VAISEY J. - reversed the decision of the commissioners. He concluded his judgment as follows : 'I hesitate long before I disturb a finding of fact by the Special Commissioners, but it seems to me quite impossible in this case to say that the evidence establishes that these privileges were merely illusory or were so trifling as to justify the commissioners. describing them as affording no advantage of a substantial character. I cannot accept that. It seems to me to be in the teeth of the evidence afforded by the literature which was annexed to the case an by the ordinary common sense of making, People living in the country, or who have lived in the country, must know perfectly well that this is just the sort of the place for the which countrymen are always on the lookout, where they can lunch comfortable, get a five-shilling lunch and a drink, and a comfortable room where they can sit; and, indeed, we have evidence on the case itself that so much are these privileges valued that there were sometimes companies that they were not always with sufficient frequency available. I have every hesitation in disturbing their finding, and every desire to give the fullest weight to the vies which the commissioners have reached, but it seems to me that their view that these advantages ought to be disregarded as trifling and illusory, with no substance in them at all, is really not justified by the evidence. When the commissioners accept that evidence that the people who joined this convenant scheme did so not for the purpose of anything they could get out of its 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 attracting 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 chairmans 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 every flattering description-not too flattering because I think it was justified-to go on being members on the league or to join the league. Those expressions were bound to have had, not an occasional or slight effect on peoples minds but one which really went to the root of the matter in the dealing between the league and the members, as is exemplified by the execution of these various convenants.
'I wish in conclusion to mention the very distinguished names which appear as members of and supporters of the society; I am not at all surprised to see them there, and I have no doubt that this league is doing most admirable work; but the fact remains that these covenanted payments were not ordinary, typical covenanted subscriptions to a charity. I think they were payments to the incorporated body (the league) in return for which the subscriber got some substantial advantage, so that these payments cannot be described as pure income payments when they reached the hands of the league and those who conducted its affairs. It is true that there is no definite finding of the commissioners as to what additional cost was incurred by the league in providing the facilities which the covenanting subscribers got, but the balance sheets and the profit and loss accounts show that there was a considerable expenditure in these directions, and although I would be delighted to return the matter to the commissioners to allow them to give a definite finding on that point - (that is to say, to turn their minds away from what the covenantors got out of their covenants and to look at what the league itself had to pay in order to provide those benefits) - I do not think that any good purpose would be served by this. The result is that, with every anxiety to acquit everybody of any intention to deceive or of anything wrong or under hand, or anything of that kind, I do not think that this was, in the proper sense, a covenanted subscription to a charity, and I think that this appeal must be allowed'.
The league appealed.
P. J. Brennan and Mrs. H. Wilson for the National Book League. The league is admittedly a charity and claim to be entitled to exemption from income-tax under section 447(1)(b) of the Income-tax Act, 1952 in respect of the annual payments made under covenants entered into by its members. It is alleged by the Crown that these payments were trading receipts made pursuant to a contract entered into by the league with the covenantors for the supply of certain goods and services. It is submitted that whether this arrangement between the league and its members was a commercial 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 this judgment for theirs. Further, there is no evidence that this arrangement constitutional 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 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 any 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 show that the league is not entitled to tax relief. There being evidence to support the conclusion of the commissioner, their decision should not set aside.
Geoffrey Cross Q. C. and Sir Reginald Hills and E.B. Stamp for the Crown. With regard to the form of the convent : the covenantors are treated as having paid a gross sum and the league claims to recover the tax. That claim can only be justified if the payments were annual payments within the Income-tax Acts. It is common for charities to make money from non-charitable activities. The judge was justified in holding that the benefits accruing to the covenantors did not fall within the de minims principle. The real question is : were these payments pure gifts If not, no tax is recoverable. If there is any element of purchase in these covenanted payments, they are not pure income payments. The benefits received by the covenantors were substantial. The running of a school may be a proper activity of a charity, but it is not entitle to receive tax relief in respect of payments made to it. If it makes a profit, that profit is taxable : Brighton College v. Marriott. The league must show that these were annual payments within case III of Schedule D. If a charity makes a profit in respect of its trading activites, such profits are taxable, unless exempt by some provision of the Acts. The onus is on the taxpayer claiming repayment to show that these are annual payments. [Reference was made to Earl Howe v. Inland Revenue Commissioners; Governors of the Rounda Hospital, Dublin v. Coman; Inland Revenue Commissioner v. City of London (as Epping Forest Conservators).]
