Income Tax - 1930- 1959

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This page lists 35 cases, and was prepared on 28 October 2012.

Leeming -v- Jones (Inspector of Taxes) [1930] 1 KB 279; [1930] 15 Tax Cas 333
1930 Rowlatt J	Income Tax	Casemap 1 Cites 1 Citers

Fry (Inspector of Taxes) -v- Salisbury House Estate Ltd [1930] UKHL 1; [1930] AC 432; [1930] 15 TC 266
4 Apr 1930 HL	Income Tax
	Link[s] omitted

Archer Shee -v- Garland [1930] UKHL 2
15 Dec 1930 HL	Income Tax
	Link[s] omitted

Rutherford -v- Lord Advocate 1931 SLT 405
1931 Lord Fleming	Income Tax, Scotland	1 Citers
	The taxpayer lived in Scotland but was assessed to tax in respect of director's fees paid to him by a company carrying on business in England. The assessment was confirmed by county general commissioners. The tax not having been paid, execution was levied on the taxpayer's furniture in Scotland. The taxpayer applied to the Court of Session to set aside this diligence. Held: The Court of Session could not set aside the determination of the commissioners. For that the taxpayer must resort to the English courts. But it was competent for the taxpayer to invoke the 'preventive jurisdiction' to stop the diligence of which he complained.

The Herald and Weekly Times Ltd -v- Federal Commissioner of Taxation (1932) 48 CLR 113; [1932] HCA 56
21 Nov 1932 Gavan Duffy CJ and Dixon J	Commonwealth, Income Tax	Casemap 1 Citers
	(High Court of Australia) The taxpayer newspaper sought to set off against its liability to income tax, sums which it had paid out in damages for defamation. Held: They were deductible. Such claims against a newspaper are a "regular and almost unavoidable incident of publishing it" and the damages are compensatory rather than punitive.
	Link[s] omitted

Dewar -v- Commissioners for Inland Revenue [1935] 2 KB 351; 19 TC 561
1935 CA Lord Hanworth MR	Income Tax	Casemap 1 Citers
	The executor had been left a legacy of £1,000,000 free of duty. When it came due to be paid, he was entitled to interest at 4%, but did not claim the interest. He was assessed to surtax on the sum he could have received. Held: Since he had not received the sum, he was not to be taxed upon it. Lord Hanworth MR remarked: "'receivability' without receipt is nothing."

Carter -v- Sharon (1936) 20 TC 229
1936 Lawrence J	Income Tax	Casemap
	A person domiciled in the United States but resident in England paid allowances to her daughter resident in England out of the income of her investments in the United States, by means of a banker’s draft drawn on a London bank payable to the daughter and posted to her in California. The banker’s draft was bought by the mother’s bank in California and debited to her account. The mother was assessed to tax under Case V of Schedule D on the amount of the allowances. The assessment was discharged by the Special Commissioners. On appeal it was Held: The Special Commissioners held that the gift to the daughter was completed in California, at the latest, when the banker’s draft was posted to her on her mother’s instructions. The judge concluded that the sections only caught income from foreign possessions which is either received by the taxpayer in the United Kingdom or to which he is entitled at the time it comes to the United Kingdom. He specifically rejected the argument for the Crown that if the subject matter of the gift comes to the United Kingdom by direction of the taxpayer it is received by the taxpayer. If there is a gift of foreign income completed outside the United Kingdom the donee may remit the subject matter or any other property representing it to the United Kingdom without a liability to United Kingdom tax being imposed on either the donor or the donee.

Timpsons Executors -v- Yerbury (1936) 20 TC 155
1936 CA	Income Tax	1 Citers
	A resident in the United Kingdom was the life tenant under a trust administered in accordance with the law of the State of New York. She directed the trustees to pay out of the income to which she was entitled allowances to her children resident in England. The payments were made by way of bills of exchange drawn on London, payable to the child in question and posted to such child or his or her banker. She was assessed to tax in the United Kingdom on the amount of those allowances on the ground that they were her income and had been remitted to the United Kingdom. Held: The assessment stood. The income represented by the bills of exchange was income to which the life tenant was entitled, though not received by her, when it came to the United Kingdom because the gift to the children was not complete prior to collection of the proceeds of the bills of exchange in the United Kingdom. She was liable for tax on the basis of entitlement not receipt. The Court left open the question of liability if the gift had been completed outside the United Kingdom.

