Edwards (HM Inspector of Taxes) v Roberts: CA 3 Jul 1935

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.

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.

Citations:

[1935] EWCA Civ 1, 19 TC 618, (1935) 19 TC 618

Links:

Bailii

Jurisdiction:

England and Wales

Cited by:

CitedRFC 2012 Plc (Formerly The Rangers Football Club Plc) v Advocate General for Scotland SC 5-Jul-2017
The Court was asked whether an employee’s remuneration is taxable as his or her emoluments or earnings when it is paid to a third party in circumstances in which the employee had no prior entitlement to receive it himself or herself.
Held: The . .
Lists of cited by and citing cases may be incomplete.

Income Tax

Updated: 18 August 2022; Ref: scu.521619