1969-VIL-209--DT

Equivalent Citation: [1969] 74 ITR 147 (HL)

HOUSE OF LORDS

Date: 26.03.1969

OWEN

Vs

POOK (INSPECTOR OF TAXES)

H. H. Monroe Q. C. andJ. R. Cherryman, for the appellant
F. Heyworth Talbot Q. C.,J. Raymond Phillips Q. C. and P. Medd for the respondent

BENCH

LORD GUEST, LORD PEARCE, LORD DONOVAN, LORD WILBERFORCE and LORD PEARSON, JJ.

JUDGMENT

Their Lordships took time for consideration.

LORD GUEST.-

My Lords, Dr. Owen is a general medical practitioner in practice at Fishguard. He also holds two part-time appointments with the South Wales Hospital Management Committee as obstetrician and anaesthetist at a hospital in Haverfordwest some 15 miles from Fishguard. Under the terms and conditions of these appointments he was on " stand-by duty " as obstetrician, one weekend a month and as anaesthetist on Monday and Friday nights and one weekend a month. At such times he was required to be accessible by telephone, apart from being on call at all times for obstetric " flying squad " duties in any part of Pembrokeshire. He had no other duties at the hospital, all were concerned with emergency cases. The flying squad duties were very rare. On receipt of a telephone call from the hospital he gives instructions to the hospital staff. He usually sets out immediately by car to the hospital. He may advise treatment by telephone and await a further report. Sometimes the telephone call is received when he is out on his medical rounds. It is found in the stated case that his responsibility for a patient begins as soon as he receives a telephone call.

Under the terms and conditions of service of hospital staff the management committee pay to the appellant travelling expenses as a part time officer at a fixed rate per mile, said to be 8d., for single journeys between Fishguard and the hospital, limited to a single journey of 10 miles. The appellant pays the cost of the additional five miles travel himself.

The appellant in 1962-63 made about 140 journeys to the hospital and received payment of expenses amounting to £ 100. This sum was included in his income assessable for that year. In 1963-64 he made about 115 journeys receiving £ 82 which was also included in his assessment for 1963- 64. Before the commissioners he sought to deduct the whole cost of traveling incurred which for 1962-63 amounted to £ 150 and for 1963-64 to £ 123 for income tax purposes.

The general commissioners sustained his appeal and allowed the deductions sought under rule 7 of Schedule 9 to the Income Tax Act, 1952. Stamp J. reversed that determination and his judgment was upheld by the Court of Appeal (Diplock and Edmund Davies L. JJ., Lord Denning M. R. dissenting).

Two questions arise-(1) whether the travelling allowances were properly included in the appellant's emoluments for income tax purposes under Schedule E and (2) was the actual cost of the journeys deductible from his emoluments under the relevant rule.

Schedule E of the Income Tax Act, 1952, provides as follows : " Tax under this Schedule shall be charged in respect of any office or employment on emoluments therefrom which fall under " Cases I, II and III. Paragraph 1 (1) of Schedule 2 to the Finance Act, 1956, provides inter alia :

              " Tax under Case I, II or III shall, except as hereinafter mentioned, be chargeable on the full amount of the emoluments falling under that case, subject to such deductions only as may be authorised by the Income Tax Acts, and the expression ' emoluments ' shall include all salaries, fees, wages, perquisites and profits whatsoever. "

Under Schedule 9 to the Income Tax Act, 1952, rule 7 applicable to Schedule E provides as follows :

              " If the holder of an office or employment of profit is necessarily obliged to incur and defray out of the emoluments thereof the expenses of travelling in the performance of the duties of the office or employment, or of keeping and maintaining a horse to enable him to perform the same, or otherwise to expend money wholly, exclusively and necessarily in the performance of the said duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed. "

The first point, whether the travelling expenses paid to the appellant were properly included as part of his emoluments, was not taken before the general commissioners or before Stamp J. It was, however, raised without objection before the Court of Appeal who decided it adversely to the taxpayer. No objection was taken to the argument being raised before your Lordships.

