N o. 973— H ig h C o u r t of J u s t ic e (K in g ’s B e n c h D iv isio n )—
1 3 th an d 1 4 th D ecem b er, 1934
C o u r t of A p p e a l— 2n d a n d 3rd J u ly , 1935
E d w a r d s (H.M. I n s p e c to r o f T a x e s) v. R o b e r ts
Income Tax, Schedule E—Emoluments of office—Date of accrual—
Beneficial interest in trust fund created by employers.
The Respondent was employed by a company under a service
agreement dated August, 1921, which provided, inter alia, that, in
addition to an annual salary, he should have an interest in a
“ conditional fund ”, which was to be created by the company
by the payment after the end of each financial year of a sum out of its
profits to the trustees of the fund to be invested by them in the purchase
of the company’s shares or debenture stock. Subject to possible forfeiture of his interest in certain events, the Respondent was entitled (i)
to receive the income produced by the fund at the expiration of each
financial year, and (ii) to receive part of the capital of the fund (or, at
the trustees’ option, the investments representing the same) at the
expiration of five financial years and of each succeeding year, and, on
death while in the company’s service or on the termination of his
employment by the company, to receive the whole amount then standing
to the credit of the capital account of the fund (or the actual investments).
The Respondent, with the company’s consent, resigned from its
service in September, 1927, and at that date the trustees of the fund
transferred to him the shares which they had purchased out of the payments made to them by the company in the years 1922 to 1927. He was
assessed to Income Tax under Schedule E for 1927-28 on the amount
of the current market value of the shares at the date of transfer. He
appealed, contending (1) that, notwithstanding the liability to forfeiture
of his interest in certain events, immediately a sum was paid by the
company to the trustees of the fund he became invested with a beneficial
interest in the payment which formed part of his emoluments for the
year in which it was made, and for no other year, and that, accordingly,
the amount of the assessment for the year 1927-28 should not exceed
the amount paid into the fund during the year of assessment, and (2),
alternatively, that the assessment for 1927-28 ought not, in any event, to
exceed the aggregate of the sums paid by the company to the trustees,
the difference between that amount and the value of the investments at
the date of transfer representing a capital appreciation not liable to tax
for any year.
P art IX ] R oberts 619
Held, (1) that the Respondent did not obtain a vested interest in the
yearly payments made to the trustees at the dates when they were
respectively made, and (2) that the value of the investments at the date
of transfer to the Respondent by the trustees constituted additional
remuneration of the year in which the transfer took place.
Smyth v. Stretton, 5 T.C. 36, distinguished.
C ase
Stated under the Income Tax Act, 1918, Section 149, by the
Commissioners for the ‘Special Purposes of the Income Tax Acts
for the opinion of the King’s Bench Division of the High Court
of Justice.
1. At a meeting of the Commissioners for the Special Purposes
of the Income Tax Acts held on the 11th January, 1934, J. H.
Roberts (hereinafter called the Respondent) appealed against an
additional assessment to Income Tax in the sum of £1,639 for the
year ended 5th April, 1928, made u]5on him under Schedule E of
the Income Tax Acts in respect of his interest in a “ Conditional
“ Fund ” created by his employers.
2. The Eespondent was at all material times an employee of
Henley’s Telegraph Works, Limited, (hereinafter called the Company) serving in the capacity of an accountant under the terms of
an agreement with the Company dated the 26th day of August,
1921. (A copy of this agreement, marked “ A” , is attached to and
forms part of this Case.)
3. For the purposes of this Case the material Clauses of the
agreement are those numbered 5, 6, 7, 8, 10 and 11 which are set
out below.
“ 5. The Company shall during the continuance of this
“ Agreement pay to the Employee a salary at the rate of
“ £425 Os. 0d. per annum (or at such other rate as may from
“ time to time be agreed between the Company and the
“ Employee) by equal monthly instalments on the last day of
“ each calendar month and as an additional inducement to the
‘ ‘ Employee more effectively to perform his duties and assist in
“ promoting and advancing the interests of the Company the
“ Company will also create the Conditional Fund hereinafter
“ mentioned and the Employee shall, subject to the conditions
“ hereinafter set forth, be interested in the said Fund as after
“ mentioned.
“ 6. The Company will within one calendar month of the
“ final settlement and audit of the Company’s accounts after the
“ expiration of each financial year of the Company create the
“ Conditional Fund by setting aside out of the net profits of the
“ Company and paying to two Trustees who shall be from time
“ to time appointed by Resolution of the Board of the Company
4 ‘ (and any Director or Directors of the Company may be such
620 E d w a b d s (H.M. I n s p e c to r o f T a x e s) v . [V o l. XIX
‘ Trustee or Trustees) a sum equal to one shilling and sixpence
‘ per One hundred pounds on the gross amount which shall be
‘ divided amongst the holders of the Preference and Ordinary
‘ Shares of the Company as dividend or bonus upon their shares
‘ in respect of such financial year and also upon any sum which
‘ shall be transferred from the Profit and Loss Account of
‘ such year to General Reserve Account Provided that in the
‘ event of any portion of such Reserve Account being in any
‘ subsequent year re-transferred to Profit and Loss Account the
‘ percentage to be carried to the Conditional Fund in such
‘ subsequent year shall be reduced by the percentage upon the
‘ amount so re-transferred For the purpose of this Agreement
‘ the decision of the Auditors of the Company as to the amount
‘ to be so paid to the Trustees of the said Conditional Fund
‘ in any year shall be final and conclusive and binding upon
‘ both parties to these presents.
“ 7. All sums so paid over to the Trustees as aforesaid shall
‘ be invested by them in the purchase of Ordinary or
‘ Preference Shares or Debenture Stock of the Company.
“ 8. The Employee shall, subject to the conditions herein-
‘ after contained, be interested in the Conditional Fund in the
‘ manner and to the extent following but not further or
‘ otherwise viz. :—
“ (A) The Employee shall at the expiration of each com-
‘ ‘ plete financial year of the Company expiring after the date
“ of this Agreement be entitled to receive the income from
“ time to time produced during such financial year by the
“ said -Conditional Fund as and when the same is received
“ by the Trustees.
‘ ‘ (B) The Employee shall at the expiration of five of such
“ complete financial years after the date of this Agreement
“ and at the expiration of each such complete subsequent
‘ ‘ financial year be entitled to receive such part of the capital
“ of the said Conditional Fund (or at the option of the
“ Trustees the actual investments then representing the
“ same) as shall at the expiration of each such period have
“ been in the hands of the Trustees for the full period of five
“ years from the date when the same was paid over to them.
“ (C) In the event of the death of the Employee while
‘ ‘ still in the service of the Company his legal personal repre-
“ sentatives shall be entitled to receive within six calendar
“ months from the date of such death the amount then
“ standing to the credit of the Capital Account of the
“ Conditional Fund or at the option of the Trustees to the
“ actual investments then representing the same and also to
“ any portion of the income arising therefrom during the life-
“ time of the Employee which shall not have previously been
“ paid over to him.
P a s t IX] R oberts 621
“ (D) If the employment of the Employee shall be
“ terminated by the Company pursuant to the provisions of
“ Clause 9 hereof he shall have the same rights as his legal
“ personal representatives would have had under Sub-
“ clause (C) of this Clause if he had died at the date of the
“ expiration of the notice mentioned in Clause 9 hereof.