Sir Reginand Hills following. The question whether a payment is an annual payment is not affected by the fact that the payee is a charity. Most public schools are subject to charitable trusts. They provide services for parents. A covenant to pay fees is not an annual payment, since services are being for the fees. The positions was the same in the case of a covenant to make payments to a hospital, if they were made on the footing that the payee would be taken into the hospital. The brochure issued to members of the league tells them what they will get it they 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. There payments are not trading payments and should qualify for tax relief. [Reference was made to Manchester Corporation v. McAdam; Inland Revenue Commissioner v. Hogarth Indand Revenue Commissioners v. City of Glasgow Police Athletic Association.]
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 that word for reasons which will were members - I have emphasized that work for reasons which will later appear - of the league whereby the covenantors covenanted to pay for a period of seven years, if they so long lived such a sum as after deduction of income-tax would leave the net figures of either one guinea or 10s. 6d. The National Book League sought to recover the amount of tax which had been deducted from the national gross sums named in the deeds of covenant pursuant to section 447(1)(b) of the Income Tax Act, 1952 [which his Lordships read].
It is not in doubt that the tax chargeable falls under Schedule D. It is the contention of the league that the case is one which is comprehended by Case III of Schedule D, now enshirned in section 123(1) of the Income Tax Act, 1952, where it is stated : 'Case III - tax in respect of -any interest of money, whether yearly or otherwise, or any annuity, or other annual payment.....' It is the contention of the National Book League that the gross sums in question are annual sums within the comprehension of case III or section 123, and that the league is entitled, according to the terms of paragraph (b) of section 471(b), to recover the tax which has been deducted by the covenantors.
I confess I have found that case somewhat troublesome, not least because of the conclusions to which the extreme of the argument on either side might appear to lead. It was, for example, on the one side observed by Mr. Cross that, if the argument for the league were sustained, it might be possible for a charity which, in accordance with well-known practice, may require each year to argument its funds or increase public interest by holding a dance, to invite well-disposed persons to enter into deeds of covenant for seven years for a figure in return for which they would be supplied with dance tickets for the charity dance in each of the following seven years. In such a case I do not myself feel much doubt that the substance of the matter would be an arrangement for buying in advances dance tickets for charity dances by means of covenanted payment of that kind. That being the substance of the matter, it would be difficult to see, as it seems to me, how it could be brought within Case III and entitle the charity to recover tax.
On the other side and at the other extreme, the instance was taken of well-known charities, of which the National Art-Collections funds may be taken as an example. In such cases, as is well known the donors, the covenantors in favour of such charities, get certain privileges. They may be allowed the use of certain reading rooms; they may be given the privilege of attending private exhibitions in private house 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 convenanted in such cases were not gifts to the charity in question, that they were not pure income profit, to use Lord Green M.R.s phrase, in the hands of the charity. But the present case (and this, is 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 was be stated that it is now clear that the fact that the National Book League is recognized as a body incorporated for charitable purpose only cannot be conclusive of the case in its favour. So much was clearly laid down by the House of Lords in Indian Revenue Commissioners v. City of London, the case referred to commonly as the Epping Forest case. In the case the House, having rejecting that answer to the claim for tax, proceeded to arrive at the same conclusion as this court on the ground that, when full examination was made into the facts, it appeared that the sums paid by the corporation of London for the purpose of maintaining the Epping Forest were paid without any conditions or counter stipulations being made in return.
