1994 P T D 1122

[House of Lords]

Before Lord Keith of Kinkel, Lord Templeman, Lord Jauncey of Tullichettle, Lord Browne-Wilkinson and Lord Mustill

SMITH (INSPECTOR OF TAXES) and another

Versus

ABBOT and others

([1994) 1 All ER 673; (1994) 1 WLR 306, decided on 17/02/1994.

Income-tax---

----Income from business or profession---Expenses wholly, exclusively and necessarily incurred for the purpose of business or profession---Journalist incurring expenses in purchasing newspapers and periodicals to enable himself to write features in the newspaper---Whether reading of other newspapers and periodicals to be regarded as means of maintaining general qualifications and fitness of journalist to carry out business or profession or as part of performance of daily duties as journalist---Whether expenses wholly, exclusively and necessarily incurred in performance of journalist's duties-- Section 189(1) of the (UK) Income and Corporation Taxes Act, 1970---of. section 23(1)(xviii) of the (Pakistan) Income Tax Ordinance, (XXXI of 1979), S.23(1)(xviii)--[Smith (Inspector of Taxes) v. Abbott (1993) 2 All ER 417 reversed.]

Held, (Lord Browne-Wilkinson dissenting).---The question whether money was expended `wholly' exclusively, and necessarily in the performance of a journalist's duties when he purchased and read newspapers and periodicals was a mixed question of fact and law which the Court was entitled to review. Applying the distinction between expenses which were deductible because they were incurred in the performance of duties and expense which were not deductible because they were incurred in order to enable the duties to be performed a journalist did not read newspapers and periodicals in the performance of his duties but in order to enable his duties to be performed.

Smith (Inspector of Taxes) v. Abbott (1993) 2 All ER 417 reversed.

Peter Whiteman QC, Marion Simmons and Robert Anderson (instructed by Berwin Leighton) for the Taxpayers.

G. N. H. Emslie QC (of the Scottish Bar), Timothy Brennan and P.S. Hodge (of the Scottish Bar) (instructed by the Solicitor Inland Revenue, agent for the Solicitor of Inland Revenue for Scotland, Edinburgh) for the crown in the Scottish appeals.

Alan Moses Q.C. Timothy Brennan and Rabinder Singh (instructed by the Solictor of Inland Revenue) for the Crown in the English appeals.

Dates of hearing: 5th to 8th July, 1993 and 17th February, 1994.

JUDGMENT

LORD KEITH OF KINKEL.---My Lords, for the reasons given in the speech to be delivered by my noble , and learned friend Lord Templeman, which I have had the opport f reading in draft and with which I agree, I would dismiss the Scottish appeals and allow the appeals by the Crown in the English cases.

LORD TEMPLEMAN: --My Lords, these Scottish and English appeals are concerned with the expenses of ten journalists. Each journalist worked for a newspaper and purchased and studied copies of other newspapers and periodicals. The question is whether the sums expended by the journalist in the purchase of newspapers and periodicals are deductible from the income of the journalists liable to income tax pursuant to S.189 of the Income and Corporation Taxes Act, 1970, which so far as material, provides:

(1) If the holder of an office or employment 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 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 relevant- provisions of S.189 of the 1970 Act were first enacted in S.51 of the Income Tax Act, 1853 and are now reproduced in S.198(1) of the Income and Corporation Taxes Act, 1988.

Three of the Scottish Journalists worked for the Glasgow Herald which is a newspaper circulating throughout Scotland and two worked for the Glasgow Evening Times which circulates in .the area of Glasgow. The proprietors of both the Scottish newspapers were George Outram &- Co. Ltd. Four of the English journalists worked for the Daily Mail and the fifth for the Mail on Sunday. The proprietors of these newspapers were Associated Newspapers Ltd.

Each of the ten journalists was a member of the National Union of Journalists employed on the terms of an agreement negotiated between the union and the proprietor of the newspaper. The agreement between the Scottish proprietors and the union for the period 1st July 1983 to 30th June 198-? included the following terms:

(5) Hours of Work.

(a) All members will have the right to work a four-day week.

(b) All members of the Chapels employed full time shall not exceed an average of 34 hours per week if exclusively engaged in night work, 3().'~ hours if exclusively engaged in day work.

(12) Expenses.

(a) Expenses will be paid to Chapel Members, who incur expenditure in the course of their duties, in accordance with Appendix "13" of this Agreement.

Appendix B dealt with meal expenses, car expenses, clothing, telephones, removal expenses and:

`3. Newspaper and TV Licence Expenses

In compliance with Inland Revenue regulations all expenses associated with the purchase of Newspapers and Television Licence were grossed up and consolidated into salaries with effect from October 1982. Journalists employed by the Company at that time have the option of having these expenses paid on a monthly or six-monthly basis.'

For the purpose of the present proceedings it was agreed between the parties that each journalist in the Scottish appeals received from his employer in 1985-86 a newspaper allowance of L1,063, that this allowance formed part of his emoluments for the year for the purposes of section 183 of the 1970 Act and that the journalist spent at least L1,063 in purchasing newspapers and periodicals. The question in the Scottish appeals was whether the sum L 1,063 was deductible from the income of each journalist as expenses under section 189 of the 1970 Act.

In the case of the English newspapers it was agreed between the parties that each journalist in the English appeals received from his employer in 1985-86 a newspaper allowance, that the allowance formed part of his emoluments for the purposes of section 183 of the 1970 Act and that the journalist spent an amount at least equal to the allowance in the purchase of newspapers and periodicals. The question in the English appeals was whether the amount of the allowance thus spent was deductible from the income of each journalist as expenses under section 189 of the 1970 Act.

