Way v Underdown (No. 2)
| Jurisdiction | England & Wales |
| Judgment Date | 25 March 1974 |
| Date | 25 March 1974 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income tax, Schedule D-Insurance agent-Commissions-Commission passed on to insured-Agent assessable as person receiving or entitled to it- Premiums paid net of commission direct by insured to insurer-Agent neither receives nor is entitled to commission-Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), s. 148.
The Appellant, as managing director, controlled the day-to-day running of a company 98 per cent. of the shares in which were owned by his wife. Following a back duty investigation, he was assessed to income tax under Case VI of Schedule D for the years 1959-60 to 1964-65 in respect of insurance commissions. He appealed, and at a meeting on 27th July 1966 the General Commissioners issued precepts for information relating to his tax position generally. Subsequently assessments were made on him (within the normal time limit) to income tax under Schedule E for the years 1960-61 to 1964-65 in respect of undisclosed emoluments and benefits from the company, against which he also appealed. He furnished some of the information required by the precepts but failed to comply with them fully. On 8th February 1967 the Commissioners resumed the hearing of the Schedule D appeal and decided, despite his objections, to hear the Schedule E appeal concurrently; and there was a final hearing on 13th February. At those hearings the Inspector of Taxes submitted computations based on a capital statement prepared by himself, and the Appellant gave evidence as to the insurance commissions, and evidence relative to the Schedule E appeals in which he stated (inter alia) that he had received certain sums of a capital nature not taken into account in the Inspector's computations. On 21st February 1967 the Commissioners issued written decisions determining the Schedule D assessments in agreed figures and the Schedule E assessments in reduced figures except that for 1961-62, which was increased. In the Schedule E decision they stated, inter alia, (a) that there were acts of neglect on the part of the Appellant amounting to wilful default, and (b) that they accepted his evidence as to certain specified matters and that one Commissioner had prepared an amended schedule taking them into account, on the basis of which they had amended the figures. The Appellant demanded Cases.
The same three Commissioners were present at all the appeal hearings. In addition, the first hearing of the Schedule D appeal was attended by a newly appointed Commissioner who was present as an observer and did not sit again. At the second hearing on 8th February 1967 the Commissioners imposed a fine of £20 on the Appellant for not complying with the precepts, but on the intervention of the Inspector withdrew the fine.
In accordance with the usual practice drafts of the Cases to be stated were submitted to the Appellant. He made a number of criticisms, and also asked to see the schedule stated in the Schedule E decision to have been prepared by the Commissioners. The Clerk to the Commissioners initially refused, but he eventually agreed on the strict understanding that it should be used solely for the purpose of facilitating a settlement between the Appellant and the Inspector. Having received it, however, and finding that it omitted some of the figures alleged in his evidence, the Appellant used it as a further basis for criticising the draft Case. An acrimonious correspondence ensued, and in the result the Cases were not stated and signed until 13th February 1973, after mandamus proceedings had been brought by the Appellant. In an affidavit filed in connection with those proceedings the Clerk stated that the schedule was a mere working guide in the nature of a note made by one of the Commissioners for the purpose of arriving at the decision, and that the omissions observed by the Appellant were deliberately made because the Commissioners rejected his evidence pro tanto.
On receiving the Cases Stated the Appellant by motion applied for a declaration that they were a nullity or, alternatively, an order remitting them for amendment. His grounds were (1) that one of the Commissioners present at the hearing on 27th July 1966 was not present subsequently and did not sign the Case; (2) that the Commissioners had no jurisdiction to "merge" the Schedule D and Schedule E appeals; (3) that they exceeded their jurisdiction (i) in allowing the Inspector to contend that the Schedule E assessments should be increased and (ii) in purporting to determine an allegation of wilful default which was not before them; (4) that they acted contrary to natural justice in imposing the fine of £20 and then remitting it, and also in taking into account certain National Insurance contributions paid by the company in respect of the Appellant's wife without any express finding that the company had in fact paid them; (5) that the Commissioners' record of their determination of the Schedule E appeals was not in accordance with the facts, in that the schedule on which the figures were based was not included in the Case, and that if it had been so included it could have been shown to be defective by reference to the facts stated in the rest of the Case.
