LAWSON VS JOHNSON MATTHEY PLC, 1992 PTD-HOUSE-OF-LORDS 1377 (1992)

1992 P T D 1377

[1992] 2 ALL ER 647

[House of Lords]

Lord Keith of Kinkel, Lord Emslie, Lord Templeman, Lord Goff of Chievelly and Lord Jauncey of Tullichettle

LAWSON

versus

JOHNSON MATTHEY PLC

Income-tax---

----Deduction in computing profits---Capital or revenue expenditure---Payment to preserve existing trade---Risk of insolvency of taxpayer company and subsidiary---Whether payment capital or revenue---Whether expenditure incurred wholly and exclusively for purposes of taxpayer company's trade.

A payment made to get rid of an obstacle to successful trading is a revenue and not a capital payment. Similarly, a payment made to save the whole of an existing business from collapse will be a revenue expenditure.

Profits are confined to receipts of an income nature, but conversely, expenses deductible in computation of profits must be expenditure of a revenue nature.

A "once and for all" payment could ordinarily be chargeable against profits. When an expenditure is made, not only "once and for all", but with a view to bringing into existence an asset or an advantage for enduring benefit of a trade such an expenditure is attributable to capital and not to revenue.

A payment made in the course of business, with reference to a particular difficulty, which arose in the course of the year, and not to secure actual assets would be income expense.

A payment to get rid of disadvantage as contract or getting rid of fixed capital that is of onerous character are revenue payments.

Further instances whether a payment is a revenue expenditure or a capital expenditure.

23 Halsbury's Laws (4th Edn. reissue) paras 234-246, and 28(1) Digest (2nd reissue) 202-310, 928-1479.

Anglo-Persian Oil Co. Ltd. v. Dale (Inspector of Taxes) (1932) 1 KB 124, (1931) All ER Rep. 725, CA.

Associated Portland Cement Manufacturers Ltd. v. IRC (1946) 1 All ER 68, CA. British Insulated and Helsby Cables Ltd. v. Atherton (1926) AC 205, (1925) All ER Rep. 623, HL; Cooper (Inspector of Taxes) v. Stubbs (1925) 2 KB 753, (1925) All ER Rep. 643, CA. IRC v. Carron Co. 1967 SC (HL) 47, 45 TC 18; Mallett (Inspector of Taxes) v. Staveley Coal and Iron Co. Ltd. (1928) 2 KB 405., (1928) All ER Rep. 644, CA; Mitchell (Inspector of Taxes) v. BW Noble Ltd..(1927) 1 KB 719, (1927) All ER Rep. 717, .CA; Morgan (Inspector of Taxes) v. Tate & Lyle Ltd. (1954} 2 All ER 413, (1955) AC 21, (1954) 3 WLR 85, HL; affg (1953) 2 All ER 162, (1953) Ch. 601, (1953) 3 WLR 1; CA; Southern v. Borax Consolidated Lid. (1940) 4 All ER 412, (1941) 1 KB 111. Tucker (Inspector of Taxes) v. Granada Motorway Services Ltd. (1979) 2 All ER 801, (1979) 1 WLR 683, HL; Van den Berghs Ltd. v. Clark (Inspector of Taxes) (1935) AC ,431, (1935) All ER Rep. 874, HL. ref.

Alan Moses QC and Launcelot Henderson (instructed by the Solicitor of Inland Revenue) for the Crown.

Date of hearing: 5th and 6th February, 1992.

LORD KEITH OF KINKEL.---My Lords, when at the end of September 1984 Johnson Matthey Bankers Ltd. (JMB) was found to be in deep financial waters it was apparent to the directors of its parent company, Johnson Matthey plc (the taxpayer company), that if JMB collapsed its collapse would involve the destruction of the business of the taxpayer company. So they set about finding ways and means of averting the collapse of JMB and the agreement with the Bank of England was the result.

The agreement with the Bank of England did not include any contractually binding undertaking by the latter that it would stand by JMB, but there was certainly a clear understanding between it and the taxpayer company that that was what would happen.

