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Petitioner: SMITH (INSPECTOR OF TAXES) VS Respondent: ABOTT and 3 others
Court Name: Court of Appeals Judge(s): Ralph Gibson, Mann, Nolan Title: SMITH (INSPECTOR OF TAXES) vs ABOTT and 3 others Case No.: Not Date of Judgment:- Reported As: 1995 PTD 888 1 WLR 1114 Result: Appeals dismissed
JUDGMENT
JUDGMENT ' NOLAN L., J. 115th March.].---The taxpayers involved in these appeals are journalists employed by Associated Newspapers Ltd. Four of them work for the "Daily Mail". They are P.J. Abbott, a news layout journalist; Mr. K.P. Holt a staff photographer; Mr. B.S. Scovell, a sport reporter specialising in cricket and football, and Mr. T.R. Shuttleworth, who was at first a news subeditor and subsequently an assistant Chief Sub-Editor. The fifth taxpayer is Mr. Gary Woodhouse, who is the picture editor of "The mail on Sunday". ' In each of the years of assessme nt under appeal each of them received from Associated Newspapers Ltd. And allowance in reimbursement of the cost of newspapers and periodicals which he bought. It is common ground between the parties in each case (i) that the amount of the allowance was correctly included in the taxpayer's assessment under Schedule E as an assessable emolument, and (ii) that he had spent on newspapers and periodicals an amount at least equal to the amount of the allowance. The issue in each case was whether the amount thus spent by the taxpayer and reimbursed by Associated Newspapers Ltd. Was deductible in computing his taxable emoluments under section 189(1) of the Income and Corporation Taxes Act, 1970. ' The five taxpayers appealed to the General Commissioners for the City of London against the refusal of the revenue, in the person of Mr. R.W. Smith, Inspector of Taxes, to allow the deduction of these expenses. Their appeals were heard together on five days in June, 1989, during which all of them gave evidence as did Mr. G.P. Burden, the Deputy Managing Director of the "Daily Mail". On 1st December, 1989 the Commissioners gave their decision, which was in favour of the taxpayer in all five cases. On 18th October, 1991, Warner, J. (1992) 1 WLR 201 allowed the appeal of the Crown against the decision in the case of Mr. Abbott, but dismissed it in the four other cases.
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' Section 189(1) of the Income and Corporation Taxes Act, 1970 re-enacted a provision which was first introduced in substantially the same terms by section 51 of the Income Tax Act, 1952. It has itself now been re-enacted by section 198(1) of the Income and Corporation Taxes Act, 1988. It reads:-- "If the holder of an office or employment 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 expand money wholly, 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." ' In his judgment Warner, J. Described the general meaning and effect of the provision in terms which have been accepted and adopted by counsel on both sides as the basis for their arguments, and which I, too, gratefully adopt. He said at p.204:-- "It is notorious that that provision is rigid, narrow and to some extent unfair in its operation. In order to satisfy its requirements, an officeholder or employee has to show four things. First, he has to show that he has incurred the expenses in question in the performance of the duties of the office or employment. .. Second, an office-holder or employee has to show that the expenses he seeks to deduct are expenses that he had been 'necessarily obliged' to incur and defray in the performance of the duties of the office or employment. Third, he has to show that those expenses have been 'wholly' so incurred. The better view seems to be that goes only to quantum. Last he has to show that they have been 'exclusively' so incurred." ' Each of the five cases stated by the General Commissioner had annexed to it a copy of the relevant decision by the Commissioners on 1st December, 1989. The five cases stated and decision followed the same pattern and much of the wording is common to them all. The findings and conclusions of the Commissioners are expressed in paragraphs 7 and 8 of each decision. That is where the Commissioners deal with the duties of the individual concerned, and with the reasons why he bought the newspapers and periodicals in question. The duties differ fairly widely as one would expect, but for the narrow purposes of the present appeal they can be considered together because the common features which they share, and on which the claim for a deduction is based, are substantially the same. It was argued on both sides that all five cases stand or fall together, though the Crown would naturally wish to preserve the decision of Warner, J. On the case of Mr. Abbott if they fail on the other four. Accordingly, leaving Mr. Abbott aside for the moment, I think it will be sufficient if I quote fully from the findings of the Commissioners in relation to one of the other four taxpayers. I take, by way of example, the