“ (E) For the purposes of the events provided for by
“ Sub-clauses (C) and (D) of this Clause an apportionment
“ shall also be made at the end of the then current financial
“ year of the amount to be carried to the Conditional Fund
“ for such current financial year and the apportioned amount
“ when ascertained as aforesaid shall be carried to the said
“ Conditional Fund as if the same had accrued and been
‘ ‘ carried to the said fund de die in diem during such year and
“ shall be paid over to the Employee or his legal personal
“ representatives at the expiration of six calendar months
“ from the end of such financial year.
“ 10. The Employee shall absolutely cease to have any
“ further right claim or interest to or in the said Conditional
“ Fund or the investments thereof or the income which has
“ then arisen or may arise therefrom in any of the events
“ following viz. :—
“ (A) If the Employee shall be dismissed by the Company
“ for misconduct or shall cease to be in the employment erf
“ the Company in his present or a higher position for any
“ reason except as mentioned in Clause 9 hereof.
‘ ‘ (B) If the Employee shall assign or create or purport to
“ or attempt to create any mortgage or charge upon his
“ said salarv or upon his interest in the said Conditional
“ Fund.
“ (C) If the Employee shall either by operation of Law
“ or as the consequence of any act matter or thing done or
“ suffered by him cease to be beneficially entitled either in
“ whole or in part to the personal receipt and enjoyment of
“ his said salary or of his interest in the Conditional Fund
“ or any income arising therefrom.
“ 11. Subject to the interest of the Employee therein the
“ Trustees shall hold the Conditional Fund upon trust for the
“ Company.”
4. Under the provisions of the said agreement the following
payments were made by the Company to the Trustees of the
Conditional Fund on account of the Respondent.
Date of payment to the Trustees. Amount.
22nd April, 1922
12th March, 1923
10th March, 1924
5th June, 1925
25th June,. 1926
1st July, 1927…
£95 12 10
99 0 9
98 14
252 10
282 12
331 14
622 E d w a b d s (H.M. I n s p e c to r o f T a x e s) v. [V o l. X I X
5. The payments so made by the Company were applied by
the Trustees of the said Fund in the purchase of the following
Ordinary Shares in the Company on the dates and at the prices
mentioned below.
No. of Shares. Date of Purchase. Purchase Price.
44 3rd May, 1922 … £95 12 10
42 16th March, 1923 99 0 9
40 20th March, 1924 98 14 8
79 12th June, 1925… 252 10 0
72 2nd July, 1926 … 282 12 3
70 1st July, 1927 … 331 14 2
£1,160 4 8
6. The Respondent with the consent of the Company resigned
from the service of the Company in September, 1927, and at that
date the Trustees handed over to him the actual investments that
had been made by them as set out in Clause 5 of this Case. The
current market value of these investments at that date was £1,640.
7. Specimen correspondence between the Trustees of the
Conditional Fund and the Respondent was exhibited to us as showing the nature of the communications between these parties in
connection with the payment to the Respondent of dividends upon
the shares purchased by the Trustees on account of the Respondent
and also in connection with the yearly purchase of shares by the
application of the payments made to the Trustees by the Company.
(Thiscopy correspondence, marked “ B ” and “ C ” , is attached to
and forms part of this CaseO.)
8. On behalf of the Respondent it was contended :—
(a) That immediately upon the making of a payment by the
Company to the Trustees of the Conditional Fund in
accordance with the provisions of Clause 6 of the agreement of the 26th August, 1921, the Respondent became
invested with a beneficial interest in such payment,
notwithstanding that upon the happening of any one of
certain events specified in Clause 10 of the said agreement such beneficial interest would have become liable
to forfeiture.
(b) That all payments made by the Company to the Trustees
of the Conditional Fund in accordance with the
provisions of the said agreement formed a part of the
emoluments of the Respondent for the years in which
such payments were respectively made to the Trustees
and not for any other year or years; and accordingly
(c) That the additional assessment upon the Respondent for the
year 1927-28 ought not to exceed the sum of £332, that
being the amount of the only payment made by the
(‘) N ot included in th e present p rin t.
P a b t IX] R oberts 623
Company to the Trustees in accordance with the provisions of the said agreement during the year ended the
5th April, 1928; and, in the alternative and without
prejudice to the foregoing,
(d) That the amount by which the capital value of the investments as at the date on which the same were transferred
by the Trustees to the Respondent, namely, £1,640,
exceeded the aggregate of the sums paid by the Company to the Trustees, namely £1,160, represented a
capital appreciation and formed no part of the emoluments of the Respondent for 1927-28 or any other year;
and accordingly that the said additional assessment ought
not in any event to exceed the sum of £1,160.
9. On behalf of H.M . Inspector it was contended :—
(a) That the Respondent did not acquire a vested interest in
the investments until the conditions in Clause 10 of the
agreement had been satisfied, and the shares transferred
to him by the Trustees.
(b) That the payments made yearly to the Trustees for the
ultimate benefit of the Respondent did not represent
income to the Respondent in those years, his interest
being contingent upon the fulfilment of the conditions in
Clause 10 of the agreement.
(c) That the value of the investments at the date of transfer to
the Respondent by the Trustees represented additional
remuneration given to him by the Company because he
had fulfilled the stipulated conditions.
(d) That the assessment as made was correct and should be
confirmed.
10. We, the Commissioners who heard the appeal, were of
opinion that, in view of the decision in Sm yth v. Stretton, 5 T.C. 36,
and particularly the decision in respect of the moiety of the sum
there in dispute which was only conditionally receivable, we must
hold that the sums paid by the Company to the Trustees for the
benefit of the Respondent formed part of the Respondent’s emoluments as and when they were paid over to the Trustees year by year
and were assessable to Income Tax at that time, and we reduced the
additional assessment to the sum of £332, being the amount so paid
over in the year of assessment.
11. The Appellant immediately after the determination of the
appeal declared to us his dissatisfaction therewith as being
erroneous in point of law and in due course required us to state a
624 E d w a r d s (H.M. I n s p e c to r o f T a x e s) v . [V o l. X I X
Case for the opinion of the High Court pursuant to the Income Tax
Act, 1918, Section 149, which Case we have stated and do sign
accordingly.
This Agreement made the 26th day of August 1921 between
W. T. Henley’s Telegraph Works Company, Limited, (hereinafter
referred to as “ the Company ” ) of the one part and John Hamilton
Roberts, of 46, Glinparke Eoad, Forest Gate, London, E. (hereinafter referred to as “ the Employee ” ) of the other part Whereas
the Employee is now in the employ of the Company as Accountant
at a salary of £425 Os. 0d. per annum payable monthly and Whereas
the Company is desirous that the Employee should be interested in
the success and prosperity of the Company and for that purpose has
determined to give to him a conditional interest in the profits as
hereinafter defined.
Now it is hereby agreed by and between the parties hereto as
follows :—
1. The Employee shall continue! to well and faithfully serve the
Company as Accountant or in such other capacity as may from time
to time be agreed between the Company and the Employee.
2. The Employee shall devote the whole of his time and attention to the duties of his office and shall use his best endeavours to
promote the interests of the Company in all things and he shall not
in any way during the period of his employment either in or out
of office hours carry on or be engaged or interested either directly or
indirectly in any other business whatsoever.
