Taxation Cases

EMMANUEL BRIGHT ATOKOH’S CASE BRIEFS ON 2010-
LAW OF TAXATION 2011
TAXATION
➢ RUSSEL(INSPECTOR OF TAXES) v SCOTT [1948]AC 422
FACTS: The respondent was a farmer who let out part of his land for use as a sand-pit between
1941 and 1944. He received regular accounts. He was assessed to tax under the Income Tax Act,
r. 3 of which provided that “In the case of ironworks, gasworks, salt springs or works alum
mines……and other concerns of the like nature having profits from or arising out of any lands
….shall be understood to be profits of the preceding year ”. He was assessed for the year
1940/41 and he challenged the collection of sand on his land as a concern of the like nature.
The issues were; 1.whether what the respondent did in respect of the sand-pit was the carrying on
of a concern, 2. If so, whether it was a concern of a like nature.
HELD: The subject is not to be taxed unless the words of the taxing statute unambiguously
impose the tax upon him. LORD SIMONDS
“I feel that the taxpayer is entitled to demand that his liability to a higher charge be made out
with reasonable clearness before he is adversely affected. In the present instance this reasonable
clearness is wanting. ” VISCOUNT SIMON
➢ REPUBLIC v. COMMISSIONER OF INCOME TAX; EX PARTE MAATSCHAPPIJ DE

FIJNHOUTHANDEL N.V. (FYNHOUT) [1971] 1 GLR 213-227 CA
FACTS: The appellant is a company incorporated in Holland where it has its headquarters. It
bought timber from all over the world through branch offices in other countries including Ghana
and resold them outside Ghana to purchasers. The Ghana office did not take orders from these
purchases. The company sought and received assurance from previous Commissioners of Income
Tax that it would not be liable to Ghana income tax since it was non-resident and was not
carrying on trade or business in Ghana. It subsequently was however assessed to income tax for
ten income tax years by a new commissioner. The company protested on the grounds that it was
a non-resident company and did not carry on business in Ghana. It instituted action in the High
Court for certiorari to quash the assessment. The order was refused on the ground that the
Commissioner had jurisdiction to make the assessment under the Income Tax Decree, 1966
(N.L.C.D. 78). The company appealed;
HELD: Allowing the appeal: (1) the procedural appellate remedy provided by paragraph 51 of
the Income Tax Decree is not exclusive and exhaustive. It is consistent with the machinery
provided by article 114 of the Constitution for the supervision by the superior courts over all
adjudicating authorities through the use of the prerogative writs or orders.
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(2) Under paragraph 46 of the Income Tax Decree, 1966, the commissioner of Income Tax has
jurisdiction to determine whether any person is [p.214] chargeable with tax or not and he also
has jurisdiction to make assessment of persons chargeable with tax. His assessments could be
challenged and when this was done, his role was transformed to that of an adjudicator who
became subject to the supervisory powers of the court under article 114 of the Constitution.
(3) It is settled law that where a finding is not supported by evidence, it then becomes a question
of law and certiorari will lie to quash the finding. The question whether a company is carrying
on trade or business in Ghana is a question of fact which must be supported by evidence. Since
the commissioner has not shown by his affidavit the evidence on which he relied for the
assessment, certiorari lay to quash the assessments.
➢ KUBI AND OTHERS v. DALI [1984-86] GLR 501–510 CA
FACTS: In an appeal against the quantum of damages awarded for negligence;
HELD: In scaling down the awards under "loss of earnings" and "loss of future earnings" the
learned trial judge failed to take into account the tax liability of the plaintiff. The income tax
laws of this country impose an obligation on all income earners of a certain category to pay
taxes on their earnings. The plaintiff, without doubt, falls under that category, and the fact that
she stated in her evidence that she had not been paying taxes did not absolve her from that
liability. Thus the amount of damages awarded for loss of earnings should take into account the
income tax which the plaintiff would have had to pay if she had continued to trade or work.
➢ MANGIN v IRC [1971]AC 739 PC
FACTS: The appellant was a farmer who owned 385 acres of land. To reduce his tax liability he
created a “paddock trust” by which 25 acres of the land were leased for a year to trustees who
employed the appellant to cultivate the land, and paid him his expenses afterwards. A separate
trust was created into which was to be, paid the resulting income for the benefit of the appellant’s
wife and children. In 1966 a similar transaction was made over 24 acres of the land thereby
making him pay less tax on the income. The respondents made amended assessment of tax on
him for the years ending 31 March 1966/67 under s.108 of the Land and Income Tax Act 1954
which rendered void any agreement, contract or arrangement which sought to alter the incidence
of income tax or relieved a person from his liability to pay tax.
HELD: That in the interpretation of a tax statute first, the words are to be given their ordinary
meaning. They are not to be given some other meaning simply because their object is to frustrate
legitimate tax avoidance devices. Second … one has to look at what is clearly said. There is no
room for any intendment. There is no equity about a tax. There is no presumption as tax.
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Nothing is to be read in nothing is to be implied. One can only look fairly at the language
used. Third, the object of the construction of a statute being to ascertain the will of the
legislature it may be presumed that neither injustice nor absurdity was intended. If therefore a
literal interpretation would produce such a result and the language admits of a language
which would avoid it, then such an interpretation may be adopted. Fourthly, the history of an
enactment and the reasons which led to its being passed may be used as an aid to its
construction. Since the principal object of the appellant was not to create a trust fund for
members of his family but to escape tax liability the paddock trusts were void.[LORD
DONOVAN who read the majority decision]. [Lord Wilberforce dissented]
➢ CAPE BRANDY SYNDICATE v IRC [1921] 1 KB 64
FACTS: The appellants were three members of different firms but held a joint account. In 1916
they purchased some casks of brandy part of which were shipped and sold in London. The main
object of the purchase was for profits. They were assessed to excess profits duty between March
11 1916 - Dec. 31 1916, and Jan 17 1917 – Sept.17 1917. They contended their activity did not
amount to trade within the meaning of the Finance (No.2) Act 1915 and that even if it so
amounted to trade they were not liable since the law under which they were assessed did not
affect businesses commenced after August 4 1914.
HELD: That in a taxing Act one has to look at what is clearly said. There is no room for any
intendment. There is no equity about a tax. There is no presumption as tax. Nothing is to be
read in nothing is to be implied. One can only look fairly at the language used. ROWLATT J.
That in the instant case the provisions of the Act taken by themselves do not impose excess
profits duty on trades and businesses commenced after the outbreak of the war on 4 August
11914. But the provisions of a 1916 Act read together with 1915 Act must be an exposition of
law by Parliament that trades or businesses commenced since August 4, 1914 are within the
scope of the 1915 Act, and therefore liable to pay excess profits duty.
➢ JEFFS v RINGTONS LTD [1968] AER 144
FACTS: The defendants created a trust fund solely for the benefit of its employees. Some
monies were transferred into the fund in 1978, 1979 and in 1980 an amount of 35,000 pounds
was transferred to the fund. The company was assessed to tax and the issue was whether the
amount was an allowable deduction in computing the company’s trading profits for the
accounting period, that is, whether the amount was capital expenditure or revenue expenditure.
The commissioners upheld the company’s contention that the amount constituted revenue
expenditure and not liable to tax. The plaintiff appealed;
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HELD: Dismissing the appeal, that the payment of the money to the trust fund was not a once
and for all payment but one of a series of payments which could not be regarded as an
installment of an identifiable capital sum. Moreover the fund did not constitute and asset or an
enduring advantage of a capital nature to the company since the amount and duration of the fund
were uncertain and the whole of the fund could be distributed among the beneficiaries for the
time being in a very short time. It forward that, the payments made by the company were
revenue expenditure. “…I do not see how knowledge or lack of knowledge on the part of the
employees [about the existence of the fund] can change the character of the payments from
revenue expenditure to capital expenditure or vice versa.” SCOTT J.
➢ CLARK(INSPECTOR OF TAXES) v OCEANIC CONTRACTORS (1983)2 AC 130
FACTS: The respondents were a wholly owned U.S subsidiary company resident in Panama.
Though it did some trade in the UK and had an office address it was not a resident company
subject to UK income tax. In 1977, the company employed people who were both UK and
foreign citizens to lay pipes in the UK section of the North Sea but did not deduct a P.A.Y.E tax
on the salaries and wages paid them as required by the UK Finance Act 1973 which imposes tax
duty on activities carried on beyond the territorial sea of the UK. The Act brings a person within
section 246 of the Income and Corporations Taxes Act by which a person is liable to tax on the
basis of the location of the source of income or the residence of the person. The respondents
were assessed by the appellant to pay 2,033,254 pounds as the tax accruing from monies paid the
workers for the year 1977/78. They challenged the assessment on the ground that the legislation
imposing the tax did not affect a non-resident company like them.
HELD: The House of Lord by a majority decision held: 1. Residence is not a necessary
condition to tax liability if there be otherwise a sufficient connection between the source of
income, profit or gain and the UK. 2. Section 204, which imposes a duty on a payer to deduct
tax, though silent as to the territorial extent of the obligation it imposes, is a machinery section
for the collection of Schedule E tax. LORD SCARMAN. The respondents, although a non-
resident company are deemed by the Finance Act to be trading in the UK and thereby liable to
tax and also since the company had an address in the UK it had sufficient tax or trading presence
in the UK and was thereby bound to operate the PAYE tax on its employees.
➢ COMMISSIONERS OF TAXATION v KIRK (1900) AC 588 @ 592
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FACTS: A company incorporated in Australia engaged in the business of mining on leasehold
land held from the Crown in West South Wales and had an office and a manager there. It partly
generated income from ore extracted and converted into a saleable product and was assessed to
income duty under the Income Tax Assessment Act s.15 of which imposed such on income
arising or accruing to any person…
HELD: That the phrase “arising or accruing to” is synonymous with the word “derive”; and
that the income was assessable to tax under the New South Wales Act notwithstanding that the
finished products were sold exclusively outside the Colony.
➢ BRAY(INSPECTOR OF TAXES) v BEST [1989] 1 AER 969
FACTS: The respondent was an employee of a subsidiary company which operated two trust
funds for the benefits of the employees. In anticipation of the subsidiary company being merged
with and the employees transferred to the parent company on April 1 1979, the trust funds were
wound up and the funds distributed to the employees. On March 4, 1983 the respondent was
assessed to tax on his benefits for the periods 1958-59 to the year 1978-79. The assessment was
made under the Income and Corporations Taxes Act by which a person ordinarily resident in the
UK and who received emoluments including salaries, fees, wages, perquisites and profits
whatsoever was liable to tax. The statute defined chargeable period as an accounting period of a
company or a year of assessment which, with reference to income tax meant the year for which
such tax was guaranteed by an Act granting income tax. The respondent’s contention that the
benefits he received were not emoluments was upheld by the Special Commissioners and the
Court of Appeal. On appeal to the House of Lord:
HELD: Dismissing the appeal, that income tax was a tax of an annual nature and for an
emolument to be chargeable to income tax under the Act it had to be not only an emolument
from an employment but also an emolument for the year of assessment in respect of which the
charge was sought to be raised. The period to which any given payment was to be attributed was
a question of fact to be determined on case by case basis, depending on all the circumstances
including its source and the intention of the payer so far as it could be gathered either from direct
evidence or from the surrounding circumstances. In the instant case since the Special
Commissioner could find no feature of any significance which would indicate that the payment
made to the respondent was fell to be attributed either to the last year or to all or any of the
previous years during which he was employed by the company, it followed that there was no
period to which the payment of sums could be attributed.
[NB: Section 6(2) of Act 592 overrules this decision].
➢ COOK v TAIT
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FACTS: It is provided by a US statute that a citizen of the US is liable to payment of income tax
regardless of where the citizen resided. The plaintiff was a native US citizen but resident and
domiciled in Mexico where his property was situate. He was assessed to income tax and he
challenged the power of Congress to impose such a tax liability to extend beyond the territorial
boundaries of the US.
HELD: Congress has power to tax the income received by a native citizen of the United States
domiciled abroad from property situated abroad.
‘In other words, the principle was declared that the government, by its very nature, benefits the
citizen and his property wherever found, and therefore has the power to make the benefit
complete. Or, to express it another way, the basis of the power to tax was not and cannot be
made dependent upon the situs of the property in all cases, it being in or out of the United States,
nor was not and cannot be made dependent upon the domicile of the citizen, that being in or out
of the United States, but upon his relation as citizen to the United States and the relation of the
latter to him as citizen. The consequence of the relations is that the native citizen who is taxed
may have domicile, and the property from which his income is derived may have situs, in a
foreign country, and the tax be legal, the government having power to impose the tax.’
➢ UNITED STATES V. BENNETT, 232 U.S. 299 (1914)
FACTS: The issues for determination among others include "I. Does the tax purporting
to be imposed by § 37 of the Act of Congress, approved August 5, 1909, apply to the use of a
foreign-built yacht owned by a citizen of the United States, when such yacht, for a period of
more than one year prior to September 1, 1909, and to the levy of such tax, was used wholly
outside of the limits and territorial jurisdiction of the United States?" "II. Did the tax purporting
to be imposed by said act of Congress operate retrospectively, so as to be payable on September
1, 1909, in respect of the year then ended, or only prospectively, so as to become first due and
payable on September 1, 1910?" "III. Did the whole amount of the tax purporting to be imposed
by said act of Congress become due and payable on September 1, 1909, or only such proportion
thereof as the time during which the act was in force at that date bears to the whole year?" "IV.
Has Congress the power to levy a tax upon the use by a citizen of the United States of a yacht
which is not actually, and since the year 1904 was not at any time, used within the territorial
jurisdiction of the United States, and which has its permanent situs in a foreign country?"
HELD: Congress has the power to levy a tax upon the use by a citizen of the United States of a
yacht which is not actually, and since a time preceding the passage of the act was not at any time,
used within the territorial jurisdiction of the United States, and which has its permanent situs in a
foreign country.
➢ WILKIE v INLAND REVENUE COMMISSIONER [1952] 1 Ch 153
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FACTS: It is provided under the UK Income Tax Act that a person is not liable to tax on profits
or gains received as a person residing in the UK if the person is in the UK for a temporary
purpose only and not with any intent of establishing his residence there and who has not resided
in the UK at any one time for a period equal in the whole to six months in any year of
assessment. The appellant was born in Scotland but was resident in India. While on leave he
arrived in the UK at about 2pm on June 2. He could not leave in November as he intended but
left on Dec.2 as a result of a surgical operation he had to undergo and due to a delayed flight. He
was assessed to income tax on dividends paid to him while in the UK. The issue was whether in
the computation of time a fraction of a day was to be counted as a whole and whether month as
used in the statute is lunar month [28 days] or a calendar month.
HELD: That month means calendar month and not lunar month and that in computing the period
whole day, and regard may had not merely to days, but also hours, and if the total of the hours of
residence does not amount to the number of hours in the six calendar months, exemption from
tax may be claimed as in the instant case.
➢ LONDON BANK OF MEXICO & SOUTH AMERICA v APTHORPE [1891] 1QB 383
FACTS: It is provided under a UK tax legislation that profits arising from or accruing to a
person resident in the UK were taxable regardless of where the property to be charged was
situated. The appellant carried on the business of banking and had its headquarters in London
and branches in foreign countries. The foreign branches received managerial instructions from
the headquarters and dividends were paid there without distinction from those of the foreign
branches. Profits earned from the foreign branches were not remitted to London but were
assessed to tax:
HELD: That inasmuch as the business of the company was partly carried on in London, the fact
that a portion of the profits earned abroad was not remitted to London did not exempt the
company from tax liability on such portion.
➢ LIQUIDATOR, RHODESIA METALS LTD v COMMISSIONER OF TAXES
FACTS: A company in liquidation was incorporated in England but engaged in the purchase and
sale of immovable property (mining activities) in Southern Rhodesia. The contracts of purchase
and sale were made in England and the consideration for the sale was paid there. The company
was assessed to income tax within the meaning of the War Taxation and Excess Profits Duty
Ord., 1918 of Southern Rhodesia. The issues were whether the amounts in respect of the receipt
was capital and whether the amount was received from a source within the territory as provided
under the Ordinance.
HELD: Dismissing the appeal, that the company received the sale price from a source within
the territory, namely the mining claims, which had been acquired and developed there for the
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very purpose of obtaining the particular receipt and was thereby assessable to income tax. LORD
ATKIN
➢ THE SCOTTISH PROVIDENT INSTITUTION v FARMER [SURVEYOR OF TAXES]

[1912]6TC34 @ 36-39
FACTS: The appellants were assessed to income tax on interest from money wholly earned
outside the U.K. but which were invested in bearer bonds and later transmitted to the UK and
sold there. The actual earning of the interest was not made in the year of assessment but the
realisation of the earnings by means of the sale of the bonds in the UK was made in the year of
assessment. They sought the assessment to be discharged since no part of the interest had been
remitted or received in the UK within the year of assessment.
HELD: That there was nothing in the Act imposing the tax requiring that the gain be necessarily
made within the year of assessment and that the proceeds from the sale of the bonds in the UK
were taxable.
That although the Act is full of the expression “annual profits and gains” the presence of the
word “annual” does not connote necessarily the idea of nothing being chargeable which is not
within the year of assessment but it is there for the purpose of showing that this is an income i.e
the tax which is being levied is on income and not on capital.
 SOURCES OF INCOME
➢ IRC v ROLLS-ROYCE LTD [1942] 40 TC 443
FACTS: The respondent company was incorporated to manufacture cars and aircraft engines as
well as their accessories and to purchase, acquire or apply for letters patent in respect of its
business. The company was assessed to income tax in respect of sums received from some
licensing agreements involving transfer of technical know-how to some foreign countries. It
appealed against the assessment on the ground that it included certain lump sums derived from
licensing agreements and that the sums were capital in nature. The trial court held that the
technical knowledge or know-how was capital asset which must be excluded from the
computation. The Court of Appeal reversed the decision on the ground that the knowledge sold
was not a secret of permanent value arising from the termination of a business. It was a transient
by-product of advancing engineering science. On appeal to the House of Lords;
HELD: Dismissing the appeal and affirming the Court of Appeal decision; that the lump sums
were revenue receipts and not capital receipts and were rightly included in the computation.
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“The knowledge sold is not some secret of permanent value sold by an owner who is transferring
or terminating his business. Such a case would clearly be a sale of a fixed asset. The knowledge
sold in this case is in the main the transient by-product of advancing engineering science. It
accrues automatically from the company’s business of manufacture and in a comparatively short
time it is superseded and loses its value. It is ever growing, ever changing. It is the kind of
knowledge which can easily merge its character of a fixed asset into that of a trading asset. The
secret knowledge is the more transient since it becomes more quickly obsolete. That which is not
secret is the valuable practical experience of years, but such knowledge partake less of the
nature of a fixed asset… So far as part of the lump sums are paid in respect of the imparting of
the knowledge, they are sums regularly received as an ingredient in the company’s policy of
making manufacturing agreements to secure royalty revenue. To such agreements the disclosing
of technical knowledge is a necessary adjunct, but it is a means to rather than an end.” PEARCE
LJ of the CA. @ 486
➢ ATHERTON v BRITISH INSULATED & HELSBY CABLES LTD [1925] 10 TC 155. HL
FACTS: The appellants were manufacturers of insulated cable. They were assessed to income
tax under a tax statute which excluded deductions from profits on account of any capital
withdrawn or employed or intended to be employed as capital for a trade or manufacture. The
issue is whether contributions made by the company to form the nucleus of a Pension Fund for
the benefit of its clerical and technical salaried staff were admissible deductions in computing its
profits for the purpose of assessment to income tax for the year ending 5th April 1918. The
respondent, the Crown contended since the amount was a one-time payment it constituted a
capital sum.
HELD: Dismissing the appeal by the appellants, that when an expenditure is made, not once
and for all, but with a view to bringing into existence an asset or an advantage for the enduring
benefit of a trade there is very good reason [in the absence of special circumstances leading to an
opposite conclusion] for treating such an expenditure as properly attributable not to revenue but
to capital; and that the word asset ought not to be confined to something material; That the
payment of the money to the trust fund was in the nature of capital expenditure and accordingly
that the deduction of the amount from profits although not expressly prohibited by the Act, was
rightly held by the Court of Appeal not to be admissible; that the money paid by the appellants
to the trustees were to be employed wholly and exclusively for the purpose of the Appellant’s
trade, manufacture, adventure or concern within the meaning of the tax statute and was therefore
capital expenditure.
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➢ VAN DEN BERGHS LTD v CLARK [1935] 19 TC 390 @ 428 HL
FACTS: The appellant company carried on business as a manufacturer of margarine. It entered

into a profit and loss sharing agreement with a rival margarine producing Dutch company which
was in keen competition with it. Following a breakdown of the agreement between the two
companies it was agreed that the Dutch company paid the appellant 450,000 pounds as the
company’s profits for the next thirteen years. The appellant company was assessed to income tax
in the sum of 650, 000 pounds and the issue was whether or not the sum of 450,000 pounds
forming part of the assessment was an income or trade receipt. The appellants contended the
amount was compensation for loss of anticipated future profits and not an income receipt but was
capital and thus should be excluded from profits chargeable to tax. The respondent on the other
hand contended that any amounts received by the appellants under the agreement were receipts
of their trade to be brought into account in computing the balance of profits and gains for tax
purposes. The trial court held that the amount was in respect of the future and was therefore not
taxable. The Court of Appeal reversed the decision on the ground that the amount was in
consideration of the surrender of a fixed capital asset but arose from a transaction attributable to
circulating capital and was therefore income receipt. The appellants appealed.
HELD: Allowing the appeal, that the three agreements which the appellants consented to cancel
were not ordinary commercial contracts made in the course of carrying on their trade; they were
not contracts for the disposal of their products or for the engagement of agents or other
employees necessary for the conduct of their business; nor were they merely agreements as to
how their trading profits when earned should be distributed as between the contracting parties.
On the contrary, the cancelled agreements related to the whole structure of the Appellant’s
profit-making apparatus. They regulated the appellant’s activities, defined what they might or
what they might not do, and affected the whole conduct of their business. I have difficulty in
seeing how money laid out to secure, or money received for the cancellation of, so fundamental
an organization of a trader’s activities can be regarded as an income disbursement or an income
receipt… In my opinion that asset, the congeries of rights which the appellants enjoyed under the
agreements and which for a price they surrendered, was a capital asset.
 Circulating capital is capital which is turned over and in the process of being turned
over yields profit or loss. Fixed capital is not involved directly in that process, and
remains unaffected by it. LORD MACMILLAN@431-432

