British Broadcasting Corpn v Johns

Crown immunity is confined to servants or agents of the executive government acting in that capacity. A chartered public corporation operating under licence as an independent contractor does not acquire immunity merely because it performs public services, receives public funds or is subject to governmental control.

Money provided for a restricted purpose is not an annual profit or gain merely because some remains at the accounting year end. Where the recipient must carry the surplus forward for that purpose and any ultimate balance returns to the provider, the surplus is not taxable. Profits from separate trading activities remain taxable and must be identified notwithstanding accounting difficulty.

The BBC appealed from Wilberforce J's determination of an income tax appeal by case stated. The Special Commissioners had rejected its claims that it enjoyed Crown immunity, that the unspent balance of its parliamentary grant was not taxable profit, and that an additional subscription paid to a news-film company was deductible.

Wilberforce J upheld the Commissioners on immunity and the taxable character of the surplus, but held that the news-film payment was wholly and exclusively incurred for the purposes of the BBC's trade. The BBC appealed on the first two issues. The Crown cross-appealed on deductibility.

The Court considered whether the BBC was an agent of the executive government, whether its year-end broadcasting surplus constituted annual profits or gains under the Income Tax Act 1952, and, hypothetically, whether the news-film contribution was deductible.

1. Disposition. The BBC's appeal was allowed and the Crown's cross-appeal was dismissed. The case was to be remitted to the Special Commissioners so that the broadcasting surplus would not be assessed, while profits from other activities in the nature of trade would be quantified and taxed. The BBC received its costs. Leave to appeal to the House of Lords was refused.

2. Crown immunity. Willmer, Danckwerts and Diplock LJJ agreed that the BBC did not enjoy Crown immunity. Incorporation by Royal Charter, performance of public services, public funding and governmental controls did not make it a servant or agent of the executive government. The charter, licence and agreement instead established an independent legal person operating under licence and contract. Its editorial independence and the power to take possession of its stations on behalf of the Crown in an emergency reinforced that conclusion.

   Diplock LJ formulated the governing principle more precisely. Crown immunity is restricted to servants or agents of the executive government and extends only to acts done, or property owned or occupied, exclusively in that capacity. The expression “emanation of the Crown” was too imprecise to determine the issue. The BBC was therefore a “person” within section 122 of the Income Tax Act 1952.

3. Broadcasting surplus. The Court unanimously held that the unspent balance of money supplied by the Postmaster General for broadcasting was not an annual profit or gain. The BBC could not receive payment from the public for broadcasting, could use the grant only for its authorised purposes, could not distribute it to its members, and had to carry any balance forward. An ultimate balance passed to the Postmaster General on dissolution.

   Willmer and Danckwerts LJJ treated the identity between the provider and ultimate recipient of the funds as reflecting the principle illustrated by the mutual insurance and rating cases. Diplock LJ rested the conclusion on the ordinary meaning of “annual profits or gains”. A year-end balance does not become profit merely because receipts temporarily exceed expenditure. Separate profits from publications or other trading activities remained taxable, even if their separation required difficult accounting.

4. News-film expenditure. This issue was academic once the broadcasting surplus was held non-taxable. Willmer and Danckwerts LJJ nevertheless considered that the additional subscription was deductible under section 137 of the Income Tax Act 1952. It was incurred to obtain a news-film service vital to broadcasting and was distinguishable from payments made merely to support an associated company. Diplock LJ dissented on this obiter issue. He considered that the payment also supported a service for other subscribers and therefore was not incurred wholly and exclusively for the BBC's activities.

1. Court of Appeal: The BBC's appeal was allowed and the Crown's cross-appeal dismissed. The broadcasting surplus was held not taxable, while profits from other activities in the nature of trade remained assessable.
2. High Court: Wilberforce J upheld the Special Commissioners on Crown immunity and the taxation of the surplus, but held the additional news-film subscription deductible.
3. Special Commissioners: The Commissioners decided all three issues against the BBC.