DONOVAN L.J., giving the first judgment : I agree with the special commissioners in this case. The company clearly incurred an expense, namely, the sum of Pounds 641. That expense was incurred in connection with the provision of a benefit to the taxpayer Rendell, namely, the benefit of being defended by solicitors and counsel on his trial. The conditions precedent to liability specified in section 161 (1) of the Income-tax Act, 1952, are therefore satisfied; and by virtue of section 160 the expense in question has to be treated as a perquisite of the taxpayers office as a director, and included in his emoluments assessable under Schedule E. Against this it is said that if the company incurs the expense primarily in its own interests and only secondarily in the interests of the director then no benefit is provided which the meaning of section 161 (1). This interpretation I am unable to accept. For present purposes I see no sufficient distinction between the case of a company expending money primarily for its own benefit, and the case of a company expending money for its own benefit, which, as a by-product, benefits a director, always assuming that this was part of the companys purpose. The latter kind of expense could not be justified unless there were some benefit to the company.
It is also argued that the taxpayer would not have spent Pounds 641 on his own defence if left to himself. He could and would have spent no more than Pounds 60 or so. Thus he had been saved that sum and no more. Accordingly that sum represents his only benefit, and the charge to tax should be restricted accordingly.
Section 161 (1), however, does not lay the charge upon the benefit. The combined effect of sections 160 and 161 (1) is to lay the charge upon the sum paid by the company as an expense in connection with the provision of the benefit. At the same time the rather curious language at the end of section 161 (1) gives the director the opportunity to claim a countervailing deduction under Schedule 9, paragraph 7, if the facts justify it. Here, admittedly, they do not; but as a matter of construction I can see nothing in the language of the Act of 1952 which would justify the court in investigating how much of the expense would have been incurred by the director had he been left to provide the benefit, or a corresponding benefit, for himself.
Buckley J. remitted the case to the special commissioners with a direction to discover how much the company would reasonably have incurred for the taxpayers defence. Nobody had suggested that this was the question to be decided and I think that in this respect a slip has probably occurred. Although in the last resort Mr. Bucher would with to retain the judges decision, his real alternative argument before us has been that liability under Schedule E extends only to the sum the taxpayer would have paid out if his defence had been left to himself. Failing this he says that the liability should not exceed tax upon the sum the company would have paid for his defence if the company had no interests of its own to consider. I find this last proposition somewhat elusive, seeing that the company could not properly pay out anything if it had no interests of its own to consider. In any event, however, the true construction of these two sections leaves no room for either of Mr. Buchers interpretations.
Finally it is said for the taxpayer that it is obviously unjust if he has to be saddled with income-tax liability on any extravagant sum that a company might choose to expend on a benefit to a director, notwithstanding that the benefit could have been obtained by him for much less. That may be so, but I do not think this possibility can of itself justify a construction of the Act which would involve writing in a proviso which is not there. Moreover, wanton extravagance of the kind suggested would probably be ultra vires the company and therefore not something to be contemplated by the legislature. Once a benefit has designedly been conferred upon a director, the Act itself prescribes what the measure of liability shall be, namely, the sum expended by the company; and I find nothing in the language of these two sections for dissecting that sum and taxing only so much as the director would have paid himself. For those reasons, I think, this appeal must be allowed and the cross-appeal dismissed.
RUSSELL L. J. I agree with everything that has fallen from Donovan L. J. I cannot see how the provision of solicitors and counsel for the defence of the taxpayer was anything other than the provision of a benefit for the taxpayer. The expense incurred by the company in providing that benefit was Pounds 641, and section 161 requires that that sum should be treated in effect as money paid by the company in respect of expenses, which throws it into the ambit of section 160, and since in this case no part if spent by the director could be described as expenses necessarily incurred by him as such, it will all fall to be taxed as emoluments of his office. There is no justification in my view for the suggestion that either the word 'in' or the word 'for' in section 161 somehow import the possibility of analysing the purpose or motive of the company making the expenditure. So far as the alternative suggestion is concerned, namely, that it could be said that the only benefit to the taxpayer was a saving to him of that amount of money which he would have expended if he had been left to his own resources. I cannot, for my part, accept that argument either.
