»Ê¹ÚÌåÓýapp

Two very early cases on management expenses are:

• Capital and National Trust Ltd v Golder 31TC265,

and

• Sun Life Assurance Society v Davidson 37TC330.

»Ê¹ÚÌåÓýappse are summarised below.

Capital and National Trust Ltd v Golder 31TC265

»Ê¹ÚÌåÓýapp point at issue was whether the company could claim relief for brokerage and stamp duties as management expenses.

»Ê¹ÚÌåÓýapp company was an investment company. It included in its management expenses claim sums for brokerage and stamp duties on changes of investments. »Ê¹ÚÌåÓýapp Special Commissioners decided that these sums were not allowable as management expenses. »Ê¹ÚÌåÓýapp foundation of the Commissionersâ€� finding was that, where investments are being changed, ‘managementâ€� does not extend beyond the time when a purchase or sale is effected. »Ê¹ÚÌåÓýapprefore, expenditure after that time cannot be an expense of management; it is ‘an integral part of the selling priceâ€� (paragraphs 11 to 31 TC of the stated case). »Ê¹ÚÌåÓýapp court held that the Commissionersâ€� decision was correct.

Sun Life Assurance Society v Davidson 37TC330

»Ê¹ÚÌåÓýapp point at issue was whether the company could claim relief for brokerage and stamp duties as management expenses.

»Ê¹ÚÌåÓýapp company was a life assurance company. It included in its management expenses claim sums for brokerage and stamp duties in connection with purchases and sales of investments. Sun Life sought to distinguish its business from that of Capital and National Trust Ltd because, it said, buying and selling stocks and shares was part of its trading activity. »Ê¹ÚÌåÓýapp Special Commissioners decided that these sums were not allowable as management expenses. »Ê¹ÚÌåÓýappy concluded that the brokerage and stamp duties were not general expenses of conducting the Society’s business, but expenses of the purchase of investments. »Ê¹ÚÌåÓýapp court held that the Commissionersâ€� decision was correct.

Although the judgements in these two cases perhaps say more about what is not an expense of management, there are three broad points that are worth noting.

• »Ê¹ÚÌåÓýapp words have no special meaning.
• »Ê¹ÚÌåÓýapp phrase does not include every expense.
• »Ê¹ÚÌåÓýapp phrase should be given a ‘wideâ€� meaning.

»Ê¹ÚÌåÓýappse points can be illustrated with reference to the Sun Life case.

»Ê¹ÚÌåÓýapp words have no special meaning

»Ê¹ÚÌåÓýapp Special Commissioners said, ‘»Ê¹ÚÌåÓýappre is in the relevant legislation no definition of the phrase ‘expenses of managementâ€� and it must accordingly be given its ordinary everyday meaningâ€�. Lord Reid, in his dissenting judgement said, I do not think that it is possible to define precisely what is meant by ’expenses of managementâ€�. It has not been argued that these words have any technical or special meaning in this context. »Ê¹ÚÌåÓýappy are ordinary words of the English language, and, like most such words, their application in a particular case can only be determined on a broad view of all relevant matters (page 360).

»Ê¹ÚÌåÓýapp phrase does not include every expense

»Ê¹ÚÌåÓýapp Special Commissioners, in paragraph 15 (4) of the stated case, said ‘some meaning must be given to the word ‘managementâ€�; in other words, not every expense incurred by the Society in carrying on its business can necessarily be taken to be an expense of management of that businessâ€� (page 335). »Ê¹ÚÌåÓýapp comments were approved by Viscount Simonds who said, »Ê¹ÚÌåÓýapp Special Commissioners have recognised what I think is of first importance in interpreting the words in question namely that they are words of qualification or limitation (page 354).

»Ê¹ÚÌåÓýapp phrase should be given a ‘wideâ€� meaning

Lord Reid favoured a wide interpretation of the phrase ‘expenses of managementâ€� as did Lord Morton of Henryton, for the reasons given by Lord Somervell of Harrow. But it is clear they had in mind, not the particular nature of the expenditure, but rather the level of management. »Ê¹ÚÌåÓýappy meant ‘wideâ€� in the sense of not restricting a deduction to expenses incurred in taking managerial decisions rather than carrying them out. Lord Somervell said, I wholly reject the distinction sought to be drawn between the management and the carrying on of the business, restricting the former to the head management (page 362).

»Ê¹ÚÌåÓýapp most recent case on the subject Camas PLC v Atkinson TL3728 was heard in the Court of Appeal in April 2004 (see CTM08190 for further details). This case reiterated the need to look at the statutory language.

For further detail on expenses of management in the context of changing investments including acquisitions and disposals see CTM08190 and CTM08260. »Ê¹ÚÌåÓýappre is a general test to be applied for all periods (CTM08190) and a capital exclusion that applies only to periods from 1 April 2004 (CTM08260). For take-over bid defence costs, see CTM08200.