9911796707
TMI Blog1959 (11) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... an agreement dated June 1, 1951, known as "the housing agreement" and made between Imperial Chemical Industries Ltd. (hereafter referred to as "I.C.I.") of the one part and the respondent of the other part. He was employed by I.C.I. under a service agreement at a salary which at the material time was some 820 a year. The facts, stated by Viscount Simonds, were as follows: The respondent was a married man with two children who were born in 1949 and 1953. He had been employed by I.C.I. since 1941, at which time he lived with his parents at Welwyn in Hertfordshire. His first employment was as a laboratory assistant. In September, 1950, he was transferred to the I.C.I. works at Hillhouse in Lancashire on appointment as an assistant technical officer (chemist). During the first few months, which were a probationary period, he lived in rooms. On April 27, 1951, he entered into a service agreement with I.C.I. of which for the purpose of this case the salient feature was that he agreed to serve anywhere in the United Kingdom of Great Britain and Northern Ireland, and that I.C.I. should be at liberty to change the locality of his employment within those limits. There wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tirement of the employee, or (C) the death of the employee (whichever first happens) I.C.I. becomes liable to pay to the employee or his personal representatives the amount if any whereby the price realised on such sale falls short of the employee's expenditure on the house. (See clause 3 W.) (iii) If the house is not 'sold before the expiration of the period of 12 months mentioned in (ii) above, then there is to be a valuation of the house and I.C.I. becomes liable to pay to the employee or his personal representatives the amount (if any) whereby the employee's expenditure oil the house exceeds the amount of the valuation. (See clause 3(2).) (iv) If at any time before such one of the three events mentioned in (ii) above as shall first happen the employee while still in the service of I.C.I. desires to sell the house he may do so, but in that case he is only to be entitled to the benefit of I.C.I.'s guarantee against capital loss if he obtains I.C.I.'s consent to the sale and offers to sell the house to I.C.I. If I.C.I. accepts the offer then the house is to be bought by I.C.I. on similar terms to those stated in (i) above (i.e., with the benefit of the guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it costs to buy. Under the housing agreement the employee cannot make a profit as a result of the housing agreement. An employee's salary is calculated quite independently of anything he might receive under the housing agreement. I.C.I. salaries compare favourably with salaries paid by other employers not operating a housing scheme." Upon these facts the commissioners held that the sum in question was not assessable to tax. Their reason was that the payment was to meet a capital loss incurred by the respondent in fulfilling the obligations of his employment. This was not precisely the way in which the case was subsequently presented. John Pennycuick Q.C. and Allan Orr for the appellant. The sum of 350 was a profit arising from the respondent's employment, being received by or credited to him as an employee of I.C.I. and as a reward for services and for nothing else. No substantial consideration for the payment moved from him other than his services. Every time money's worth or a sum of money is received by an employee as such, that is a profit of his employment except only in so far as the receipt is in return for full consideration in money or money's wort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full consideration in money or money's worth for the payment of their rent. Where there is some genuine consideration, but it is plainly inadequate, the court must make an apportionment as best it can. Here there is no consideration in money or money's worth. The only positive obligation on the respondent is to give I.C.I. the first refusal of the house. That is no pecuniary detriment to him, since it is a first refusal at market value. One must look at the matter from his point of view. It is irrelevant that the bargain is in form a bargain made at arm's length. The only question is: how does the contract stand from the point of view of the employee? Unless the employee gives up something in order to get what he gets, the receipt is a profit. What the employer is getting is the service of a man whose mind is free from anxiety as to his house. To be recouped a loss by someone else is plainly a profit. If a man buys a car for 1,000 and sells it for 500 and his employer makes up his loss, that is a profit to the employee. The same is true if an employer makes up his employee's losses on Stock Exchange transactions or pays his income tax. If there was a covenant in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and he had done so on the faith of the scheme, that would be different from the present case. One would have to see whether from the point of view of the employee he had given full consideration. But purchasing a house of one's own volition could never be consideration moving to the employer. As to payments to directors, see also Tilley v. Wales [1942] 2 K.B. 149, 150 (C.A.); [1942] 1 All E.R. 639, 640-641; [1943] A.C. 352. 355 (H.L.); 59 T.L.R. 90; [1943] 1 All E.R. 46; 11 I.T.R. (Suppl.) 