➢ KELSALL PARSONS & CO v CIR [1938] 20 TC 608
FACTS: The appellants acted on commission basis as agents in Scotland for manufacturing
companies. Their agreement with one of such manufacturers was terminated and an amount of
1500 pounds paid to them as compensation. They contest income tax assessment on the amount
on the ground that it was capital receipt and not taxable.
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HELD: That the assessment by the CIR should stand since the sum received by the appellant
was compensation for the cancellation of the agency contract. That was a contract incidental to
the normal course of the appellant’s, that is, to make profits by rendering services in fulfillment
of such contract; that the sum paid was a surrogatum for one year’s profit.
➢ JOHN SMITH & SON v MOORE [1921] 2AC 13 HL
FACTS: The appellant succeeded his father in running his shipping and coal business. Included
in the assets were contracts concluded by his father with certain collieries for them to supply him
coal in installments. The appellant paid 30,000l for the coal contracts which were advantageous
to the business. The appellant contends the 30,000l was part of the purchase price of the stock in
trade of the business and has to be excluded as deduction from the profits of the business
chargeable to Excess Profit Duty tax.
HELD: That the amount formed part of fixed capital of the business and has to be excluded as a
deduction from profits. Consequently, the appeal must fail as capital within the meaning of the
tax statute included fixed capital. [NB: This decision is in sharp contrast with the cases above
under which fixed capital was excluded from tax.]
BUSINESS
Section 167 of ACT 592—Definitions
"business" includes any trade, profession, or vocation, but Does Not include
employment;
➢ AMERICAN LEAF BLENDING CO. v DIRECTOR-GEN OF INLAND REVENUE

[1978] 2 AER 1185 PC
FACTS: The appellants were a Malaysian company producing cigarette. Its business plummeted
as a result of which it accumulated adjusted loss for tax purposes amounting to 399, 303 dollars.
The company subsequently rented its warehouses on monthly basis to different companies on
different occasions. It was assessed to tax on the rents but it pleaded sett-off under the statute
imposing the tax. The respondent contended that income derived from the rent receipts were
incapable of constituting income from a source consisting of business such as to entitle the
appellant the plea of sett-off as required under the law.
HELD: Allowing the appeal, that although not every isolated act authorized by its
memorandum of association necessarily constituted the carrying on of a business by a
company if a company was incorporated for the purpose of making profits then prima facie
any gainful use to which it put its assets amounted to the carrying on of a business. On the
facts the inference that in letting out its property for rent the company had been carrying on a
business had not been rebutted and accordingly the company was entitled to sett-off its previous
business losses against its rent income.
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➢ CIR v KOREAN SYNDICATE LTD. [1921]12 TC 181 CA
FACTS: The object of the syndicate was to acquire concessions and turn them into accounts. It
acquired gold mining concessions in Korea and subsequently assigned its rights to a
development company in terms they referred to as a lease and for which the development
company paid what they termed royalties. The question was whether the syndicate was carrying
on a business for purposes of tax.
HELD: That, the syndicate was carrying on business for which it was incorporated to acquire
concessions and turn them into account and those profits derived therefrom are liable to excess
profits duty.
“An individual comes into existence for many purposes or perhaps sometimes for none., whereas
a limited company comes into existence for a particular purpose, and if it comes into existence
for a particular purpose of carrying out a transaction by getting possession of concessions and
turning them to account, then that is a matter to be considered when you come to decide whether
doing that is carrying on business or not… This syndicate is in existence and it is carrying on
business.” LORD STERNDALE M.R. @201-202
“Business of course is a very wide word; it may mean business, I do not say in the nature of
trade, but business for the acquisition of gain, or something of that kind, or it may mean merely
an occupation or a function” ROWLATT J. @ 196 HC
➢ REES TURBO DEV. SYNDICATE LTD v CIR [1928] 1 KB 506
FACTS: The appellants were company originally incorporated to acquire patents. They were
assessed to excess profits duty on a sum of money received on the sale of part of patents in the
USA of a group of patents on some pump turbines. It contends the amount was its share of the
sale and was capital asset and not a profit of its circulating capital. The respondent claimed the
amount was a receipt.
HELD: Allowing the appeal [Scrutton dissenting]; that the sale of the patent rights was a
transmutation of a capital asset into money and not a circulating capital.
“In my view, the point at which sales of assets resulting in profits are of such a number and
nature as to constitute a trade or business, or the point when a sale of an asset is so connected
with a trade carried on that profits received from it are profits of a trade, is a question of degree
and of fact… I agree that questions of degree are questions of fact, and that whether a trade is
being carried on is a question of degree and fact.” SCRUTTON LJ.@ 517
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TRADE
➢ GRIFFITHS (INSPECTOR OF TAX) v J.P. HARRISON (WATFORD) LTD. [1963] AC 1

HL
FACTS: The respondents carried on business as merchants. By their altered articles of

association it could buy shares from other companies. They bought all the issued shares of a
company which had sufficient dividends to declare. The question is whether by that purchase
alone they were carrying on a trade such as would entitle them tax relief or sett-off for losses
incurred in carrying on a trade.
HELD:[Lord Denning and Lord Reid dissenting]: that the transaction carried out by the
respondent was a trade in the course of carrying on its trade.
“Try as you will, the word ‘trade’ is one of those common English words which do not lend
themselves readily to definition but which all of us think we understand well enough. We can
recognize a trade when we see it and also an adventure in the nature of a trade. But we are hard
pressed to define it… Short of a definition the only thing to do is to look at the usual
characteristics of a trade and see how this transaction measures up to them. Usually, in trading
the trader makes many trading transactions. But that is not essential. An isolated transaction
may when you find that it was an isolated transaction, as this was, and it was not the object to
make a trading profit as there was none here, you at least have some grounds and reasonable
grounds at that, for thinking there was not a trade nor an adventure in the nature of trade.”
LORD DENNING@20
➢ RAMSON [INSPECTOR OF TAX] v HIGGS [1974]3 AER 949 HL
FACTS: The respondent was a dealer and developer of lands. On the advice of a finance
company he entered an arrangement with them such that profits accruing to him from the
development of the lands would be paid into a trust thereby avoiding tax liability. He was
assessed to income tax for procuring others to enter into transactions with the trustees of the
trust. The Crown reasoned that he was engaged in trade by complying with the steps proposed by
the finance company among which included the setting up of a partnership.
HELD: Allowing the appeal of the respondent in part, that he carried on no trade. “As an
ordinary word in English the word trade has or has had a variety of meanings or shades of
meaning. Leaving aside obsolete or rare usage it is sometimes used to denote any mercantile
operation but it is commonly used to denote operations of a commercial character by which the
trader provides to customers for reward some kind of goods or services.” LORD REID.
“Trade cannot precisely be defined, but certain characteristics can be identified which trade
normally has. Equally, some indicia can be found which prevent a profit from being regarded as
the profit of a trade. Sometimes the question whether an activity is to be found to be a trade
becomes a matter of degree, of frequency, of organization and even of intention, and in such
13
cases it is for the fact finding body to decide on the evidence whether a line is passed. The
present is not such a case: it involves the question as one of recognition whether the
characteristics of trade are sufficiently present….Trade involves, normally the exchange of
goods or of services, for reward, not of all service, since some qualify as a profession, or
employment, or of vocation, but there must be something which the trade offers to provide by
way of business. Trade, moreover presupposes a customer (to this too there may be exceptions,
but such is the norm), or as it may be expressed, trade must be bilateral – you must trade with
someone… Then there are elements or characteristics which prevent a trade being found, even
though a profit has been made – the realization of a capital asset, the isolated transactions
(which may yet be a trade).” LORD WILBERFORCE @ 964.
➢ ERICHSEN v LAST (1881) QBD 414 CA
FACTS: The appellant company had marine cables connecting the UK. From its London office
it sent out messages to foreign places. The issue was whether the appellant, a foreign telegraph
company established at Copenhagen exercised trade within the UK and if so what was the profit
to which it was liable to tax. The trial court held the company exercised a trade within the UK
and was liable to tax on the difference between the sums (profits) made on the transmission of
messages and the cost of such transmission without deduction for the trade profit from the use of
the company’s cables abroad. On appeal;
HELD: That, the company exercised a trade within the UK since it habitually received money
from UK subjects for messages sent from England to places abroad; and that they were
chargeable to tax on the balance of profits or gains from receipts in the UK from the transmission
of the messages.
“There is not, I think, any principle of law which lays down what carrying on trade is. There are
a multitude of things which together make up the carrying on of trade, but I know no one
distinguishing incident, for it is a compound fact made up of a variety of things.” JESSEL M.R
@ 416.
➢ PICKFORD v QUIRKE( INSPECTOR OF TAXES) [1927]13 TC 251
FACTS: The appellant was part of four different syndicates engaged in the purchase of the
shares in cotton spinning mill companies. The syndicates liquidated those companies and formed
new ones to purchase the assets of the old company. In each case the appellant was appointed
director of the new company and derived profit from the transactions. He was assessed to tax on
profits the transactions. Affirming the assessment on the appellant, the Special Commissioners
held that the transactions considered separately were capital transactions and that any one by
itself would not have constituted a trade but that considered together they did constitute a trade.
On appeal;
14
HELD: Dismissing the appeal that the appellant’s participation in the four transactions
constituted a trade and that he was assessable to tax. “Now of course it is very well known that
one transaction of buying and selling a thing does not make a man a trader, but if it is
repeated and becomes systematic, then he becomes a trader and the profits of the transaction,
not taxable so long as they remain isolated, become taxable as items in a trade as a whole,
setting losses against profits, of course, and combining them all into one trade.” ROWLATT
J. @ 263.
➢ LEACH v POGSON[INSPECTOR OF TAXES] 40 TC 585
FACTS: The appellant established a driving school which he subsequently transferred to a

company for consideration in cash and in shares. He established thirty many more such schools
and transferred them on similar terms. He was assessed to tax on the ground that the
considerations received were trade receipts. He contended that his business was that of running
driving schools and that it was no part of his business to sell goodwill or part of the capital and
that the transactions in question were to protect the business and were on capital account. The
issue was whether the receipts from the sales were capital receipts or receipts from trade or an
adventure in the nature of trade. The commissioners held that he carried on one trade of turning
motoring schools to advantage by way of selling schools and that, receipts from the sale
amounted to receipts in the course of trade. On appeal;
HELD: Dismissing the appeal, the Commissioners were entitled to take into consideration, the
subsequent 29 transactions to throw light on the nature of the original transaction of sale and to
come to the conclusion that, the appellant engaged in trade consisting of selling schools
motoring. UNGOED-THOMAS J. @ 594.
➢ ISOLATED TRANSACTIONS
LEEMING v JONES [INSPECTOR OF TAXES] 15 TC 333. HL
FACTS: The appellant was a member of a syndicate of four persons formed to acquire an option
over a rubber estate for resale at a profit. The appellant acquired an estate where the vendors
gave them an abatement of 5 percent (1,750 pounds) as commission for introducing a purchaser.
The rights of the syndicate were subsequently transferred to a company which promoted a new
company and to which was sold the properties of the company for profit. The appellant was
assessed to tax on his share from the proceeds. It was argued for the appellant that his share was
not profit or gain for tax purposes and that the sum in question arose from a casual or isolated
transaction and not from any systematic course of dealing and that there was in the transaction
one sale only which could not constitute a trade.
15
HELD: That there was no liability to tax assessment. “Speaking for myself I have the greatest
difficulty in seeing how an isolated transaction of this kind, if it not be an adventure in the nature
of trade, can be a transaction ejusdem generis with such an adventure and therefore fall within
Case iv. All the elements which will go to make such a transaction an adventure in the nature of
trade would, in my opinion, be required to make it a transaction ejusdem generis with such an
adventure. It seems to me that in the case of an isolated transaction of purchase and resale of
property there is really no middle course open. It is either an adventure in the nature of trade, or
else it is simply a case of sale and resale of property. If in such transaction as we have here the
idea of an adventure in the nature of trade is negatived, I find it difficult to visualize any source
of income, or to appreciate how such a transaction can properly be said to have been entered
into for the purpose of producing income or revenue.” LAWRENCE LJ @ 354
MARTIN v LOWRY [COMMISSIONER OF TAX] 11 TC 297 HL
FACTS: The appellant was a wholesale agricultural machinery merchant. He had never traded
in linen. He purchased from the Government the whole of its surplus stock of aeroplane linen
and which he resold to different people in different transactions in lots. To facilitate the sale, he
made adverts, rented offices and employed a linen expert as an adviser. He was assessed to tax
on the transactions for the sale of the linen. He contended that annual profits as contained in the
law mean profits recurring year by year or derived from a source capable of or at any rate
intended to be capable of producing profits year by year.
HELD: Affirming the decision of the trial court and the CA, that the transaction constituted the
carrying on of trade of which the profits are taxable. “It is said that it is not annual. Of course it
is not annual in the sense that it occurs yearly… It is, I think, income of the trade and it is the
income belonging to this year, and that is all that is necessary to make it annual… What we are
going to charge are the annual profits – that is to say, as the years come round we will charge
the profits of the year. It does not mean it must be de facto current. All it means is, it must be a
profit and it is the profit of the year.” ROWLATT, J @ the KB @ p. 310.
IRC v FRASER [1924] 24 TC 498
FACTS: The respondent, a woodcutter, bought whisky through an agent for resale for profit in
three lots. This was his sole dealing in whisky and had no special knowledge of the trade. He was
assessed to tax and his appeal to the General Commissioners was granted on the ground that he
merely made an investment and that the profit made on it was not assessable to tax. On appeal by
the IRC the issue was whether the appellant was carrying on an adventure in the nature of a
trade;
HELD: Allowing the appeal, the transaction was an adventure in the nature of trade.
“It would be extremely difficult to hold that a single transaction amounted to a trade but it may
be such less difficult to hold that a single transaction is an adventure in the nature of trade… It
is in general more easy to hold that a single transaction entered into by an individual in the line
of his own trade (although not part and parcel of his ordinary business) is an adventure in the
nature of trade than to hold that a transaction entered into by an individual outside the line of
16
his own trade or occupation is an adventure in the nature of trade. But what is a good deal more
important is nature of the transaction with reference to the commodity dealt in. The individual
who enters into the purchase of an article or commodity may have in view the resale of it at a
profit, and yet it may be that is not the only purpose to which he might turn it if favorable
opportunity of sale does not occur… But the purchaser of a large quantity of a commodity like
whisky, greatly in excess of what could be used by himself, his family and friends, a commodity
which yields no pride of possession, which cannot be turned to account except by process of
realization, I can scarcely consider to be other than an adventure in the nature of
trade…”LORD NORMAND@502-503. NB: The court upheld the HC decision in JONES v
LEEMING.
RUTLEDGE v COMMISSIONER OF INLAND REVENUE 14 TC 490
FACTS: The appellant was a money-lender and interested in a cinema company. While in Berlin
he purchased some quantity of toilet rolls. He sold them in London and was assessed to tax on
the profit derived from the sale. He contended that the profit was from capital accretion and that
it was made from an isolated transaction which was not within the ambit of the appellant’s trade.
The issue is whether the adventure was in the nature of trade.
HELD: Dismissing the appeal, that the profits were liable to tax since in buying the T-rolls the
appellant entered into a commercial adventure or speculation which was carried on the same way
as trade and that the purchase and resale of the T-roll was in the nature of trade.. “It is no doubt
true that the question whether a particular is in the nature of trade or not must depend on its
character and circumstances, but if – as in the present case – the purchase is made for no
purpose except that of resale at a profit, there seem little difficulty at arriving at the conclusion
that the deal was ‘in the nature of trade’ though it may be wholly insufficient to constitute by
itself trade.” LORD CLYDE@497. NB: The decision would be different if the appellant buys a
property in anticipation of a rise in its value, uses it for some time and later sells it. This will not
amount to an adventure in the nature of trade.
TAYLOR v GOOD (INSPECTOR OF TAXES) [1974] 1 AER 1137CA
FACTS: The appellant-taxpayer carried on business as a retail grocer and a newsagent. He