In view of the way in which the case went before the commissioners the only point being whether the actual travelling expenses were properly deductible-there is little material in the case on the point. The appellant's entitlement to these expenses is contained in section 19 " Expenses " :

           " (iv) A part-time officer, when called out in an emergency to the hospital where his principal duties lie, shall receive expenses for such journeys. "

The limitation to ten miles for a single journey is contained in section 19(b)(3)(iii) and under the heading :

       " Travelling Expenses, Mileage Allowances, etc. " :

               "  (iii) Where a part-time officer travels between his private consulting room or place of residence (whichever is the nearer) and the hospital where his principal duties lie before and/or after an official journey, expenses shall be payable for the whole distance provided that for journeys to and from the hospital where the officer's principal duties lie no expenses shall be paid for any distance exceeding, ten miles each way unless circumstances warrant exceptional treatment. "

The Court of Appeal, certainly the Master of the Rolls, appear to have treated the payments as allowances payable to the appellant whether he incurred the expenses or not. But Edmund Davies L. J. would have decided the case the same way whether the payments were actual reimbursement for expenses incurred or allowances. From their reliance on Fergusson v. Noble *, I take it that the case was treated as one where the payment was truly an allowance and not a reimbursement.

There is, in my view, a distinction between the two cases. If the allowance was, as in Fergusson v. Noble  [1919] S. C. 534 ; 7 T. C. 176, a clothing allowance payable whether it was expended or not, I can see the argument that it was an emolument in the sense of a profit or gain and I do not wish to question the authority of that case ; but if the payment was merely a reimbursement for actual expenditure, different considerations arise. This case is, in my view, distinguishable. Mr. Heyworth Talbot for the Revenue was prepared to take the case upon the footing that it was a reimbursement for actual expenditure, and I so treat it. The Revenue's contention, therefore, must be that where an officer assessed under Schedule E receives an allowance for travelling which is, under his conditions of service, pro tanto to reimburse him for the expense occasioned to him on travelling, this allowance is an emolument. The fact that " emolument " as defined includes " perquisites and profits " does not, in my view, advance the Revenue's argument. " Perquisite " is merely a casual emolument additional to regular salary or wages. But the allowance  [1926] A. C. 1*. must, to be chargeable, accrue " in respect of the office or employment " (Schedule E). In Hochstrasser v. Mayes [1960] A. C. 376 ; [1961] 42 I.T.R. 457, Viscount Simonds, at page 388, quotes with approval a passage from the judgment of Upjohn J. (as he then was) to the following effect :

             " ' In my judgment, ' he said, ' the authorities show this, that it is a question to be answered in the light of the particular facts of every case whether or not a particular payment is or is not a profit arising from the employment. Disregarding entirely contracts for full consideration in money or money's worth and personal presents, in my judgment not every payment made to an employee is necessarily made to him as a profit arising from his employment. Indeed, in my judgment, the authorities show that to be a profit arising from the employment the payment must be made in reference to the services the employee renders by virtue of his office, and it must be something in the nature of a reward for services past, present or future. "

Lord Radcliffe, who concurred with Viscount Simonds, said at page 391 :

                " . . . while it is not sufficient to render a payment assessable that an employee would not have received it unless he had been an employee, it is assessable if it has been paid to him in return for acting as or being an employee . . . .The money was not paid to him as wages. "

Later in his judgment Lord Radcliffe appears to treat a claim for indemnity as not assessable. The facts in that case were widely different from the present, but if the proper test is whether the sum is a reward for services, then, in my view, the travelling allowances paid to Dr. Owen are not emoluments. To say that Dr. Owen is to that extent " better off " is not to the point. The allowances were used to fill a hole in his emoluments by his expenditure on travel. The allowance were made for the convenience of the employee to allow him to do his work at the hospital from a suitable adjacent area. In my view, the travelling allowances were not emoluments.

If I am right that the allowances are not emoluments, no question arises as to deductibility of the actual sums expended on the 20-mile journey. There still remains, however, the question as to the extra expense for which Dr. Owen was not indemnified but had to pay himself. The basis of the Crown's argument on this aspect of the case is Ricketts v. Colquhoun **. The quotation from Lord Blanesburgh's speech referring to rule 9 (as it then was) is at page 7 :

             " But I am also struck by this, that, as it seems to me, although undoubtedly less obtrusively, the language of the rule points to the expenses with which it is concerned being only those which each and every occupant of the particular office is necessarily obliged to incur in the performance of its duties-to expenses imposed upon each holder ex necessitate of his office and to such expenses only. It says : ' If the holder of an office '-the words, be it observed, are not ' if any holder of an the office '-the duties again are not the duties of his office. In other words, the terms employed are strictly, and, I cannot doubt, purposely, not personal but objective : the deductible expenses do not extend to those which the holder has to incur mainly and, it may be, only because of circumstances in relation to his office which are personal to himself or are the result of his own volition. "

The Recorder of Portsmouth was not allowed to deduct the expenses of travelling between London and Portsmouth. Mr. Monroe for the tax- payer did not ask your Lordships to say that Ricketts v. Colquhoun (1) was wrongly decided but he sought to distinguish it on the facts of this case. I consider that he has sufficiently distinguished it.

