Rendell v Went

Where a company incurs unreimbursed expense in providing a director with a benefit in kind, the expense is taxable under section 161 of the Income Tax Act 1952. The benefit remains taxable although the company acted solely or principally to protect its own commercial interests.

Where the whole expense purchases the benefit received by the director, its measure is the amount actually spent. It is not reduced to what the director would or could have spent from personal resources. Apportionment is available only where an identifiable part of the total expenditure was spent on something which was not a benefit or facility for the director.

The appellant was a full-time company director. Following a fatal road accident while driving on company business, he faced prosecution for causing death by reckless or dangerous driving. His company instructed solicitors to prepare his defence because a conviction and imprisonment could deprive it of his commercially important services. The company paid the resulting legal costs of £641, and the appellant was acquitted.

The £641 was included in the appellant's taxable emoluments. Buckley J referred the matter back to the Special Commissioners for a finding about the reasonable cost of the defence. That inquiry was not supported before the Court of Appeal. The appellant appealed from the Court of Appeal's order dated 3 July 1963, contending principally that the taxable amount should be reduced to what he would personally have spent.

The central issue was whether, and to what extent, the company's expenditure constituted a taxable benefit under section 161 of the Income Tax Act 1952.

1. Appeal dismissed unanimously. Viscount Radcliffe delivered the leading speech. Lord Guest and Lord Upjohn expressly agreed with him; Lord Hodson concurred. Lord Reid reached the same conclusion in separate reasons. The Court of Appeal's order was affirmed, and the appellant was ordered to pay the respondent's costs.

2. Per Viscount Radcliffe and Lord Reid, the company provided the appellant with a benefit within section 161(1) of the Income Tax Act 1952. The expenditure purchased his legal defence and relieved him of the burden and expense of arranging it himself. It also reduced the risk of conviction and imprisonment. The appellant knew of and accepted the defence provided on his behalf.

3. Per Viscount Radcliffe and Lord Reid, the company's commercial purpose did not prevent the defence from being a benefit to the director. An expenditure may advantage both the company and its director. Section 161 applies where the money spent in the company's interests nevertheless provides the director with a benefit in kind.

4. Per Viscount Radcliffe, section 161 treats the amount actually spent by the company as part of the director's assessable emoluments through section 160. The relevant amount was therefore £641, not a notional figure representing what the appellant would, could or might have spent from his own resources. A recipient's unwillingness or inability to buy a benefit personally does not reduce the amount attributed under the statutory scheme.

5. Per Viscount Radcliffe, section 161(6) permits apportionment only where part of a total sum can be identified as expenditure on something which was not a benefit or facility for the director. Every part of the £641 purchased the appellant's defence. The company and the appellant had different reasons for wanting an acquittal, but the expenditure had a single object and no part was severable.

6. Per Viscount Radcliffe, there was no evidence that the legal costs were extravagant or unreasonable. An inquiry into reasonable expenditure was therefore unwarranted. Lord Reid likewise found no evidence that the defence obtained could have been provided for less, while leaving open whether departure from the statutory measure might ever be possible in other circumstances.

1. House of Lords: The appeal was dismissed unanimously. The Court of Appeal's order dated 3 July 1963 was affirmed, with costs against the appellant.

2. Court of Appeal: The appellant sought review of its order dated 3 July 1963. The judgment records that no party supported Buckley J's particular form of inquiry before that court.

3. High Court: Buckley J referred the matter back to the Special Commissioners to determine a reasonable sum to expend on the appellant's defence, so that no greater amount would be taxed.