3. The Employee shall in the performance of his duties obey all
such instructions as shall from time to time be given to him by the
Managing Director or the Secretary of the Company as the
representative of the Board of Directors.
4. The Employee shall faithfully keep all secrets of the business
of the Company with which he may become acquainted in the
course of his employment and shall not divulge or make use of them
for any purpose whatsoever outside the business of the Company.
5. The Company shall during the continuance of this Agreement
pay to the Employee a salary at the rate of £425 Os. 0d. per annum
(or at such other rate as may from time to time be agreed between
the Company and the Employee) by equal monthly instalments on
P. W illia m so n , \Commissioners for the Special
M ark S tu r g is , J Purposes of the Income Tax Acts.
York House,
23, Kingsway,
London, W.C.2.
26th June, 1934.
E x h ib it A
P a k t IX] R oberts 625
the last day of each calendar month and as an additional inducement to the Employee more effectively to perform his duties and
assist in promoting and advancing the interests of the Company the
Company will also create the Conditional Fund hereinafter
mentioned and the Employee shall, subject to the conditions hereinafter set forth, be interested in the said Fund as after mentioned.
6. The Company will within one calendar month of the final
settlement and audit of the Company’s accounts after the expiration
of each financial year of the Company create the Conditional Fund
by setting aside out of the net profits of the Company and paying
to two Trustees who shall be from time to time appointed by
Resolution of the Board of the Company (and any Director or
Directors of the Company may be such Trustee or Trustees) a sum
equal to one shilling and sixpence per One hundred pounds on the
gross amount which shall be divided amongst the holders of the
Preference and Ordinary Shares of the Company as dividend or
bonus upon their shares in respect of such financial year and also
upon any sum which shall be transferred from the Profit and Loss
Account of such year to General Reserve Account Provided that in
the event of any portion of such Reserve Account being in any
subsequent year re-transferred to Profit and Loss Account the percentage to be carried to the Conditional Fund in such subsequent
year shall be reduced by the percentage upon the amount so
re-transferred For the purpose of this Agreement the decision of
the Auditors of the Company as to the amount to be so paid to the
Trustees of the said Conditional Fund in any year shall be final
and conclusive and binding upon both parties to these presents.
7. All sums so paid over to the Trustees as aforesaid shall be
invested by them in the purchase of Ordinary or Preference Shares
or Debenture Stock of the Company.
8. The Employee shall, subject to the conditions hereinafter
contained, be interested in the Conditional Fund in the manner and
to the extent following but not further or otherwise viz. :—
(A) The Employee shall at the expiration of each complete
financial year of the Company expiring after the date of this
Agreement be entitled to receive the income from time to time
produced during such financial year by the said Conditional
Fund as and when the same is received by the Trustees.
(B) The Employee shall at the expiration of five of such
complete financial years after the date of this Agreement and
at the expiration of each such complete subsequent financial
year be entitled to receive such part of the capital of the said
Conditional Fund (or at the option of the Trustees the actual
investments then representing the same) as shall at the
expiration of each such period have been in the hands of the
Trustees for the full period of five years from the date when
the same was paid over to them.
626 E d w a r d s (H.M. I n s p e c to r o f T a x e s) v . [V o l. X I X
(C) In the event of the death of the Employee while still
in the service of the Company his legal personal representatives
shall be entitled to receive within six calendar months from
the date of such death the amount then standing to the credit
of the Capital Account of the Conditional Fund or at the
option of the Trustees to the actual investments then representing the same and also to any portion of the income arising
therefrom during the lifetime of the Employee which shall not
have previously been paid over to him.
(D) If the employment of the Employee shall be terminated
by the Company pursuant to the provisions of Clause 9 hereof
he shall have the same rights as his legal personal representatives would have had under Sub-clause (C) of this Clause if he
had died at the date of the expiration of the notice mentioned
in Clause 9 hereof.
(E) For the purposes of the events provided for by Subclauses (C) and (D) of this,Clause an apportionment shall also
be made at the end of the then current financial year of the
amount to be carried to the Conditional Fund for such current
financial year and the apportioned amount when ascertained as
aforesaid shall be carried to the said Conditional Fund as if the
same had accrued and been carried to the said Fund de die in
diem during such year and shall be paid over to the Employee
or his legal personal representatives at the expiration of six
calendar months from the end of such finacial year.
9. If the Employee shall become for a period of three calendar
months incapable of properly performing his duties through illhealth or any other cause or if the Board shall come to the
conclusion that it is in the interest of the Company desirable to
terminate his employment the Company may in any such case
determine his employment by one month’s notice in writing.
10. The Employee shall absolutely cease to have any further
right claim or interest to or in the said Conditional Fund or the
investments thereof or the income which has then arisen or may
arise therefrom in any of the events following viz. :—
(A) If the Employee shall be dismissed by the Company for
misconduct or shall cease to be in the employment of the
Company in his present or a higher position for any reason
except as mentioned in Clause 9 hereof.
(B) If the Employee shall assign or create or purport to or
attempt to create any mortgage or charge upon his said salary
or upon his interest in the said Conditional Fund.
(C) If the Employee shall either by operation of Law or as
the consequence of any act matter or thing done or suffered by
him cease to be beneficially entitled either in whole or in part
to the personal receipt and enjoyment of his said salary or of his
interest in the Conditional Fund or any income arising
therefrom.
P a r t IX] R oberts 627
11. Subject to the interest of the Employee therein the Trustees
shall hold the Conditional Fund upon trust for the Company.
12. No Trustee shall in any case be liable for any loss arising in
respect of the said Conditional Fund or any investments thereof
unless the same shall have arisen from his own personal malversation
thereof.
13. In case any difference shall arise between the Employee and
the Company under these presents the same shall be referred to the
Auditors of the Company or the senior partner of any firm who may
be the Auditors of the Company for the time being as sole arbitrator
and his decision shall be final and these presents shall be deemed
to be a submission to arbitration within the meaning of the
Arbitration Act, 1889.
In Witness whereof these presents have been signed on behalf
of the Company by George Sutton the Managing Director thereof
being thereunto duly authorised by Resolution of the Board and by
the said Employee the day and year first above written.
Signed by the said George Sutton
in the presence of : (Signed) G. S u tto n .
H. M. Jacob,
13/14, Blomfield Street,
London, E.C.
Clerk.
Signed by the said Employee in
the presence o f : (Signed ) J . H . R o b e r ts.
B. C. Wilkins,
11, Hallswelle Road,
Golders Green, N .W .ll.
Clerk.
The case came before Singleton, J., in the King’s Bench
Division on the 13th and 14th December, 1934, and on the latter
date judgment was given against the Crown, with costs.
The Attorney-General (Sir Thomas Inskip, K.C.) and Mr.
Reginald P. Hills appeared as Counsel for the Crown and Mr. F.
Hey worth Talbot for the Respondent.
J udgm ent
Singleton, J.—This is not an easy case, and I remember Mr.
Justice Channell said the same with regard to an earlier case on a
somewhat similar subject, which case has been cited to me(1). The
appeal arises in this way. It is sought to levy an additional assessment in the sum of £1,639 for the year ended 5th April, 1928, under
(*) Smyth v. Stretton, 5 T.C.36.
628 E d w a r d s (H.M. I n s p e c to r o f T a x e s) v. [V o l. XIX
(Singleton, J.)