case of Mr. Woodhouse. Paragraphs 7 an 8 of the decision in his case read as follows:-- "(7) We find the following facts: (a) (Mr. Woodhouse) during the years of assessment was the Picture Editor of 'The Mail on Sunday'. His duties involved attendance at 'The Mail on Sunday' offices from Tuesday to Saturday (inclusive), his day being from 9-15 a.m. To approximately 7-00 p.m. At the beginning of the week and from 10-00 to 11.00 p.m. At the end. (b) He was directly responsible to the editor for obtaining illustrations for every page in the newspapers and any supplements. The newspaper currently had 64 pages and the supplement 48 pages. He had an Assistant Picture Editor, a Sports Picture Editor and a Secretary Assistant immediately under him. He had to generate ideas for illustrations and arrange for obtaining them from in house and freelance photographers or from other sources. He participated in an early conference on Tuesday with other Editors when the overall look of the paper and its contents was considered, usually starting on the features page. There were seven conferences with the editor and specialist editor of sections of the paper during the week. At each of these (Mr. Woodhouse) was expected to produce a written paper listing his ideas for copy to be discussed. He was expected to suggest to the Editors ways in which particular
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items of news and articles could be illustrated. He was primarily there to put up visual ideas to enhance the look of the paper He also had mini-conferences with his subordinates who were expected to provide their own ideas which he, in turn, could discuss with the other Editors concerned. These were usually held before the daily editorial conference (usually held at about 11- 00 a.m.) although on Tuesdays they were held afterwards. Once ideas were approved (Mr. Woodhouse) decided who would do the job and delegated the organisation of the work (c) To obtain the necessary ideas (Mr. Woodhouse) always spoke to Editors, Journalists and Specialists in the building because they read publications which he did not read. He always read other publications and to this end he purchased all the daily and Sunday newspapers, the 'Evening Standard' and 'Evening News'. The dailies were delivered to his home by the local newsagent, the Sunday papers he purchased himself from that newsagent. He purchased in London each day two or three Editors of the evening newspapers. He also purchased each publication of the 'British Journal of Photography', `S.L.R."Amateur Photographer', 'Paris Match', 1 Stern', 'Creative Camera', `Epoca', `Punch', 'Time', 'Sussex Corier', 'Life', 'Express and Star', 'Illustrated London News', 'Tatter', 'Country Life', Bunte, 'Cosmopolitan' and `Melbourne Newsweek'. (d) (Mr. Woodhouse) gave us many examples of the profitable use to which he put the reading of these newspapers and periodicals for the purpose of obtaining ideas for pictures and, in some cases, to obtain copies of the pictures shown therein. We accept the evidence of Mr. Burden and (Mr. Woodhouse) that the reading of this material was inherent in the process of finding ideals for the illustrations which it was his duty to obtain and was not merely required to qualify, or maintain the qualifications of (Mr. Woodhouse) to do the work. (e) He read the newspapers delivered to his house on his railway journey to the office, lasting usually from 8-30 a.m. To 9-15 a.m., on a selective basis and continued this at the office for the first three-quarters of an hour. There was not time afterwards for reading newspapers or periodicals in the office. He also spent time scanning and buying from the railway station bookstall periodicals that would be useful for finding illustrations or ideas for them. He would buy others on the way home and would read them on the homeward journey and at home in the evenings. He spent three to four hours on Sunday morning reading the Sunday newspapers. On holidays he read every newspaper and periodical he could buy, since even then he was on call, and if a story broke where he was, he was expected to file copy. (f) It was necessary for him to do this reading and provide his own reading material because -- (a) he had to be equipped with ideas as soon as he started consultations with specialist Editors and the Editor of 'The Mail on Sunday'; (b) his duties in the office except for the first three-quarters of an hour gave him no time for such reading; (c) the cuttings library available to employees of 'The Mail on Sunday' was not equipped to provide the necessary reading facilities; (d) newspaper reading outside office hours was regarded by his employer and by (Mr. Woodhouse) as an essential part of his duties. `8.