Suppose the case to have been that he had paid, or was prepared to pay himself for his defence on a fairly inexpensive scale and the company came to him at the last moment and said, for the reason the company gave in this case, namely, his importance to them : 'We will pay the solicitor to employ in addition leading counsel' and did so. I cannot for my part see how it could possibly be said in such a case that the provision of leading counsel by and at the expense of the company was not the provision of a benefit for the director of the company in respect of which the company had incurred the expense of his fee. But the contrary would be a necessary result on the basis of Mr. Buchers alternative argument. For those reasons, which are substantially, I think, repetitions of what my Lord has said, I agree with him that the cross-appeal fails and the appeal should be allowed.
SELLERS L. J. The decision of Buckley J., as I would interpret its reasoning, although not in the form of the order which was drawn up, seems to me to be sensible and reasonable, but it is said by the Crown that it is not in accordance with the statute and that there is no power to remit back to the commissioners as the judge directed. I have been much inclined to interpret section 161, coming as it does in the sequence of sections dealing with expenses allowed - expenses to directors and others - in such a manner that it would support the judges conclusion. It would seem to me, having regard to the particular facts of this case, an unusual application of the section, although I claim no great familiarity with this branch of the law, and so exceptional that it would lead one to believe that such circumstances ought not to be embraced by a section such as this.
As I understand the intention of these sections, it might be shortly expressed thus - to bring perquisites of employment into tax; and from that broad approach the total expenditure does not seem to me, to the extent the category of a perquisite. The facts are quite simple. It may be quite true, as counsel for the Crown put so clearly and emphatically, that within the four corners of the section are the questions to which the answers follow almost inevitably : Did the company spend money for the provision of counsel for the taxpayer Answer, 'Yes.' Was that to the benefit of the taxpayer And the answer is 'Yes' also; it is said this is conclusive.
The only matter on which I feel there is an outlet for the taxpayer to consider the extent of the benefit. It is said that because of the strict wording of section 161, the extent of the benefit is the extent of the expenditure which has been incurred, but that is hardly the reality of the situation. So far as the benefit to the taxpayer is concerned, it seems to me that you might well get a case where the benefit might, on any real interpretation of the object of this taxing section, be something less. In the course of argument the case was envisaged of an operation on a young director who had fallen sick. He might have been quite content to have had the operation performed without expense, as it could have been under the National Health provisions, or at a reasonable sum of 100 guineas which he could afford to pay the surgeon, and if the company said : 'We will go to the best man' he might find himself having the services of a highly qualified and fashionable surgeon at a figure of 1,000 guineas. That sum would be in no real sense a perquisite of his employment. It may, I recognise, come within the precise terms of section 161 unless one is to give some narrow interpretation to the word 'benefit'. I think the extent of the benefit was a matter which appealed to the judge, and it appeals to me. I would not myself have used the language which is reflected in the order, and I doubt whether the judge intended to put it that way, either.
Mr. Buchers contention was - and it was this, I must say, which has appealed to me - that the benefit was only to the extent by which the taxpayers pocket was relieved, and the relevant inquiry is not what the company spent but what the taxpayer might reasonably be expected to spend in his own defence, that being the amount by which he was relieved and therefore benefited. However, I am not quite satisfied that the wording of the section permits that conclusion and I am not going to dissent from the views my brethren have taken. I find no further difficulty in the matter complained of by the Crown in the judges order to remit this matter back to the special commissioners.
Reliance was placed on Evans Medical Supplies Ltd. v. Moriarty. I do not think that that case ought to be regarded as a general prohibition against a judge ordering that a matter should go back to the commissioners. Power is given by a section in the statute enabling remission in appropriate circumstances. That particular case is explained by the fact that throughout the whole proceedings in relation to a sum of Pounds 100,000 the contention had been that it was 'all or nothing.' It was really too late to consider any sort of apportionment and there was no basis on the facts of that case for remitting it to the commissioners. I would not regard that as authority for depriving the court of power to send back an appropriate case. With much reluctance, I do not dissent.
Appeal allowed and cross-appeal
dismissed with costs.
Leave to appeal to the House of Lords.