The reason why the Bank of England was prepared to rescue JMB was not, of course, because the Bank had any particular regard for the taxpayer company's position, but because it considered that the collapse of JMB would have extremely serious repercussions for the banking world and would therefore be contrary to the public interest. The conditions upon which the Bank of England was willing to rescue JMB were, first, that the whole share capital of JMB should be transferred to it for a consideration and, second, that the taxpayer company would inject L50 m into JMB. The taxpayer company satisfied these conditions and so brought it about that the Bank of England rescued JMB and thus saved the taxpayer company's own business. The transfer to the Bank of England of the share capital of JMB was not an end and purpose in itself, but was merely incidental to the purpose of achieving the rescue operation which was in fact achieved. The injection of L 50m into JMB was on a proper analysis not the payment of the price for getting rid of a burdensome asset, but a contribution required by-the Bank of England towards its planned rescue operation, the rest of the funds needed for it being supplied by the Bank of England.

A number of decided cases make it clear that a payment made to get rid of an obstacle to successful trading is a revenue and not a capital payment refer in particular to Mitchell (Inspector of Taxes) v. BW Noble Ltd: (1927) 1 KB 719, (1927) All ER Rep. 717, Anglo-Persian Oil Co. Ltd. v. Dale (Inspector of Taxes) (1932) 1 KB 124, (1931) All ER Rep. 725 and IRC v. Carron Co. 1967 SC (HL) 47. This must be no less true of a payment made to save the whole of an existing business from collapse. I am accordingly of the opinion that the decision of the General Commissioners (see (1990) STC 149 at 153-155) in the present case was correct, arid those of Vinelott J (see (1990) STC 149, (1990) 1 WLR 414) and the Court of Appeal (see (1991) STC 259, (1991) 1 WLR 558) were wrong.

My Lords, for these reasons, and those more fully set out in the speeches of my noble and learned friends Lord Templeman and Lord Goff of Chieveley, I would allow this appeal.

LORD EMSLIE.---My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Keith of Kinkel and the speeches to be delivered by my noble and learned friends Lord Templeman and Lord Goff of Chieveley.

These speeches have persuaded me, on reflection, that the analysis by and the conclusions of Vinelott J end the Court of Appeal, which, initially, I found attractive, are too narrowly based. For the reasons given by my noble and learned friends I would allow this appeal:

LORD TEMPLEMAN.---My Lords, the taxpayer company, Johnson Matthey plc, trades in platinum. In 1984 the taxpayer company owned all the shares in Johnson Matthey Bankers Ltd. (JMB), a company which carried on a banking business and thereby assisted the financing of the taxpayer company's platinum trade. On Sunday, 30th September 1984; JMB and the taxpayer company realised that JMB was unable to pay its debts in full as they fell due and that unless further capital was forthcoming JMB could not open for business the following day. The taxpayer company also realised that, if JMB ceased business as a result of being unable to meet its debts as they fell due, then the creditors of the taxpayer company and in particular the creditors of the taxpayer company who were also creditors of JMB would demand immediate repayment of the moneys owed to them by the taxpayer company and would withdraw the credit facilities which enabled the taxpayer company to finance its activities. If JMB could not open for business the following day then the taxpayer company could not continue to trade. In these circumstances the taxpayer company agreed to sell the shares in JMB to the Bank of England for 1 and to contribute the sum of 50m to the resources of JMB. The Bank of England agreed to buy the shares of JMB on those terms. The Bank of England intended and the taxpayer company expected that the Bank of England would procure the sums in excess of 50m required to satisfy MB's creditors. The payment of 50m by the taxpayer company was necessary and was made to enable the taxpayer company to continue to trade in platinum or at all: The objects of the taxpayer company were achieved and the taxpayer company continued to trade.

Section 74 of the Income and Corporation Taxes Act, 1988, repeating earlier legislation in force in 1984, provides that in computing the amount of the profits of a trade for the purposes of income tax and corporation tax 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. The General Commissioners found and it is not now disputed that the taxpayer company's disbursement of 50m to JMB was wholly and exclusively laid out for the purposes of the taxpayer company's platinum trade; the disbursement was made for the purpose of preserving that trade and for no other purpose. But this finding does not automatically enable the taxpayer company to deduct 50m in the computation of its profits; the deduction can only be made if the 50m was a revenue expenditure and not a capital expenditure. Profits are confined to receipts of an income nature: per Atkin 1 in Cooper (Inspector of Taxes) v. Stubbs (1925) 2 KB 753 at 775, (1925) All ER Rep 643 at 655. Conversely, expenses deductible in the computation of profits must be expenditure of a revenue nature: per Viscount Cave LC in British Insulated and Helsby Cables Ltd. v. Atherton (1926) AC 205 at 212-214, (1925) All ER Rep 623 at 629-630 and per Lord Macmillan in Van den Berghs Ltd. v. Clark (Inspector of Taxes) (1935) AC 431 at 438-439, (1935) All ER Rep 874 at 886:

'....the problem of discriminating .between an income disbursement and a capital disbursement ...where the item lies on the borderline and the task of assigning it to income or to capital becomes one of much refinement ...While each case is found to turn upon its own facts, and no infallible criterion emerges, nevertheless the decisions are useful as illustrations and as affording indications of the kind of considerations which may relevantly be borne in mind in approaching the problem.

