1. ' LORD MORRIS OF BORTH-Y-GEST.---My Lords, the special commissioners came to the conclusion, on the basis of the facts which they found, that the respondent's appointments as registrars of Robert Lawson & Sons (Holdings) Ltd., and of its subsidiary company, Robert Lawson & Sons (Dyce)
2. Ltd., were appointments to offices. The respondents were appointed as secretaries and registrars of both companies. In the case of one company the salary was 750 and in the case of the other it was
500. In regard to the time the respondents spent as secretaries and registrars of these two companies one-third of it related to their duties as secretaries and two-thirds to their duties as registrars. When proposals were made for taking over the shares held in the two companies the respondents were informed that, in the event of a take-over, they would be relieved of their secretaryships and registrarships. The arrangement that was later made, when the takeover took place, was that the respondents should cease to be registrars, should receive 2,50U upon such termination of their appointments as registrars but should continue for some time as secretaries of the two companies. They did so continue for some time and then voluntarily resigned their secretaryships.
3. ' A duty is imposed upon a company to keep a register of members (Companies Act, 1948, section 110). Even though the Companies Act does not require tbat there should be an appointment as registrar, a company must arrange that some person or persons should on its behalf perform the statutory duties of maintaining its register. In doing so, it may establish a position which successively will be neld by different persons. If it does so the company may have created what could rationally for income-tax purposes be called an office. In A McMillan v. Guest (I), Lord Atkin, while pointing out that there is no statutory definition of "office," was prepared to accept what Rowlatt, J. Had said in Great Western Railway Co, v. Bates (2) (as adopted by Lord Atkinson (3)) as being a generally sufficient statement of meaning. Rowlatt J. Had referred to "a subsisting, permanent, substantive position, which had an existence independent of the person who filled it, and which went on and was filled in succession by successive holders." Lord Wright in his speech in McMillan v. Guest pointed out that regard must be had to the facts of any particular case and to the ordinary use of language and the dictates of common sense.
4. ' In my view, the special commissioners were warranted on the facts as they found them in deciding that the respondents' appointments as registrars of the two companies were appointments to offices.
(1) (1942) A C 561 (2) (1920) 3 K B 266 (3) (1922) 2 A C 1 ' Though in fact the fees which certain partners in the respondent firm received as directors of certain companies were, by reason of some arrangement that they made between themselves, included in the partnership income and though in fact the respondents' net receipts from all activities (including legal fees, directors' fees, secretarial salaries, managerial fees, business commissions and registrars fees) were assessed to income-tax under Case It of Schedule D, I think that it must follow from the decision of this House in Mitchell & Edon v. Ross (1) that tax will chargeable under Schedule E on the emoluments in respect of the two registrarship'.
5. ' The payment of 2,500 was clearly made "in consideration or in consequence of, or otherwise in connection with" the termination of the holding of the offices of registrar (see section 37(2) of the Finance Act, 1960). Unless it was a payment "otherwise chargeable to income-tax" it would be a payment in respect of which income-tax would be charged under Schedule E (see section .37 (1)) but for the fact that by virtue of section 38 (3) tax is not to be charged in respect of a payment of an amount not exceeding 5,000. So the question arises wether the payment of 2,500 was "otherwise" chargeable to income-tax. The presence of the words "not otherwise chargeable to income-tax" in subsection (2) of section 37 (unless they were introduced unnecessarily or for reasons of caution) would appear to recognise that there could be payments coming within the words of subsection (2), which, independently of subsection (1) would be chargeable to tax. The words do not necessarily denote chargeability under a Schedule other than Schedule E. The contention of the appellants is that the offices wore assets of the respondents' profession or vocation obtained in the course of carrying on such profession or vocation and that compensation for the loss of those assets should be treated as a receipt of the profession or vocation and taxable under Case II of Schedule D.
