§ The Solicitor-General
I beg to move, in page 48, line 38, to leave out,other than secretarial or managerial services.This is simply a drafting Amendment, because the same words appear later on, and are really surplusage.
§ Mr. Birch
I think that this is slightly more than a drafting Amendment. I understand that it was decided in the High Court on 22nd January of this year, in the case of Richardson versus the Commissioners of Inland Revenue, that portions of a director's remuneration for certain cases like E.P.T. and the Profits Tax did not include remuneration paid to a director in a different capacity, such as the two things which the Solicitor-General proposes here to take out, namely secretarial and managerial functions, or for advisory or technical services, words which he is actually leaving in.
§ The Solicitor-General
I was wondering if the hon. Gentleman would accept it from me that this Amendment is drafting, but, of course, the matter he has indicated would have to be discussed on the Clause.
§ Mr. Birch
I think it is perfectly relevant. As I was saying, the judgment was given at the beginning of this year that these particular functions of directors—technical, managerial, secretarial, and advisory—should be remunerated and should not rate for E.P.T. and Profits Tax. Now this Clause, as modified by this Amendment, appears to me to reverse that judgment, and, perhaps, the Solicitor-General will answer the point, why that judgment is reversed thus, when we come to the Question "That the Clause stand part." It does seem quite wrong that directors should be penalised and not be able to get proper remuneration for technical services, when it has been established that that is right according to law.
§ Mr. Joynson-Hicks
I should like to press the Solicitor-General on this Amendment, because I venture to think that it is not going far enough. As I understand it, he is moving to leave out the words in line 38:other than secretarial or managerial services.But, surely, if those words fall there ought to fall with them the preceding words:services rendered to the company in his professional capacity.because those words, presumably, tie up with following words. If the one group is to be deleted, and the services are services rendered, as the Solicitor-General explained, I do not see, if he is leaving out one half of the sentence why he does not delete the other half. The Amendment now will render the whole paragraph more imperfectly drafted than it is at present.
§ The Solicitor-General
The point that was dealt with by the hon. Member for Flint (Mr. Birch) is really dealt with in Subsection (1) of the Clause. That Subsection reverses the judgment—or the effect of the judgment—in the case of Richardson against the Commissioners of Inland Revenue. That particular point does not arise under Subsection (2), though Subsection (2) deals with what hitherto has been a non-statutory concession, which is now made a statutory concession. The only reason I am moving the Amendment is that the words:other than secretarial or managerial services.are repeated in brackets two lines farther on. I simply seek to leave them out in 1297 the first case because they are there superfluous. That is all I seek to do, but that does not, of course, touch the point, which hon. Members may wish to debate a little further, on the question whether the judgment should be dealt with in the way it is. It does not arise on this Amendment, which is simply drafting.
§ Amendment agreed to.
§ Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
§ Colonel Crosthwaite-Eyre
I do think that important issues arise on this Clause, and I should like to hear from the Solicitor-General, now that we have got on to the wider aspect of it, just what those issues are. I am particularly worried about Subsection (3), which starts off with these words:This section shall be deemed always to have had effect.They have, no doubt, been introduced for a very good reason, and I should like to know a little more about them, particularly as this Clause is concerned with paragraph 10 of Part I of the Seventh Schedule to the Finance (No. 2) Act, 1939. I looked that up. There are certain express reservations in regard to paragraph (d) of the Seventh Schedule, and I should like to know whether these new provisions made in Subsection (2), paragraphs (a) and (b) in relation to that Schedule are modifications of the rates previously given under the Finance (No. 2) Act, 1939.
I ask in what respect they do modify these rights and how far Subsection (3) can, in fact, be made retrospective. If, as I read it, it means that it can be made retrospective in all cases except those in which judgment has been given or an appeal has been lodged from a judgment by a court, then it seems most dangerous, because, despite whatever judgments may have been made in the cases judged, the particular judgment has not, in fact, been made, and, as far as I can judge, the retrospective action can be taken at any date the Treasury may determine. That is something which the Committee should look at very closely before they accede to it.
§ The Solicitor-General
As hon. Members will observe, this Clause applies both to 1298 E.P.T. and Profits Tax. If hon. Members would look at the first two lines of the Subsection, they will see that the provisions of the E.P.T. are contained in the provisions of the original Finance Bill of 1937, and they are very similar, though not entirely similar as far as the directors' remuneration is concerned. Taking the case of the Profits Tax, hon. Members will probably have in mind that, in computing the number of director-controlled companies and the remuneration of directors within whole-time service, the tax is not to be deducted in so far as it exceeds a certain sum. That limit is 15 per cent. or £1,500 whichever is the greater, subject to an overall maximum of £1,500. The hon. and gallant Member for Antrim (Major Haughton) mentioned the matter yesterday or early this morning. The question that this Clause deals with is the interpretation for the purpose of these two sets of Clauses. Hitherto, or up to the time the case of Henry Richardson Ltd. against the Commissioners of Inland Revenue was decided on 22nd January this year, the words "directors' remuneration" in this connection had always had a specific and well-defined interpretation. The interpretation was, in fact, set out in Command Paper No. 6559 dated October, 1944, and had always been interpreted as including the secretarial services, so that if a director did secretarial services and received remuneration that was regarded as part of his remuneration as a director.
That was always considered to he the case, but at the same time that White Paper conferred what was really an extra-statutory concession, i.e., it was based upon the interpretation put upon the word "remuneration." That concession is really the concession which appears in Subsection (2) of this Clause as set out in the White Paper, very much in the same terms. What happened then was that, notwithstanding that the term had been so construed for years past, the learned judge who heard the case ruled that the construction was erroneous, and he construed the words "directors' remuneration" strictly in the limited sense of remuneration paid to the director and nothing else, therefore excluding, for this purpose, anything which could be said to be remuneration for secretarial services rendered by him in that capacity or while a director. The decision ran counter to 1299 the universal practice which had been adopted hitherto.
Of course, that decision stands. I have no doubt that the learned judge was quite right on the true construction of the Act. That judgment and the precise case covered by it, and any appeal from that judgment, we leave untouched. We do not interfere with what the learned judge decided in that particular case or indeed what may be decided on any appeal from his judgment if an appeal is made. But apart from that case, it would lead to interminable difficulties if we had to reopen the countless cases assessed on that basis. The second Subsection makes statutory the extra-statutory concession which is set out in the White Paper. The third Subsection preserves the judgment in the case to which I have referred.
§ Clause ordered to stand part of the Bill.