In the Scottish cases the Special Commissioners refused the claims of each journalist to deduct the expenses of purchasing newspapers and periodicals on the grounds that the journalist read in order to prepare himself for his duty and that the reading was not undertaken in the performance of his duties. The First Division of the Inner House of the Court of Session (the Lord President (Hope) and Lord Cullen (Lord McCluskey dissenting) (1992) STC 406 upheld the commissioners and the journalists now appeal.

In the English cases the General Commissioners upheld the claims of each journalist to deduct the expense of purchasing newspapers and periodicals on the grounds that the journalist was reading in the performance of his duties. That decision was upheld (save in one instance) by Warner, J (1991) STC 661 and all the claims were upheld by the Court of Appeal (Ralph Gibson, Mann and Nolan IJJ) ((1993) 2 All ER 417, (1993) 1 WLR 1114). The Crown now appeals.

The five journalists involved in the Scottish appeals were employed respectively as follows:

(1) An assistant picture editor.--He purchased nine daily newspapers, three Sunday newspapers and the following periodicals; Radio Times, TV Times, Woman, Woman's Own, Cosmopolitan, Private Eye, Ideal Home and Practical Gardener.

(2) A features writer and weekly columnist.--She purchased' five newspapers everyday and other daily papers from time to time. On Sundays she took five or six newspapers. She took some magazines regularly as useful background reading including the Economist, History Today, Illustrated London News, Listener, Spectator, Private Eye, Life, Radio Times, TV Times and Time Out and others such as Woman, Woman's Own, Cosmopolitan and She when it seemed from the cover they might have something useful for her work.

(3) A staff reporter.--He bought four daily and two Sunday papers. He also bought the Spectator, New Scientist, Newsweek, Time, Economist, New Society, Listener, Punch and Private Eye regularly and on occasion, Vogue and Good Housekeeping. He sometimes bought the Times Educational Supplement. .

(4) A sub-editor.--He nearly always bought five daily newspapers and one of the quality English papers. On Sundays he bought five newspapers. He also bought a variety of magazines as they appeared such as the Listener. Radio Times, TV Times, Exchange and Mart, Scottish Field, Homes and Gardens, UK Press Gazette, Woman and-Woman's Own.

(5) A sports sub-editor.--He bought eight daily papers, five Sunday papers and also the Radio Times, TV Times, Punch, Tennis World, Cosmopolitan, Soccer Journal and a number of other magazines.

The five journalists involved in the English appeals were employed respectively as follows:

(6) A picture editor--He purchased all the daily and Sunday newspapers and on each day two or three editions of the evening newspapers. He also purchased each publication of the British Journal of Photography, SLR, Amateur Photographer, Paris Match, Stern, Creative Camera, Epoca, Punch, Time, Sussex Courier, Life, Express and Star, Illustrated London News, Tatler, Country Life, Bunte, Cosmopolitan and-Melbourne Newsweek.

(7) A news sub-editor.--He purchased eight daily papers, seven Sunday papers, Radio Times, TV Times, Time, Smash Hits, Spectator, Economist, New Statesman, Private Eye, Newsweek and UK Press Gazette when he considered it necessary.

(8) A sorts reporter.--He purchased all the dailies and eight Sunday newspapers. He regularly bought the Cricketer, Wisden Cricket Monthly, Shoot, World Soccer, Match Weekly, Spectator, New Statesman, Private Eye, Newsweek, Time, UK Press Gazette together with other periodicals and foreign newspapers which he considered relevant.

(9) A staff photographer.--He purchased nine daily papers, and two or more Sunday papers and in addition he bought the Catholic Pictorial, The Herald and Universe.

(10) A news layout journalist.--He purchased all the daily and Sunday newspapers and in addition the New Statesman, Newsweek, Time, Campaign, UK Press Gazette, Kent Messenger, TV Times and Radio Times.

Each journalist read the newspapers and periodicals, which he purchased in his spare time mostly at home but sometimes while travelling to and from work and sometimes in his spare time at work. Some of the journalists kept cuttings for future reference. The evidence given by or on behalf of each journalist giving reasons for such reading was similar to and almost identical 'with the other cases. The journalist said that he read newspapers because he must know what has happened and what is likely to happen. He can find out what is happening by reading newspapers and periodicals. He needs to have an up-to-date knowledge of all aspects of the news. He has to know what other newspapers are doing about a particular news item, what stage various issues in a .story have reached, judge every story in relation to everything else going on, avoid repeating stories appearing in other newspapers the previous day and take the story forward where it is a continuing event. In addition, newspapers and periodicals provide the journalist with ideas, and suggest different methods of presentation, style and language.

There was evidence that a newspaper proprietor expected or required his journalists to read widely and that if a journalist neglected to read other newspapers and periodicals the quality of his work would suffer and he would expect to be reprimanded or even dismissed in the final analysis.

In the Scottish cases the Special Commissioners held ((1992) STC 406 at 425):

By reading newspapers and magazines the taxpayers, generally speaking at any rate, provided themselves with background material with which to approach their respective tasks as reporter, features writer, sub-editor or photo journalist as the case might be. They were not at that time preparing articles, photographs or reports for publication, but preparing themselves to carry out the duties of their employment.'

In the English cases the General Commissioners (1991) STC 661

accept the evidence of Mr. Burden and the taxpayer that the reading of this material was a necessary part of the duties of (the journalist) ... ... and was not merely required to qualify, or maintain the qualifications of the taxpayer to do the work.'