In Ricketts v. Colquhoun* there was only one place of employment, Portsmouth. It was not suggested that any duties were performed in London. In the present case there is a finding of fact that Dr. Owen's duties commenced at the moment he was first contacted by the hospital authorities. This is further emphasised by the finding that his responsibility for a patient began as soon as he received a telephone call and that he sometimes advised treatment by telephone. It is noteworthy that under section 19(b)(3)(iv) of his terms and conditions of service the hospital is referred to " where his principal duties lie. " There were thus two places where his duty is performed, the hospital and his telephone in his consulting room. If he was performing his duties at both places, then it is difficult to see why, on the journey between the two places, he was not equally performing his duties. Indeed Mr. Heyworth Talbot did not contend to the contrary. It follows that he had to get from his consulting room to the hospital by car to treat the emergency. The travelling expenses were, in my view, necessarily incurred in the performance of the duties of his office.

I would allow the appeal.

LORD PEARCE.-My Lords, the appellant is a doctor carrying on a general practice at Fishguard, which is 15 miles from Haverfordwest. Since the medical needs of the hospital at Haverfordwest exceeded the supply of medical practitioners there, the hospital had to call on the part-time services of a Fishguard practitioner. Accordingly, the appellant was employed or appointed to act as a stand-by for emergencies, one weekend a month as an obstetrician, and one weekend a month (and also Monday and Friday nights) as an anaesthetist. He had to be available on the telephone at Fishguard. As soon as he received a telephone call his responsibility for the patient at Haverfordwest started. If he could deal with the case merely by instructions on the telephone he did so. But in the normal case he would give instructions to the hospital staff (e.g., to prepare the patient for an operation) and set out immediately in his car for the Haverfordwest hospital. For the expense of these journeys he was reimbursed, or partially reimbursed, by the hospital management committee at whatever was the proper rate per mile under the Terms and Conditions of Service of Hospital Medical and Dental Staffs. These conditions expressly state that :

                " Travelling, subsistence, and other expenses shall be paid to meet actual disbursements of officers engaged in the service of boards or committees and shall not be regarded as a source of emolument or reckoned as such for the purposes of pension. "

Nobody suggests that the reimbursements were over-generous. The appellant was in fact reimbursed only in respect of 10 miles out of each 15 mile journey and had to bear the cost of 5 miles of the journey himself. The commissioners found, as I would expect, that " his travelling expenses to and from. . . . an emergency were wholly, exclusively and necessarily incurred or expended in the duties of that office. "

Yet it has been held that he must pay tax on these reimbursements as if they were income or profit received by him. The point can be underlined by the following example. Suppose that there were some constantly recurring emergency in the mostdistant part of Pembroke which he was constantly expected to deal with gratuitously and without any extra pay, but he was merely reimbursed for the railway tickets which he had taken to get there and back (or only for two-thirds of his rail tickets so that each time he incurred an actual loss). In that case he would admittedly, if the argument of the Revenue is correct, pay tax on all the reimbursements or partial reimbursements of his railway tickets.

Such a situation would be obviously unjust. If it be correct, it is clear that something has gone seriously wrong with the enactments or the case law or with both. It must be disturbing to the citizen if such a situation can arise. Such an injustice is not in the interest of anyone-certainly not of the Revenue, since injustice causes evasion. Each year there is an adjustment of the mechanism of taxation wherever that is necessary to ensure that ingenious schemes of avoidance shall not succeed. There is a corresponding duty to adjust the mechanism where it is found to be creating a clear injustice.