(a) We conclude that the reading of the newspapers and periodicals outside the offices of 'The Mail on Sunday' was in the performance of the duties of the employment notwithstanding that this was done at home and on the train outside the hours of attendance at the offices of 'The Mail on Sunday', and the money expended on them was in each case expended wholly, exclusively and necessary in the performance of (Mr. Woodhouse's) duties. (b) We find also that (Mr. Woodhouse) spent not less than the sums referred to in paragraph 2 above on newspapers and periodicals that he purchased them with the sole object of reading the relative material in the performance of the duties of his employment and that there was no private purpose in the purchase. (c) We hold that the sums expended on newspapers and periodicals by (Mr. Woodhouse) as indicated in paragraph 2 above were sums expended wholly, exclusively and necessarily in the performance of the duties of his employment and are, therefore, expenses admissible as deductions from his emoluments within section 189(1) of the Income and Corporation Taxes Act, 1970."
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' The primary attack launched against this conclusion by Mr. Moses, on behalf of the Crown, was to the effect that the expenditure in question has not been shown to have been laid out "in the performance of the duties" of the employment, and thus fails to satisfy the first of the requirements set out by Warner, J. Mr. Moses acknowledges that the conclusion of the Commissioners is one of fact. He asked us to overturn it on the basis that, in Lord Radcliffe's familiar words, the true and only reasonable conclusion contradicts the determination" of the Commissioners: see Edwards v. Bairstow (1956) AC 14, 36. ' More specially Mr. Moses submitted that the true and only reasonable conclusion from the primary facts found by the Commissioners is that Mr. Woodhouse purchased and read the publications in question, not in the performance of his duties, but in preparing or equipping himself to perform them. Mr. Moses referred us to decided cases which exemplified the difference between preparing and performing. One of these was Simpson v. Tate (1925) 2 KB 214, in which a county medical officer failed in his claim to deduct the costs of belonging to a number of professional bodies. His case was that in order to carry out his duties efficiently, he had to be aware of all recent advances in sanitary science, and had to keep himself up to date on all medical questions affecting public health; without belonging to the bodies in question, it would be difficult if not impossible for him to do so. Dismissing his appeal. Rowlatt, J. Distinguished between the cost of qualifying for an office and the cost of performing the duties which it entailed. He said at p.219:- "The respondent qualified himself for his office before he was appointed to it, and has very properly endeavoured to continue qualified by joining certain professional and scientific societies so that by attending their meetings and procuring their publications he may keep abreast of the highest developments and knowledge of the day. He seeks to deduct from his assessable income the subscriptions paid by him to these societies as money expended necessarily in the performance of the duties of the office. When one looks at the matter closely, however, one sees that these are not moneys expended in the performance of his official duties. He does not incur these expenses in conducting professional inquiries or get the journals in order to read them to the patients. If he did, that would be altogether different. He incurs these expenses in qualifying himself for continuing to hold his office, just as before being appointed to the office, he qualified himself for obtaining it." ' In Brown v. Bullock (1961) 1 WLR 1095 the taxpayer was a Bank Manager who was instructed by his employers "that he must foster local contacts and that he should join the club or clubs best suited for that purpose". He failed in his claim to deduct his club subscriptions. In this Court Lord Evershed M.R. Said at p.1101:-- "The phrase which is used in the case, 'to foster local contacts', is a vague phrase, not capable of precise significance. No doubt it is, like many such phrases, a useful formula so long as it has not to be further expounded. The natural intention on the part of the taxpayer's superior officers was no doubt that if he belonged to clubs of his standing in this part of London it gave him a certain status. It would be obvious that if he was a member of these clubs he was the sort of man who would be acceptable in that sort of social circle, and that, no doubt, would be useful to him and to the Bank, because he would thereby meet people who might, as a result of meeting him and liking him, tend to have business relation with him or with the Bank.... But it seems to me that to the short question, 'when he pays his subscription, is the sum paid necessarily incurred in the performance of his duties as a Bank Manager?" the answer is 'No'. What his employers may think it desirable for him to do, socially is one thing. Performance of the duties of manager of their branch is something else." ' Mr. Moses acknowledged that a distinction must be drawn between the acquisition of qualifications or status or knowledge as a general preparation for carrying out the duties of an employment, and what he described as preparation for a particular assignment, which might well fall to be carried out in the actual performance of the employee's duties. That is the crucial distinction in the present case. It is helpfully illustrated by the decision of Ungoed. Thomas, J. In
