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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Brown v Bullock (Inspector of Taxes) [1961] EWCA Civ 5 (26 June 1961)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/1961/5.html
Cite as: [1961] 3 All ER 129, [1961] 1 WLR 1095, [1961] WLR 1095, [1961] EWCA Civ 5

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JISCBAILII_CASE_TAX

BAILII Citation Number: [1961] EWCA Civ 5

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL

Royal Courts of Justice
26th June 1961

B e f o r e :

THE MASTER OF THE ROLLS
(Lord Evershed)
LORD JUSTICE HARMAN
LORD JUSTICE DONOVAN
____________________

Between:
GORDON JAMES BROWN
 Appellant
and
V. W. BULLOCK (H.M. Inspector of Taxes)
 Respondent

____________________

(From the Shorthand Notes of the Association of Official Shorthand Writers, Ltd., Room 392, Royal Courts of Justice and 2, New Square, London, W.C.2.)

____________________

MR H.H. MONROE, Q.C. and MR MICHAEL NOLAN (instructed by Messrs. Preston & Naylor, Talbot House, Arundel Street, W.C.2)
appeared as Counsel on behalf of the Appellant.
MR C.F. FLETCHER-COOKE, Q.C. and MR ALAN ORR (instructed by The Solicitor of Inland Revenue, Somerset House, Strand, W.C.2)
appeared as Counsel on behalf of the Respondent.
____________________

HTML VERSION OF JUDGMENT
 ____________________

Crown Copyright ©

    THE MASTER OF THE ROLLS: The question in this appeal calls for a decision upon the application to the facts in, question of paragraph 7 of the Ninth Schedule to the Income Tax Act, 1952. The words of the paragraph are: "If the holder of an office or employment of profit is necessarily obliged "to incur and defray out of the emoluments thereof the expenses of travelling "in the performance of the duties of the office or employment, or of keeping "and maintaining a horse to enable him to perform the same, or otherwise to "expend money wholly, or exclusively and necessarily in the performance of the "said duties, there may be deducted from the emoluments to be assessed the "expenses so necessarily incurred and defrayed."

    The appellant in this court, Mr Brown, was appointed in the year 1949 as manager of the branch of the Midland Bank Ltd. in Fall Mall in Westminster. According to the findings of the General Commissioners, he was instructed (and I will now quote from paragraph 3 of the Case), "that he must foster "local contacts and that he should join the Club or Clubs best suited for "that purpose". The Case goes on to say, it might be thought somewhat derogatorily of the powers of selection on the part of the clubs, "Membership "of such Clubs is in almost every case passed from the Manager to the "succeeding Manager as a matter of course." The paragraph proceeds: "If "a prospective Manager refused to join a Club his refusal would not be "accepted without very good reason but would not necessarily mean that he "would lose the appointment. Club membership is virtually a condition "or requisite of managerial appointment and it would be unlikely that a "Manager would be appointed who would refuse to join the appropriate "club or clubs."

    Later, the Case states that he, Mr Brown, in fact used the Devonshire Club, which is one of the clubs with which we are concerned, "for returning hospitality received by him from customers of the Bank. "In addition he lunched there fairly frequently so that he might keep "in touch with members of the Club some of whom were customers of the Bank, "He used it rarely for any other purpose."

    I shall say something on that last sentence presently because Mr Monroe said that in truth there was no evidence that Mr Brown had. used the club at all for any purpose other than those I earlier read.

    Finally it is stated in the Case: "The Appellant was not a "'clubman' and would be resigning his membership of the Devonshire "Club as soon as he retired but he hoped to retain membership of the "Royal Automobile Club Country Club." That last sentence introduces two well known clubs. In fact, it seems that Mr Brown had been for some time, at any rate, before his appointment as manager of the Pall Mall Midland Bank a member of the Royal Automobile Club, the membership which he enjoyed being one which entitled him also to use the Country Club. That was a matter of personal amenity to himself because Mr Brown is in fact one who enjoys a game of golf, and he made use of his membership of the Royal Automobile Club to play golf at the club's country course.