Inland Revenue Commissioners -v- British Salmson Aero Engines Ltd [1938] 2KB 482
1938 CA Sir Wilfrid Greene MR	Income Tax	Casemap
	The court considered the applicability of certain provisions to royalty payments. The court considered the notorious difficulty of drawing a clear line between capital and income receipts: "There have been many cases which fall on the border-line. Indeed, in many cases it is almost true that the spin of a coin would decide the matter almost as satisfactorily as an attempt to find reasons. But that class of questions is a notorious one, and has been so for many years."

Radio Pictures -v- Commissioners of Inland Revenue [1938] 22 TC 106
1938 ChD Lawrence J	Income Tax, Contract	Casemap 1 Citers
	The court considered whether a particular document could properly be included among the batch of documents which as a whole formed the contract, so that the stipulations therein were themselves contractual.

Copeman -v- Coleman (1939) 22 TC 594
1939 Lawrence J	Income Tax	Casemap 1 Citers
	A company had been formed to take over the taxpayer's business. He held the shares equally with his wife. Later the company created a class of preference shares of £200 each carrying a fixed preferential dividend, the right to vote if such dividend were in arrear for three years or more and the right in a winding up to a return of capital paid up. Some of the shares were taken up by his children on which they paid £10 per share. Dividends substantially in excess of the amounts paid up were then declared and the taxpayer, on behalf of his children claimed repayment of the tax paid in respect of the dividend to the extent of that child's personal allowance. Held: The claim was rejected: "In my opinion, it is impossible to come to any other conclusion but that this was not a bona fide commercial transaction, and it appears to me that there was a disposition within the meaning of the definition or an arrangement in the nature of a disposition within [that meaning]."

Commissioners of Inland Revenue -v- Payne (1940) 23 TC 610
1940 CA Sir Wilfrid Greene MR	Income Tax	Casemap 1 Citers
	The taxpayer covenanted to pay an annual sum to a company controlled by him for his life or until it was wound up. He claimed to deduct the amount of the covenant in the computation of his total income for surtax purposes. The Revenue refused his claim saying the arrangement was a revocable settlement and the income arising remained his. Held: The Revenue was correct. There was a settlement: "The covenant had, apparently, no business purpose whatsoever. It was linked up with the rest of the scheme, the essential parts of which were that [the taxpayer] should put himself in such a relationship to the company that he could entirely control it by means of his voting power." and "It appears to me that the whole of what was done must be looked at; and when that is done, the true view, in my judgment, is that Mr. Walter Payne deliberately placed himself into a certain relationship to the company as part of one definite scheme, the essential heads of which could have been put down in numbered paragraphs on half a sheet of notepaper. Those were the things which it was essential that Mr. Payne should do if he wished to bring about the result desired. He did it by a combination of obtaining the control of the company, entering into the covenant, and then dealing with the company in such a way as to achieve his object. Now, if a deliberate scheme, perfectly clear cut, of that description is not an "arrangement" within the meaning of the definition clause, I have difficulty myself in seeing what useful purpose was achieved by the Legislature in putting that word into the definition at all. I am clearly of opinion that, by placing himself into these relationships with the company, Mr. Walter Payne was engaged in making an "arrangement" within the meaning of that clause."

Lomax -v- Peter Dixon & Son Ltd [1943] 2 All ER 255; [1943] KB 671; [1942] 25 TC 353
1942 CA Lord Greene MR	Trusts, Income Tax	Casemap 1 Citers
	A substantial loan was made to be repaid on demand. An agreement was then made where the debtor issued to the creditor 680 loan notes of £500 each, amounting in total to £340,000 (a discount of 6%). The notes were to bear interest at a rate of about 5 per cent. 100 were to be repaid almost immediately and the rest over a period of 20 years. Each note was to be redeemed at a premium of 20% if the debtor’s profits reached a specified level. The issue was whether the discount and premium were capital or income for income tax purposes. Held: In considering what might be a normal return, it was necessary to consider the circumstances of the transaction or the terms of the security and each case had to be considered on its own facts. Lord Greene discussed the ordinary issue of debentures by a limited company. If the credit of the company was good and the security ample then the issue could be at par at a reasonable rate of interest. If the credit and the security were exceptionally good then the issue could be made at a premium, which would be capital because the subscriber would be getting a good security. Alternatively such a company could issue its debentures at par with a lower rate of interest. If the credit or security were not good then the company could issue the debentures at par but with a high rate of interest, or issue them at a discount with a normal rate of interest, or issue them at par with a premium on redemption. However, the premium on redemption and the premium on issue were the expression of the risk in terms of capital rather than in the terms of interest. Whether income tax was payable depended on the method chosen by the company. The discount and premium in that appeal were capital.

