1960 PLP 62 (PTD)

[JENNINGS v. KINDER (INSPECTOR OF TAXES)] I turn to Jennings' case. In that case, as I have said, the Crown succeeded. But it is admittedly indistinguishable except for the application of section 160 of the Income‑tax Act, 1952. That arises in Jennings' case for this reason, that he was an employee in an altogether higher grade than Mayes, and he was at the relevant time receiving emoluments in excess of 2,000 a year. That is a condition necessary to bring section 160 into operation, and I shall now read it. Subsection (1); "Subject to the provisions of this Chapter any sum paid in respect of expenses by a body corporate to any of its directors or to any person employed by it in an employment to which this Chapter applies shall, if not otherwise chargeable to income‑tax as income of that director or employee, be treated for the purposes of paragraph 1 of the Ninth Schedule to this Act as a perquisite of the office or employment of that director or employee and included in the emoluments thereof assessable to income‑tax accordingly : Provided that nothing in this subsection shall prevent a claim for a deduction being made under paragraph 7 of the Ninth Schedule in respect of any money expended wholly, exclusively and necessarily in performing the duties of the office or employment." The whole question, therefore, is whether that applies to this sum of 450 paid to him by his employers. The chapter is headed "Expenses allowances to directors and others," and I approach this section with the view that "expenses" there is referring to the ordinary expenses that directors and employees incur and not to a payment such as this. That is not con clusive of the matter. First of all you have to find a sum paid in respect of expenses to an employee. 450 has been paid. But is it in respect of expenses ? To what expense has the employee been put ? That is plainly what the section contemplates. The answer is, in the year of assessment he has not been put to any expense at all. Unfortunately for him, he received rather less for the sale of a house than he had hoped, but he has not been put to any expense. He merely made a loss on the sale of his house, and that cannot in any ordinary use of language be described as an expense, I would have thought, for the purposes at all events of section

160. The only expense to which the employee was put was when he purchased the house some years before in another year of assessment, and all that has happened is that he has not received as much as he paid for it. It does not seem to me that that payment has the character of an expense for the purposes of section 160 at all. Accordingly, in Jennings' case I must allow the appeal, discharge the assessment, and the Crown must pay the appellant's costs. The Crown appealed. John Pennycuick Q. C. and Alan Orr for the Crown. Both the cases raise the same point on appeal and can be argued together. It is well established that the taxable profits of an employment include every sum in money or money's worth paid by an employer to an employee in his capacity as employee, and without consideration moving from the employee other than the services which he renders. The matter must be considered from the point of view of the employee, the employer's motive being immaterial. The payment may be voluntary ; it is not necessarily contractual. It may be a lump sum, and not neces sarily concurrent. It may be a payment to an employee to relieve him in respect of an obligation to a third party, e.g., income‑tax. Under the housing agreement no consideration is received by I. C. I. The employee is under no obligation to buy a house originally ; his purchase of a house cannot be a consideration moving to I. C. I. Under the terms of the agreement the employee is entitled to substantial financial benefits and cannot suffer any financial detriment. If there had been no agreement at all, and the employers voluntarily recouped to the employee a loss on the sale of his house, that would plainly be a profit of the employee's office. There is a long line of cases illustrating various aspects of the question. 'Hartland v. Diggines ((1926) A C 289), where the employers paid the employee's income tax, shows that the profits of an office include payment of an obligation to a third party. In Weston v. Hearn ((1943) 2 All E R 421), a lump sum paid to an employee as a bonus for 25 years' service was held to be taxable. In Ede v. Wilson ((1945) 1 All E R 367), employees were allowed to purchase shares at under market value under a promise not to realise them ; the benefit conferred was held taxable. In Nicall v. Austin ((1935) 19 T C 531) a managing director continued at the company's request to live in his own house, the company paying all outgoings ; this was held to be a profit of his employment. Edwards v. Roberts ((1935) 19 T C 618), shows that when an employee is contingently entitled to a benefit, this is chargeabe in the year in which it is received. In Herbert v. McQuade ((1902) 2 K B 631), a gift from a clergy sustentation fund, though wholly dis cretionary and payable by a third party, was held to be a profit of an incumbent's office. Blakiston v. Cooper ((1909) A C 104), the Easter offerings case, was similarly decided. Seymour v. Reed ((1927) A C 554) the cricketer's benefit match case, though decided in the taxpayer's favour shows that voluntary payments made to a man by virtue of his office are taxable. Then there are four cases dealing with lump sums paid to directors of companies under varying circumstances : Hunter v. Dewhurst ((1935) 16 T C 605), Cameron v. Prendergast ((1940) A C 549), Beak v. Robson ((1943) A C 352) and Tilley v. Wales ((1943) A C 386); in cases where the taxpayer suceeded, it could not be said that the payment was made in respect of his office. There are also Moorhouse v. Dooland ((1955) Ch. 284) and Bridges v. Hewitt ((1957) 1 W L R 674), which dealt with benefits conferred by third parties. There is nothing in the cases which supports the principle arrived at in the Court below that payments from an employer to an employee can be divided into two categories, those which are received as a reward for his services, and those which are received otherwise. This is an entirely novel distinction ; if such categories exist, one must find what the characteristic dis tinction is ; the test cannot be that the payment was voluntary, or that it was made to indemnify the employee against some loss, or that it was a lump sum. Here the agreement is wholly for the benefit of the employee, and is not collateral to his employment but made to obtain efficient and contented service, and so was directly concerned with his employment. A consideration other than services moving from the employee can only be effective if it can be shown to be a full consideration in money or money's worth ; a nominal consideration, such as would suffice to support a contract, will not suffice. Further, if some real consideration is shown, but only partial and insufficient to balance the consideration moving from the employer, there may be an apportionment between the taxable and non- taxable parts of the benefit received : see Tilley v. Wales ((1943) A C 386). To escape liability, the taxpayer must establish that the loss falls within the