On the findings of the commissioners the expenses were incurred in the performance of his duties. In my opinion, that finding was correct and the expenses were allowable under rule 7 of Schedule 9 to the Act of 1952. It was as a doctor practising in Fishguard that the appellant was appointed to his stand-by duties. He was to stand-by in Fishguard. In Fishguard on the telephone he undertook his responsibilities to the patient and the hospital and no doubt he discussed the symptoms and made various arrangements as to what should be done by way of alleviation in the halfhour which must elapse before he could arrive. If he were held up on the road he would be under duty to ring through and make any resulting arrangements. If anyone asked him en route what he was doing, he would probably say truthfully that he was on hospital duty. He would not, I think, be even pedantically accurate if he said : " I was on hospital duty on the telephone a quarter of an hour ago and shall be on hospital duty in a quarter of an hour's time but at the moment I am driving on my own account. " I do not find it helpful to consider whether, if he knocked down a pedestrian, he would make the hospital liable or, indeed, whether he would do so if an accident happened when he had been to the hospital first and had been there directed on to an emergency case nearby. This has no decisive bearing on the point in issue. His duty to the hospital and the patient started on the telephone, and he was thereafter responsible to the hospital and the patient until he had dealt with the patient, whether he made his journey to the hospital in his own car or as passenger in a hired car.

In my opinion, the finding of the commissioners was correct and should be upheld.

It is argued that the case of Ricketts v. Colquhoun* compels us to hold otherwise. With all respect to their Lordships who decided that case, I find it, as some others have done, very unsatisfactory both in its result and in its reasoning. In order to carry out his duties as recorder, the taxpayer had to travel to Portsmouth, since he was a London practitioner ( and it was, no doubt, by virtue of his London practice that he was appointed recorder). It was, therefore, unreasonable to tax him on the emoluments of his office without allowing the travelling expenses. For that would be to tax him on a sum larger than the true profit of the office. Rowlatt J. described the position as unreasonable, but felt compelled by the rules to come to an unreasonable conclusion. Warrington L. J. managed to give a more reasonable meaning to the rules, but his view did not prevail. In my opinion, that case should be considered afresh by your Lordships' House. It is contended that Parliament by re-enacting the section in 1952 gave countenance to the case. But the Act was a consolidation, and fresh consideration cannot, I think, have been given to the subject since the short re-enacted section refers only to one express expense and that is the " keeping and maintaining a horse to enable him to perform " the duties. This could not have resulted from a fresh consideration of a section which would be striving to do justice to modern transactions in a modern world. Obviously difficulties are caused by the archaic artificial division between Schedule D and Schedule E, especially if a man is taxed separately under each when both activities are really part of the same profession.

There is a further point raised by the appellant in the Court of Appeal. He contends that reimbursements such as that which is here in question do not come within the " emoluments " of an appointment or employment under Schedule E. They therefore never fall to be charged, and it is unnecessary to consider whether they are allowable under rule 7. In my opinion, that contention is correct. " Emoluments " are charged. These are defined as including " all salaries, fees, wages, perquisites and profits whatsoever. "

The reimbursements of actual expenses are clearly not intended by " salaries ", " fees ", " wages " or " profits. " It is contented that they are " perquisites." The normal meaning of the word denotes something that benefits a man by going " into his own pocket. " It would be a wholly misleading description of an office to say that it had very large perquisites merely because the holder had to disburse very large sums out of his own pocket and subsequently received a reimbursement or partial reimbursement of these sums. If a school teacher takes children out for a school treat, paying for them out of his (or her) own pocket, and is later wholly or partially reimbursed by the school, nobody would describe him (or her) as enjoying a perquisite. In my view, perquisite has a known normal meaning, namely, a personal advantage, which would not apply to a mere reimbursement of necessary disbursements. There is nothing in the section to give it a different meaning. Indeed, the other words of the section confirm the view that some element of personal profit is intended.

I would therefore allow the appeal.

LORD DONOVAN.-

My Lords, two questions arise in this case. First, are the travelling expenses reimbursed to Dr. Owen by his employers " emoluments " from his office or employment within the meaning of Schedule E ? Second, if they are, do such travelling expenses qualify as admissible deductions under rule 7 of that Schedule ?

The Court of Appeal answered the first question in the affirmative, the Master of the Rolls saying that the mileage allowance for travel was paid to Dr. Owen no matter how he made his way to the hospital at Haverfordwest : and he thought the point was covered by Fergusson v. Noble*. He considered that the case might be otherwise if Dr. Owen was simply reimbursed what he had actually spent. Diplock L. J. agreed with what Lord Denning M. R. had said on this point, but Edmund Davies L. J. thought the travelling expenses paid would still be " emoluments " even though they represented recoupment of actual outgoings.

