1969-VIL-211--DT

CHANCERY DIVISION

Date: 26.11.1969

PRINCE

Vs

MAPP (INSPECTOR OF TAXES)

For the Taxpayer : John Silberrad
For the Crown : Patrick Medd

BENCH

Pennycuick, J.

JUDGMENT

Pennycuick, J.

In this case the appellant, Mr. Harry Prince, appeals against an assessment to income tax made on him for the year of assessment 1967-68 under Schedule D in respect of his profits as a dance musician in the sum of ? 3. The ground of appeal is that in computing those profits there fell to be deducted the sum of ? 81 representing the cost of certain medical expenses. It will be observed that the amount of the profits is trivial, but it is explained that the taxpayer would wish to carry forward a loss against profits in future years.

The facts are set out in the case stated, to which I will refer in a moment. In summary, the position is that Mr. Prince had as his principal occupation that of a draughtsman, but he also carried on a spare-time activity as a guitar player, including organising a small band ; and, further and this is a most important point in the case-he played his guitar as a hobby. Unfortunately, he cut the little finger of his left hand while sharpening a pencil at his work. The injury did not heal ; the top joint proved to be useless ; it was necessary to perform an operation in order, as he explained, to play his guitar. An operation was carried out on the advice of a specialist, and 80 per cent. flexibility was happily restored, and he had to pay ? 81 in fees. That is the sum which he seeks to deduct.

I will next read the relevant parts of the case stated. There were put in evidence certain printed sheets of notepaper used by the taxpayer. The only purpose of those, I suppose, was to show that he did bona fide carry on the business of a dance musician. There is no dispute about that. Also put in was an unsworn written statement made by the surgeon who performed the operation. I will read that statement. No objection has been taken at any stage to its admissibility.

" Mr. Prince first consulted me about the injury to his finger on about July 5, 1966. I inspected the finger and observed that he was unable to bend the end joint of the little finger of his left hand and this disability was due to the division of the flexor tendon to this terminal joint.

In such a case one would advise three possibilities in the treatment of this injury. The first possibility is to do absolutely nothing and accept the small degree of disability that this injury would cause to the ordinary person. The second possibility is that the end joint may be fixed in flexion. This would entail an operation under general anaesthesia and splinting of the finger for four weeks. After this operation the joint would be stable but immobile. The third possibility is that a new tendon may be grafted into the finger to restore active flexion of the end joint.

In the case of an ordinary individual I would consider the loss of flexion in the terminal joint of the fifth finger to be a very minor disability. In fact, if I myself as a surgeon suffered from this disability I would do nothing about it at all.

When Mr. Prince consulted me he pointed out that he would be unable to play his guitar until active flexion was restored to the end joint of his left little finger. I advised him to undergo the operation of tendon grafting as the only possible way to enable him to play his guitar again. My advice was given in spite of the fact that the operation was complicated and that a perfect result could not be guaranteed.

Mr. Prince then decided to undergo the operation. "

[His Lordship then read paragraphs 3 to 9 of the case stated and continued :] The taxpayer appeals against that decision, contending that on the evidence the proper view is that this expense was incurred wholly and exclusively for the purposes of his profession as a guitarist or band leader.

I shall read at the outset the two paragraphs from section 137 of the Act of 1952 on which this case turns :

" Subject to the provisions of this Act, in computing the amount of the profits or gains to be charged under Case I or Case II of Schedule D, no sum shall be deducted in respect of-(a) any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade, profession or vocation ; (b) any disbursements or expenses of maintenance of the parties, their families or establishments or any sums expended for any other domestic or private purposes distinct from the purposes of such trade, profession or vocation ; . . . . . "

As I have mentioned, the commissioners were referred to the two cases which they mention in their findings.

In Norman v. Golder [1945] 26 T. C. 293 ; 13 I.T.R. (Supp.) 21, the facts as set out in the headnote were as follows :

" The appellant, a shorthand writer, appealed against an assessment to income tax (Schedule D) in respect of his professional earnings. He had suffered from a severe illness and had incurred expenses-doctor's bills, etc. He stated that his illness was the direct result of working in unfavourable conditions. He contended that the expenses should be deducted in computing the liability to tax in respect of his earnings as being expenditure wholly and exclusively incurred in connection with his professional work, and not domestic expenditure. "

Lord Greene, with whom the other members of the Court of Appeal agreed, deals with certain technical points raised by Mr. Norman. He then deals with the doctor's bills. He considers the contention that Mr. Norman was entitled to wear and tear allowance and proceeds, at page 298 :