I cite one paragraph from the speech of Lord Normand : 'My Lords I am satisfied with the way in the which the Special Commissioners have death with the question and with their reasons. I am also in agreement with much that is said in the judgment of the Court of Appeal though I have differed from it on the actual ground of the decision. The sum, in my opinion, is in no different position from a sum [having the requisite quality of recurrence] paid with out conditions or counter stipulations out if taxed income under a convenant by a private individual to any charitable body. The Crown would neither admit nor deny that such a payment would be an annual payment to the charity within the meaning of Case III, or that the party paying it would be entitled to retain the tax, or that the charity would be entitled to recover it. We were implored to be guarded in out opinions on covenants in favour of charities. I can only say that I am compelled to follow where the argument leads. If the payment under covenant were made by an individual to a body not a charity it could still be an annual payment but the question whether it was in return for some consideration would be entitled to deduct tax under rule 19 but the payee would not be entitled to recover the tax.'
That paragraph, it seems to me, states also the problem in this case. Applying to this case the sentence which I read can it fairly be side that the covenanted sums here, having as they undoubtedly have, the requisite quality of recurrence, were paid, without conditions or counter stipulations, out of taxed income In answering that question, it is clear that one must look at the facts of this case and it their substance and reality.
I have said that the facts, as it seems to me, are in many respects special. The National Book League is a league, in the sensible use of that phrase, of members, who support its objects. It is a company limited by guarantee. It is funds to a league degree at any rate, are obtained by membership, by getting from members their annual subscription. 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 companys 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 of reading and the wider distribution of books,' and it cannot be doubted that, since the company is established in London, the means whereby the habit of reading can be encouraged will be found most naturally situated in London, so that its supporters, those who desire to benefit from the objects of the league and who live in London, will find the benefits more readily available then we persons who live great distance from the capital.
The next thing to observe is that at the end of the last war the league decided, as a definite part of its policy, to aquire a house of no little architectural merit in the west end of London, 7, Albemarle Street, and to use that not only as the headquarters of the league but also in some degree as club premises, providing in some degree what would be understood s club amenities.
One of the documents attached to the special case is a document called a brochure. The actual date when this document first was distributed does not anywhere appear. But it has been referred to in the course of the argument, and I think it legitimate for present purpose to refer to it now. It stated that the league is, as is undoubtedly the fact, a fellowship of book levers; but the passage in it to which I wish now to direct attention is that section of it which is headed : 'Your club : 7, Albemarle Street.' 'The house at 7, Albemarle Street, London, W.I. gives the facilities of a club to members and their friends from many parts of the country and from overseas.' Then it observes that during certain hours use may be had of a reading room, a drawing room, and a licensed bar and restaurant. In such a publication it is not to be expected that the authors would understate the amenities which are offered, though it has been pointed out, and not, unfairly, that when you consider the total membership, which is over 10,000 the amentities are somewhat strictly limited in fact. However, the point is that it is a feature, made prominent in this brochure, that at this house, 7, Albemarle Street, there is provided in some sense and in some degree what is called 'your club'. It should, however, in this connexion be stated, as Mr. Brennan pointed out, that there is no obligation to continue to provide these amenities. Under the terms of the regulations of the league those responsible for its management could at any time, and on doubt would if they found 'the club' was not successful, discontinue those amenities altogether.