In the present case the General Commissioners held (1990) STC 149 at 154):

"that the 50 million payment was made to preserve the trade of [the taxpayer company] from collapse ...and, as a payment to preserve an existing business, it was of a revenue nature. We further find that the payment was not converted into a payment of a capital nature by the circumstance that it was associated with the disposal of the JMB shares."

Vinelott J and the Court of Appeal (Fox, McCowan and Beldam LJJ) on the other hand concluded that the 50m was paid to get rid of the shares. Vinelott J said (1990) STC 149 at 160-161, (1990) 1 WLR 414 at 420-421):

"The purpose of the board of the taxpayer company in agreeing to make that payment was no doubt to preserve the taxpayer company's business. But the means by which that purpose was achieved and indeed ...the only means by which it could be achieved was to transfer the shares of JMB to the Bank and as part of a single transaction or arrangement to pay 50m to JMB and to release JMB from any obligation to repay it. These two elements cannot be severed, the one being treated as the disposal for a nominal consideration of a worthless but not an onerous asset and the other as a payment made to preserve the business of the taxpayer company."

In the Court of Appeal Fox LJ, delivering the leading judgment, said ((1991) STC 259 at 265, (1991) 1 WLR 558 at 565)]:

" ....JMB was a capital asset of the taxpayer company...the payment seems to me to be a payment by the taxpayer company to enable it to get rid of a capital asset. That asset was not onerous ...but its continued retention was harmful to the taxpayer company. In my view the common sense of the matter is that the h50m was capital expenditure."

The facts in the present case are unprecedented but the authorities which speak of the relationship between a payment and a capital asset must be considered.

In British Insulated and Helsby Cables Ltd. v. Atherton (1926) AC 205, (1925) All ER Rep. 623 the taxpayer paid a lump sum as the nucleus of a pension fund for its staff. By a majority the House held that the payment was an expenditure of capital. Viscount Cave LC said that a `once and for all' payment could be chargeable against profits and instanced a payment made to an employee on retirement, and then continued (1926) AC 205 at 213-214, (1925) All ER Rep. 623 at 629-630:

` ....when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital ....The object and effect of the payment of this large sum was to enable the company to establish the pension fund and to offer to all its existing and future employees a sure provision for their old age, and so to obtain for the company the substantial and lasting advantage of being in a position throughout its business life to secure and retain the services of a contented and efficient staff.'

In the present case the payment of 50m did not bring an asset into existence and did not procure an advantage for the enduring benefit of the trade. The payment removed once and for all the threat to the whole business of the taxpayer company constituted by the insolvency of JMB. So unless the payment of 50m was made for the transfer of an existing asset, namely the shares in JMB, the sum of 50m was not capital expenditure.

In Mitchell (Inspector of Taxes) v. B.W. Noble Ltd. (1927) 1 KB 719, (1927) All ER Rep. 717 a director could have been dismissed for misconduct but was allowed to retire and was paid 50,000 in order to avoid publicity injurious to the company's reputation. The payment was held to be an income expense. Lord Hansworth MR said (1927) 1 KB 719 at 737, (1927) All ER Rep. 717 at 721:

`It was a payment made in the course of business, with reference to a particular difficulty which arose in the course of the year and was made not in order to secure an actual asset to the company but to enable the company to continue to carry on, as it had done in the past, the same type and high quality of business, unfettered and un-imperilled by the presence of one who, if the public had known about his position, might have caused difficulty in its business and whom it was necessary to deal and settle with at once.'

In the present case the payment of 50m was made in the course of business, dealing with the particular difficulty which arose on 30th September 1984 as a result of the insolvency of JMB, and the payment was made to enable the taxpayer company to continue to carry on business unimperilled by the association of the taxpayer company with JMB.

