TMI Blog1960 (12) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... t an advantage received by him by virtue of his employment which was capable of being turned into money, because his employers would have been displeased if he had sold it; alternatively that, if the value of the suit was an advantage received by him by virtue of his employment which was capable of being turned into money, the value was not the price paid by Anglo-Oriental to the tailors, namely, 14 15s., but the sum which he could have raised by the sale of the suit in November, 1955, and that that sum was very small. What is the money's worth which the taxpayer got, was it the payment which the employers made or was it the benefit which the taxpayer got from the payment? - HELD THAT:- LORD EVERSHED M.R. The point involved in this appeal falls indeed within the narrowest compass; but it is, or appears to be, novel in the sense that no strictly comparable case seems to have come before the court before. It seems that the taxpayer never acquired any rights against anybody. He received this letter; armed with it, he went to Messrs. Montague Burton's establishment, and Montague Burton expressed themselves as willing to supply him with the clothes he ordered. When th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be turned to pecuniary account. This can be realised in cash, and it is that realisable quality which is the measure of the taxpayer's liability.I would therefore dismiss the appeal. DONOVAN L.J. I agree, and I add a few words only because of the novelty of the point. The case wears an aspect of triviality which is deceptive. Tax on 15 alone is involved, but the proposition on which the claim is based is of much wider significance, and it will look very different when applied to other cases which can easily be foreseen, and some of which were referred to during the argument. The proposition was stated thus: Where an employer offers to spend money for an employee as a reward for service ; and that offer is accepted, the employee is liable to be taxed on the money so spent, and not on the thing which the money provides for him. A good many qualifications would need to be added to that proposition to make it true. It looks true in cases like Hartland v. Diggines and Nicoll v. Austin where money liabilities of the employed officers were discharged by the employer. But what the officers were really taxed upon was the money's worth of the immunity they were thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chedule E of the Income Tax Act, 1952, for the year 1955-56 in the sum of 1,035 on the ground that a sum of 14 15s., paid by his employers for a suit bought by them as a present to him and supplied to him by Montague Burton Ltd., was wrongly included in computing the amount of his salary, fees, wages, perquisites or profits within the meaning of rule 1 of Schedule 9 to the Act. 2. The following were among the facts found by the special commissioners: The taxpayer was for the whole of the material year an employees of a company, the Anglo-Oriental and General Investment Trust Ltd. His duties were almost exclusively secretarial and were performed solely at the head office of the company at 55-61, Moorgate, E.C. 2, and he was remunerated for his employment by a salary and, at the discretion of the directors, bonuses based on salary. The bonuses were usually paid to him in June and before Christmas in each year. In the material year, 1955-56, he received his usual bonuses and there was no issue before the special commissioners as to his liability to be assessed under rule 1 of Schedule 9 to the Act in respect of that salary and those bonuses. 3. In 1955 the board of directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmal clothing. He anticipated, however, that the suit supplied to him by the tailors would be discarded sooner than his other suits because, owing to its lower quality and cut, it would become shabby more quickly. There was no condition in writing or orally as to a refund to Anglo-Oriental if he left their employment before the suit was worn out. There was no evidence that Anglo-Oriental had forbidden the taxpayer to sell the suit, but he entertained no doubt that they would have been displeased if he had done so: in any event he had made no such attempt. Shortly after the suits were supplied by the tailors to the taxpayer and his other colleagues, one of the directors or other officials of Anglo-Oriental made a point of inspecting them. 4. It was contended for the Crown that the taxpayer received in the year 1955-56, in addition to the cash emoluments of his employment, an advantage by virtue of that employment which was money's worth, namely, a suit of clothes; that, on the evidence, that advantage of money's worth fell to be measured by the price paid by Anglo-Oriental to the tailors for the suit, that was the sum of 14 15s.; that that sum was, correctly included in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, was the amount which should be included in his taxable income for the purposes of Schedule E. 9. The Crown appealed. 10. Hilary Magnus Q.C., E. Blanshard Stamp and Alan Orr for the Crown. It is conceded that the gift of the suit gave rise to the receipt of a taxable perquisite or profit within Schedule E. The sole issue is as to quantum. Only where there is no money payment is it necessary to consider whether an emolument is capable of being converted into money, e.g., Abbott v. Philbin (Inspector of Taxes) [1960] Ch. 27; [1959] 3 W.L.R. 739; [1959] 3 All E.R. 590, C.A. The taxpayer submits that the value of the suit is the price which he could get for it in the open market if he sold it immediately he received it. The Crown contends that the value of the suit as a perquisite is the sum paid for it by the company. The commissioners decided in favour of the taxpayer that the value was 5. 11. If a payment is made to a third party by arrangement with the employer for the benefit of his employee that is as much for the benefit of the employee as if it was paid direct to him. The fundamental question is whether the employee receives a benefit in cash or in kind. On one si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees raise part of the corpus of a fund for the purpose of increasing the income of a cestui que trust that is analogous to this case. The source of the income is the trustees' discretionary power to raise money from the corpus for maintenance, and money derived from that source is as much taxable as money derived for the employer and paid to the third party for the benefit of the employee. The cestui que trust is taxed on the money's worth applied for his benefit and not on the worth of the thing procured by the expenditure. Money applied for the benefit of the beneficiary is as much a benefit as money paid direct to him. [Lindus and Hortin v. Inland Revenue Commissioners[1933] 17 Tax Cas. 442. was referred to.] 14. Where an employer offers to expend money for an employee, the employee is taxed on the amount expended and not on the value of the thing provided. The price which it would fetch if sold in the open market is not a relevant consideration. In Nicoll (Inspector of Taxes) v. Austin[1935] 19 Tax Cas. 531, Finlay J. held that the outgoings and the expenses of the upkeep of the taxpayer's house and garden, paid by his employers, were money's worth and a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ratio of the decision in Cordy (Inspector of Taxes) v. Gordon[1925] 2 K.B. 276; 41 T.L.R. 401; 9 Tax Cas. 304 There is no decision directly in point here. [Reference was made to sections 160, 161 and 163 of the Income Tax Act, 1952.] 