SPC00526
INCOME TAX – Section 595 ICTA 1988 – Whether contribution to a FURBS taking the form of transfers of shares was a payment of a sum deemed by s.595(1) to be income assessable under Schedule E – held it was

THE SPECIAL COMMISSIONERS

                                          JOHN IRVING                                        
	                                                                                                 Appellant	

                                                             - and -

	THE COMMISSIONERS OF 
                              HER MAJESTY’S REVENUE AND CUSTOMS	
		                                        Respondents

			Special Commissioners :	JOHN WALTERS QC 
					                        HOWARD NOWLAN

Sitting in public in London on 1 December 2005

Michael Sherry, Counsel, instructed by Haines Watts, Chartered Accountants, for the Appellant
Philip Jones, Counsel, instructed by the Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1. Mr. Irving (the Appellant) appeals against an amendment made on 7 January 2003 to his self assessment to income tax for the year 1996-1997. The amendment was an increase of £145,051 to the income assessable under Schedule E. This increase reflected the view of the Respondent Commissioners (the Revenue) that a contribution represented by transfers of 16 shareholdings in different quoted companies to a funded unapproved retirement benefits scheme (a “FURBS”) was to be deemed to be the income of the Appellant assessable under Schedule E pursuant to section 595 Income and Corporation Taxes Act 1988 (“ICTA”).  We were told that there are other appeals pending where the same general point is in issue.  References in this Decision to numbered sections are to sections of ICTA unless a contrary indication is given. Section 595 has been repealed by the Income Tax (Earnings and Pensions) Act 2003, with effect for income tax purposes from the year 2003-2004, but the language of the replacement provision (section 386 of that Act) gives rise to the same point as has arisen in this appeal.
2. Section 595 provides relevantly as follows: 
“(1) Subject to the provisions of this Chapter [Chapter I, Part XIV, ICTA – Retirement Benefit Schemes], where, pursuant to a retirement benefits scheme, the employer in any year of assessment pays a sum with a view to the provision of any relevant benefits for any employee of that employer, then (whether or not the accrual of the benefits is dependent on any contingency)–
(a) the sum paid, if not otherwise chargeable to income tax as income of the employee, shall be deemed for all purposes of the Income Tax 	Acts to be income of that employee for that year of assessment and assessable to tax under Schedule E; and
(b) where the payment is made under such an insurance or contract as is mentioned in section 266 [life assurance premiums], relief, if not otherwise allowable, shall be given to that employee under that section in respect of the payment to the extent, if any, to which such relief would have been allowable to him if the payment had been made by him and the insurance or contract under which the payment is made had been made with him.
(2) …
(3) …
(4) Where the employer pays any sum as mentioned in subsection (1) above in relation to more than one employee, the sum so paid shall, for the purpose of that subsection, be apportioned among those employees by reference to the separate sums which would have had to be paid to secure the separate benefits to be provided for them respectively, and the part of the sum apportioned to each of them shall be deemed for that purpose to have been paid separately in relation to that one of them.
(5) …”
3. The issue in the appeal can be summarised shortly as whether or not the transfers of the shareholdings to which we have referred were, within the meaning of section 595(1), the payment (or payments) of a sum.  Mr. Sherry, for the Appellant, contends that they were not, and that the references in section 595(1) to “pays a sum” and “the sum paid” are and are confined to references to payments of money. Mr. Jones, for the Revenue, contends that they were, and that we should construe those references purposively to include references to the transfers of shares in this case.
The Facts
4. We heard no oral evidence.  The Appellant made a Witness Statement, which was in evidence, and was not cross-examined on it.  An agreed bundle of documents was before us.  We also received a Statement of Agreed Facts from the parties.  We find the following facts.
5. The board of directors of Lonsdale Business Forms Limited (now Lonsdale Print Solutions Limited, of which the Appellant was at that time and is now a director) (hereinafter “the Company”) regularly sought advice from its accountants in connection with remuneration for its executives.  On one occasion the accountants described to the board the flexibility of a FURBS.  The possibility of establishing a FURBS for the benefit of the Company’s executives was explored with the accountants and the Appellant understood from the advice received that, among other fiscal advantages, contributions to a FURBS would not constitute income taxable in the hands of the benefiting employee if made in kind as opposed to being made by the payment of a sum of money.  Detailed further advice was sought and obtained by the end of June 1996.