scope of rule 7 of the Rules applicable to Schedule E. which has always been construed and applied strictly. To be deductible an expense must be incurred wholly, exclusively and necessarily in the course of the taxpayer's employ ment. Here the employee would have to show that for the performance of his duties it was necessary for him to buy and sell houses, and it is impossible to bring the facts of these cases within the rule. A loss made on the sale of a house is not within the rule, and any recoupment of such loss made by the employer falls to be fixed, (Ricketts v. Colquhoun ((1926) A C 1), and Bolam v. Barlow ((1949) 31 T C 136), were referred to.) Orr following. If the judgment below is to stand, it is difficult to see what can be the limits to tax‑free benefits which employers may provide; they might, for instance, provide motor cars or television sets on special terms. The option to purchase reserved by I. C. I. in the contract does not confer any financial benefit on the company, who cannot purchase a house at less than the fair value in the open market. The agreement was in no way a collateral one ; it was part of the general staff policy of I, C. I. F. N. Bucher Q. C. and H. H. Monroe for the taxpayers. The capacity in which an employee receives a benefit cannot be tested without examining whether the benefit was given for services or not ; the fact that payments comes from the employer and is made under a contract merely poses the question with out deciding it ; in many of the cases already cited payments made by employers were held not to be taxable. The whole question is whether the payment is made in respect of service or not ; all the cases make this clear. The sum of 350 was paid to Mayes under the housing agreement for a consideration moving from him ; the case stated finds that he was fully remunerated for his services by pay which was on a most favourable scale comparatively. The findings of fact in the case stated make it conclusive that the benefits under the housing agreement are not conferred for services ; that agreement is wholly collateral and the employee could commit a breach of it without breaking his service agreement, and vice versa. In Inland Revenue Commissioners v. Duke of Westminster ((1936) A C 1) the taxpayer had contracted with a number of his servants to make payments to them while in his service, and sought to deduct them from his income for tax purposes ; it was held that these payments were not for services and could be deducted for income tax purposes ; aliter, if the payments had been for services. So, too, in the present cases non‑taxable sums may be payable during the employment ; the case also indicates that it is the contract under which the payment is made which must be looked to. Where payment is to be made under an indepen dent contract to an employee, it is wrong to qualify the nature of his remuneration by the fact that he was an employee. We accept the Crown's main contention regarding the scope of Schedule E so long as it is emphasized that the payments are received by the employee in his capacity as employee. That depends on whether .the payment is made in respect of services, the phrase habitually used in the cases in the House of Lords. [JENKINS L. J. The question is : What is the consideration moving from the employee really on the true construction of the housing agreement ?] That is so, and here the taxpayer can show that his services are fully remunerated under the service agreement, leaving as independent the question whether there is any consideration under the housing agreement. The Crown argued that the Court must weigh the adequacy of the consideration under the housing agreement, which is exactly what the House of Lords has refused to do. It is plain from the evidence and the terms of the agreement that I. C. I. have a most particular interest in acquiring the houses which fall vacant in cases where it suits them ; they may often require them for accommodating an incoming employee. Their aim is to have an unworried and contented staff, and they obtain that by compensating an outgoing employee and accommodating an incomer. Then there are certain disadvantages from the employee's point of view ; he may, not let, though that might be advan tageous to him ; he may not take the opportunity of selling to a relative, or to some third party prepared to offer a higher than the ordinary market price ; he must keep the house in repair. Moreover, he may, having knowledge of the scheme, have embarked his capital in buying a house which he would not otherwise have bought, and he may also have had to borrow in order to raise the money for the purchase. Then under certain circumstances an employee or his executors can sell the house without reference to I. C. I., in which case the indemnity does not operate. It must be that there is some substantial consideration moving to I. C. I., and, even if it is only partial and inadequate, the Crown agree that there should be an apportionment. [ Paterson. Engineering Co. Ltd. v. Duff ((1943) 25 T C 43) and Tilley v. Wales ((1943) A C 386.) were referred to.] Even assuming that the consideration for the contract is the services of the employee, the compensation received should be regarded as a capital payment. The Crown must establish that the bargain amounts to this ; that in consideration of you working for me I will in certain circumstances increase your remuneration. Here the contract can never produce a profit to the employee : it merely protects him against loss m certain events, and the recoupment of a loss cannot have the quality of income. In Tilley v. Wales Lord Simon, and in Hunter v. Dewhurst (146 L T 510) Lord Thankerton, were not prepared to agree that remuneration for services must necessarily be income, but in view of certain observations in those cases it might perhaps be better to make the distinction "income" and "non‑income" rather than "income" and "capital". Schedule E does not cover capital gains, and section 511(1) (b) of the Act of 1952 declares that capital losses are not to be deducted for income tax purposes. Monroe following. The Crown claim that any payment made under the agreement must be in respect of services. It is not open to the Crown to put the onus on the taxpayer in that way; the question is whether a payment is part of the price of the employee's services, or a voluntary extra which falls outside, there being extraneous reasons for making the payment. One may liken the housing agreement to a millionaire playing a round of golf with his valet and having a bet on the result. Only married male staff may come into the agreement and many may come in who never receive any payment at all. The agreement has reference to the employee's private living arrangements and has nothing to do with his services or any price which he receives for them. Pennycuick Q. C. in reply. In no case can an employee suffer any substantial detriment under the housing agreement. Under the terms of his service agreement he has to go wherever he is sent within the United Kingdom, and the housing agreement imposes no hardship on him in this respect. In no case can he be financially worse off. The only disadvantage he can suffer is that in certain circumstances if he wants to sell his house (which he need not do) he must offer it to I. C. I. at full value before selling to a third party, a sentimental detriment which is irrelevant and trifling. That does not represent any, still less a full, return to the employer for the benefits conferred, and there must be substantial consideration, apart from services, if the sums paid are to escape taxation. The payments are made to employees as such ; no doubt in certain cases such payments may fall outside the scope of the profits of the employee's office, but that is not .the case here. The payments were a regular feature of I. C. L's general staff policy ; the recipients knew that and entered into the agreements accordingly. Further, it is against all principle and authority to maintain that a contractual payment made to an employee without consideration is not a profit of his office merely because another contract provides for full remuneration for his services. Cur. adv. volt. JENKINS, L. J.