Schedule E of the Income Tax Act, 1918, in respect of the Respondent’s interest in a Conditional Fund created by his employers.
The Respondent, Mr. Roberts, was at all material time3 an employee
of Henley’s Telegraph Works, Limited, serving in the capacity of an
accountant under the terms of an agreement with the Company
which is dated the 26th August, 1921, and to which I have been
referred in some little detail. That agreement which provided for
the service of the Respondent began with two recitals, the first in
these terms : “ Whereas the Employee is now in the employ of the
“ Company as Accountant at a salary of £425 Os. 0d. per annum
“ payable monthly.” The second recital i s : “ Whereas the
“ Company is desirous th a t the Employee should be interested in
“ the success and prosperity of the Company and for that purpose
“ has determined to give to him a conditional interest in the profits
“ as hereinafter defined.” The agreement contains certain provisions
and I go directly to Clause 5 : “ The Company shall during the
“ continuance of this Agreement pay to the Employee a salary at
“ the rate of £425 Os. 0d. per annum (or at such other rate as may
“ from time to time be agreed between the Company and the
“ Employee) by equal monthly instalments on the last day of each
“ calendar month and as an additional inducement to the Employee
“ more effectively to perform his duties and assist in promoting and
“ advancing the interests of the Company the Company will also
“ create the Conditional Fund hereinafter mentioned and the
“ Employee shall, subject to the conditions hereinafter set forth, be
“ interested in the said Fund as after mentioned.”
Then Clause 6 of the agreement provides how the Conditional
Fund is to be established in these terms : “ The Company will
“ within one calendar month of the final settlement and audit of the
“ Company’s accounts after the expiration of each financial year of
“ the Company create the Conditional Fund by setting aside out
“ of the net profits of the Company and paying to two Trustees who
“ shall be from time to time appointed by Resolution of the Board
“ of the Company (and any Director or Directors of the Company
“ may be such Trustee or Trustees) a sum equal to one shilling and
“ sixpence per One hundred pounds on the gross amount which shall
“ be divided amongst the holders of the Preference and Ordinary
“ Shares of the Company as dividend or bonus upon their shares in
“ respect of such financial year.” Then follows a provision as to
transferring likewise a sum in respect of a transfer to the Reserve
Fund of the Company on which nothing arises, I am told, although
I thought at one time something might arise on it.
Clause 7 of the agreement provides t h a t : “ All sums so paid over
“ to the Trustees as aforesaid shall be invested by them in the
“ purchase of Ordinary or Preference Shares or Debenture Stock of
“ the Company.”
P art IX ] R oberts 629
(Singleton, J.)
Clause 8 provides: “ The Employee shall, subject to the
“ conditions hereinafter contained, be interested in the Conditional
“ Fund in the manner and to the extent following but not further or
“ otherwise viz.:—(A) The Employee shall at the expiration of each
“ complete financial year of the Company expiring after the date of
“ this Agreement be entitled to receive the income from time to time
“ produced during such financial year by the said Conditional Fund
“ as and when the same is received by the Trustees. (B) The
“ Employee shall at the expiration of five of such complete financial
“ years after the date of this Agreement and at the expiration of
“ each such complete subsequent financial year be entitled to receive
“ such part of the’ capital of the said Conditional Fund (or at the
“ option of the Trustees the actual investments then representing
“ the same) as shall at the expiration of each such period have been
“ in the hands of the Trustees for the full period of five years from
“ the date when the same was paid over to them. (C) In the event
“ of the death of the Employee while still in the service of the
“ Company his legal personal representatives shall be entitled to
“ receive within six calendar months from the date of such death the
“ amount then standing to the credit of the Capital Account of the
“ Conditional Fund or at the option of the Trustees to the actual
“ investments then representing the same and also to any portion
“ of the income arising therefrom during the lifetime of the Employee
“ which shall not have previously been paid over to him.” Then
I need not read (D) and (E) of Clause 8.
Clause 9 is : “ If the Employee shall become for a period of
“ three calendar months incapable of properly performing his duties
•“ through ill-health or any other cause or if the Board shall come to
“ the conclusion that it is in the interest of the Company desirable
“ to terminate his employment the Company may in any such case
“ determine his employment by one month’s notice in writing.”
Clause 10 reads : “ The Employee shall absolutely cease to have any
“ further right claim or interest to or in the said Conditional Fund or
“ the investments thereof or the income which has then arisen or
“ may arise therefrom in any of the events following viz. :—(A) If the
“ Employee shall be dismissed by the Company for misconduct or
“ shall cease to be in the employment of the Company in his present
“ o ra higher position for any reason except as mentioned in Clause 9
“ hereof. (B) If the Employee shall assign or create or purport to
“ or attempt to create any mortgage or charge upon his said salary
“ or upon his interest in the said Conditional Fund.” (C) I need not
read. Clause 11 is : “ Subject to the interest of the Employee
“ therein the Trustees shall hold the Conditional Fund upon trust
“ for the Company.”
In the years 1922 to 1927 certain payments (which are set out in
the Case) were made by the Company to the trustees of the Conditional Fund on account of the Respondent. The sums so set aside,
630 E d w a r d s (H.M. I n s p e c to r o f T a x e s) v . [V o l. X I X
(Singleton, J.)
speaking generally, were applied forthwith in the purchase of
Ordinary Shares in the Company. The total of the sums so set aside
between the years 1922 and 1927 and invested in the purchase of
shares was £1,160 4s. 8d. The Respondent resigned from the
service of the Company in September, 1927, with the consent of the
Company, and at that date the trustees handed over to him the
actual investments that had been made by them to which I have
already referred. The current market value of those investments a t
the date when they were handed over was the sum of £1,640. It is
not very clear how the Respondent came to resign, and it might
have been an advantage if we had had further facts on th at m atter r
but he was handed securities representing that which would have
been the amount of the “ Conditional Fund ” set aside for him under
the agreement. I t was pointed out by Mr. Hills to me that under
the strict reading of Clause 10 (A), coupled with Clause 9, if he
resigned from the service of the Company his interest in the fund
would cease absolutely. I suppose—I do not know—that if he desired
to resign, the Company could have given him notice under Clause 9
of the agreement and thus his interest in the fund would have been
preserved.
The Crown seeks to assess the Respondent in respect of the sum
of £1,639 or £1,640, the value of the securities handed over to him
in September of 1927. If I had come to the conclusion that the
contention of the Crown was right, a further question might have
arisen as to whether or not the true figure ought to be the value of
the securities at the date they were handed over, or ought to be the
total of the amounts credited year by year. Such question does not
arise having regard to the conclusion to which I have come in this case.
One of the contentions of the Respondent was “ that immediately
“ upon the making of a payment by the Company to the Trustees of
“ the Conditional Fund in accordance with the provisions of Clause 6
“ of the agreement of the 26th August, 1921, the Respondent
“ became invested with a beneficial interest in such payment, not-
“ withstanding that upon the happening of any one of certain
“ events specified in Clause 10 of the said agreement such beneficial
“ interest would have become liable to forfeiture ” . The other
contentions are set out. I need not refer to them.
I t is common ground that the sums which were paid to or set
aside for the Respondent constitute emoluments of his office. The
question Mr. Hills puts before me is : what is the date on which
those emoluments accrued ? Each year a sum was set aside, the sums
totalling the figure which I have given of a little over £1,100. I
should have been in considerable difficulty in this case if I had not
had before me the decision of Mr. Justice Channell in Smyth v.