In Anglo-Persian Oil Co. Ltd. v. Dale (Inspector of Taxes) (1932) 1 KB 124, (1931) All ER Rep 725 a payment terminating a disadvantageous agency contract was held to be a revenue payment. Romer LJ pointed out that in applying the test laid down by Viscount Cave LC in Atherton's case `enduring' means `enduring in the way that fixed capital endures' (see (1932) 1 KB 124 at 146, (1931) All ER Rep 725 at 735). The advantage need not be of a positive character but may consist in the getting rid of an item of fixed capital that is of an onerous character. In the Anglo-Persian Oil Co. Ltd. case the payment got rid of a disadvantageous agency contract but did not procure any enduring capital benefit.

In the present case the item of fixed capital which was got rid of, namely the shares in JMB, were not themselves of an onerous character. The payment of 50m had no enduring effect on the capital of the taxpayer company. The payment of 50m prevented the whole business of the taxpayer company from being brought to a grinding halt.

In Southern v. Borax Consolidated Ltd. (1940) 4 All ER 412, (1941) 1 KB 111 the taxpayer incurred legal expenses in defending its title to land. Lawrence J held that the payments were revenue and not capital and said (1940) 4 All ER 412 at 416-417, (1941) 1 KB 111 at 116-117:

` ....where a sum of, money is laid out for the acquisition or the improvement of a fixed capital asset, it is attributable to capital, but ...if no alteration in the fixed capital asset is made by the payment, then it is properly attributable to revenue, being in substance a matter of maintenance, the maintenance of the capital structure or the capital assets of the company.'

By `maintenance' I take the judge to mean 'preservation'. The expenditure in that case procured for the taxpayer the maintenance or preservation of its capital asset, namely its title to land. In the present case the expenditure preserved the whole business of the taxpayer company although it did not preserve any particular asset.

In Associated Portland Cement Manufacturers Ltd. v. IRC (1946) 1 All ER 68 the taxpayer paid a sum to a retiring director to obtain a covenant by the director that he would not compete with the company's business. This was held to be a capital payment because the company had thereby improved the value of its goodwill and brought into existence an advantage for the enduring benefit of the trade.

In the present case the goodwill of the taxpayer company was not improved but was saved from extinction.

In IRC v. Carron Co. 1967 SC (HL) 47 the taxpayer was incorporated by charter and incurred expense in obtaining a new charter the terms of which facilitated the administration and management of the company. The expense of obtaining the new charter was held to be a revenue expense because the object was to remove obstacles to profitable trading. The association between the taxpayer company and JMB in the present case was a formidable obstacle to trading at all.

Finally, in Tucker (Inspector of Taxes) v. Granada Motorway Services Ltd. (1979) 2 All ER 801, (1979) 1 WLR 683 the price paid by the taxpayer for procuring a reduction in the rent payable under a lease for the un-expired term of 40 years was held to be a payment attributable to capital. Lord Wilberforce said (1979) 2 All ER 801 at 804, (1979) 1 WLR.683 at 686:

"It is common in cases which raise the question whether a payment is to be treated as a revenue or as a capital payment for indicia to point different ways. In the end the Courts can do little better than form an opinion which way the balance lies. There are a number of tests which have been stated in reported cases which it is useful to apply, but we have been warned more than once not to seek automatically to apply to one case words or formulae which have been found useful in another... Nevertheless reported cases are the best tools that we have, even if they may sometimes be blunt instruments. I think that the key to the present case is to be found in those cases which have sought to identify an asset. In them it seems reasonably logical to start with the assumption that money spent on the acquisition of the asset should be regarded as capital expenditure. Extensions from this are, first, to regard money spent on getting rid of a disadvantageous asset as capital expenditure and, secondly, to regard money spent on improving the asset, or making it more advantageous, as capital expenditure. In the latter type of case it will have to be considered whether the expenditure has the result stated or whether it should be regarded as expenditure on maintenance or upkeep, and some cases may pose difficult problems.'