The facts regarding Dr. Owen's entitlement to travelling expenses were not fully investigated before the general commissioners, the argument before them being confined to the second question under rule 7. The commissioners simply found that in the first of the two years under appeal, namely, 1962- 63 Dr. Owen made about 140 journeys to the hospital and received travelling expenses for the journey there, and back to Fishguard, of £ 100. For the second of the two years, namely, 1963-64, he likewise received £ 82 in respect of 115 such journeys : it is only in the taxpayer's contentions that it is alleged that the actual cost of these journeys was £ 150 for 1962-63 and £ 123 for 1963-64.

Since, however, the case stated finds that under the terms and conditions of service of persons like Dr. Owen travelling expenses are paid at a fixed rate per mile, that they are not payable for a single journey in excess of ten miles, and that Dr. Owen bears the cost himself of the additional five miles between Fishguard and Haverfordwest, it may fairly be assumed that there was no profit element in the travelling allowances he received in these two years, but that, on the contrary they left him out of pocket. Before your Lordships the case proceeded on that footing without demur from the Revenue, and on that basis I proceed to consider the first question.

Tax under Schedule E is charged " on the full amount of the emoluments " from the office or employment : and " emoluments " are defined as including " all salaries, fees, wages, perquisites, and profits whatsoever. " (Income Tax Act, 1952, section 156 as amended by the Finance Act, 1956, section 10 [and Schedule 2, paragraph 1(1)].)

This definition certainly gives no impetus towards the view that it covers sums paid to an employee simply in reimbursement of expenses incurred in carrying out his duties. Nor do the dictionary definitions of the word, namely, " profit or gain, advantage, due, reward, remuneration, salary " (Murray's English Dictionary : the Shorter Oxford Dictionary). Nor does section 1 of the 1952 Act which contemplates that income tax will be imposed on " profits or gains. "

It is also interesting to notice the decision of the Court of Appeal in Reg. v. Postmaster-General *. There an ex-employee of a private concern whose business had been taken over by the Postmaster General was entitled to receive from him compensation based on his past emoluments from the private employer. He used to receive from him travelling and subsistence allowances which yielded him a small profit. It was held that this profit was part of the ex-employee's emoluments. No one suggested that the allowances were, as a whole, part of the claimant's " emoluments. "

On the footing that the travelling expenses paid to Dr. Owen simply reimbursed what he had spent (or part of what he had spent) on travelling in performance of his duties, I do not think they should be regarded as emoluments of his employment within the meaning of Schedule E. I think the case is distinguishable from Fergusson v. Noble * where a cash allowance was paid to the employee which, although he may have been required to spend it on buying a civilian suit, yielded a benefit or advantage to him.

This does not dispose of the appeal, for Dr. Owen claims the excess of such expenditure over what he received in reimbursement as an allowable deduction from his salary. In this connection it is not enough to say that such excess moneys were spent in the performance of his duties Rule 7 of Schedule E requires that they should be " necessarily " incurred and defrayed ; and the decision of this House in Ricketts v. Colquhoun ** has laid down that the word " necessarily " imports an objective and not a subjective test. The expenses must be such as any holder of the employment would be bound to incur. It is not enough that they are incurred simply because the employee happens or chooses to live some distance from his work.

Here it is contended for Dr. Owen that he really has two places of employment, one his home at Fishguard and the other the hospital at Haverfordwest : and that the expenses of travelling between the two are deductible accordingly. If the premises are sound the Revenue would concede the conclusion. The contention of two places of employment is rested on these considerations :

First, it is found by the general commissioners that Dr. Owen is on stand-by duty at certain specific times, and at these times must be accessible by telephone.

Second, that his responsibility for a patient begins as soon as he receives a telephone call, and that on receipt of such a call he gives any necessary preliminary instructions to the hospital staff in relation to the case (which are all emergency cases.)

I do not think these facts establish the contention of two places of employment at all. In a very real sense almost every general medical practitioner is on stand-by duty for emergency cases, and is in fact available on the telephone. And almost every such practitioner will, if necessary, give preliminary instructions concerning the patient to anyone who summons him by telephone. There are also thousands of employees in other walks of life who have to be on stand-by duty at their homes and are required to obey a summons to go to their factory or their offices to cope

* 1919 S. C. 534. ** [1926] A. C. 1.

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with some emergency. If this is to mean that they all have two places of employment I see no reason why all of them should not be entitled to claim travelling expenses between their homes and their places of work.