Stretton, 5 T.C.36. In that case “ A sum of £35 was placed to the
“ credit of the respondent by the Governors of Dulwich College
“ under the Provident Scheme for the Assistant Masters of the
P art IX ] R oberts . 631
{Singleton, J.)
College. Of this sum no part is payable until the respondent
“ leaves the College or until his decease ; he cannot raise money on
“ i t ; and as regards one moiety payment is contingent on a certain
“ length of service and on good conduct.” I t was held by Mr.
Justice Channell “ that the whole sum is a taxable addition to the
“ respondent’s salary
When one looks at the facts of that case one finds set out under
the Scheme for the establishment of a Provident Fund for the
benefit of the assistant masters on the permanent staff of the Dulwich
College pursuant to the Resolution of the Board dated 25th April,
1899, that certain provisions are made for assistant masters and it
is true, as Mr. Hills points out, and as is pointed out in the judgment
of Mr. Justice Channell, that the matters therein dealt with are
described as “ increase of salaries ” . The second moiety referred to
in the case is under 1 (c) of the Scheme : “ A further addition, equal
“ in amount to the above sums, shall be granted from the same date
“ to the Assistant Masters alluded to in {a) and (b), such addition
“ being, however, subject to the conditions provided by Paragraph
“ 5.” Paragraph 5 was in this form : “ That Assistant Masters
“ having less than ten years’ service who may resign their appoint-
“ ments, or from any other cause than ill-health cease to belong
“ to the College, shall be entitled to receive the total increase
“ sanctioned by (a) and the accumulations thereof, but shall not
“ receive the additional increase sanctioned by (c), or the accumu-
“ lations thereof. In the event of any such Assistant Master
“ retiring from ill-health the Governors, in addition to the increase
“ sanctioned by (a), may grant him the further 5 per cent, sanctioned
“ by (c), and the accumulations thereof. In the event of death of
“ any such Assistant Master whilst in the service of the College, the
“ 5 per cent, due by (c) as well as under (a), with the accumulations
“ thereof, shall be paid to his legal representative ” , that is, with
regard to masters of less than 10 years’ service the granting of the
second moiety or the additional 5 per cent, is discretionary in the
Governors. Paragraph 6 of the Scheme shows “ That Assistant
■“ Masters who shall have served ten years or upwards, and
“ who may retire before the age of sixty from any other cause
“ than misconduct shall receive the total sum due to them
<£ respectively under (a) or (6) and (c) ”, that is to say, they would
not receive it if they were dismissed through misconduct, as
indeed paragraph 7 shows likewise.
Mr. Justice Channell in the course of his judgment at page 45 (1),
having referred to the first 5 per cent., goes to the next 5 per
cent, and he says : “ The next one,”—that is (c)—“ if it stood
“ alone, would be certainly very arguable ; I am not quite clear
“ about it now, but it seems to me that being put as it is with the
(l) Smyth v. Stretton, 5 T.C. 36, at p. 45.
632 E d w a r d s (H.M. I n s p e c to r o f T a x e s) v . [V o l. X IX
(Singleton, J.)
“ other sum which is clearly salary, and being in express and clear
“ words used not by ignorant people—notwithstanding what I have
“ said as to their grammar, and other things—but by people, namely,
“ the Governors and Masters of this College, who must be considered
“ to understand quite well what they say, it has been stated
“ distinctly to be salary, and it seems to me not by any means
“ necessary to prevent it being salary, because there is a binding
“ obligation as to this sum (c) that it shall be left in the hands of
“ the Governors of the College upon certain specified terms, which
“ are as to (c) not that they are to have it in every possible event,
“ they are not to have it if they do not serve for 10 years, unless
“ their non-service for as much as 10 years depends on the case of
“ ill-health ; and then in the case of ill-health it is discretionary
“ with the Governors to give it. So in that case, if they have served
“ for less than 10 years, they do not get this sum (c) as of right, and
“ also if they are removed for misconduct or have resigned to avoid
“ being removed for misconduct they do not receive that sum, but
“ that sum in those cases, if it is not given to them, goes into a
“ general fund, which the Governors are to distribute to exceptional
“ and special cases requiring and deserving assistance.” Two
things at least appear from those words which I have read. The
first is that the second sum of 5 per cent, in the case of Smyth v.
Stretton was in certain events payable only at the discretion of the
Governors ; secondly, that though the sum was set aside as part of
a Provident Fund the right to it disappeared if the master for whose
benefit, in the first instance, it had been set aside, was dismissed for
reasons of misconduct or gave notice to avoid being dismissed for
misconduct.
In the circumstances of the present case, a fund is set aside which
is described in the Case as a Conditional Fund. The right to that
fund on the part of the employee may be lost if he is guilty of misconduct, and it is said, too, that it may be lost if he leaves other than
under Clause 9 of the agreement. I t seems to me, though, that if
one looks at the interest which the employee gets in that fund, it
is a stronger interest than the schoolmaster got in the fund referred
to in the case of Smyth v. Stretton. I t is true th at in dealing with
that case Mr. Justice Channell said that they had described this as
an increase of salary. I do not see that great importance attached
to that for the purposes of this case, because it is agreed th at these
were emoluments of the office, and what one has to consider in
coming to a conclusion in this case is “ salaries, fees, wages, per-
“ quisites or profits whatsoever therefrom Mr. Justice Channell
at an earlier part of his judgment at page 42 said this : “ I agree
“ with what Mr. Danckwerts says, you must look at the substance of
“ it and not the words.” If one looks at the substance of this, one
finds that the employee is given a salary plus an interest in the
profits of the Company—true, an interest which may be defeated.
P art IX ] R oberts 633
(Singleton, J.)
I think the intention was and the substance of the matter is that this
was intended as additional remuneration to the employee as at the
time of the calculation and payment of the amount which was due
to him. That is how I read it, in view of what Mr. Justice Channell
said in the case of Smyth v. Stretton(x) as to what one must look at, and
in view of his decision in that case, thinking, as I do, that this case
is even stronger in deciding that the payment must be taken year by
year than the case of Smyth v. Stretton, with which Mr. Justice
Channell had to deal.
Mr. Hills referred me to the case of Walker v. Eeith, (1906)
8 F. 381. The facts are quite different in that case, and I observe
from the judgment of Lord Stormonth-Darling at page 388 that what
he said was this : “ Now, what is the effect of the deed of arrangement
“ on the legal position of these employees until the time arrives for
“ Mr. Dick’s trustees making a conveyance of the business in their
“ favour ? Are they still only employees, with a right to salary and
“ immediate payment of a small percentage on profits, together
“ with a prospective and contingent interest in the business itself?