6. ' My Lords, I cannot think that the appointments to the offices of registrar were in any real sense to be regarded as assets of the respondents in respect of their profession. No question has been raised for decision as to whether, if they were so to be regarded, a payment for the loss of them would be of the nature of a capital rather than of an income receipt. The conception of the assets of a trader in carrying on his trade is one that has reality and clarity. It is difficult in the case of a firm carrying on the profession of advocates conducting a substantial general legal business, but who incidentally acquire appointments as registrars of companies, to regard such appointments as being "assets" of the firm in their profession. The case here is quite different from that of a trader who might in the course of his trade acquire assets and dispose of them. The case here is quite different on its facts from Blackburn v. Close Brothers Ltd. (2). That was the case of a trader, the profits of whose trade were chargeable under Case I of Schedule D, who had a three-year appointment as secretary and registrar at a substantial remuneration. The agreement was prematurely terminated and a substantial sum was by agreement paid as compensation. It was held that the compensation was chargeable as a trading receipt of a revenue nature and that this was so, even though the remuneration under the agreement would have been chargeable under Schedule E. I do not find it necessary to express any opinion in regard to that case. The finding here
(1) (1962) A C 814 (2) (1960) 39 T C 164 is that the respondents as a firm of advocates in Aberdeen conducted a substantial general legal business and that they also acted as secretaries and or registrars to a number of companies. They were primarily law agents and secretaries. They had not set out as registrars. Their registrarships were "incidental" to their business as law agents and secretaries. The two registrarships in question had been the consequence of a friendship between the former senior partner of the respondents and those who conducted the business which became the business of the two companies. When the registrarships were terminated the respondents did not consider that they had any entitlement to any payment. Indeed, as is found in the case stated, it was only because of the personal friendship between a partner in the respondent firm and one of the directors that the former had felt it proper to raise with the latter the question whether there might not be an ex gratia payment.
7. Though these facts have not been made the basis of a separate contention they are, in my view, of relevance when considering whether the registrarships should be regarded as assets of the respondents' business. The finding is that the registrarships were "incidental" to their business. It seems clear that the registrarships could neither have been acquired by purchase nor could they have been assigned for a consideration.
8. ' The position was that the respondents' professional qualifications and experience made it appropriate that they should be appointed as registrars, even though they had not set out as professional registrars and even though their appointments merely arose out of their professional work. The features connected with the appointments to and the holding of the offices were such as to permit of the conclusion that the offices should not be regarded as assets of the respondents in their profession. That was the finding of the special commissioners !
9. "While the offices might loosely be described as assets, in the sense, - that they were acquired incidentally in the course of the respondents' profession as Advocates, they were not in our view trading assets. These offices were not exploited' or turned to account; further, they could not be disposed of in the normal way."
10. ' I consider that the special commissioners were entitled so to hold and consequently to hold that the sum of 2,500 was not assessable under Schedule D.
11. I would dismiss the appeal.
12. ' LORD Guam-My Lords, the respondents are a firm of advocates in Aberdeen who carry on an extensive legal business. In addition they act for some 40 companies as secretaries and/or registrars. Those functions are carried on in the firm's office and with the assistance of the firm's staff and for which they receive an annual remuneration. In respect of the termination of the "post," to use a neutral expression, of registrar for two companies they received a lump sum of 2,500.
13. ' The revenue claim that this sum is chargeable under Schedule D, Case II of the Income-tax Act, 1952, section 122. The reply of the respondents is that it is exempt from taxation under section 37 of the Finance Act, 1960. The special commissioners gave a decision in favour of the respondents, which was affirmed by the First Division of the Court of Session.
14. Sections 37 and 38 of the 1960 Act, so far as relevant, are in the following terms : "37.-(1) Subject to the provisions of this and the next following section, income-tax shall be charged under Schedule E in respect of any payment to which this section applies which is made to the holder or past holder of any office or employment, or to his executors or administrators, whether made by the person under whom he holds or held the office or employment or by any other person. (2) This section applies to any payment (not otherwise chargeable to income-tax) which is made, whether in pursuance of any legal obligation or not, either directly or indirectly in consideration or in consequence of, or otherwise in connection with, the termination of the holding of the office or employment or any change in its functions or emoluments, including any payment in commutation of annual or periodical payments (whether chargeable to tax or not) which would otherwise have been made as aforesaid.
15. 38.-(3) Tax shall not be charged by virtue of the last foregoing section in respect of a payment of an amount not exceeding 5,000, and in the case of a payment which exceeds that amount shall be charged only in respect of the excess c.. . ."