My Lords, the Special Commissioners and the General Commissioners cannot both be right. The facts in all the Scottish and English cases were indistinguishable. If a sub-editor sits in his parlour in Scotland reading English newspapers and a sub-editor sits in his parlour in England reading Scottish newspapers then both or neither of the sub-editors must be reading in the performance of the duties of a sub-editor. The deductibility of the expenses of purchasing newspapers by thousands of journalist cannot vary from journalist to journalist according to the composition or differing views of different commissioners. The question in each case is whether when a journalists reads newspapers he is performing the duties of his employment.

The conditions necessary to be fulfilled in order for expenses of an employee to qualify for deduction under section 189 of the 1970 Act or its predecessors have been judicially considered in the past but not in relation to journalists.

In Simpson (Inspector of Taxes) v. Tate (1925) 2 KB 214 a medical officer of health joined certain medical and scientific societies in order that by means of their meetings and published transaction he might he aware of all recent advances in sanitary science and keep himself up to date on all medical questions affecting public health. Rowlatt, J said ((1925) 2 KB 214 at 219):

"The respondent qualified himself for his office before he was appointed to it, and he has very properly endeavoured to continue qualifying by joining certain professional and scientific societies, so that by attending their meetings and procuring their publications he may keep abreast of the highest developments and knowledge of the day. He seeks to deduct from his assessable income the subscriptions paid by him to these bodies as money expended necessarily in the performance of the duties of the office. When one looks into the matter closely, however, one sees that these are not moneys expended in the performance of his official duties. He does not incur these expenses in conducting professional inquiries or get the journals in order to read them to the patients. If he did, the case would be altogether different. He incurs these expenses in qualifying himself for continuing to hold his office, just as before being appointed to the office he qualified himself for obtaining it. In my view the principle is that the Compliance with each and every one of them is obligatory if the benefit of the rule is to be claimed successfully.'

In that case a regimental officer was not allowed to deduct his annual mess subscription although he was obliged to be a member of the mess and would no doubt have been transferred or even cashiered if he failed to pay. An officer in the Territorial Army was not allowed his mess subscriptions or his share of mess expenditure on guests. The officer was also not allowed and cost of attending social functions given by warrant officers and other ranks. Vaisey, J said ((1953) 2 All ER 801 at 804, (1953) 1 WLR 1123 at 1127):

`I agree that participation in the social life of the battalion was part of the social duties of the taxpayer, but was it any part of-his official duties? Was he at the sergeants' dance in the proper sense of the expression "on duty"? I think not. I am quite unable to see how this item can be brought within the rule. I apply to it a description from the contentions of the Crown as set out in the case, and say that these sums are expenses incurred from tradition and custom, accepted voluntarily by the officers of the unit and containing elements of personal choice and benefit, and, therefore, not within the rule.'

Similarly in the present cases the journalist is not on duty when he is reading at home and his expenditure on newspapers contains elements of personal choice and benefit. Indeed one of the journalists gave evidence that he was a compulsive buyer of newspapers.

In Humbles (Inspector of Taxes) v. Brooks (1962) 40 TC 500 the headmaster required to teach history was not allowed the expense of attending a series of weekend lectures on history. Ungoed-Thomas, J citing the authorities said at 502.

"In the performance of the said duties" means in the course of their performance... It means "in doing the work of the office, in doing the things which it is his duty to do while doing the work of the office"...It does not include qualifying initially to perform the duties of the office or even keeping qualified to perform them it does not mean adding to the taxpayer's usefulness is performing his duties. The requirement of the employer that the expenditure shall be incurred does not, of itself, bring the expense within the Rule, nor does the absence of such a requirement exclude it from the application of the Rule

The judge accepted (at 503) that the headmaster---attended the course to improve his background knowledge of the subjecthe gleaned useful information from the lectures he felt the course was essential to keep himself up to date to provide him with material which he reproduced in the history lesson.

All these advantages were claimed by the journalists in the present cases plus the claim that reading newspapers provided ideas and inspiration. This advantage however is no different in quality from the other advantages claimed.

In Brown v. Bullock (Inspector of Taxes) (1961) 3 All ER 129, (1961) 1 WLR 1095 a bank manager who was instructed by his employers to foster local contacts and for that purpose to join a club was not allowed as an expense in the performance of his duties as a bank manager the entrance fee and annual subscriptions to the club which were paid by his employers. In approving the decision of Vaisey, J in Lomax v. Newton, Lord Evershed MR said, (1961) 3 All ER 129 at 131, (1961) 1 WLR 1095 at 1100) that the language of the statute is of a somewhat rigid character and that the adverb necessarily added to the phrase `(in the) performance of the duties' clearly narrows very much the scope of any expenditure which can fairly be deductible. Donovan IJ said ((1961) 3 All ER 129 at 133, (1961) 1 WLR 1095 at 1102):

`The test is not whether the employer imposes the expense, but whether the duties do, in the sense that, irrespective of what the employer may prescribe, the duties cannot be performed without incurring the particular outlay.'

It does not matter therefore whether in the present cases the journalists were contractually bound to their employers to expend money in the purchase of other newspaper and magazines or whether they did so voluntarily. Whether or not a journalist thinks it is necessary to read one or more newspaper and periodical his duty is in the production of his employer's newspapers and he is not carrying out that duty when he is reading other newspapers.