“ Or are they a purchasing partnership, with immediate entry to
“ the business, but with a postponement of the obligation to pay
41 the price, and only such limitations on their right of property as
“ are necessary to give the seller security for the price? I have no
“ hesitation in adopting the first of these alternatives and rejecting
“ the second.” That is on the particular scope of the agreement
with which he was dealing. “ The entire deed seems to me redolent
“ of the granter’s desire to keep the business under the control of
“ his trustees until the whole of his capital and interest has been
“ paid out. Till then the employees are to have no vested interest,
“ and are to have nothing to sell or convey. Till then they are
“ not to touch a shilling of the profits except the small percentage,
“ which is much more appropriate to active management by a
“ servant than to the position of a principal.” I think the facts of
that case are different. I find at the top of page 389 Lord StormonthDarling added : “ Here the King has had his tax upon it in the
“ hands of R. & J. Dick, and when the Crown demands that the
“ appellant’s presumptive share of these profits shall be reckoned
“ as part of his individual income, the Crown must shew that the
“ share is not presumptively or contingently, but actually and
“ indefeasibly, his.” I must read those words as directed to that
case. H those last few words are to be read widely and as referring
to any case, it seems to me that they would overrule that which
Mr. Justice Channell decided in the case of Smyth v. Stretton, to
which I have referred already, but I think it is clear, if one reads
further in Lord Stormonth-Darling’s decision, that he was not
intending to do th a t; indeed, he was agreeing with it. I think in
(>) 5 T.C. 36.
634 E d w a r d s (H.M. I n s p e c to r o f T a x e s) v . [V o l. X I X
(Singleton, J.)
the circumstances of this case I am bound by the decision of Mr.
Justice Channell, to which I have already referred, that is, that the
whole sum set aside each year is a taxable addition to the Respondent’s salary. The claim of the Crown is to treat those sums
as paid not at the date that they are credited, but as paid and
assessable as at the date of the ultimate amount of securities being
handed over to the Respondent. As I have said already, I should
have had much greater difficulty in coming to a conclusion in this
case if I had not had the decision of Mr. Justice Channell. It seems
to me that I ought to follow that decision in the circumstances of
this case. I do not find myself able to distinguish it. The result
is that this appeal will be dismissed with costs.
The Crown having appealed against the decision in the King’s
Bench Division, the case came before the Court of Appeal (Lord
Hanworth, M.R., and Romer and Maugham, L.JJ.) on the 2nd
and 3rd July, 1935, and on the latter date judgment was given
unanimously in favour of the Crown, with costs, reversing the
decision of the Court below.
The Attorney-General (Sir Thomas Inskip, K.C.) and Mr.
Reginald P. Hills appeared as Counsel for the Crown and Mr.
Raymond Needham, K.C., and Mr. F. Hey worth Talbot for the
Respondent.
J udgm ent
Lord Hanworth, M.R.—This case involves consideration of an
agreement and certain facts which have given rise to an additional
assessment to Income Tax being made upon the Respondent to the
appeal, Mr. Roberts, in the sum of £1,639 for the year ending 5th
April, 1928. Mr. Roberts was in the employ of W. T. Henley’s
Telegraph Works Company, Limited. He entered that employment
under an agreement made with them on the 26th August, 1921.
His salary was £425 per annum. He has been taxed in respect of
that salary. In September of 1927, with the Company’s assent, he
resigned from the service of the Company. At that date the trustees
handed over to him some investments in the shares of the employer
company, Henley’s Telegraph Works Company, the current value
of which at the time they were handed over was £1,640. I t is claimed
by the Crown that the additional assessment which they have made
upon him in respect of that sum ought to be allowed, but the Commissioners who heard the case came to the conclusion that he was
only to be assessed in the sum of £332, a sum which arose in the
manner which I will mention in a moment. The Respondent to the
appeal is content with that assessment, but he resists the full additional assessment which the Crown claims in respect of the £1,640.
P art IX ] R oberts 635
(Lord Hanworth, M.B.)
Now liability of some sort is admitted by Mr. Roberts to some
extent. I think that is important because I can conceive a somewhat
different argument being made. There is a liability admitted of at
least £332, but it is disputed that there is a liability of £1,640.
When the agreement was made, payment for services was made
and the salary was fixed, and Clause 5 recorded that as an additional
inducement beyond the salary, which was payable by equal monthly
instalments, there should be a Conditional Fund established, and it
is said—I am reading the words of Clause 5—“ the Employee shall,
“ subject to the conditions hereinafter set forth, be interested in the
“ said Fund as after mentioned The Fund is derived by setting
aside out of the net profits of the Company and paying to two
trustees “ a sum equal to one shilling and sixpence per One hundred
“ pounds on the gross amount which shall be divided amongst the
“ holders of the Preference and Ordinary Shares of the Company as
“ dividend or bonus upon their shares in respect of such financial
“ year and also upon any sum which shall be transferred from the
“ Profit and Loss Account of such year to General Reserve Account
It will be seen, therefore, that the Fund arises from an uncertain
amount estimated according to the amount which is the gross amount
divided between the holders of the Preference and Ordinary Shares,
whether as dividend or bonus, and any sum reserved which may be
transferred from the Profit and Loss account.
The way in which that Fund was to be dealt with is also stated.
The employee is not to receive the corpus of the Fund which is year
by year set aside for him until after he has been in service with the
Company for at least five years. After the expiration of five years
and at the expiration of each complete subsequent financial year he
is “ entitled to receive such part of the capital of the said Conditional
“ F u n d ……………..as shall at the expiration of each such period have
“ been in the hands of the Trustees for the full period of five years
“ from the date when the same was paid over to them”. He has got
to wait five years, and when he has waited five years, or rather six
years, he may receive then a sum of the capital which has been in
the hands of the trustees for as much as five years, but until five
years have elapsed he does not get the right to receive anything of
the capital set aside for his benefit. In the case of his being dismissed,
or assigning or purporting to assign or create a mortgage or charge
on his salary or his interest in the Conditional Fund, or if by operation
of law he ceases to be beneficially entitled to this sum, then his
interest in the Fund is completely to cease. In the case of his death,
or if his service is terminated by reason of the directors’ thinking
that owing to ill-health he ought not to continue, then in those
cases he will get under Clause 8 (C) or (D) what he is entitled to
receive, namely, the amount then standing to the credit of the capital
account of the Conditional Fund, and that sum is to be paid at a
distance of not more than sax months from the date of his departure
from the service or the date of his death.
636 E d w a b d s (H.M. I n s p e c to r o f T a x e s) v. [V o l. XIX
(Lord Hanworth, BLR.)
In fact what happened was that the Company handed over
in respect of this employee a sum which was in 1922 £95 12s. 10d.,
and in the following year £99 Os. 9d., and so on, all those being sums
derived from the source which I have indicated and estimated in
the way provided by the agreement. Those sums were invested in
the purchase of shares of Henley’s Telegraph Company with the
dividends upon them, and those dividends the employee was entitled
to receive during the financial year. He did receive them and he
has paid Income Tax in respect of them. The way in which the matter
is dealt with is shown by the two letters which are attached to the
Case. I am reading the one of the 12th June, 1925, in which a
cheque for £9 3s. 8d. is sent for dividend, less tax, on the 79 Ordinary
Shares which were purchased cum dividend by the trustees under
the scheme of investing in shares. On the 12th June, 1925,
information was given him that there had been set aside for his
benefit £252—or £252 10s. I think it is—which, as and when the
proper time had elapsed, he would be entitled to receive, and as a
m atter of fact he did receive. The value of the shares which he was
entitled to receive at the current market rate was £1,640. That
accrued to him and was transferred to him and handed over to him
as actual investments on the termination of his employment.