6. On 19 July 1996 the board of directors of the Company met to discuss the cash balances of the Company.  It was noted that the Company’s cash at bank on that day was about £80,000.  It was resolved that one of the directors should pursue arrangements with Murray Johnstone Personal Asset Management Limited (“Murray Johnstone”), specialist discretionary investment managers, to develop an investment strategy that took into account the Company’s short to medium term liquidity requirements.  At this time the board was aware of the possible advantages if contributions to a FURBS were made in kind.  But the board also knew that its cash balances were more than enough for the Company’s immediate requirements and that they could be managed more effectively by professional investment managers, so increasing the commercial return to the Company.
7. On 25 July 1996, the board met again and executed a form of appointment of Murray Johnstone to be discretionary asset managers for the Company.  The initial funds placed under their management amounted to £80,000, the amount of a cheque raised by the Company on 24 July 1996.  The Company sent a further £120,000 to Murray Johnstone on 12 September 1996.
8. Murray Johnstone, on behalf of the Company, acquired shareholdings in 16 different quoted companies on 8 September 1996, and further shareholdings in the same 16 companies on 19 September 1996. 
9. On 16 September 1996, the board of the Company resolved that the LBF Retirement Benefits Scheme (the “RBS”) be established.  Accordingly the Company executed a trust deed establishing the RBS on that day.  The first trustees and administrators were the Appellant and the Company’s external solicitor, who acted as the independent trustee.
10. On the same day the Company wrote to its directors, including the Appellant, announcing the introduction of the RBS and notifying them that the trustees had agreed to admit the directors to membership.  The Appellant confirmed to the Company on the same day that he wished to become a member of the RBS with effect from that day.  An overall contribution of £1,300 was made on 20 September 1996.  Of this amount £1,000 was allocated to the Appellant.  
11. On 24 September 1996 at a board meeting of the Company, the directors consulted the actuarial report produced by W.F. Corroon Limited (“Corroon”) the previous day as to what levels of contributions to the RBS would be justified, and decided to recommend a pension contribution of £5,000 cash plus the transfers of shares detailed below to the RBS in respect of the Appellant.  The value of the contribution was broadly in line with the funding recommendations of Corroon, namely that “the Company can make annual contributions to finance a pension equal to the [Permitted Maximum] for Mr Irving of 128% of Earnings.  This is equivalent to a cash contribution in the 1995/96 accounting year of £156,905”.
12. On 25 September 1996, a shareholders’ extraordinary meeting was held at short notice (the shareholders’ consent thereto having been obtained), at which it was resolved that the contribution recommended by the directors be made in respect of the Appellant, in recognition of the services provided by him to the Company in respect of the year ended 30 September 1996.
13. On the same day (25 September 1996), and in accordance with the resolution of the shareholders at the extraordinary meeting, the contribution was made.  The shares transferred to the RBS in respect of the Appellant as part of the contribution were shares held under the management of Murray Johnstone on behalf of the Company.  The shares were part of the shareholdings in 16 quoted companies which had been acquired by Murray Johnstone, in each case in the two tranches on 8 and 19 September 1996, referred to above.  In no case were the shares transferred the entirety of the shareholding held by Murray Johnstone on behalf of the Company.  Thus, after the transfers had been made, Murray Johnstone retained reduced shareholdings in all 16 quoted companies on behalf of the Company.  The value of the contribution was approximately £145,000 and the shareholdings retained on behalf of the Company had a value of approximately £55,000.
14. On 25 September 1996 the Company wrote to the Appellant advising him that the cash and shares detailed above had been transferred to the RBS in respect of him.