Elwood (Inspector of Taxes) v. Utitz (1964) 42 TC 482 was a case in which travelling expenses from one place of work to another were held to be deductible in contrast to travel expenses from home to a single place of work. Owen v. Pook (Inspector of Taxes) (1969) 2 All ER 1, (1970) AC 244 is a similar case. The question in the present cases is whether the journalist was reading in order to qualify himself to work to the satisfaction of himself and his employer or whether he was reading in the performance of his work. Taylor v. Provan (Inspector of Taxes) (1964) 1 All ER 1201, (1975) AC 194 was another case concerned with travelling expenses. Lord Salmon distinguished between expenses which were deductible because they were incurred `in the performance of the duties' and expenses which were not deductible because they were incurred `in order to enable the duties to be performed' (see (1974) 1 All ER 1201 at 1223, (1975) AC 129 at 226-227). Applying this distinction a journalist does not read in the performance of his duties but in order to enable his duties to be performed.

The reasons for the strictness of the rule governing deductible expenses are not hard to find. If a journalist or other employee were allowed to deduct expenses incurred by him in his spare time in improving his usefulness to his employer, the imposition of income tax would be distorted and the amount of the expenses claimed by an individual would depend entirely on his own choice. In the present cases for example the Scottish appeals and the English appeals are test cases. The numbers of members of the National Union of Journalists have in the past exceeded 30,000. No doubt every journalist is prepared to give evidence sincerely and honestly that he considers it is necessary to purchase the newspapers and magazines which he chooses to read and up to the amount for which he receives an allowance. If each spend 1,000 pounds a year the total deduction for 30,000 journalists will be pounds 30m a year. There may be a large number of journalists who would not spend this amount but the principle of the decision in the present cases does not apply only to journalists; the ramifications of the decision in their favour would be enormous.

As I have indicated, in the Scottish cases the Special Commissioners and a majority of the Inner House considered that the expenditure by a journalist on newspapers and periodicals was not necessarily incurred in the performance of his duties. In the English cases, the General Commissioners, after surveying the evidence, concluded that the expenditure was necessarily incurred in the performance of the duties. The Court of Appeal were content to treat the conclusions of the General Commissioners as findings of fact. In the English cases the Courts appear to have been powerfully influenced by the belief, naturally held and strongly expressed by the journalists and supported by their employers, that their reading of a newspaper was necessary and was carried out in the performance of their duties. But it is for the Court to determine on the facts and evidence whether those beliefs are justified having regard to the wording of section 189(1) of the 1970 Act and to the authorities. Questions involved in the present cases are mixed questions of law and fact.

No one doubts that a journalist may benefit from information and knowledge concerning past and present events and from former and contemporary examples of style and presentation. He may with profit read the past journalistic works of William Howard Russell, Bernard Shaw, Neville Cardus, and Henry Longhurst, amongst others. He may with profit read the contemporary leading articles of the Times or study the photographs in the Star or the headlines in the Daily Mirror, or the layout of the Daily Express. Before a journalist begins his daily work he must form a view of what he ought to be doing during the day. But he is not performing his duties when he prepares for work and there are a variety of ways in which he may choose to prepare and inform himself. The evidence in the present appeals largely ignored the help to be derived from Reuters, Press Association and other news services and also the immediate help of radio and television broadcast. A journalist is free to choose his preparatory studies. It is said that some journalists best obtain ideas and keep up to date by wining and dining. The journalists in the present cases chose to spend several hours everyday reading a formidable mass of repetitive newsprint dealing with the events of yesterday. In my opinion, they were not, in the course of that reading, engaged in the performance of the duties for which they were paid.

The following facts were common to all the cases considered by the Scottish commissioners and the English commissioners. (1) The journalist was employed on the. terms of a written contract for a maximum of four days a week for a maximum number of hours per day. (2) The journalist selected, bought and read a variety of newspapers and periodicals. He was not carrying out his contractual duties. For example Mr. Simpson, to whom my noble and learned friend Lord Browne-Wilkinson refers in his speech, was not sub editing when he was reading newspapers at home after he had returned from work. (3) The journalist was not renumerated for the time he spent in reading newspapers at home. (4) The journalist was not guilty of a breach of contract if he did not read any newspapers at home or read some newspapers but not others. (5) In the course of performing their contractual duties the journalist made use of information which he had obtained when he was not performing his contractual duties. For example, if Mr. Simpson saw on the television or heard on the radio or read in the newspaper that Mr. Michael Jackson had been found in Bootle he would make up the pages for which he was responsible so as to give prominence to that item of news.

In all the cases there was but one question of law, namely whether on the facts and on the true construction of section 189 of the 1970 Act the journalist incurred expense in the performance of his duties when he selected, purchased and read newspapers and periodicals in his own time. If either set of commissioners failed to answer that question of law correctly, the error of law must be corrected by the Courts who are always entitled and bound to correct. errors of law. In my opinion the Scottish commissioners reached the right conclusion of law and the English Commissioners did not.

My noble and learned friend says that the Scottish commissioners were right because they did not have the evidence of Mr. Burden and the English commissioners who reached the opposite conclusion were right because they did receive that evidence. The case stated by the English commissioners contains this passage on which my noble and learned friend relies:

"We accept the evidence of Mr. Burden and the taxpayer that the reading of this material was a necessary part of the duties of sub editing as described above and was not merely required to qualify, or maintain the qualification of, the taxpayer to do the work."

