Brown v Bullock

Under paragraph 7 of the Ninth Schedule to the Income Tax Act, 1952, an expense is deductible only where it is necessarily incurred in performing the duties of the office or employment. Necessity is an objective requirement arising from the duties themselves. Employer instruction or practical expectation is insufficient if the duties can be performed without the expenditure. Club subscriptions obtained for social status, business contacts, hospitality or personal amenities do not satisfy that test. The subscription cannot be apportioned by analysing particular uses of the club. The court left undecided whether the result might differ under Schedule D, whose wording is materially different.

The appellant was a bank branch manager whose employer paid the subscription to the Devonshire Club and part of his Royal Automobile Club subscription. He claimed the payments as deductions under paragraph 7 of the Ninth Schedule to the Income Tax Act, 1952.

The General Commissioners disallowed the claim. Mr Justice Danckwerts upheld that decision. The appeal concerned whether the subscriptions were necessarily incurred in the performance of the appellant’s duties because he had been instructed to foster local contacts and join suitable clubs, notwithstanding the social and personal benefits of membership.

The Court of Appeal unanimously dismissed the appeal with costs.

1. The Master of the Rolls. Paragraph 7 uses necessarily in a strict sense and materially narrows the allowable expenditure. The relevant question was whether the subscriptions were necessarily incurred in performing the duties of bank manager. The appellant could perform those duties without club membership. The employer’s view that membership would confer useful social status and assist business contacts did not make the subscription an expense incurred in performing the duties.
2. The subscription purchased club membership, status and access to general amenities. It was not practicable to divide the expenditure according to particular occasions on which the club was used for business hospitality or contact with customers. The claim therefore failed as a whole. The Master of the Rolls saw no reason to doubt the decisions in Lomax v Newton, 34 Tax Cases, 558, and Griffiths v Mockler, 35 Tax Cases, 135.
3. Lord Justice Donovan. The test was objective. It was not enough that the employer imposed or expected the expenditure. The duties themselves had to be incapable of performance without the particular outlay. This followed from Ricketts v Colquhoun, 10 Tax Cases, 118. The appellant accepted that he could perform his duties without the club subscription, so the deduction was unavailable.
4. Lord Justice Harman agreed with the dismissal. The Master of the Rolls expressly declined to decide whether the appellant might have succeeded under Schedule D, where the statutory language differed from Schedule E.

1. Court of Appeal dismissed the appeal with costs: [1961] EWCA Civ 5.
2. High Court, Mr Justice Danckwerts, upheld the General Commissioners’ conclusion that the subscriptions were not deductible.
3. General Commissioners disallowed the claim for deduction.