Beak -v- Robson (1942) 25 TC 33
1942 HL Lord Simon	Income Tax	Casemap 1 Citers
	The issue was whether a payment to an employee in return for a restrictive covenant escaped tax. The obligations flowing from the contract of service and the remuneration to be received by the Respondent in respect of that service were entirely separate from the restrictive covenant and the consideration given for it. The sum was not paid for anything done in performing the services in respect of which the respondent was chargeable under Schedule F. "The consideration which he has to give under the covenant is to be given not during the period of his employment, but after its termination. He is giving to the company for a sum of £7,000 the benefit of a covenant which will only come into effect when the service is concluded." The payment to the employee escaped tax because the payment for the covenant was quite distinct from the payment for services under his contract for service.

London County Freehold and Leasehold Properties Ltd -v- Sweet (1942) 24 TC 412
1942	Income Tax	Casemap 1 Citers
	Expenditure by a property company on the issue of new debenture stock was not "expenses of management" because raising capital was not part of the business of acquiring and managing property.

British American Tobacco Company Limited -v- Inland Revenue Commissioners [1943] AC 335
1943 HL	Income Tax	Casemap 1 Citers

Wales (Inspector of Taxes) -v- Tilley [1943] UKHL 1; (1945) 25 TC 136
11 Feb 1943 HL Lord Chancellor, Lord Atkin, Lord Thankerton Lord Russell of Killowen Lord Porter	Income Tax	Casemap 1 Citers
	The taxpayer was managing director of a company. The Revenue sought to tax him on two sums of £20,000 paid by to him by the company. The sums were paid in part as the price of compounding a pension, and in part in consideration of the reduction of the Appellant's annual salary. Held: A pension is not an emolument, and a lump sum paid to commute a pension is in the nature of a capital payment which is substituted for a series of recurrent and periodic sums which partake of the nature of income, but the same view should not 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.
	Link[s] omitted

Norman -v- Golder (Inspector of Taxes) [1944] 26 TC 293
1944 Croom-Johnson J	Income Tax	Casemap 1 Citers
	The court considered the nature of allowable expenses for an investment company: "… the notion behind this Section may be thought to be that the expenditure is something which if you were looking at the profits and gains under Schedule D would be deductible as a sum of money wholly and exclusive expended for the purpose of making profits and gains, within Rule 3 of Cases I and II of Schedule D, and accordingly that any expenditure partaking of a capital nature is not aimed at by the Section."

Absalom -v- Talbot [1944] 1 All ER 642
1944 HL	Income Tax
	Income Tax Act 1918

Inland Revenue Commissioners -v- J. Bibby & Sons Limited [1945] 1 All ER 667
1945 HL	Income Tax	Casemap 1 Citers

Blackwell (HM Inspector of Taxes) -v- Mills (1945) 26 TC 468
1945	Income Tax	Casemap 1 Citers

Spofforth and Prince -v- Golder (Inspector of Taxes) (1945) TC 310
1945	Income Tax	Casemap 1 Citers

Ayrshire Employers' Mutual Ins Co -v- Inland Revenue Commissioners [1946] UKHL 3; (1946) 79 Ll L Rep 307; 27 TC 331; 1946 SLT 235; 1946 SC (HL) 1
29 Mar 1946 HL	Scotland, Income Tax
	Link[s] omitted

Smith's Potato Estates Ltd -v- Bolland (Inspector of Taxes) [1948] AC 508
1948 HL	Income Tax	Casemap 1 Citers
	The taxpayer claimed to deduct the legal costs of contesting an assessment to tax. The dispute was about the computation of the taxpayer's profits. It assumed that those profits were ascertainable, one way or another, at the time when the dispute arose. The costs of the dispute could not therefore have been an element in the computation. They were logically as well as temporally subsequent to the profits having been earned.

Nugent-Head -v- Jacob [1948] AC 321
1948 HL Viscount Simons	Income Tax	Casemap 1 Citers
	A wife was held still to be "living with her husband" who had been absent on military service for more than three years because there had been "no rupture of matrimonial relations."
	Income Tax Act 1918

Capital and National Trust Limited -v- Golder (1949) 31 TC 266
1949 Croom-Johnson J	Income Tax
	The court asked as a question of principle as to whether Parliament ever intended to allow capital expenditure to be deductible as an expense against income. Held: "the expenditure is something which if you were looking at profits and gains under Schedule D would be deductible as a sum of money wholly and exclusively expended for the purpose of making profits and gains."