The simple truth, as I see it, is that Dr. Owen has one place of employment as an obstetrician and anaesthetist ; and that is the hospital at Haverfordwest. When he answers the telephone and gives any necessary preliminary instructions, of course he is performing the duties of his office. But when he then gets into his car and drives the 15 miles to Haverfordwest he is not performing such duties at all. He incurs the expense of so travelling because he chooses to live at Fishguard. I think the case is clearly within the decisionin Ricketts v. Colquhoun [1878] 3 Q. B. D. 428 as Stamp J. and the majority of the Court of Appeal decided. I would therefore allow the appeal so far as the assessment treats the reimbursement of travelling expenses as an " emolument, " but dismiss it as regards the claim to deduct any excess expenditure under rule 7.

LORD WILBERFORCE.-My Lords, the main point in this case, as the courts below have regarded it, is whether the appellant is entitled to a deduction from his emoluments as assessable to income tax in respect of certain travelling expenses which he had admittedly incurred. In the alternative, he contends that certain sums which he has received by way of partial reimbursement of these travelling expenses ought not to be brought into charge as part of his taxable emoluments.

The first point is of a familiar character. The emoluments arise under Schedule E to the Income Tax Act, 1952, and, therefore, the question is whether the deduction is authorised by the strict and narrow rule 7 in Schedule 9. In Ricketts v. Colquhoun* this House decided that the travelling expenses incurred by a recorder in proceeding to Portsmouth where the duties of his office lay, could not be brought within the rule. On the basis of fact on which that case was presented, this decision may have been inevitable, but it does not follow that it governs each and every situation. The facts must be considered and the rule applied.

The appellant is a doctor whose main occupation is as general practitioner in Fishguard. As such he is taxable under Schedule D. In November, 1955, he was offered by the South West Wales Hospital Management Committee, and accepted, an appointment as clinical assistant to the obstetric department at a hospital at Haverfordwest, 15 miles from Fishguard. This appointment has been renewed from year to year, and in the case stated it was found that he was to act as obstetrician and anaesthetist, and that he was on stand-by duty at specified times in respect of each activity during which period he was required to be accessible by telephone. All his work in connection with these appointments was concerned with emergency cases at the hospital. On receipt of a call from the hospital he would give instructions to the hospital staff (e.g., to prepare the patient for an operation). Usually he would then set out immediately to the hospital by car. Sometimes he advised treatment by telephone and then awaited a further report. Not every telephone call resulted in a visit to the hospital. His responsibility for a patient began as soon as he received a telephone call.

This description is sufficient to show that both the nature of Dr. Owen's appointment, and the purpose for which he incurred travelling expenses, differ greatly from those found or assumed to exist in the case of Mr. Ricketts. Are they sufficient to establish that he was necessarily obliged to incur and defray out of the emoluments the expenses of travelling in the performance of the duties of his office or employment ?

I agree with the Revenue's contention that the mere fact of being on stand-by duty is not enough : if this were all, Dr. Owen would be in the same position as the airline pilot who was held (rightly in my opinion) not to come within the rule in Nolder v. Walters * : this was just a case of a person having to travel to his place of work. Nor, in my opinion, is the mere fact sufficient that he might be called upon, or might volunteer, to give some professional advice on the telephone before setting out. There are persons, who hold positions of importance, who carry their responsibility with them wherever they are : they, too, may be called to their offices after working hours and may give instructions or advice before departure. But this does not mean that they have more than one working place (cf. Newsom v. Robertson**). What is required is proof, to the satisfaction of the fact finding commissioners, that the taxpayer, in a real sense, in respect of the office or employment in question, had two places of work, and that the expenses were incurred in travelling from one to the other in the performance of its duties.

In my opinion, Dr. Owen satisfied this requirement. I have stated the basic facts above : upon them the special commissioners found that his duties " commenced at the moment he was first contacted by the hospital authorities, " and that " thereafter his travelling expenses to and from the hospital. . . .were wholly, exclusively and necessarily incurred or expended in the duties of that office. " I consider that this finding was fully justified. Given that the appointment related to emergency cases, it was of the essence of his duties that he should give immediate, and correct, advice the moment he was contacted, and that he should form a decision whether to set off at once, to wait for further information, or to take no further action. In the event of his deciding to go at once to the hospital, I cannot appreciate why he was not thereafter travelling on the duty of his office : he was travelling not to his work but on his work. Dr. Owen was not, it seems, in such continuous contact as the well-known Australian flying doctor, but the continuity of his responsibility and function is, I think, established by the commissioners' findings. I can find nothing fictitious or strained in their conclusions.