Mr. Burden and the taxpayer expressed the opinion that reading was a necessary part of the duties of sub-editing. The English commissioners appeared to have assumed and my noble and learned friend has assumed that this opinion is decisive of the question of law which is whether the reading was in the performance of the duties. Mr. Burden and the taxpayer were not qualified to express an opinion on a question of law. The English commissioners were qualified to do so but are liable to be corrected by the Court. My noble and learned friend now suggests that the question of law shall be decided by the evidence of newspaper proprietors and journalists to be given to a third set of commissioners whose decision will not be subject to correction by the Courts. He also suggests that the commissioners should not be asked to decide whether on the undisputed facts and on the true construction of section 189 of the 1970 Act journalists are acting in the performance of their duties as reporters, authors, editors, photographers but should be asked to decide whether reading is objectively part of the core duties of their employment. In my opinion the question of law involved in these cases cannot be decided by the non-statutory and in my view incomprehensible test of core duties nor by the non-statutory dicta of a lower Court dealing with different facts in Humbles v. Brooks. My noble and learned friend's suggestion demonstrates a confusion of facts, opinion and law of a kind which was corrected by the House of Lords in Ensign Tankers (Leasing) Ltd. v. Stokes (Inspector of Taxes) (1992) 2 All ER 275 at 291-292, (1992) 1 AC 655 at 677.

Such confusion would cause chaos in the administration of revenue law.

In my opinion, from the wording of the section and from the authorities, a journalist who claims to deduct under section 189(1) of the 1970 Act his expenditure on newspapers and periodicals fails. When he reads newspapers and periodicals he is not acting. in the performance of his duties as a reporter, author, editor, photographer or like occupation.

I would accordingly dismiss the Scottish appeals and uphold the appeals of Crown in the English appeals.

LORD JAUNCEY OF TULLICHETTLE.---My Lords, I have no doubt that for the reasons given by my noble and learned friend Lord Templeman, the Scottish appeals should be dismissed. I have found the position in relation to the English appeals to be much more difficult. I must confess to having been impressed by the conclusions drawn by my noble and learned friend, Lord Browne-Wilkinson, from findings 7(d) of the General Commissioners when they accepted the evidence of management and journalists that the reading of material was a necessary part of the duties of sub-editing and was not merely required to qualify or maintain the qualification of the journalist's work. However, I am satisfied that the question of whether money is expended `wholly, exclusively, and necessarily in the performance of (a journalist's) duties is not only a question of fact on which evidence can be conclusive, but involves a mixed question of fact and law. That being so, it follows that the views of management and employees cannot per se be determinative of the matter and that the commissioners must form their own view in the light of the provisions of the statute.

For the reasons given by my noble and learned friend, I consider that the General Commissioners have erred in law and I agree that the English appeals should be allowed.

LORD BROWNE-WILKINSON: --My Lords, I am in entire agreement with the view of my noble and learned friend Lord Templeman that, in the real world; the answer to the question whether expenditure incurred by journalists in buying newspapers is deductible for tax purposes cannot differ as between any Vivo or more journalists doing essentially the same job. Accordingly, in an ideal world, your Lordships ought to be able to resolve the conflicting decisions in the cases of the Scottish journalists and the English journalists. My difficulty is that your Lordships are not operating in the real world. To give a definitive answer to the question, it is necessary to know the true facts.

In the present cases, the two sets of commissioners, who are the sole arbiters of the facts, have reached different, and in one important respect conflicting, findings of fact. Your Lordships' only function is to decide whether or not on the facts found in each case the decision of the commissioners in that case was in law correct. If, as in these cases, on the evidence before them the commissioners in the two cases have made differing findings of fact, your Lordships may be required to hold that their conclusions in each set of appeals (though conflicting) are right in law. It is not legitimate for this House, in seeking to reach a common sense outcome, to disregard or alter the findings of fact made by the commissioners or to characterise as a question of law what is in reality-a question of fact.

Under the Taxes Management Act 1970, the determination of tax appeals is committed to the General or Special Commissioners. Their decision is final, save as provided by section 56 of that Act. Subsection (2) provides that either the taxpayer or the Revenue, if dissatisfied with the commissioner's determination as being erroneous in point of law, can require a case to be stated. The case stated shall set forth the facts (see subsection (4)). Subsection (6) confers on the Court its only jurisdiction viz to hear and determine any question or questions of law. Therefore, in any appeal by case stated the Court's only jurisdiction is to determine, on the basis of the facts found in that case stated, whether any error of law is disclosed.

In many cases the distinction between question of fact and law is difficult to draw. The classic statement of what amounts to an error of law and one adopted by all parties in argument is that of Lord Redcliffe in Edwards (Inspector of Taxes) v. Bairstow (1955) 3 All ER 48 at 57 (1956) AC 14 at 35 36.

"I think that the true position of the Court in all these cases can be shortly stated. If a party to a hearing before commissioners expresses dissatisfaction with their determination is being erroneous in point of law, it is for them to state a Case, and in the body of it to set out the facts that they have found as well as their determination. I do not think that inferences drawn from other facts are incapable of being themselves findings of fact, although there is value in the distinction between primary facts and inferences drawn from them. When the case comes before the Court, it is its duty to examine the determination having regard to its knowledge of the relevant law. If the Case contains anything ex facie which is bad law and which bears on the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the Court must intervene. It has no option but to assume that there has been some misconception of the law, and that this has been responsible for the determination. So there, too, there has been error in point of law. I do not think that it much matters whether this state of affairs is described as one in which there is no evidence to support the determination, or as one in which the evidence is inconsistent with and contradictory of the determination, or as one in which the true and only reasonable conclusion contradicts the determination. Rightly understood, each phrase propounds the same test. For my part, I prefer the last of the three...'

In these appeals none of the taxpayers submitted that there was any error of law on the face of the cases stated. The sole question therefore, in both appeals, is whether the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal or whether on the facts found, the true and only reasonable conclusion contradicts the determination.