23 which indicates that if there is some real consideration moving from the employee, though it is insufficient to balance the benefit moving from the employer, there may be an apportionment between the taxable and non-taxable parts of what is received. As a matter of principle and commonsense a payment made under a collateral contract without any consideration in money or money's worth must be in the same position as a purely voluntary payment. It cannot make any difference that the obligation to make a payment is contained in a collateral document under which there moves from the employee some consideration which is good consideration but which is not full consideration in money or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party to this agreement about this house. His services were not the causa causans of the payment. The respondent adopts what Jenkins and Pearce L.JJ. said in the Court of Appeal. It is not true to say that, if the House of Lords does not accept the appellant's propositions, sums paid by an employer to an employee in recoupment of losses can never be taxable. The question will always be: Is the payment for services or is it not? The onus in this should not be shifted onto the taxpayer. On the facts of this case there was sufficient consideration for the payment. Where an agreement stipulates for a consideration other than services and is bona fide, one is not entitled to infer from the circumstances that the services are the consideration under it: see Inland Revenue Commissioners v. Duke of Westminster [1942] 2 K.B. 169, 173 (C.A.); [1942] 2 All E.R. 22, [1943] A.C. 386, 393, 395-396 (H.L.); 59 T.L.R. 178; [1943] 1 All E.R. 280; 11 I.T.R. (Suppl.) 69, which is a fortiori the present case and with which the appellant's case is inconsistent. In considering whether all the facts point to the conclusion that this payment was or was not made for the services of the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Crown's argument that sum would not have been taxable because the sale would have been for full consideration. The housing agreement was about this particular house and not about the respondent's services, and the character of the agreement has not changed because the house was sold at a loss. It is not a case of an employer undertaking to stand the loss in relation to a piece of property; the employer also acquires some real rights in relation to the house. john Pennycuick Q.C. in reply. Every receipt in money or money's worth which is received by an employee as such is a profit of his office, save in so far as it is received for full consideration in money or money's worth, and is taxable under Schedule E. That is true of the case of a collateral contract. If it were held that there had been, not full but partial, consideration in money or money's worth, then the taxpayer would have been entitled to a reduction by way of apportionment. But here no such contention has hitherto been submitted to the courts and it is too late to ask for an apportionment now. In the Westminster case [1936] A.C. 1; 51 T.L.R. 467 the contention for the Crown was that the sums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on every person having or exercising an office or employment of profit mentioned in Schedule E, or to whom any annuity, pension or stipend chargeable under that Schedule is payable, in respect of all salaries, fees, wages, perquisites or profits whatsoever therefrom for the year of assessment, after deducting the amount of duties or other sums payable or chargeable on the same by virtue of any Act of Parliament, where the same have been really and bona fide paid and borne by the party to be charged." I will now refer to the facts of the case, which I must do by reference to the case stated by the Commissioners for the General Purposes of the Income Tax, using so far as possible their own language. [His Lordship stated the facts and continued:] Upjohn J., before whom the matter first came, after a review of the relevant case law, expressed himself thus in a passage which appears to me to sum up the law in a manner which cannot be improved upon. "In my judgment", he said, "the authorities show this, that it is a question to be answered in the light of the particular facts of every case whether or not a particular payment is or is not a profit arising from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 37 I.T.R. 431, 457: "Bearing these considerations in mind I find it quite impossible to arrive at any conclusion other than that there is no substantial consideration apart from services." This, put in other words, is a finding that the substantial consideration for the payment by I.C.I. of 350 to the respondent was the rendering of service by him. My Lords, if in such cases as these the issue turns, as I think it does, upon whether the fact of employment is the causa causans, or only the sine qua non, of benefit, which perhaps is only to give the natural meaning to the word "therefrom" in the statute, it must often be difficult to draw the line and say on which side of it a particular case falls. But I think that the approach should not be exactly that of Parker L.J. It is for the Crown, seeking to tax the subject, to prove that the tax is exigible, not for the subject to prove that his case falls within exceptions which are not expressed in the statute but arbitrarily inferred from it. Thus, in the present case it is for the Crown to establish that a payment made under the housing agreement is a reward for the employee's services. Let me interpolate tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n nothing that I have said have I intended to cast any doubt upon them. I should not be justified in doing so. But I do not apologise for going back to the very words of the statute and ignoring explanatory words like "as such," nor do I think it useful to examine whether an agreement under which payment is made is "collateral". The question is one of substance, not form. I accept, as I am bound to do, that the test of taxability is whether from the