The main argument on which these were resisted was founded on observations in Ricketts v. Colquhoun*, and particularly on a passage in the speech of Lord Blanesburgh. His Lordships, at page 7, used these words :

                " ' If the holder of an office '-the words, be it observed, are not ' If any holder of an office '- ' is obliged to incur expenses in the performance of the duties of the office '-the duties again are not the duties of his office. In other words, the terms employed are strictly, and, I cannot doubt, purposely, not personal but objective : the deductible expenses do not extend to those which the holder has to incur mainly and, it may be, only because of circumstances in relation to his office which are personal to himself or are the result of his own volition. "

Then it was said that as Dr. Owen chose to live 15 miles from the hospital, his case was indistinguishable from that of the recorder. Now, I would entirely agree that rule 7 is drafted in an objective form so as to distinguish between expenses which arise from the nature of the office and those which arise from the personal choice of the taxpayer. But this does not mean that no expenses can ever be deductible unless precisely those expenses must necessarily be incurred by each and every office holder. The objective character of the deductions allowed relates to their nature, not to their amount : to take the often quoted case of the archdeacon, it would be absurd to suppose that each holder of that office or even each archdeacon of Plumstaed Episcopi travels the same distance or was found that there was difficulty in obtaining suitable men. Unless a suitable retired doctor could be appointed (and that case might be different) travels by the same means in a year, or that his choice of residence would affect his entitlement. In this case the hospital management committee required the services of doctors on a part-time basis for emergencies : it the committee would have to appoint a doctor with a practice of his own and also with suitable obstetric and anaesthetic experience : he might live and practice within 15 mile or one mile or 100 yards of the hospital : the choice in the matter, if any exists, does not lie with the doctor, who is there in his practice, but with the committee which decides, however near or far he works, to appoint him and to require him to discharge a part of his duty at his practice premises.

A finding that expenses necessarily arise from this duality appears to me legitimate and the undemonstrated possibility that a nearer practitioner might have been selected to be irrelevant.

I agree, therefore, with the judgment of Lord Denning M. R., and would allow the appeal. I should add that, if I had not reached this conclusion, I should have difficulty in seeing how the appellant could succeed, on his alternative point, in establishing that reimbursement of a non-deductible expense is something other than an emolument.

LORD PEARSON.-

My Lords, I have found this case difficult. On the one hand, the appellant has been unfairly dealt with, inasmuch as his necessary professional expenses of travelling between Fishguard and Haverfordwest have not been allowed as deductions in the assessment of his net income from the exercise of his profession. On the other hand, it seems to me that, when the appellant's position is analysed, the unfairness is attributable to a defect in the system of assessment and not to any misunderstanding or misapplication of the rules or provisions of Schedule E, nor to any error as to the meaning of the word " emoluments. " There is a wrong, but the remedy would have to be found in a change of the system and not in a decision in favour of the appellant on either of the issues in this appeal.

The appellant works as a doctor treating patients in two ways (i) as a general practitioner in Fishguard, (ii) as an obstetrician and anaesthetist in part-time employment at the hospital in Haverfordwest. These are two aspects of his professional career, two professional activities. Whether he is working at his consulting room at his home in Fishguard, or on his rounds in and from Fishguard, or at the hospital in Haverfordwest, he is working as a doctor, making use of his professional learning, skill and experience for the benefit of his patients and receiving remuneration for doing so. The expense of his journeys between Fishguard and Haverfordwest is a necessary expense of his profession as he carries it on, because he could not engage in both activities without making these journeys. He pays taxes on his income from both activities, and it is unfair not to allow him to deduct expenses which he must inevitably incur so long as he carries on both activities.

But the system apparently requires that his earnings from his general practice have to be assessed separately under Schedule D and his earnings from his employment at the hospital have to be assessed separately under Schedule E. The unfairness results from this separation of his two professional activities for purposes of assessment to tax, because the expense of the journeys between Fishguard and Haverfordwest is not an expense of either of the activities taken separately but is an expense of combining the two.