Bentleys, Stokes & Lowless -v- Beeson (HMIT) [1952] 33 TC 491
1952 CA Romer LJ	Income Tax	Casemap 1 Citers
	The court considered whether the partners in a firm of solicitors could deduct from profits the expenses involved in entertaining clients to lunch. Held: They were deductible, notwithstanding the element of hospitality involved: " The relevant words of r 3 (a) of the Rules Applicable to Cases I and II—"wholly and exclusively laid out or expended for the purposes of the … profession"—appear straightforward enough. It is conceded that the first adverb—"wholly"—is in reference to the quantum of the money expended and has no relevance to the present case. The sole question is whether the expenditure in question was "exclusively" laid out for business purposes, that is: What was the motive or object in the mind of the two individuals responsible for the activities in question? It is well established that the question is one of fact: and again, therefore, the problem seems simple enough. The difficulty, however, arises, as we think, from the nature of the activity in question. Entertaining involves inevitably the characteristic of hospitality: giving to charity or subscribing to a staff pension fund involves inevitably the object of benefaction: an undertaking to guarantee to a limited amount a national exhibition involves inevitably supporting that exhibition and the purposes for which it has been organised. But the question in all such cases is: Was the entertaining, the charitable subscription, the guarantee, undertaken solely for the purposes of business, that is, solely with the object of promoting the business or its profit-earning capacity? It is, as we have said, a question of fact. And it is quite clear that the purpose must be the sole purpose. The paragraph says so in clear terms. If the activity be undertaken with the object both of promoting business and also with some other purpose, for example, with the object of indulging an independent wish of entertaining a friend or stranger or of supporting a charitable or benevolent object, then the paragraph is not satisfied though in the mind of the actor the business motive may predominate. For the statute so prescribes. Per contra, if, in truth, the sole object is business promotion, the expenditure is not disqualified because the nature of the activity necessarily involves some other result, or the attainment or furtherance of some other objective, since the latter result or objective is necessarily inherent in the act."

Newsom -v- Robertson [1953] Ch 7
30 Apr 1952 ChD Danckwerts J	Income Tax	Casemap 1 Cites
	Mr Newsom, a practising barrister sought to set off against his income, the expenses of travelling between his home and his chambers in London. The Inspector appealed the decision of the commissioners that he could do so. The rule required that the expense be incurred wholely necessarily and exclusively for the purposes of a trade profession or employment. He practised partly from home and partly from chambers. The Special Commissioners had disallowed travel during term, but allowed it during vacations. Held: The issue had not previously been presented in just this form. Mr Newsom said that if he had two sets of chambers he would be allowed to claim for travel between them. However the travel in this case had a dual purpose, and it would be difficult to make a split between wholly professional purposes and private purposes. He travelled to and from chambers to get to and from home as much as to and from chambers. The travel was not therefore wholely or exclusively for business purposes, and was not deductible.
	Income Tax Act 1918 Sch D

Lindsay -v- Commissioners of Inland Revenue (1953) 34 TC 289
1953	Income Tax	Casemap
	The court was asked whether a building was a farmhouse for the purpose of deciding whether reliefs were available for capital expenditure.

Heasman -v- Jordan [1954] Ch 744
1954	Income Tax	Casemap 1 Citers
	Emoluments paid under an office or employment are taxed under Schedule E as income of the year of assessment in which they were earned, and it was irrelevant when they were paid.

Commissioners of Inland Revenue -v- Lactagol (1954) 35 TC 230
1954	Income Tax	Casemap 1 Cites 1 Citers

