment was made bec......
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Shop Direct Group and Others v The Commissioners for HM Revenue and Customs
...as specified in the other cases. He also drew my attention to the judgment of Lord Denning MR in Scott (HM Inspector of Taxes) v Ricketts 44 TC 303. The case concerned whether the sum of £39,000 paid to an auctioneer and estate agent was taxable under Case VI. The payment was made because i......
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...as specified in the other cases. He also drew my attention to the judgment of Lord Denning MR in Scott (HM Inspector of Taxes) v Ricketts 44 TC 303. The case concerned whether the sum of £39,000 paid to an auctioneer and estate agent was taxable under Case VI. The payment was made because i......
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