purchased a house at an auction at 5100 pounds with the initial intention of living in it with his
family. He however subsequently resold the property at 54,500 pounds after protest by his wife
not to live in the house and after redeveloping it. He was assessed to tax on the amount realized
from the sale as amounting to an adventure in the nature of trade. He appealed to the Special
Commissioners who held that he had had at no time a fixed and settled intention of buying the
property for use as a residence. His action at the trial failed on the ground that the transaction fell
into the definition of trade as soon as he obtained planning permission. On appeal by him to the
CA:
17
HELD: Allowing the appeal, that a man who owns or buys property without present intention to
sell it but which he subsequently sells, not being himself a developer but merely takes steps to
enhance the value of the property in the eyes of a developer, cannot be said to be engaged in
trade. Consequently the activities of the appellant to add value to the property could not amount
to transactions in the nature of trade. RUSSEL LJ.
COOKSEY & BIBBEY v REDNALL 30 TC 514 HC
FACTS: The appellants, a solicitor and a farmer, jointly purchased a diary farm. The farm was
near the city of Birmingham. They rented it to tenants. The appellants subsequently bought and
developed other estates. The farm was subsequently sold to the Birmingham Corporation and
they were jointly assessed to tax on the profit realized from the sale.
HELD: The transaction was not in the nature of trade to be liable to tax since the appellants
acquired the farm for their own occupation but upon their finding that they could not work it
retained it as an investment and let it for years until it had appreciated in value when they sold it.
OSTIME v PONTYPRIDD & RHONDDA JOINT WATER BOARD 28 TC 261HL
FACTS: The appellant- Board was a statutory board which supplied water to consumers in its
districts. It was assessed to tax on money generated for water supplied in excess of the minimum
quantity which it was required to take.
HELD: That, the money paid by the Board to its supplier of the water was admissible deduction
and that the sums which the Board received were trading receipts which were liable to tax.
Quoting Lord Macmillan in LINCOLNSHIRE 20 TC “It was the very object of enabling them
to meet their trading obligations that the advances were made; they were intended artificially to
supplement their trading receipts so as enable them maintain their solvency.”
SMITH BARRY v CORDY [1948] 28 TC 250
FACTS: The respondent purchased peoples’ life insurance policies and received profits for a
period of five years. He suffered war-time injuries and was advised on medical grounds to locate
to India. He sold the life insurance and was assessed to tax on profits from dealing in life
insurance policies. He contended the transactions were in the nature of realizations on investment
and its accretion whether on maturity or sale were of a capital nature. The trial court held that it
would be unwarranted extension of the meaning of the trade to hold that the transactions were an
adventure in the nature of trade.
HELD: That, the appellant engaged in a concern in the nature of trade, resulting in profits, - the
fruit of the capital laid out. “The case is conclusive that he made up his mind to utilize the
commercial market in the endowment life policies for the express purpose of getting a means of
livelihood at the average rate of 7000 pounds a year over a long period of years.”SCOTT LJ@
260.
18
CIR v LIVINGSTONE & OTHERS [1926] 11 TC 538
FACTS: The respondents, a ship repairer, a blacksmith and an employee of fish salesmen jointly
purchased a cargo vessel at about 1,000 pounds with a view to converting it into a steam-drifter
and selling it. They were not connected in any way and had never engaged in selling a ship.
They carried on extensive repairs to the cost of about 1,400pounds on the ship during which two
of them were employed in the repair work. The ship was subsequently sold at a profit of 963
pounds. They were assessed to tax on the gains made.
HELD: The profits were assessable. to tax. “I think the profits of an isolated venture, such as
that in which the respondents engaged may be taxed under Sch. D provided the venture is ‘in the
nature of trade’. ... If the venture was one consisting simply in an isolated purchase of some
article against an expected rise in price and a subsequent sale it might be impossible to say that
the venture was ‘in the nature of trade’…I think the test which must be used in determining
whether such as we are now considering is, or is not, ‘in the nature of trade’ is whether the
operations involved it are of the same kind, and carried on in the same way, as those which are
characteristic of ordinary trading in the line of business in which the venture was made. If they
are I do not see why the venture should not be regarded as ‘in the nature of trade’….[In the
instant case] the profit made by the venture arose, not from the mere appreciation of the capital
value of an isolated purchase for resale, but from the expenditure on the subject purchased of
money laid out upon it for the purpose of making it marketable at a profit. That seems to me to
be the very essence of trade.” LORD CLIDE @542-3
JENKINSON v FREEDLAND [1961] 39 TC 636 CA
FACTS: The respondent, who had the controlling interest in two companies, purchased for 80
pounds each two metal stills the surfaces and moving parts of which were covered with a thick
coating of a sticky and highly inflammable resinous substance. He removed this substance, put
the stills into working order and resold them to the companies under his control, each at a price
of 3,750 pounds. He was assessed to tax and the issue at the trial was whether the transaction was
an adventure in the nature of trade. The Commissioners held that there were sales but that it was
not an adventure in the nature of trade. The trial court held otherwise and on appeal;
HELD: Upholding the conclusion of the Commissioners and allowing the appeal, that the
conclusions of the commissioners was based on evidence before them and cannot be disturbed.
CIR v OLD BUSHMILLS DISTILLERY CO. LTD [1927] 12 TC 1148 HC
FACTS: A company carrying on the business of whisky-distilling went into liquidation. The
liquidator continued distilling to avoid the value of the assets depreciating and later sold off the
company’s stock over a period. Upon being assessed to Corporation Profit Tax in respect of sales
of whisky during those periods, the liquidator appealed against the assessment. The Recorder,
discharging the assessment, found as a fact that the profits did not arise from the carrying on of a
19
trade but was from realizations, sales and capital transactions incidental to the winding up of the
business.
HELD: The question whether the liquidator was carrying on a trade or business was one of fact
and that there was evidence to justify Recorder’s finding. “There was no practical way of
realising the property of the company. The monies received from such sales during this period
were treated as capital, and as such were regularly distributed in proper priorities between those
having claims upon the capital of the company as creditors and shareholders; the importance of
this is that such distribution deprived of working capital which it did not require as it was not
manufacturing during the period of distribution.”MOORE L.C.J @1158.
ISWERA v CEYLON COMMISSIONERS [1965]1 WLR 663
COOPER v STUBBS [1925]2KB 753@ 765 CA
FACTS: The appellant, Stubbs, was a member of a company of cotton brokers. They sold on
commission basis to spinners and merchants and sold to clients on future delivery contracts. The
appellant was assessed to income tax on profits derived from speculative transactions in cotton
futures. The appellant contended that the dealings in future delivery contracts did not constitute
carrying on a trade to warrant tax liability or that these were gambling transactions. The Crown
contended the profits accrued from trade, profession or vocation and thus assessable to tax. The
Commissioners held that the appellant did not deal in future delivery contracts so habitually and
systematically as to constitute carrying on of trade as to warrant tax liability on the profits. On
appeal from a High Court decision;
HELD: Dismissing the appeal, that the appellant’s dealings are such as to constitute a trade,
adventure or concern in the nature of trade and therefore liable to tax. “But to my mind when
rightly tested the contracts which were made by the appellant over these years in successive
series of contracts do constitute a business, and it is not the right test in law to try to apply the
touchstone of habit or system in order to ascertain whether or not a trade was carried on.”
POLLOCK@ 765
THE BALGOWNIE LAND TRUST LTD v CIR [1929]14 TC 684
FACTS: A deceased possessed of a landed estate left it to trustees with directions to realize it.
Unable to realize the estate the trustees incorporated a company with powers to deal in real
property and transferred the deceased’s estate to the company in exchange for shares allotted to
the beneficiaries under the trust. The company subsequently purchased other property with
funds acquired by borrowing on the security of the original estate. The company received rents
and regularly paid dividends on its capital. Upon the sale of the original estate it was assessed to
tax on the sale of lands.
HELD: The Company was carrying on a trade and was assessable to income tax. “A single
plunge may be enough [to render a transaction a trade] provided it is shown to the satisfaction
20
of the Court that the plunge is made in the waters of trade; but the sale of a piece of property -
if that kis all that is involved in the plunge – may easily fall short of anything in the nature of
trade. Transactions of sale are characteristic of trade, but they are not necessarily distinctive of
it; much depends on the circumstances… It [the company] may not have made any large profits
out of its dealings, but it has certainly made some… I cannot say that there is left in my mind any
doubt that the company is doing precisely what it was formed to do, namely, carrying on the
business of a company dealing in real estate. As such it is assessable to income tax on its profits
estimated as these should be in the case of such a company.” LORD CLYDE @ 691 & 692.
[NB: This case was decided on 17th July 1929 while the Hyndland case followed on 19th July
1929]
IRC v HYNDLAND INVESTMENT CO. LTD [1929]14 TC 694
FACTS: The respondent company was formed to purchase from a syndicate engaged in the trade
of houses certain lands on which five blocks of flats comprising forty flats were in the process of
construction. Its objects the acquisition of land to hold as an investment and the building of
tenements and with the power to realize any of its property. The company completed the flats
and let them to tenants. It acquired no other land. It subsequently sold some of the flats and was
assessed to tax on the sale. The issue was whether the company carried on business of dealing in
land and house property or whether its business is that of owning, improving and factoring house
property. The commissioners were unable to hold that the company’s actual transactions are such
as to prove that contemplated in its memorandum.
HELD: That there was no ground for disturbing the decision o the commissioner’s as being
erroneous in point of law since as regards the transactions in question the respondent-company
was merely realizing the capital of the company.
H. CO LTD v CIT
ISSIFU MALI v REPUBLIC [1976]1 GLR 65@66
FACTS:
HELD:
PROFESSION/VOCATION
CURRIE v CIR [1921] 12 TC 245@264; [1921]2 KB332; [1920]1KB 801
FACTS: The appellant carried on business as income taxpayer’s appeal agency and had done the
ordinary work of an accountant for over 20 years. He never joined any professional group. He
assisted people in preparing their income tax returns and claims for repayment of income tax. He
also advised people on the income tax and Excess Profit Duty questions and specialized in
income tax. He was paid fixed fees for his accountancy works. He was assessed to tax on
21
receipts which consisted of percentages received on tax reliefs he had secured for his clients. On
his appeal to the commissioners he argued that he was carrying on a profession within the
meaning of the Finance [No. 2] Act and therefore exempt from Excess Profits Duty. The
commissioners held a contrary view that he was not a chartered accountant to qualify as carrying
on a profession. The issue was whether he was chargeable to Excess Profits Duty. At the trial
Rowlatt J. held that he was carrying on a profession which is a purely intellectual occupation
dealing of course with figures as to which he has experience and knowledge. On appeal by the
Crown;
HELD: The question whether a person is carrying on a profession is a question of fact to be

determined taking account of the circumstances. Therefore where the commissioners have found
as a fact that the person in question does not carry on a profession within the meaning of the
exception and there is evidence on which they could reasonably so find and it is not shown that
in so doing they have proceeded on a wrong principle, the court has no jurisdiction to interfere
with their finding. “In my view it is impossible to lay down any strict legal definition of what is a
profession, because people carry on such infinite varieties of trades and businesses that it is a
question of degree in nearly every case whether the form of business that particular man carries
on is or is not a profession. Accountancy is of every degree of skill or simplicity. I should
certainly not assent to the proposition that as a matter of law every accountant carries on a
profession or that every accountant does not… I am myself am disposed to attach some
importance in findings as to whether a profession is exercised or not to the fact that the
particular man is a member of an organized profession with a recognized standard of ability
enforced before he can enter it and a high standard of conduct enforced while he is practicing in
it. I do not say it settles the matter, for a moment, but if I were deciding a question of profession I
should attach some importance to that particular feature…”SCRUTTON L.J. @264 & 265.
“There may be circumstances in which nobody could arrive at any other finding than that what
the man was doing was carrying on a profession; and therefore taking it from the point of view
of a judge directing a jury, or any other tribunal which has to find the facts, the judge would be
bound to direct them that on the facts they could only find that he was carrying on a profession.
That reduces it to a question of law. On the other hand there might be facts on which the
direction would have to be given the other way. But between those two extremes there is a very
large track of country in which the matter becomes a question of degree; and where it becomes a
question of degree, it is then undoubtedly, in my opinion a question of fact and if the
commissioners come to a conclusion of fact without having applied any wrong principle, then
their decision is final upon the matter. ” LORD STERNDALE, M.R.@259
➢ COMMISSIONER OF INLAND REVENUE v MAXSE [1919]1 KB 647 CA
FACTS: The Finance (No. 2) Act exempts from excess profit duty persons who carry on “any
profession the profits of which are dependent mainly on the personal qualifications of the person
by whom the profession is carried on and in which no capital expenditure is required, or only
capital expenditure of a comparative small amount…” The appellant was the sole proprietor,
editor and publisher of a monthly magazine known as the National Review. He bought paper for
22
the printing, employed an independent contractor for the printing work, a manager and two
clerks and owned a rented office premises. Though other people made contributions to the
magazine its sales were due largely to the popularity of his own writing. He challenged tax
assessment on profits derived from the publication on the ground that he was exempt from
excess profits duty under the Finance Act [No. 2], 1915 as the profits were earned by reason of
his personal qualifications and that the capital he had expended was insignificant compared with
the personal qualifications required to earn the profits. The Crown contended that the income
derived primarily from the sale of a commodity and that the appellant was carrying on a business
liable to duty, as he was not merely a journalist contributing to the Press. The General
Commissioners discharged the assessment and which decision was overturned by Sankey J on
the ground that a man who publishes a magazine could not be said to be carrying on a profession.
On appeal;
HELD: Allowing the appeal, that the appellant was carrying on the profession of a journalist,
author or of man of letters. “An author will not cease to be such if he published or procured to
be published his own works at his own expense, and looked only for his remuneration to the sale
of a commodity (to wit books) in the open market…. Consequently the business of publishing the
magazine should be debited with a fair and reasonable sum by way of allowance to Mr. Maxse
for his contributions, in the same way as payments to outside contributors are dealt with; also
with the proper sum for remuneration as editor. In that manner the professional journalist is
paid for his professional services, and without excess profit taxation, and the business of
publishing the magazine can be assessed to the excess profits duty in respect of profits properly
attributable to the publishing business.” SWINFEN EADY M.R@652 & 653-4
“[I]t seems to me as at present advised that a ‘profession’ in the present use of language
involves the idea of an occupation requiring either purely intellectual skill, or manual skill
controlled, as in painting and sculpture, or surgery, by the intellectual skill of the operator, as
distinguished from an occupation which is substantially the production or sale or arrangements
for the production or sale of commodities. The line of demarcation may vary from time to time.
The word ‘profession’ used to be confined to the three learned professions, the Church,
Medicine and Law. It has now, I think, a wider meaning.”SCRUTTON L.J. @657.
➢ HUGH CECIL v IRC [1919]36 TLR 164
FACTS: A photographer said his photographing was so artistic and exclusive that he was in the
rank of a professional man. The commissioners held that he was not and on appeal to the High
Court presided over by Rowlatt J.;
HELD: That the findings of the commissioners was a finding of fact which could not be
questioned since there were considerations of fact and of the appreciation of degree on one side
or other which you had to weigh one against the other and say on the whole what was his exact
level in the ladder which leads from the purely mechanical to the artistic region.
23
➢ PARTRIDGE v MALLANDINE [SURVEYOR OF TAXES] [1886] 2 TC 179 HC
FACTS: The appellants were assessed to tax on profits made as bookmakers or betters on horse-
racing. They contend that they attended race courses and profits from them were not assessable
to tax as they did not exercise any trade, vocation or profession. The commissioner argued that
the betting had been continuous, systematic and carried on annually such as to render it a
vocation for tax purposes.
HELD: Upholding the findings of the commissioners, that the profits made by the appellants
from betting/bookmaking were profits from a calling and liable to tax. “I do not think the word
‘employment’ necessarily means a case in which a person is set to work by other means to earn
money. A man may employ himself in order to earn money in such a way as to come within such
definition, but I think the word ‘vocation’ is still a stronger word. It is admitted to be analogous
to the word ‘calling’ which is a very large word; it means the way in which a person passes his
life, and it is a very large word indeed.”DENMAN J.@180
➢ EVANS MEDICAL SUPPPLIES LTD v MORIARTY [1957] 37 TC 450.
FACTS: The appellant was a pharmaceutical company with an agency in Burma. It received
100,000 pounds from the Burmese Government in consideration for transfer of know-how to that
government. The company was assessed to tax on the amount received on the basis that it was a
revenue receipt. The company on its part contended the amount was capital receipt and not liable
to tax. At the House of Lords, the issues were whether the amount was capital or income and
whether it was received in the course of the company’s trade.
HELD: Dismissing the Crown’s appeal and allowing the company’s cross appeal; That the
amount received was a capital payment and that it was not received in the course of the
company’s trade.{NB: Lord Denning held that it was a revenue receipt but that the amount was
not received in the course of the company’s trade.}
“What then is the position of know-how for tax purposes? It is undoubtedly a revenue-producing
asset. The possessor can use it to make things for sale, or he can teach it to others for reward.
But he cannot sell it outright. It is rather like the know-how of a professional man. He can use it
to earn fees from his clients or he can teach it to pupils for reward, and so produce revenue. But
he cannot sell it as a capital asset for a capital sum. He cannot sell his brains. So with a
company that has special manufacturing skills and experience, but has no secret processes. Its
know-how is inseparable from the know-how of its staff and servants. It cannot prevent them
using it any more than it cannot prevent them using their own brains.”LORD DENNING’S
DISSENTING OPINION ON THIS ASPECT OF THE CASE/@ 589.
ROLLS ROYCE v JEFFERY {REFER ABOVE}
24
PROFITS FROM ILLEGAL ACTIVITY
➢ MANN v NASH [INSPECTOR OF TAX] [1932] 16 TC 523
FACTS: The appellant carried on the business of providing automatic machines for use by the
public. These automatic machines were sold at public places though the purpose for which they
were made had been outlawed. The appellant shared the proceeds with the owner of the premises
where the sales were carried out. Having been assessed to tax on the profits on the basis that he
was carrying on his ordinary business, he contended the profits were not taxable as they were
earned from unlawful means.
HELD: Dismissing the appeal, that the profits were liable to tax. “ I myself cannot see why this
letting out of the machines in a commercial way, with a view to reception of profits in a
commercial way, is not trade, adventure, manufacture or concern in the nature of trade. On the
words, it clearly is.”ROWLATT J.@530
➢ LINDSEY & OTHERS v CIR [1933] 18 TC 43
FACTS: The appellants exported rye whisky to the U.S.A over a period of two years. This was
illegal under US laws and involved deception of UK Custom officials. They were assessed to
profits made on the sales. They contended, inter alia, that the transactions were not in the nature
of trade but speculative and that in any event the transactions were illegal and not liable to tax.
HELD: That the profits were assessable to tax. “It is plain enough, I think, that the profits of
crime could not be assessable to Income Tax as the profits from trade… But in the present case,
the ‘trade’ did not consist in the commission of the crime; it consisted in the marketing of a
commercial article. The frauds on the custom authorities were only incidents of that trade”
LORD CLYDE@55
“It is quite immaterial that the particular method of carrying on the trade involved the making of
a false declaration to the Customs authorities or giving bribes to persons in America. In my
opinion, these are entirely irrelevant considerations. When it is established that a trade has
existed for a year, the question is whether it realized a profit as ascertained under the rules of
the statute. It is quite in vain for the person who has realized the profit to prove that he made it
by cheating or fraudulent trading, or to attempt to contend that the profit he has earned ought to
escape chargeability because he might have been convicted of a breach of the law… It is in my
opinion absurd to suppose that honest gains are charged to tax and dishonest gains
escape.”LORD MORISON @57-58
➢ RUTKIN V. UNITED STATES, 343 U.S. 130 (1952)
25
FACTS: The plaintiff illegally obtained 250,000 dollars by extortion and did not disclose it.
The issue is whether money illegally obtained is liable to tax.
HELD: That plaintiff was liable to pay tax on the money illegally obtained. 1. Money obtained
by extortion is income taxable to the extortioner under § 22(a) of the Internal Revenue Code. Pp.
(a) An unlawful gain, as well as a lawful one, constitutes taxable income when its recipient has
such control over it that, as a practical matter, he derives readily realizable economic value from
it. 2. Under the instructions given the jury in the prosecution of petitioner for willfully attempting
to evade and defeat federal taxes, the verdict of the jury must be taken as reflecting its conclusion
that the money in question was obtained by petitioner by extortion, and there was substantial
evidence supporting that result. The factual issue whether, under all the circumstances,
petitioner's omission of the amount in question from his tax return constituted a willful attempt to
evade and defeat the federal tax is not open to review here, since that issue is settled by the
verdict of the jury supported by substantial evidence. Spies v. United States, 317 U. S. 492,
applied. 4. The case of Commissioner v. Wilcox, 327 U. S. 404, is limited to its facts. P. 343 U.
S. 138. 5. Congress has power under the Sixteenth Amendment to tax as income monies received
by extortion.
➢ GRAHAM v GREEN (INSPECTOR OF TAX) 9 TC 309
FACTS: The appellant derived his livelihood from betting on horses. He was assessed to tax in
respect of the earnings from the betting. The issues were whether the winnings were profits or
gains and if they were; whether they were profits or gains of a vocation, trade or an adventure.
trade.
HELD: Allowing the appeal, that the winnings from the betting were not profits or gains.
“There is no tax on a habit. I do not think “ habitual” or even “systematic” fully describes what
is essential in the phrase “trade, adventure, profession or vocation.””ROWLATT J.
CIR v EKEM [1990] 1WLR 1374
FACTS:
HELD:
MINISTER OF FINANCE v SMITH [1927] AC193 PC
FACTS: The appellant engaged in illicit traffic of liquor and was assessed to tax. The issue was
whether profits arising from illicit traffic in liquor [bootlegging] in Ontario, Canada was
“income” within the Income War Tax, 1917 as to be liable to tax. The trial Exchequer Court
held it was income. The Supreme Court of Canada reversed that decision on the ground that it
would be absurd for the Crown, who desires to suppress the illicit traffic in liquor, to benefit
from what it sought to prohibit. On appeal to the Privy Council;
26
HELD: Allowing the appeal; that the profits were income and liable to tax.
“Construing the Dominion Act literally, the profits in question, although by the law of the
particular Province they are illicit, come within the words employed. Their Lordships can find
no valid reason for holding that the words used by the Dominion Parliament were intended to
exclude these people (bootleggers), particularly as to do so would be to increase the burden on
those throughout Canada whose businesses were lawful. Nor does it seem to their Lordships a
natural construction of the Act to read it as permitting persons who come within its terms to
defeat taxation by setting up their own wrong.” VISCOUNT HALDANE@197.
➢ CIR v ALEXANDER VON GLEHN & CO. 12 TC 232 CA
FACTS: The appellants were a British company exporting goods to Russia and the Scandinavia.
Following the company’s non-compliance with legislation which prohibited exporting goods to
enemy states, a situation which was unknown to them, the company agreed to pay the Attorney-
General a penalty of 3,000 pounds and incurred 1000pounds in the process of arriving at this
agreement. The company sought to deduct these expenses as deductable expenses as provided
under the Income Tax Act;
HELD: Dismissing the appeal, that the penalty and costs were not admissible deductions in
arriving at the profits of the company.
“As I say, it has been agreed that they did not intend to do anything wrong in the sense that
they were willingly and knowingly sending these goods to an enemy destination; but they
committed a breach of the law, and for that breach of the law they were fined, and that does not
seem to me to be a loss connected with the business, but it is a fine imposed upon the company
personally, as far as a company can be a person, for a breach of the law which they had
committed. It is perhaps a little difficult to put the distinction between a commercial loss and a
penalty imposed upon a person or a company for a breach of the law which they have committed
in that trading.”LORD STERNDALE M.R.@ 238
INVESTMENT
Section 9—Income from an Investment
(1) A person's income from an investment is that person's gains or profits from any
investment.
(2) The gains or profits of a person from an investment include any dividends from a
non-resident company, interest, charge, annuity, royalties, rent, natural resource
payment, or other income accruing to or derived by that person from the
investment other than an amount included in ascertaining that person's income
from a business or employment.
27
 DIVIDENDS
Section 94 of Act 592
"dividends" includes
(a) a capitalisation of profits, whether by way of a bonus share issue or increase
in the amount paid-up on shares, or otherwise involving a credit of profits to the
share capital or share premium account; or
(b) an amount derived by a shareholder from a company
(i) in the course of liquidation or reconstruction, or
(ii) with respect to a reduction of share capital or share buy back,
but only to the extent that the amount is not debited to the company's share
capital or share premium account;
➢ LOWRY v CONSOLIDATED AFRICAN SELECTION TRUST [1940] 23 TC 259
FACTS: The respondent carried on the business of searching for and winning diamonds. Acting
on a resolution of the company, the directors issued at par ordinary shares to some employees in
appreciation for their services. The market value of the shares was considerably above par and
the company sought to deduct the difference of 11,625 pounds in computing its profits for
Income Tax purposes. Employees of the company resident in England who received these shares
were also assessed to tax on the premium value on the ground that they were paid this amount as
remuneration for their services. The issue is whether, by reason of the fact that the company did
not make use of the opportunity of issuing shares at a premium, the company can be said to have
incurred a trading expense to the amount of the premium such as to entitle them a deduction of
the difference or whether the issue of the shares in the manner adopted by the respondent
company in any way “disbursements or expenses…wholly and exclusively laid out or expended
for the purpose of” its trade.
HELD: Allowing the appeal respondent company; that [i] it was not entitled to the deductions
claimed; [ii] the that the assessment made against the employees in England was justified since
the profits which the taxpayer (the employees) was in position to make by going on the market
and selling shares allotted to him on payment of less than the market price was an immediate
profit in the nature of money’s worth received by him and the employees have in the same way
been treated as receiving money’s worth to the extent the extent of the premium value of the
shares.
“If in the circumstances of this case the company must be held to have suffered a financial
detriment, or in other words to have incurred an expense, solely by reason of the fact that it
did not issue its shares at a premium, very far-reaching results might follow in many cases in
which for one reason or another an opportunity of securing some financial advantage is not
used. That however does not in any way affect or alter the view I take in this case on the
facts. The plain facts as it appears to me is that the cost to the company of earning its trading
28
receipts was not increased by the issue of these shares at less than their full market
value.”VISCOUNT CALDECOTE, L.C. @282.
 INTEREST
Section 167 of Act 592
"interest" includes
(a) any payment, including of a discount or premium, made under a debt obligation
which is not a return of capital;
(b) any swap or other payments functionally equivalent to interest;
(c) any commitment, guarantee, or service fee paid in respect of a debt obligation or
swap agreement; or
(d) a distribution by a building society;
➢ SMILES [SURVEYOR OF TAX] v AUSTRALASIAN MORTGAGE & AGENCY CO.

