Westminster Bank Ltd v Barford (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 07 March 1958 |
| Date | 07 March 1958 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income Tax, Schedule D - Annual payment - Agreement by company, in consideration of director's past services, to make payments for a period to him, his executors, administrators or assigns - Payments deducted in computing company's profits - Liability of will trustee.
Under the articles of a company a director who rendered special services outside his ordinary duties might be paid special remuneration by way of salary or otherwise. M having rendered such services in relation to a unit trust of which the company became manager, it agreed (inter alia) in pursuance of this provision, by a deed executed in 1938, to pay to him, his executors, administrators or assigns, a proportion of the management remuneration periodically received by it from the trust. M died in 1941, and the payments were thereafter received every year by the executors and trustees of his will. They were made without deduction of tax and were allowed as expenses in computing the company's profits for Income Tax purposes.
On appeal against assessments to Income Tax under Case III of Schedule D for the years 1950-51 to 1954-55 in respect of these payments, the trustee of the will contended that they were remuneration for M's services as a director of the company which, by reason of the decision in Purchase v. Stainer's Executors, 32 T.C. 367, could not be assessed under Case III; alternatively, that, if the payments were annual payments, they were payable out of profits and gains brought into charge to tax and were not assessable on the trustee by virtue of Section 169 of the Income Tax Act, 1952. For the Crown it was contended that the agreement provided for a series of payments to M or his representatives during the existence of the trust irrespective of M's employment by the company or his holding office as a director, that Stainer's case had no application, and that the payments had not been made by the company out of profits and gains brought into charge to tax. The Special Commissioners held (1) that the payments were from their inception assessable not under Schedule E but under Case III of Schedule D, but (2) that so far as the company was concerned they had the character of remuneration, and, having been deducted in computing its profits for tax purposes, were not within Section 169.
Held, that the assessments were properly made.
Stated under the Income Tax Act, 1952, Section 64, 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 28th March, 1957, Westminster Bank, Ltd., in its capacity of trustee of the will of the Right Hon. C.A. McCurdy, deceased, appealed against Income Tax assessments under Case III of Schedule D in respect of annual payments as follows:
1950-51 |
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£372 |
1951-52 |
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£368 |
1952-53 |
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£101 |
1954-55 |
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£14 |
The question for our determination was whether these assessments under Schedule D were correctly made in respect of certain sums arising to Mr. McCurdy, his executors, administrators or assigns, by virtue of an agreement dated 9th December, 1938, between Trust of Insurance Shares, Ltd. (herein-after called "the company"), and himself.
2. No oral evidence was given before us. The following facts were admitted:
(a) that Mr. McCurdy was chairman of the company's board of directors at all relevant times until his death;
(b) that the company entered into the said agreement with Mr. McCurdy dated 9th December, 1938;
(c) that Mr. McCurdy died on 10th November, 1941; that probate of his will was granted on 22nd April, 1942, to Westminster Bank, Ltd., and others; and that Westminster Bank, Ltd., is now and was during the period of assessment one of the trustees of his will.
It was common ground that the essentials of the matter were contained in the said agreement, and, in particular, clause 2 thereof, and in article 72 of the articles of association of the company.
3. The said article 72 reads as follows:
As from the 1st day of October, 1936, the remuneration of the Directors (other than the Managing Director, if any) shall be at the rate of £500 per annum each, with £500 additional for the Chairman. The Directors shall also be entitled by way of further remuneration to such further sums (if any) as shall from time to time be voted to them by the Company in General Meeting, and such remuneration shall be divided amongst the Directors (other than as aforesaid) as they shall agree, or, failing agreement, equally. The Directors shall also be entitled to be repaid all travelling and hotel expenses incurred by them respectively in or about the performance of their duties as Directors, including their expenses of travelling to or from Board Meetings. If by arrangement with the other Directors any Director shall perform or render any special duties or services outside his ordinary duties as a Director, the Directors may pay him special remuneration, in addition to his ordinary remuneration, and such special remuneration may be by way of salary, commission, participation in profits or otherwise as may be arranged.
A copy of the company's memorandum and articles of association was put in evidence and is available for the use of the Court if required.
The said agreement reads as follows:
AN AGREEMENT made the ninth day of December one thousand nine hundred and thirty-eight BETWEEN TRUST OF INSURANCE SHARES LIMITED whose registered office is situate at 30 Cornhill in the City of London (hereinafter called "the Company") of the one part and THE RIGHT HONOURABLE CHARLES ALBERT MCCURDY K.C. of 2 Brick Court Temple in the City of London (hereinafter called "Mr. McCurdy") of the other part WHEREAS:-
(i) The Company is Manager of (inter alia) a Unit Trust entitled The Cornhill Trust of Bank & Insurance Shares and British Government Stocks (hereinafter called "the Unit Trust")
(ii) The Unit Trust was constituted by a Trust Deed (hereinafter called "the Trust Deed") dated the 15th day of October one thousand nine hundred and thirty-seven and made between the Company of the one part and Midland Bank Executor and Trustee Company Limited (hereinafter called "the Trustees") of the other part
(iii) By the Trust Deed Debenture Units and Deferred Units were authorised to be created and to be issued upon such terms and subject to such conditions as in the Trust Deed are set forth
(iv) By the Trust Deed the Company was authorised to sell Deferred Units at a price calculated in the manner therein set...
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Westminster Bank, Ltd (McCurdy's Trustee) v Barford (HM Inspector of Taxes)
...be dismissed with costs, my Lord. Vaisey, J.-Yes, Mr. Orr. [Solicitors:-Rhys Roberts & Co.; Solicitor of Inland Revenue.] 1 Reported [1958] 1 W.L.R. 406; 102 S.J. 270; [1958] 1 All E.R. 829; 225 L.T.Jo. 1Sub nom. Purchase v. Stainer's Executors, 32 T.C. 367. 2Ibid., at p. 412. ...