RENDELL Vs. WENT (INSPECTOR OF TAXES)

JUDGEMENT

(1.) I agree with the special commissioners in this case. The company clearly incurred an expense, namely, the sum of Pounds 641. That expense was incurred in connection with the provision of a benefit to the taxpayer Rendell, namely, the benefit of being defended by solicitors and counsel on his trial. The conditions precedent to liability specified in section 161 (1) of the Income -tax Act, 1952, are therefore satisfied; and by virtue of section 160 the expense in question has to be treated as a perquisite of the taxpayers office as a director, and included in his emoluments assessable under Schedule E. Against this it is said that if the company incurs the expense primarily in its own interests and only secondarily in the interests of the director then no benefit is provided which the meaning of section 161 (1). This interpretation I am unable to accept. For present purposes I see no sufficient distinction between the case of a company expending money primarily for its own benefit, and the case of a company expending money for its own benefit, which, as a by -product, benefits a director, always assuming that this was part of the companys purpose. The latter kind of expense could not be justified unless there were some benefit to the company.

(2.) IT is also argued that the taxpayer would not have spent Pounds 641 on his own defence if left to himself. He could and would have spent no more than Pounds 60 or so. Thus he had been saved that sum and no more. Accordingly that sum represents his only benefit, and the charge to tax should be restricted accordingly. Section 161 (1), however, does not lay the charge upon the benefit. The combined effect of sections 160 and 161 (1) is to lay the charge upon the sum paid by the company as an expense in connection with the provision of the benefit. At the same time the rather curious language at the end of section 161 (1) gives the director the opportunity to claim a countervailing deduction under Schedule 9, paragraph 7, if the facts justify it. Here, admittedly, they do not; but as a matter of construction I can see nothing in the language of the Act of 1952 which would justify the court in investigating how much of the expense would have been incurred by the director had he been left to provide the benefit, or a corresponding benefit, for himself.

(3.) FINALLY it is said for the taxpayer that it is obviously unjust if he has to be saddled with income -tax liability on any extravagant sum that a company might choose to expend on a benefit to a director, notwithstanding that the benefit could have been obtained by him for much less. That may be so, but I do not think this possibility can of itself justify a construction of the Act which would involve writing in a proviso which is not there. Moreover, wanton extravagance of the kind suggested would probably be ultra vires the company and therefore not something to be contemplated by the legislature. Once a benefit has designedly been conferred upon a director, the Act itself prescribes what the measure of liability shall be, namely, the sum expended by the company; and I find nothing in the language of these two sections for dissecting that sum and taxing only so much as the director would have paid himself. For those reasons, I think, this appeal must be allowed and the cross -appeal dismissed.