LTD 2 TC 367
FACTS: The company engaged in wool-brokering business from which it received grants,
temporary advances on security of second mortgages, or on wool and produce. The issue is
whether interests derived from the business were assessable to tax.
HELD: That the interest was liable to tax.
➢ BUTLER v THE MORTGAGE COMPANY OF EGYPT 13 TC 803
FACTS: The respondent was a British company controlled in Egypt. It carried on business of
lending money on mortgage of land in Egypt or on the security of debentures secured by
mortgage of land in Egypt. In an assessment for tax on interest from the securities, the General
Commissioners held that the acceptance of securities for money lent was only an incident of the
company’s business, and that the income was not assessable.
HELD: That the income was income arising from foreign securities and assessable to tax.
➢ WESTERN SELECTION DEV. CO. LTD v COMMISSIONER OF INCOME TAX [1962]

1 GLR 547
FACTS: The appellant company, domiciled in England, assigned all its proprietary interest in
gold mining concessions in Ghana to BGD CO. LTD, also domiciled in England. As part of the
agreement the sale price was used as payment for shares in the purchasing company and in
29
addition the appellant was entitled to four per cent royalty on the gross value of gold extracted
from the land. The company was assessed to tax under the Income Tax Ordinance on the four per
cent royalty as income from land in Ghana. The company appealed to the High Court against the
assessment.
HELD: Allowing the appeal that, [i] the four per cent royalty was not payment for the use of
land, but is in a nature of a consideration the purchasers are paying for the appellants’
willingness to sell their interest to them; it is a capital payment, not a profit and is not subject to
Ghana income tax; [ii] the term ‘royalty’ in the context does not have the usual meaning of a
payment to a landlord for the use of his land; the term is used in the sense of a right and an
obligation arising out of personal covenants unconnected with any proprietary interest in land.
➢ BENNETT v OGSTON (INSPECTOR OF TAXES) 15 TC 374
FACTS: The appellant, as administrator of a deceased moneylender, became possessed of some

promissory notes obtained by the deceased from borrowers for loans payable to the deceased on
installment. Tax assessments were made on part of the installment as amounting to interest from
money within the meaning of the Income Tax Act.
HELD: That the sums in question were interests liable to assessment. “When a trader or a
follower of a profession or vocation dies or goes out of business… and there remain to be
collected sums owing for goods supplied during the existence of the business or for services
rendered by the professional man during the course of his life or his business, there is no
question of assessing those receipts to income tax; they are the receipts of the business while it
lasted; they are arrears of that business, they represent money which was earned during the life
time of the business and are taken to be covered by the assessment made during the life of the
business, whether that assessment was made on the basis of bookings or on the basis of receipts.
But this is not that case; because here the interest in question is not the accrued earnings of the
capital during the life of the deceased or the time the business was carried on; it is the earnings
of the capital, or so much as left of it since the death, and this interest has been earned over the
time which has elapsed since the death.” ROWLATT J. @ 378.
INCOME FROM EMPLOYMENT
Section 8—Income from an Employment
(1) A person's income from an employment is that person's gains or profits from that
employment.
30
(2) The gains or profits from an employment of a person include any allowances or
benefits paid in cash or given in kind to, or on behalf of, that person from that
employment, other than
(a) a reimbursement or discharge of a person's dental, medical, or health

insurance expenses where the benefit is available to all full-time employees on
equal terms;
(b) a passage to or from Ghana in respect of that person's appointment or

termination of employment where that person
(i) is recruited or engaged outside Ghana;
(ii) is in Ghana solely for the purpose of serving the employer; and
(iii) is not a resident of Ghana;
(c) any provision of accommodation by an employer carrying on a timber,

mining, building, construction or farming business to that person at any
place or site where the field operation of the business is carried on;
(d) a discharge or reimbursement by an employer of an expenditure incurred

by that person on behalf of the employer that serves the proper business
purposes of the employer;
(e) a severance pay; or
(f) a night duty allowance paid to a person who is a night shift employee
where the amount involved does not exceed fifty per cent of the monthly
basic salary of that person. [As amended by the Internal Revenue
(Amendment) Act, 2002 (Act 622), s.3].
(3) For the purposes of this section, any amount, allowance, or benefit is a gain or profit
from employment if it
(a) is provided by the employer, an associate of the employer, or a third party

under an arrangement with the employer or an associate of the employer;
(b) is provided to an employee or an associate of an employee; and
(c) is provided in respect of past, present, or prospective employment.
(4) The amount of any allowance or benefit from an employment to be included in

ascertaining a person's gains or profits under subsection (2) shall be determined in
31
accordance with the Second Schedule and, in any case not referred to in that Schedule,
as the value of the allowance or benefit to a reasonable person in the position of that
person.
BENEFITS GIVEN IN KIND
 RENT –FREE ACCOMMODATION/ PROVISION OF VEHICLE & FUEL & DRIVER
➢ TENNANT v SMITH [1892] AC 150 HL
FACTS: It is provided by the Customs and Inland Revenue Act that any person assessed to
income tax who proves that his “total income from all sources” is less than £400 shall be
entitled to be relieved from the duty on £120 of such income. The appellant (Tennant) was a
bank agent occupying a house owned by the bank. His total salary was £374. His occupation of
the house was to enable him oversee the premises and discharge other duties of the bank after
bank hours. He claimed relief under the Act on the ground that his income was less than £400.
His claim was rejected by the respondent on the ground that in arriving at the appellant’s income
a sum of £50 must be added as representing the yearly value of his residence in the bank
building. The issue was whether the appellant’s residence was income within the meaning of the
statute and which must be valued and assessed for income tax.
HELD: Allowing the appeal, that in estimating the appellant’s total income from all sources, the
yearly value of his privilege of free residence in the bank premises could not be brought into
account.
“I come to the conclusion that the Act refers to money payments made to the person who
receives them, though, of course I do not deny that if substantial things of money value were
capable of being turned into money they might for that purpose represent money’s worth and be
therefore taxable… [T]he source to be taxed is not income unless it can be turned into
money.”LORD HALSBURY L.C. @ 156-7
[INTERPRETATION: “In various cases the principle of construction of a taxing Act has been
referred to in various forms, but I believe they may all be reduced to this, that inasmuch as you
have no right to assume that there is any governing object which a taxing Act is intended to
attain other than that which it has expressed by making such and such objects the intended
subject for taxation, you must see whether a tax is expressly imposed.” LORD HALSBURY
L.C.@154]
➢ TAYLOR v. PROVAN (INSPECTOR OF TAXES) [1974] 2 WLR 394 H.L.

FACTS: It is provided under the Income tax Act that ‘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,
32
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, a Canadian citizen, was director of some English brewery companies. He was not paid
for his work but was reimbursed for his expenses. On having been assessed to tax on some
amounts including amounts in respect of air travel expenses he challenged the assessment on the
ground that the amounts were not emoluments from his office as a director; or that the expenses
were deductible as necessary expenses incurred in carrying out the duties of his office. The
special commissioners found that the travelling expenses did not arise from the nature of the
taxpayer's office as director and dismissed his appeal. The taxpayer appealed and Pennycuick V.-
C, allowing the appeal, held that, although the taxpayer could have carried out his special
assignment exclusively in the United Kingdom, his contract of employment expressly
contemplated his having two places of work and, accordingly, sums reimbursed to him in respect
of expenses incurred in travelling between those two places of work were money expended
wholly, exclusively and necessarily in the performance of his duties and accordingly deductible.
The substantial question in the case is whether these expenses of travelling are a permissible
deduction. The appeal of the crown having being allowed, the taxpayer appealed;
HELD: Allowing the appeal; (1) that the sums in question constituted emoluments, for albeit the
taxpayer was a director with a special assignment he was none the less a director, and section
160 of the Act of 1952 warranted no distinctions as to the duties in respect of which the relevant
payments were made; (2) that the primary facts as found by the special commissioners proved
that in reality there were at least two places of work required by the taxpayer's very special
employment, which entailed work that could be done by no one else, that accordingly the
travelling expenses were necessarily incurred whilst he was travelling between Canada and the
United Kingdom on the business of the English companies.
“It will, however, always be essential to have clear findings of fact on certain matters. In the first
place, it will be necessary to know what exactly was the office or employment that a person held.
In the second place, it will be necessary to know what exactly were the duties of the B office or
employment. In a great many cases it might be determined that a person's obligations were to be
in an office at a certain place at certain appointed times and in that office to perform certain
duties. The person concerned would probably reside elsewhere. But the position of his home
would be a matter for him to decide. For reasons personal to himself he might wish to live near
to his work or he might wish to live far away fromr his work. How much time or how much, if
any, expense would be involved in getting to his work would be entirely his affair. If of two such
men who had to be in an office at a certain place at certain appointed times so as there to
perform similar duties one lived within walking distance and had no travelling expenses while
the other chose to live a long distance away with consequent heavy travelling expenses it could
not successfully be argued that the latter as the holder of an office or employment of profit D was
"necessarily obliged" to incur travelling expenses nor that he was necessarily obliged to incur
such travelling expenses in performing the duties of his office or employment. The phrases " in
the performance of the duties " or " in performing the duties "may to some extent be inexact…In
my view, it follows that the travelling expenses now under consideration were wholly,
exclusively and necessarily incurred in the performance of the duties of the office or
employment held JJ by the appellant. It was because of the nature of and the duties and
33
obligations of the office or employment that he held that the appellant had of necessity to travel
to and from the United Kingdom.”LORD MORRIS@211
.
➢ HOCHSTRASSER [INSP. OF TAXES] v MAYES [1960] AC 376 HL
FACTS: The Income Tax Act imposed tax liability on income or gains in respect of any office,
employment or pension. The respondent was an employee of a company. As part of a housing
scheme for its employees, the company gave interest-free loans to the employees to enable them
buy their own houses wherever the employee was posted by the company. The company
however had the option to purchase the house if the employee desired to sell it when on transfer.
The appellant bought a house for 1,850 pounds, of which 300 pounds was advanced to him by
the company as interest-free loan. He subsequently sold the house for 1,500 pounds with the
consent of his employers. The company later paid him 350 pounds to compensate him for his
loss. He was assessed to tax on this amount.
HELD: Dismissing the appeal, that although the fact of employment was the causa sine qua non,
was not the causa causans of the payment of the 350 pounds such as to be assessable to tax.
“We are bound to say on the facts found for us that the source of the 350 pounds was the housing
agreement into which the respondent had entered… and that the circumstance that brought
about his entitlement to the money was not any services given by him but his personal
embarrassment in having sold his house for a smaller sum than he had given for it.” LORD
RADCLIFF @ 392.
“So tested the question simply is: Was this 350 received…a profit from his employment? I think
not, for the simple reason that it was not a remuneration or reward or return for his services in
any sense of the word.” LORD DENNING@397.
➢ DAVIES [INSPECTOR OF TAXES] v BRAITHWAIT [1931] 2 KB 628
FACTS: The respondent was an actress. She exercised her professional qualification by
accepting and fulfilling engagements from where she earned her livelihood. She acted in various
plays and films in England and the USA and performed on wireless for the BBC and other
gramophone companies. She was assessed to tax on profits derived from these activities as
earnings from the exercise of a profession or vocation. The respondent contended that the
contracts for her theatrical performances were contracts of employment, the relation between the
producer and the respondent being that of master and servant.
HELD: Allowing the appeal by the Crown; that the respondent was assessable to tax in respect
of profits which she earned from her profession or vocation as an actress and not in respect of the
profits of her employment; that the expression “employment” as used in the Income Tax Act is
analogous to an office or a post.
34
“It seems to me quite clear that a man can have both an employment and a profession at the
same time, in different categories. A man may have the steadiest employment in the world by day
and he may do something quite different in the evening and make some more money by the
exercise livelihood which does not consist of the obtaining of a post and staying in it , but
consists of a series of engagements and moving from one to the other - and in the case of an
actor’s actress’s life it certainly involves going from one to the other and not going on playing
one part for the rest of his or her life, but in obtaining first engagement, then another, and a
whole series of them – then each of those engagements cannot be considered an employment, but
is a mere engagement in the course of exercising a profession, and every profession and every
trade does involve the making of successive contracts and, in one sense of the word,
employments….I think that whatever [the respondent] does and whatever contracts she makes
are nothing but incidents in the conduct of her professional career.”ROWLATT J @ 635-636
➢ HENRY [INSPECTOR OF TAXES] v FORSTER & 2 OTHERS 16 TC 605 CA, HL.
FACTS: The respondents were directors of a company. It is provided under the company’s
articles that on the death, resignation or a director ceasing to hold office for any other cause other
than misconduct, bankruptcy, lunacy or incompetence he or his representatives should be paid
compensation for loss of his office equal to the total remuneration received by him in the
preceding five years. The first and second respondents resigned and were paid compensation
pursuant to the company’s article. The third respondent desired to retire from active management
of the company but his co-directors impressed upon him to only resign as chairman and be entitle
to compensation under the article so that they could consult him. They were assessed to tax on
the amounts received as being profits. The issues were (i) whether the sums paid to the
respondents arose from the office of director, and (ii) whether the sums constituted income or
were of a capital nature. At the Court of Appeal it was held that the first and second appellants
were properly assessed to tax. They did not appeal. On appeal by the third appellant to the House
of Lords;
HELD: Allowing the appeal, that in the circumstances of the case the sum received was not
income assessable to tax. The sum did not arise from the contract of service or from the office of
director. It was not in the nature of income but an isolated payment once and for all.
“It seems to me that a sum of money paid to obtain a release from a contingent liability under a
contract of employment cannot be said to be received ‘under’ the contract of employment, is not
remuneration for services rendered or to be rendered under the contract of employment, and is
not received ‘from’ the contract of employment.”LORD ATKIN@644
“In the first place, it seems clear to me that the 10,000 pounds did not, in any sense, represent a
reward or return for services rendered as a director under the previous arrangement with the
35
company and it is clear that it was not a reward or return for services as a director to be
rendered in the future, for the payment of the 10,000pounds was in no way conditional on such
service and the remuneration for such service was otherwise provided for by the new
arrangement. It is clear in my opinion that a payment in terms of article 109 to a director who
has in fact resigned, is contractually part of the consideration for his services as a director and
would be correctly described as arising from the office of director, but there would remain the
question as to whether it was in the true nature of income or not.” LORD THANKERTON@649.
➢ CALVERT [INSPECTOR OF TAXES] v WAINWRIGHT [1947] 1 KB 526
FACTS: The respondent was assessed to tax in respect of tips he received as a taxi driver in the
employment of a company. The commissioners concluded the tips were not profits or gains of
his employment, but were gifts given to him personally and were therefore not assessable. They
discharged the assessment and the Crown appealed;
HELD: Allowing the appeal, that tips received by taxi drivers in the ordinary way are assessable
to income tax as part of their profits arising out of their employment.
 ASCERTAINMENT OF INCOME
➢ LONDON CITY COUNCIL & OTHERS v ATTORNEY-GENERAL [1901] AC 26 HL
FACTS: It is provided under the Customs and Inland Revenue Act, 1888 that “Upon payment of
any of money or annuities charged with income tax under Schedule D, and not payable, or not
wholly payable, out of profits or gains brought into charge to such tax, the person by or through
whom such interest or annuities shall be paid shall deduct thereout the rate of income tax inforce
at the time of such payment…” The appellant council lend money to local authorities. Interests
accruing from the loans were paid into a Consolidated Loan Fund. The council paid dividends of
1,600,000l on consolidated stock and interest on loans made to the council. The sum was partly
paid out from rents and profits from lands charged with income tax and partly from interests
from loans to local authorities and rates. The Council deducted and retained tax on the dividends
and interests paid out of their rents and profits on land on the ground that they were entitled to do
so under the Income Tax Act. The trial court and the Court of Appeal held that the appellants
were liable to account to the Crown. On appeal;
HELD: Allowing the appeal, that the council is bound to account to the Crown for the money
deducted from the dividends, so far only as the dividends are not paid out of their income which
has already been charged with income tax. Where the dividends are paid partly from different
sources as in the instant case the council is entitled to retain for their own benefit so much of the
deduction for income tax which they make on the dividends as is equal to the income tax paid in
both cases.
36
“Income tax, if I may be pardoned for saying so, is a tax on income. It is not meant to be a tax on
anything. It is one tax, not a collection of taxes essentially distinct. There is no difference in kind
between the duties of income tax assessed in the instant cases.” LORD MACNAGHTEN@35
“It is no longer optional for a person who has to make an annual payment to deduct income tax.
He is bound to make the deduction, and bound to pay over to the Crown the amount deducted
unless the payment comes out of income which has already paid the duty. That is a substantial
improvement, and a reasonable security for payment of duty in many cases where formally it was
liable to be evaded. But to read the enactment as imposing a double duty would be contrary to
the whole scope of income-tax legislation, and whimsical in the highest degree, when you
consider that the double burden would necessarily fall upon the fundholder, in whose case the
collection of duty is certain, while a person chargeable under sch. D would be expressly
exempted from double duty.” @ 40
➢ GOLD COAST SELECTION TRUST LTD v HUMPHREY (INSPECTOR OF TAXES)

