TMI Blog1957 (5) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes only. The members of the league paid annual subscriptions, the minimum rates of which were laid down by byelaws 4(a) to (n) of the league's byelaws. Byelaw 4(a) govern the minimum rates of annual subscription payable by ordinary individual members, other than those who were engaged as principals in the manufacture and publishing of books or allied trades, and those who were engaged as principals in or connected as principals with the commercial distribution of books (hereinafter called ordinary individual members ). Under the byelaw the rates of subscription payable by ordinary individual members prior to January 1, 1952, were ?1 Is. in the case of those living or having a place of business within 30 miles. of the headquarters of the league, and 10s. 6d. in the case of those not living or having a place of business within such 30 miles. On December 6, 1951, at an extraordinary general meeting of the members of the league, a special resolution was passed that on and from January 1, 1952, the subscription rates should be increased from ? 1 ls. to ? 1 10s. and from 10s. 6d. to 15s., respectively, except in the case of members who, renewing their membership up to and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial advantage. The incidental benefits of membership referred to by the chairman included attendance at exhibitions, the use of an information bureau and of the league's library and other advantages, including the use at the league's headquarters of certain rooms, including two sitting rooms (when not used for committees), and of a restaurant and cocktail bar. In a pamphlet issued by the league, the headquarters were described as your club. There were 10,529 ordinary individual members of the league out of a total membership of 11,936. 2,821 of the ordinary individual members had entered into deeds of covenant pursuant to byelaw 4(a), as varied by the special resolution of December 6, 1951. All the deeds of covenant were in common form and no point was taken as to their terms. The actual amount paid to the league by the covenantors for the income tax years of assessment 1951-1952 and 1952-1953 was ? 3,118 17s. 6d. Certificates of deduction of income tax amounting in the aggregate to ? 2,820 11s. 1d. had been given by the covenantors on the footing that the payments under the said deeds of covenant were annual payments within the meaning of the Income Tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or whereby the league was obliged to afford to the covenantor all the amenities of membership which were offered at any particular time to every other member of the league; (2) that such amenities of membership included the annual provision of goods and services; (3) that the payments received by the league pursuant to the deeds of covenant were received in consideration of the annual provision by the league of goods and services; (4) that the said payments were accordingly not 'annual pay ments' within the meaning of the Income Tax Acts; (5) that the claim accordingly failed. 14. We, the Special Commissioners who heard the appeal, were of the opinion that our first duty was to determine what was the real substance of the facilities.........in which the Crown contended involved goods and services which the leagues was bound by contract to provide for persons who had entered into covenants. While we did not think it material, for the purpose of deciding the issue before us, to make a precise measurement of their value, we were of opinion that it was a critical matter to determine whether they had any real substance to which we should have regard, or were merely trifling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be disregarded as trifling and illusory, with no substance in them at all, is really not justified by the evidence. When the commissioners accept the evidence that the people who joined this covenant scheme did so not for the purpose of anything they could get out of it but merely in order to benefit literature, I think that they paid less attention than I should have paid, or an ordinary recipient of the letter would have paid, to the very flattering and attractive terms which were set out in the circular letter of the chairman of the league. There is no doubt that he was impressing on people that they were going to get some real advantages. I think they were going to get financial benefit, and the incidental benefits of membership which were considerable. Those expressions in the chairman's letter were justified and true. Anyone who received that letter would not have dismissed them as meaning nothing at all, but in many cases undoubtedly must have been induced by that very flattering description--not too flattering, because I think it was justified--to go on being members of the league or to join the league. Those expressions were bound to have had, not an occasional or sl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial contract is a question of fact. The Special Commissioners found that the benefits conferred on the covenantors were trifling. They had evidence on which they could so find. That finding was a finding of primary fact and the judge should not have substituted his judgment for theirs. Further, there is no evidence that this arrangement constituted a binding contract. If there was no contract, then there