‑I have felt considerable difficulty over these two cases, but with some hesitation I have come to the conclusion that the appeals should be .dismissed. I need not repeat the facts at length. The housing scheme established by I. C. I. was designed to assist married male members of the staff of I. C. I. to by suitably located houses for occupation by themselves and their families in the event of their being transferred from one part of the country to another in the course of their employment by I. C. I. The assistance provided consisted, in effect, of a contribution by I. C. I. towards the cost of the house in the form of an interest‑free loan, and a guarantee by I. C. I. indemnifying the employee concerned against loss through depreciation in the value of the house. No question arises in regard to the interest free loan. As regards the guarantee, admission to the scheme was to be afforded by means of a standard form of housing agreement to be entered into between I. C. I. and the employee concerned, setting out in considerable detail the terms on which and circumstances in which the guarantee was to operate. The respondent employees in these two appeals both bought houses on being transferred to new places of work and, pursuant to the scheme, both duly entered into housing agree ments with I. C. I. Both were later again transferred and sole their houses in consequence. The house in each case realizes less on such sale than the employee had paid for it, and under their guarantee I. C. I. paid or allowed in account to the employee the appropriate sum in respect of such loss. The sole question in each of the two appeals is whether the sum so paid or allowed by I. C.I. to the respondent employee was a profit of his employment and, accordingly, chargeable to income tax under Schedule E. The charge to tax under this Schedule is now contained in section 156 of the Act of 1952, and paragraph 2 of the Schedule as therein set out provides; "Tax under this Schedule shall also he charged in respect of any office, employment or pension the profits or gains arising or accruing from which would be chargeable to tax under Schedule D but for the proviso to paragraph 1 of that Schedule ". Paragraph 5 applies the provisions of the Ninth Schedule to the Act. Rule 1 of that Schedule is in these terms: "Tax under Schedule E shall be annually charged on every person having or exercising an office or employment of profit mentioned in Schedule E, or to whom any annuity, pension or stipend chargeable under that Schedule is payable, in respect of all salaries, fees, wages, perquisites or profits whatsoever therefrom for the year of assessment, after deducting the amount of duties or other sums payable or chargeable on the same by virtue of any Act of Parliament, where the same have been really and bona fide paid and borne by the party to be charged." The objects with which I. C. I. established the housing scheme are thus described in the case stated with respect to Mayes; "3 (g). I. it. I. have to move a great number of their staff from one part of the country to another. The company recognizes that the transfer of a married mail involves him in domestic upheaval. "Although a man might be willing to buy a house in the new location, his chief worry was the loss he might make if he had to sell the house. I. C. I. try to operate a staff policy which results in a contented staff. Unless the staff are contented they do not do their best work. I. C. I. therefore introduced the housing scheme so that they should have employees whose minds were eased to some extent of the worry of possible financial embarrassment in the future arising out of the removal occasioned by the company's action." The case stated with respect to Jennings contains in paragraph 5 a description of I. C. L's objects which, though couched in different language, is substantially to the same effect. The housing agreements entered into by I. C. I. with Mayes and Jennings respectively are attached to the two cases and I need not recite them in full. They are in the standard form used by I. C. I. for the purposes of their housing scheme, and their salient features for the purposes of the two appeals may be thus summarized : [His Lordship summarized the terms as set out above and continued :] Such being the nature of the housing agreement, were the payments made by I. C. I. to Mayes and Jennings respectively pursuant to the guarantee upon their respectively being transferred and selling their houses for less than they had paid for them, after first duly offering them to I. C. I., profits of their employment with I. C. I. ? We were referred to many of the authorities in which payments received by holders of offices or employments in an infinite variety of circumstances have been held to be or not to be profits of the office or employment for tax purposes. I do not propose to go into them at length. The general principles to be applied are well settled. The difficulty is to apply them to the facts of particular cases. I am content to accept Mr. Pennycuick's broad proposition that the profits of an' office or employment include every sum in money or money's worth paid by an employer to an employee during his employment in his capacity as employee, and for no consideration moving from the employee other than the services which he renders. I would, however, qualify that broad proposition by saying that is not to be taken as extending to "testimonials" of the kind considered by the House of Lords in Seymour v. Reed ((1927) A C 554: 43 T L R 584 : 11 T C 625), and also that there may be benefits casually bestowed by an employer on an employee such as birthday, Christmas, or wedding presents, or given on compassionate grounds referable to relationships, friendship, social custom, or motives of charity which, though made for no consideration in the legal sense, should not be treated as referable to services or as made to the employee in that capacity. But no exception of that kind arises here. I am also content to accept the converse proposition that a payment made by an employer to an employee for a consideration other than services is not a profit of the employment albeit made during the continuance of the employment. The decisive question in each of these two cases, therefore, is, as I see it, simply whether the payment