Inland Revenue Commissioners v Von Glehn: CA 1920

The company had paid a penalty during the First World War under the Customs (War Powers) Act 1915 for exporting goods without taking all reasonable care to secure that the ultimate destination should not be enemy territory. They sought to set off the penalty against income tax.
Held: The claim was disallowed. Although the incurring of the penalty was connected with the trade, in the sense that it would not have happened unless the trade had been carried on, it was not for the purposes of the trade but because of a wrongful act on the part of the company.
Lord Sterndale MR said: ‘It is perhaps a little difficult to put the distinction into very exact language’ but that the payment was not a ‘loss connected with the business but. . . a fine imposed upon the company personally.’
Warrington LJ said that the payment was not a loss ‘connected with or arising out of the trade’ because it was a sum which ‘the persons conducting the trade have had to pay because in conducting it they have so acted as to render themselves liable to this penalty.’
Scrutton LJ said that the obvious answer to the question whether a trader could deduct penalties imposed for carrying on the trade in an unlawful manner was ‘Of course he cannot’ but said that he did not find it easy to explain the reasons. He cited some well-known dicta about the criteria for allowable deductions and went on to say: ‘. . [W]ere these penalties an expenditure necessary to earn the profits ? Were they paid for the purpose of earning the profits ? The answer seems to me to be obvious, that they were not; they were unfortunate incidents which followed after the profits had been earned.’


Lord Sterndale MR, Scrutton LJ, Warrington LJ


[1920] 2 KB 553, 36 The Tims LR 463


Customs (War Powers) Act 1915


England and Wales

Cited by:

CitedNewsom v Robertson ChD 30-Apr-1952
Mr Newsom, a practising barrister sought to set off against his income, the expenses of travelling between his home and his chambers in London. The Inspector appealed the decision of the commissioners that he could do so. The rule required that the . .
CitedMcKnight (Inspector of Taxes) v Sheppard HL 18-Jun-1999
The taxpayer sought to set off against tax some pounds 200,000 spent defending professional disciplinary proceedings. The House was asked whether this was ‘money wholly and exclusively laid out or expended for the purposes of the trade.’
Held: . .
Lists of cited by and citing cases may be incomplete.

Income Tax

Updated: 04 May 2022; Ref: scu.197030