TaxTMI 
TaxTMI 
1957 (4) TMI 82
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....ehalf of Hewitt to the relevant office in his case was that of secretary which he ceased to hold in January, 1951, whereas the share were not transferred until July 27, 1953. The statutory provisions relevant to the two appeals are to be found in section 156 of, and the Ninth Schedule to, the Income Tax Act, 1952. [His Lordship read the relevant parts of paragraph 1 of Schedule E as set out in section 156, and rule 1 of the Rules applicable to Schedule E, as set out in the Ninth Schedule, and continued :] These provisions do not materially differ from their predecessors in previous income tax legislation. It is clear that the appellants are taxable under Schedule E in respect of all profits from their respective offices or employments under the company. The question is whether the benefits they received in the shape of the value of the shares transferred to them respectively were profits from those offices or employments within the meaning of the Act. We were referred, as was the judge, to many of the numerous authorities in which the courts, dealing with the particular facts of particular cases, have held benefits received by holders of offices or employments to be or not to be ....
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.... now (I think) be taken as settled that they include all payments made to the holder of an office or employment as such, that is to say, by way of remuneration for his services, even though such payments may be voluntary, but that they do not include a mere gift or present (such as a testimonial) which is made to him on personal grounds and not by way of payment for his services. The question to be answered is, as Rowlatt J. put it : Is it in the end a personal gift or is it remuneration ? If the latter, it is subject to tax; if the former, it is not." I would also refer to the recent case in this court, Moorhouse v. Dooland, which may be said to be of the same order as the earlier cases above referred to, inasmuch as it concerned the liability to tax of the proceeds of collection on the ground which a Lancashire League professional cricketer was entitled to have made on his behalf by the terms of his contract with the club employing him and the rules of the league. All these cases, save Seymour v. Reed, went against the taxpayer on their particular facts. I come next to Cowan v. Seymour, which is somewhat nearer the present case, in that it concerns a sum of money paid by t....
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....ot; But the case does seem to me to show quite clearly that a benefit conferred on the holder of an office or employment for tax purpose although conferred by shareholders of the company and not by the company itself. Cameron v. Prendergast provides authority for the proposition that a lump sum paid by a company to the holder of an office under the company in consideration of a promise on his part to serve the company in that office even for an unspecified period which might be a matter only of days is in the hands of the recipient a profit from his office and taxable accordingly. Salmon v. Weight provides authority for the proposition that moneys worth, such as a right conferred by a company on a salaried director to subscribe at part for shares in the company of a market value greater than par, will if conferred in respect of the recipients office constitute a profit of the office for tax purposes. If the present appeals fall to be judged simply by reference to the deeds of covenant, then in my judgment the terms of those deeds are fatal to the appellants. Under the deeds the appellants became entitled to receive from the two Hornby sons moneys worth in the shape of the shares....
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....intention. Mr. Mustoe, while he did not go so far as to claim it was admissible for the purpose of nullifying the deed of covenant as merely fictitious or colourable documents, said (in effect) that it could be used to show that the consideration consisting of the appellants continuing their present engagements with the company was never as essential element in the transaction but was introduced, as it were, by a side-wind, not as a stipulation which the Hornby brothers had propounded or insisted on as a condition of their promise to transfer the share on their mothers death, but as an embellishment recommended to the appellants by there own solicitor because he considered that its inclusion would strengthen the appellants position in the event of the Hornby brothers being disposed to change their minds. Once this circumstances is taken into consideration, then, according to Mr. Mustoes submission, the transaction reveals itself as being substantially a matter of gift and not a matter of remuneration : see per Lord Loreburn L.C. in Blakiston v. Cooper and Atkin L.J. in Cowan v. Seymour. This involves the assumption, in all probability well founded, that the Hornby brothers would t....
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....er a moral obligation to leave them having regard to the part they had taken in the building up of the company's business, and to his promise, or what the appellants took as amounting to a promise by him, to provide them with substantial holding of shares in this way. It would then, as I think, hardly have been possible to maintain that the share were given by the Hornby brothers or received by the appellant as remuneration and not as a mere present. But the appellants did not rest content with the simple promise of the Hornby brothers, and in the result the deed of covenant were brought into existence. As I have already indicated, I think these deeds are on the face of then fatal to the appellants case; and even if all questions of admissibility are resolved in their favour I can find nothing in the extrinsic evidence to displace that conclusion. The evidence, admissible or inadmissible, directed to explaining how it was that the consideration moving from the appellants in the shape of their continuing their "present engagements" with the company came to be included in the deeds of covenant as executed is thus summarized in paragraph 10 of the case stated with resp....
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.... the draft propounded by Mr. Dawson, The appellants (in effect) asked that the benefit should taken that form, and the Hornby brothers gave it to them in that form. Given in that form, and accepted in that form, it seems to me that by the plain terms of the deeds it must necessarily be held to have been given to the appellants, and accepted by them, in their capacity of managing director in the case of Bearsley, and of director and secretary in the case of Hewitt, and in consideration of services to be rendered by them to the company in those respective capacities. To argue, as did Mr. Mustoe, that the transaction was substantially a matter of bounty in which the consideration expressed in the deeds played an insignificant and indeed nominal part seems to be to confound the motive for conferring the benefit with the character of the benefit conferred. I do not think the mistake as to the effect of the restrictive covenants in the service agreements which is said to have led to the selection of four years as the period for which the appellants were to continue in their "present engagements" with the company can affect the result. I confess I am not clear as to the precise....
