Taylor v Provan (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 13 March 1974 |
| Date | 13 March 1974 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income tax, Schedule E-Company director-Expense allowance- Deduction-Travelling expenses-Non-resident director with special assignment-Duties to be performed so far as possible abroad-Reimbursements of cost of travel to and from United Kingdom-Whether emoluments of office- Whether wholly attributable to duties performed in United Kingdom-Whether travelling expenses allowable deduction-Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), s. 160 and Sch. 9, para. 7; Finance Act 1956 (4 & 5 Eliz. 2, c. 54), s. 10.
The Appellant was a Canadian business man with large brewery interests, who had residences and offices in Canada and the Bahamas. He was not resident in the United Kingdom. He held directorships in an English brewery group with the special assignment of the expansion and development of the group and, in particular, taking charge of negotiations for other brewery companies to join it. Those duties were, under his arrangements with the English companies, to be performed so far as possible from his residence abroad. He did his planning wherever he happened to be. Although personal visits to breweries or persons in England were important, the bulk of his work was done outside the United Kingdom by correspondence or telephone. He spent an average of between 100 and 150 days a year in Canada, 50 to 85 in the United Kingdom and the remainder in the Bahamas. The Appellant was not normally required to attend the English companies' offices or routine board meetings. He received no remuneration, but the companies bore the expenses of visits by him to the United Kingdom to carry out the duties of his special assignment.
The Appellant was assessed to income tax under Schedule E for the years 1961-62 to 1965-66 on the sums paid to him by the English companies in reimbursement of the cost of air travel between Canada or the Bahamas and the United Kingdom. On appeal, he contended that the amounts so reimbursed were not paid to him in his capacity as a director and were not emoluments of an office or employment of profit; alternatively, if they were so paid, that the cost of travel was necessarily incurred in the performance of the duties of the office. For the Crown it was contended that the reimbursements, being paid by bodies corporate to a director thereof, were chargeable to tax as emoluments, and that the travelling expenses were not necessarily incurred in the performance of the Appellant's duties. The Special Commissioners upheld the Crown's first contention, and, not being satisfied that the Appellant's places of work in Canada and the Bahamas were or should be regarded as places of work for the purposes of his special assignment, concluded that the travelling expenses arose from circumstances personal to himself.
In the High Court and above the Appellant further contended, in the alternative, that it was not established that the reimbursements were wholly attributable to duties performed in the United Kingdom, within Case II of Schedule E, and the Commissioners should be directed to apportion them. For the Crown it was contended (inter alia) that s. 160(1), Income Tax Act 1952, applied to all sums paid in respect of expenses by a body corporate to a director thereof, whether in his capacity as a director or not, but that in any event the sums in question were paid to the Appellant in that capacity.
Held, (1) that the reimbursements, being sums paid by a body corporate to one of its directors in respect of expenses, were chargeable to tax under s. 160(1), Income Tax Act 1952, as emoluments of the Appellant's office of director;
(2) (Lords Wilberforce and Simon of Glaisdale dissenting) that, since it was impossible for the companies which contracted with the Appellant to get the work of his special assignment done by anybody else and he would not have taken on the assignment except on the terms that most of the work was to be done in Canada (or the Bahamas), he held an office specially created for him with places of work there as well as in the United Kingdom and accordingly the expenses for which he was reimbursed were necessarily incurred in travelling in the performance of the duties of that office.
Pook v. Owen 45 T.C. 571; [1970] A.C. 244 considered and applied; Ricketts v. Colquhoun 10 T.C. 118; [1926] A.C. 1 distinguished.
Lord Morris of Borth-y-Gest and the Court of Appeal expressed the opinion that the reimbursements were wholly emoluments in respect of duties performed in the United Kingdom within Case II of Schedule E. (The other members of the House of Lords, while not expressly dealing with this point, considered that the reimbursements were wholly within Schedule E subject to any relief due in respect of expenses.)
