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Petitioner: MALLALIEU VS Respondent: DRUMMOND (INSPECTOR OF TAXES)
1986 P T D 5
1986 P T D 5
[House of Lord]
Before Lord Diplock. Lord Elwyn-Jones, Lord Keith of Kinkel, Lord Roskill and Lord Brightman
MALLALIEU
Versus
DRUMMOND (INSPECTOR OF TAXES)
Decided on 30th June, 27th July, 1983.
Income‑tax‑
‑‑‑Deduction in computing profits‑‑Expenditure wholly and exclusively laid out or ex ended for purposes of trade‑Purpose of expenditure‑Barrister's clothing‑ Female barrister's Court clothe‑‑‑ Whether expenditure incurred to replacing, cleaning and laundering clothes deductible‑[(1983) 1 All E R 801 reversed]
The tax‑payer was a practising barrister. She spent some money on the replacement, cleaning and laundering of certain items of clothing which she wore in Court, and sought to deduct that sum when computing the profits of her profession as being expenses `wholly and exclusively expended for the purposes of [her] profession' within section 130 (a) of the Income and Corporation Taxes Act 1970. The department disallowed the deduction and the tax‑payer appealed to the Commissioners. The Commissioners found, as facts that the tax‑payer had ample other clothing for the purposes of warmth rind decency that she would nest have purchased any of the disputed items had it not been for the requirement of' her profession that she should be so clothed, that she only wore those clothes in connection with her work, that she bought the disputed items only because she did not have been per mitted to appear in Court if she did not, when in Court, wear them or similar clothes, and that the preservation of warmth and decency was not a consideration in her mind when she bought them. The Commissioners considered that, notwithstanding that the tax‑payer's sole motive in choosing the particular clothes was to satisfy the requirements of her profession and that had she been free to do so she would have worn different clothes, the expenditure had a dual purpose, the professional one of enabling her to earn profits in her profession and the non‑professional one of enabling her to be properly clothed while engaged in her professional activity. They therefore held that, because of that dual purpose, the tax‑payer was not entitled to the deduction claimed. On an appeal by the tax‑payer, the judge held that there was no evidence to support the Commissioners' conclusion that the tax‑payer had a dual purpose in mind, but only evidence to conclude that the expenditure on the disputed items was incurred by the taxpayer solely for the purpose of carrying on her profession, and that the benefits of warmth and decency which she would enjoy while wearing the clothes were purely incidental to the carrying on of her profession. Accordingly, he held that the expenditure was deductible and allowed the appeal. The Crown appealed unsuccessfully to the Court of appeal and further appealed to the House of Lords.
Held (Lord Elwyn‑Jones dissenting)‑In determining whether an expense was wholly and exclusively expended for the purposes of the taxpayer's profession within section 130(a) of the 1970 Act, the conscious motive of the tax‑payer at the moment of expenditure, although of vital significance in determining the object of the expenditure, was not conclusive of the matter, and the finding that the taxpayer's conscious motive for making the expenditure was exclusively for the purposes of her profession did not preclude the Commissioners from finding that the expenditure also satisfied other objects apart from professional purposes. The expenditure by the tax‑payer on the maintenance of clothing which conformed to the dress requirements of her profession was made not only for professional purposes, but also for personal purposes namely so that she could be warmly and decently clothed. Accordingly, the Commissioners were correct in concluding that the expenditure had a dual purpose, one professional and the other non‑professional. It was irrelevant that non‑com pliance with the dress requirements of her profession would have prevented the taxpayer from earning her living, since other professional people also faced various sanctions, albeit less damaging, if they did not conform to the dress code of their particular profession and the right of deduction should not depend on the degree of the sanction, and moreover section 130 (a) of the Act was not concerned with the necessity of the expenditure. Furthermore, there was no distinction between a barrister, whether male or female, and any other self‑employed person when deter mining the right to claim a deduction under section 130 of the 1970 Act for expenditure on the maintenance of a complete wardrobe of clothing used only at work or for travel to and from work. The appeal would therefore be allowed.