In order to reach any view on that question the Scottish appeals and the English appeals have to be considered separately since the determination of each body of commissioners is made on the basis of the evidence led before each body, the assessment of such evidence .by each body and the final conclusions of fact reached by each body. It is not legitimate to ask the question, Could the English commissioners acting judicially and properly instructed as to the relevant law have come to their conclusion on the basis of the facts found by the Scottish commissioners? Therefore I am unable to follow the course adopted by my noble and learned friend Lord Templeman in conflating into one mass the separate findings of fact made by the two bodies of commissioners.

Before turning to the facts, it is important to identify what in law, were the relevant issues. It is one of the singular features of these appeals that at no stage has there been any disagreement between the parties as to the principles of law applicable in applying section 189(1) of the Income and Corporation Taxes Act 1970. Those principles were admirably summarised by Warner, J in his judgment in the English appeals, (1991) STC 661 at 674, (1992) 1 WLR 201 at 204) a summary adopted as correct both by the Court of Appeal ((1993) 2 All ER 417 at 420, (1993) 1 WLR 1114 at 1117-1118) and by the Crown in its printed case (at para 5.1):

`It is notorious that that provision is rigid, narrow and to some extent unfair in its operation. In order to satisfy its requirements, an office holder or employee has to show four things. First, he has to show that he has incurred the expenses in question "in the performance of the duties of the office or employment"...Second, an office-holder or employee has to show that the expenses he seeks to deduct are expenses that he has been "necessarily obliged" to incur and defray in the performance of the duties of the office or employment. Third, he has to show that those expenses have been "wholly" so incurred. The better view seems to be that that goes only to quantum. Last, he has to show that they have been "exclusively" so incurred.

The argument has centered on the first two of those requirements. Again there has been no dispute as to the relevant law. First, it has to be shown that the expense was incurred in order to discharge a duty of the employment. Whether or not a particular operation is a duty of the employment has to be determined objectively, i.e. by answering the question, `Does the nature of the job require the doing of the act which gives rise to the expenditure?' The expense of doing an act is not deductible just because it is made a condition of the contract of employment that the act has to be done: see Brown v. Bullock (Inspector of Taxes) (1961) 3 All ER 129, (1961) 1 WLR 1095 where a bank manager was held not to be entitled to deduct the cost of being a member of a club which his employers had instructed him to join.

Second, the act giving rise to the expenditure must be done in the actual performance of such duties: an act which is done merely to acquire the necessary qualifications or the background knowledge necessary to do the jot or to do it better is not sufficient. This requirement is illustrated by bumbles (Inspector of Taxes) v. Brooks (1962) 40 TC 500 where a teacher was held not entitled to deduct the cost of attending a course for the purpose of improving his background knowledge of the subject he was required to teach. Ungoed -Thomas, J said (at 503--504):

[It was] contended that he was not employed to prepare lectures but to deliver them. This, to my mind, is an unreal distinction for present purposes. l cannot recognise that a person who is employed to deliver lectures ,or to teach is not, when preparing the lectures or the talks which he gives, doing what he is employed to do---that he is not acting in the course of the performance of his duties. Preparing lectures is, to my mind, a necessary part of his duties. That leaves the question, was the Respondent in this case, when listening to the lecture at the adult college, preparing his own lecture ...First, he attended a course to improve his background knowledge of the subject which he had studied to G.C.E. "O" level only; second, he gleaned useful information from the lectures at the course; third, he felt the course was essential to keep himself up to date; and, fourth. to provide him with material which he reproduced in the history lessons. There is, in my view, a distinction between qualifying to teach and getting background material---and even getting information and material, which he reproduced in his own lecture on the one hand, and preparing his own lecture for delivery on the other hand. The statement, in the passages in the Case Stated, that the lectures at the college provided the respondent with material which he produced gets nearest to the performance of his duties within the section, but even if this element could be treated in isolation, it goes no further than providing material just as any background information would provide material and is not, of itself, part of the preparation of his own lecture. It is, to my mind, qualifying for lecturing, or putting himself in a position to prepare a lecture. It is not the preparation of a lecture. In this sense, the distinction is between preparation for lecturing on the one hand and the preparation of a lecture on the other hand. In my judgment, the respondent, when he was attending a course and listening to a lecture, was not preparing his own lecture, and he was therefore not acting in the performance of his duties..:

Accordingly, the relevant questions of fact which had to be determined by each set of commissioners in the present cases were whether, viewed objectively, the nature of the job each journalist was employed to perform required him to read other newspapers and magazines and, if so, whether such reading was done in actual performance of his duties or was merely preparatory and done in order to qualify him, by obtaining background information, to do his job more efficiently.

The commissioners" findings of fact in the two sets of appeals are set out in the reports of the decisions of the Court of Session (1992) STC 406 and of Warner, J ((1991) STC 661, (1992) 1 WLR 201. It is unnecessary for me to set them out again since I can illustrate the grounds for my decision by comparing the case of one Scottish sub-editor. Mr. Simpson, with that of one English sub-editor, Mr. Shuttleworth. In the case of the Scottish journalists, the commissioners set out separately their findings of fact in relation to each taxpayer and then made a collective determination of all the appeals, drawing no distinction between the various taxpayers. In the case of the English journalists, the commissioners made findings of fact and a determination in relation to each taxpayer separately. But in each case their findings included findings corresponding to those in paras 7(a)(v), 7(d) and 8(a) relating to Mr. Shuttleworth. Before your Lordships all parties accepted that there was no ground for distinguishing between the individual Scottish journalists inter se and the individual English journalists inter se. Therefore in my judgment the cases of Mr. Simpson and Mr. Shuttleworth can properly be taken as determinative of all the appeals. I quote from the findings made in the respective cases stated.