made by I. C. I. to the employee pursuant to the guarantee is a payment made to the employee in that capacity and for no consideration other than services, in which case it is taxable as a profit of his employment, or was such payment made for a consideration other than services, in which case it is not so taxable. I think it may truly be said that the housing agreement in each case was entered into by I. C. I. with the employee in his capacity as employee, in the sense that it was by virtue of his being an employee of I. C. I. that he was given the opportunity of participating in the housing scheme, and for that purpose of entering into the housing agreement with I. C. I. But it does not necessarily follow that the employee, having entered into the housing agreement and, thereafter, receiving a payment from I. C. I. under the guarantee, must be taken to have received that sum in his capacity as employee, and for no consideration other than services. The employee was enabled to enter into the housing agreement by virtue of the fact that he was an employee of I. C. I. But any payment he might receive under the housing agree ment would be received by him because, being an employee of I. C. I., he had entered into the housing agreement and had complied with all its terms and conditions. In order to participate in the housing scheme an employee of I. C. I. over and above answering that description, and being married, had to comply with a number of conditions. In order to bring himself within the ambit of the scheme he had, of course, as an essential prerequisite, to buy a house, and find the purchase money for it, either out of his own resources or by means of an ordinary mortgage supplemented by an interest free loan granted by I. C. I. It is, of course, true that an employee need not buy a house or enter the scheme unless he chose. But any employee buying a house and entering the scheme must, I think, be taken to have done so on the faith of the scheme. Apart from the scheme and the guarantee which it promised, he would in all probability not have ventured to buy a house owing to the risk of capital loss in the event of his having to sell, especially in the case of his being transferred. Then he had to enter into the housing agreement and comply with the conditions on which his right to the indemnity was by that agreement made to depend. In the forefront of those condi tions is the positive obligation laid upon him to offer the house for sale to I. C. I. in the event of his desiring to sell or let it by reason of transfer. This, as I understand it, is an obligation with which the employee is bound to comply in that event; and not merely a condition he must fulfil in order to claim the benefit of the guarantee. Moreover, it applies when the employee desires to let and not merely when he desires to sell. This, I think, is a restriction of substance. The employee might have perfectly good reasons for wishing to let rather than sell on being transferred. But the housing agreement precludes him from doing this without first offering the house for sale to I. C. I. Then it is to be observed that the agreement makes it a condition precedent to any claim under the guarantee r that the employee should keep the house in good tenantable repair. It is, of course, true that on spending money on repairs the employee would be maintaining the value of his own property. Nevertheless, this stipulation does impose as a condition of benefit an obligation not incumbent upon a freeholder in the ordinary way. Then the provisions as to the termination of the housing agreement include, as bringing about such termina tion, the events of the employee letting the house or any part thereof, or ceasing to use the house as a permanent residence. It appears to me that the condition against letting (and particularly against letting "any part" of the premises) might operate substantially to the detriment of the employee, as also might the condition against ceasing to use the house as a permanent residence (whatever the precise meaning of that expression may be). Then, in the event of the employee desiring to sell otherwise than on transfer or retirement (in which event, as in the case of a sale by the personal representatives of a deceased employee, the house is not apparently required to be offered for sale to I. C. I.) no claim can be made under the indemnity unless I. C. OI. consents to the house being sold and the house is first offered for sale to I. C. I. The rights of the first refusal given to I. C. I. particularly the positive obligation the employee is under to offer the house for sale to I. C. I., where an employee desires to sell or let on transfer, might well be advantageous to I. C. I., notwithstanding their obligation under the guarantee, in the event of there being a shortage of suitable accommodation for their employees. One may take it, too, that I. C. I. regard it as expedient from a business point of view that employees should be encouraged to buy houses on the terms of the housing scheme and agreement, thus helping to ease the problem of staff housing. The matter is put by Mr. Pennycuick as one of pure bounty on the part of I. C. I. referable to no consideration moving from the employee other than services. I cannot share this view. The balance of burden and benefit under the housing agreement must be regarded, as at the date when it is entered into with any given employee. When it is entered into no one can tell whether the house will rise or fall in value. If it rises the employee gets no benefit apart from peace of mind. On the other hand, in order to be covered against a possibility of loss which has never materialized, the employee will, it may well be to his detriment, have done or abstained from doing the things which under the housing agreement he is required to do, or abstain from doing it as a condition of benefit.

1. C. L, on its part at least, gets the advantage of the right of pre‑emption in the event of the employee desiring to sell or let on transfer, which in the circumstance I postulate would entitle I. C. I. to buy simply at the current market value without any addition thereto for depreciation in value, since there would have been none. In the event of the house depreciating in value the employee does, no doubt, gain a substantial advantage, but not, as I think, by any means an advantage representing pure bounty on the part of I. C. I. referable to no consideration moving from the employee other than his services. The transaction may be described as a form of insurance. It cannot bestow any profit on the employee, but merely protects him against loss. To segregate the benefit (in cases in which it is material) from the burden, and to ignore the cost to the employee‑of obtaining it, in the shape of the purchase money he has laid out on the faith of the housing scheme and agreement, and lost through the depreciation in value of the house, ignoring also the other forms of consideration moving from the employee as above described, and thus to arrive at the conclusion that the sum paid by I. C. I. under the indemnity by way of recoupment for that loss is a profit of his employment, as being a sum received for no consideration other than services, appears to me to involve a considerable