    His subscription in respect of the Royal Automobile Club was at all relevant dates 12 guineas. We were informed this morning that now in fact ho has ceased to be a member of the club, save only a country member for which privilege the subscription is half, 6 guineas. The other club, the Devonshire Club in St. James's Street, is. one of which the subscription at the relevant dates was £21 per annum. It seems that the Bank paid in fact the full amount of the Devonshire Club's subscription and half the Royal Automobile Club subscription (that is, such part of the subscription as was not referable to the Country Club), and it is not in doubt in this court that those payments should be treated as part of Mr Brown's emoluments as manager on behalf of the Midland Bank.

    The question is whether he can invoke the language of paragraph 7 of the Ninth Schedule of the Act and treat the subscriptions as an expense necessarily incurred in the performance of his duties as Bank manager. It is the words which I have emphasised in the last sentence upon which the whole matter hangs. On the facts as found is it true to say that the subscriptions (that is, the annual subscription to the Devonshire Club and half the subscription to the Royal Automobile Club), were expenses necessarily incurred in the performance of Mr Brown's duties as Bank manager?

    For the purposes of this appeal I think it unnecessary to make any distinction between the two clubs and I confine myself hereafter to Mr Brown's membership of the Devonshire Club. The General Commissioners who heard the case concluded that Mr Brown had not made good his claim for exemption. They said "that although the Appellant was necessarily "obliged to incur the expense of the Club subscriptions such expenditure "was not wholly exclusively and necessarily made in the performance of his "duties as a Bank Manager."

    On appeal to Mr Justice Danckwerts (as he then was) the same conclusion was reached. The learned judge expressed some sympathy for Mr Brown in the circumstances but felt the answer was inevitable and certainly not less so because of the decisions of Mr Justice Vaisey in two cases, Lomax v. Newton, 34 Tax Cases, 558, and Griffiths v. Mockler, 35 Tax Cases, 135. Those cases related, among other things, to mess subscriptions defrayed by military or territorial officers. The officers claimed that as officers they were, in the same way as Mr Brown here was, obliged for practical purposes to join the mess and that therefore the subscriptions fell within the ambit of the language I have road. The learned judge, Mr Justice Vaisey, in those cases rejected that view. He said that no doubt an officer would for practical purposes have to belong to a mess, but it could not be said of his mess membership that it was necessarily in performance of his duty as an officer.

    Those cases of Mr Justice Vaisey are not binding upon us, but I see no ground for casting any doubt upon their validity. As Mr Justice Vaisey pointed out, the language of the paragraph in the Schedule is of a somewhat rigid character. The adverb " necessarily" added to the phrase "performance of the duties" clearly narrows very much the scope of any expenditure which can fairly be deductible.

    Mr Fletcher-Cooke indeed indicated that there was a distinction, a sharp distinction, upon which he largely founded himself, between a Schedule D case and a Schedule E case. Under Schedule D, where "wholly and "exclusively" are as in a Schedule E case required as characteristics, the word "necessarily" is absent, and in Schedule D the object of the expenditure is stated as being "for the purposes of" a man's work, whereas in Schedule E it must be "in the performance" of bis work.

    I would myself prefer to express no view whether, if this were a Schedule D case, Mr Brown would be successful. But I would point once again to the distinction between the two Schedules which I for my part regard as somewhat regrettable, as something which tends to bring the law into a measure of disrepute, and to make the income tax obligations of the taxpayer a game of ingenuity divorced from principle or ethical or other common sense considerations.