Mr. Simpson

`V... (vii) As a general sub-editor Mr. Simpson worked m a pool. His particular field of work covered news and feature items, but he also had to deal with sport or anything else which the editor or the night editor might allocate to him. He was thought to be knowledgeable on motoring matters. (viii) He had to know what was going on in the world because his task was to make up the pages for which he was responsible with stories of interest to readers of the Glasgow Herald. They are, for the most part, people of above average intelligence. (ix) The paper had to be fresh because its readers expected it to carry forward stories, which they had heard or seen on the radio or television news programme the evening before. (x) Stories came in to the sub-editor throughout the day and he had to recognize which were new and which were stale, keeping a close eye in particular on those submitted by outside contributors who might try to pass off a second hand story as their own. He had to be careful not to print stories lifted from other papers. (xi) As sub editor he would cut and amalgamate two or more stories into a single article and devise a headline. (xii) The Mr. Simpson's superiors expected him to read a number of other newspapers and magazines. If he had not done so it would have become plain to them at the editorial "post-mortem" which took place each day, when the previous day's papers were considered and compared. In that event he. would have expected to be reprimanded. (xiii) In his opinion reading other newspapers and magazines was an intrinsic part of his job. (xiv) His day started at 8 a.m. when he listened to the news on Radio 4. He then took his children to school and bought the papers at the same time, deciding which to buy from looking at the display in the new sagent's shop. (xv) He took the papers home and read them for an hour or two before going to the office ....(xviii) Mr. Simpson had little time for reading or cutting papers in the office and the cutting service of the office library was not sufficient for his needs. He took a lot of cuttings while reading at home and kept them until he deemed it no longer necessary. (xix) While he was at work Mr. Simpson relied heavily on his recollection on what he had read at home. All that reading helped with his awareness of current affairs. (xx) He understood that reading at home was the common practice in the newspaper industry and he regarded it as simply part of his job for which the company gave him money. It was inconceivable to him that he should fail to spend it in the purchase of papers to read at home. (xxi) He considered himself to be working when he was reading and cutting newspapers at home (See (1992) STC 406 at 416-417).

The Special Commissioners made their determination in relation to all the Scottish journalists collectively. Having found that the expenditure was wholly and exclusively incurred for the purposes of their employment they continued (1992) STC 406 at 423:

"To succeed, however, the taxpayers also have to satisfy the further requirements of the subsection, that they were "necessarily obliged" to incur the expenditure "in the performance of the duties of their employments, that is to say in the course of performing those duties. Those requirements impose an objective test, which is notoriously rigid and difficult to satisfy... We can accept on the evidence that reading and taking cuttings from newspapers and magazines is a common practice among journalists. Whether it is "universal", as (counsel for the taxpayers) would wish us to find, we have no means of telling but it may be so widespread that a journalist, however junior, is normal expected to adopt it. In the absence of any special circumstances, however, it seems to us that the practice is to be regarded as part of a professional journalist's way of life rather than an incident in the duties of a particular employment in the newspaper industry. The terms of the journalists' contracts in these cases are more consistent with that view of the matter than with the opposing view that reading is part of the employee's duties. There is no requirement that it should be done nor is any time made available for it. The practice is recognized and approved by the payment of the newspaper allowance but the activity is clearly to be carried on out of working hours in the employee's own time, Although we appreciate that the taxpayers considered themselves to be working as opposed to being at leisure, when they were reading and cutting newspapers at home it does not follow necessarily that they were carrying out the duties of their employments and we can find no grounds for saving that they were. The only possible conclusion on the evidence is, in our opinion, that the duties of each taxpayer's employment started when he or she arrived at the office, or set off for an outside assignment if that was the first task of the day, and finished when he or she left the office or completed the final assignment of that day.' (My emphasis.)

Having quoted the passage from Humbles v. Brooks 40 TC 500 at 503 which I have cited the commissioners continued ((1992) STC 406 at 425):

`In our judgment the expenditure in this case falls on the wrong side of the dividing line indicated by the judgment in Humbles v. Brooks. By reading newspapers and magazines the taxpayers, generally speaking at any rate, provided themselves with background material with which to approach their respective tasks as reporter, features writer, sub editor or photo journalist as the case might be. They were not at that time preparing articles, photographs or reports for publication, but preparing themselves to carry out the duties of their employments.'

Mr. Shuttleworth

Before setting out the commissioner's findings, I must explain that in the English journalists case (unlike the Scottish Journalists' case) the taxpayers called a witness from the management of the Daily Mail, Mr. Burden to seek to prove that the reading of newspapers was part of the duty of a journalist. The commissioners found ((1991) STC 661 at 670-671):