16. ' The first question, therefore, which logically arises is whether the "post" of registrar is an "office" within the meaning of section 156 of the Income-tax Act, 1952, and taxable under Schedule E. The Lord President has carefully examined the authorities on this question, and I see no reason to differ from his conclusion, in which Lord Gutherie and Lord Migdale concurred, that the post of registrar is an "office" within the meaning of Schedule E.
17. ' The argument for the revenue was that, whether the appointment of registrar was or was not an "office" under Schedule E, the fees received by the respondents in respect of the appointment as registrars were nonetheless taxable under Schedule D, and that accordingly the sum of ,5000 received by them on the termination of that appointment was also chargeable to tax under Schedule D. It appears that during the years 1957-67 the fees received by the respondents as secretaries and registrars had been assessed along with their professional earnings for income- tax under Schedule D. This, however, cannot affect the legal position if in fact these fees ought to have been assessable under Schedule E. If the position of registrar was not an office, then, of course, the previous assessm ents were in order and the sum paid on termination of appointment was assessable under Schedule D in accordance with the normal practice. But if, on the other hand, the position of registrar is an office, then the matter is, in my view, concluded by Mitchell v.
18. Ross (1). In the argument before Upjohn, J. The taxpayer contended that the fees of a consultant specialist under the National Health Service should be assessed under Schedule D along with his other professional earnings as a private consultant and that, as a logical consequence, the expenses of his profession generally should be deducted from his gross earnings. Upjohn, J., in upholding the Crown's contention, decided that the consultant's remuneration from the National Health Service must be assessed under Schedule E as the appointment was an "office" under Schedule E and should not be assessed under Schedule D. 1 quote from his Lordship's judgment at pages 167-168 : "Mr. Talbot poses the question, is Dr. Ross carrying on one profession or two? The question is a narrow one and without the slightest importance except for the purpose of income-tax. In a general sense, of course,
(1) (1960) Ch. 145 (Ch. D)
19. ' Dr. Ross is carrying on the profession of a radiologist whether he is performing his National Health functions or attending to private patients. It is all part of his vocation as a medical adviser. In my judgment, however, the argument ought not to succeed. When carrying out his National Health duties, Dr. Ross is performing the duties of an office and he is taxed under Schedule E. When attending private patients he is exercising his profession and is taxed under Schedule D. Each Schedule and the rules thereunder contains, in the words of Lord Atkin in Fry v. Salisbury House Estate Ltd. (1930) A C 432, definite codes applying exclusively to their respective defined subject- matters'. "
20. ' The case subsequently reached the House of Lords (reported sub. Nom. Mitchell & Edon v. Ross (1)), where Viscount Simonds said, at pages 831-832: "Dr. Ross, having been assessed to income-tax under Schedule E in respect of the profits and gains arising from his part-time appointment, and under Schedule D in respect of the profits and gains arising from his private practice, appealed against the assessments to the special commissioners on two grounds. He claimed, in the first place, that he should be assessed in respect of the whole of his profits and gains under Schedule D, and, in the second place, that if this claim was not upheld, be was entitled in the computation of his liability under Schedule D to deduct the expenses incurred in the exercise of his appointment to the extent that they were not allowed under Schedule E. The first of these two claims was not maintained before this House, learned counsel conceding that an appointment under the National Health Service to such a post as that held by Dr. Ross fell within Schedule E, and that an assessment to tax must, accordingly, be made under that Schedule.
21. In my opinion the concession was rightly made and the opposite view was not arguable."
22. ' Lord Radcliffe, at page 837, agreed with Upjohn, J. And stated that in his view the Schedules are mutually exclusive. Lord Cohen expressed the matter succinctly, at page 842, when he speaks of the excision of the part-time appointment from Schedule D and its inclusion under Schedule E.
23. ' This case thus defeats the argument of the Crown that the fees from the appointments as registrar ought to be included in the Schedule D assessments. It is to be remarked that the argument of counsel for the revenue in Mitchell's case (2) when that case was before Upjohn, J.