In the light of the authorities it seems that, if the 50m was paid to procure the transfer of the shares in JMB to the Bank of England, the payment is attributable to capital. If, on the other hand, the 50m was paid to remove the threat posed by the insolvency of JMB to the continuation in business of the taxpayer company, it seems that the payment is attributable to revenue. In agreement with the General Commissioners and with the submissions forcefully made by Mr. Park QC on behalf of the taxpayer company I have come to the conclusion that the 50m was paid, and paid solely, to enable the taxpayer company to be able to continue in business. The shares in JMB were fully paid and worthless. The shares were freely transferable and did not constitute a threat to anybody. The insolvency of JMB was a threat to the taxpayer company and the 50m was paid to remove that threat. It is true that the Bank of England was, not contractually bound to ensure that the creditors of JMB were satisfied but the 50m was paid and accepted in the expectation, which was fulfilled, that the creditors of JMB would be satisfied and that in consequence the taxpayer company would be able to continue in business. It is true also that the Bank of England required that the taxpayer company should both contribute 50m to JMB and also transfer the shares in JMB to the Bank. But the 50m was not paid to persuade the Bank to take the shares. The 50 was paid to persuade the Bank to rescue JMB.

I would therefore allow the appeal and restore the decision of the General Commissioners.

LORD GOFF OF CHIEVELEY: --My Lords, this appeal is concerned with the question whether a sum of 50m expended by the taxpayer company, Johnson Matthey plc, in circumstances which I shall describe, should be characterised for tax purposes as a capital payment, or alternatively as a revenue payment deductible for the purposes of corporation tax. The income tax inspector disallowed the deduction, but the General Commissioners allowed an appeal from that decision, holding that the payment was a revenue payment and further that it was laid out wholly and exclusively for the purposes of the taxpayer company's trade and as such was properly deductible. However, Vinelott J (1990) STC 149, (1990) 1 WLR 414 allowed an appeal by the Revenue from the decision of the General Commissioners on the ground that the payment was to be characterised as a capital payment; and the Court of Appeal (1991) STC 259, (1991) 1 WLR 558 upheld the decision of Vinelott J, refusing leave to appeal to your Lordships' House. The taxpayer company now appeals to your Lordships with the leave to this House.

The facts have been helpfully summarised by the parties in an agreed statement of facts; indeed the facts are in any event not in dispute. The payment in question was made under an agreement reached between the taxpayer company and the Bank of England during the night of Sunday, 30th September and Monday, 1 October 1984, which was embodied in a written agreement on Tuesday, 2nd October. The taxpayer company is a company which carries on a large trade in precious metals, mainly platinum. JMB carries on a banking business, which includes dealing in bullion. In August and September 1984 it emerged that JMB was in major financial difficulties. The Bank of England was duly informed. By the weekend of 29 and 30th September JMB's banking business was on the brink of collapse and it appeared that unless it was rescued, JMB would not be able to open its doors for business on the Monday morning and further that, if JMB collapsed there would be a consequential knock-on effect on the taxpayer company's own platinum trade, which too would collapse. By late Sunday evening what seemed to be the last hope of saving JMB (a transaction involving the Bank. of Nova Scotia) had fallen through; and the board of the taxpayer company concluded that a receiver had to be appointed for JMB, not for the continuation of its trade, but for the orderly realisation of its assets. The Bank of England was informed of this decision, which was to be implemented at 1.30 a.m. on Monday, 1st October. However, before that time the Bank of England put forward a non-negotiable offer to the board of the taxpayer company, to the effect that the Bank of England would purchase all the shares in JMB for the nominal consideration of 1, subject to the taxpayer company having previously injected 50m into JMB.

The Bank of England made it plain that its proposal had to be accepted in its entirety; but it was obvious that the Bank intended to mount a rescue operation for JMB, and indeed the Bank assured the board of the taxpayer company that a standby facility of at least 250m would be made available to JMB to enable it to continue trading. In the result, the taxpayer company obtained funding of 25m from Charter Consolidated, and with that assistance was able to accept the proposal of the Bank of England. The board of the taxpayer company resolved that, conditionally upon a standby facility of at least h250m being agreed, the offer of the Bank of England should be accepted. The resulting agreement was implemented over the next two days. The 50m was injected by the taxpayer company into JMB in the form of a loan and waiver of repayment (it is agreed that nothing turns on the form of the advance). The Bank of England organised a rescue of JMB. Press releases were issued by the taxpayer company and the Bank of England early on the Monday morning, and both JMB and the taxpayer company traded as normal on that day. The agreement between the taxpayer company and the Bank of England was reduced to writing in a document dated 2nd October, 1984. Clauses 1 and 2 of the agreement read as follows:

1. Assets to be sold. The whole of the issued share capital of JMB (the "Shares"), subject to the taxpayer company advancing a loan of 50 million to JMB and waiving repayment of the same today.