" He says it is deductible on general grounds. The answer there, to my mind, is quite conclusive. The rules about deductions are to be found in rule 3 of the Rules applicable to Cases I and II of Schedule D, in which deduction is prohibited in respect of ' (a) any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade, profession, employment or vocation. ' It is quite impossible to argue that doctor's bills represent money wholly and exclusively laid out for the purposes of the trade, profession, employment or vocation of the patient. True it is that if you do not get yourself well and so incur expenses to doctors you cannot carry on your trade or profession, and if you do not carry on your trade or profession you will not earn an income, and if you do not earn an income the Revenue will not get any tax. The same thing applies to the food you eat and the clothes that you wear. But expenses of that kind are not wholly and exclusively laid out for the purposes of the trade, profession or vocation. They are laid out in part for the advantage and benefit of the taxpayer as a living human being. Paragraph (b) of the rule equally would exclude doctor's bills, because they are, in my opinion, expenses of maintenance of the party, his family, or a sum expended for a domestic or private purpose, distinct from the purpose of the trade or profession. "

Lord Greene in that passage lays down in perfectly unqualified terms the proposition that expenses to doctors must always serve a dual purpose and accordingly can never be treated as representing money wholly and exclusively laid out for the purposes of a trade or profession. It may well be that in that passage Lord Greene did not have in mind the sort of medical care which an individual carrying on a trade or profession would not incur for any reason apart from the promotion of his trade or profession. It is quite easy to think of instances in which someone carrying on a trade or profession incurs some injury which is trivial in itself and in respect of which he would never otherwise expend money on medical care but which happens to be of vital importance for the purpose of that particular trade or profession. In such a case I am prepared to assume in favour of the taxpayer here that it would be possible for a taxpayer to incur expense which would be wholly and exclusively for the purpose of his trade or profession. I say that I am prepared to assume. I do not give any decision upon it because on the particular facts of this case it is not necessary for me to do so.

Bentleys, Stokes & Lowless v. Beeson [1952] 33 T. C. 491 (C. A.), although not mentioned by the commissioners in paragraph 9, was in fact brought to their notice. The headnote reads :

" The appellants, a firm of solicitors, incurred expenses in entertaining clients. On appeal to the special commissioners, they claimed a deduction for the expenses on the grounds that they were incurred for the purpose of earning profits and were money wholly and exclusively laid out or expended for the purposes of the profession within rule 3(a) of the Rules applicable to Cases I and II of Schedule D. The commissioners, being of opinion that the provision of entertainment was not necessary for professional purposes and that the expenses could not be wholly divorced from the relationship of host and guest, held that the expenses were not wholly and exclusively laid out for the purposes of the profession and dismissed the appeal.

" Held, that the commissioners had applied an erroneous test and that there was no evidence upon which they could reach their decision. "

The judgment of the Court of Appeal was given by Romer L. J., and I must read one often-cited passage, at page 503 :

" The relevant words of paragraph 3(a) of the Rules applicable to Cases I and II-' wholly and exclusively laid out or expended for the purposes of the profession '-appear straightforward enough. It is conceded that the first adverb- ' wholly '-is in reference to the quantum of the money expended and has no relevant to the present case. The sole question is whether the expenditure in question was ' exclusively ' laid out for business purposes, that is : what was the motive or object in the mind of the two individuals responsible for the activities in question ? It is well established that the question is one of fact : and again, therefore, the problem seems simple enough. The difficulty however arises, as we think, from the nature of the activity in question. Entertaining involves inevitably the characteristic of hospitality. Giving to charity or subscribing to a staff pension fund involves inevitably the object of benefaction. An undertaking to guarantee to a limited amount a national exhibition involves inevitably supporting that exhibition and the purposes for which it has been organised. But the question in all such cases is : was the entertaining, the charitable subscription, the guarantee, undertaken solely for the purposes of business, that is, solely with the object of promoting the business or its profit-earning capacity ?

" It is, as we have said, a question of fact, and it is quite clear that the purpose must be the sole purpose. The paragraph says so in clear terms. If the activity be undertaken with the object both of promoting business and also with some other purpose, for example, with the object of indulging an independent wish of entertaining a friend or stranger or of supporting a charitable or benevolent object, then the paragraph is not satisfied though in the mind of the actor the business motive may predominate. For the statute so prescribes. Per contra, if in truth the sole object is business promotion, the expenditure is not disqualified because the nature of the activity necessarily involves some other result, or the attainment or furtherance of some other objective, since the latter result or objective is necessarily inherent in the act. "

It is quite clear and it is not in dispute that in that passage the judge equates motive and object and says that the object in the sense of motive of the particular expenditure must be wholly and exclusively to promote the trade or profession.