24. Was that Schedule D and Schedule E emoluments could not be aggregated, which the revenue now wish to controvert. It is said that if the view expressed above be right the result will be to produce administrative difficulties, as it will be very difficult to apportion the deductible expenses as between the Schedule D and Schedule E assessments. But this did not deter this House in Mitchell's case [(see Viscount Simonds (3)].
25. ' My view is that once it is decided that the registrarship is an "office" and the fees assessable under Schedule E, there is no room for any inclusion of those fees under Schedule D. It follows that, in my opinion, the exemption contained in section 38 of the Finance Act, 1960, applies, unless there is some exclusion by reason of the words in section 37(2) "not otherwise chargeable to income-tax".
(1) (1962) A C 814 (2) (1960) Ch. 145 (3) (1962) A C 813)
26. ' It was argued for the revenue that the holding of the office of a registrar was a "trading asset" of the respondents and that, on the termination of that office, a sum paid in compensation therefor was a trading receipt of the respondents' firm. I am not sure that I understand how the holding of an office can be an asset of a firm of lawyers. It cannot, as the special commissioners say, be exploited or turned to account and it could not be disposed of. For this reason, I am doubtful whether the decision of Pennycuick, J. In Blackburn v. Close Brothers Ltd. (1) was sound, where the learned Judge held that thy sum received in respect of the termination of a contract of service of a secretarial nature was a trading receipt. However that may be, the principal discussion in that case was whether it was a capital payment or a trading receipt, and the learned judge decided in favour of the latter view. Moreover, the taxpayers were a firm of merchant bankers assessed under Case I of Schedule D whose trading activities might reasonably be held to include the securing of secretaryships. In the present case the respondents are lawyers, and there is no finding that it is part of the normal profession of a law agent to act as a registrar or to secure registrarships. It is said to be incidental to the profession but not part of it. The case of Blackburn (2) does not, in my view, assist the Crown.
27. ' The next case relied upon was Ellis v. Lucas (2) where Ungoed-Thomas, J. Held that, on the findings of the special commissioners, terminal payments were not assets of the taxpayer's business as a chartered accountant. It is true that the learned Judge refers to the auditorships as an asset of the taxpayer's businees as accountant. But his decision was on the facts adverse to the revenue's contention. Although it may be said to be a decision on the facts, the present case is a fortiori of that decision in respect that the profession of lawyer is further removed from the activities of a registrar than the profession of an accountant. The last case was Walker v. Carnaby, Harrower, Barham & Pykett (3) where Pennycuick, J. Considered his own decision in Blackburn v. Close Brothers Ltd. But the case was decided upon an entirely separate ground, that the payment was ex gratia and, therefore, not taxable. That question is not raised in the present case.
28. ' In my view, those cases do not help the revenue. I cannot visualise the holding of a registrarship as "trading asset" of the profession of a law agent. In any case, once it is decided that the emoluments of the office of registrar are taxable under Schedule E it is not legitimate to attribute the compensation for the termination of the office to Schedule D. This would be to overturn the principle decided and conceded in the case of Mitchell and don v. Ross.
29. ' I would dismiss the appeal.
30. ' LORD UPJOHN.-My Lords, I have had the opportunity of reading the speech of my noble and learned friend, Lord Guest. I agree with it and, for the reasons he gives, I would dismiss the appeal.
31. ' LORD DONOVAN.-My Lords, I deal first with the question whether these two registrarships were offices within the meaning of Schedule E. The adjective "public" was dropped in the amendment effected by section 10 of the Finance Act, 1956.
(1) (1960) 39 T C 164 (2) (1967) Ch.. 858 (3) (1970) 1 W L R 276 ' The Companies Act, 1948, by section 110 requires that every limited company shall keep a register of its members. This means that someone in the company must do it. The register is an important record. It evidences the title of the individual shareholder, and it tells the public, who may inspect it, who are the individuals behind the corporate mask. In some small private companies the work of keeping the register could be done by a minor clerk or even a typist. But in the larger companies it is a full-time job taken on by outside concerns, for example, banks, who as part of the job deal with new issues, bonus share distributions and the like. In the present case the two companies concerned were sufficingtly important to be taken over by Unilever Ltd. I do not think it possible to say that as a matter of law the special commissioners were disentitled to take the view that each registrarship was an "office" within the meaning of Schedule E.