standpoint of the person who receives it the profit accrues to him by virtue of his office: see Seymour v. Reed [1927] A.C. 554 (H.L.); 43 T.L.R. 584 and Herbert v. McQuade 1902] 2 K.B. 631 (C.A.); 18 T.L.R. 723. I do not doubt that a taxable profit may take the form of the discharge of an employee's obligation as well as of a direct payment: cf. Hartland v. Diggines [1926] A.C. 289 (H.L.); 42 T.L.R. 262, nor that a lump-sum payment to directors may in some circumstances, just as in other circumstances it may not, be subject to tax. Here fine distinctions have been made which are not directly relevant to the present case. Again, there may well be cases, of which Nicoll v. Austin [1935] 19 T.C. 531 is an example, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... glosses, and they are all of value as illustrating the idea which is expressed by the words of the statute. But it is perhaps worth observing that they do not displace those words. For my part, I think that their meaning is adequately conveyed by saying that, while it is not sufficient to render a payment assessable that an employee would not have received it unless he had been an employee, it is assessable if it has been paid to him in return for acting as or being an employee. It is just because I do not think that the ? 350 which are in question here were paid to the respondent for acting as or being an employee that I regard them as not being profits from his employment. The money was not paid to him as wages. The wages of employees are calculated independently of anything which they get under the housing scheme, and the I.C.I. salaries compare favourably with salaries paid by other employers in the chemical industry who do not operate a housing scheme. We are bound to say on the facts found for us that the source of the 350 was the housing agreement into which the respondent had entered on June 1, 1951, and that the circumstance that brought about his entitlement to the money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Imperial Chemical Industries Ltd., but under an indemnity contained in the housing agreement entered into between him and the company when, on his transfer to Hillhouse, he bought a house to accommodate himself and his family and received assistance from I.C.I. in the purchase thereof, and an indemnity in certain events against loss on the resale of it for less than the purchase price. The Crown claimed tax on this sum of ?350 as being due under Schedule E in respect of his office or employment with I.C.I. The relevant provision of the Rules applicable to Schedule E is contained in paragraph 1 of Schedule IX, which provides that: "Tax under Schedule E shall be annually charged on every person having or exercising an office or employment of profit mentioned in Schedule E...in respect of all salaries, fees, wages, perquisites or profits whatsoever therefrom" (the italics are mine). This claim has been rejected by the General Commissioners, by Upjohn J. and by a majority of the Court of Appeal but on somewhat different grounds. The commissioners rejected it on the ground that the payment was to meet a capital loss and was therefore not assessable to income tax. Upjohn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving or exercising an office or employment of profit. The reference is to what is received by the holder of an office or employment in that capacity: to the holder of the office or employment as such." My Lords, I am prepared to accept that statement of the law, but it is, I think, clear from the final conclusion of Morris L.J. in the case last cited, and from the decisions cited by Jenkins L.J. in his judgment in the present case (see especially Beak v. Robson [1943] A.C. 352 (H.L.); 59 T.L.R. 90; [1943] 1 All E.R. 415; 11 I.T.R. (Suppl.) 23, Per Lord Simon, and Cowan v. Seymour [1920] 1 K.B. 500 (C.A.); 36 T.L.R. 155, Per Younger' L.J.) that it is not enough for the Crown to establish that the employee would not have received the sum on which tax is claimed had he not been an employee. The court must be satisfied that the service agreement was the causa causans and not merely the causa sine qua non of the receipt of the profit. My Lords, on the facts of the present case I am satisfied that Jenkins L.J. was right when he said [1959] Ch. 22, 53-54; 37 I.T.R. 431, 455: "I think it may well, be said here that while the employee's employment by I.C.I. was a causa s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as transferred by the company to Hillhouse in Lancashire. In 1951 he found a house in Lancashire suitable for his needs at a price of ? 1,850. He had only ? 90 of his own, so he had to borrow the rest on mortgage. A building society lent him ? 1,460 at interest and his employers lent him ? 300 free of interest. Imperial Chemical Industries Ltd. had a housing scheme to help employees placed as he was; and it was under this scheme that they lent him the ? 300. His employers also agreed that, if he were to be afterwards transferred to any other part of the country, and so had to leave the house, they would guarantee him against any loss or depreciation on it. The detailed terms were set out in a housing agreement. Three years later Imperial Chemical Industries Ltd. transferred him to Wilton in Yorkshire and he had to leave the house. He sold it at a loss. He had paid ? 1,850 for it but he only sold it for ? 300. So he incurred a loss of ? 350. His employers, Imperial Chemical Industries Ltd., were bound under the housing agreement to indemnify him against this loss and they did so. They paid him ? 350. He used it to pay off the money he had borrowed, so he made nothing out of it at al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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