Against that background I come to the next 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 top that time it appears that the subscriptions, to 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 pound do. to pound 1s. do and from 1s 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 convenient 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 leagues 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 purpose to read a substantial part of it. It starts : 'Dear member,' and after saying that it is generous support of you and your fellow members' that has enabled the book League to carry on, the letter states that the league has been given the privilege of being received among the company of those established for charitable purpose only. That the chairman says, greatly enhances, our status. Then he goes on as follow : 'Lack of money puts, of course, a most grievous brake upon our development. We have hitherto been utterly dependent upon the financial support of the our public membership. We still are, but there is this difference, and it affects vitally every member of the National Book League. Previously the burden of income-tax has pressed equally upon us and upon our members. Our new status now enables us to reclaim from the revenue the tax already paid by you upon your subscription.' That, is not entirely an accurate statement but its meaning is not in doubt, and, indeed, it is stated in the following paragraph : 'This means, in effect, that the value of you annual subscription to the league is almost doubted without any further cost to you. All that you have to do in order to benefit the league in this way is to covenant to remain a members for a period of seven years.' Then he sets out the figures which show what the result would be in pounds, shillings and pence of the recovering of tax in respect of various contributions by the members. Then he states this : 'of even grated importance to you as an existing member of the league is the fact that the signing of this covenant will insure you against any increase in the leagues subscription, rates which may tale place during a period of seven years. He then states what the rates have been and refers to the special resolution which I have mentioned, and proceeds : 'so by signing the covenant you can obtain considerable financial advantage.' Then, omitting the paragraph which refers to the from of the covenant, he concludes : 'May I ask you most earnestly to support the work we are doing by taking this step. The incidental benefits of membership are considerable and you will be sharing in work which needs most urgently to be done and which has now received, as I have already said, the highest official recognition,' a reference to the fact that the board of Inland Revenue had conceded to them the status of a body established for charitable purpose.
As a result of that letter number of members executed these covenants. For the purpose of the present appeals we must, I think, assume that all the convenanted 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 I say nothing at all. I am confining myself to such covenants as must be taken to have been expected in response to that request.
It is to be noted that the deed of covenant is in perfectly normal form, and makes no reference any where to any corresponding promise by the league, or, indeed, to the fact of the sum paid being taken as subscription. But it cannot be doubted that those who entered into these convenants in response to that letter must have doing so in the faith that the sums paid Pound 1. Is od. and Is. 6d. according to their place for seven years, notwithstanding the increases in the subscription rates to the rest of the members. It follows, therefore, that these covenantors may be said to have been promised and to have contained two advantages. In the first place, they were able to continue members at the lower, pre-December, 1951, subscription rates, and they had a promise or assurance that during the seven years their subscription rates would not be raised, whatever might happen to other persons subscription rates; second, they had the advantage that, paying the lower, pre-existing rates, they would continue to enjoy, like other members who paid the greater rates, the amenities, the so-called club amenities of No. 7 Albemarle Street.
It was contended by the Crown that as a result particularly of the chairman; s letter on the one hand and the execution of the deed of covenant on the other, certain specific contractual rights arose. It was said that the league was contractual bound to every covenantor not to increase his subscription beyond his particular rate during the seven years his covenant last. What exactly would be the position if one of the covenantors who signed lived, at the time when he signed it, in Edinburgh and three years later came to London is not a matter that I need pursue; but upon that aspect of the matter, without stating any conclusion as to the precise legal result, I am disposed, for my part, to agree with the contention of the Crown that the league had put themselves in a position in which they could not, without breach of obligation of some kind to the covenantors, increase the appropriate subscription rates above the covenanted net sums for the period of the covenants.
It was also said that the league had entered into some contractual obligation or stipulation in regard to the so-called club, amenities. Again without expressing any final view, I should not, as at present advised, so conclude. I cannot see in these transactions any contractual promise to provide any particular amenities; but no doubt it is true to say that so long as the covenantor was entitled to treat himself as a member, notwithstanding that this his subscription rate was lower then that of other members, he would be entitled, as other members, to enjoy whatever, amenities were available from time to time at 7, Albemarle Street, or indeed elsewhere.
The question, therefore, as I see it, turns first upon this. Looking at the substance and reality of the matter, can it be said 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 convenantor in favour of a charity getting allowed to him certain privileges, it therefore follow that such a convenantor 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 circumstance, 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 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 the case stated and the judgment of Vaisey J., to have taken at all a prominent part in the argument before the matter was debated in this court. The matter seems rather to have been dealt with before the Special Commissioner and before the judge solely upon the question whether the privileges which the covenantor members admittedly obtained were of so illusory and negligible a character as to be properly disregarded on the principle of de minimis non curat lex.
it was observed by Sir Reginald Hills that, if one looks at the case and the arguments which are there recorded, the particular point, namely, that the privileges, the amenities, offered were - and I will use the words of the Special Commissioners - trifling and illusory, was not in fact ever put forward by those responsible for the league so to contend. But undoubtedly the Special Commissioner decided this case on the view they formed that in truth they 'were so trifling' - again I am quoting - 'as to justify us in describing them as affording no advantage of a substantial character.'