15. The Appellant’s tax return for the year ended 5 April 1997 contained a disclosure to the effect that a non-monetary contribution had been made to the RBS in respect of him, but that this did not create a liability to income tax.  The inspector of taxes opened an enquiry into the Appellant’s tax return for that year, which culminated in the inspector’s notification to the Appellant that he was amending the Appellant’s self-assessment for 1996-1997 to increase the Schedule E income by £145,051 in respect of the contribution of shares.  The Appellant appealed.  The quantum of the amendment is not in dispute, but Mr. Sherry informed us that it was not agreed.
The Issues
16. As we have stated above, the issue before us is simply whether the transfers of shares by the Company to the FURBS on 25 September 1996 constituted the payment of a sum falling within section 595(1).
17. At an earlier stage in the dispute the Revenue had apparently argued additionally that the payment by the Company to Murray Johnstone of £80,000 on 24 June 1996 was a payment of a sum within section 595(1), but the Revenue advanced no argument to us on this issue or a connected issue as to whether the Revenue could maintain its closure notice by reference to it, when the reason given in the closure notice related only to the transfers of shares.
The Submissions for the Appellant
18. Mr. Sherry contended that section 595 applies only to monetary contributions and not to contributions in kind (transfers of assets, for example shares) for three reasons: first, this follows from a natural reading of the language of the section; secondly, the statutory context supports this conclusion; and thirdly this conclusion is reinforced by the fact that elsewhere in the legislation there are many examples of the extension of expressions analogous to “payment of a sum” to make clear that the expression is to include payments in kind as well as monetary payments, and such extending words are absent from section 595.
19. The natural reading of the language of the section: Mr. Sherry concedes that the word “payment” or “pay” may, as he puts it, have a degree of flexibility and be apt to describe a payment in a form other than cash, but the word “sum” connotes a number and therefore “payment of a sum” means “payment of a sum of money”.
20. The statutory context: Section 595 forms part of Chapter I, Part XIV of ICTA (sections 590 to 612).  This Chapter provides a code for the taxation of employer-sponsored retirement benefit provision and associated employee contributions.  It is, in his words, “very much a numbers based chapter”, incorporating calculations, numerical limits and provisions for the withholding of tax.  An example is section 593 which provides for an employee to obtain tax relief for a contribution “when he pays it” by deducting the amount of the relief from that contribution and retaining the balance.  These factors point to a construction of “pay” and “sum” as connoting only the payment of amounts of money.
21. Mr. Sherry invites us to consider the scheme and language of the legislation which has replaced Chapter I, Part XIV ICTA since the year of assessment in issue in this appeal.  That legislation is contained in Part 4 of the Finance Act 2004 (“FA 2004”).  Section 195 of FA 2004 is, he submits, of particular relevance as it provides that references to “contributions paid” include “contributions made in the form of the transfer by the individual of eligible shares in a company”.  He urges us to draw the conclusion that the use of the word “paid” without more in the FA 2004 legislation would not include a transfer of shares and invites us to construe the language of section 595 in the same way. We should observe at this point that the expression “eligible shares” is a narrowly defined expression and that numerous shares fall outside the definition.
22. He refers us to the definition of “relevant benefits” for the purposes of Chapter I of Part XIV, ICTA (in section 612), which includes the words “lump sum”, which, he says, the Revenue interpret as referring to a monetary amount (he cites HM Revenue and Customs Employment Income Manual at paragraphs 15020 and 15120).  He refers us also to section 597 which provides the general rule that pensions paid under an approved scheme or a scheme being considered for approval are charged to tax under Schedule E and are subject to the PAYE scheme of deduction of tax under section 203.  