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.... the appellants fail in their main contention the position was that by the deeds of covenant the Hornby brothers covenanted that, in consideration of the appellants continuing their respective engagements with the company for four years from the date of the deeds, the Hornby brothers would transfer to them on the death of Mrs. Hornby the specified number of shares in the company by way of remuneration for the services rendered by them to the company during that period. The time at which the appellants were to receive this additional remuneration for their services to the company for this further period was thus fixed by the terms of the bargain as the death of Mrs. Hornby, or, to be strictly accurate, the expiration of three months from her death. In fact, the appellant duly completed their four years further service in Mrs. Hornbys lifetime, and the shares were transferred to them shortly before he death, although the Hornby brothers would have been entitled to withhold such transfer until three moth after the happening of that event. I see no reason for treating the stipulated remuneration, that is, the shares, as received or receivable on any earlier date than that on which the ....
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....I think it is plain that the special commissioners decision in favour of the appellants was a decision on a mixed question of fact and law and, therefore, open to appeal. This is sufficiently demonstrated by the large number of cases in which appeals on similar questions have been entertained. It is not without regret that I find myself constrained to reach a conclusion adverse to the appellants, as it may well be that if the transaction had been differently carried out the appellants could have received the same benefits free of the heavy inroads which the law, as I understand it, now requires to be made upon them for tax. But the effect of the deeds appears to me be inescapable. For my part, I must accordingly hold that the judge was right in the conclusion to which he came, and that the appeals fail and should be dismissed. But a different conclusion has been reached by both my brethren, and the result will therefore be as indicated in the judgment they are about to deliver. MORRIS, L.J. The appellant, Bearsley (with whose appeal I propose first to deal), was assessed under Schedule E for the year 1953-1954 because he was managing director of Meccano Ltd. Having that office o....
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.... grounds and not by way of payment for his services. The question to be answered is, as Rowlatt J. put it : Is it in the end a personal gift or is it remuneration ? If the latter, it is subject to the tax; if the former, it is not." In his speech in the same case, Lord Phillimore, having referred to some of the authorities, said : "My Lords, I do not feel compelled by any of these authorities to hold that an employer cannot make a solitary gift to his employee without rendering the gift liable to taxation under Schedule E. Nor do I think it matters that the gift is made during the period of service and not after its termination, or that it is made in respect of good, faithful and valuable service." It does not seem to me that the words and meaning of the deeds of covenant can be affected or altered by any evidence as to how the wording of the deeds of covenant came about. It is not submitted on behalf of the appellants that the consideration stated in the deeds should be regarded as either fictitious or illusory. I agree with Danckwerts J. that evidence is not admissible to contradict the plain terms of the deeds by attempting to show that the intentions of the par....
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....e might then have retired - but he would still have been entitled to the shares. His receipt of the shares in July, 1953, had nothing to do with his employment as managing director at that time. If the shares had been transferred strictly in accordance with the deeds the transfer would not have been until within three months after October, 1953, when Mrs. Clara Hornby died. But the right to the shares would then have arisen whether Bearsley had already retired or not. If he had already retired from the company he would not have been assessable under Schedule E. He was, however, still in office, and he received what was worth Pounds 36,000. he certainly did not receive the shares in respect of any services rendered during that year. Nor did he received them in respect of any services rendered during that year. Nor did he receive them in respect of any services rendered since the end of the four-year period after the deeds of covenant. He would not have received them but for what he had done in the past, that is, (a) in all the years before 1945, and (b) in the four years after December 30, 1945. But the question which arises is whether he received them as remuneration or as a person....
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....xi-driver is in one sense a gift : a particular tip may be somewhat above what would normally be expected by the taxi-driver and may reflect a bountiful impulse. Yet all the tips received, including the specially generous one, must be regarded as being by way of remuneration for services. But on the other hand, it seems to me that a payment which has the attributes of being a personal gift does not necessarily lose those attributes merely because the gift is in recognition of services, or because the donor agrees to bind himself so as to be compellable at law to make the payment. So it seems to me that the fact that the position in the year 1945 was that Bearsley would only gain his benefit if to his past services he added that of staying the course for four more years does not cause his benefit, when received, to be remuneration for services rather than a gift. The present case differs entirely from Cameron v. Prendergast. In that case a director wished to resign, and a letter was written to him asking him not to do so, and he was told that "in consideration of your acceding to this request, the company will, within 21 days or by such instalments as you will accept, pay you ....