Strong and Company of Romsey Ltd v. Woodifield (Surveyor of Taxes) [1904‑7] All E R Rep. at 956 of Lord Greene M R in Norman v. Colder (Inspector of Taxes) (1945) 1 All E R at 354, of Lord Morton and Lord Reid in Morgan (Inspector of Taxes) v. Tate and Lyle Ltd. [1954] 2 All E R at 416, 423, and Prince v. Mapp (Inspector of Taxes) (1970) 1 All E R 519 and Hillyer v. Leeke (Inspector of Taxes) (1976) S T C 490 applied.
(1983) 1 All E R 801 reversed.
Bentleys Stokes and Loveless v. Beeson (Inspector of Taxes) (1952) 2 All E R 82 (C A); Caillebotte (Inspector of Tuxes) v. Quinn (1975) 2 All E R 412; (1975) 1 W L R 731; Hillyer v. Leeke (Inspector of Taxes) (1976) S T C.493; Morgan (Inspector of Taxes) v. Tale and Lyle Ltd. (1954) 2 All E R 413 (1955) A C 21, (1954) 3 W L R 85, H L; Norman v. Golder (Inspector of Taxes) (1954) 1 All E R 352, C A Prince v. Mapp (Inspector of Taxes) (1970) 1 All E R 519, (1970) 1 W L R 260; Robinson (Inspector of Taxes) v. Scott Bader Co. Ltd. (1981) 2 All E R 1116 and (1981) 1 W L R 1135; C A; affg. (1980) 2 All E R 780, (1980) 1 W L R 755 ref:
Strong and Co. of Romsey Ltd. v. Woodifield (Surveyor of. Taxes) (1906) A C 448, (1904‑7) All E R Rep 953, H L.
Appeal:
The Crown appealed against the judgment of the Court of Appeal (Sir John Donaldson M R, Kerr L J and Sir Sebag Shaw) (1983) 1 All E R 801, (1983) 1 W L R 252) dated 14th December, 1982 affirming the decision of Slade, J. [(1981) S T C 391] given on 12tH March, 1981 whereby he allowed an appeal by .way of case stated (set out at (1981) S T C 392‑397) by Ann Mallaneu (the taxpayer) against the determination of the Commissioners for the General purposes of the Income‑tax for the Division of the Middle Temple in the City of London dismissing the taxpayer's appeal against an assessment made on her under Case II of Sch. D for the year of assessment 1977‑78 in respect of her claim to be entitled to deduct in computing the profits of her profession as a barrister the sum of 564,38 expended on the replacement, cleaning and lundering of certain items of clothing used by her for the purposes of her profession. The fats are set out in the opinion of Lord Brightman.
Andrew Park Q C and David C. Milne for the Tax‑payee.
Peter Millett Q C, Robert Carnwath and Michael Hart for the Crown.
APPEAL
LORD DIPLOCK.‑My Lords, I have had tile advantage of reading in draft the speech of my noble and learned friend Lord Brightman. I agree with it, and for the reasons he gives I would allow this appeal.
LORD ELWYN‑JONES.‑My Lords, the issue in this appeal is whether the disbursements of the appellant tax‑payer in the relevant years on replace ments laundering and cleaning the clothes she wore during the practice of her profession of barrister were wholly and exclusively laid out or expended for the purposes of her profession: see section 130 of the Income and Corporation Taxes Act, 1970.
As stated in para. 4 of the Case stated, the General Commissioners found, after hearing oral testimony from the appellant which their findings indicate they accepted, that: (1) the appellant would not have incurred any of the expenditure on the items of clothing in question had it not been for the requirement of her profession that she should comply when appearing in Court with the notes for guidance of the Bar Council (which are quoted in the speech of my noble and learned friend Lord Brightman): (2) at all material times she had a private wardrobe of clothes and shoes which were amply sufficient to keep her clothed and shod in comfort and decency; (3) the preservation of warmth and decency was not a consideration which crossed, her mind when she bought tile disputed items; (4) she bought the items only because she would not have been permitted to appear to Court it she did not wear them when in Court:, or other clothes like them.
It was common ground that the relevant time for determining what were the tax‑payer's purposes and what was in her mind when the expen diture was incurred was at the moment the expenditure was made.
The General Commissioners did look into the tax‑payer's mind (as far as humans can look into the minds of others) and found that `when (the tax‑payer) laid out money on clothes for wearing in Court her purpose in making that expenditure was to enable her to earn profits in her profession and also to enable her to be properly, clothed during the time she was on her way to chambers or to Court and while she was thereafter engaged in her professional activity' (see (1981) S T C 391 at 396). This apparently is in fact what she said and their findings of fact indicate that they believed her.
