The Gazette 1961

Defence costs paid by company—whether taxable

emolument

The Court of Appeal in England has recently

reversed a decision by the High Court allowing an

appeal by a company director against the decision

of the special commissioners who had held that the

amount of £641 spent by the company for his

defence at his trial for causing the death of a

pedestrian by reckless or dangerous driving was

spent for his benefit and was chargeable to income

tax under Schedule E. This case was reported in

the GAZETTE for April, 1963, at page 94. The tax

payer was the company director and the accident

in question occurred while he was driving a motor

car, the property of the company. The company

undertook the cost of his defence and he was

acquitted. The High Court judge had referred the

case back to the commissioners for them to find

out what was a reasonable sum for the purpose of

the defence and he held that the director was only

assessable to tax in such a sum. The Court of Appeal

disagreed with this view and held that the company

had clearly incurred an expense in the sum of £641

with the provision of a benefit to the tax payer.

Since he was a director of the company the condition

precedent to liability specified in Section 161 (i) of

the Income Tax Act, 1952, had been satisfied. The

expense was to be treated as perquisite of his office

as director and must be included in the Schedule E

assessment. It had been argued that the company

incurred the expense primarily in its own interest

and only secondarily in the interests of the director

and that accordingly no benefit was provided within

the meaning of the Section. The Court of Appeal

did not accept this interpretation. It has also been

argued that the tax payer would not have spent £641

in his own defence and that he would have spent

only £60 or £70. The affect of the Statute, however,

was to lay the charge not upon the benefit but upon

the sum actually paid by the company as an expense.

There was nothing in the language of the Act to

justify the Court enquiring how much of the expense

would have been incurred by the director if left

to provide for himself. (Rendell

Went (Inspector

of Taxes) 1963 Tax reports, page in.)

Misappropriation by solicitor of fees received for counsel

and shorthand writers

In a case before the Court of Criminal Appeal the

appellant, a former solicitor, received from a client

a cheque for £1,663 95. yd. in payment of his bill.

The bill included £639 175., as disbursements for

counsels' fees. These fees were not paid to counsel.

The appellant paid the cheque into his own bank

account and he was charged under Section 20 (i) (iv)

(b)

of the Larceny Act, 1916, with fraudulent con

version. The particulars alleged were that the

appellant, having received a cheque on account of

the client fraudulently converted part of the proceeds

thereof to his own use and benefit. The relevant

part of the sub-section reads as follows :

" every

person who . . . (iv)

(a)

being entrusted either

solely or jointly with any other person with any

property in order that he may retain in safe custody or

apply, pay, or deliver, for any purpose or to any per

son, the property or any part thereof or any proceeds

thereof; or

(V)

having either solely or jointly with

any other person received any property for or on

account of any other person ; fraudulently converts

to his own use or benefit, or the use or benefit of any

other person, the property or any part thereof or any

proceeds thereof; shall be guilty of a misde

meanour."

Admissions by the appellant in evidence at the

trial showed that the sum in question was fraudu

lently converted by the appellant to his own use.

In his appeal the appellant contended that in effect

the Solicitors Accounts Regulations required that he

should pay the cheque into his own bank account

and that thereupon the money became his own and,

secondly, that the charge was wrongly laid under

Section 20 (i) (iv)

(b)

as distinct from Section 20 (i)

(iv)

(a)

because the particulars alleged receipt of

the cheque on behalf of the client while as in fact

the client had drawn the cheque.

It was held (i) that the fact that a particular sum

was paid into a particular banking account by a

solicitor, albeit pursuant to statutory obligation, did

not affect the rights of persons interested in the sum

or any duty of the solicitor either towards his client

or towards third persons in regard to the disposal

thereof; the relevant provisions of the Solicitors

Act and of the accounts regulations were domestic

matters and it remained a question of fact in each

case where the money was so received as to bring

the case within section 20 (i) (iv)

(b)

of the 1916 Act.

In the present case the £639 iys. was shown to

have been fraudulently converted by the appellant

to his own use, (ii) although the proceeds of the

cheque were received by the appellant as to part

for or on account of another person within the

wording of section 21 (iv) (&) so that a charge under

that enactment lay, yet the cheque was not received

on account of the client as alleged in the particulars.

Therefore, although the Statement of Offence was

unobjectionable the particulars were defective and

should have been amended at the trial. As the

appellant had not been embarrassed in his defence

by the particulars the court would, under Section 4

of the Criminal Appeal Act, 1907, dismiss the appeal.

(R.

Yule 1963 2. All England Reports, page 781.)