23. Elsewhere in the legislation there are many examples of the extension of expressions analogous to “payment of a sum”: On the other hand, he submits, there are many provisions where references to payment are expressly extended to include transfers of assets or money’s worth, and in the light of these, section 595 should not be so construed.  He cites as examples in Chapter I, Part XIV, ICTA: section 599A(10) (charge to tax: payments out of surplus funds); section 600(4) (charge to tax: unauthorised payments to or for employees); section 601(6) (charge to tax: payments to employers).  Outside the immediate statutory context, he notes to similar effect section 313 (taxation of consideration for certain restrictive undertakings) where the statutory expression “sum paid” is from its context recognised as referring to a monetary payment and, in a case where valuable consideration otherwise than in the form of money is given in respect of the giving of an undertaking or its total or partial fulfilment, is expressly stated to have effect as if a sum had been paid equal to the value of that consideration (section 313(1) and (4)). Section 24(4) provides in the context of the Schedule A charge and associated Schedule D charges that reference to a sum are to be construed as including the value of any consideration and references to a sum paid or payable or to the payment of a sum are to be construed accordingly.  He cites section 701(12)(a) (interpretation of sections 695 to 700: estates of deceased persons in the course of administration): “references to sums paid include references to assets that are transferred or that are appropriated by a personal representative to himself, and to debts that are set off or released”. He also cites section 103(3) (receipts after discontinuance).  He refers us to section 203, which provides that deductions of tax under PAYE shall be made on the making of any payment of or on account of any income assessable to income tax under Schedule E, and to provisions extending the concept of the payment of income for PAYE purposes to cases where assessable income is provided in non-monetary form (sections 203F et seq.).
The Submissions for the Revenue
24. Mr. Jones, for the Revenue, contends that the words “pays a sum” in section 595 can readily be, and should be, construed as capable of covering a situation where a contribution takes the form of a transfer of non-monetary consideration which is capable of valuation in monetary terms.  He argues that if it were otherwise an illogical situation would result, where there is deemed income of an employee if his employer pays cash or a cheque to trustees, which they use to buy shares, but where there is no deemed income if, instead, the employer pays cash or a cheque to its stockbroker to buy shares with a direction to transfer the shares to the trustees.  He cites Lord Reid in Heaton v Bell [1970] AC 728 at 744, when discussing what constitutes “money perquisites” in a Schedule E context:
“… the division between money and that which can readily be used to produce money is thin.  A cheque is not money but it would be absurd to suppose that payment by cheque instead of in legal tender could make any difference.  And it would be almost equally absurd to suppose that a transfer of shares which can immediately be sold to produce money should not be regarded as a money perquisite.”
25. He cites Barclays Mercantile Business Finance Ltd. v Mawson [2005] 1 AC 684 for the endorsement by the House of Lords of “the modern approach to statutory construction ... to have regard to the purpose of a particular provision and interpret its language, so far as possible, in a way which best gives effect to that purpose” (ibid. at [28]) and for the guidance given for deciding whether a statutory provision has application in a particular case: viz: “first, to decide, on a purposive construction, exactly what transaction will answer to the statutory description and secondly, to decide whether the transaction in question does so” (ibid. at [36]).  The House of Lords went on to cite with approval the summary given by Ribeiro PJ in Collector of Stamp Revenue v Arrowtown Assets Ltd. [2003] HKCFA 46, para. 35: “the driving principle in the Ramsay line of cases continues to involve a general rule of statutory construction and an unblinkered approach to the analysis of the facts.  The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically.”
26. He points out that section 595(1) uses the words “pays a sum”, and not “pays a sum in cash” or “pays a sum of money”. He cites section 481(3) (definition of “deposits” for the purposes of legislation dealing with the deduction of tax from interest payments), section 785 (definition of “capital sum” for the purposes of anti-avoidance legislation dealing with leased assets), section 143 (cash vouchers taxable under PAYE), where the expression “sum of money” is used. 
27. He submits that when, on 25 September 1996, Murray Johnstone at the direction of the Company transferred shares to the value of £145,051 to the RBS in respect of the Appellant as part of the contribution, the Company paid a sum of £146,051 to the trustees, and that this conclusion does no violence to the statutory language at all.  The expression “payment” includes a “payment in kind” and he cites, among other authorities, White v Elmdene Estates [1960] QB 1 at 16, per Lord Evershed, Garforth v Newsmith Stainless Ltd. [1979] 1 WLR 409, per Walton J., and Baker and Davies plc v Leslie Wilks Associates [2005] EWHC 1179; [2005] 3 All ER 603 at [16].  He refers to one of the meanings given to the word “sum” in the Oxford English Dictionary being “a quantity of goods regarded as worth so much” with examples, “sum of cattle”, “sum of malte” and “sums of tobacco”.