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Humbles v. Brooks (1962) 40 TC 500. That was the case of a headmaster who was required to teach various subjects, including history. He attended a series of weekend lectures in history at a college for adult education for the purpose of improving his background knowledge of the subject. He failed in his claim to deduct the cost of attending the lectures. The Judge said at pp.503-504:- "(Counsel for the Crown) contended that he was not employed to prepare lectures but to deliver them. This, to my mind, is an unreal distinction for present purposes. I cannot recognise that a person who is employed to deliver lectures or to teach is not, when preparing the lectures or the talks which he gives, doing what he is employed to do-- that he is not acting in the course of the performance of his duties. Preparing lectures is, to my mind, a necessary part of his duties. That leaves the questions, was the respondent in this case, when listening to the lecture at the adult college, preparing his own lecture First, he attended the course to improve his background knowledge of the subject which he had studied to G.C.E. '0' level only; second, he gleaned useful information from the lectures at the course; third, he felt the course was essential to keep himself up to date; and, fourth, to provide him with material which he reproduced in the history lessons. There is, in my view, a distinction between qualifying to teach and getting background material -- and even getting information and material which "he reproduced in his own lecture -- on the one hand, and preparing his own lecture for delivery on the other hand. The statement, in the passages in the case stated, that the lectures at the college provided the respondent with material which he reproduced gets nearest to the performance of his duties within the section, but even if this element could be treated in isolation, it goes no further than providing material -- just as any background information would provide material----and is not, of itself, part of the preparation of his own lecture. It is, to my mind, qualifying for lecturing, or putting himself in a position to prepare a lecture. It is not the preparation of a lecture. In this sense, the distinction is between preparation for lecturing on the one hand and the preparation1 a lecture on the other hand. In my judgment, the respondent, when e was attending a course and listening to a lecture, was not preparing his own lecture, and he was therefore, not acting in the performance of his duties within the meaning of paragraph 7 of the ninth Schedule." ' Another helpful illustration of the crucial distinction was given by Warner, J. In the present case. After referring to the cases which I have cited and other authorities for the proposition that expenditure incurred by the holder of an office or employment in qualifying himself, or keeping himself qualified to hold it, is not incurred in the performance of the duties in the statutory senses, he continued (1992) 1 WLR 201, 212-213:-- "On the other hand, it is not in my judgment the law that no reading that is preparatory to the performance of duties of an office or employment can ever itself be part of the performance of the duties of that office or employment. There are manifestly cases where preparatory reading is part of the duties of an office or employment. An example that springs to my mind is that an employed solicitor reading in preparation for giving advice to a client the papers in that client's case and the statutory provisions or other authorities relevant to it. That reading is just as much in the performance of the duties of his employment as is the giving of the advice itself." ' Mr. Moses fully accepted this proposition. In reply to Mann L.J. In the course of argument he equally accepted that a Judge may fairly be described as performing the duties of his office when he studies the case papers and skeleton arguments in the case which he is about to hear. He submitted that, by way of contrast, the duties of Mr. Woodhouse, as described in the stated case, could not be regarded as including his preparatory reading. The duties, he said were those set out in paragraph 7(b) of the case. Mr. Woodhouse performed his duties by generating ideas and carrying them into effect. The preliminary reading described in the following sub-paragraphs of paragraph 7 merely provided him with general background information. In the terms of sub-
