The company traded as rubber planters. A manager’s contract allowed for six months’ notice. The company agreed to sell its estates, and the sale was completed and the trade of the company discontinued. The manager was given notice to terminate his employment, and andpound;1,900 for the salary due to him for the six months and for commission he would have earned. The company was controlled from London and required him to continue to work to ensure a proper transfer of the company.
Upjohn LJ said: ‘Mr. Borneman has submitted that, in truth and in fact, this sum of andpound;1,900 was in reality paid to keep Mr. Paton working hard in the interests of his employers until the hand-over on 31st March, 1958 – for, as I have already pointed out, it was essential that the estates should at all times be kept in a first-class and efficient condition. Therefore, he submits that this is, in effect, additional remuneration paid to him for keeping on until 31st March.’ The argument was rejected. It did not accord with the legal character which the payment bore: ‘It is perfectly true that this payment might have been so devised that the Company might have been entitled to claim this as a deductible expense, as being the remuneration of Mr. Paton during this period; but, in fact, it was not so devised. … What the parties were intending to do was to give Mr. Paton ,1,900 in lieu of notice, which is as common a transaction as one can possibly have. In other words, they were paying him compensation for the fact that they were not going to employ him for the full time for which they were bound so to employ him: and, for that and other reasons, Mr. Paton was happy and willing to accept that arrangement. To my way of thinking, that payment cannot possibly be described as a payment for the purposes of trade. It was made because the Company was not going on to trade, and they were left with the possibility of an action for damages against them for breach of the agreement of employment. I accept Mr. Borneman’s submission that, though it was made on the occasion of discontinuance, it was not because of that, and it was not to enable them to discontinue business: they were going to do that anyway. But this payment was not made for the purposes of the trade they were going to carry on: it was to get rid of a possible law suit after discontinuance.’
Judges:
Upjohn LJ
Citations:
(1962) 40 TC 161
Jurisdiction:
England and Wales
Cited by:
Cited – Commissioner of Inland Revenue v Cosmotron Manufacturing Company Limited PC 28-Jul-1997
(Hong Kong) The taxpayer company was winding down its business. As it closed it made substantial redundancy payments to its employees. The Commissioners rejected a suggestion that such payments could be set off against income, saying that the . .
Lists of cited by and citing cases may be incomplete.
Income Tax
Updated: 01 May 2022; Ref: scu.236733