The Appellant is a whole time director of Peter Merchant, Ltd. On 23rd July, 1958, the car which he was driving on the company's business struck and killed a pedestrian. The next day while in hospital he instructed his secretary to get legal advice from the Automobile Association. But when his managing director heard of this he countermanded that instruction and consulted the company's solicitors. He was advised that the Appellant might be charged with causing death by reckless or dangerous driving, that if convicted he would be sent to prison and that the company might be involved in liability. The Appellant was the only director in a position to negotiate contracts with certain customers and his services were also needed in connection with a reorganisation. So the managing director instructed the solicitors to spare no reasonable expense in his defence. This appears to have been fully justified in the interests of the company, as they might have lost much business if the Appellant had been convicted and sent to prison.
A partner of the solicitors' firm went immediately to see the Appellant in hospital and told him that the managing director had given instructions that he was not to have anything further to do with the provision of his defence, and the Appellant was very relieved by this information. The solicitors made full preparation for the defence, instructing an expert and senior and junior counsel. On 3rd November the Appellant was tried at the Old Bailey and acquitted. The cost of the defence, Â£641, was paid by the company.
The Appellant was then assessed to income tax for the year 1958-59 in the sum of Â£3919 in respect of his emoluments as director. This sum included the sum of Â£641 spent by the company on his defence. The question in this appeal is whether that sum ought to have been included in the assessment. The Respondent relies on section 161 (1) of the Income Tax Act, 1952,
161.—(1) Subject to the following provisions of this Chapter, where a body corporate incurs expense in or in connection with the provision. for any of its directors or for any person employed by it in an employment to which this Chapter applies, of living or other accommodation, of entertainment, of domestic or other services or of other benefits or facilities of whatever nature, and, apart from this section, the expense would not be chargeable to income tax as income of the director or employee, paragraphs 1 and 7 of the Ninth Schedule to this Act, and section twenty-seven of this Act, shall have effect in relation to so much of the said expense as is not made good to the body corporate by the director or employee as if the expense had been incurred by the director or employee and the amount thereof had been refunded to him by the body corporate by means of a payment in respect of expenses.
The facts make it quite clear that the company did incur expense in the passion of a legal defence for their director, the Appellant. And it appears to me to be equally clear that the provision of that defence was a benefit within the meaning of this subsection. It was argued that the expense had been incurred solely for the purpose of protecting the interests of the company. That may be so. But it cannot be doubted that in fact the provision of his defence was a benefit to him: if it had not been provided by the company he would have had to pay for his own defence or take the risk that lack of a proper defence might lead to his being convicted and sent to prison. No one suggests that he could have obtained free legal aid. And I can find nothing in the Act to support an argument that a benefit in fact provided by the company ceases to be a benefit within the meaning of the section if it is proved that the company's sole reason, motive or purpose was to protect itself and was not to favour its director. The main argument for the Appellant was that, although he had received a benefit, it was not worth Â£641 to him and that that sum should be apportioned. I could understand a case being made for apportionment if the expenditure had been made for two objects only, one of which was of benefit to the director. But here there was only one object—to prevent conviction of the Appellant. The company's reason for trying to achieve that object may have been different from the Appellant's. The company did not want to be deprived of his services, while he wanted to avoid going to prison. But the whole of the money was spent for the purpose of avoiding that.
It is found as a fact that the Appellant would not have spent so much on his own defence: he mentioned a sum of Â£60. But then he would not have got the same benefit. His defence would not have been prepared in the way it was and he would not have been defended by experienced counsel. There is nothing to suggest that the Â£641 was extravagantly spent or that the benefit which he actually received could have been got for less. This is not a case for the company spending without the director's knowledge a large sum to procure a benefit which he did not want, and I do not intend to consider how such a case ought to be dealt with. The Appellant knew and accepted what was being done on his behalf though he may not have realised how much it was costing.
Where there is in fact a benefit and, therefore, a perquisite the Act provides that the measure of the perquisite shall be the expense incurred by the company in providing it. Whether there can ever be circumstances in which it would be possible to depart from that rule in a case where the money was wholly spent to provide the benefit is a matter which it is unnecessary to consider. I can see nothing in the facts of this case to justify any reduction of the sum in which the Appellant has been assessed, and accordingly I would dismiss this appeal.