As I say, some liability is admitted. W hat is argued on behalf
of the subject is th at these sums which were set aside year by year
were really in their essence additional salary—part of his salary—’for
each year, and are attributable to his income in each year, th at he
was liable to pay Income Tax in respect of those sums set aside in
each of the years respectively, and that he ought to have been
assessed and could have been assessed in respect of those sums
although he did not and could not receive them because the five
years’ period had not elapsed. I t is said that these sums formed part
of his emoluments in each of those years, and so he was liable in
respect of each of them, hence the only emolument of this nature
received in the year for which the additional assessment is made
upon him, namely, 1927-28, the only sum which has been received
in that year, was £331 14s. 2d.—call it £332—and th at in respect of
th at an assessment ought to be made upon him, but no more. The
Commissioners and Mr. Justice Singleton have both felt themselves
bound by the decision in the case of Smyth v. Stretton, 5 T.C. 36.
That was a case in which certain sums were set aside for the assistant
masters at Dulwich College. All the assistant masters were required
to be members of the fund, and there was to be an addition to the
salaries which they were paid according to the scale which is set
out on pages 38 and 39 of 5 T.C. They were called increases of
salaries, and paragraph 4 of the Scheme says this : “ That the whole
“ of the above increases of salary shall not be paid to the Masters,
“ but shall be retained by the Governors and accumulated at com-
“ pound interest for the purpose of forming the said Provident
P art IX ] R oberts 637
(Lord Hanworth, M.R.)
“ Fund, but subject to the Provisions hereinafter contained.” I quite
agree it is not right to treat the effect of this provision as falling on
one side or the other, according to whether it may be called, in the
terms drawn up, an additional salary or otherwise. One has got to
look at what is its essence and to ask oneself whether it was an
additional salary or an emolument which is, as is now claimed, an
emolument that became due in the successive years and in respect
of which the subject was liable to tax. The reason th at emphasis
is laid upon the year in which the sum accrued due is this : Schedule E
is the Schedule which applies for the purpose of taxation of a
salary received under circumstances such as these, and Rule 1
of the Rules applicable to Schedule E of the Income Tax Act,
1918, says this : “ Tax under this Schedule shall be annually
“ charged on every person having or exercising an office or employ-
“ ment of profit mentioned in this Schedule, or to whom any annuity,
“ pension, or stipend, as described in this Schedule, is payable, in
“ respect of all salaries, fees, wages, perquisites or profits whatso-
“ ever therefrom for the year of assessment.” Rule 5, which deals
with additional assessment, enables an additional assessment to be
made so that in respect of “ any additional salary, fees, or emolu-
“ ments beyond the amount for which an assessment has been
“ made upon him, or for which a t the commencement of that year
“ he was liable to be charged, an additional assessment shall, as
“ often as the case may require, be made upon him in respect of
“ any such additional salary, fees or emoluments, so that he may
“ be charged in respect of the full amount of his salary, fees or
“ emoluments for that year ” .
Do the facts of this case bring it within the decision of Smyth
v. Strettoni*) or not ? Are those sums appropriated year by year ?
Are they sums which are paid by way of additional salary and which,
although they cannot be immediately enjoyed by the employee, are
none the less his salary deferred until the lapse of six years ? I have
come to the conclusion, not I confess without some doubt, that this
is an emolument which accrued and was payable not in each successive
year, but in the sixth year, and was to be paid when it was handed
over in 1927 and not before. I t is quite true th at a proportion of
this amount might have been paid ex gratia by the employers if
death had supervened, or if under Clause 9 he had been deemed
unfit to go on with his service. Taking the normal course, he was
not entitled to anything until the lapse of six years, and his right
could have been entirely defeated by the events which are tabled
in (A), (B) and (C) of Clause 10 of the agreement.
Now ought we to treat this as of the nature of a deferred emolument
due to the services rendered, but absolutely due under the contract
with him in respect of which he had as much right to be paid as he
had a right to be paid his salary of £425 a year, which in fact was
(!) 5 T.C. 36.
638 E d w a r d s (H.M. I n s p e c to r o f T a x e s) v . [V o l. XIX
(Lord Hanworth, M.R.)
paid to him monthly ? It really comes back to a question of fact
and the interpretation of the agreement. In the case of the Dulwich
masters (1) I think the facts are simple. They would have been
paid a larger sum but for the fact that the Governors intended and
decided to start this fund, which was for the purpose of securing
the benefits to them as and when they reached a certain age, and
then it was what they called a contributory scheme, to which they
were bound to contribute ; it was a deduction from their salary.
In the present case I think the facts seem to be in accord with the
statements made. Clause 6 seems to indicate that there is no
right of the employee to be paid if there are no dividends, or if
there is no sum put to reserve ; in such circumstances the Is. 6d.
per hundred pounds would not be provided. That all depends upon
the will and the discretion of the directors. I t is difficult to say
that there has been a contractual undertaking on the part of the
directors to pay not only the £425 but also these further sums. It
seems to me that the agreement does correctly interpret the position
of the employee when it says that “ subject to the conditions herein-
“ after set forth, (he shall) be interested in the said Fund as after
mentioned ” . That being so, it appears to me that it would be wrong
to treat this case as coming within the principle of Smyth v. Stretton,
a principle which no doubt is quite clear and is illustrated by the
decision in that case. I t seems to me that the facts in this case
stand apart from that principle, and that under these circumstances
there could not be said to have accrued to this employee a vested
interest in these successive sums placed to his credit, but only that
he had a chance of being paid a sum at the end of six years if all
went well. That chance has now supervened, and he has got it by
reason of the fact of his employment, or by reason of his exercising
an employment of profit within Schedule E. Under those circumstances he has been paid what is of the value of £1,640. I do not
think that, if one is not able to say that his interest accrued year
by year, one can take any other course than to say that what he
was ultimately paid was the value of what was handed over to him.
Whether in the course of five years the securities or investments
had improved in value or not, what was handed over to him was
the investments ; and their value, which was transferable to him
a t the end of the period, at the time when he became entitled to
receive it, was of the value of £1,640 and not less.
For these reasons, it appears to me that Smyth v. Stretton does
not govern the case, but it is a case which stands apart from that
principle, and that the appeal ought to be allowed and the case sent
back to the Commissioners for the assessment to be made at the
figure of £1,640—I think it is £1,639, and I suppose there were some
shillings and pence which made it either £1,639 or £1,640. The
appeal, therefore, is allowed with costs.
(!) 5 T.C. 36.
P art IX ] R oberts 639
Romer, L.J.—I agree.
I t is plain that Mr. Justice Singleton in deciding this case
against the Crown felt himself constrained to do so by the
decision of Mr. Justice Channell in the case of Smyth v. Streiton,
5 T.C. 36. But if that case be carefully examined, it will be
found that it is no more than an illustration of a well-established
principle, the principle being this, that for the purposes of taxation
of a man’s income it matters not what the man has thought fit to
do in the way of spending th at income or investing it. Mr. Justice
Channell had to deal with certain sums by which the salary of a
master at Dulwich School had been increased under the scheme which
will be found set out on page 38 of 5 T.C., and what he had to
decide was whether those increases of salary were to be treated as
having been received by the master in each year of his service, and
then a portion of the salary handed back to the Governors for the
purpose of investment in accordance with the scheme, or whether
those sums were to be treated as never having been received by the
master as salary or otherwise until under the scheme accumulations
of those sums or part of those accumulations were handed over to
the master. That that was the point in the case is quite apparent
from the arguments that were addressed to the learned Judge. The
Solicitor-General at that time commenced his argument as follows^):
“ The Provident Scheme merely provides a particular way of in-
“ vesting a portion of the salaries of the Assistant Masters.” Mr.
