TMI Blog1943 (12) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... their business. Under this agreement the appellant, who was already a director of the company, divulged to the then managing director his secret process, and the company contracted to pay to the appellant a royalty of one shilling upon every pound weight of the new product manufactured under the secret process and used by the company. The next agreement to be referred to is dated June 28, 1937. By that time Mr. Tilley had become managing director and was receiving a salary as such of 2,000 per annum. The agreement cancelled the arrangement of 1921 for the payment of the royalty, and in consideration of this provided that the appellant's salary as managing director should be raised to 6,000 per annum, and that, in the event of the appellant ceasing from any cause whatsoever to be managing director of the company, the company would pay to him from the date of cessation a pension of 4,000 per annum for ten years from such date. As long as matters stood on the basis of the 1937 agreement, there can be no doubt that the appellant's salary of 6,000 per annum was subject to income-tax under Schedule E and that, when his service as managing director ceased, the pension ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounted to the total of 40,000. If it is legitimate to separate out the consideration in this way, it appears to me that there are two decisions of your Lordships' House which guide us to the conclusion at which we must arrive, one in connection with the pension problem and the other in connection with the payment in respect of the reduction of salary. As regards the commutation of pension, I cannot agree with Lawrence, J.'s view that, as the pension would have been assessable under Schedule E, therefore a sum payable in commutation of it would also be assessable under the same schedule. I think that the Master of the Rolls is right when he says that the decision in Short Bros., Ltd. v. Inland Revenue Commissioners [1927] 136 L.T. 689; 12 Tax Cas. 955 to which Lawrence, J., referred in this connection, does not support the learned Judge's proposition, and neither can I accept the contention contained in the case for the respondent (but not, as I understood, persisted in by the Attorney-General) that the pension under the agreement of 1937 was deferred remuneration and that the acceptance by the appellant during his service of a sum in commutation of the pension a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me view be taken of an arrangement made between an employer and his servant under which, instead of the whole or part of a periodic salary, a single amount is paid and received in respect of the employment? Generally speaking, I think not. An office or employment of profit --to use the actual phrase in Schedule E--necessarily involves service over a period of time during which the office is held or the employment continues. The ordinary way of remunerating the holder or the person employed is to make payments to him periodically, but I cannot think that such payments can escape the quality of income which is necessary to attract income-tax because an arrangement is made to reduce for the future the annual payments while paying a lump sum down to present the difference. My view seems to me to be supported by the decision of this House in Cameron v. Prendergast [1940] 109 L.J.K.B. 486; (1940) A.C. 549; 8 I.T.R. Supp. 75. In that case the respondent was a director of a company and was minded to resign his position and so obtain greater ease. His fellow directors, in the interests of the company's success, urged him not to do so, and an agreement was made between the company and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterval under the agreement of April 6, 1938, is chargeable to income-tax under Schedule E of the Income Tax Act of 1918, as paid to him in respect of his office of director and coming within the words of rule 1 of Schedule E, namely, all salaries, fees, wages, perquisites or profits whatsoever therefrom. My noble and learned friend on the Woolsack has made sufficient reference to the various agreements, and I agree that in order to appreciate the two-folds consideration in return for which the 40,000 was agreed to be paid, it is necessary to refer to the agreement of June 28, 1937, the terms of which equally necessitate a reference to the earlier agreement of December 19, 1921. The Crown failed before the Special Commissioners, on the ground that the payment of 40,000 was not made to the present appellant as remuneration for services rendered or to be rendered to him in his office as a managing director of the company. On appeal by stated case, Lawrence, J., decided in favour of the Crown, holding that both in form and substance the payment was made in consideration both of the release from the company's obligation to pay the pension and the present appellant's ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital is the exact antonym to the later test. While I would agree that according to common experience, any consideration given in return for services in the office of director is likely to be in the nature of income, I am not prepared to state dogmatically that it must in every conceivable case be so, whatever form it takes, as the learned Master of the Rolls and Goddard, L.J., appear to think. It is enough that there is no difficulty in the present case. In so far as the payment of that 40,000 may be referable to the agreement to accept a sum in commutation of the liability to pay a pension, I have nothing to add to the view expressed by my noble and learned friend on the Woolsack. As in Dewhurst's Case [1932] 146 L.T. 510; 16 Tax Cas. 605, such payment did not arise from the office of director, but in spite of it. I also agree with the view expressed by my noble and learned friend on the question of apportionment. I would desire to note, on the question of practicability, referred to by Goddard, L.J., that the present appellant's accountants appear to have provided the basis for the agreed sum of 40,000, as stated in paragraph 8 of the stated case. I concur in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m received upon the sale or surrender of pension rights is not taxable under Schedule E, because it is neither pension nor annuity and comes under no other heading of that section. It is in the headnotes to Dewhurst's Case [1932] 146 L.T. 510; 16 Tax Cas. 605 said to be exempt as being capital and not income. It is not, as I think, a pension or annuity; and therefore not income taxable under Schedule E, but I doubt if much assistance is to be obtained by making use of the antinomy between capital and income. The Attorney-General sought to distinguish Dewhurst v. Hunter [1932] 146 L.T. 510; 16 Tax Cas. 605 on the ground that in that case the pension was not deferred pay whereas in this case it was, and admitted that if it were not the Crown would have no claim to tax. Such a contention makes it necessary to determine the grounds upon which the pension was granted in the 1937 agreement. No special consideration is stated in that document: the granting of the pension apparently forms one of the general terms of the agreement under which the appellant promises to give up his right to receive one shilling in respect of each pound of material manufactured under his secret process. Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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