Strick v Regent Oil Company Ltd ; Regent Oil Company Ltd v Commissioners of Inland Revenue

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Reid,Lord Morris of Borth-y-Gest,Lord Pearce,Lord Upjohn,Lord Wilberforce
Judgment Date27 Jul 1965
Judgment citation (vLex)[1965] UKHL J0727-2

[1965] UKHL J0727-2

House of Lords

Lord Reid

Lord Morris of Borth-y-Gest

Lord Pearce

Lord Upjohn

Lord Wilberforce

Regent Oil Company Limited
and
Strick (Inspector of taxes)
Regent Oil Company Limited
and
Commissioners of Inland Revenue
(Consolidated Appeals)

Upon Report from the Appellate Committee, to whom was referred the Cause Regent Oil Company Limited against Strick (Inspector of Taxes), and Regent Oil Company Limited against Commissioners of Inland Revenue (Consolidated Appeals), that the Committee had heard Counsel, as well on Tuesday the 15th as on Wednesday the 16th, Thursday the 17th, Monday the 21st, Tuesday the 22d and Wednesday the 23d, days of June last, upon the Petition and Appeal of the Regent Oil Company Limited, whose registered office is situate at 117, Park Street, London, W.1, 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 8th of June 1964, so far as therein stated to be appealed against, 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 Petitioners 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 Petition and Appeal of the Regent Oil Company Limited, whose registered office is situate at 117, Park Street, London, W.1, 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 8th of June 1964, so far as therein stated to be appealed against, 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 Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet (which said Appeals were, by an Order of this House of the 5th day of October last, ordered to be consolidated); as also upon the Case of Charles Gordon Strick (Her Majesty's Inspector of Taxes) and the Commissioners of Inland Revenue, lodged in answer to the said Appeals; 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 Orders of Her Majesty's Court of Appeal, of the 8th day of June 1964, in part complained of in the said Appeals, be, and the same are hereby, Affirmed, and that the said Petitions and Appeals be, and the same are hereby, dismissed this House:

And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeals to this House, the amount thereof to be certified by the Clerk of the Parliaments.

Lord Reid

My Lords,

1

Two consolidated appeals are before your Lordships. It is admitted by all parties that any decision in the first must necessarily govern the second, so I do not propose to say anything about the second appeal. The first arises out of assessments to Income Tax for the years 1957/8 and 1960/61. The Appellants import and refine oil and sell petrol and other oil products to garages and service stations for resale to motorists. During those years they made arrangements of various kinds with those retailers under which they paid substantial lump sums to them. This case is only concerned with one such arrangement in the former year under which £5.000 was paid and with three in the latter year under which a total of £195.699 was paid. The question to be decided is whether these payments can be taken into account so as to diminish the Appellants' profits for Income Tax purposes. The Special Commissioners held that they could, but their decision was reversed by Pennycuick J. and the Court of Appeal dismissed the Appellants' appeal.

2

It is necessary not only to consider the circumstances in which these payments were made but also to have regard to the manner in which the Appellants had been and were conducting their business. It appears that for some time past almost the whole of the petrol sold in this country has been the product of three oil companies, and the Appellants' share of the market has generally been in the neighbourhood of 13 or 14 per cent. During the last war petrol was not sold under brand names but after 1945 the three companies began to prepare for resumption of selling under the well-known brand names. It had been the custom for most garages to have pumps from which they supplied the petrol of more than one of these companies. But in 1950 one of the other companies started what has been called the exclusivity war. The Appellants did not want to join in it, but they were forced to because within a few months a large proportion of garages had accepted a tie of some kind.

3

There was intense competition between the oil companies, each trying to induce each garage or service station to sell its own products exclusively. At first they were able to obtain such ties at comparatively small cost. But soon garage owners found themselves in a strong position so that they were able as time went on to obtain better and better terms for accepting ties. At first the Appellants were able to obtain agreements of that character by offering a rebate of as little as 1/4d. per gallon or offering to make small payments towards improvements of the service station, and the ties were then generally for a year or less. But soon garage owners were able to insist on lump sum payments in advance for longer ties-if one company would not pay another would. The Appellants attach importance to the fact that they always calculated the lump sum which they were prepared to offer by estimating the gallonage likely to be sold during the period of the tie and multiplying by their current rate of rebate. But that rate continued to increase and had soon passed Id. per gallon. The earlier history is set out in the Case Stated in Bolam v. Regent Oil 37 T.C. 56 and by agreement the relevant parts of that Stated Case are incorporated in the Case Stated in the present case. By the time that Bolam's case was raised the ties then current varied in duration from a few months to 5 or 6 years.

4

Having succeeded in obtain rather large lump sums for granting ties, garage owners naturally wished to ensure if they could that the lump sums were received by them as capital receipts so as not to attract Income Tax, and someone appears to have devised the form of tie which appears in the four instances in the present case. The Appellants were unwilling to adopt it, but they had to yield because otherwise they would have lost these outlets for the sale of their petrol: some other oil company would have accepted the garage owners' demands, or at least so they feared.

5

The essence of this new form of tie is that the garage owner grants to the oil company a lease of his premises (or at least of that part containing the petrol pumps and storage tanks) for the agreed period of the tie. The consideration for this lease is the agreed lump sum payment plus a nominal rent of £1 per annum. On the same day the oil company then grants to the garage owner a sublease of the same premises for the same period less three days, the consideration for the sublease being the same nominal rent of £1. But the sublease contains covenants or conditions whereby the garage owner is bound to buy the petrol which he needs for resale from that oil company and from no one else. The net result is that no money passes except the agreed lump sum and the oil company gets its tie. But this machinery is not a sham. There is no difference from the old form of a tie by agreement so long as all goes well: but if the garage owner defaults this new form of tie gives the oil company a better way of enforcing its rights by bringing the sublease to an end and standing on its rights under the lease. I should add that in two of these four cases the lump sums are expressly stated to be premiums while in the other two they are not, but I do not think that this makes any difference.

6

Whether a particular outlay by a trader can be set against income or must be regarded as a capital outlay has proved to be a difficult question. It may be possible to reconcile all the decisions but it is certainly not possible to reconcile all the reasons given for them. I think that much of the difficulty has arisen from taking too literally general statements made in earlier cases and seeking to apply them to a different kind of case which their authors almost certainly did not have in mind-in seeking to treat expressions of judicial opinion as if they were words in an Act of Parliament. And a further source of difficulty has been a tendency in some cases to treat some one criterion as paramount and to press it to its logical conclusion without proper regard to other factors in the case. The true view appears to me to be that stated by Lord Macmillan in Van den Bergh v. Clark [1935] A.C. 431 at p.438:

"While each case is found to turn upon its own facts, and no infallible criterion emerges, nevertheless the decisions are useful as illustrations and as affording indications of the kind of considerations which may relevantly be borne in mind in approaching the problem".

7

One must, I think, always keep in mind the essential nature of the question. The Income Tax Act requires the balance of profits and gains to be found. So a Profit and Loss Account must be prepared setting on one side income receipts and on the other expenses properly chargeable against them. In so far as the Act prohibits a particular kind of deduction it must receive effect. But beyond that no one has to my knowledge questioned the opinion of Lord President Clyde in Whimster v. C.I.R. 1926 S.C. 20; 12 T.C. 813...

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  • The historical significance of the High Court's decision in Federal Commissioner of Taxation v. The Myer Emporium Ltd.
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