16. F. Heyworth Talbot Q.C. and C.N. Beattie for the taxpayer. The Crown's case rests on the false premise that when an employer makes a payment to a third person in order to procure a benefit for his employee, it is the payment made to the third person that constitutes the emolument of the employee. The true principle is that what constitutes the income of the employee is not the payment but the money's worth produced by the payment. In some cases the money's worth cannot be different from the payment. In the case of the gift of a book voucher there is no problem. The face value of the voucher is the benefit. The subject-matter of the gift is what the donee chooses. The position would not have been different here if the suit had been in the first instance delivered to the company. The suit itself was the money's worth. If that is right the Crown's case fails on authority. In Tennant v. Smith([1892] A.C. 150; 8 T.L.R. 434; 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal falls indeed within the narrowest compass; but it is, or appears to be, novel in the sense that no strictly comparable case seems to have come before the court before. 20. Mr. Rogerson, the respondent, at the relevant date in 1955-56 was in the service of a company known as the Anglo-Oriental General Investment Trust Limited. As the season of goodwill approached in the year, 1955, the company, of which he was the servant, wrote to him, and to some twenty or twenty-one fellow servants, a letter which, so far as material, was as follows: The Board have decided to make a Christmas present to all male members of the staff of clothes suitable for wear at the office up to the value of 15. Arrangements have been made with Messrs. Montague Burton Ltd., 112, Cheapside, E.C. 2, for you to be able to acquire from them a choice from or combination of the following: Suit, overcoat raincoat. The bill will be sent to the Trust, and it is stressed that no cash payment either way can be made between 15 and the actual cost of the goods. 21. Please take this letter with you when you visit Messrs. Montague Burton, which can be done on or after Thursday, November 10, 1955. Messrs. Mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment... It is the Crown's case that the 14 15s. must be treated as a perquisite or profit from the employment for the year of assessment 1955-56. 26. On behalf of the taxpayer it was said that any perquisite or profit was limited in this case to the value expressed in money of the thing which he got, namely, the clothing. For the purposes of this case, the value of the clothing, treated, of course, as second-hand the moment it had been delivered, has been agreed at 5. Let me say at once that this involves no reflection upon Messrs. Montague Burton Ltd., who are not before the court; and it should not, of course, be assumed that goods which they supply are worth only one-third of the price which they charge. But it is, of course, notorious that, apart from purchase tax, the value of clothing is very much reduced the moment it can be called second-hand. In any case, the value is one which has been mutually accepted and agreed and nothing turns upon it. It may have been agreed at a low figure to discourage any cross-appeal by the taxpayer. If so, it has achieved its purpose, for it is now accepted on his behalf that he is rightly taxed, as the judge in the court bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person to whom it was addressed was not bound to accept. Indeed, anyone who proposes to give a present to somebody else may find that the somebody else says: I will not have it. But in the submission which Mr. Magnus has formulated, the word offer, I think, is used in a sense in which it would be used in a legal context. The suggestion is that here was an offer which, on acceptance, created some right; and it is at that point that I venture to part company with Mr. Magnus. 30. It seems to me that the taxpayer never acquired any rights against anybody. He received this letter; armed with it, he went to Messrs. Montague Burton's establishment, and Montague Burton expressed themselves as willing to supply him with the clothes he ordered. When the clothes were delivered, then (and then only) the taxpayer got something which was his own. He acquired at that point of time a suit, albeit he had no right against anyone to get the suit. Nor had he, as I conceive, any right against the company, though as a matter of ordinary decency as between master and servant he could no doubt rely upon the company doing what they said they would do. But this was not a case in which he was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of it to him, and it appears to me that this perquisite is a taxable subject-matter because it is money's worth. It is money's worth, because it can be turned into money, and when turned into money the taxable subject-matter is the value received. I cannot myself see how it is connected directly with the cost to the employer. It is quite true that in Hartland v. Diggines[1926] A.C. 289, for instance, the employer made certain payments of money for the employee's benefit. Well, the only way in which you can make a valuation of money is by money. It is not like a chattel, which is the case here, and therefore, there was no difference in the standard of what was paid by the employer, and the advantage received by the employee. 35. Here there is a difference. It is admitted that as a conventional matter the difference can be taken as that between 14 15s. and 5. Income-tax is a tax levied on income. The taxpayer has to pay on what he gets. Here he has got a suit. He can realise it only for 5. The advantage to him is, therefore, 5. The detriment to his employer has been considerably more, but that seems to me to be irrelevant, and I do not see that it mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in those cases explained that once the trustees so applied the income, that income itself became the beneficiaries'; see, for example, the case of Sutton v. Inland Revenue Commissioners[1929] 14 Tax Cas. 662; 45 T.L.R. 565, C.A. In the end the Crown conceded (I think rightly) that no true analogy could be drawn between that class of case and the present. 43. That being so, I can discover no test which yields the result that the payment by the employer to Messrs. Montague Burton in the circumstances of this case is the income of the employee. 44. In that situation one must get back to what has always, so far as I know, been accepted as the basis of liability under Schedule E, namely, that liability extends to the profits or gains arising or accruing to the holder of the office or employment as such, whether those profits take the form of money, or money's worth. No money arose or accrued to the tax- payer here from this transaction. Money's worth did, in the shape of the suit. The suit (and the suit alone) answers the description of profit accruing to the employee from his employment. On that basis it should be assessed to income tax at its money value in the taxpa ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