[1948] 2 ALL ER 379 HL
FACTS: The trust company were financiers and exploiters. They acquired a gold concession
which was subsequently sold in consideration for the sum of 800,000 pounds to in paid up shares
in the purchasing company. The issue was what figure, if any, ought to be included in the profits
and gains of the trust for the year of assessment in respect of the shares acquired under the said
agreement, so as to justify a corresponding assessment to income tax. General Commissioners of
Income Tax held that at the date of the allotment the value of the shares received by the trust was
par, although it was accepted that the shares as a whole were not immediately realisable.
HELD: Afffirming the CA decision in part, that although inability to realise in a commercial
sense an asset such as a block of shares in the year of receipt might be a reason for reducing its
valuation, it was not correct to say that for that reason it could not be valued in money for
income tax purposes in that year. As it appeared likely, however, that the commissioners might
have been under the impression that the shares must be valued at par because the price agreed to
be paid for the concession was a sum to be satisfied by the allotment of shares at par to that
amount, all the members of the House agreed that the case should be sent back to the
commissioners for their reconsideration of the question of valuation.
“A profit is realised when the seller gets the price he has bargained for. No doubt here the price
took the form of fully paid-up shares in another company, but, if there can be no realised profit,
except when that is paid in cash, the shares were realisable and could have been turned into
cash, if the appellants had been pleased to do so…The question becomes one of ascertaining the
amount of the profits and gains of the company. If, instead of receiving cash … the company got
a saleable security, that saleable security is just part and parcel of the company’s profits and
gains.”VISCOUNT SIMONS@383
37
“In my view, the principle to be applied is the following. In cases such as this, when a trader in
the course of his trade receives a new and valuable asset, not being money, as the result of sale
or exchange, that asset, for the purpose of computing the annual profits or gains arising or
accruing to him from his trade, should be valued as at the end of the accounting period in which
it was received, even though it is neither realised or realisable till later. The fact that it cannot
be realised at once may reduce its present value, but that is no reason for treating it, for the
purposes of income tax, as though it had no value until it could be realised. If the asset takes the
form of fully paid shares, the valuation will take into account not only the terms of the
agreement, but a number of other factors, such as prospective yield, marketability, the general
outlook for the type of business of the company which has allotted the shares, the result of a
contemporary prospectus offering similar shares for subscription, the capital position of the
company, and so forth. There may also be an element of value in the fact that the holding of the
shares gives control of the company. If the asset is difficult to value, but is none the less of a
money value, the best valuation possible must be made. Valuation is an art, not an exact science.
Mathematical certainty is not demanded, nor, indeed, is it possible. It is for the commissioners to
express in the money value attributed by them to the asset their estimate, and this is a conclusion
of fact to be drawn from the evidence before them.” VISCOUNT SIMON@384
➢ SHARKEY v WERNHER 36 TC 275
FACTS: The wife of the respondent had a stud farm which was liable to tax. Her other activities
of horse racing and training were however exempt from tax. Five horses were transferred from
the stud farm to the racing stables. The cost of breeding these horses had been debited in the stud
farm account. On the question of the amount to be credited as receipt from the stud farm in
respect of the horses bred there and transferred to the racing stables the respondent contended
that the proper figure to be brought in respect of the transferred horses was the cost of breeding
while the Crown argued that the market value of the animals at the date of transfer, which was
considerably higher, was the proper figure. On a case stated by the Crown after the
commissioners decided in favour of the respondent;
HELD: That the figure that should be credited was the market value.
“[A] trader is not to be charged with the receipt of sums he might have, but has not, and this is
equally true whether the sum with which it is sought to charge him is market value or production
cost, whether it will result in a notional profit or notional balancing of receipt with expenditure
and whether the reason for hos not in fact receiving such a sum is that the goods which are his
stock-in –trade have perished in the course of nature or that he has chosen to use them for his
own pleasure or otherwise dispose of them. The true position is not that the man cannot make a
profit out of himself but that he cannot trade with himself….Up to the very moment of
disposition, in this case the transfer of a horse from stud farm to racing stable, the article was
part of the trader’s stock-in-trade and the cost of its production was properly treated as part of
the expenditure for income tax purposes…. For if there are commodities which are the subject of
a man’s trade but may also be the subject of his own use and enjoyment I do not know how his
account as a trader can properly be made up so as to ascertain his annual profits and gains
38
unless his trading account is credited with a receipt in respect of those goods which he has
diverted for his own use and enjoyment. I think, therefore, that the admission was rightly made
that some sum must be brought into the stud farm account as a receipt though nothing was
received and so far at least the taxpayer must be regarded as having traded with himself….But it
appears to me that when it has been admitted or determined that an article forms part of the
stock-in-trade of the trader and that upon his parting with it so that it no longer forms part of his
stock-in-trade some sum must appear in his trading account as having been received in respect
of it, the only logical way to treat it is to regard it is to regard it as having been disposed of by
way of trade. If so I see no reason for ascribing to it any other sum than that which he would
normally have received for it in the due course of trade, that is to say the market
value.”VISCOUNT SIMONDS@296,298,299
 Repairs [Section 16] - As allowable Deduction
For the purposes of ascertaining the income of a person for a basis period from any business or
investment, there shall be deducted any outgoing or expense incurred during the period in
respect of,
(a) the repair of any premises, plant, machinery, or fixtures, or
(b) the renewal, repair, or alteration of any implement, utensil, or article,
to the extent that the premises, plant, machinery, fixtures, implement, utensil, or article is
employed by that person in the production of the income.
➢ LURCOTT v WAKELY & WHEELER [1911] 1 KB 105 CA
FACTS: The parties were respectively assignees of the reversionary and the residue of a lease.
The lessee under the lease covenanted to keep the premises in good repair. Upon a court order
the building was pulled down as being in a deplorable state and posing a danger. In an action by
the plaintiff reversionary assignee to cover against the defendants the cost incurred in pulling
down the building for neglect of repair, the defendant denied a breach of the covenant and
attributed the dilapidated condition to old age. On appeal by the defendants against the trial
decision;
HELD: Dismissing the appeal, that the defendants were liable to indemnify the plaintiff to the
amount incurred in pulling down the building.
“Repair and renew are not words expressive of a clear contrast. Repair always involves
renewal; renewal of a part; of a subordinate part….Repair is restoration by renewal or
replacement of subsidiary parts of a whole. Renewal, as distinguished from repair, is
reconstruction of the entirety, meaning by entirety not necessarily the whole but substantially the
whole subject-matter under discussion. I agree that if repair of the whole subject-matter has
39
become impossible a covenant of repair does not carry an obligation to renew or
replace.”BUCKLEY L.J. @ 924
➢ O’GRADY v BULLCROFT MAIN COLLIERIES LTD [1932] 17 TC 93
FACTS: The company carried on the business of colliery proprietor. In breach of an agreement
with the lessors not to cause damage to the surface of part of the land the company indemnified
the lessors and also constructed a new chimney adjacent an old one. On having been assessed to
tax the company sought to deduct as admissible deduction the amount paid as indemnity to the
lessors and the cost incurred in constructing the new chimney. The special commissioners on
appeal held that the indemnity constituted necessary business expenditure and allowable but that
the replacement of the chimney was a replacement of a capital nature of which no expenditure on
it was allowable. On appeal on a case stated on behalf of the crown;
HELD: That the decision of the special commissioners was right. “If you replace in entirety, it
is having a new one and it’s not having an old one. I think is very largely a question of
degree….I do not think it is possible to regard that [ building a new chimney adjacent and old
one] it possible to regard that as repairing a subsidiary part of the factory. I think it is simply
having a new one.”ROWLATT J. @ 102
 BAD DEBTS
➢ BRITISH MEXICAN PETROLEUM CO. LTD v JACKSON [1932]16 TC 570
FACTS: The respondent company entered into an agreement with an oil-producing company for
the purchase of petroleum for a period of twenty years. As a result of a slump in the petroleum
business the appellant company was adversely affected and became indebted to the supplying
company to the tune of 1, 073,281 pounds. The appellant was able to pay 325,000pounds of the
amount and was subsequently released by the supplying company from the balance of 945, 232
pounds. The Crown contends the amount released should be brought into account as profits for
tax purposes. The commissioners upheld the contention hence this appeal.
HELD: Dismissing the appeal, that the amount remitted should not be included as a receipt in
the account. “I cannot see how the extent to which a debt is forgiven can become a credit item in
the trading account for the period within which the concession is made…Now it may be that
where during the currency of an accounting period a trade debt is incurred, and the creditor
agrees during the currency of the same period to accept less than the full amount of the debt due
to him, it is only the balance of the debt as exacted, or agreed to be exacted, which ought to
enter, as a debit, the debtor’s accounts for the period.”LORD MACMILLAN@593-594
40
➢ BRISTOW v WILLIAM DICKINSON & CO. [1946] 27 TC 157 CA
FACTS: The Company exported coal and coke to customers in Spain. It was allowed to deduct
as bad debt debts due from these customers. Subsequently, the company received substantial
payments from a clearing house for Spanish debts. The issue was whether these payments were
trading receipts in the years in which they were paid by the clearing house to the company.
HELD: That the sums recovered should be treated as trading receipts of the years in which they
were paid. “The practice always has been, and rightly, having regard to that language, to treat
debts in the ordinary commercial way, as though they were receipts of the year, and bring them
into the account accordingly…The reason why a receipt is not taxed in the year of receipt, I
apprehend, is that it has already been taxed in the form of a debt in the year to which the debt
was referable. It seems to me, looking at the whole of what has happened, it is quite impossible
to say that this receipt ought to be treated as having been previously brought into account for tax
at all. It is perfectly true that it was originally brought into account in its then shape of a debt,
but the effect of what happened in years 2 and 3 appears to me to have reversed that position
altogether. ”LORD GREENE M.R.@ 164, 165.
➢ COMMISSIONER OF TAXES v NCHANGA CONSOLIDATED COPPER MINES LTD

[1964] AC 948 PC
FACTS: The respondent company was one of three companies carrying on the business of
mining copper. The companies were independent but shared a common directorate. Following a
fall in the price of copper in 1957 the companies that one should cease operation for a year and
paid compensation by the other two. The respondent paid an amount of 1,384,569 pounds and
the issue was whether this amount constituted capital expenditure. The appellant-commissioner
argued that it was capital expenditure as it was the source of acquiring income, and disallowed it
as an admissible item in the computation of the taxable profit of the respondent. The
respondent’s appeal to the Federal Supreme Court of the Federation of Rhodesia and Nyasaland
was allowed. On appeal by the commissioner to the Privy Council;
HELD: Dismissing the appeal that, the compensation paid by the respondent was allowable
deduction in determining the company’s taxable income.
“Again courts have stressed the importance of observing a demarcation between the cost of
creating, acquiring or enlarging the permanent (which does not mean perpetual) structure of
which the income is to be the produce or fruit and the cost of earning that income itself or
performing the income-earning operations. Probably this is as illuminating a line of distinction
as the law by itself is likely to achieve, but the reality of the distinction, it must be admitted, does
not become the easier to maintain as tax systems indifferent countries allow more and more
kinds of capital expenditure to be charged against profits by way of allowances for depreciation,
41
and by so doing recognize that at any rate the exhaustion of fixed capital is an operation cost….
While, no doubt, money paid to acquire a business or to shut a business down for good or to
acquire some contractual right to last for years may well be capital expenditure, it seems a
contradiction in terms to speak of what Nchanga thus acquired, which exhausted itself and was
created to exhaust itself within 12 months’ period within which profits are ascertained, as
constituting an enduring benefit or as an accretion to the capital or income-earning structure of
the business. If the expenditure is to be treated as capital expenditure at all, it cannot be for any
reason such as that….[T]hier Lordships think that Nchanga’s expenditure has not rue analogy
with expenditure for the purposes of acquiring a business or the benefit of a long term or
enduring ‘contract.’ On the other hand, it does bear a fair comparison with monetary levy on the
production of a given year.”VISCOUNT RADCLIFFE@960-961.
➢ NORMAN v GOLDER (INSPECTOR OF TAXES) [1945] 1 ALL ER 352 CA
FACTS: The appellant incurred expenses on medical health. He sought to deduct these expenses
as being part of permissible deductions earned wholly, exclusively and necessarily in the
production of income.
HELD: Dismissing the appeal, that the medical expenses incurred were not permissible
deductions since they were not wholly and exclusively laid out or expended for the purposes of
the appellant’s profession. Neither was the taxpayer entitled to deduct such expenses under the
wear and tear clauses, since those clauses referred to wear and tear of plant and machinery only.
“I hope I may be forgiven if I say that so far as the wear and tear argument is concerned, it is
quite impossible to say that the taxpayer’s own body is a thing which is subject to wear and tear,
and that the taxpayer is entitled to deduct medical expenses because they relate to wear and tear.
It is wear and tear of plant or machinery. Your own body is not plant. Your horse conceivably
may be. I do not know what it is under the Income Tax Acts. It certainly has, under the
Employers Liability Acts, been held to be plant in a suitable case, but I have never heard it
suggested by anybody that the taxpayer’s own body could be regarded as plant. In fact the point
has only, I think, to be stated. The appellant says that the medical expenses are deductible on
general grounds. The answer there, to my mind, is quite conclusive. The rules about deductions
are to be found in r 3 of the rules applicable to Sched D, cases I, II, in which deduction is
prohibited in respect of: ‘… any disbursements or expenses, not being money wholly and
exclusively laid out or expended for the purposes of the trade, profession, employment, or
vocation.’ It is quite impossible to argue that a doctor’s bills represent money wholly and
exclusively laid out for the purposes of the trade, profession, employment or vocation of the
patient. True it is that if you do not get yourself well and so incur expenses to doctors you cannot
carry on your trade or profession, and if you do not carry on your trade or profession you will
not earn an income, and if you do not earn an income the Revenue will not get any tax. The same
thing applies to the food you eat and the clothes you wear. But expenses of that kind are not
wholly and exclusively laid out for the purposes of the trade, profession or vocation. They are
laid out in part for the advantage and benefit of the taxpayer as a living human being. Para (b)
42
of the rule equally would exclude doctor’s bills, because they are, in my opinion, expenses of
maintenance of the party, his family, or a sum, expended for a domestic or private purpose,
distinct from the purpose of the trade or profession.”LORD GREENE@354
➢ B.P. AUSTRALIA LTD. v COMMISSSIONER OF TAX OF AUSTRALIA [1966] AC 224

PC
FACTS: The appellant carried on the business of marketing petrol. In order to retain its retailers
from switching to a rival company (Shell) the appellant provided financial assistance to these
retailers to the tune of 270,569 pounds for them to use on adverts. The company contends the
amount was revenue expenses which was allowable to be deducted in computing its assessable
income. The trial judge held the appellant obtained an asset and enduring benefit by securing
substantial freedom from competition and that the payments were capital outgoings.
HELD: Allowing the appeal, that the expenditure was of a revenue and not a capital nature.
“The solution to the problem was not to be found by any rigid test or description. It has to be
derived from many aspects of the whole set of circumstances some of which may point in one
direction, some in the other. One consideration may point so clearly that it dominates other and
vaguer indications in the contrary direction. It is a common sense appreciation of all the guiding
features which must provide the ultimate answer. Although the categories of capital and income
expenditure are distinct and easily ascertainable in obvious cases that lie far from the boundary,
the line of distinction is often hard to draw. In border line cases; and conflicting considerations
may produce a situation where the answer turns on questions of emphasis and degree. That
answer ‘depends on what expenditure is calculated to effect from a practical and business point
of view rather than upon the justice classification of the legal rights, if any, secured employed or
exhausted in the process.”’LORD PEARCE@264
“That the guiding features were (a) the character of the advantage sought, i.e its lasting
qualities, the fact of recurrence and the nature of the need or occasion which called for the
expenditure; (b) the manner in which the advantage was to be used, relied upon or enjoyed, and
in which recurrence might play a part; and (c) the means adopted to obtain the advantage, i.e.
by providing a periodical reward or outlay to cover its use or enjoyment for periods
commensurate with the payment or by making a final provision or payment so as to secure future
use or enjoyment: that a common sense appreciation of those guiding features made the
expenditure of a revenue nature if its purpose brought it within the very wide class of things
which in the aggregate formed the constant demand which had to be answered out of the returns
of a trade or its circulating capital. In the circumstances in order to obtain ties B.P had to satisfy
the appetites of the retailers by paying out sums for a period of years, whose amount was
dependent on the estimated value of the retailer as a customer and the length of the period. The
payment of such sums became part of the regular conduct of the business. It became one of the
current necessities of the trade.”@261&265
43
➢ REGENT OIL CO. v STRICK [1966] AC 295
FACTS: The appellant company carried on the business of importing and selling oil to garages
and stations. In 1950, it entered into agreements with these stations for them to store in their
garages and exclusively sell its product as against two other competitors. The appellant pursuant
to the agreement made ‘exclusivity’ payments of lump sums to the retailers. The issues are
whether these payments were deductible expenses in computing the company’s profits for
income tax purposes and whether these payments were of a capital and therefore disallowed to
be deducted. While the appellant contends the payments were of a revenue nature, the respondent
argued that they were capital expenditure and not deductible in computing the company’s profits
for tax purposes. The commissioners upheld the company’s argument on the ground that the
payments were not expected to secure an increase in the company’s share of the oil trade but
only to maintain it. The trial judge reversed the decision and was affirmed by the Court of
Appeal. On appeal to the House of Lords;
HELD: Dismissing the appeal, that the lump sum payments were for the acquisition of assets for
the purpose of carrying on a trade and were therefore capital payments.
“When one is dealing with tangible assets it is generally not very difficult to reach a decision.
Things which the trader uses in his business to produce what he has to sell are part of his fixed
capital and their cost is a capital outlay although their useful life may be short…Things which he
turns over in the course of his trade are circulating capital and their cost is a revenue
expense.”LORD REID @314
 Section 13—Deductions Allowed
Subject to this Act, for the purposes of ascertaining the income of a person for a basis
period from any business or investment there shall be deducted—
(a) all outgoings and expenses WHOLLY, EXCLUSIVELY and