could not have been a purchase and sale of goods and services. It is unreasonable to take a few words out of a brochure and say these show the true nature of the transaction. The transaction must be looked at as a whole in the light of all the circumstances and, so looked at, the payments under these covenants were pure income payments. If the true effect of this arrangement is not a pure question of fact, the court must look at the true position. If the covenantors had contractual rights, they could not have been unilaterally disclaimed. The league was not bound to supply and particular services for its members. There is no finding that the league was carrying on a trade. These payments fall within Case III of Schedule D and are pure income payments. The onus is on the Crown t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y enter into covenants. The payments are for services. P.J. Brennan in reply. Where a person receives a benefit, the quality and nature of the benefit has to be considered. This is a non-trading charity. The benefits accruing to the covenantors are negligible in quantity and quality. They get no financial benefit. These payments are not trading payments and should qualify for tax relief. [Reference was made to Manchester Corporation v. McAdam; [1896] A.C. 500; 12 T.L.R. 606; 3 T.C. 325; 491. Inland Revenue Commissioner v. Hogarth; 1941 S.C. 1; 23 T.C. 491. Inland Revenue Commissioners v. City of Glasgow Police Athletic Association.][1953] A.C. 380; [1953] 1 All E.R. 747. LORD EVERSHED M.R. The National Book League is a company limited by guarantee which was formed in the year 1925. It was not disputed that since September, 1951, the league has been a body established for charitable purposes only. The question on the appeal arises in relation to some 2,000 or more deeds of covenant in a common and well-recognized form entered into by persons who were members-I have emphasized that word for reasons which will later appear--of the league whereby the covenantors covenanted to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n privileges. They may be allowed the use of certain reading rooms; they may be given the privilege of attending private exhibitions in private houses or elsewhere; and to many I do not doubt these privileges are by no means negligible. But although that case, again, is not before us, it seems to me, as at present advised, that it would altogether offend good sense and good law to say that the sums covenanted in such cases were not gifts to the charity in question, that they were not pure income profit, to use Lord Greene M.R.'s phrase, in the hands of the charity. But the present case (and this is, of course, a truism applicable in all cases) must turn upon its own special facts; and the facts in the present case are special in a marked degree. First, however, it must be stated that it is now clear that the fact that the National Book League is recognized as a body incorporated for charitable purposes only cannot be conclusive of the case in its favour. So much was clearly laid down by the House of Lords in Inland Revenue Commissioners v. City of London [1953] 1 W.L.R. 652; [1953] 1 All E.R. 1075; 34 T.C. 293., the case referred to commonly as the Epping Forest case. In tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is a company limited by guarantee. Its funds, to a large degree at any rate, are obtained from membership, by getting from members their annual subscriptions. All the members become, as I understand the constitution of the league, members of the company, and their subscriptions, or at least their minimum subscriptions, as they are called, and their rights and duties, are regulated under the company's regulations, that is, its articles and byelaws made thereunder. Strictly speaking, the members, like members of other institutions, cannot resign save on giving some appropriate notice. It is also to be observed, and this is another special feature of the case, that differential rates are applied to members who live or have their business in London and country members who live away from London. That, indeed, is not of itself necessarily surprising; I state it, however, as a fact. When the objects of the league are examined, it is to be noted that the first of the objects as stated in the memorandum is: To promote and encourage by all suitable means the habit or reading and the wider distribution of books, and it cannot be doubted that, since the company is established in Lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt document to which allusion should be made, namely, the special resolution of the company, that is, of the members, which was passed on December 6, 1951. Up to that time it appears that the subscriptions, or the minimum subscriptions, payable by individual members, as distinct from corporate members, were one guinea in the case of London members and 10s. 6d. in the case of country members. This resolution was as follows: That on and from January 1, 1952, the annual subscription payable by ordinary individual members be increased from ? 1s. od. To ? 