2. Price. The price to be paid by the Bank will be the sum of 1:

No mention is made in the agreement of any rescue of JMB by the Bank of England.

I have already recorded that, in assessing the taxpayer company to corporation tax for the year 1984-85, the Revenue disallowed the deduction of 50m as an expense of its platinum trade, on the grounds, first, that it was a capital payment and not-a revenue payment and, second, that the money was not laid out wholly and exclusively for its platinum trade, and further that, on the taxpayer company's appeal to the General Commissioners, they decided both points in its favour. The second point hag not been pursued; and your Lordships, like the Courts below, are concerned only with the first. The conclusion of the General Commissioners was expressed as follows (1990) STC 149 at. 154:

"We, therefore,' find on the evidence and arguments put before us, that the 50 million payment was made to preserve the trade of (the taxpayer company) from collapse, that it did, in fact, preserve the trade from collapse and as a payment to preserve an existing business, it was of a revenue nature. We further find that the payment was not converted into a payment of a capital nature by the circumstance that it was associated with the disposal of JMB shares."

Vinelott J reversed the decision of the General Commissioners. He said (1990) STC 149 at 160-161, (1990) 1 WLR 414 at 420-421:

The position in which the taxpayer company found itself in the early hours of 1 October 1984 was that unless the Bank was willing to support JMB and to make its support known to the public JMB would be forced into liquidation and that a receiver would have to be appointed of the assets of the taxpayer company itself--not with a view to preserving its trade but to ensure the orderly realisation of its assets. The Bank was not willing to give that support unless it was given control of JMB by the transfer of its entire shareholding and pending transfer of the shares by the right to remove and appoint its directors, and unless JMB was made if not an attractive at least a less unattractive acquisition by the injection of 50m into it. The purpose of the board of the taxpayer company in agreeing to make that payment was no doubt to preserve the taxpayer company's business. But the means by which that purpose was achieved and indeed in the situation of crisis in the early hours of 1st October the only means by which it could be achieved was to transfer the shares of JMB to the Bank and as part of a single transaction or arrangement to pay 50m to JMB and to release JMB from any obligation to repay it. These two elements cannot be severed, the one being treated as the disposal for a nominal consideration of a worthless but not an onerous asset and the other as a payment made to preserve the business of the taxpayer company.'

The Court of Appeal affirmed the decision of Vinelott J. Fox LJ, who delivered the leading judgment, said (1991) STC 259 at 265 (1991) 1 WLR 558 at 565:

"The position then, it seems to me, is as follows: (i) JMB was a capital asset of the taxpayer company; (ii) the taxpayer company disposed of JMB to the Bank; (iii) the only terms on which the Bank was willing to acquire JMB was on payment of the 50m by the taxpayer company to JMB. The position was in reality, the same as if the Bank had said "We will take over JMB if you pay us 50m". Whichever way it was done, the payment seems to me to be a payment by the taxpayer company to enable it to get rid of a capital asset. That asset was not onerous in the sense that the leases in Mallett v. Staveley Coal and Iron Co. Ltd. (1928) 2 KB 405, (1928). All ER Rep. 644 were onerous, but its continued rentention was harmful to the taxpayer company. In my view the common sense of the matter is that the 50m was capital expenditure."

Before your Lordships, Mr. Andrew Park QC for the taxpayer company advanced the following submissions. He submitted that the expenditure of 50m could only be a capital payment if expended as consideration for or otherwise (a) the acquisition of a capital asset or (b) the improvement of a capital asset already owned or (c) the divestiture of an onerous capital asset already owned. Here the question was whether the payment fell into the third of these categories. In his submission it did not, because the JMB shares were a worthless asset, not an onerous capital asset, and the sum of 50m was not paid to the Bank of England to get rid of the worthless shares but as a contribution towards the rescue operation mounted by the Bank. In these circumstances the payment, which was in reality paid out to protect the platinum trade of the taxpayer company, was not a capital payment but a revenue payment expended wholly and exclusively for the purposes of that trade. For the Crown Mr. Alan Moses QC submitted that the sum of 50m was indeed expended by the taxpayer company to enable ii to get rid of the JMB shares to the Bank of England and accordingly the payment was one of a capital nature. He recognised that, from the taxpayer company's point of view, the advantage of the agreement with the Bank of England was that JMB would be rescued; but he submitted that, because of the terms of the proposal put forward by the Bank, the agreement consisted of an indivisible package comprising the injection of 50m by the taxpayer company into JMB and the transfer of the shares in JMB to the Bank of England for a nominal consideration, and the agreement of the Bank to accept the shares upon those terms. Because of the terms of the Bank's offer which the taxpayer company had to accept, it was forced to spend 50m for the disposal, even though the advantage to the taxpayer company was the rescue. Accordingly the sum was expanded to get rid of the shares, and so constituted a capital payment.