Danckwerts, on the other hand, in his argument said this(2) : “ The
“ fund is not a part of the income of the Masters, as it would be if
“ it were formed of contributions by them .” In other words, the
Crown was saying that these masters must be treated as having
received an increase of salary and then under the scheme paying
back the increase to the Governors for the purpose of investment
and in accordance with the Provident Fund. Mr. Justice Channell
stated the case th at he had to decide as follows(2) : “ I t seems to me
“ to depend upon this. Here is a Scheme established by the
“ Governors of Dulwich College, and the question is whether the
“ true effect of that Scheme is to increase the salaries of the Assistant
“ Masters, imposing at the same time an obb’gation upon them to
“ deal with a portion of the increased salaries in a certain way ”
—that was what the Crown contended— “ whether that is the true
“ effect of the Scheme or whether the true effect of the Scheme,
“ when you look at the substance of it, is not really to increase the
“ salaries but to give to the Masters upon their ceasing to hold the
“ position of Assistant Masters, gratuities or allowances.” Now the
learned Judge, for reasons which seemed sufficient to him, came to
the conclusion that the increases of salaries, both under paragraph 1
(a) and (6) of the Scheme as well as the increases of salaries under
paragraph 1 (c) of the Scheme, were to be treated as sums paid by way
of increase of salary to the master in each year, and handed back
(*) 5 T.C., a t p. 40. (s) Ibid., a t p. 41.
(30779) B
640 E d w a r d s (H.M. I n s p e c to r o f T a x e s) v . [V o l. X I X
(Romer, L.J.)
by him to the Governors for the purpose of being dealt with in
accordance with this Scheme. I am not going to read any more of
the judgment, but the more it is read, the more apparent it will be
that that was the point which the learned Judge was to decide.
One can hardly say that that case, being merely a question of the
construction to be put upon a particular agreement, is any authority
which helps us when we are endeavouring to put a proper construction upon an agreement which is totally different from the
agreement with which Mr. Justice Channell had to deal. All I can
say is that in my opinion it is impossible to say on this agreement
with which we have to deal here th at Mr. Roberts can be treated
as receiving in each year by wTay of increase of salary sums that
were set aside by the Company and handed back to the Company
to be invested in shares. If an employer agrees to pay his employee
a salary of so much a year and agrees that when the employee
leaves the service or is dismissed he shall receive, say, a lump sum
of £500 in addition, it is impossible to say th at that £500 is an
emolument in respect of any year other than the last year of service.
As I read this agreement, and reading it in the terms of what in fact
happened, it appears to me that it amounts to this. The Company
agreed to pay to the employee during his service his salary at the rate
of £425 per annum, but agreed “ as an additional inducement to
“ the Employee more effectively to perform his duties and assist in
“ promoting and advancing the interests of the Company ” th at the
Company would in the year 1927 pay him the sum of £1,639. That
being so, it seems to me clear that the £1,639, though in tru th an
emolument of the office held by Mr. Roberts, was an emolument for
the year in respect of the year 1927, and cannot be treated as made
up of a series of emoluments for the preceding years.
For these reasons, which are in substance those given by the
Master of the Rolls, I think this appeal succeeds.
Maugham, L.J.—I am of the same opinion.
I t seems to me th at if, following the example of Mr. Justice
Channell which has been already referred to, I were to attem pt
to define the question to be determined, I should define it
somewhat in this way. The question is whether on the true
effect of the agreement dated 26th August, 1921, it may be
said that the effect as regards Clauses 6 to 10 was to increase
the salary of Mr. Roberts with an obligation imposed upon the
trustees to deal with this increase of salary year by year in a
specified manner, or whether it was in order to give Mr. Roberts,
as the agreement itself says, an interest in the success and prosperity
of the Company. The true nature of the agreement was th at he
was to be entitled in the events, and only in the events mentioned
in Clause 8 of the agreement, to the investments made by the
Company out of the net profits of the Company as provided in
Clause 6. If that is the true nature of the agreement, as I think it
P art IX ] R oberts 641
(Maugham, L.J.)
is, and the true nature of the question to be determined, my opinion,
agreeing with my brethren, is th at the latter is the proper conclusion
at which this Court should arrive. Smyth v. Stretton, 5 T.C. 36—a
case, I agree, bearing in some respects a remarkable resemblance to
the present case—was before Mr. Justice Channell, and he came to
the other conclusion. He based himself a great deal upon the fact
th at the sums in question there, the emoluments in question, were
to be treated and described as increases of salary, and on certain
other circumstances. In the present case the sums in question, so
far from being called increases of salary, are by the terms of the
agreement distinguished from salary, since the salary is mentioned
in Clause 5 of the agreement as being a salary at the rate of £425
per annum, and the sums to be set aside out of the net profits of
the Company are not described as salary at all, and, therefore,
distinguished from salary. In the second place it seems to me not
immaterial to observe that the advantages which are being provided
for Mr. Roberts are purely advantages to be derived out of the net
profits of the Company and depend upon the gross amount of profit
which shall be divided among the holders of Preference and Ordinary
Shares of the Company as dividend or bonus upon their shares in
respect of each financial year. So the sums in question are conditional upon the success from the profit-earning point of view of
the Company. Next it is to be observed that Mr. Roberts had only
a conditional right, that is to say, a right as given to him conditionally upon the events mentioned in Clause 8 of the agreement
being complied with, to receive the investments which might be
made on his behalf at times and in the manner therein mentioned.
If all those circumstances are taken into consideration I think that
it results in this, that the benefits which he might conditionally
become entitled to under the agreement are not in a true sense part
of the salary in the wide sense chargeable under Schedule E of the
Income Tax Act.
Accordingly I t hink the judgment under appeal, which Mr. Justice
Singleton apparently pronounced with considerable hesitation as to
whether it was the right conclusion, ought to be reversed, with the
consequences mentioned by the Master of the Rolls.
Mr. Hills.—With costs here and below ?
Lord Hanworth, M.R.—Yes.
Mr. Needham.—I am instructed to ask whether your Lordships
consider this is a proper case to give us leave to appeal to the House
of Lords ?
Lord Hanworth, M.R.—Are there any number of cases depending
upon this ?
(30779) B 2
642 E d w a r d s (H.M. I n s p e c to r o f T a x e s) v. [V o l. X IX
R oberts
Mr. Needham.—There are a number of cases, my L o rd ; I do
not know what number. The appeals are those of other employees
who have been assessed on the footing of Mr. Justice Singleton’s
decision and have appealed. Other employees of the Company who
have been assessed as the result of Mr. Justice Singleton’s decision
have appealed and those assessments are still under appeal. Contrary to the views of the Crown they were assessed in consequence
of what Mr. Justice Singleton said.
(Their Lordships conferred.)
Lord Hanworth, M.R.—Mr. Needham, we have carefully considered this and we do not think th at there is any general principle
involved. We think it is not a case for leave to appeal.
Mr. Needham.—If your Lordship pleases.
[Solicitors :—Solicitor of Inland Revenue; Linklater & Paines.]