`7.(a)....(ii) As News Sub-Editor for particular pages of the newspaper he had to select and check the news reports, re-writing them as necessary, determine the headlines and the page layout, choose pictures, select the type and consider whether any legal problems arose. For this work, he was responsible to the Chief Sub-Editor. (iii) As Assistant Chief Sub-Editor he was in charge of a number of Sub- Editors and had to check and correct as necessary their work .... The paper was published on six days but the staff worked on four so that he often stood in for the Chief Sub-Editor, when he was absent, in which case he would receive material from the "Back Bench", the section that directs and controls all the news coverage of the newspaper. He would then plan a page, select the appropriate Sub -Editor to deal with a particular story, giving him the necessary advice as well as checking and correcting the page. He would sometimes also stand in for others such as the "Splash" Sub-Editor (responsible for the front page) or the Assistant Night Editor when he would have similar duties. (b) Properly to carry out his duties he needed to have an up to date knowledge of all aspects of the news. In order to select copy for the next edition of the Daily Mail, he had to know what other newspapers were doing about a particular news item, what stage various issues in the story had reached, judge every story in relation to everything else going on, not repeat stories appearing in other newspapers the previous day and take the story forward (where it was a continuing event) from what had appeared in the previous day's newspapers, as well as in the Daily Mail. (d) We accept the evidence of Mr. Burden and the appellant that the reading of this material was a necessary part of the duties of sub-editing as described above and was not merely required to qualify or maintain the qualification of, the appellant to do the work (emphasis added). (e) The newspapers and periodicals were generally read by the appellant at home in the morning before he left for the office. On the days of non-attendance at the office he still had to read the newspapers and periodicals as part of his normal duties but could spread his reading over the whole day. It was necessary for him to do this work outside the office because---(i) he had to be equipped with the news before he started operations in the Daily Mail offices; (ii) his duties there gave him no time to read the newspapers or periodicals; he was always working against the clock; (iii) the cuttings library at the Daily Mail offices was not equipped to provide those daily reading facilities; and (iv) newspaper reading outside office hours was regarded by his employer and by the appellant as an essential part of his duties. 8(a) We conclude that the reading of the newspapers and periodicals outside the Daily Mail offices was in the performance of the duties of the employment, notwithstanding that this was done at home and outside the hours of attendance of the Daily Mail offices, and the money expended on them was in each case expended, wholly, exclusively and necessarily in the performance of the appellant's duties.'

Comparing these two sets of findings, the most obvious conflict is between the findings relating to the question whether or not it was part of the duties of a sub-editor to read other newspapers. In the Scottish cases it was held not to be part of the duties of the employment but merely good journalistic practice: in the English cases there was an express finding that such reading was a necessary part of the duties of sub-editing (para 7(d)). The finding of the commissioners in the Scottish cases is, by itself, decisive of the Scottish cases: if the reading of papers was not part of the duties of the taxpayer's employment, the expense of buying such papers cannot have been incurred in the performance of the duties of the employment: there can therefore be no question of the commissioners in the Scottish cases having reached a wrong determination in law on the facts found by them.

The determination by the English commissioners that reading the newspapers was a necessary part of the duties of a sub-editor was based on their acceptance of the oral evidence given to them not only by the journalists but also by the management. It is not necessarily decisive by itself: the possibility remains that, in doing such reading, the journalist is only doing something preparatory to the actual performance of his duties, qualifying himself to carry out such performance. But in para 7(d) the commissioners expressly direct themselves to that question and find as fact that the reading was not merely required to qualify, or maintain the qualification of the taxpayer to do the work. This is in direct contradistinction to the finding of the commissioners in the Scottish cases that their case fell on the wrong side of the dividing line indicated by the judgment in Humbles v. Brooks and the journalists were merely providing themselves with background material with which to approach their respective tasks. The finding by the commissioners in the English cases is in my judgment a clear finding of fact that daily reading before arrival at the office was a necessary part of the daily doing of the job of a sub editor. This finding is amply supported by the findings of primary fact. The sub-editor had to be equipped with the news before he started work when he arrived at the offices of the Daily Mail (para. 7(e)(i)). In order to select stories for publication (para. 7(a)(ii) and (iii)) he had to know what other newspapers were doing about a particular news item and not repeat stories which had appeared mother newspapers (para 7(b), i.e. the sub-editor did not only need to know what the news was: he had to know how rival newspapers were covering it. He was not acquiring background knowledge but was discovering daily what was the news and how it should be processed.

On- these findings of fact in the case of the English journalists, the commissioners could without any error of law reach the determination that the expenditure was deductible. They could properly take the view that the case was not analogous to that of a lecturer equipping himself with background information, which might or might not prove useful in preparing a particular lecture but was closer to expenditure on specific research for a particular lecture. On these findings, knowledge of each day's news and the way it is being dealt with by other newspapers is the raw material from which that day's news is presented in that day's paper. Each day's issue is a separate lecture; each day's work is a preparation of that lecture and each day's reading of other newspapers is research for that day's lecture. Certainly on the facts found, the knowledge acquired from daily reading of newspapers could not properly be described as being merely preparatory or by way of background information.

For these reasons, I would hold that both the Court of Session and the Court of Appeal were correct in holding that on the differing findings of fact made by each body of commissioners, both determinations were correct in law and both appeals should be dismissed. I repeat that I would not regard this result as satisfactory. The conclusion reached by the majority of your Lordships is more practical. I regret that I feel unable to join in it because in my view the limits on the Court's jurisdiction in tax appeals precludes me.

LORD MUSTILL: --My Lords, I agree with your Lordships that for the reasons given by my noble and learned friend Lord Templeman the Scottish appeals should be dismissed.

In company with my noble and learned friend Lord Jauncey I have found the position in relation to the English appeals to be much more difficult. Had I been of the opinion that the two bodies of commissioners were concerned solely with applying clear and. undisputed principles to the facts Which they had found I would not have regarded the striking feature that the tribunals reached opposite conclusions on what is essentially the same Joint as furnishing any ground for intervention by the Court; for the risk of contradiction always exists where Parliament has chosen in the interests of finality to create only a limited right of appeal. With much hesitation I have, however, come to the conclusion that finding 7(d) of the General Commissioners does not bear the weight sought to be put on it and that the issue is one of mixed fact and law which the Court is entitled to review. This being so I consider for the reasons stated by my noble and learned friend Lord Templeman that the English appeals should be allowed.

Appeals in Smith (Inspector of Taxes) v. Abbott allowed Appeal iii Fitzpatrick v. IRC (No.2) dismissed.

M.B.A./229/T.F. Order accordingly.