I approach the matter as follows. I proceed on the basis, which was accepted by both parties, that for the 50m to constitute a capital payment it must have been paid for the divestiture by the taxpayer company of a capital asset, i.e. the transfer of the shares in JMB to the Bank of England. I accordingly turn to the agreement between the taxpayer company and the Bank. Here I find that the Bank agreed to purchase the shares for a nominal consideration, subject to the taxpayer company injecting 50m into JMB (by way of a loan and waiver of repayment). On the face of the agreement, therefore, it can be said that the money was paid as a necessary step to achieve the acceptance of the shares by the Bank. This is because there is nothing in the agreement to the effect that the money was paid for any other consideration furnished by the Bank. In particular, there is no provision that it was paid in consideration for a rescue operation to be mounted by the Bank. On this reasoning, on a true analysis of the agreement the taxpayer company did not inject the money into JMB in consideration for the rescue of JMB. It sold the shares in JMB (with the 50m injected into the company) to the Bank for a nominal consideration. It therefore paid the money to JMB in order to achieve that transfer. This is the analysis which was accepted both by Vinelott J and by the Court of Appeal.

I must confess that at first I too found this analysis attractive. But on reflection I have come to the conclusion that it is too narrowly based, and ignores the reality of the situation. For the reality was that, even though the Bank did not (and no doubt could not) promise the taxpayer company that it would rescue JMB, nevertheless it was plainly planning to do so, not in the taxpayer company's interest but in the public interest, and it exacted the 50m cash injection by the taxpayer company into JMB as the taxpayer company's contribution to that rescue. That explains why the sum was not payable to the Bank, but was stipulated to be a cash injection into JMB before the shares in JMB were transferred to the Bank. The taxpayer company knew that it could safely proceed in this way, without any promise by the Bank to rescue JMB, because matters had gone so far that the Bank was bound to mount that rescue as soon as JMB's doors were open for business the following morning. Strictly speaking the money was not paid for the rescue; but it was nevertheless a contribution towards the rescue which the bank was inevitably going to mount in the public interest. The taxpayer company was of course prepared to make the contribution to the rescue because it was in its interest to do so to save its own platinum trade from collapse. But in these circumstances the payment cannot be described as money paid for the divestiture of the shares; it was rather a contribution to the rescue of JMB planned by the Bank, which was a prerequisite of the transfer of the shares in JMB to the Bank for a nominal consideration. As such it was, in my opinion, a revenue payment.

It is important to observe that the payment does not become a revenue payment simply because the taxpayer company paid the money with the purpose of preserving its platinum trade from collapse. That was the approach of the General Commissioners, which I do not feel able to accept. The question is rather whether, on a true analysis of the transaction, the payment is to be characterised as a payment of a capital nature. That characterisation does not depend upon the motive or purpose of the taxpayer. Here it depends upon the question whether the sum was paid for the disposal of a capital asset. I have come to the conclusion that on a true analysis, the sum was not paid for the disposal of the shares. It was paid by the taxpayer company as a contribution towards the rescue of JMB, which the taxpayer company knew the Bank was going to mount immediately in the public interest. As such, it is in my opinion to be properly characterised as a revenue payment.

For these reasons, I would allow the appeal.

LORD JAUNCEY OF TULLICHETTLE.--My Lords, the authorities demonstrate how narrow can be the question whether a substantial payment for the purposes of preserving the trading position of a taxpayer company is of a revenue or capital nature for the purposes of computing its trading profit. On the one hand are cases such as Morgan (Inspector of Taxes) v. Tate Lyle Ltd. (1954) 2 All ER 413, (1955) AC 21 and IRC v. Carron Co. 1967 SC (HL) 47 and on the other hand such cases as Mallett (Inspector of Taxes) v. Staveley Coal and Iron Co. Ltd. (1928) 2 KB 405, (1928) All ER Rep. 644 and Tucker (Inspector of Taxes) v. Granada Motorway Services Ltd. (1979) 2 All ER 801, (1979) 1 WLR 683.