Camille and Henry Dreyfus Foundation Inc -v- Inland Revenue Commissioners [1954] 1 Ch 672
1954 CA Jenkins LJ, Hodson LJ, Lord Evershed MR	Charity, Income Tax	Casemap 1 Cites
	The Court considered whether it had jurisdiction to make an order with respect to a company registered in New York for objects which were charitable according to the laws of England. Held: Jenkins LJ "I have already expressed the view that 'trust' in an Act of the United Kingdom Parliament means a trust taking effect and enforceable under the law of the United Kingdom. It follows that, in my opinion, a 'trust established for charitable purposes only', must here mean a trust taking effect and enforceable under the law of the United Kingdom and creating an obligation enforceable in the courts of the United Kingdom to apply its funds for the purposes which are, according to the law of the United Kingdom, exclusively charitable. I can attribute no different meaning to the phrase 'established for charitable purposes only' when applied to a body of persons. So applied, I think it is only satisfied by a body of persons which is under the law of the United Kingdom subject to an obligation enforceable in our courts to apply its funds for purposes which are according to that law exclusively charitable. Accordingly, I would hold that the foundation is not 'established for charitable purposes only' within the meaning of section 37(1)(b) of the Income Tax Act 1918." Lord Evershed: "To my mind, the words 'charities' or 'charitable institutions' in an ordinary context in an English Act of Parliament or any English document must (prima facie at least) mean institutions regulated by, and subject to the jurisdiction of, the laws or the courts of the United Kingdom and constituted for the carrying out of objects or purposes which, in the courts of the United Kingdom and nowhere else, would be held to be 'charitable'. In my judgment the two aspects or characteristics are almost inseparable. The law relating to charities or charitable trusts is a peculiar and highly complex part of our legal system. An Act of Parliament which uses the words 'charity' or 'charitable' must be intending to refer to that special and characteristic, if not in some respects artificial, part of our law." and "I am considering what, as a matter of ordinary language and common sense, is intended (in the absence of a special context) by the phrase, in an English Act of Parliament or other document, 'body of persons established for charitable purposes only.' In my judgment, applying the test I have formulated, once it is conceded that 'for charitable purposes only' means 'for purposes which are what the laws of the United Kingdom define as charitable and hold to fall within the special and somewhat artificial significance of that word,' then it seems to me, prima facie, that a body cannot be 'established' for such purposes, unless it is so constituted or regulated as to be subject to the jurisdiction of the courts which can alone define and regulate those purposes."

Morgan -v- Tate & Lyle Ltd [1955] AC 21
1955 HL Lord Morton of Henryton	Income Tax	Casemap 1 Cites 1 Citers
	The words "for the purposes of the trade" in the statute mean "for the purposes of enabling a person to carry on and earn profits in the trade". Money spent for the purpose of preserving the trade from destruction can properly be treated as wholly and exclusively expended for the purposes of the trade.

Sharkey -v- Wernher [1955] 36 TC 275; [1956] AC 58
1955 HL	Income Tax	Casemap 1 Cites 1 Citers
	Where a trader takes stock from his business for private use or for use in another business which he owns, or where he transfers to his business stock which he owns in some other capacity than that of proprietor of that business, the transfer should be dealt with for taxation purposes as if it were a sale or purchase at market value. Thus, goods that a trader takes from his trading stock, for example, for the personal use and enjoyment of himself and members of his household, should be credited at market value.

Thomson -v- Moyse (1958) 39 TC 291
1958 HL Lords Reid, Denning, Lord Radcliffe, Viscount Simmonds, Lord Cohen, Lord Tucker	Income Tax	Casemap 1 Citers
	A British subject resident in England but domiciled in the United States was the life tenant of trusts administered in accordance with the law of the State of New York. The income of the trusts was paid in US$ into the beneficiary’s bank account with a bank in New York. The beneficiary drew cheques on that account in favour of banks in England and instructed them to convert them into sterling and credit the sterling equivalent to the beneficiary’s account with that bank. The English bank sold the US$ to the Bank of England, as required by the Exchange Control legislation then in force, and credited the proceeds of sale in sterling to the beneficiary’s account in England. The beneficiary was assessed to tax under Case V of Schedule D. The Special Commissioners discharged the assessments on the grounds that the American income had not been brought into the United Kingdom. Their decision was upheld by Wynn-Parry J and a majority of the Court of Appeal. Held: The House reinstated the assessments. The beneficiary had received sums “from money or value arising from property not imported”. The beneficiary was liable for the tax claimed on the grounds that the “bringing in” of a person’s income means the effecting of its transmission from one country to the other by whatever means. It is neither here nor there to ask whether anything, items of property or instrument of transfer, has actually been brought into the country or not. No more is it relevant to know what has happened to the taxpayer’s money in the country where the income arises. Ex hypothesi he has transferred it – in this case the dollar credit – to the purchaser who is to provide him with sterling. What use the purchaser may make of the dollars has no bearing on the question whether the taxpayer has received sums of sterling through remittance of his American income. The rule lists sources from which sums to be computed may have been received; and this additional wording has caused some of the mystificationin this branch of the law. These several instances of the way in which income may be remitted have been thought to limit the generality of the phrase “ actual sums received in the United Kingdom”. It was not intended to say in effect that whereas under Case IV all sums of foreign income were to be computable, if received in the United Kingdom, under Case V only those sums of income received were to be computable which were attributable to the specified operations or sources. There could be no reason for such a distinction. The sub-heads should be treated as illustrationsand construed generally.