28. Of particular relevance, in his submission, is the Court of Appeal’s decision in Lowe v Peter Walker (1935) 20 TC 25.  
29. In that case a benefit fund not capable of approval by the Revenue as a “superannuation fund” within the meaning of section 32, Finance Act, 1921 had been established by the taxpayer company and the company later revoked the trusts of the benefit fund in respect of the greater part of the assets of the fund and transferred that part to a new trust which was approved by the Revenue as a superannuation fund under that section.  The Court (Lord Wright M.R. and Romer and Greene LJJ.) held that the assets transferred, whether derived from the sale of the shares originally forming the nucleus of the benefit fund or from cash contributions subsequently made by the taxpayer company, were paid by that company by way of contribution towards the superannuation fund within the meaning of section 32, Finance Act, 1921.
30. Section 32, Finance Act, 1921 provided for a deduction in computing profits or gains for the purposes of assessment to income tax under Case I or Case II of Schedule D or Schedule E for “any sum paid by an employer or employed person by way of contribution towards a superannuation fund”.  That provision survives in section 592(4) which is in terms as follows: “Any sum paid by an employer by way of contribution under the [approved] scheme shall, for the purposes of Case I or Case II of Schedule D and of sections 75 and 76 [expenses of management], be allowed to be deducted …”.
31. Mr. Jones recognises that in Lowe v Peter Walker, whilst the deductibility of a pension contribution in specie was in dispute on two other grounds that we will refer to later, the Revenue had not disputed the deductibility on the ground that a specie contribution was not the “payment of a sum”, so that the point in this case was not specifically in contention in that case.  Nevertheless the specie contribution was held to be deductible, and Mr. Jones has also informed us that as far as the Revenue are aware, it has never before been suggested that a transfer of assets in specie with a monetary value to an approved retirement benefits scheme is not a “sum paid” capable of giving rise to a deduction under section 592(4).  Mr. Jones also informed us that the Revenue always accepted that such contributions by employers were deductible, as constituting payments of sums. 
32. He submits that in relation to both section 595, with which we are directly concerned, and section 592(4), it is difficult to discern any reason why Parliament can have intended to subject cash payments only to tax or allow cash payments only to be deductible, leaving aside payments in specie with a monetary value.  In the case of section 592(4), such an intention would presumably indicate a policy to require an employer to sell assets first and then contribute the cash proceeds to enable the scheme to purchase the self-same assets.  He says that one cannot seriously contend that that is what Parliament intended.
33. Mr. Jones makes a point on section 596(3), which provides that where a sum has been deemed to be an employee’s income by virtue of section 595(1) and subsequently the employee proves that “no payment in respect of, or in substitution for, the [relevant benefits] has been made, and some event has occurred by reason of which no such payment will be made”, then the Revenue are bound to give relief in respect of tax on that sum. This is a provision for a repayment of tax if the benefits funded by a taxable contribution fail to materialise.  Mr. Jones submits that benefits can be in a form other than cash, for example, the transfer of shares.  On this basis, he submits that the Appellant’s argument that a sum within section 595(1) can only be a cash payment, leads to the conclusion that “payment” within section 596(3) must be construed similarly and that therefore there would, on the Appellant’s argument, be an entitlement to repayment of tax even in a case where a non-cash benefit has been received and that this is plainly contrary to the intent of the legislation.
34. He sums up his submissions by saying that Parliament plainly intended by section 595(1) to tax a contribution of money’s worth to a retirement benefits scheme with a view to the provision of relevant benefits to an employee, just as a transfer of money’s worth to the employee in consideration of work done is taxable as emoluments of his employment.   
Decision
35. Our starting point is to notice that the statutory words “pays a sum”, “sum paid”, and “payment is made” in section 595(1) do not in terms convey the meaning that a contribution must be in cash or money. Mr. Sherry, in arguing for this narrow construction, is urging us to put a gloss on the statutory words.  The words “pays a sum”, do in our view primarily suggest the payment of a sum of money, but this is not so obvious a meaning of the expression that we can, without more and even as a matter of literal construction, accept it as the exclusive meaning.  The statutory words, in our view, as a matter of literal construction, connote no more than that a transfer of value is required.  