Stated under the Taxes Management Act 1970, s. 56, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 17th and 18th December 1970 Edward Plunket Taylor (hereinafter called "the Appellant") appealed against the following assessments to income tax:
Year |
Amount of assessment |
£ |
|
1961-62 |
8033 |
1962-63 |
4557 |
1963-64 |
3060 |
1964-65 |
1854 |
1965-66 |
806 |
2. The questions for our decision, shortly stated, were:
(i) whether or not certain sums reimbursed to the Appellant in respect of transatlantic travelling expenses were emoluments within the scope of the charge of tax under Schedule E; and
(ii) if so, whether or not the Appellant was entitled, under para. 7 of Sch. 9 to the Income Tax Act 1952, to deductions in respect of such travelling expenses.
3. The Appellant gave evidence before us.
4. The following documents were proved or admitted before us:
(2) Bundle of schedules of expenses.
(3) Copy resolutions of directors of United Breweries Ltd. dated 21st September 1967.
(4) Copy resolution of directors of Charrington United Breweries Ltd. dated 21st September 1967.
(5) Bundle of copy correspondence.
Copies of such of the above as are not annexed hereto as exhibits are available for inspection by the Court if required.
5. As a result of the evidence, both oral and documentary, adduced before us we find the following facts proved or admitted:
(2) The Appellant was born in Canada of Canadian parents, and was educated there. After obtaining a university degree in mechanical engineering he entered a firm of mercantile bankers, becoming a partner in 1927. He also became associated with his family's brewing business, but took little part in it until about 1929, when he resigned from the banking partnership. From 1930 to 1939 he concerned himself with brewery amalgamations, and built up Canadian Breweries, of which he became the president. In 1930 there were some 100 or more breweries in Canada: in 1939 that number was reduced as a result of amalgamations to some 15 or 20.
(3) During the 1939-1945 war the Appellant was engaged on Government service. He then returned to Canadian Breweries as president, and continued its policy of mergers and amalgamations in Canada and North America.
(4) In about 1958 the Appellant became involved with the Hope & Anchor Brewery (hereinafter called "Hope & Anchor") of Sheffield, England. The latter was endeavouring to become larger, with a view to attracting a favourable takeover bid. Negotiations by Hope & Anchor to take over four smaller breweries had become bogged down, and the Appellant suggested that he should try his hand in the matter without reward. His suggestion was accepted, and he succeeded in bringing three of the four breweries under the wing of Hope & Anchor. The amalgamated breweries became United Breweries Ltd. (hereinafter called "United Breweries"), and the Appellant was made a director thereof, with a special assignment, namely, to expand the group by further mergers and amalgamations, without being paid any remuneration, but being reimbursed for proper expenses. As a result of the Appellant's efforts further breweries in Scotland, Northern Ireland and the northern half of England were taken over by United Breweries.
(5) In or about 1962, as a result of the Appellant's further efforts, United Breweries merged with Charrington Ltd., becoming Charrington United Breweries Ltd. (hereinafter called "Charrington United Breweries"). The group now acquired outlets in the southern half of England, and the Appellant was again made a director, with a similar unpaid assignment as before.
(6) In 1967 Charrington United Breweries merged with Bass, Mitchells & Butlers Ltd., becoming Bass Charrington Ltd. (hereinafter called "Bass Charrington"), and the Appellant was once more made a director with a similar unpaid assignment.
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(7) The Appellant was made a director of United Breweries, Charrington United Breweries and Bass Charrington for reasons of prestige. His sole function in each company was a special assignment of the nature described in sub-para. (3) above. He had none of the normal duties of a company director, and did not attend board meetings unless he happened to be in England on the business of his special assignment, and not always on those occasions. There was no written agreement with any of the above companies, but arrangements were expressed to be confirmed in a resolution of the board of Charrington United Breweries passed on 21st September 1967 in the following terms:
Mr. E. P. Taylor. The Board recalled its decision to set up the Expansion Committee of the Board on 10th July 1962 and formally resolved that in view of the Company's merger with Bass, Mitchells & Butlers Ltd., this Committee be and is hereby dissolved. The Board wished to express its appreciation to Mr. Taylor of the special services he has contributed in guiding the Expansion Committee in the continuous work upon which it has been engaged over the last 5 years and in...
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