In Morgan v. Tate Lyle Ltd. it was held both in the Court- of Appeal (see (1953) 2 All ER 162, (1953) Ch 601 and in your Lordships' House that it had been open to the General Commissioners as a matter of law to find, as they did, that expenditure incurred in carrying out a propaganda campaign against nationalising the sugar refining industry was wholly and conclusively laid out for the purposes of the taxpayer's trade and was accordingly an admissible deduction for income tax purposes. The expenditure was, as Hodson LJ said (1953) 2 All ER 162 at 186, (1953) Ch. 601 at 646:

"....a proper debit item to be charged against the incomings of the trade when computing the balance of the profits of it, and is nonethe less a proper revenue charge because it is, laid out for the purpose of preserving the assets of the company."

In IRC v. Carron Co. 1967 SC (HL) 47 a company incorporated by charter incurred substantial expenditure -in obtaining a supplementary charter which removed certain restrictions in the original charter which had become archaic and unsuited to the successful operation of a company in modern conditions. The greater part of the expenditure was incurred in buying off two dissenting shareholders who sought to prevent the alteration of the original charter. In rejecting the Revenue's argument that the expenditure was of a capital nature because it produced an enduring advantage to the .company. Lord Reid said (at 57-58):

`Of course they obtained an advantage; companies do not spend money either on capital or income account unless they expect to obtain an advantage. And money spent on income account, for example on durable repairs, may often yield an enduring advantage. In a case of this kind what matters is the nature of the advantage for which the money was spent. This money was spent to remove antiquated restrictions which were preventing profits from being earned. It created no new asset:

In Mallett v. Staveley Coal and Iron Co. (1928) 2 KB 405, (1928) All ER Rep. 644 the Court of Appeal held that payments made by a lessee company for the acceptance of a surrender of one mining lease and its release from certain onerous obligations under a second mining lease were capital payments. Sargant LJ. referring to the payment made in relation to the second mining lease, said (1928) 2 KB 405 at 420-421, (1928) All ER Rep. 644 at 649:

"It is a payment made for the purpose of modifying the conditions of an existing asset so as to make the resultant term more advantageous or less disadvantageous for the enduring benefit of the trade. In that case it seems to me that the words of the Lord Chancellor, in themselves applicable to the acquisition of a positive asset or possible advantage, are equally applicable to the case where the payment is made for the purpose of getting rid of a permanent disadvantage or onerous liability arising with regard to the lease, which was a permanent asset of the business."

The reference to the words of the Lord Chancellor was to the observations of Viscount Cave LC in British Insulated and Helsby Cables Ltd. v. Atherton (1926) AC 205 at 213, (1925) All ER Rep. 623 at 629.

In Tucker v. Granada Motorway Services the taxpayer paid a sum to procure a reduction in rent for the remaining 40 years of a lease. Lord Wilberforce, after pointing out that it was common in cases which raised the question whether a payment was to be treated as one of revenue or capital for indicia to point different ways, said (1979) 2 All ER 801 at 804, (1979) 1 WLR 683 at 686:

`I think that the key to the present case is to be found in those cases which have sought to identify an asset. In them it seems reasonably logical to start with the assumption that money spent on the acquisition of the asset should be regarded as capital expenditure. Extensions from this are, first, to regard money spent on getting rid of a disadvantageous asset as capital expenditure and, secondly, to regard money spent on improving the asset, or making it more advantageous, as capital expenditure. In the latter type of case it will have to be considered whether the expenditure has the result stated or whether it should be regarded as expenditure on maintenance or upkeep, and some cases may pose difficult problems.'

The question in this appeal is therefore whether the 50m was paid to dispose of the shares in JMB or whether it was paid to enable the taxpayer company to continue to trade by removing the danger of JMB's insolvency. My Lords, I must confess that I was attracted by the argument for the Crown that the payment was made to enable the taxpayer to dispose of the shares. However, the issue is narrow and I do not feel inclined to dissent from what I understand to be the view of the majority of your Lordships. I, therefore, agree that the appeal should be allowed and the decision of the General Commissioners restored.

1617/TAppeal allowed.