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....quisite arising from his employment. It was his little "nest egg," as Lord Dunedin called it in his speech, in the course of which he recalled Lord Macnaghtens reminder that income tax is a tax upon income. The circumstance that a large payment is to be made by someone other than an employer may be a considerable indication, though by no means a conclusive one, that the payment is not by way of remuneration. Remuneration is, as a rule, something than an employer has arranged or contemplated or at least knows about. This is so even though payments may come other than the from employer and may depend upon the liberality of others. In Moorhouse v. Dooland the contract of employment laid it down in great detail when the cricketer could expect or receive the contents of collecting boxes sent round the cricket field. Remuneration for services is generally effected by systematic and recurring payments, though this is certainly not always so. Remuneration has further the element of reward or payment for some specific services rendered. Where some payment, and particularly some non-recurring payment, is received from someone other than an employer it will probably only have th....
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.... clear that the offerings were received by the vicar as vicar and that they formed part of the profits accruing by reason of his office. In the passage which I have cited Lord Loreburn pointed out that where a sum of money is given to an incumbent substantially in respect of his services as incumbent it accrues to him by reason of his office. Where this is the case it matters not that the payment made if voluntary. If from the point of view of the recipient the money is received "in respect of services," or, as Lord Cave put it in the later case of Seymour v. Reed "by way of remuneration for his services," then the receipt is, I think, a profit from the office held; or in the language that applied in Cowan v. Seymour, it would be a profit "accruing by reason of" the office held. A profit may accrue by reason of an office when it comes to the holder of an office as such. Payments that come to the holder of an office as such are payments which from the recipients point of view have the features of remuneration. The Easter offerings for the incumbent in Blakiston v. Cooper were given to the incumbent as such and were given to supplement income. In Herber....
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....n the brothers Hornby agreed in 1945 that they would in due course make over to Bearsley some part of the capital assets which later would be theirs, the arrangement would not in my judgment constitute remunerating Bearsley but was rather the making of a gift to him. In their personal capacities and from their personal possessions and actuated by their personal motives of doing what they thought that their father might have done by his will, the brothers were willing to make a gift provided that Bearsley served the company for four years more. The gift might have accrued to Bearsley after he had retired and would in any event accrue at a time when a testimonial for a lifetime of faithful service would not be inapposite. The fact that the brothers entered into deeds of covenant does not by itself negative the view that the transactions were by way of gift. Donors are frequently willing to deny themselves the opportunity of changing their minds about their intended gifts. I agree with the judge that the acquisition of the shares was "linked up with" the services of Bearsley as an officer of the company. Bearsley had served in the past and was not to get his shares unless ....
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....neral considerations apply to Hewitts case as apply to Bearsleys case. The shares transferred to Hewitt were by way of gift or testimonial and not by way of remuneration. He was secretary from 1913 to 1951; he was a director from 1932 to October, 1953. He was assessed for the year 1953-54 because he was a director. The shares which he received in July, 1953, were partly in recognition of his work as secretary and partly in recognition of his work as a director. In my judgment they did not, when received, constitute a profit from his office as director for the year 1953-54. For these reasons it does not seem to me that the decision of the special commissioners was founded upon a misconception of the law or proceeded upon a view of the facts which could not reasonably be entertained. I consider, therefore, that the appellants were not assessable in respect of the value of the share which they received, and I would allow the appeals. SELLERS, L.J. In the tax period 1953-54 the appellant Hewitt was a director of Meccano Ltd. until October, 1953, when he resigned on account of ill health. He had ceased to be secretary of the company in January, 1951. The appellant Bearsley in the same....
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....ts of the appellants. The fundamental question is in each case, was the Pounds 36,000 in share value transferred to each appellant a gift or a profit from his position with the Meccano company ? Each had an office with the company. Was this windfall a profit "therefrom" ? At the outset it was intended to be a gift. It was not prompted by and was not in respect of any special services rendered to the donors. The transactions were inspired by high motives and with the intention of fulfilling moral obligations. The transactions could have been carried out in accordance with the intention of the Hornby brothers without any documents at all except the transfer forms, and there is no real reason to think they would not have been fulfilled. There was no need to introduce anything of a business character into them. In all the circumstances, so large a sum in value, and a transfer of shares in the company, indicate bounty and generosity rather than remuneration in respect of the appellants respective employments. (The facts are to be contrasted with those in Salmon v. Weight, where clearly tax liability arose.) These matters need not be stressed. Had it not been for the deeds D....
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....ve offices at enhanced remuneration by minutes of the directors in meetings held on October 8 and 9, 1946. No provision seems to have been made for their duration, and both employments would appear to have been terminable by reasonable notice. As far as the issues arising on these appeals are concerned, I see no difference between the cases of the two appellants. In my opinion, the effect of each deed as drawn is that the service of four years as stipulated was a condition to be fulfilled before the Hornby brothers could be called on as a matter of law or legal obligation to transfer the shares within the specified date, that is, within three months after the death of Mrs. Clara Hornby, their mother. The fact that the transfer date was expedited has, as I see it, no effect on the questions involved in this appeal. In this way the transfer of the shares is "linked up" with the respective offices, but the question is whether that necessarily or on a reasonable view involves that the transfer was a payment of remuneration for services rendered to the company or a profit of the employment. I would not regard the transfer as having those attributes or of such a character. ....