TaxTMI 
TaxTMI 
1956 (3) TMI 44
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....t in relation to so much of the said expense as is not made good to the body corporate by the director or employee as if the expense had been incurred by the director or employee and the amount thereof had been refunded to him by the body corporate by means of a payment in respect of expenses. The following facts were found on the case stated: Sums totalling GBP 1,220 were claimed by the taxpayer in connexion with a visit by him and his wife to Australia; of this amount, the assessment under appeal had made allowances for GBP 66. At the hearing of the appeal before the commissioners, the inspector of taxes proposed to withdraw this allowance of GBP 66, while the taxpayer claimed that the whole sum of GBP 1,220 was properly allowable under paragraph 7. The taxpayer attended and gave evidence before the commissioners -and it was stated at the hearing before the court although it was not stated in the case-he was cross-examined before them. The company, Trembath & Co. Ltd., was a private limited company incorporated in November, 1946, and its principal objects as set out in its memorandum of association were: "(1) To carry on the business of refrige....
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....for retail shops) and "Domestic Products" (i.e., those of the kind used for domestic purposes). The commercial products accounted for about three-quarters of the company's business, and the domestic products for about one-quarter. In addition to selling the products, the company undertook the installation, repair and maintenance of commercial products which it had sold. The company's business in connexion with Frigidaire Commercial Products was regulated by an agreement between the company and Frigidaire, dated May 6, 1948, by which the company was appointed sole authorized dealer in the commercial products for a territory covering the major part of South London and Surrey. Under clause 4 of the agreement the company was prohibited from selling Frigidaire Commercial Products abroad; and under clause 7, except as otherwise provided by the agreement, the company was prohibited from selling such products outside its own territory and from selling, either within or outside its own territory, any goods in competition with Frigidaire products. The company's business in connexion with Frigidaire domestic products was regulated by a separate agreement (which, mutatis m....
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....on of the products, but also to have the experience and imagination which would enable him to recommend types and arrangements of plant most suitable for the requirements of the individual commercial customer, particularly in connexion with the use of refrigeration in connexion with goods on display. As regards the commercial products the company had been faced with (and had met successfully) considerable competition in its territory ; part of its success was due to the taxpayer's ability to "sell an idea." In 1952 the taxpayer made up his mind to visit Australia in order to gain experience of refrigeration methods and distribution methods there, and in particular of the use of refrigeration in connexion with goods on display. Australia being a very progressive country as regards refrigeration, and the trading conditions there being similar to those in the United Kingdom, he thought that by the visit he would gain knowledge and experience which would be of great assistance to the company's business. He had close family connexions with Australia-two brothers and a sister lived there-and he himself was born there, and that had influenced him a little in his decision, bu....
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....ay with a dealer looking over installations and discussing distribution methods. General Motors placed a car at his disposal during his time at Brisbane. They then went via Sydney (where they spent two days with friends) to Albury, where they stayed five days with a cousin, and where the taxpayer visited an abattoir and another installation. They then spent four or five days at Melbourne, staying with another brother, where the taxpayer spent two days at a General Motors factory (accompanied on one day by his wife). They then spent three days on a private visit to Hobart. They then returned via Melbourne and Albury to Sydney where they stayed five days with friends, and where the taxpayer spent one day (unaccompanied by his wife) in final talks with General Motors officials. They then embarked for the United Kingdom. The journey from Brisbane to Sydney was by car, and took four days, the nights being spent at hotels. The journey from Albury to Melbourne was by a borrowed car. The final journey in Australia from Melbourne to Sydney was by car as far as Albury and then by train. The other journeys were by air. The cost of the sea passages to and from Australia for t....
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....00 and one moiety of the GBP 50, had been wholly, exclusively and necessarily incurred in the performance of the taxpayer's duties as a director of the company. "As regards the expenditure on the sea passages, travel in Australia (excluding the journey to and from Hobart) and hotel accommodation of the...[taxpayer's] wife [i.e., the other moiety of those sums] we had rather more doubt, but on the balance of the evidence we found that this also was expended wholly, exclusively and necessarily in the performance of the duties of her office. As regards the rest of the moneys expended by the appellant [the taxpayer] in the course of his visit to Australia, we found (in the absence of any firm evidence to the contrary) that it was not expended wholly, exclusively and necessarily in the performance of the duties of the appellant's office. "Accordingly we held that the appellant was entitled to a deduction under paragraph 7 of the Ninth Schedule to the Income Tax Act, 1952, of the cost of the sea passages"--for himself and his wife-"(GBP 730), the cost of the travel in Australia as aforesaid (GBP 200) and the cost of hotel accommodation (GBP 50) making GBP 98....
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.... fees as director of Trembath & Co. Ltd. were GBP 5,000; the wife's fees as director of the company were GBP 480. She never attended the company's premises at all in the year in question; she had no technical qualifications. Unlike the taxpayer, she did not attend and submit herself for cross-examination and, therefore, the Special Commissioners and I stand in the same position in that regard. I attach great importance to that; I doubt if I should have done what I am going to do had she given evidence and been cross-examined and they had accepted her evidence, but she did not. The only thing found that might be said to be an asset about her is that she was a good conversationalist, and I find great difficulty in seeing what value that could have in connexion with a woman who did not attend the business premises at all during the year of assessment, making a visit to Australia, a country in which the company was debarred from selling its products. Moreover, it was conceded by the husband that, so far as he was concerned, he was to some extent influenced by the desire to see his family; no doubt that, so far as he was concerned, was qualified by a "but" of importance and t....
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....l; that comes in the later part of the rule which seems to be directed to things other than travelling expenses. I think that the Special Commissioners must have omitted to notice that because of the form of their finding: they do not in terms refer to it at all. The first contention which was put before me on behalf of the wife's expenses arises out of the complicated legislation which now affects the matter, and particularly section 161 of the Income Tax Act, 1952. I have already mentioned that this ticket to Australia, which is a substantial and quite the largest item, was purchased and paid for by the company. It would not be treated as an emolument at all if it fell within the first subsection of section 162 of the Income Tax Act of 1952, because that subsection says: "Any expense incurred by a body corporate in the acquisition or production of an asset which remains its own property shall be left out of account for the purposes of the last preceding section." I am afraid I cannot regard the benefits or facilities conferred by that ticket as falling within the exception in section 162. It seems to me that it plainly falls within the ambit of section 161, tha....
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....problem. I suppose that everybody connected with income tax administration knows that nowadays a director's expenses are dealt with under paragraph 7 of the Rules applicable to Schedule E (9th Schedule), but perhaps not everybody has realized what different problems arise in the course of doing so. It is not that the words bear any different meaning, but the application of the words to directors introduces problems which never arise in connexion with somebody whose duties are quite clearly regulated either by contract or by statute or otherwise. That the wife was a director is not in question. In order to ascertain her duties the first thing, in logical sequence, is to look at the articles of association of the company. That apparently nobody did, but that probably does not matter because almost certainly they were more or less in common form, in which case the duties would not be in any way specifically defined ; they would only be defined in quite broad and general language with perhaps certain things expressly prohibited. Although, therefore, that would logically have been the proper starting-point of the inquiries, its absence causes me no embarrassment. The next thin....