Held, (1) that if indeed it was competent for a party who had demanded a Case to move in the same proceedings for a declaration that the Case as stated was a nullity the Court would exercise its discretion to refuse the declaration, since the Commissioners had no opportunity to be heard, whereas the point might have been raised by an application for certiorari, on which the Commissioners would be entitled to be heard;
(2) that, since the Cases were properly signed, prepared and submitted to the Court, they could not be a nullity;
(3) that, in view of the statement of the Clerk to the Commissioners that the schedule was in the nature of a working paper, it could not be treated as findings of fact, and there was no need to incorporate it in the Case;
(4) that, although the issue of wilful default was not before them, the Commissioners were at liberty to make their reference to wilful default as a comment on the way in which the Appellant conducted his affairs, and that reference did not operate as res judicata;
(5) that the Commissioners were entitled to hear the Schedule D and Schedule E appeals together;
(6) that there was no substance in any of the other points put forward by the Appellant.
After the dismissal of his preliminary motion the Appellant consented to the dismissal of the appeal on the Schedule E assessments. The facts relative to the Schedule D appeal were as follows.
As an agent of an insurance company, the Appellant arranged insurance with it for one M and for the company of which the Appellant was managing director. The insurer's practice was that premiums were paid by the policy holder to the agent, who passed them on to the insurer after deducting his own commission. The Appellant had a friendly agreement with M that he would pass on to M the amount of his commission. The Appellant's company paid the net amount of the premiums, less commission, direct to the insurer, so that no money passed through the Appellant's hands. He contended that under his arrangement with M he received the commission in a fiduciary capacity only, and that he never received any commission in respect of the company. For the Crown it was contended that he was assessable as the person receiving or entitled to the commissions. The General Commissioners determined the assessments in figures taking account of all the commissions.
Held, (1) that, since a friendly agreement was incompatible with a legal obligation, the Appellant was legally entitled to the commission on M's insurance, and in any event he was assessable as the person receiving it;
(2) that under the arrangements relating to the company's insurance the Appellant received no commission, nor was he entitled to a commission either as against the company or as against the insurer.
Stated under the Income Tax Act 1952, s. 64, by the Commissioners for the General Purposes of the Income Tax for the Cheltenham Division in the County of Gloucester for the opinion of the High Court of Justice.
1. At a meeting of the said Commissioners held on 27th July 1966 at the Magistrates' Court, Crescent Place, Cheltenham, William Morris Way (hereinafter called "the Appellant") appealed against, inter alia, the following assessments to income tax made upon him under Case VI of Schedule D:
1959-60 |
Insurance and other commissions |
£200 |
1960-61 |
" " " " |
£200 |
1961-62 |
" " " " |
£200 |
1962-63 |
" " " " |
£200 |
1963-64 |
" " " " |
£200 |
1964-65 |
" " " " |
£200 |
2. The question for our decision was whether or not the Appellant had beneficial title to the said commissions, allegedly allowed to him by the Norwich Union Insurance Co. Ltd. The hearing was adjourned in view of the paucity of information and precepts issued by the Commissioners. It was resumed at De la Bere House, Bayshill Road, Cheltenham, on 8th February 1967, when the Appellant had given no information in reply to the precepts. We decided to hear the appeal, and that hearing also concerned Schedule E tax against the same Appellant. The hearing was adjourned to 13th February 1967 at the same venue, and a reserved written decision was communicated to the parties at a meeting of the Commissioners held on 21st February 1967 at the Magistrates' Court aforesaid. The Case here stated relates solely to Schedule D tax, and we have stated a separate Case in respect of Schedule E tax.
3. Evidence was given before us by the Appellant, Mr. Marshall, Mr. Jenkins, an employee of the Norwich Union Insurance Co. Ltd., and Mr. Guest, a Senior Inspector of Taxes.
4. The following facts were proved or admitted:
(i) At all relevant dates the Appellant was an agent of the Norwich Union Insurance Co. Ltd. and a director...
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