S Ltd. a member of an oil and gas exploration syndicate, agreeing that the exploration work was to be carried out by one member of the syndicate on behalf of the other members. The costs, expenses, rewards and benefits accruing from the exploration operations were to be shared by the syndicate members in proportion to their participating interests. Gaspet Ltd as a member of the group entered into an ‘illustrative agreement’ with S Ltd agreeing to bear the share of the costs of the expenditure incurred by the operator for which S Ltd was responsible in return for taking the benefit of all S Ltd’s share of any petroleum won from the exploration. The court was asked whether the taxpayer company was entitled to capital allowances in respect of the part of the expenses which it paid pursuant to the illustrative agreement which represented research costs.
Held: The appeal failed. Kerr LJ said: ‘In the present case it is clear that the research was not directly undertaken by the taxpayer company. Was it, then, directly undertaken by someone else on behalf of the taxpayer company? As the judge said, the phrase ‘on behalf of,’ in particular in the context of the phrase ‘by or on behalf of,’ denotes the concept of agency. This is a perfectly straightforward concept, even if in a context such as the present it may require a wider interpretation than agency resulting from a direct contractual relationship. Where, as here, the taxpayer company did not directly undertake the work itself, I therefore ask myself whether the work was undertaken by anyone as its agent, allowing for this wider sense in favour of the taxpayer company.’
and ‘It is true, as Mr. Park reminded us, that the words ‘on behalf of’ can have a more extended meaning than agency, in the sense of ‘for the benefit of’ or ‘in the interests of.’ But I do not think that this is the sense in the present context. It would introduce a great deal of uncertainty into the effect of the section. A close relationship between the claimant and the undertaking of the research is inherent in the language. The concept is that the research is being undertaken directly, either personally or through an agent.’
Nicholls LJ said: ‘I agree with the judge that to be within the phrase ‘on behalf of’ the relationship must be one of agency, or akin thereto, although I think that there need not necessarily be a direct contractual link between the claimant and the person by whom the research is directly undertaken.’
Judges:
Kerr, Nicholls LJJ
Citations:
[1987] 1 WLR 769
Statutes:
Capital Allowances Act 1968 9(1)
Citing:
Appeal from – Gaspet Ltd v Ellis (Inspector of Taxes) 1985
S Ltd was a member of an oil and gas exploration syndicate, the agreement relating to which provided that the exploration work was to be carried out by one member of the syndicate (the operator) on behalf of the other members. The costs, expenses, . .
Cited by:
Cited – Plevin v Paragon Personal Finance Ltd SC 12-Nov-2014
PPI Sale – No Recovery from Remote Parties
The claimant sought repayment of payment protection insurance premiums paid by her under a policy with Norwich Union. The immediate broker arranging the loan was now insolvent, and she sought repayment from the second and other level intermediaties. . .
Lists of cited by and citing cases may be incomplete.
Agency, Income Tax
Updated: 04 May 2022; Ref: scu.538717