36. The question of construction therefore is whether the naturalness or currency of the more obvious meaning of the statutory words, viz: pays a sum of money, is so compelling a factor – coupled with the other statutory references on which Mr. Sherry relies, particularly where the draftsman has clarified the meaning of payment to show that in particular contexts it means also the transfer of assets – that we should adopt it as the meaning of the words in the context of section 595(1).
37. We are bound to apply what the House of Lords has called a purposive construction (that is, a construction which has regard to the purpose of section 595(1)) in order to determine “what transaction will answer to the statutory description” (Barclays Mercantile Business Finance Ltd. v Mawson at [36]), namely, in this context, whether “pays a sum” must be confined to the payment of a sum of money or can also comprehend other transfers of value.
38. For this reason we must enquire into the purpose of section 595(1).  Its main purpose is clearly to impose an income tax charge on contributions to unapproved schemes.  This is done by the general charge imposed by section 595(1) which is subject to exceptions set out in section 596, the first of which is that section 595(1) shall not apply where the retirement benefits scheme in question is an approved scheme.
39. We cannot see why the means by which a contribution is made (cash or kind) should be relevant to the purpose of section 595(1).  Mr. Sherry was unable to suggest a cogent policy reason for confining the charge to contributions made in money. 
40. Turning to the points made by Mr. Sherry on the statutory context, we accept that Chapter I, Part XIV of ICTA is drafted on the basis that contributions and benefits will (at any rate normally) take a monetary form.  However, we would need to conclude that this form of drafting was intended to confine the contributions and benefits to which the Chapter applied to monetary amounts, before we could accept Mr. Sherry’s submissions that this was a necessary implication from the statutory words used.  We are unable to reach this conclusion.
41. To take an example, Mr. Sherry relies on section 593, which provides for relief for a contribution made (not a sum paid) to an exempt approved scheme (not this case) by deduction of an amount equal to basic rate income tax from the contribution on payment.  The drafting clearly assumes that the contribution will be made in monetary form, although this is not expressly provided for.  We consider, without deciding, that the provision is capable of the necessary adaptation to cover a contribution paid in kind.  
42. We note that this appears to be envisaged in the FA 2004 legislation to which we were referred.  There is provision for relief for contributions paid, not sums paid, in section 188, FA 2004.  Section 192, FA 2004 provides for relief by deduction of tax on the payment of a contribution.  There is an entitlement “on making the payment, to deduct and retain out of it a sum equal to income tax on the contribution at the basic rate for the tax year in which the payment is made” (section 192(1) FA 2004).  In section 195 FA 2004 there is express provision that, for the purposes inter alia of that relief, references to contributions paid by an individual include contributions made in the form of transfers of eligible shares as defined (section 195(1) FA 2004) and the amount of a contribution made in this form is to be the market value of the shares at the date of the transfer (section 195(2) FA 2004).  The entitlement to deduct and retain a sum equal to income tax on a contribution sits together with the extension by inclusion of the meaning of contributions to include transfers of eligible shares.
43. Mr. Sherry invited us to have particular regard to section 195 FA 2004, and to the implication, which we agree can fairly be drawn from the wording of that section, that a contribution paid (without more) does not include a contribution made in the form of a transfer of shares, or at any rate one made in the form of a transfer of eligible shares. He submitted that “contribution paid” in this (very similar) context would not include such a transfer of shares and that the draftsman has recognised a need to extend the meaning of the phrase accordingly.  This was part of Mr. Sherry’s argument that “sum paid” in section 595(1) is confined to monetary payments.  
44. We note that section 195 FA 2004 forms part of a code which is distinct from that of which section 595 is a part.  The new code has various sections concerned with benefits paid out of registered schemes, others concerned with employee contributions to such schemes and others with employer contributions to such schemes.  It is significant to note that in relation to the first of those topics, the FA 2004 legislation expressly extends the meaning of the word “payment” to cover transfers in specie – see: section 161 FA 2004.  In relation to the second topic, where section 195 FA 2004 is in point, contributions include money payments and transfers of “eligible shares”, but presumably not transfers of other assets.  Finally, in relation to employer contributions, the FA 2004 code appears to assume that a deduction will be available for employer contributions whether in money or by transfer in specie, albeit that this does not result from any particular point of interpretation of the phrase “payment of a sum”.  In the light of this, we consider that any inference which could be drawn from section 195 FA 2004 is not as strongly in favour of Mr. Sherry’s case as he submitted.