This test as to why the expenditure was incurred is subjective. As Romer L J stated in Bentleys Stokes and Lowless v. Beeson (Inspector of Taxes) ((1952) 2 All E R 82 at 84) The sole question is what was the motive or object in the mind of the (individual) . . . in question".
This proposition was affirmed by Walton, J in Robinson (Inspector of Taxes) v. Scott Bader Co. Ltd. (1980) 2 All E R 780, (1980) 1 W L R 155 and by the Court of Appeal ((1981) 2 All E R l116, (1981) 1 W L R 1135).
Applying that test I respectfully agree with the conclusions of Slade, J. and the Court of Appeal that the Commissioners' findings of fact in this case led inevitably to the conclusion that the tax‑payer's expenditure was expended wholly and exclusively for the purposes of her profession.
It was in my view not open to the Commissioners in view of their findings of fact as to the appellant's purposes to conclude that as in this case the clothing was suitable for private as well a, for professional use, one of her purposes must have been to spend money on the clothing for her private use. This in my view was to disregard the evidence, which they accepted as to her actual motive and purpose. This they have found was to enable her to carry on her profession. Other benefits derived from the expenditure, namely that the clothing at‑so provided her with warmth and decency, were purely incidental to the carrying on of her profession in the compulsory clothing she had to wear.
I am naturally diffident in disagreeing with my noble and learned brethren but I find the conclusions arrived at by Slade, J. and the Court of Appeal inescapable in view of the Commissioner' findings of the primary facts to this case. I would dismiss the appeal.
LORD KITH OF KINKFL.‑Ally Lords, for the reasons given in the speech to be delivered by my noble and learned friend Lord Brightman, which I have had the opportunity of reading in draft and with which I agree, I too) would allow the appeal.
LORD ROSKILL.‑My Lords, I have had the advantage of reading in draft the speech to be delivered by my noble and learned friend Lord Brightman. For the reasons he gives I too would allow this appeal.
LORD BRIGHTMAN.‑hey Lords, the immediate issue in this appeal con cerns the right of a female barrister, in computing the profits of her profes sion, to deduct the cost of upkeep of a wardrobe of clothes of a design and colour suitable to be worn under her gown during‑ Court appearances. But during the course of the argument this issue was found to resolve itself into a far more general and fundamental question: whether any person carrying on al trade, profession or vocation on his own account is entitled to, a similar deduction it he chooses to set apart clothes, under clothes and footwear for use only at his place of work, and when proceeding to and from his place of work.
The tax‑payer is a member of the junior Bar with a busy Court practice. When appearing in open Court she is obliged, with a few exceptions, to wear a gown over her ordinary clothing, and a wig. When not in open Court but in the chambers of a judge, master or registrar, she would (or could) appear in her ordinary clothes without wig or gown. What sort of clothes a barrister should wear in Court (I include chambers) is a matter of good taste and common sense, the criterion being that they should be appropriate to the dignity of the occasion. However in recent years‑some brief rules have been laid down or authoritative guidance given as to what is the appropriate clothing to be word by barristers appearing in Court So far as I am aware no official guidance was ever: thought necessary until about 60 years ago. A barrister conformed as a matter of course to the sartorial standards of his colleagues. By 1922 the ranks of the Bar began to be enriched by the entry of women barristers, who had no precedents or comparisons to draw on. Rules were accordingly issued by the Lord Chief Justice, and amended in 1968. The 1968 rules have now been replaced by brief notes for guidance on dress in Court, which apply to barristers of both sexes. These notes were formally‑approved by the Bar Council and received the assent of the Lord Chief Justice. The notes for the most part reflect the requirements of commonsense. They are short, and so far as relevant for present purposes provide as follows.
1. The dress of barrister appearing in Court should be unobtrusive and compatible with the wearing of robe: 2. Suits and dresses should be of dark colour. Dresses or blouses should be long‑sleeved and high to the neck----Shirts and blouses should be predominantly white or of other unemphatic appearance. Collars should be white and shoes black.'
There are no other rules relating to the clothes to be worn by a female barrister under her Court gown.