distortion of the facts. Mr. Pennycuick says (in effect) that this result must ensue because (a) the payment made by I. C. 1. under the guarantee is a profit of the employee's employment taxable under Schedule E ; (b) under rule 7 of the Rules applicable to Schedule E the employee cannot deduct any expenses not wholly, exclusively and necessarily incurred in the course of his employment ; and (c) the expendi ture incurred in the purchase of the house does not answer that description, inasmuch as the employee need not have purchased the house. Mr. Pennycuick says further, that if the employee could deduct the amount of his loss on the house (as in fact he could not) tax would be exigible on the corresponding amount paid to him by I. C. I. under the guarantee. I find it difficult to rid myself of the inclination to think that if the house purchase transaction is looked at as a whole no profit arises from it to the employee, even in a case in which the guarantee the becomes operative. If that were right, then there would be an end of the matter. If it is wrong, and any sum paid under the guarantee is to be taken in isolation and looked on as profit, then the question remains whether it was paid by I,C. 1. to the employee for no consideration other than services. If it is to be so looked on and was so paid, then I agree with Mr. Pennycuick that no deduc tion in respect of the employee's outlay on the house would be allowable; The whole case in a simplified form can be put thus. Suppose an employer makes a bargain with his employee to the effect that if the employee buys a house in a given locality, keeps it in repair, refrains from letting it, uses it as a personal residence and under takes to give the employer the first refusal of it in the event of his desiring to sell, the employer on his part will guarantee the receipt by the employee on any resale by him, whether to the employer or to some other purchaser, of a price equal to the current market value of the house, or the amount he paid for it, Whichever is the greater. Suppose, further, that the employee sells does buy a house and duly complies with all the employer's requirements, and at some time thereafter, the stipulated offer to the employer having been made and refused, the employee sells the house to someone else at less than the price he paid, and the employer duly makes good the difference to the employee. In those circumstances, is the difference so made good to the employee, if a profit at all, a profit of his employment, as having been received by the employee in that capacity and for no consi deration other than services? Mr. Pennycuick pointed out that the discharge by an employer of a liability incurred by his employee to a third party may, to the extent of the, liability thus discharged, constitute a profit of the employee's employment. In support of that proposition, which I fully accept, he cited Hartland v. Diggines ((1926) A C 289), where an employer paid his employee's income‑tax, and this was held to constitute a profit of his employment. He also cited on the same point Nicoll v. Austin ((1935) 19 T C 531), where a managing director continued at the company's request to live in his own house, the company paying all outgoings, and these payments were held to be profits of his office. For the proposition that a single payment to an employee may be a profit of the employment (which, again, I fully accept) he cited Weston v. Hearn ((1943) 2 All E R 421), where a lump sum paid to an employee on completing 25 years' service was held taxable. For the proposition that a benefit contingently receivable by an employee as a profit of his office or employment is to be treated for tax purposes as income of the year in which it is received, Mr. Pennycuick cited Edwards v Roberts ((1935) 19 T C 618). I think that must be so where no money value can be put on the benefit until it is actually realized. So here, if the payment under the guarantee is rightly to be treated as a profit of the employee's employment, it would seem that it must be treated as accruing on the date on which it became payable, inasmuch as it could not be quantified until the contingency of capital loss materialized. On the main issue of the case, Mr. Pennycuick referred us to the line of cases headed by Hunter v. Dewhurst ((1932) 16 T C 605), in which pay ments made by companies to directors have been considered. These cases, no doubt bear out the broad general proposition attri buted to Mr. Pennycuick earlier in this judgment, but they equally bear out the converse proposition that a payment made by an employer to an employee for a consideration other than services is not a profit of the employee's employment. For example, in Hunter v. Dewhurst itself Lord Atkin said ((1932) 16 T C 645) : R Rule 1" (sc. of the Rules applicable to Schedule E) "appears to me to indicate emoluments either received from the employer or from some third party . . . . as a reward for services rendered in the course of the employment." Again, in Beak v. Robson Lord Simon said ((1943) A C 352, 355) : "In the agreement before us the obligations flowing from the contract of service and the remuneration to be received by the respondent in respect of that service are entirely separate from the restrictive covenant and the consideration which is given for it. The sum of 7,000 is not paid for anything done in performing the services in respect of which he is : chargeable under Schedule E." We were also referred to the line of cases dealing with pay ments by third parties, headed by Herbert v. McQuade ((1902) 2 K B 631), of which the latest examples are Moorhouse v. Dooland (195 5 Ch. 284) and Bridges v. Hewitt ((1957) 1 W L R 674). This line of authority, besides affording ample recognition of the principle that to be taxable under Sche dule E payments made to the holder of an office or employment must be by way of remuneration for his services (see, in particular, Lord Cave L. C. in Seymour v. Reed (1927 A C 554, 559), a passage too well known to bear repetition), clearly established the proposition that the ques tion whether a given payment is a profit of his office or employment must be viewed from the standpoint of the recipient. This pro position has its origin in the well‑known passage from the judgment of Sir Richard Henn Collins M. R. in Herbert v. McQuade ((1902) 2 K B 631, 649, 650); . . . "the test is whether, from the standpoint of the person who receives it, it accrues to him in virtue of his office . , " The following passage from the judgment of Stirling L. J. in Herber: v. McQuade seems to me to be much in point. "A profit accrues by reason of an office when it comes to the holder of the office as such and without the fulfilment of any further or other condition on his part." I do not see how the payments made by I.C.I. to the taxpayers in the present appeals can be held to have satisfied either of these tests. As to the latter, the employee here did have to fulfil further or other conditions. As to the former, I cannot conceive that either of the two respondents regarding the matter from their own point of view as recipients of the payments, could possibly have looked upon them as profits of their employment or. in other words, as remuneration accruing to them by reason of their