TMI Blog1957 (4) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 profits arising therefrom so as to attrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the shareholders of a company to its secretary and liquidator, the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to be transferred on their mothers death to the appellants respectively, and in each o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifying 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 transferred the shares whether the consideration moving from the appellants had been inserted in the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 respect to Bearsley. [His Lordship read paragraph 10 of the case, and continued :] Treating the whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 nature of the mistake. The position was that at the date of the deeds the service agreements had only about nine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration 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 shares were actually transferred, which, as I have said, was in fact earlier than the date on which the Hornby brothers were obliged un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 or employment he was chargeable in respect of all salaries, fees, wages, perquisites or profits whatsoever therefrom for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 parties were to give a meaning to the provisions of the deeds contrary to the words which the deeds plainly contain. If the evidence which the commissioners regarded as admissible was received and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 personal gift. In one sense Bearsley received the shares by reason of his office. Had he not held the office he would not have had them. But them merely shows that he would not have had the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding 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 the sum of Pounds 45,000 os. od. and will embody their undertaking so to do in a formal deed reciting this letter. The director did not send in his resignation, and two weeks later the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstance 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 the attributes of remuneration in those classes of cases where it is reasonable to expect that remuneration would come other than from the pocket of an employer. Thus, as pointed out above, the cricketer in Moorhouse v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Herbert v. McQuade a beneficed clergyman received for several years an annual grant from a body incorporated with the object of providing adequate remuneration for beneficed clergy : he received the annual sums by virtue of his office so that his remuneration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 he served the company for four years from December, 1945. In one limited sense Bearsley was to receive his shares by reason of his - for if he had not served and held office in Meccano Ltd. he would never have had the shares. But I do not think that it follows from this that the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 tax period was managing director of the company. On July 27, 1953, the two appellants received 8,000 shares each in Meccano Ltd. on two transfers to each of them of 4,000 shares each from Roland and Douglas Hornby. The value to each of the appellants of the transferred shares was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ? 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 Danckwerts J. would have found in favour of the appellants and would have been satisfied that the shares in question were gifts. Without the deeds I do not feel any doubt that that would have been the right view to take. The judgment continues as follows : But the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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. The effect of the deed was, as I appreciate it, to make the transfer contingent on the appellants remaining four years with the company, but it imposed no duty or obligation on them to serve the company. Once the condition of four years service had been fulfilled, as it in fact was by the end of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment. I would agree with Danckwerts J. that none of the cases cited is conclusive. It is, I feel, hardly necessary for me to add that I have reached my decision with great deference, as it is not in accord with the conclusions of Jenkins L.J., and the trial judge. I will deal briefly with the other issues raised before us, on which I am in agreement with Jenkins L.J., and with the judge. I do not think the evidence with regard to how the deeds came to be drawn up in the terms they were is admissible any further than the commissioners were prepared to allow it, but even if it can be regarded I doubt if it makes any effective difference. It is not, in my view, in harmony with the tax provisions that if the transactions fell within the terms of Schedule E the income was the value of the rights acquired by the appellants when the deeds were entered into. I agree with judge when he says : If the conclusion is correct that the transfers of the shares were profits of the taxpayers offices and remuneration for the services to be performed by them, they were paid for those services when the shares were transferred to them (though the shares were not immediately realized), and ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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