The tax‑payer bought clothes in conformity with those requirements. The initial cost of purchase was a capital expense, and therefore not material for present purposes. However, she needed to clean and renew them from time to time and to the accounting period for the 19-17‑78 year of assessment she spent some 500 on replacements, laundering and Cleaning. This sum is claimed as a deduction in computing the profits of her practice chargeable under Sch. D. To qualify as a deduction, the expenditure must fall outside the prohibition contained in section 130 of the Income and Corporation Taxes Act, 1970. The relevant paragraph of the section is para. (a) but para. (b) should perhaps be read with it as was referred to in argument:
130. Subject to the provisions of the Tax Acts, in computing the amount of the profits or gains to be charged under Case I or Case II of Schedule D, no sum shall be deduced in respect of (a) any disbursements, or expenses, not being motley wholly and exclusively, lain out or expended for the purposes of the trade, profession or vocation, (b) any disbursements or expenses of maintenance of the parties, their families or establishments, or any sums expended for any other domestic or private purposes distinct from the purposes of the trade, profession or vocation . . . .
The effect of para. (a) is to exclude, as a deduction, the money spent by the tax‑payer unless she can establish that such money was spent exclu sively for the purposes of her profession. The words in the paragraph 'expended for tire purposes of the trade, profession or vocation' mean in my, opinion 'expended to serve the purposes of the trade profession or vocation, or as elaborated by Lord Davey in strong and Co. of Romsey Ltd. v. Woodifield (Swveyor of Tapes) ((1906) A C 448 at 453 ; (19(14‑7) All E R Rep 953 at 956) for the purpose of enabling a person to carry on and earn profits in the Trade & Company'. The particular words emphasised do not refer to 'the purposes' of the tax‑payer, as some of the cases appear to suggest. They refer to 'the purposes' of the business, which is a different concept although the 'purposes' (i. e. the intentions or objects) of the tax‑payer are fundamental to the application of the paragraph.
The effect of the word 'exclusively' is to preclude a deduction if it appears that the expenditure was not only to serve the purposes of the trade, profession or vocation of the tax‑payer but also to serve some other purposes. Such other purposes, if found to exist, will usually be the private purposes of the tax-payer see for example Prince v. Mapp (Inspector of Taxes) ((1970) 1 All E R 519, (1970) 1 W L R 260).
To ascertain whether the money was expended to serve the pur poses of the tax‑payer's business it is necessary to discover the tax‑payer's `object' in m4king the expenditure: see Morgan (Inspector of Taxes) v. Tate and Lyle Ltd. ((1954) 2 All E R 413 at 416, 423; (1955) A C 21 at 37, 47'). As the, tax‑payers 'object' in making the expenditure has to be found, it inevitably follows that (save' to obvious cases which speak for themselves) the General Commissioners need to look into the tax‑payer's mind at the moment when the expenditure is made. After events are irrelevant to the application of section 130 except as a reflection of this tax‑payer's state of mind at the time of the expenditure.
If it appear, that the object of the tax‑payer at the time of the expendi ture was to serve two purposes, the purposes of his business and' other purposes, it is immaterial to the application of section 130 (a) that the business purposes are the predominant purposes intended to be served.
The object of the tax‑payer in making the expenditure must be distinguished from the effect of the expenditure. An expenditure may be made exclusively to serve the purposes of the business, but it may have a private advantage. The existence of that private advantage does not necessarily preclude the exclusivity of the business purposes. For example a medical consultant has a friend in the South of France who is also his, patent. He flies to the South of France foe a week staying in the home of his friend and attending professionally on him. He seeks to recover the cost of his air fare. The question of fact will be whether the journey was undert4ken solely to serve the purposes of the medical practice. This will be judged in the light of the tax‑payers object in making the journey. The question will be answered by considering whether the stay in the South of France was a reason, however subordinate, for undertaking the journey, or was not a reason but only the effect. If a week's stay on the Riviera was not an object of the consultant, if the consultant's only object was to attend on his patient, his stay on the, Riviera was an unavoidable effect of the expenditure on the journey and the expenditure lies outside the prohibition in section 130.
