Brumby (Inspector of Taxes) v Milner [1976] UKHL 7 (27 October 1976)

BRUMBY (INSPECTOR OF TAXES)
(RESPONDENT)

MILNER (APPELLANT)

Lord Wilberforce
Lord Diplock
Lord Simon of Glaisdale
Lord Kilbrandon
Lord Edmund-Davies

Lord Wilberforce

My Lords,

In 1963 William Park & Co. Forgemasters Ltd. decided to set up a profit-
sharing scheme for the benefit of its employees. A sum of £700,000 was
provided on loan to Trustees, who were to use it to purchase shares in the
Company to be held upon the Trusts of the scheme. These trusts were
declared in a deed dated 25 September, 1963. Dividends on the shares were
to be used either to pay off the loan or to make payments to employees of
the Company and the scheme was so operated. Some £111,000 was applied
in repayment of the debt, and £108,000 was distributed to employees, who
individually received sums from £9-£14 a year after deduction of tax

Then in 1969 a change took place. The Company became a subsidiary
of a holding company which also controlled an allied undertaking, and the
directors had to decide what to do with the scheme. They decided that it
was impracticable to continue it, and so they used the power, which they
had under the Trust Deed, to terminate the scheme by one year’s notice.
The Trustees, then, realised the Trust assets, paid off the balance of the debt
and, in accordance with the clause in the Trust Deed which provided for
this situation, they decided to distribute the balance in proportions fixed by
them between 1,802 employees and 49 pensioners. Mr. Milner, the appellant,
was one of the employees and he became entitled to £200. When the
Revenue heard about this they decided to assess him to income tax under
Schedule E.

The test under Schedule E, now set out in sections 181(1) and 183(1) of
the Income and Corporation Taxes Act 1970 is whether the sum in question
is an emolument from the taxpayer’s employment. ” Emoluments ” include
any perquisite or profit. The only question in this, and in the many similar
cases which come before the courts relating to such payments as cricketers’
or footballers’ benefits or for Easter offerings, or housing subsidies, is whether
the emolument can be said to arise ” from ” the employment or office. In
some instances, as the decisions show, this is not an easy question to answer:
here it is plain.

The taxability of the annual distributions under the scheme is not an issue
in this appeal but nobody has suggested, or could suggest that these were
not taxable. The only question is whether any ground could be found for
distinguishing the capital payments made on the winding up of the scheme.
In my opinion, with all respect to the efforts of learned counsel for the
taxpayer, there is no ground for any such distinction. I shall not attempt to
demonstrate this by detailed analysis of the Trust Deed, or by reference to
such authorities as may, possibly, be relevant, since this has been done to
my complete satisfaction by the Court of Appeal, affirming Walton J. To
restate the argument in words of my own, even if this were to result in a
difference of formulation, would not be productive of advantage, and I am
more than content fully to adopt the single judgment of the Court of Appeal
delivered by Lord Russell of Killowen.

The appeal can only be dismissed.

Lord Diplock

My Lords,
I agree.

Lord Simon of Glaisdale

My Lords,

The issue in this appeal has, in my respectful opinion, been satisfactorily
disposed of in the unanimous judgment of the Court of Appeal delivered
by my noble and learned friend, Lord Russell of Killowen. There is, indeed,
little that can be added.

As the argument developed before your Lordships, there appeared to be
some danger that the task of interpretation should be focused, not on the
words of the statute, but on various judicial glosses of those words. What
Lord Radcliffe said in Hochstrasser (Inspector of Taxes) v. Mayes [1960]
A.C. 376, 391, is therefore in point:

” In the past several explanations have been offered by judges of
” eminence as to the significance of the word ‘ from ‘ in this context. It
” has been said that the payment must have been made to the employee
” ‘ as such ‘. It has been said that it must have been made to him ‘ in
” ‘ his capacity of employee ‘. It has been said that it is assessable if
” paid ‘ by way of remuneration for his services ‘, and said further that
” this is what is meant by payment to him ‘ as such ‘. These are all
” glosses, and they are all of value as illustrating the idea which is
” expressed by the words of the statute. But it is perhaps worth observ-
” ing that they do not displace those words.”