NECESSARILY incurred during that period by that person in the production of
the income;
(b) any other deductions as may be prescribed by Regulations made under

section 114. [As amended by the Internal Revenue (Amendment) Act, 2002 (Act
622), s.5 (a)(b)]
➢ MORGAN v TATE & LYLE LTD [1955] AC 21 PC
FACTS: The appellant company engaged in sugar refining. It incurred expenses in a propaganda
campaign to oppose the threatened nationalization of the industry and sought to deduct the
expenses. The issue was whether money spent to prevent the seizure by the State of the
company’s assets , including the goodwill of the business carried on by the business, is money
“wholly and exclusively laid out for the purpose of the trade.” The commissioners held that the
44
“sum was money wholly and exclusively laid out for the purposes of the company’s trade and
was an admissible deduction from its profits for tax purposes.”
HELD: Dismissing the appeal by the Crown, that the object of the expenditure being to preserve
the assets the of the company from seizure and so to enable it to carry on and earn profits, there
was no reason in law to prevent the commissioners from holding so. On the evidence it was not
to be assumed that the trade would have continued, in an income tax sense, in other hands, after
nationalization and accordingly that the expenditure was incurred merely for the purpose of
preventing a change of ownership.
“If the assets are seized, the company can no longer carry on the trade which has been carried
on by the use of these assets. Thus the money is spent to preserve the very existence of the
company’s trade…There is no evidence that a transfer of the assets to a national body or
authority would not destroy or adversely affect the company’s business. The whole of the assets
might be merged with those of some of some other company compulsorily taken over, and by this
or other means the business at present carried on by the respondent might cease to exist.”LORD
MORTON@39 &45
“Defending or preserving a profit-earning asset of the business is within the purposes of the
trade and that must apply equally to a single asset or a collection of assets….The general test is
whether the money was spent by the person assessed in his capacity of trader or in some other
capacity – whether, on the one hand, the expenditure was really incidental to the trade itself or,
on the other hand, it was mainly incidental to some other vocation or was made by the trader in
some other capacity than that of trader.”LORD REID@54&59
➢ BENTLEYS, STOKES & LOWLESS v BEESON (INSPECTOR OF TAXES) [1952] 2

ALL ER 82 CA
FACTS: The Income Tax Act, 1918, sched D Cases I and II, r 3 (a), forbids the deduction of
“any disbursements or expenses, not being money wholly and exclusively laid out or expended
for the purposes of the trade, profession, employment, or vocation.” The partners in a firm of
solicitors were accustomed to entertain existing clients of the firm to luncheon at a social club
and various restaurants. During luncheon, business was discussed. The legal advice given to
clients at luncheon was charged to them in the normal way, but the fees charged did not include
the expenses of the meals, which were paid by the firm. This practice was adopted by the
partners both for their own convenience, so that they could devote the remainder of the day to
other work in their offices, and for the convenience of clients. The partners claimed to deduct the
cost of these entertainments (which included the cost of their own meals) in computing the
profits of the firm for assessment to income tax. The commissioners held that the expenditure in
question was not money wholly and exclusively laid out or expended for the purposes of the
solicitors’ profession as it was not necessary.
HELD: In spite of an element of hospitality which was necessarily inherent in what was done, in
the circumstances the sole object in incurring the expenses was the promotion of the business of
45
the firm, and, therefore, they were “money wholly and exclusively laid out or expended for the
purposes of the profession” within r 3 (a) and were properly to be deducted in computing the
amount of the firm’s profits to be charged to tax.
“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 rule is not
satisfied though in the mind of the actor the business motive may predominate… Entertainment
expenses incurred as being the only practicable means of keeping the individual entertained
(or his principals) as a client of the firm appears clearly on the face of it to qualify as moneys
wholly and exclusively expended for the purposes of the business. Yet to such an example the
formula “principally, but not purely” must be intended as applicable notwithstanding that the
expenses of such an exclusively professional entertainment could not possibly be disallowed on
any consideration of private hospitality.”
➢ REID’S BREWERY COMPANY v MALE [1891] 2 QB 1
FACTS: The appellants were in the business of brewers. They also carried on the business of
bankers and money-lenders and advanced loans on security to their customers in dealings or
transactions with them. The loans to the customers enabled the company to increase the profits of
the brewery. The company claimed to deduct from an assessment to tax on profits from the trade,
bad debts in respect of loans to the customers.
HELD: That the money advanced to the customers was used in the business and not capital
invested. Consequently, the appellants were entitled to the deductions claimed.
➢ GOLDER (INSPECTOR OF TAXES) V GREAT BOULDER PROPRIETARY GOLD

MINES LTD [1952] 1 ALL ER 360
FACTS:
HELD:
➢ SMITH v INCORPORATED COUNCIL OF LAW REPORTING FOR ENGLAND &

WALES [1914] 3 KB 674
FACTS: The respondent company paid a gratuity of 1500l to one of its reporting staff on his
retirement after long service. The amount was included in the company’s account as an item of
expenditure. The commissioners held that the amount was allowable deduction as a business
expense in circulating the profits for tax purposes. On a case stated by the crown;
HELD: Dismissing the appeal by the Crown, that the amount could be deducted from the profits
of the respondent company as being “wholly and exclusively laid out or expended for the
purposes” of the respondent’s business. Consequently as this was a question of fact to be
46
determined by the commissioners there was evidence before them on which they relied and their
finding was final.
 EXPENSES DISALLOWED
SMITH’S POTATO ESTATES LTD v BOLLAND (INSPECTOR OF TAXES) [1948] 2

ALL ER 367
FACTS: The main question to be decided is whether the legal and accountancy expenses of
prosecuting an appeal (in this instance, a successful appeal) to the Board of Referees against a
decision of the Commissioners of Inland Revenue under s 32 of the Finance Act, 1940, incurred
by a taxpayer with a view to reducing the assessment made on him as a trader for excess profits
tax, can be deducted as being a disbursement “wholly and exclusively laid out or expended.
HELD: Dismissing the appeal, that the expenses were not allowable.
“It is true that as a matter of convenience, the cost of making up accounts for the Inland Revenue
is allowed by the authorities as a deduction from profits as is the cost of making up the strictly
business accounts of the trade, but this is a matter, not of principle, but of expediency. The two
duties overlap and in practice are almost indivisible. Moreover, it is of advantage to the Revenue
to have the figures required for their purposes carefully and accurately made up. Strictly,
however, I think the expenses should be divided and any additional cost of making up Revenue
accounts should be disallowed in determining the allowable deduction for income tax purposes,
but the advantages of allowing both to be deducted as a practical measure outweigh the
disadvantages though the result may not be strictly logical. But no such illogicality has to be
faced when the sum which is alleged to be deductible is not the cost of accountants’ work in
ascertaining trading profits, but the expense of an appeal to the Board of Referees for the
purpose of discovering the true measure of profits for tax purposes only. Such expenditure is
incurred directly for tax purposes and for nothing else, though it may indirectly affect both the
amount available for distribution to the proprietors of the business and that proper to be put to
reserve.” LORD PORTER@371
“My Lords, I suppose that few expressions have been discussed more often in the courts than
that which you have once again to consider, “money wholly and exclusively laid out or expended
for the purposes of the trade,” but it is their application rather than their meaning that is in
doubt. I agree with the submission of learned counsel that it does not help to substitute other
words for those which are found in the statute and then to put a gloss on those other words, but it
is, I think, important to emphasise that the words “for the purposes of the trade” in their context,
ie, where a computation of “profits” for the ascertainment of taxable income is being made,
must mean “for the purpose of enabling a person to carry on and earn profits in the
trade.””LORD SIMONDS@374
➢ FAIRRIE v HALL (INSPECTOR OF TAXES) [1947] 2 All ER 141
47
FACTS: The taxpayer, a sugar broker, had published a malicious libel against the chairman of a
rival company, accusing him of using an official position for advancing the interests of his own
company, and, in a libel action brought by the chairman, the taxpayer had to pay £550 damages
and the costs of the action which amounted to £3,025. He claimed that these sums should be
deducted from the assessment made on him under the Income Tax Act, 1918, sched D, in respect
of his profits as a sugar broker:—
HELD: The damages and costs (although in one sense connected with the taxpayer’s trade in
that his object in publishing the libel was to increase his own profits) were not a loss “connected
with or arising out of” his trade within the meaning of the Income Tax Act, 1918, sched D, cases
I and II, r (3)(e) (and semble they were not a disbursement or expense “wholly and exclusively
laid out or expended for the purposes of the trade” within r 3(a)), and they could not, therefore,
be deducted from the assessment made on the taxpayer under sched D.
“I think that it is not possible to say that damages for a malicious libel published by a sugar
broker can be said to be a loss connected with or arising out of his trade within the meaning of
r 3(e). Therefore, the appeal must stand dismissed with costs." MACNAGHTEN J.@143
 SPECIFIC ALLOWABLE DEDUCTIONS:
 CONTRIBUTIONS TO CHARITY
➢ COMMISSIONERS OF TAX v PEMSEL (1891) AC 531; 3 TC 55@96 HL
FACTS: Certain lands were vested in trustees in trust for rents and profits accruing therefrom to
be used in training missionary establishments among heathen nations of the Protestant Episcopal
Church (Moravian Church), a school for children of ministers of the missionaries and certain
establishments denominated as choir houses. The trustees sought mandamus to compel the
commissioners to grant tax relief over the rents and profits on the grounds that they were applied
solely for charitable purposes and were thus exempt from tax under the Act.
HELD: Dismissing an appeal by the Crown, that the trust is one for “charitable purpose” within
the meaning in the Income Tax Act and that the words charitable purposes are to be interpreted
not in their ordinary meaning but according to their legal or technical meaning.
“Charity in its legal sense comprises four principal divisions: trusts for the relief of poverty,
trust for the advancement of education, trusts for the advancement of religion and trusts for
other purposes beneficial to the community not falling under any of the preceding heads. The
trusts last referred to are not the less charitable in the eye of the law because incidentally they
benefit the rich and the poor, as indeed every charity that deserves the name must do, either
directly or indirectly.”@96
➢ OXFORD GROUP v INLAND REVENUE COMMISSIONERS [1949] 2 ALL ER 537 CA
48
FACTS: Clause A of the memorandum of the association of the appellant provided as its objects
the advancement of the Christian religion and, in particular, by the means and in accordance
with the principles of the Oxford Group Movement; and B the maintenance, support,
development and assistance of the Oxford Group Movement in every way, and, in particular, by
holding, administering and dealing with property, including all or any of the property which at
the date of the incorporation of the association was held was held by trustees or nominees for the
Oxford Group Movement.” The company was incorporated under the Companies Act. It claims
exemption on its rents, interests and annual payments made in respect of property owned and
occupied by it. The issue was whether the company was a charitable institution.
HELD: Dismissing the appeal, (i) the words in cl 3(B) of the memorandum of association, “the
maintenance, support, development and assistance of the Oxford Group Movement in every
way,” extended beyond purely religious activities, permitted the company to engage in secular
activities, and authorised the expenditure of its funds on matters which were not charitable, and,
therefore, the company could not be said to be formed for charitable purposes only.
(ii) although a religious body might, without losing its religious character, engage in a number of
subsidiary activities which were not purely religious, a trust which was so worded as to permit
the expenditure of income by such a body in such subsidiary activities was not a good charitable
trust.
(iii) the objects set forth in cl 3(C), paras (9), (10), of the memorandum of association were not
merely ancillary to the main objects expressed in sub-cll(A) and (B), but themselves conferred
powers on the company which were so wide that they could not be regarded as charitable.
“ (i) The advancement of religion means the promotion of the spiritual teaching of a religious
body and the maintenance of the spirit of the doctrines and observances on which it rests or in
which it finds expression; (ii) A religious body may, and usually does, engage in a number of
subsidiary activities which are not purely religious, but it does not thereby lose its religious
character and a trust in favour of such a body simpliciter is a good charitable trust, but the
income can only be applied to those activities of the body which are purely religious. (iii) A trust
which is so worded as to permit the income to be used by a religious body in activities which are
not purely religious is not a good charitable trust. (iv) In the case of a company or other
association, if the main object or objects are solely for the advancement of religion the mere fact
that the company or association is given certain powers, even though described as objects which
are purely ancillary to the main objects, will not prevent the company or association being
regarded as a body formed for religious purposes only, but tax exemption will be confined to
such parts of its income as are applied to its strictly religious activities. (v) Where one of the
main objects of a company or association permits for its attainment of activities which are not
purely religious then the company or association cannot be regarded for tax purposes as being a
body formed for religious purposes only. Applying these principles to this memorandum, it seems
to me plain that the words “the maintenance, support, development and assistance of the Oxford
Group Movement in every way” extend far beyond purely religious activities and permit or even
require for their attainment activities which may be secular or political. For these reasons,
49
assuming the “Oxford Group Movement“—as distinct from the company, “The Oxford
Group“—to be a religious body whose aims and objects as shown by the documents and oral
evidence are exclusively religious, none the less I think that sub-cl (B) permits of the company
engaging in purely secular activities in maintaining, supporting, developing and assisting this
religious movement. I am, therefore, of opinion that the company with which we are concerned
and which is known as “The Oxford Group” is not a body of persons formed for charitable
purposes only, and that on this ground alone this appeal would fail.” LORD TUCKER@
[Compare this case with the Chapel Hill Case in Interpretation Briefs]
➢ BADDELEY & OTHERS v CIR 35 TC 661 HL
FACTS: Certain properties were conveyed to appellant trustees on trust “for the promotion of
the religious social and physical wwell-being of persons resident in the County Borough… by the
provision of facilities for religious services and instruction for the social and physical training
and recreation of such aforementioned persons who…are… members or likely members of the
Methodist Church and of sufficient means otherwise to enjoy the advantages provided… and by
promoting and encouraging all forms of such activities as are calculated to contribute to the
health and well-being of such persons.” In an appeal against assessment to Stamp Duty at a rate
of 2 pounds ad valorem, the trustees argued that the conveyances were made to a body of persons
established for charitable purposes and were thus liable to only 1 pound per cent.
HELD: That the trusts were not for charitable purpose.
“I must doubt whether anything is gained by discussing whether the trust should be regarded as
prescribing three separate and distinct objects, namely, (a) the promotion of religious well-being
(b) the promotion of social well-being or as having its goal as a state of complete well-being
with three several aspects, religious, social and physical…My Lords, I do not think it would be
possible to use language more comprehensive and more vague. I must dissent from the
suggestion that a narrow meaning must be ascribed to the word ‘social’; on the contrary, I find
in its use confirmation of the impression that the whole provision makes upon me, that its
purpose is to establish what is well enough called a community centre in which social
intercourse and discreet festivity may go hand in hand with religious observance and instruction.
No one will gainsay that this is a worthy of benevolence, but is another question whether it’s a
legal charity, and it appears to me that authority which is binding on your Lordships puts it
beyond doubt that it is not.” VISCOUNT SIMONDS@696-7.
[This case seems to suggest that the language in which a charitable trust is created is of utmost
relevance and care must be taken so as not to defeat the intention of creating a charitable trust.]
➢ THE CAMILLE & HENRY DREYFUS FOUNDATION v CIR 36 TC 126
FACTS: The appellant was incorporated under US law and all its directors were citizens of that
country. The primary purpose of the foundation was “to advance the science of chemistry,
50
chemical engineering and related sciences as a means of improving human relations and
circumstances throughout the world.” The foundation was assessed to tax on royalties it was
entitled to from the UK. It claimed exemption under the Income Tax Act on the ground that it
was established for charitable purposes only. The commissioners refused the claim and
contended that the exemptions applied only to charities established in the UK and that the
foundation was not established for charitable purposes only.
HELD: That the words “any body of persons or trust established for charitable purposes only”
within the Act are limited to bodies or trusts subject to the jurisdiction of the UK courts.
DEDUCTIONS NOT ALLOWED
 DOMESTIC & PRIVATE OUT-GOINGS
Section 23—Deductions Not Allowed
(1) A person shall not be allowed a deduction for
(a) any domestic or private outgoing or expense incurred by that person;
(2) For the purposes of paragraph (a) of subsection (1), "domestic or private outgoing or expense"
incurred by a person includes outgoings or expenses incurred by that person
(a) in travelling between that person's home and place of business;
(b) in the maintenance of that person, or that person's family or home;
(c) in acquiring clothing worn to work, other than clothing that is not suitable for wearing outside
of work; and
(d) in the education of that person not directly relevant to that person's business, and education
leading to a degree, whether or not it is directly relevant to that person's business.
➢ RICKETTS v COLQUHOUN [INSPECTOR OF TAXES] 10 TC 118 AC
FACTS: The appellant a barrister, residing and practicing in London, was also Recorder at
Portsmouth. He sought to deduct from his emoluments in respect of that office expenses
including travelling, hotel and cost of the conveyance of his robes incurred to attend Quarter
Sessions.
HELD: That he was not entitled to the deductions.
“In order that travel expenses may be deductible under this Rule from assessment…, they must
be expenses which the holder of an office is necessarily obliged to incur,- that is to say, obliged
by the very fact that he holds the office and has to perform its duties,- and they must be incurred ,
51
that is , in the course of the performance of those duties. The expenses in question in this case do
not appear to me to satisfy either test. They are incurred not because the appellant holds the
office of Recorder of Portsmouth but because living and practicing away from Portsmouth he
must travel to that place before he can begin to perform his duties as Recorder and having
concluded those duties desires to return to his home. They are incurred not in the course of
performing those duties, but partly before he enters upon them, and partly after he has fulfilled
them…. It seems to me that the words quoted, which are confined to expenses incurred in the
performance of the duties of the office, and are further limited in their operation by the emphatic
qualification that they must be wholly, exclusively and necessarily incurred, do not cover such a
claim.”VISCOUNT CAVE L.C.@133&134
➢ OWEN V POOK (INSPECTOR OF TAXES) [1969] 2 ALL ER 1
FACTS: The taxpayer was a medical practitioner and resided at Fishguard. He held part-time
appointments as obstetrician and anaesthetist at Haverfordwest, 15 miles away. Under his
appointments he was on stand-by duty for emergencies. On receipt of a telephone call telling him
of an emergency he would give instructions over the telephone to the hospital staff and then,
usually, would set off immediately for the hospital by car. He was paid travelling expenses at a
fixed rate per mile for journeys between Fishguard and the hospital; but the travelling expenses
were not payable for a single journey in excess of ten miles, and the taxpayer bore the cost of the
additional five miles himself. He was assessed to income tax on the amounts received for
travelling expenses as being emoluments of his office, and he claimed to deduct from his income
the expenses that he incurred in such travelling to and from the hospital.
HELD – (i) (Lord Pearson dissenting) so far as the taxpayer’s actual travelling expenses were re-
imbursed they were not emoluments as defined in para 1(1) of Sch 2 of the Finance Act 1956 and
accordingly were not chargeable.
“In Ricketts v Colquhoun there was only one place of employment, Portsmouth. It was not
suggested that any duties were performed in London. In the present case there is a finding of fact
that the taxpayer’s duties commenced at the moment he was first contacted by the hospital
authorities. This is further emphasised by the finding that his responsibility for a patient began
as soon as he received a telephone call and that he sometimes advised treatment by telephone. It
is noteworthy that under condition 19 (b) (3) (iv) of his terms and conditions of service the
hospital is referred to “where his principal duties lie”. There were thus two places where his
duty is performed, the hospital and his telephone in his consulting room. If he was performing
his duties at both places then it is difficult to see why, on the journey between the two places, he
was not equally performing his duties. Indeed counsel for the Crown did not contend to the
contrary. It follows that he had to get from his consulting room to the hospital by car to treat the
emergency. The travelling expenses were, in my view, necessarily incurred in the performance of
the duties of his office.” LORD GUEST.@5
Ricketts v Colquhoun (Inspector of Taxes) ([1926] AC 1) distinguished.
52
➢ DAPHNE v SHAW {INSPECTOR OF TAXES} 11 TC256
FACTS: The appellant, a solicitor, claims a deduction in respect of wear and tear and
obsolescence of books forming part of his law library.
HELD: That the books were not machinery or plant within the meaning under the Rules and
therefore the deduction was not allowable.
“I am afraid I cannot bring myself to say that the books of a lawyer, whether a barrister or
solicitor or I am sorry to say a Judge (speaking as the owner of a very considerable law library,
of which the value runs off daily)- I cannot bring myself to say that such books as those people
use to consult are ‘plant’. It is impossible to define what is meant by ‘plant and machinery’. It
conjures up before the mind something clear in the outline, at any rate; it means apparatus, alive
or dead, stationary or movable, to achieve the operations which a person wants to achieve in his
vocation. But the books which he consults, on his shelves, and which he does not use as
‘implements’ really in the direct sense of the word, at all, I cannot believe are included in it… ”
ROWLATT J.@258-9.
➢ YARMOUTH v FRANCE [1887]19 QBD647
FACTS: The plaintiff was employed by the defendant to load and off-load trolleys drawn by a
horse. In the course of discharging his duties the horse broke one of his legs. The vicious nature
of the horse was known to the defendant’s servant to whom the plaintiff normally complained. In
an action in negligence by the plaintiff, the defendant argued that the plaintiff was neither a
“workman” nor a “plant” such as to claim compensation under the Employers’ Liability Act.
Among the issues were whether the horse which injured the plaintiff was a plant.
HELD: That the horse was “plant” used in the business of the defendant, and that the vice in the
horse was the defect in the condition of such plant within the meaning of the Act.
“There is no definition of plant in the Act; but in its ordinary sense, it includes whatever
apparatus is used by a businessman for carrying on his business, - not his trade-in-stock which
he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he
keeps for permanent employment in his business. The word ‘defect’ and the words ‘way and
machinery’ which occur in the section, throw some doubt on whether plant can include horses;
but I do not think the doubt sufficient to require the court to hold that plant cannot include
horses or to hold that plant must be confined to inanimate chattels.” LINDLEY, L.J@658
[NB: This is not a tax case but the principle enunciated is valuable in determining the meaning
of plant for tax purposes.]
TAX EXEMPTIONS UNDER ACT 592
53
Section 8(1) A person's income from an employment is that person's gains or profits
from that employment.
Section 8(2) The gains or profits from an employment of a person include any
allowances or benefits paid in cash or given in kind to, or on behalf of, that person from
that employment, other than
 (a) a reimbursement or discharge of a person's dental, medical, or health

