Spofforth and Prince v Golder (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 23 January 1945 |
| Date | 23 January 1945 |
| Court | King's Bench Division |
No. 1308-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
Income Tax, Schedule D - Profits of profession - Deduction - Firm of chartered accountants - Legal costs in connection with successful defence of partner in criminal proceedings for conspiracy to defraud Revenue - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Schedule D, Cases I and II, Rule 3.
The Appellants, a firm of two chartered accountants, claimed that, in computing their profits for Income Tax purposes, a deduction should be allowed for certain legal costs which they had paid in connection with the successful defence of one of the partners in Police Court proceedings on a charge of conspiracy to defraud the Revenue. The firm first sought legal advice on receipt of a letter from the Solicitor of Inland Revenue stating that he wished to take evidence from two of their employees. When, however, a summons was issued against one of the partners to appear before a Court of Summary Jurisdiction, the firm's solicitors were of opinion that the partners should be separately advised. This opinion was accepted and Counsel having advised that the acquittal of the accused partner was vital to the interests of the firm the summons was defended. Counsel appeared at the hearing on behalf of the accused partner, and a watching brief was held for the other partner by other Counsel. The summons was eventually dismissed.
On appeal to the Special Commissioners the Appellants contended that the whole of the costs incurred by them in connection with the proceedings (or, in the alternative, the costs incurred prior to the service of the summons, and the costs incurred by the partner who was not involved in the proceedings) were moneys wholly and exclusively laid out or expended for the purpose of the Appellants' profession, and, accordingly, that the sum expended (or, in the alternative, a part thereof) was an allowable deduction in computing their profits for Income Tax purposes. The Special Commissioners held that the legal costs incurred in the Police Court proceedings were not moneys wholly and exclusively laid out or expended for the purpose of the Appellants' profession, and that they were accordingly not allowable as a deduction in computing the firm's profits under Case II of Schedule D.
Held, affirming the decision of the Commissioners on the main point, that neither the costs of defending the accused partner, nor the costs in respect of the legal advice and assistance to the other partner were admissible deductions in computing the profits of the firm for Income Tax purposes, but that a deduction was allowable in respect of any legal costs incurred by the firm up to the issue of the summons.
Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held at Turnstile House, 94/99 High Holborn, London, W.C.1, on 3rd March, 1943, Mr. Stanley Albinus Spofforth and Mr. Arthur Denis Prince (hereinafter called "the Appellants") appealed against an assessment made upon them jointly for the year 1941-42 in the sum of £4,000 under Case II of Schedule D.
2. The Appellants carry on the profession of chartered accountants in partnership under the style of "Spofforth & Prince" and under a partnership deed dated 4th June, 1936, which is not annexed hereto, but may be referred to as part of this Case.
The sole question at issue in this case is as to whether a sum of £1,052, being a part of the legal costs incurred by the Appellants in connection with certain criminal proceedings in the Police Court in the circumstances hereinafter appearing, was in whole or in part an allowable deduction in computing the profits of the firm for the year in question.
3. On 12th December, 1940, Mr. Spofforth received a letter from the Solicitor of Inland Revenue stating that the latter wished to take statements of evidence from two employees of the Appellants. Mr. Spofforth immediately consulted his partner, Mr. Prince, and sought an interview with their solicitors on 18th December, 1940, and on 31st December, 1940, the solicitors wrote to the Solicitor of Inland Revenue. A copy of this letter is annexed hereto, marked "A", and forms part of this Case(1).
On 26th February, 1941, a summons was issued against Mr. Spofforth to appear before the Court of Summary Jurisdiction sitting at the Bow Street Police Court. A copy of this summons is annexed hereto, marked "B", and forms part of this Case(1).
Up to this time Messrs. Rowe & Maw, solicitors at Amberley House, Norfolk Street, Strand, W.C.2, had been acting for the Appellants jointly as a partnership firm, but when the summons was issued Mr. Maw advised the partners that arrangements for separate representation should be made. It was finally decided that Messrs. Rowe & Maw should defend Mr. Spofforth and that Mr. Prince should consult another firm, Messrs. Godden, Holme & Ward of 34 Old Jewry, E.C.2.
4. The summons was heard before the Chief Magistrate at Bow Street Police Court on 13th and 25th March, 1941, and 4th and 17th April, 1941. Leading Counsel and junior Counsel instructed by Messrs Rowe & Maw appeared on behalf of Mr. Spofforth, and leading Counsel and junior Counsel instructed by Messrs. Godden, Holme & Ward held watching briefs for Mr. Prince.
At the conclusion of the first day's hearing, Sir Randle Holme of Messrs. Godden, Holme & Ward consulted Mr. Prince at an interview at which Mr. Spofforth was present.
Sir Randle told them that, as a result of an informal conversation he had had with the Assistant Solicitor of Inland Revenue, who was instructing Counsel for the prosecution, he had reason to think that if Mr. Spofforth pleaded guilty to an offence with which the Magistrate could deal, the prosecution would not press for a serious sentence.
Mr. Spofforth, having regard to the very considerable costs which might be involved if the case went to the Central Criminal Court and to the Court of Criminal Appeal, was inclined to consider this course, but Mr. Prince...
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