employ ments by I. C. I. as distinct from payments which, in the events which happened, they received from I. C. I. under and by virtue of the housing agreement. I derive assistance; too, from the following passages in Beak v. Robson and Cowan v. Sevmour. In Beak v. Robson Lord Simon said (1943 A C 352, 355) : "It is quite true that, if he had not entered into the agreement to serve as a director and manager, he would not have received 7,000, but that is not the same thing as saying that the 7,000 is profit from his office of director so as to attract tax under Schedule E." In Cowan v. Seymour, Younger L. J. said ((1920) 1 K B 500, 517): " . . . their office or offices as such . . . . . . may have been the causa sine qua non but they were not the causa causans." I think it may well be said here that while the employee's employment by I. C. I. was a causa sine qua non of his entering into the housing agreement and, consequently in the events which happened, receiv ing a payment from I.C.I., the causa causans was the distinct con tractual relationship subsisting between I. C. I. and the employee under the housing agreement, coupled. of course, with the even of the declining in value. Mr. Pennycuick said (in effect) that a consideration other than services could only be shown if the consideration (other than services) moving from the employee for the benefit received demonstrably represented full value in money or money's worth for the benefit in question. I find no warrant in the authorities for this proposition. It would no doubt be right to disregard a fictitious or colourable bargain designed to disguise what was in fact remuneration as payable on some other account. But nothing of that sort enters into this case. The housing agreement consti tutes a genuine bargain advantageous, no doubt, to the employee, but also not without its advantages to I. C. I., and I see no reason for disregarding it as the source of the payments sought to be taxed in these two appeals. Mr. Pennycuick said further, that if partial consideration in money or money's worth was shown, there should be an apportion ment, and he instances Tilley v. Wales (1). But in that case it was possible to apportion the sum received so as to ascertain how much of it was attributable to the director's agreement to a reduction of salary (which was taxable), and how much to commutation of pension (which was not). In the present case obviously there could be no apportionment. It must be all or nothing. For the reasons I have endeavoured to state, 1 do not think the sums received by the two respondents under their respective housing agreements were profits of their employment so as to be taxable under Schedule E, and, accordingly in my view, both appeals (which it is now agreed must stand or fall together) should be dismissed. PARKER, L. J.‑This is not an easy case and it is with consider able diffidence that I have come to a different conclusion. I do not think that any useful purpose would be served by going through the authorities. Most of them are conveniently collected in the Judge's judgment in the present case, and in the recent decision of this Court in Bridges v. Hewitt (2). Though there appeared at one time to be an issue between the parties as to the true principle of law involved, I am satisfied that there is no real difference. The principle can, I think, be stated thus. Where you find that an employee has during the course of his employment received from his employer a benefit in money or money's worth, that receipt is a profit of his employment and taxable as such unless (1943 A C 386) it amounts to a gift to him in his personal capacity, e.g., a benefit conferred out of affection or pity ; or ((1957) 1 W L R 674) it has been received for a consideration other than the giving of services. This can be put more shortly by saying that such a benefit, to be a profit of his employment, must have been received by him in his capacity of employee as a reward for services. In the two exceptions referred to above, though the benefits are receiv ed by him while he is an employee and might not have been received but for his being an employee, yet in his hands the benefit is not a reward for services. The real difficulty is as usual in the application of that principle to the facts of the case. I will deal first with what I have referred to as the first exception. It was argued‑albeit faintly‑that the indemnity when received whether in money or in account was in truth a mere compassionate allowance. It is enough to say that in my judgment that is an impossible argument on the facts found in these cases. The housing scheme formed part of the I. C. I's. staff policy and the housing agreement was one open to any of a class of employees who wished to avail themselves of it. Whether, however, this can be said to be within the second exception is more difficult, and depends on a proper construction of the housing agreement. On behalf of the Crown it is contend ed that looked at broadly this agreement is wholly for the benefit of the employee, and that the real or substantial consideration is services. For the respondent, on the other hand, it is said that on a proper analysis the housing agreement itself sets out a subs tantial consideration and that it would be wrong to look outside the contractual terms in that agreement, cf. Inland Revenue Com missioners v. Duke of Westminster (1936ACI; 51TLR467: 19TC490). The housing agreement accordingly, it is said, is purely collateral to the service agreement. Now I take it to be the law that it is not enough to make an agreement collateral in this sense that there is sufficient considera tion to support it. Otherwise an agreement to make a purely voluntary payment for services, e.g., in recognition of 25 years' service, would, if under seal, come within the exception. Nor do I think that it is enough to make the agreement collateral that some term is inserted which may be said to be of some advantage to the employer or cause some detriment to the employee. Thus agreements with employees living 20 miles from their place of work, that employers would repay half the price of their season tickets, could not be said to be collateral merely because the employees would have to buy season tickets as a condition of get ting repayment. The question, I think, in every case is one of degree depending upon whether the term can properly, in the surrounding circumstances when the agreement was made, be said to be merely a term of the receipt of additional benefit for the employee's services or can properly be said to amount in itself to the substantial consideration for the benefit, in which case the consideration is other than for services. In approaching the matter in this way I am not conscious of taking a line in conflict with the Duke of Westminster case (2). I am merely construing the agree ment in question in the light of the surrounding circumstances. Now while the housing scheme is not altogether easy to construe I think that the following can be clearly deduced from it. (1) It is no part of the consideration that the employee agrees to be transferred. He has by his services agreement bound himself to go where he is sent and it is for him to get such living accommodation as he can at his new place of