There is no dispute between the parties as to the true meaning of section 130 (a), and it is common ground that the principles, which I have outlined are those which fall to be applied. The appeal before your Lordships is basically concerned with .the distinction between object and effect. The Inspector of Taxes disallowed the deduction claimed by the tax‑payer, with the result that she appealed to the General Commissioners against the assessment made on her. The General Commissioners, who had themselves been in practice at the Bar, confirmed the assessment subject to a small adjustment on which there was agreement. The tax‑payer success fully appealed to the High Court, and the decision of the Chancery' Judge was upheld on appeal. The Inspector of Taxes now appeals to this House with the leave of your Lordships.
The primary facts found by the General Commissioners are contained in para. 4 of the printed case and para. 8 of the decision (see (1981) S T C 371 at 392‑395). The clothes which the tax‑payer maintained for profes sional purposes were, broadly speaking, worn by her only in connection with her work. That is to say, she travelled iii them to her chambers or directly to Court, wore them throughout the day and changed out of them when she arrived home at the end of her working day. There were odd occasions on which the tax‑payer might find it convenient to remain in her working clothes after her work was done. But no point is taken by Revenue in relation to such occasions nor is any point taken that the clothes were worn not only at work but also when travelling to and from work.
The critical findings of fact as set out in paras. 4 and 8 of the case are these ((1981) S T C 391 at 393, 395)
4---(c) The rules for guidance are----normally complied with and it would be virtually impossible for a lady barrister to practice unless she complied with the rules laid down---(f) At all material times the tax-prayer had a private wardrobe of clothes and shoes which was amply to keep her clothed and shod in comfort and decency, without having to resort to any of the disputed items. Site would not have purchased any of the disputed items had it not been for the requirements of her profession that she would comply with the notes for guidance when appearing in Court----(j)---She bought such items only because she would not have been permitted to appear in Court if she did not wear, when in Court, them or other clothes like them. Similarly the preservation of warmth and decency was not a consideration, which crossed her mind when she bought the disputed items. (k) The white blouses and black clothing bought by the tax‑payer were items of ordinary civilian clothing readily available for purchase by anyone at many clothing stores.
8. We consider that the evidence shows that when she bought the clothes she bought them to wear in Court and that she would not have bought them but for the exigencies of hit profession.
In addition there are certain statements in a proof of evidence of a senior executive of Marks and Spencer Ltd. These were accepted by the tax‑payer as accurate statements of fact. They are‑summarised in the com missioners' decision in the following terms :
(i) that it is important for a major retail outlet to design garments likely to have a broad popular appeal, (ii) that the colours in which garments are produced must necessarily be what are called "safe" colours, including black, (iii) that a black velvet jacket is a perennial favourite, and (iv) that black clothing is always acceptable whether it is a fashion colour or not and always represents a proportion (which he put at over 10%) of sales to ladies' outerwear.
I refer to this evidence only to emphasise the point that the clothing in question consists of perfectly ordinary articles of apparel, which many ladies wear from choice. On the basis of those findings of fact the commissioners had to draw an inference and decide whether or not the tax‑payer had expended money on her professional wardrobe exclusively to serve the purposes of her business, or alternatively to serve both purposes of her business and her own private purposes. The inference drawn by the com missioners and the determination reached by them ‑are contained in the second part of para. 9 of their Written decision, which reads as follows ((1981) S T C 391 at 395):
"We consider, in the present case, that when (the tax‑payer) laid out money on clothes for wearing in Court her purpose in making that expenditure was to enable her to earn profits in her profession and also to enable her to be properly clothed during the time she was on her way to chambers or to Court and while she was thereafter engaged in her professional activity, and in the other circumstances indi cated in para. 2. We do not consider that the fact that her sole motive in choosing the particular clothes was to satisfy the requirements of her profession or that if she had been free to do so she would have worn clothes of a different style on such occasions altered the purpose of the expenditure which remained the purpose of purchasing clothes that would keep her warm and clad during the part of the day when she was pursuing her career as well as the purpose of helping her to earn profits in that career. We think therefore, that the expenditure had a dual purpose, one professional and one non‑professional---
The commissioners accordingly concluded‑ that the tax‑payer had two objects in making the expenditure, to serve the purposes of her business, and to serve her own purposes by enabling her properly to be clothed. Since there is no appeal from the commissioners on a question of fact, the only question before your Lordships is whether the findings of primary fact were such as to entitle them to draw, that inference.
It is, I think clear that Slade, J. was, to use…
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