32. ' Then comes the question how the profits of the office are assessable to income-tax in a case like the present. The respondents are a firm of Scottish advocates in Aberdeen conducting a substantial legal business and also acting as secretaries and/or registrars to some 30 to 40 companies. We do not know in how many companies they were registrars. They themselves seem clearly to have regarded their activities as secretaries and/or registrars as ingredients of one composite vocation. All the profits have gone into one account, and all been assessed to income- tax under Case II of Schedule D. This means that in their income-tax returns the firm has represented to the revenue that they are carrying on one vocation of which the secretaryships and the registrarships (which account for nearly one-half of the total income) are a part. And L think that is the true view. One asks, therefore, why there should not be one global assessment under Case II of Schedule D? And the answer is the decision of this House in Mitchell and Edon v. Ross, I think it is to be clearly gathered from that decision that even if offices like these registrarships are collected and exercised by a tax-payer as a part of his trade or profession, nevertheless, under the rule that each Schedule to the Income-tax Acts is completely self-contained and autonomous, the offices must be separately assessed under Schedule E.
33. ' In relation to a case like the present I cannot refrain from saying that I think this rule is quite unreal and serves no useful purpose. Indeed, its application to cases like the present will cause administrative chaos unless the law is changed. There can be no relevant difference between secretary-ships and registrarships. Both are offices and henceforth, if this decision is acted upon, there will have to be 30 to 40 separate Schedule E assessments in the present case, and the same number of claims for expenses "wholly exclusively and necessarily" incurred in the performance of the duties of each office. In England the position will be worse. There a partnership is not a separate legal entity, and cannot be separately assessed in one assessment except under Schedule D upon trading or professional profits. Accordingly, a firm of chartered accountants with, say, 20 partners, will have to be assessed in respect of the profits of each office as auditor by means of separate Schedule E assessm ents on each individual partner, who likewise will have to prove his deductible expenses.
34. ' The rule establishing the paramountcy of each Schedule of the Income-tax Act as regards its own particular subject-matter, first established in Fry v. Salisbury House Estate Ltd. Served a useful purpose in that case. For the revenue, having first assessed the company's property under Schedule A, then sought to assess the company under Schedule D so as to tax, inter alia, the excess of the rents over the Schedule A assessment : and not surprisingly received the answer that the Schedule A assessm ent was exhaustive of liability as regards the property. But where a company sets on foot an organised seeking after offices of profit and conducts them by means of a single organisation, I see no useful purpose whatever in ignoring that situation for income-tax purposes, and in treating the edifice which the taxpayer has thus constructed as a collection of individual bricks having no connection with each other. But I think Mitchell and Edon v. Ross compels us for the present to sustain this fiction : and it is not for the revenue to complain, since the result flows from their successful argument in that case.
35. ' We are, of course, here dealing with terminal payments of compensation and have had to consider the right way of assessing the income while it arose simply as a stop toward deciding how the terminal payments should be dealt with. I can see that, as the Crown argue, there could be some cases where although current income was assessable under Schedule E pursuant to Mitchell and Edon v. Ross, yet the terminal payments might be regarded as income of the overall trade, profession or vocation (compare Blackburn v. Close Brothers Ltd. And Ellis v. Lucas not on the ground that the office was a trading asset (which I regard as a completely inappropriate term) or an asset of the profession or vocation, but on the ground that it was a source of profit belonging to the trade, profession or vocation and that the terminal payment might, therefore, be linked to that trade or profession and identified with it as one of its products. But that would require a clear finding of fact by the commissioners that the taxpayer had sought the office as part and parcel of his trade or profession : and here such a finding, I think, is locking. The word "incidental" in the special commissioners' finding is ambiguous : but they do say that the respondents did not set out as professional registrars, and by "incidental" I think they must mean something that just happened to come along, and was acceptable.
36. ' Reluctantly -I think that the appeal must be dismissed. I should add (first) than this will, in may opinion, in no way affect the decision in Davies v. Braithwaite (1), which proceeds upon different considerations: and (second) that no argument has been adduced in the present case that the 2,500 was immune from income-tax as being a capital receipt or a gift.
(1) (1931) 2 K B 628