45. However this may be, we take note of the general rule of statutory construction that “recourse may only be had to subsequent fiscal legislation if it is necessary to do so in order to resolve an ambiguity in the strict and narrow sense of that word” (NAP Holdings UK Ltd. v Whittles 67 TC 166 at 198G per Nolan LJ, and endorsed by Lord Keith of Kinkel ibid. at 206E, both citing Kirkness v John Hudson & Co. Ltd. [1955] AC 696).  In Kirkness, at pages 709-710, Viscount Simonds explained “the strict and narrow sense” of the word ‘ambiguity’ by reference to the earlier case of Ormond Investment Co. Ltd. v Betts [1928] AC 143, as follows:
“In this case Lord Buckmaster was of opinion, as had been at least one of the members of the Court of Appeal, that the first contention of the Crown was right, and that the words of the earlier Act had the meaning they sought to put upon them.  The other noble and learned Lords thought otherwise.  It would have been easy then to say that, since judicial opinion differed as to the meaning of these words, there was such an ambiguity as to justify recourse to a later Act to resolve it.  But the decision of the House was unanimously to the contrary.  That means that each one of us has the task of deciding what the relevant words mean.  In coming to that decision he will necessarily give great weight to the opinion of others, but if at the end of the day he forms his own clear judgment and does not think that the words are “fairly and equally open to divers meanings” he is not entitled to say there is an ambiguity.  For him at least there is no ambiguity and on that basis he must decide the case.”
46. We consider that in this case Mr. Sherry has made out no such ambiguity. We have formed the judgment that the words “sum paid” in section 595(1) are not “fairly and equally open to divers meanings” and are, therefore, unambiguous.  It is possible that the draftsman of the FA 2004 considered that the expression “contribution paid” without more would exclude a transfer of shares, and that he considered the formula adopted in section 195 FA 2004 was a convenient way to extend the relief to contributions of eligible shares as defined.  However, even if he supposed that “sum paid” in section 595(1) was an expression limited to monetary payments, that belief could not have the effect of altering the construction of those words in that context – cf. per Lord Keith in NAP Holdings UK Ltd. v Whittles, ibid. at 206F.
44. We consider that Mr. Jones is correct in his reliance on Lowe v Peter Walker and that although that case is not authority for the proposition that the words “sum paid” in section 595(1) – or section 592(4) – are apt to cover a transfer of shares, it is hard to imagine that if the Special Commissioners or the Courts – or one or other of the parties – in that case had had any doubt about the proposition, the point would have been raised.
45. The argument in that case was first, whether the nucleus of the original benefit fund was provided by the taxpayer company (the Court held that it was), and, secondly whether the power of revocation of the original benefit fund was absolute, or conditional on the declaration of new trusts analogous to those which were the subject of the revocation.  As a matter of construction of the deed creating the original benefit fund, the Court held that the power of revocation was absolute, so that the whole of the funds subject to the revocation which were, in the event, resettled on an approved superannuation fund were contributed by the taxpayer company to the superannuation fund, and that “the sum in question was a sum paid within the meaning of section 32 of the Finance Act, 1921, and therefore properly deductible from the assessments in question” (ibid.  p.45).  The “sum paid” was £78,303, the amount found by the Special Commissioners to be the market value of the shares resettled on the approved superannuation fund.  
46. There was judicial unanimity in Lowe v Peter Walker, the Special Commissioners, Finlay J. and the Court of Appeal deciding in favour of the taxpayer.  Of relevance to this case is that Finlay J. chose to express himself as follows: “The point is that investments amounting to £78,303 were transferred from the Benefit Fund, which had not been approved, to the Superannuation Fund, which was approved. … The £78,303 represented partly investments made with the proceeds of [sale of shares forming the original nucleus of the Benefit Fund] and partly investments made with the proceeds of cash contributions by the Company” (ibid.  p.37).  It is clear, therefore, that Finlay J. regarded investments with a given market value to “amount” to that value.
