INLAND REVENUE COMMISSIONERS Vs. DHWILLIAMS EXECUTORS

JUDGEMENT

(1.) Their Lordships took time for consideration. It is conceded in this appeal that if the sum in question was not of a nature to attract income-tax in the hands of the company it cannot be taxed in the hands of the shareholder, whose executors are the appellants, either for income-tax or for surtax. The sole question, therefore, which we have to consider is whether or not this sum was in the hands of the company a receipt on capital account, or a receipt on revenue account. The fact that the company has agreed to have it treated as between itself and the Inland Revenue as a receipt on revenue account cannot bind the present appellants, who are not affected by the view which the company may have taken.

(2.) The difficulty lies, as it does so often, in the application of principles to the facts of an individual case; and in this class of case, different minds may well take different views. I have come to the conclusion that the decision of Macnaghten, J., was right. The first thing to do is to examine the nature of the payment which company received. It was a sum of Sterling Pound 15,000, received under a policy taken out for the benefit of the company covering injury or death by accident of Mr. Crawford, one of the directors of the company. It was a very small company. There were three principle shareholders and directors. Mr. Crawford was a gentleman who had very special experience and knowledge of bloodstock, with the sale and purchase of which the companys business was mainly concerned. The nature of his special value to the company is set out in the case stated, and I need not read the passages which refer to it. The company adopted the policy of effecting insurances of a similar character in respect of Mr. Crawford and also in respect of the other two directors, who, in different ways, appeal to have had qualifications and experience of special value to the company. But Mr. Crawford obviously stood in a category by himself. The object of the insurance was not to cover any temporary loss. That is stated in the case, although when one comes to look at the policy it is not quite clear how that conclusion was reached by the Special Commissioners. But the suggestion out of which the insurance materialized was that, in the event of Mr. Crawfords death, the companys business would suffer and his family would not get much for his shares. The latter part of that sentence which was quite clearly to give the company some money to make up for the loss which it would super if it were deprived of the very volleyball services of Mr. Crawford.

(3.) It is clear from the case that Mr. Crawford was not bound to the company by any contract. He could have served his connection with it, or he could have ceased to perform the very useful services which he was performing. But that, to my mind, does not affect the matter. From the business point of view Mr. Crawfords connection with the company was one which obviously was likely to endure, and the absence of any contract of service binding him to the company does not alter the business position, which was that, so long as he remained there, he would naturally continue to do what he had done in the past and give the company the benefit of his greats experience. The case, therefore, may be treated, it seems to me, in exactly the same way as a case in which a valuable servant is bound by a contract, long or short, and the benefit of his services is protected, so to speak, by a policy of insurance taken out by the employer. The policy contained what is called a compensation schedule, and it is, on the face of it, perhaps more appropriate to a policy designed to compensate an individual in respect of injury by accident; but that was not the object of this policy. It was not a policy such as that dealt with in the case of Murphy V/s. Gray & Co. The object of the policy in that case was to put the company in funds in respect of payments to employees which, either through a legal obligation or through a moral obligation, it might be called upon to make. In that respect it differs from the purposes of the present policy, which was not to enable the company to make payments to Mr. Crawford, but to give the company something to make up for the loss which the company would sustain if it were tone deprived of Mr. Crawford services. Under the policy a sum of Sterling Pound 15,000 was payable in the case of death or disabling injuries of a specified character, the occurrence of which would obviously have interfered with his services, or deprived the company of them altogether; then their is a provision of Sterling Pound 50 a week in respect of temperate partial disablement from engaging in or giving attention to profession or occupation. Bearing in mind the object of this policy, if Mr. Crawford had, for instance, suffered a temporary disablement over a period of six months, and the company had thereby been deprived of his services during that period, the company would, nude this policy, have been receiving Sterling Pound 50 a week, and that Sterling Pound 50 a week would have been received by it not for the porpoise of handling it over to Mr. Crawford but for the purpose of putting it into its own coffers in order to make up in whole or in part for the loss which it would suffer by being deprived of his services during that period. The provisions of the policy therefore fall into line with the general purpose which the company had in taking it out. In point of fact, what happened was that Mr. Crawford unfortunately was killed in an accident. The company therefor was deprived for ever of his services in the future, and its assets were increased by the sum of Sterling Pound 15,000 received undo the policy. That sum was distributed among the shareholders. What we have to consider is whether that sum of money received in the circumstances whip I have stated and being of the nature which I have stated, is to be treated for income-tax purposes as capital or income.