Simpson v John Reynolds & Company (Insurances) Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE RUSSELL,LORD JUSTICE STAMP |
| Judgment Date | 31 January 1975 |
| Judgment citation (vLex) | [1975] EWCA Civ J0131-7 |
| Date | 31 January 1975 |
| Court | Court of Appeal (Civil Division) |
[1975] EWCA Civ J0131-7
In The Supreme Court of Judicature
Court of Appeal
Civil Division
(Revenue Paper
On appeal from Order of Vice-Chancellor Pennyculck
Lord Justice Russell
Lord Justice Stamp and
Mr Justice Walton
Mr. PETER REES, Q.C. and Mr. STEPHEN TOMLINSON (instructed by Solicitor of Inland Revenue) appeared on behalf of the Appellant.
Mr. MICHAEL NOLAN, Q.C. and Mr. J. HOLROYD PEARCE (instructed by Messrs Taylor, Handle & Rhodes, Manchester) appeared on behalf of the Respondent.
This is an appeal from a decision of
Vice-chancellor Pennycuick , which is reported in 1974 1 Weekly Law Reports at page 1411, and that full report enables me to be relatively brief in my Judgment.
On the acquisition by I.C.I. of control of the client company (a company that was and had for very many years been the client of the taxpayer insurance broker) the business relationship or connection between the taxpayer and the client company wholly ceased because I.C.I, required all insurance matters to be placed through another channel. When this happened, to the great surprise of the taxpayer, the client company then announced that it had decided to make a gift to the taxpayer of £5,000, to be paid in fact by annual installments of £1,000 (I quote from a contemporary letter) "in recognition of the long; period during which you have acted as broker and adviser on all insurance matters" to the client company. It appears from the same letter that the client company had based the figure on an estimate of half the commissions earned by the taxpayer in the past through placing the client company's insurance (other than in connection with pension schemes), that is to say half of £2,000 per annum multiplied by five.
How, the one question in this appeal is whether the sum of £1,000 received under this gift in the relevant year 1969/70 comes within the phrase "annual profits or gains arising or accruing to the taxpayer from its trade of insurance broker".
The facts, as it seems to me, upon which that question is to be answered are these: First, this was a wholly unexpected and unsolicited gift. Second, it was made afterthe business connection had ceased, Third, the gift was in recognition of past services rendered to the client company over a long period, though not because those past services were considered to have been inadequately remunerated
Fourthly, the gift was made as a consolation for the fact that those remunerative services were no longer to be performed by the taxpayer for the donor; and, fifthly, there is no suggestion that at a future date the business connection might be renewed.
In my view, the receipt in those circumstances does not come within the natural moaning of the statutory language to which I have referred. We were referred, quite properly, to a number of authorities, none of which in my opinion lead to or point to a contrary conclusion.
For the Crown it was contended that the fact that a payment is made without legal obligation does not per so elude the fiscal grasp. This is true. Gifts made or promised during the relevant connection may well be caught. It was also pointed out that the fact that payments are made after the connection has ceased does not per se elude the fiscal grasp. This also is true: for it may be part of the connection that such payments after its determination are to be expected. But that does not in my view lead to the suggested conclusion that when both of those circumstances arc present - that is to say, where the gift is wholly voluntary and made unexpectedly after the business connection has come to an end - the payment is within the statutory language.
The Crown contended, as I understand it, as a general proposition, that in the case of a business connection that was a trade connection, and the trade of the done as a wholecontinued with persons other than the done, a gift made for the reasons given in the present case must he caught: for it was not made merely out of personal affection or regard. Or, the Crown submitted, that viewed as a whole the circumstances of this case showed that this sum did accrue or arise from the trade. For my part, I am unable to accept this. The impact of the argument would, it seems to me, be very wide indeed. A legacy to a doctor or a solicitor expressed to be in gratitude for his professional services to the testator or the testator's late spouse ( exhypothesis operative after the connection had ceased) would apparently, according to the Crown's argument (though naturally Mr. Rees was not prepared to give a firm view on the point), be liable to income tax, granted that the solicitor or the doctor had not at the time of the death retired from practice. That is a suggestion I have certainly never met.
The Crown sought support, in the general circumstances of the case, from the facts that the gift was in some sort, as I have indicated, measured against past commission earned in relation to the business connection, and that the taxpayer included this sum in its accounts as receipts under the heading of gross commission. There was a convenient summary by Mr. Rees of the circumstances which he said stamped the receipt as coming within the definition of something arising from the trade: first, the fact that it arose on the termination of the trade relationship; secondly, the calculation of the payment by reference to past premiums; thirdly, a five-year spread over of the £5,000; fourthly, the accounts showing the sum as a trading receipt; and, fifthly, that there was not established a case here of a personal testimonial but a recognition onlyof the value of past trading activities in the course of that connection and as a consolation for the profits of that trading connection coming to an end.
I am hound to say that I find it quite impossible, in spite of those arguments, to come to the conclusion that this payment - and indeed any of the other payments - can fairly be said to come within the statutory words to which I have referred.
In my view, the Vice-Chancellor decided this case quite correctly and for the right reasons. In particular, I accept his analysis of the case of Taxation Commissioner of Australia v. Squatting. and only add to that that it was a case in which it was quite plainly envisaged from the outset that any profit made by the Government on resale of the wool which had boon acquired from the taxpayer would ultimately boo divided among the vendors pro rata as an additional purchase price.
For those short reasons, in my judgment this appeal fails, and I would dismiss it.
I agree. It is not in questioning that the series of payments, of which this payment of £1,000 was one, was made and promised voluntarily. The payments were promised to be made by the former customer after the relationship of customer and broker had terminated. They were not made to satisfy any legal liability, real or imagined, to which the customer was or believed itself to be subject. The payments were not made by way of additional reward for any particular service rendered by the brokers or for their services generally. They were not made pursuant to the tours of a trading contract or as compensation for the brunch of any suchcontract. The brokers were not entitled to and indeed did not expect to receive them. Then, out of the blue came the promise, unenforceable as it was, to make thorn. By the time they were promised to be made, the trading relationship was, as I have said, terminated. The payments were voluntary payments, and I find wholly satisfactory the description of them as made by way of recognition of past services or by way of consolation for the rupture of a business relationship: a rupture which no doubt Carrington & Dowhurst were sad to see. It is no doubt a convenient way of describing them to say that they came to the taxpayer "by virtue of its trade" because the taxpayer would never have got them had it not for many years carried on the trade and performed valuable services to the donor. But the words "by virtue of the trade" are not in the section, and it is in my judgment inappropriate to describe the payments as arising from the trade
I too would dismiss the appeal
MR. JUSTICE WALTON: I entirely agree
There can be no doubt at all but that the sole point in this case is: Arc the payments of the instalmonts of the sum of £5,000 by Carrington Dowhurst to the Respondent company annual profits or gains arising or accruing to the company from any trade carried on by it? It appears to mo quite clearly that the answer to that question is emphatically in the negative, as held by the learned Vice-Chancellor, and that is the short answer to the appeal
To my mind, these payments have none of the indicia of trading receipts whatsever. Mr. Peter Rees for the Crown, however, relied upon six indicia which he said showed that they were trading receipts: (1) that the occasion of thepayment was upon the termination of a trading relationship; (2) the method by which the amount of the payments was calculated; (3) the method of payment; (4-) the method of treatment of those payments in the accounts of the company; (5) the fact, as he said, that the gifts were made merely because the company was a trader; and (6) the...
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