1 10s. od. and from 10s. 6d. to 15s. respectively (except in the case of such members who renewing their membership up to and including August 31, 1952, enter into deeds of covenant to remain members and to pay their annual subscriptions at the existing rates for at least seven years). And this again was part of the policy of those responsible for the management and for using 7, Albemarle Street, as the league's headquarters. The next thing that happened was that the chairman addressed a letter to the existing members. As very much of the argument, revolved round that letter, I propose to read a substantial part of it. It star ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As a result of that letter a large number of members executed these covenants. For the purposes of the present appeal we must, I think, assume that all the covenanted income with which we are concerned was income paid under covenants entered into in response to that letter or similar letters addressed to members. There may have been since, and there may be hereafter, other covenants executed in favour of the league by members, and as to such other covenants I say nothing at all. I am confining myself to such covenants as must be taken to have been executed in response to that request. It is to be noted that the deed of covenants is in perfectly normal form, and makes no reference anywhere to any corresponding promise by the league, or, indeed, to the fact of the sum paid being taken as a subscription. But it cannot be doubted that those who entered into these covenants in response to that letter must have been doing so in the faith that the sums paid, ? 1 1s. od. and 10s. 6d. according to their place of residence, would be accepted as payment in full of their subscriptions for seven years, notwithstanding the increases in the subscription rates to the rest of the members. It fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id that those who entered into these covenants have paid the sums covenanted without conditions or counter stipulations; and, on the whole; I have come to the conclusion that they cannot so say. It seems to me that against the special background of this case, and, having regard to the terms of the letter, there was here, in a real sense, a condition or counter stipulation on the part of the league against which the covenant was entered into. I must guard myself against saying that whenever one finds a covenantor in favour of a charity getting allowed to him certain privileges, it therefore follows that such a covenantor no longer can say that he has paid without conditions or counter stipulations. If the test be, as I venture to think it is, whether in all the circumstances, and looking once more at the substance and reality of the matter, these covenantors can be treated as donors of the covenanted sums to the charity, I have come to the conclusion that the answer must be in the negative, subject to the point to which I will now come as to the extent of the conditions or counter stipulations. The aspect of the matter, with which I have so far dealt, does not appear, as I follow th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon this point unable to accept the argument of Mr. Brennan that it is a pure question of fact upon which the conclusion of the Special Commissioners must be found. Upon that matter I agree entirely with the conclusion of Vaisey J. to which, indeed, I cannot usefully add anything. Taking that view, and also concluding, as I do, that in the circumstances of this case the league failed to establish that the sums paid under the covenants can be regarded, to use again Lord Greene M.R.'s phrase, as pure income profit within Case III of Schedule D, and such as to entitle under section 447 the league to recover the tax, I would dismiss the appeal. MORRIS L.J. The National Book League, being a charity, claims under section 447(1)(b) of the Income Tax Act, 1952, that it should have exemption from income tax chargeable for the years 1951-1952 and 1952-1953 on payments received by the league by virtue of deeds of covenant which were made by certain members of the league in 1952. Those members, some 2,821 in number, availed themselves of an opportunity which was given to them by the terms of a special resolution passed on December 6, 1951. The 2,821 were all members at that time. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubt that members of the league were motivated by a desire to give financial support to its work, But in order to stimulate and encourage their support inducements were offered in the form of attractive advantages to be enjoyed by members. These are set out in the case stated, and have been referred to by my Lord, and I need not now further detail them. The fact that advantages are possessed, including, though in quite limited and modest form, certain club facilities, is reflected in the circumstances that the amounts of the subscriptions are decreed, though, of course, payments voluntarily made at higher rates would be welcome. But in the case of subscriptions for a good cause, it is not ordinarily the case that there is any fixation of amount nor, indeed, any differentiation in rates between persons living in London and persons living in the country. Nor would it happen that those advancing the interests of a good cause would write to advise the subscribers as to a way of protecting themselves against paying more than they were paying. In my judgment, the invitation to the existing members of the league in the early part of 952 was an invitation to sign covenants so that they ..... X X X X Extracts X X X X X X X X Extracts X X X X
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