This is, in my opinion, a hopeless appeal. The Â£641 which the company. Peter Merchant, Ltd., spent in providing the legal defence for the Appellant, when he had to meet the charge that followed upon his unfortunate accident, falls directly within the range of section 161 of the Income Tax Act, 1952, and I cannot see any ground for elaborate argument about it or by raising doubts about how the section would apply in other hypothetical circumstances which are not the circumstances of this case. The purpose of the section is to charge to the taxable emoluments of a director whatever his company may have spent, without reimbursement from him, in providing for him living accommodation, entertainment, domestic or other services or other benefits or facilities, no matter of what nature they may be. Monies spent by the company in providing such benefits, Benefits in kind . .., as the section heading says, are treated for tax purposes as if he had spent the money himself and had had it made good to him by the company as a payment on account of business expenses. Thus they are treated under section 160 as if they were part of his assessable emoluments and only so much, if any, of those expenses as falls within paragraph seven of the Ninth Schedule can be deducted from those emoluments. I daresay that section 161 by working its machinery backwards through section 160 has produced a rather elaborate way of enacting a simple idea, but I do not think that the elaboration makes any difference to the plain meaning of the section.
The Appellant's argument seems to attach some weight to the consideration that the company served its own purposes in arranging for his defence and undertaking the cost of it. I expect that it did: indeed, I think that one ought to assume that it did, for otherwise what right had it to spend the money at all? Naturally, the Board did not wish to face the loss of his valuable services through a possible term of imprisonment, and, apart from that, I should suppose that, with him injured in the accident and involved in his most sad predicament, his colleagues were anxious to relieve his anxieties as much as they could by taking off his shoulders the burden and expense of arranging for his legal representation and defence. But an expenditure is not the less advantageous to a director because it suits or advantages his company to make it. Since he renders services and it remunerates them with money or money's worth, there is always a common interest that the emoluments should be provided. If they were not, the company would not have his services. Similarly, what it makes available by way of supplementary benefits, such as services or other benefits in kind, is paid for in the company's interest, in order to retain services that it values and to secure that its officer is efficient and contented. That, how-ever, does not make any difference to the application of section 161, if the money spent does result in providing what is a benefit to the director. This is a case in which the money bought nothing except the Appellant's defence. No part of it was spent on something that did not benefit him. There is, therefore, no ground for resorting to the apportionment permitted by Section 161 (6), because apportionment only comes into play where of a total sum spent part can be identified as having been spent on something that was not a benefit or facility to the director concerned. I cannot at all understand how the issue of extravagance, was allowed to enter this case. The idea that it was somehow present seems to have led Buckley J. in the High Court to refer the matter back to the Special Commissioners to find as a matter of fact what sum was a reasonable sum to expend on the Appellant's defence at his trial , in order that he should be charged to tax with no more than that sum. Yet there was absolutely nothing in the Special Case to suggest that the Company had been asked to pay or had paid an extravagant or unreasonable sum for this purpose. All that it had commissioned its solicitors to do was to spare no reasonable expense to obtain the Appellant's acquittal of any charge made against him or, if he were convicted, to avoid his going to prison , and it really could not be right, without any evidence to support it, to require a finding which, unless it produced a figure as large as the actual bill, would amount to a conclusion that the solicitors had incurred unreasonable costs.
Besides, whatever motive could the company have had in spending any more money than was reasonably required to meet its purpose? No one supported that particular form of enquiry in the Court of Appeal, and before us the Appellant has not argued in favour of it. What he did ask for was that the case should be sent back for a finding of what such the Appellant would have spent on his defence if he had had no help towards it from the company. It was said that, left to himself, he would not have spent as much as was spent by the company, and the Special Commissioners made a finding to that effect. I do not believe that there can be any true finding of fact about what a man would have done in circumstances that are past and in which he was never presented with the necessity of decision. But, even if there could be a real finding on such a matter, I am satisfied that it would have no bearing on the Appellant's liability to tax under section 161, for the sum attributed to him as emolument is the sum actually spent by the company, of which he received the benefit, not a notional sum which he could or would or might have spent if he had had to meet the predicament out of his own resources. After all, it does not reduce the value of a present to say that the recipient could not or would not have bought it for himself.
In my opinion, the appeal must be dismissed.
I have had the advantage of reading the Opinion of my noble and learned friend, Viscount Radciffe, with which I concur.
For the reasons given by my noble and learned friend, Viscount Radcliffe, in his Opinion, with which I am in entire agreement, I would dismiss this appeal.
Die Martis, 5Â° Mail 1964
Upon Report from the Appellate Committee, to whom was referred the Cause Rendell against Went (Inspector of Taxes), that the Committee had heard Counsel as well on Monday the 13th, as on Tuesday the Nth, days of April last, upon the Petition and Appeal of John Sidney Rendell, of 132 New Church Road, Hove, in the County of Sussex, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 3d of July 1963, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of Alan Arthur Went (Her Majesty's Inspector of Taxes), lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause :
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 3d day of July 1963, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellant do pay, or cause to be paid, to the said Respondent the Costs incurred by him in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.