insurance expenses where the benefit is available to all full-time employees on
equal terms;
➢ TILLEY v WALES[INSPECTOR OF TAX] [1943] AC 386 HL
FACTS: Schedule E of the Income Tax, 1918 impose tax in respect of every public office or
employment of profit, in respect of very annuity, pension, or stipend payable by the Crown or
out of the public revenue of the UK. The appellant retired as managing director of a chemist
manufacturing company. His salary was 6000l and the company agreed to pay him 4000l
annually for ten years. A year after his retirement, he agreed to release the company from the ten
year payment but rather serve the company at a reduced salary of 2000l. The company in
consideration of this paid him by two installments the sum of 40,000l. The issue is whether the
amounts were assessable for income as being profits from his employment as director.
HELD: Allowing the appeal partly, that so much of the sum of 40,000l ass related to
commutation of pension should was not taxable under sch. E, as being in the nature of a capital
income, but that so much was paid in compromise for the reduction of salary was so taxable, as
being within the charge on profits from the office of director.
“Neither the pension not the sum paid to commute it constituted, in my opinion, profit from the
office. If pension was paid after ceasing to hold office, it would have been assessable under the
head of ‘pension’ in sch. E…. I should myself take the view that 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.”VISCOUNT SIMON@392&393.
➢ CAMERON v PRENDERGAST [INSPECTOR OF TAXES] [1940]AC 549
FACTS: The appellant was a director of a company. In order to prevent him from resigning as a
director for the sake of the company, the other directors agreed to pay him a sum of 45, 000l and
a remuneration of 400l instead of 1500l which he previously received. He was assessed to tax
under Sch. E of the Tax Act on the 45,000l and the issue was whether the sum was profit as to be
liable to tax.
54
HELD: Dismissing the appeal that the appellant’s continuance in the office of director was the
essence of the bargain between the company and him; the money paid as consideration for his
agreeing not to cease giving his services as a director necessarily involved an agreement to
continue to render those services; and that the money so paid as the consideration for that bargain
was a profit from his directorship and as such liable to income tax.
“If a sum is paid by a company to a man who has long been and still is a director of the company
and whose services are greatly valued, and if the consideration is that he will not resign but will
continue to act as a director, I cannot myself doubt that in such a case the sum is a profit of his
office and that is liable to tax, and none the less that the time during which he will continue to be
a director is not fixed.”VISCOUNT MAUGHAN@ 558
 Section 94—Definitions
“exempt organisation” means a person
(a) who or that is and functions as
(i) a religious, charitable, or educational institution of a public character;
(ii) a body of persons formed for the purpose of promoting social or sporting
amenities;.
(iii) a trade union registered under the Trade Unions Ordinance (Cap. 91);
(iv) an institution or trust of a public character established by an enactment solely for
the purposes of scientific research; or
(v) registered sporting club;
(b) who or that has been issued with a written ruling by the Commissioner currently
in force stating that it is an exempt organisation; and
(c) none of whose income or assets confers, or may confer, a private benefit, other
than in pursuit of the organisation's function referred to in paragraph (a);
➢ SOUTHWELL v THE GOVERNORS OF HOLLOWAY COLLEGE [1895] 3TC 386
FACTS: The college was established to “enable young to carry on their studies after they have
left school under specially healthy conditions and with all the advantages of a collegiate life.”
Students paid in advance fees of 90l aside doctors’ and exams fees. The issue is whether the
college was a charity school such as to be exempt from inhabited house duty.
HELD: That it will be illogical from the facts to legally hold that the college was a charity
school despite the fact that large sums are given by way of scholarship to reduce the cost of
education of those who obtain them.
“As the primary object of this college is not free education, but highest class education combined
with the luxuries of college life, it will require a very strong authority to make me conclude that
this was a charity school.” GRANTHAM J.@391.
CHARTERHOUSE SCHOOL v GAYLER [SURVEYOR OF TAX] 3TC 435
55
FACTS: The headmaster and two of his assistants resided in three houses within the premises of
the school. The two assistants pay rent to the Governing body of the school. The rest of the
school buildings were used by the students, boarders and day students alike. The issue was
whether or not the masters were exempt from inhabited house duty.
HELD: The three masters were in the occupation of their respective houses and assessable to
inhabited houses duty.
➢ GOVERNORS OF BRADFORD GRAMMAR SCHOOL v NORTHWOOD [1905] 5 TC

124
FACTS: The house of the headmaster of the school was linked to the buildings of the school.
The school is supported by endowment funds, fees from pupils, and grants from the Board of
Education as well as other bodies. The headmaster in his official capacity resided in the house
rent-free and not as a tenant and could not permit any person to occupy it without the permission
of the Governors. The issue is whether the school is a charity school such as to exempt the
building from inhabited house duty.
HELD: That the school was not a charity school and that the Governors are the persons in
occupation of the headmaster’s house and that the whole premises of the school was assessable
to inhabited house duty.
 SCHOLARSHIP
➢ BARCLAYS BANK LTD v NAYLOR 39 TC 256
FACTS: In its bid to provide educational assistance children of its employees serving overseas,
a company (I.C.I) transferred an amount of 27,000 pounds to trustees for payment to the
beneficiaries. Funds were credited from the scheme to the account of a child (M) of one of the
employees with the appellant bank as was required. The bank’s claim for repayment of an
amount of 61pounds as agent of M within the meaning of the Income Tax was refused. On
appeal the General Commissioners held that the payments to the trustees in respect of the
educational grants were not annual payments within the meaning of the Income Tax and the
action must fail. The issue was whether the grant paid to M was income to him within the
meaning of the Income Tax Act. On appeal to the House of Lord;
HELD: Allowing the appeal, that the payment was the income of M.
“No doubt the payment of part of the expense of educating an employee’s child may be ‘money’s
worth’ to the employee, but the way in which the employer contributed to the education expenses
in this case was not by paying the bills, out of its own money, but by providing the child with an
income out of which the bills or part of them could be met. I can well understand that the
provision of an employer of an income for a child of the employee may be a benefit to the
employee, the fair value of which to the employee ought to be added to his remuneration for the
56
purpose of tax; but this is not sufficient for [respondent’s counsel’s]argument. He must show
that the very money which was paid into M’s account by the trustees became [M’s father’s]
income when the amount was debited with ,payment of the school bills for which [M’s father]
had incurred a liability.”CROSS, J. @268
WICKS v FIRTH (INSPECTOR OF TAXES) [1983] 1 ALL ER 151 HL
FACTS: The appellants were employees of a company. The company created a trust to provide
scholarship for children of the employees. The appellants-employees were assessed to tax in
respect of the scholarships awarded their children on the ground that the grants were benefits
provided to them. The taxpayers appealed against the assessments contending that they were
exempt from any charge to tax under the Act because (i) the scholarships were not awarded ‘by
reason of’ their employment, and (ii) that the emoluments were income ‘arising from a
scholarship held by a person receiving full-time instruction at a university’ within the meaning of
s 375(1)b of the Income Tax and Corporation Taxes Act 1970. The Special Commissioners
dismissed the taxpayers’ appeals holding (i) that the benefit of the awards was provided ‘at [the]
cost’ of the company within s 61(3)d and accordingly was deemed to be received by the
taxpayers ‘by reason of [their] employment’; and (ii) that the charge to tax was on the cash
equivalent of the benefit provided, which was to be treated as an emolument, and that a notional
sum so treated was not ‘income arising from a scholarship’ within the 1970 Act. The judge
allowed an appeal by the taxpayers, holding that the scheme of assessing the cash equivalent of
benefits under s 61 of the 1976 Act was aimed generally at benefits given not in cash but in kind,
and was not intended to nullify or impair the unqualified exemption from tax conferred by the
1970 Act on income arising from a scholarship, that exemption not being restricted to the
scholarship holder. The Crown appealed to the Court of Appeal which allowed the appeal
holding (i) that the scholarships were a benefit provided ‘by reason of [the taxpayers’]
employment’ within s 61 of the 1976 Act and that, in any event, were deemed by s 72(3) thereof
to have been so provided since they had been provided ‘at [the] cost’ of the taxpayers’ employer
within the meaning of s 61(3) and accordingly were to be treated as an emolument of the
taxpayers employment; and (ii) that the emoluments were not exempt from tax under s 375(1) of
the 1970 Act because that section applied only to the income of the recipient of the scholarship.
The taxpayers appealed to the House of Lords contending inter alia, that the scholarships were
not provided ‘at [the] cost’ of the company within s 61(3) of the 1976 Act but at the cost of the
trust fund or the trustees.
HELD: Allowing the appeal, that the awards of the scholarships to the taxpayers’ children were
not benefits provided at the cost of the trust fund or the trustees but at the cost of the taxpayers’
employer within the meaning of s 61(3) of the 1976 Act because the trustees were only
performing fiduciary duties imposed on them by the company with moneys supplied by the
company, and all the trust powers and discretions and other authorised activities of the trustees
emanated from and were established and defined by the company, and, moreover, the identity
and personality of the trustees could make no difference to the effect of s 61. Accordingly, by
reason of s 72(3) of the 1976 Act, the benefit in each case was deemed to have been made by
57
reason of the taxpayers’ employment and the cash equivalent, or cost of providing the benefit,
was therefore to be treated as an emolument of the taxpayers’ employment.
“It follows that, by reason of s 72(3) of the 1976 Act, the benefit in each case is deemed to have
been made by reason of the father’s employment, and therefore that the cash equivalent, or cost
of providing the benefit, is to be treated as an emolument of the father’s employment and
chargeable to income tax” LORD FRASER@153
➢ HEASLIP v HASEMER 13 TC 212
FACTS: The respondent’s daughter was receiving private lessons in music from a professional
music teacher. She intended to be a professional musician and took her lessons from the
teacher’s residence with other children on private basis. The respondent claimed deduction of 36
pounds in respect of the daughter’s musical lessons.
HELD: That the daughter was not receiving full time instruction at an educational establishment
and that the deduction claimed was not admissible.
“…it is perfectly clear that [the teacher’s residence] is not an establishment which has any
relation to full time. That young lady is educating herself and is getting herself educated has
no relation to full time. What she is doing is not receiving full time instruction at an
establishment; she is taking her turn with other pupils for private lessons from a gentleman at
his house. That is all, and nothing else.” ROWLATT J.@215.
 CAPITAL GAINS TAX
➢ O’BRIEN (INSPECTOR OF TAXES) v BENSON’S HOSIERY (HOLDINGS) LTD [1979]