Lord Radcliffe did not include among the glosses which he thus reviewed
a distinction between ” causa causans “ and ” causa sine qua non “ ; though
this distinction has had some eminent users in this context, and the concept
was strongly pressed on your Lordships on behalf of the appellant. It was
said that the causa causans of the payment was the decision to wind up the
scheme: the appellant’s employment was no more than its causa sine qua
non. The distinction between a ” causa causans “ and a ” causa sine qua
“ non “ was formerly much used in other branches of the law ; but it was
found to confuse rather than to illuminate (see Lord Wright in Smith, Hogg &
Co. Ltd. v. Black Sea and Baltic General Insurance Co. Ltd. [1940] A.C. 997,
1003, cited by Megarry J. in Pritchard (Inspector of Taxes) v, Arundale
[1972] Ch.D. 229, 237, 238) and it has been generally abandoned. Causation
has been debated by meta-physicians and logicians throughout the recorded
history of philosophy: the debate continues, with more sophisticated tools of
analysis than the terms ” causa causans “ and ” causa sine qua non “. These
will rarely if ever assist the law, where they have frequently been used
without definition or analysis. On the face of it “causa causans” is a
tautology. ” Causa
“ sine qua non “ seems to have been used in two senses: first, to denote a
matter which has had no effect on the situation before the court, but has
merely provided a setting for a matter which has had such an effect; and,
secondly, to denote a matter which has had some effect, but which, other
matters having had a more potent effect, it is the policy of the law to
disregard. In my respectful submission these terms are of little assistance
in solving the problem before your Lordships. But even were I to think
that the issue before your Lordships could be determined by outmoded and
ambiguous concepts of causation couched in Latin, I would not, with all
respect, be prepared to accept the appellant’s categorisation.

A far less question-begging test was suggested by Lord Radcliffe in
Hochstrasser (Inspector of Taxes) v. Mayes and by Lord Reid in Laidler v.
Perry (Inspector of Taxes) [1966] AC 16. The former case was concerned
with a large employer, many of whose employees (including the taxpayer)

were required by their service agreements to be prepared to move to new
work locations. Their moves might well involve the sale of their houses at a
loss. The employer undertook to make good any such loss. The question
was whether such compensatory payment was taxable under Schedule E.
Lord Radcliffe said (p. 392):

” The essential point is that what was paid to [the taxpayer] was paid
” to him in respect of his personal situation as a house-owner . . . “

If the payment to the appellant was not made to him in respect of his
personal situation as an employee, in what respect was it paid to him?
This question was not answered.

Lord Reid adopted a complementary approach in Laidler v. Perry at
p. 30 B/C:

“… we must always return to the words in the statute and answer
” the question—did this profit arise from the employment? The answer
” will be ‘ no ‘ if it arose from something else “.

It was conceded that payments to the instant taxpayer from the income of
the Trust Fund arose relevantly from the appellant’s employment. From
what else did the capital payment arise?

I would dismiss the appeal.

Lord Kilbrandon

My Lords,

In my opinion the disposing of this appeal does not call for yet another
attempt to substitute some exegetical phrase for the simple words of sec.
181(1), namely, emoluments from any office or employment. I prefer to
adopt the approach taken by Lord Reid in Laidler v. Perry (Inspector of
Taxes) [1966] AC 16 at p. 30:

” There is a wealth of authority on this matter and various glosses on
” or paraphrases of the words in the Act appear in judicial opinions,
” including speeches in this House. No doubt they were helpful in the
” circumstances of the cases in which they were used, but in the end
” we must always return to the words in the statute and answer the
” question—did this profit arise from the employment? The answer will
” be ‘ no ‘ if it arose from something else.”

Taking that approach, I find myself in entire agreement with the conclusion
arrived at by the Court of Appeal, and there is little more that need be said.

It is conceded that the income payments made from the trust fund to
employees arose from their several employments and were properly taxable in
their hands. It was therefore necessary for the appellant to show that, by
contrast, the payment out of capital, to use Lord Reid’s words, ” arose from
” something else “. It was submitted that the payment arose not from the
appellant’s employment but from the company’s reluctant decision to wind
up the profit-sharing scheme. I cannot agree with that. Certainly the money
forming the payment became available in consequence of certain events and
decisions connected with the structure of the company. But the sole reason
for making the payment to the appellant was that he was an employee, and
the payment arose from his employment. It arose from nothing else, as it
would have done if, for example, it had been made to an employee for some
compassionate reason. In such a case, as Lord Reid pointed out in Laidler
v Perry (supra) at pp. 31 to 32, ” the gift is not made merely because the
” donee is an employee “. There would be another reason personal to the
recipient, namely his distress. There is no such other reason here.