47. We are not persuaded by Mr. Sherry’s references to unrelated provisions of tax legislation where there is an express extension of references to payment to include transfers of assets or money’s worth.  They can be countered to some extent by Mr. Jones’s references to provisions where the where the expression “sum of money” is used.  But the main point of course is that we must construe the words in their context in section 595(1).
48. In summary, we accept that Mr. Sherry’s three submissions have force.  “Payment of a sum” is certainly an expression which more obviously applies to a payment of money than a transfer of non-monetary assets.  We accept that there are many instances in tax legislation where provision is expressly made to treat a transfer of assets as a payment, and that such an express provision is absent in relation to section 595(1).  Also, his reliance on section 195 FA 2004 would have some persuasive power if it were directly in point.  So far as support for Mr. Jones’s wider interpretation of the critical phrase is concerned, we are strongly influenced by the fact that no mention was made of the point now in contention in Lowe v Peter Walker, albeit that the point would appear to have been equally as maintainable in that case as in this.  We are also influenced by the fact that the Revenue apparently always concedes otherwise allowable deductions to employers on making specie contributions to schemes, which at the time material to this case is based on an identical point of interpretation.  However, as we see it, the most powerful point in the Revenue’s favour is that, in examining the purpose of section 595(1), we can see no merit or logic in the distinction which Mr. Sherry’s argument involves.  We do not believe that Parliament intended to make such a distinction or, in enacting section 595(1), was concerned to stipulate how a sum should be paid with a view to the provision of benefits.  Therefore, as the wider interpretation of the statutory phrase is entirely tenable, we favour it because it accords with the legislative purpose as we have discerned it, produces a sensible result, avoids a perverse distinction, and adopts an approach consistent to that adopted by the Revenue in relation to allowing deductions for employer specie contributions.
49. For these reasons we conclude that the statutory description “sum paid” in section 595(1) is apt to cover a transfer of value whether in the form of a monetary payment or of a payment in kind. 
49. It remains for us to consider whether the transaction in question, the contribution of shares to the FURBS, was a transfer of value.  It is perhaps possible that a payment in kind is not in every conceivable circumstance a transfer of value, but we have no doubt that it was one in this case, and we so find.
50. Although the resolution of the Company was to make the contribution of £5,000 cash plus the transfers of shares, the shares to be transferred were identified because their value was broadly in line with the funding recommendations of Corroon, namely that the Company could make a contribution for the Appellant “equivalent to a cash contribution in the 1995/96 accounting year of £156,905”. Thus their cash value was a crucial factor in the decision to contribute the shares.
51. Further, we find that the Company acquired the shares for the purpose of making the contribution, even though not all of the shares in any of the Company’s holdings were contributed to the FURBS.  We make this inference from the following facts: detailed advice on the establishment and sought for tax advantages of a FURBS was sought and obtained by the end of June 1996; £80,000 was placed with Murray Johnstone on 24 July 1996, and a further £120,000 on 12 September 1996; the shareholdings in question were acquired in tranches on 8 and 19 September 1996; the FURBS was established on 16 September 1996; Corroon’s report was signed off on 23 September 1996 and considered by the board of the Company on 24 September 1996.  The extraordinary general meeting approving the contribution took place on 25 September 1996 and the contribution was made the same day.  In these circumstances, the contribution of shares, “viewed realistically” (cf. Arrowtown Assets Ltd.), was a transfer of an amount equal to their market value at the time of the contribution.  
52. We decide for these reasons that the contribution represented by the transfers of shares is to be deemed to be the income of the Appellant assessable under Schedule E pursuant to section 595 and dismiss the appeal.  We hope that quantum of the amendment to the Appellant’s self assessment will be agreed between the parties, but give liberty to apply in case this is impossible. 

JOHN WALTERS QC

HOWARD NOWLAN

SPECIAL COMMISSIONERS
RELEASE DATE: 23 March 2006

SC 3105/04