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paragraph (f) it ensured that he was "equipped" with the knowledge which he needed to perform his tasks. ' The submission of Mr. Moses in relation to the other four taxpayers followed the same course. In the case of Mr. Shuttleworth the relevant findings were that as news sub-editor for particular pages of the newspaper he had to select and check the news reports, re-writing them as necessary, determine the headlines and page layout, choose pictures, select the type and consider whether any legal problems arose. As Assistant Chief Sub-Editor he was in charge of a number of sub- editors and had to check and correct as necessary their work as already described. Properly to carry out his duties, it was found, he needed to have an up-to-date knowledge of all aspects of the news. In order to select copy for the next edition of the "Daily Mail" he had to know what other newspapers were doing about particular news items, what stage various issues in the story had reached, judge every story in relation to everything else going on, not repeat stories appearing in other newspapers the previous day and take the story forward (where there was a continuing event) from what had appeared in the previous day's newspapers, as well as in the "Daily Mail". It was to this end that he purchased the other newspapers and periodicals in question. ' In the case of Mr. Scovell the corresponding findings are that he reported football and cricket matches but most of his time was spent writing about events in the sports world rather than reporting what was happening (sic) the field. He developed and explored the information which he acquire from reading other newspapers and followed up ideas obtained from them to provide stories to report for the "Daily Mail". He reported to the Sports Editor at 10-00 a.m. On an average morning and was expected to know what had been going on as reported in other newspapers. ' Mr. Holt, the staff photographer, worked at and from home as well a from the office, and was on call effectively for 24 hours a day. Paragraph 7(b in his case states: "The duties of the employment were to provide ideas for photograph as well as taking them. He would telephone or be telephoned discuss ideas gleaned from reading the newspapers and accept the assignment he was to pursue. He would go and do the work, return to the office to develop the film, print it and give the pictures to the Picture Editor. There was no set time for going home." ' Paragraph 7(c) adds: "(Mr. Holt) needed to read newspapers to obtain ideas for stories and photographs and to check that any idea he had was not already dealt with by another newspaper, whether local or national.... Furthermore, he needed to know the latest news so that he was always ready for discussion of matters raised by the Picture Editor." ' It was with these objects in view, said the Commissioners, that he purchased the other newspapers and periodicals. ' Finally, in the case of Mr. Abbott, the news layout journalist, the corresponding passages read: "7. (b) His duties were to create a page or series of pages with news stories and pictures relative to one another and to the advertisements in such a way as to be attractive and make people want to read it. He organised illustration with types, graphs or drawings. He had to work out measures for headlines for sub-editors to write, the lengths of stories and the size of pictures. The creation and preparation of page layouts were designed for the use of sub-editors in order to get the stories sorted out. Everything for a particular page had to be carefully measured for the space available and (Mr.Abbott) was directly responsible to the night editor or his deputy and was responsible for the last production stage before the page was published. (c) (Mr. Abbott) needed to read newspapers and periodicals in order to keep himself informed of current news and how other papers were dealing with it so that he would know what pictures to place in relation to a story. He had to have this information so that when he went to the office he did not have to be primed. As a result when he was given a series of pictures, he would know from his reading which were
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appropriate to a given story. The relative information had to be known by him before he started work in the office. The pictures had to suit the stories and it was no use printing pictures which had already appeared in other newspapers. With these objects in view he purchased all the daily and Sunday newspapers. In addition he purchased the New Statesman, Newsweek. Time, Campaign, U.K. Press Gazette, Kent Messenger, T.V. Times and Radio Times." ' All five of the cases contained, mutatis mutandis, the findings which are set out in paragraph 7(f) of the case of Mr. Woodhouse. The first part of those findings in the case of Mr. Shuttleworth appears at paragraph 7(e) and states:-- "It was…
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