The third case cited was the recent case of Murgatroyd v. EvansJackson [1967] 43 T. C. 581. The headnote reads :

" The respondent carried on the profession of a trade-mark agent. In August, 1962, he was advised to have treatment in hospital. He was offered a bed in a hospital under the National Health Service, but he could not have carried on his business owing to the lack of a telephone and restricted facilities for visiting, and so could not accept it. Instead he entered a nursing home as a private patient, where he was provided with a room and with all the necessary facilities for carrying on his business ; he held conferences with clients there, saw members of his staff each day and dealt with correspondence.

" On appeal against an assessment to income tax under Case II of Schedule D for the year 1963-64 the respondent contended that 60 per cent. of his total expenses at the nursing home (i.e. nursing home fees and charges for drugs and dressings, treatment, television and telephone) should be allowed as a business expense in respect of the use of the room as an office. For the Crown it was contended that, apart from telephone charges, the expenditure in question was not wholly and exclusively incurred for the purpose of the respondent's profession within section 137(a), Income Tax Act, 1952, or alternatively was incurred for the maintenance of the respondent or other private purposes within section 137(b) and that expenditure which had a dual purpose could not be apportioned and should be disallowed in full. The general commissioners held that 60 per cent. of the nursing home charges was a deductible expense :-

" Held, that the deduction was prohibited by section 137(a) and (b). "

Plowman J. reviewed the authorities, including a decision of my own in Bowden v. Russell and Russell [1965] 1 W. L. R. 711 ; 42 T. C. 301. He came to the conclusion that in that case the expenditure was incurred for a dual purpose, and the claim was disallowed.

To return to the present case, it will be remembered that in paragraph 9(1) the commissioners stated :

" The operation to the taxpayer's left hand hereinbefore referred to was undergone to enable the taxpayer to continue to play the guitar not solely so that he could make money by exploiting his skill professionally but equally to enable him to continue to enjoy and practise his hobby of playing that instrument. "

That is a clear and express finding of a dual purpose and assuming there was evidence to support that finding, it concludes the case against the taxpayer. On that footing, paragraph (a) is directly applicable because the expense of the operation would not be money wholly and exclusively expended for the purposes of his profession ; it would be expended partly for the purposes of his profession and partly for the purposes of his hobby.

When one looks back to the findings of fact, one finds in paragraph 6 these findings.

" After about a week, the would appeared to have healed perfectly, but he found that the top joint was useless. He tried to continue playing the guitar, but found it was very difficult and he could not play with his former skill. This came as a great shock to him. He then consulted Mr. Kinmonth who advised him to undergo an operation of tendon grafting. The operation was performed on September 2, 1966, and 80 per cent. flexibility was restored. The injury had caused the appellant some inconvenience, but the operation was a complex one and he would not have undergone it had he not wished to continue to play the guitar. "

There is nothing in those sentences which confines the finding to a wish to continue to play the guitar professionally. It is a finding that he would not have undergone the operation if he had not wished to continue to play the guitar and that must in the context mean had he not wished to play the guitar in the same circumstances as those in which he had hitherto played it, i.e., partly as a hobby and partly professionally. If that is a correct reading of the finding, as I think it is, then the special commissioners had material upon which they could reach their conclusion, and that is the end of this case.

If the finding had included the word " professionally " (i.e., if it had read " He would not have undergone it had he not wished to continue to play the guitar professionally ") the result might, I think, have been otherwise. However, that word " professionally " is not there.

I do not think on the facts as found in this case that the commissioners would have been justified in making a finding that the taxpayer incurred this operation for the purpose of putting his finger right, apart from his wish to make use of it as a guitar player. The finding of fact is that he would not have undergone the operation if he had not wished to continue to play the guitar. That is borne out by the doctor's statement and it is observed that the commissioners, quite correctly I think, put their decision in this form. " The operation also had the effect of alleviating the minor inconvenience caused by the loss of the use of the top joint of the little finger of the taxpayer's left hand. " They did not find that that was one of the purposes of the operation.

In conclusion, I must mention shortly the contention under paragraph (b) in section 137. I do not see how the expense of this operation could on any ordinary use of the words be treated as an expense of maintaining the taxpayer, his family or establishment. On the other hand, the second limb of paragraph (b) is more or less automatically satisfied where paragraph (a) is satisfied, that is to say : a sum which is expended in part for the purposes of a trade and in part for the purposes of a hobby is a sum expended for some other domestic or private purpose distinct from the purposes of the profession.

I base this conclusion, as I hope I have made clear, on the finding that this expense was incurred to enable the taxpayer to continue to practice his hobby of playing the guitar, as well as to exploit his skill professionally by playing it.

Appeal dismissed with costs.

Solicitors : Egerton Sandler & Co. ; Solicitor of Inland Revenue.

 

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