3 ALL ER 652 HL
FACTS: Section 22(1) provides that ‘all forms of property’ shall be relevantly ‘assets’ including ‘(a)
options, debts and incorporeal property generally, and … (c) any form of property created by the person
disposing of it, or otherwise coming to be owned without being acquired’. Section 22(3) is of importance.
That relevantly provides as follows:
”… there is … a disposal of assets by their owner where any capital sum is derived from assets
notwithstanding that no asset is acquired by the person paying the capital sum, and this subsection
applies in particular to —(a) capital sums received by way of compensation for any kind of damage or
injury to assets or for the loss, destruction or dissipation of assets or for any depreciation or risk of
depreciation of an asset … (c) capital sums received in return for forfeiture or surrender of rights, or for
refraining from exercising rights … ’
The respondent by an agreement with B. as sales and merchandise director in exchange for an
annual remuneration for seven years. The parties subsequently agreed that B be released from
his position in consideration for his payment to the company of £50,000. The issue is whether
this amount was profit for tax purposes and whether it was a capital gain accruing to the
58
company on the disposal of an asset within the meaning of the Finance Act and whether the
personal service of B constituted an “asset”.
HELD: Allowing the appeal in favour of the crown, To contend that the rights of an employer
under a contract of service were not property or an asset because they could not be turned to
account by transfer or assignment to another was to give a restricted interpretation of the scheme
of the imposition of capital gains tax which the language of the legislation did not permit. If an
employer was able to exact from an employee a substantial sum as a term of releasing him from
his obligations to serve, the rights of the employer bore quite sufficiently the mark of an asset of
the employer, within s 22(1) and (3)(c) of the 1965 Act, as something he could turn to account,
notwithstanding that his ability to do so was by a type of disposal limited by its nature. It was
erroneous to deduce from the language of s 22(4) of the Act, which for certain purposes
introduced the concept of market value, that there was a principle of general application for the
purposes of capital gains tax that an asset had to have a market value. It followed that the sum of
£50,000 paid by B to secure his release from the contract constituted a chargeable gain in the
hands of the company. The appeal would therefore be allowed
WHAT IS AN ASSET?
DAVIS (INSPECTOR OF TAXES) v POWELL [1977] 1 ALL ER 471
FACTS: The taxpayer, a tenant farmer, surrendered his lease of agricultural land to his landlord
having received a quit notice from him and a sum of £591 as compensation for disturbance. The
Crown claims capital gains tax on the sum received on the ground that it was a capital sum
derived from an asset within the meaning of the Finance Act.
HELD: Compensation for disturbance paid under the Act was not ‘derived’ from an asset,
within the 1965 Act, but was simply a sum which, by statute, had to be paid for expense and loss
unavoidably incurred once the tenancy had been terminated. In particular, the compensation was
not a capital sum received in return for surrender of rights, for it was not paid as a result of any
bargain between the landlord and tenant for the surrender of the tenancy. Accordingly, the
compensation paid to the taxpayer was not liable to capital gains tax.
“What is said in this case is that the taxpayer had a lease and that lease was an asset; it was
property of some form. He disposed of that asset by accepting the notice to quit which was given
and by getting out, and he derived a capital sum from the asset when he did so. The capital sum
was the amount of the compensation under s 34, which, as I have said, was £591. It does not
seem to me that the compensation paid under s 34 is derived from the asset, namely the lease. It
is not derived from an asset at all: it is simply a sum which Parliament says shall be paid for
expense and loss which are unavoidably incurred after the lease has gone. Section 22(3) delimits
some particular matters which are liable to charge; para (c) charges ‘capital sums received in
return for forfeiture or surrender of rights, or for refraining from exercising rights’. But in my
judgment this s 34 compensation is not a capital sum received in return for the surrender of
rights. It is not paid as a result of a bargain in which the tenant says, ‘If I get out, will you pay
59
me £591?’ It is a sum paid where a tenant is faced with a notice to quit and must get out.
Parliament says that in these circumstances, which have nothing to do with a surrender, the
tenant is to have a sum by way of compensation for irretrievable loss. So, whether viewed by the
light of nature or by the construction of the Finance Act 1965, I do not think that this sum is
liable to capital gains tax, and the inevitable result is that the appeal must be dismissed with
costs to be taxed.” TEMPLEMAN J.@ 747
➢ DRUMMOND (INSPECTOR OF TAXES) v BROWN [1984] 2 ALL ER 699 CA
FACTS: The appellant was a tenant who rented premises from a landlord, a bank. He was served
termination notice as the premises were required for use by the landlord. The tenant was assessed
to capital gains tax on money received as compensation from the landlord on the ground that the
money derived from an asset (the lease) or that it was compensation for the loss of an asset. On
appeal by the Crown against a decision of the commissioners who allowed the taxpayer’s appeal
against the assessment,
HELD: Dismissing the appeal, that the taxpayer’s right to compensation on the termination of
the lease was not derived from his lease but from the provisions of the 1954 Act alone, and it
could not be said that the lease was the source of the taxpayer’s entitlement to the compensation.
Furthermore, the payment had not been made as compensation to the taxpayer for the loss of his
lease because the lease had come to an end by the effluxion of time, and nor had it been made as
compensation for his loss of security of tenure because the landlord having established the
ground that it intended to occupy the premises for the purposes of its business, the taxpayer had
not been entitled to any security of tenure. It followed therefore that the sum paid to the taxpayer
was not a capital sum derived from an asset or compensation for the loss of an asset within
s 22(3) of the 1965 Act.
“In our opinion the £31,384 was not derived from the lease. The word ‘derive’ suggests a
source. The right to the payment was, in our view, from one source only, namely the 1954 Act.
The lease itself gives no right to such a payment. It was the statute, and the statute alone, which
created the right to the payment. The statute simply created an entitlement where none would
otherwise have existed. And in creating that entitlement it did not require that any provisions
were to be written into the lease. Thus, there is no deeming provision which would in any way
require one to treat the lease as being the source of the entitlement. We do not think the sum can
be said to be derived from any asset.” FOX LJ @ 702-3.
➢ MARREN (INSPECTOR OF TAXES) v INGLES [1980] 3 ALL ER 95 HL
FACTS: The taxpayer received a sum of £750 on shares sold in a private company. He also
received a sum of £2,825 per share from the purchaser in exercise of a right to receive a sum
(‘half the profit’) which was one-half of the amount by which the market price of the shares on
flotation of the company. He was assessed to capital gain tax on the sum received on the ground
that the sum was derived from the disposal of an asset within the meaning of the Finance Act. He
contended that the sum received in exercise of the right to receive half the profit was a debt and
60
exempt from tax liability. The Court of Appeal allowed the Crown’s appeal against the decision
of the Commissioners and the trial court and held that the sum was an asset derived from the
disposal of an asset. On appeal by the taxpayer;
HELD: Dismissing the appeal that ‘Asset’ within meaning of the Finance Act was defined in the
widest terms to mean all forms of property and was apt to include the incorporeal right to
money’s worth which was part of the consideration given for the shares. Furthermore, that right
was properly to be regarded as a separate asset and not simply as a deferred part of the price of
the shares. It followed that, since the right was an asset, the sum which the taxpayer received was
‘derived from’ the asset, and there was therefore, by virtue of s 22(3), a disposal of the asset
‘notwithstanding that no asset [was] acquired by the person paying the capital sum’, those words
being words not of limitation but of extension, the purpose of which was to establish a ‘disposal’
in cases to which the subsection would not otherwise apply and in which a ‘disposal’ would not
ordinarily be thought to exist, so that s 22(3) could apply whether or not an asset was acquired.
Accordingly, the sum received by the taxpayer when his right to half the profit matured
represented proceeds on the disposal of an asset liable to capital gains tax and could not be a
debt.
 WHO IS A CHARGEABLE PERSON?
➢ R v INSPECTOR OF TAXES, READING; EX P. FULFORD-DOBSON [1987] 1 QB 978
FACTS: The wife of the taxpayer was possessed of land which she had inherited and decided to
sell. In order to take advantage of a statutory concession which granted substantial relief on
capital gains tax on a disposal made after a tax payer ceased to be ordinarily resident in the UK,
the wife executed a deed of gift to the taxpayer and they agreed that the taxpayer should leave
the UK and reside and work in Germany. Three days after his departure the land was sold by
auction. The amount realized was assessed to tax. The taxpayer sought a declaration among
others that every taxpayer was entitled to avail himself of all lawful means to minimize the
burden of tax on himself and to enter into any legally effective transaction for that purposes, that
the motive for such arrangement was immaterial and that the term ‘tax avoidance’ was not
applicable to lawful tax planning effected by transactions which were not fictitious or artificial.
HELD: Dismissing the application, that the transfer of the farm from the wife to the husband
was a transaction that lacked any element of bounty and that it had been made for the sole
purpose of taking advantage of the concession in circumstances where the taxpayer had neither
suffered a reduction in income nor incurred expenditure that would qualify for a reduction in
liability for tax; that the arrangement for the taxpayer’s departure was solely for the purpose of
diminishing the amount of tax chargeable on the profits of sale and therefore it was an
arrangement for tax avoidance and accordingly the provisions of the concession did not apply to
the profits on the sale of the farms.
 GIFT TAX
61
➢ SECRETAN v HART 45 TC 701 HC
FACTS: Between 1932 and 1944 the appellant bought shares in a company amounting to £768.
In 1967 he sold all his shares for £80,945. He was allowed deductions on losses in respect of
other assets and the purchase price of £768 and was assessed to capital gains tax on the balance
of £78,771. He objects to the assessment on the ground that the value of the pounds had
depreciated between the period of his purchase of the shares and the period when they were sold
and that the purchase price ought to be multiplied by suitable factor to take account of the change
in value of the pound sterling.
HELD: Dismissing the appeal that, the effects of inflation could not be taken into account in
determining the amount of a capital gain.
 TAX AVOIDANCE
➢ AYRSHIRE v PULLMAN MOTOR SERVICES & RITCHIE 14 TC 754
FACTS: The second appellant purchased a motor-bus for his son-in-law to use for hire. The
son-in-law subsequently abandoned the business. Five children of the second appellant joined the
business. A contract of co-ownership executed by the father and the children provided that the
capital of the company was a loan contributed by the father and that the children should equally
be entitled to profits and the father’s interest being the amount advanced and interest on it. The
children were to have wages but acquired no share of profits until the father’s advances were
repaid and the management of the company was to vest solely in their father. The company was
assessed to tax on its profits on the basis that the father was the sole owner of the business. On
appeal by the father and the business against the assessment;
HELD: That the father could not be held to be the sole owner of the business and of the profits
for tax purposes; and that the contract of co-partnership was, however ineffectual for tax
purposes prior to the dates on which it was made.
“So far as my point of view is concerned, the agreement is neither better nor worse for that
reason. No man in this country is under the smallest obligation, moral or other, to arrange his
legal relations to his business or to his property as to enable the Inland Revenue to put the
largest possible shovel into his stores. The Inland Revenue is not slow – and quite rightly so –
to take every advantage which is open to it under the taxing statutes for the purpose of
depleting the taxpayer’s pockets. And the taxpayer is in like manner, entitled to be astute to
prevent, so far as he honestly can, the depletion of his means by the Revenue. ” LORD
CLYDE @ 764.
LORD MORRISON dissenting: That whatever might be the effect of the contract regarding the
individual income tax position of the parties it did not render the assessment invalid or incorrect.
➢ RE WESTON’S SETTLEMENTS [1968] 3 ALL ER 338
62
FACTS: The plaintiff made two separate settlements in England in favour of his two children; a
marriage settlement in favour of the elder son and a voluntary settlement in favour of the
younger one. He subsequently moved to the USA (Jersey) where he domiciled with the children.
He sought a variation order to substitute the trustees under the settlement and to remove the
settlement from England to Jersey. This will change the character of the settlements and relieve
them from liability to capital gains tax and estate duty on the death of the children.
HELD: The court was not prepared to sanction the proposed removal of the settlements to Jersey
since the underlying purpose was the avoidance of tax. [Contrast with the Ayrshire case above]
“Two propositions are clear:—(i) in exercising its discretion, the function of the court is to
protect those who cannot protect themselves. It must do what is truly for their benefit; (ii) it can
give its consent to a scheme to avoid death duties or other taxes. Nearly every variation that has
come before the court has tax avoidance for its principal object: and no-one has ever suggested
that this is undesirable or contrary to public policy. I think it necessary, however, to add this
third proposition: (iii) the court should not consider merely the financial benefit to the infants or
unborn children, but also their educational and social benefit. There are many things in life
more worth-while than money. One of these things is to be brought up in this our England, which
is still “the envy of less happier lands”. I do not believe it is for the benefit of children to be
uprooted from England and transported to another country simply to avoid tax… But here the
family had only been in Jersey three months when they presented this scheme to the court.
The inference is irresistible: The underlying purpose was to go there in order to avoid tax. I do
not think that this will be all to the good for the children.”LORD DENNING@342
TAX EVASION
➢ VESTEY’S (LORD) EXECUTORS AND ANOTHER v IRC [1949] 1 ALL ER 1108
FACTS: The Vesteys leased land situate in Paris to a union and appointed trustees to whom
rents due on the leased property were payable. The trust was created “in consideration of the
natural love and affection of the settlors for the beneficiaries hereinafter referred to and for
divers other good causes and considerations.” Money received by the trustees was assessed to
tax under the Finance Act by which a person who transferred assets to another outside the
English jurisdiction, which assets would have been taxable, was liable to tax except that the
person can prove that the transfer was made for a cause other than to avoid tax.
HELD: (i) on the true construction of the trust deed the power of the authorised persons to direct
how the rent payable by the company should be invested by the Paris trustees was a fiduciary
power and must be used, not to benefit themselves, but in the best interests of the beneficiaries,
and it was not an interest or a power within either s 18 or s 38.
(ii) the lease and deed of trust together constituted an “arrangement” within s 41(4) (b) of the Act
of 1938 and consequently a “settlement” for the purposes of pt IV of that Act, but the only
property “comprised in the settlement” within the meaning of s 38 at any time was the rent
63
payable by the company together with any property resulting from the investment of the rent and
from the accumulation of income arising from such investment, and, therefore, even if the
determination of the lease was a determination of a provision of the settlement within s 38(2) (a),
the exercise of the power so to determine it would not have the effect of rendering WV or EV or
the wife of either entitled to property comprised in the settlement within s 38(2) (b), for it would
leave undisturbed the trusts concerning rents already accrued.
[Obiter] “Parliament in its attempts to keep pace with the ingenuity devoted to tax avoidance
may fall short of its purpose. That is a misfortune for the taxpayers who do not try to avoid their
share of the burden, and it is disappointing to the Inland Revenue. But the court will not stretch
the terms of taxing Acts in order to improve on the efforts of Parliament and to stop gaps which
are left open by the statutes. Tax avoidance is an evil, but it would be the beginning of much
greater evils if the courts were to overstretch the language of the statute in order to subject to
taxation people of whom they disapproved.”LORD NORMAN@1120
➢ RANSOM (INSPECTOR OF TAXES) v HIGGS [1974] 3 ALL ER 949 HL
FACTS: A family who owned land transferred it to trustees in order to avoid tax liability on the
amount realized on its sale for development.
HELD: Allowing the trustees' appeal (the Crown abandoning their appeal against Mr. Higgs),
that there was no characteristic of trading in anything that Mr. Higgs did, nor in requesting or
procuring or persuading or cajoling or "behesting" the companies concerned or others to play
their part so as to achieve the purpose and objects of the scheme was Mr. Higgs doing anything
that could be graced with the description of being a trading activity or of being an adventure or
concern in the nature of trade; so to hold could lead to double taxation of the profits of one and
the same transaction.
“My Lords, these five conjoined appeals arise out of two blatant tax avoidance schemes. Their
object was so to develop property that the increment would not attract income tax but be placed
as capital in the hands of trustees on discretionary trusts for Mr Higgs and his issue (in the first
scheme) and Mr Downes and his issue (in the second scheme). In some fiscal systems there is a
general provision that any transaction the paramount object of which is the avoidance of tax
shall be void for that purpose though valid for all other purposes. Our own fiscal system has
no such provision, but rather attempts to deal with tax avoidance schemes specifically as they
come to notice. The inevitable result of this and of other matters is a fiscal code of such
complexity that many ordinary citizens, particularly those engaged in commerce and industry,
seek the aid of experts in handling the tax affairs of themselves and the corporations for which
they have responsibility; and, since the burden of taxation is heavy (in some circumstances
punitive), and since there is generally some delay before tax avoidance schemes come to light
(during which time a rich windfall may be garnered), is a strong incentive for such experts to
devote their talents to devising tax avoidance schemes for clients, actual or potential, and for
such clients to adopt the schemes devised. That is what appears to have happened in the instant
cases: Mr Higgs and Mr Downes themselves did not, on the respective commissioners’ findings,
64
fully understand the schemes in which they were involved; while the same group of finance
companies played a crucial role in both schemes and drew handsome profits thereby. It may
seem hard that a cunningly advised taxpayer should be able to avoid what appears to be his
equitable share of the general fiscal burden and cast it on the shoulders of his fellow citizens.
But for the courts to try to stretch the law to meet hard cases (whether the hardship appears to
bear on the individual taxpayer or on the general body of taxpayers as represented by the
Inland Revenue) is not merely to make bad law but to run the risk of subverting the rule of law
itself. Disagreeable as it may seem that some taxpayers should escape what might appear to be
their fair share of the general burden of national expenditure, it would be far more
disagreeable to substitute the rule of caprice for that of law.” LORD SIMON OF
GLAISDALE@469-470.
 MEASURES TAKEN TO CHECK TAX EVASION AND TAX AVOIDANCE
➢ ASSAM RAILWAYS & TRADING COMPANY, LIMITED v CIR [1935] 1 AC 445 HL
FACTS: It is provided under the Finance Act, 1920 that "If any person who has paid, by deduction
or otherwise, or is liable to pay, United Kingdom income tax for any year of assessment on any part of his
income proves to the satisfaction of the Special Commissioners that he has paid Dominion income tax for
that year in respect of the same part of his income, he shall be entitled to relief from United Kingdom
income tax paid or payable by him on that part of his income at a rate thereon to be determined" as
therein provided.
An English company carried on its business and derived all its income from its business in India.
It was assessed to UK income tax and to Dominion income tax. The company had issued certain
debenture stocks and also derived part of its profits from cultivating and managing a tea garden
in Assam. Neither the amount paid as interest on the debenture stocks nor the profits from the tea
garden were charged to Dominion income tax. It was assessed to Dominion income tax in a sum
of 129,365l. and to United Kingdom income tax in a sum of 186,750l. In his argument, counsel
for the appellants sought to rely on the Report of the Royal Commission on Income Tax to
construe the provision above. The issue was the extent to which the company was entitled to
relief under the Act.
HELD: That (i) the Company was entitled to relief from UK income tax at the prescribed rate on
129,365l. , since that was the part of its income on which it had paid Dominion income tax; but
not on 186,750l. , although it had been taxed on its whole income chargeable to tax in India;
(ii) On a question of the true construction of an Income Tax Act a report of a Royal Commission
containing certain recommendations is inadmissible to show the purpose or object of the
Legislature in passing the Act, although it appeared to adopt the recommendations.
“The question, which is by no means free from difficulty, depends on the true construction of the
words of the section, read in connection with the Income Tax Act as a whole and in accordance
with the usual rules of construction…. But on principle no such evidence for the purpose of
showing the intention, that is the purpose or object, of an Act is admissible; the intention of the
65
Legislature must be ascertained from the words of the statute with such extraneous assistance as
is legitimate: as to this I agree with Farwell L.J. in Rex v. West Riding of Yorkshire County
Council (1) , where he says "I think that the true rule is expressed with accuracy by Lord
Langdale in giving the judgment of the Privy Council in the Gorham Case (2) in Moore, 1852
edition, p. 462. 'We must endeavour to attain for ourselves the true meaning of the language
employed' - in the Articles and Liturgy - 'assisted only by the consideration of such external or
historical facts as we may find necessary to enable us to understand the subject matter to which
the instruments relate, and the meaning of the words employed…. It is clear that the language of
a Minister of the Crown in proposing in Parliament a measure which eventually becomes law
is inadmissible and the Report of Commissioners is even more removed from value as evidence
of intention, because it does not follow that their recommendations were accepted.'" LORD
WRIGHT@458 [This position has changed under section 10 of the INTERPRETATION
ACT, 2009 (ACT 792)].
JOHNSON v JEWITT 40TC 321 HL
FACTS: The appellant, a solicitor, formed a partnership with two other people to act as
company promoters and dealers in securities. They incurred a loss and the appellant claims tax
relief for his share in the partnership’s loss. In his judgment against the appellant the trial judge
noted “It may be that the pursuit or expectation of profits is not an essential characteristic of a
trade, but if the main object – or indeed, as I think one could say of the present case the only
object – of a transaction or series of transactions is to incur a large loss by a negligible
expenditure it is , in my view to conclude that such transaction or series of transactions lacks any
genuine commercial character.”
HELD: Upholding the judge’s view “I am quite un-persuaded that these transactions can
properly, fairly o” sensible be called anything but fantastic to the degree almost, perhaps, of
impudence. I am bound to say that were it otherwise, it would seem to me that the English law,
and the Companies Act , would have been made mock of; and I only, in conclusion, express
great regret that the engineer of this extraordinary scheme should be a member of the profession
of solicitors” LORD EVERSHED M.R.@ 254.
66

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Taxation Cases

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EMMANUEL BRIGHT ATOKOH’S CASE BRIEFS ON 2010-

LAW OF TAXATION 2011

➢ REPUBLIC v. COMMISSIONER OF INCOME TAX; EX PARTE MAATSCHAPPIJ DE

➢ KUBI AND OTHERS v. DALI [1984-86] GLR 501–510 CA

FACTS: In an appeal against the quantum of damages awarded for negligence;

➢ MANGIN v IRC [1971]AC 739 PC

➢ CAPE BRANDY SYNDICATE v IRC [1921] 1 KB 64

➢ JEFFS v RINGTONS LTD [1968] AER 144

➢ CLARK(INSPECTOR OF TAXES) v OCEANIC CONTRACTORS (1983)2 AC 130

➢ COMMISSIONERS OF TAXATION v KIRK (1900) AC 588 @ 592

➢ BRAY(INSPECTOR OF TAXES) v BEST [1989] 1 AER 969

[NB: Section 6(2) of Act 592 overrules this decision].

➢ UNITED STATES V. BENNETT, 232 U.S. 299 (1914)

➢ WILKIE v INLAND REVENUE COMMISSIONER [1952] 1 Ch 153

➢ LIQUIDATOR, RHODESIA METALS LTD v COMMISSIONER OF TAXES

➢ THE SCOTTISH PROVIDENT INSTITUTION v FARMER [SURVEYOR OF TAXES]

➢ IRC v ROLLS-ROYCE LTD [1942] 40 TC 443

➢ ATHERTON v BRITISH INSULATED & HELSBY CABLES LTD [1925] 10 TC 155. HL

FACTS: The appellant company carried on business as a manufacturer of margarine. It entered

➢ KELSALL PARSONS & CO v CIR [1938] 20 TC 608

➢ JOHN SMITH & SON v MOORE [1921] 2AC 13 HL

Section 167 of ACT 592—Definitions

➢ AMERICAN LEAF BLENDING CO. v DIRECTOR-GEN OF INLAND REVENUE

➢ REES TURBO DEV. SYNDICATE LTD v CIR [1928] 1 KB 506

➢ GRIFFITHS (INSPECTOR OF TAX) v J.P. HARRISON (WATFORD) LTD. [1963] AC 1

FACTS: The respondents carried on business as merchants. By their altered articles of

➢ RAMSON [INSPECTOR OF TAX] v HIGGS [1974]3 AER 949 HL

➢ ERICHSEN v LAST (1881) QBD 414 CA

➢ PICKFORD v QUIRKE( INSPECTOR OF TAXES) [1927]13 TC 251

➢ LEACH v POGSON[INSPECTOR OF TAXES] 40 TC 585

FACTS: The appellant established a driving school which he subsequently transferred to a

LEEMING v JONES [INSPECTOR OF TAXES] 15 TC 333. HL

MARTIN v LOWRY [COMMISSIONER OF TAX] 11 TC 297 HL

IRC v FRASER [1924] 24 TC 498

RUTLEDGE v COMMISSIONER OF INLAND REVENUE 14 TC 490

TAYLOR v GOOD (INSPECTOR OF TAXES) [1974] 1 AER 1137CA

FACTS: The appellant-taxpayer carried on business as a retail grocer and a newsagent. He

COOKSEY & BIBBEY v REDNALL 30 TC 514 HC

OSTIME v PONTYPRIDD & RHONDDA JOINT WATER BOARD 28 TC 261HL

SMITH BARRY v CORDY [1948] 28 TC 250

JENKINSON v FREEDLAND [1961] 39 TC 636 CA

CIR v OLD BUSHMILLS DISTILLERY CO. LTD [1927] 12 TC 1148 HC

ISWERA v CEYLON COMMISSIONERS [1965]1 WLR 663

COOPER v STUBBS [1925]2KB 753@ 765 CA

THE BALGOWNIE LAND TRUST LTD v CIR [1929]14 TC 684

IRC v HYNDLAND INVESTMENT CO. LTD [1929]14 TC 694

ISSIFU MALI v REPUBLIC [1976]1 GLR 65@66

HELD: The question whether a person is carrying on a profession is a question of fact to be

➢ COMMISSIONER OF INLAND REVENUE v MAXSE [1919]1 KB 647 CA

➢ HUGH CECIL v IRC [1919]36 TLR 164

➢ EVANS MEDICAL SUPPPLIES LTD v MORIARTY [1957] 37 TC 450.

ROLLS ROYCE v JEFFERY {REFER ABOVE}

PROFITS FROM ILLEGAL ACTIVITY

➢ MANN v NASH [INSPECTOR OF TAX] [1932] 16 TC 523

➢ LINDSEY & OTHERS v CIR [1933] 18 TC 43

➢ RUTKIN V. UNITED STATES, 343 U.S. 130 (1952)

➢ GRAHAM v GREEN (INSPECTOR OF TAX) 9 TC 309

CIR v EKEM [1990] 1WLR 1374

MINISTER OF FINANCE v SMITH [1927] AC193 PC

➢ CIR v ALEXANDER VON GLEHN & CO. 12 TC 232 CA

Section 94 of Act 592

➢ LOWRY v CONSOLIDATED AFRICAN SELECTION TRUST [1940] 23 TC 259

Section 167 of Act 592