    I confine myself in dealing with this case to the question whether Mr Brown's subscriptions fall fairly within the paragraph quoted, and like the learned judge I feel compelled as a matter of the ordinary sense of language to answer that question in the negative. It is not suggested -certainly Mr Brown, I am quite sure, would never suggest - that while he was in the Devonshire Club he felt it his duty to try to get business for the bank, to "tout" for customers. Nor could he, in my judgment, be said, while exercising his rights and privileges as a member of the Clubs in other respects, to be performing his duties as manager. The phrase which is used in the Case, "to foster local contacts", is a vague phrase, not capable of precise significance. No doubt it is like many such phrases, a useful formula so long as it has not to be further expounded. The natural intention on the part of Mr Brown's superior officers was no doubt that if he belonged to clubs of this standing in this part of London it gave him a certain status. It would be obvious that if he was a member of these clubs he was the sort of man who would be acceptable in that sort of social circle, and that no doubt would be useful to him and to the bank, because he would thereby meet people who might, as a result of meeting him and. liking him, tend to have business relations with him or with the bank.

    It seems to me that it is impossible, as it were, to cut up the uses a man may make of a club like the Devonshire Club, to say that on a particular occasion when he is having lunch with a particular person he is in fact using the Club as bank manager, while on other occasions he is just having lunch because it is his lunchtime and he has nowhere else to go. The fact is that he acquires the status of a member of the Devonshire Club and he has the amenities of the club of which he may or may not take advantage as occasions may arise. If it were possible so to analyse the uses a man in Mr Brown's position might make of a club, the result would appear to be - as Mr Monroe conceded - that failure to prove that he had never used the club except directly in connexion with the Bank's business would be fatal to the claim for exemption - a result which would be impracticable in application as well as capricious in its consequences.

    As Mr Monroe pointed out at the end of his very forceful contentions on Mr Brown's behalf, the matter in the end falls within a very small compass. It is a question of applying the ordinary sense of a few simple English words. A man becomes, and I assume he applies to become a member of a club because those who employ him say that they think their managers ought to be in that sort of social position. Having become a member of the club, he then is entitled to use the club's premises and any amenities that it has. But it seems to me that to the short question, "When he pays 'his subscription, is the sum paid necessarily incurred in the performance 'bf his duties as a bank manager?" the answer is, "No." What his employers may think it desirable for him to do, socially, is one thing. Performance of the duties of manager of their branch is something else. I cannot myself find any good ground for saying that the sense of the words I have quoted could be so applied as to produce the result for which Mr Brown contends. For those reasons I conclude that this appeal fails and must bo dismissed.

    LORD JUSTICE HARMAN: I confess to having found the arguments or some of the arguments addressed to us on this subject extremely distasteful. I think it better to say no more about it except that I agree that the appeal should be dismissed.

    LORD JUSTICE DONOVAN: Under Rule 7 of the rules applicable to Schedule E the taxpayer must show that any expense he wishes to be deducted in arriving at his assessable emoluments was inter alia necessarily incurred in the performance of the duties of the office or employment. For the taxpayer here it is contended that that fact is proved by showing that the employer prescribed some duty for his own employee which involved the relevant expense.

    The General Commissioners seem to have accepted this contention, but in my view it is not correct. The test is not whether the employer imposes the expense, but whether the duties do, in the sense that irrespective of what the employer may prescribe, the duties cannot be performed without incurring the particular outlay. This result follows in my opinion from the decision of the House of Lords in Ricketts v. (Colquhoun. 10 Tax Cases, 118.

    Mr Monroe has conceded that even if the Midland Bank did not request and expect the appellant to join a club like the Devonshire Club, he could still perform his duties as bank manager; and that if the test is the strictly objective one which I have stated, he must fail.

    I think that is the test under the Schedule and I therefore agree this appeal must be dismissed.

    MR FLETCHER-COOKE: My Lord, I ask for the costs of this appeal.

    THE MASTER OF THE ROLLS: I think that must follow.

    MR MONROE: I think it must follow.

    THE MASTER OF THE ROLLS: I suppose the Bank will pay the costs?

    MR MONROE: I have no instructions on that aspect. They would probably say it is most unlikely that as a result of having instructed me to appear, Mr Brown should be charged.

    THE MASTER OF THE ROLLS: Then the appeal will be dismissed with costs.

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URL: http://www.bailii.org/ew/cases/EWCA/Civ/1961/5.html