It was upon that point, whether that decision could be sustained, that the matter went before, Vaisey J., and he came to the conclusion that, upon the evidence, such a conclusion could not be justified in law.
The question whether particular advantage or promises can be dismissed on the principle of the de minimis non curat lex must, I think be a matter for the lawyer rather then for his has to find facts, and, on the facts as they are here presented, I am unable to see any proper justification for the conclusion which the Special Commissioners upon this point reached. Particularly I refer to the fact that the convenantors, I think, did get at the very least a clear promise from which the league could not draw back without gross breach of faith and, as I am inclined to think, without also a breach of contract, they they would continue to have advantages of membership at a lower subscription rate then other persons, and that they would be immune from the possibility of increase of subscription rates during the whole period of the covenant. It seems to me impossible to dismiss that matter as being trifling and illusory, and to disregard it on the principle of de minimis non curat lex. I am, therefore, upon 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 Commissioner 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 decided on, that in the circumstances of this case the league filed to establish that the sums paid under the consonants can be regarded, to use again Lord Green M.Rs 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(I)(b) of the Income-tax Act, 1952 that it should have exemption from income-tax chargeable for the years 1951-1952 and 1952-53 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. They were members of the company limited by guarantee whose name is the National Book league. The subscriptions of the ordinary individual members of the National Book League were then being raised. The increase could be avoided by such members who, renewing their membership up top and including August 31, 1952, entered into deeds of covenant to remain members and to pay their annual subscriptions at the then existing rates for at least seven years. So it came about that the covenants were entered into.
The question arises whether the payments made pursuant to the covenants can be said to be annual payments within the scope of case III of Schedule D. Lord Reid, in his speed in Inland Revenue Commissioners, v. City of London (as Epping Forest Conservators), said this : 'I think it well to consider certain annual payments not related to any benefit to the player, which in my opinion are clearly within the scope of the III. That most relevant to the present case is an annual subscription under convenient to a charity by a donor who gets no advantage to himself in return for it. If the charity is not trading or carrying on anything in the nature of a trade I cannot see how such a payment can be excluded from the scope of Cause III. What reason can be there be for excluding it Charities are not excluded from the scope of the Income-tax Acts : certain provisions entitle them to certain particular exemptions from tax.'
The question arises whether the payment can be said to be pure gift to the charity. In the terms of a phrase which has been used, can the payments be said to be pure income profit in the hands of the charity If the payments were made in such circumstances that the league was obliged to afford to the covenantors such amenities and such benefits of membership as would at any particular time be offered to all members, and if those amenities and benefits were appreciable and not negligible then I do not think that the payments were pure income profits in the hands of the charity.
In approaching this case I share the admiration which was expressed by Vaisey J. for the objects and purposes of the league, and I would have been happy if my view of the facts and the law could have led to a result which was financially satisfactory for the league. But I have come to the same conclusions as those reached by the judge. I have little doubt that members of the leaguer 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 advise the sub-scribers the interests of a good cause would write to advise the sub-scribers as to a way of protecting themselves against payment more then they were paying.
In my judgment, the invitation to the existing members of the league in the early part of 1952 was an invitation to sign covenants so that they would pay subscriptions for the ensuing seven years at the then existing rates and so avoid the newly prescribed rates. Members were reminded that though by paying they were promoting good work, they were themselves also receiving, in that they were receiving the incidental benefits of membership which were quite fairly described as so considerable. Though these benefits might in fact be availed of by few, they were available for all, and they cannot be ignored as being minimal and negligible.
In the result, therefore, I cannot regard the subscriptions as being pure income profit. I would dismiss the appeal.
PEARCE L.J. I agree.
Solicitors : Solicitors of Inland Revenue, Filed, Roscoe & Co.