work. (2) If he desires to sell the house he will be entitled to any profit that is realized and he will be indemnified against any loss. (1936 A C 1) In certain events he has to give his employers a first refusal to buy the house but if they do so he is to get the current market value. In assessing this any offers from prospective purchasers would no doubt have to be taken into consideration. Accordingly the employee can in no event suffer a pecuniary loss and he gives up nothing of pecuniary value. He is merely in certain cases res tricted in his choice of purchasers. (4) Apart from having to give a first refusal in certain events the only possible detriment he could be said to suffer was that he had to keep the property in good tenantable repair, and that on transfer he is not allowed to let it. (5) While there is no express finding to this effect it is, I think, fair to assume that from time to time, though not in these cases, the first refusal will turn out to be of benefit to the employers in that it may enable them to offer the house to another employee. On the other hand it is clear, and there is an express finding to this effect, that the real object of the agreement is to make the employee contented and free from financial worry, an object which of course benefits both employee and employer. Bearing these considerations in mind I find it quite impossible to arrive at any conclusion other than that there is no substantial consideration apart from services. It would be quite unrealistic to say that the consideration for the indemnity is the giving in certain events of a first refusal or the obligation to keep in repair. Not only is the object of the agreement to improve the services which the employee is giving, but in my judgment the indemnity is given in consideration of those services just as if the service agreement had itself provided that the remuneration was to include the benefits under any housing agreement. To look at the matter from another angle, if such an agreement had been entered into by I. C. I. with a stranger, it could only be regarded as an instrument of bounty. Great reliance, however, was placed by the respondents on the express finding that the salaries payable under the service agreement compared favourably with those paid by other employers not operating a housing scheme. This, it was said, if not conclusive, was not at any rate prima facie evidence that the consideration under the housing agreement was for something other than services. For my part I find it impossible to attach any weight to this finding or argument. The salary which an employer is able to pay and pays depends on so many factors. One employer may find himself in a position to pay and will pay more than another, and the fact that a good employer is already paying what is found to be a full and adequate salary goes in my judgment nowhere towards showing that some other benefit he is prepared to give is not in consideration of services. Finally, it was contended on behalf of the respondents that even if the sums were received as a reward for the services they were not the profits of employment. The agreement it was said only protects the employee against loss‑it does not and cannot produce profit‑and accordingly the sums received have none of the attributes of income. I confess that I cannot understand this argument. 1f sums received pursuant to an undertaking to pay obligations incurred to third parties are taxable, cf. Hartland v. Diggines (1926 A C 289) and Nicoll v. Austin (19 T C 531), I can see no reason why the present sums received pursuant to an agreement by way of indemnity are not equally taxable. Accordingly I would allow these appeals. PEARCE, L. J.‑In these cases the difficulties come, not from any difference in opinion as to what are the principles applicable to them, but from a difference as to how these principles should be applied to the facts. The cases turn on the view that one takes of the housing agreement. The benefit under consideration is taxable as a profit of the employment only if it has been received by the employee in his capacity of an employee as a reward for services and not some consideration other than the giving of services. Stirling, L. J. said in the well‑known passage in Herbert v. McQuade ((1902) 2 K B 631, 650); "A profit accrues by reason of an office when it comes to the holder of the office as such, in that capacity and without the fulfilment of any further or other condition on his part." I fully accept that the "other condition on his part," the consideration moving from the employee, must be more than a technical consideration. It must not be a mere cloak to conceal any additional benefit given to the employee as such. It must in my view be such as to entitle both the consideration and the benefit obtained thereby to rank as a collateral transaction. The alleged collateral transaction need not be weighed in exact scales in order to see who benefits most by it. Such a task would be hard when on the one side you get a human who may be pre occupied with the price of a house and security against the risk of losing a comparatively small sum and on the other side a limited company with millions at its disposal concerned to see that the human frictions do not clog the machinery of its vast enterprises. If, looking fairly at the agreement, one can say that this is a fair agreement (albeit generous to the employee in certain events) under which the company gets appreciable benefits (other than the mere benefit of giving a financial advantage to this particular employee and thereby making him a more contented worker), and the employee gives a genuine and appreciable consideration, then there is enough to make it a collateral transaction. The question how onerous it is to him to give that consideration is a relevant matter but should not, I think, be by itself the deciding factor. When a man gives a consideration that costs him little but is important to a rich recipient he may fairly receive for it a price that is handsome in some contingencies. Perhaps a convenient test might be this : Is this a scheme that could commend itself on its merits to a director who thinks that the company's employees are already adequately paid and does not intend to do anything for the mere purpose of giving them additional financial benefits ? The Crown contends that under the housing agreement the employee gets the reimbursement of loss on his home for no real consideration other than his services as an employee. If this is the true view, the sum in question is taxable. One cannot shut one's eyes to the fact that every large company owning factories in different places and having to transfer staff from one to another for purposes of promotion, organization or otherwise, is bound to have a serious concern for the housing of employees so transferred‑a concern which could at times become acute. Is this horsing agreement seriously intended to help with that housing problem as it affects the company? Or is it merely intended to help the individual employee financially ? Or is it a genuine attempt to fulfil both these intentions on a fair and mutual basis ? Under the scheme the employee is reimbursed in respect of loss but he does not make a profit in the normal sense. The first