It is clearly not necessary for his general practice at Fishguard that he should make these journeys to Haverfordwest and back. Under the rules or provisions of Schedule E, as they have been authoritatively interpreted, these journeys cannot be regarded as necessary for his employment at the hospital. For the purposes of that employment he does not have to live at Fishguard or anywhere outside Haverfordwest. The expense of travelling to and from Haverfordwest is not an expense which he incurs ex necessitate of his employment. It is not an expense which any holder of the employment would have to incur wherever his home might be. The employment is not an itinerant employment. These journeys are made by him on the way to his employment and in returning from it. They are not made in the course of his employment or in the performance of his duties therein. On this point the present case seems to me to be indistinguishable from Ricketts v. Colquhoun *, where the principle was very clearly established. Lord Blanesburgh said at page 7 :

                  ". . . the language of the rule points to the expenses with which it is concerned being only those which each and every occupant of the particular office is necessarily obliged to incur in the performance of its dutiesto expenses imposed upon each holder ex necessitate of his office, and to such expenses only . . . . the deductible expenses do not extend to those which the holder has to incur mainly and, it may be, only because of circumstances in relation to his office which are personal to himself or are the result of his own volition. . . .

The travelling expenses of the appellant from London to Portsmouth and back are, in my judgment, excluded from the benefit of the rule, both by the application of the test I have indicated as relevant and also for another reason quite separate. The expenses covered by the words ' the expenses of travelling in the performance of the duties of the office, ' are, I think, limited to those which the Master of the Rolls has well termed ' itinerant expenses. ' There are none such here. . . . That the appellant travelled from London to hold his court at Portsmouth and returned to London at the close of the sessions was, in my judgment, a course prescribed for him by his own convenience as a practising London barrister and by nothing else. "

Counsel for the appellant sought to distinguish the present case from Ricketts v. Colquhoun * on the ground that in the present case the hospital employment is at two places-the appellant's home, at which he receives the telephone calls and gives advice on the telephone, and the hosptial-and that he comes on duty when he receives the telephone call and remains on duty while he makes the journey to the hospital and does his work at the hospital. But I do not think it can reasonably be said that there are two places of employment. His only place of employment is at the hospital. Because for his own purposes-purposes other than the hospital employment-he chooses to live away from Haverfordwest he has to be summoned to the hospital and has to come from a distance and so make a car journey. Also because he lives for his own purposes at a distance from Haverfordwest he may have usually to give advice on the telephone as to the interim treatment of the patient until he arrives at the hospital. If immediate advice on the telephone is required, it could be given equally well from a home in Haverfordwest. It is not part of the duties of his hospital employment to live in Fishguard, and the journeys are not made in performance of his duties in the employment. In my view, the principle established in Ricketts v. Colquhoun * is applicable in this case and does not permit deduction of the travelling expenses in making the assessment under Schedule E. There was the same unfairness in Ricketts v. Colquhoun (1) as there is in this case, and it was in that case, as it is in this case, attributable to the artificial division of the professional earnings between Schedule D and Schedule E.

The other question in the appeal is whether the travelling allowance which the appellant receives from the hospital authorities constitutes an " emolument " of his employment. I would arrive at the answer in this way. Suppose that A, B and C are employed each at a salary of £ 500 per annum, and in the first year each has to pay entirely out of his own pocket the expenses of travelling between his home and his place of work. Then, in the second year the employer reimburses to A the cost of his season ticket or gives him an allowance of (say) 8d. per mile for coming to work and returning home by car. A is better off financially by the amount of the reimbursement or allowance. He is better off than he himself was in the first year, and better off than B and C who still have to pay entirely out of their own pockets the expenses of travelling between their homes and their places of work. As A has effectively a better income than B and C, he ought to pay more income tax than they do. The reimbursement or car allowance is a benefit to A and is a sum of money. In my opinion, it is a perquisite, a profit, an emolument.

There is a quite different position when the employee incurs an expense in performing the duties of his employment-e. g., making a journey from head office to branch office and back to head office, or buying stamps and stationery for the firm-and has it reimbursed to him. In such a transaction there is no benefit-no profit or gain-to the employee. He does not receive any emolument.

Although the result is unfair, I do not think it can properly be corrected without a change in the system eliminating the artificial division of the professional income between Schedule D and Schedule E. In my opinion, the issues raised in this appeal should be decided in favour of the respondent, and I would dismiss the appeal.

Appeal allowed with costs in the House of Lords and below.

Solicitors : Le Breasseur & Oakley : The Solicitor, Inland Revenue.

 

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