matter dealt with in the agreement is the moment when an employee is transferred. Under clause 2 if an employee who has bought a house on the terms of the agreement is transferred and wishes to sell or let (one of which in the ordinary case he will do) the company shall have a 30 day option on the house to buy it at a valuation. That clause is definite in its terms and there is no relaxation of it as there is in respect of a clause dealing with other situations. Is it unfair to draw the inference from the agreement that this option is of importance to the company ? That inference accords with what one might expect as a matter of common sense. At the moment of transfer the company is concerned with the housing of a successor to the man transferred. Secure in the possession of an option, it can appoint a successor having (and imparting to him) the knowledge that a house is available at a valuation which the company can either buy (if need be) or guide into the successor's possession under its option. Moreover, the option prevents the outgoing employee from being tempted to ask a fancy price from his successor. As other clauses provide for reimbursement of the owner for any loss, the agreement obviates the natural resentment that the owner would feel if compelled to sell to a rich company at what turns out to be a loss. The employee is thus prevented from selling or letting his house on transfer before the company has had a 30 day option to buy it. It is true that if he wishes to keep on his house without selling or letting he may do so, e.g., if he leaves his family behind him. But this seems a reasonable concession, and I see no reason to suppose that in practice it would frequently arise or be used for any deliberate evasion of giving the option. Clause 3 deals with the situation if the option is refused or the employee retires on pension or dies. Presumably it is because of not unreasonable social considerations that there is no provision by which the company can turn out a widow or pensioner. Many men would not enter schemes under which their widows could be evicted on their deaths or they themselves could be evicted on retirement. If any of the three events happen and within 12 months the house is sold at a loss, the company makes good the loss. If it is not sold within 12 months and a valuation shows it to be worth less than it cost the employee (plus improve ments) the difference is paid by the company to the employee or his representatives. Clause 4 deals with the situation where an employee before a transfer wishes to sell. If he wishes for reimbursement of loss he must obtain the company's consent and give the company a 30 days option to buy it at valuation. Clause 7 makes it clear that in respect of clause 4 (i.e., the time before transfer) the owner is always free to sell at a profit. The fact that clause 7 gives him no such freedom under clause 2 in respect of the moment of transfer would seem deliberate. The period when a man is still working where his house is, and he has not been transferred, could hardly create any housing problem. If a man sells his home in a place where he is still employed, he presumably does so because he knows that he can rehouse himself. At all events, he cannot thereafter blame the company if he is then homeless. In such a situation the company is only required to reimburse any loss if it has given its consent and gets an option on the house. It must be remembered that by reason of the fact of the agreement the company is probably in touch with the situation regarding the particular house, and is quite entitled to make any offers for it. Under clause 6 the employee has to keep the house in good and tenantable repair as a condition precedent to any reimbursement of loss. In my view, the company gets a definite benefit from the scheme in its general problem of housing staff, as well as in its particular solicitude for the welfare of the individual employee, since it entitles it as a rule to a house for his successor. The employee does various things which are a real consideration. He has to find a house within reach of the factory, and embark on the venture of buying it, probably entering a first mortgage and probably producing some money of his own. He must keep the house in good condition. Before he can get any reimbursement he must suffer loss on resale or loss by diminution of value. In many cases this will never arise ; but in any event he has to give the company an option to buy it at a valuation on transfer, and thereby loses his opportunity of asking possibly an enhanced or fancy purchase price or rent from his successor, who might (if unsure of any housing on transfer) be prepared to pay it. Any assumptions that I have made are, I think, natural inferences that should be drawn from the agreement, and are confirmed by the important surrounding circumstance that it is an agreement with a member of the staff made by a large company which has to transfer its employees to various parts of the country. Paragraph 3 (g) of the case stated with regard to Mayes is not, I think, inconsistent with these inferences. That reads; "I. C. I. have to move a great number of their staff from one part of the country to another. The company recognizes that the transfer of a married man involves him in domestic upheavel. Although a man might be willing to buy a house in the new location, his chief worry was the loss he might make if he had to sell the house. I. C. I. try to operate a staff policy which results in a contended staff. Unless the staff are contented they do not do their best work. I. C. I., therefore, introduced the housing scheme so that they should have employees whose minds were eased to some extent of the worry of possible financial embarrass ment in the future arising out of the removal occasioned by the company's action." The words "might be willing to buy a house" seem to indicate that the company, as one would suppose, wishes to promote the owning of homes by its employees (no doubt for the company's ultimate benefit), and to remove the formidable deterrents that buying and owning a possibly transient home present to the man without capital resources. It is true that overall the employee gets an advantage in many cases, but I think that this is a careful scheme with some gains and concessions on both sides. It is designed on terms very generous to the employee in certain events but not, in my view, to an extent that robs it of real mutuality. The employment was a causa sine quo non of the benefit, but it was not the causa causans. Here there was no one causa causans. The benefit was produced by the joint effect of the employment, the finding and purchase of the house, the making of the housing agreement, the transfer of the employee and the loss of value in the house whereby the benefit became payable under the terms of that agreement. I agree with the view expressed by the judge when he says: ((1959) 1 Ch. 22, 38) "It was in no true sense a reward for his services. It was an advantage to him but not, in my judgment, a profit. It was something which was wholly collateral and really had nothing to do with the office or the services which he was bound to render to his employers." I would dismiss these appeals. Appeals dismissed. Leave to appeal.