Lord Mackay of Clashfern LC:

My Lords,

I have had the advantage of reading in draft the speech of my noble and learned friend Lord Browne-Wilkinson. I respectfully adopt his narrative of the proceedings in this appeal and his account of the statutory provisions by reference to which it falls to be decided.

A fact which I regard as crucial to the decision of these appeals is stated by the Special Commissioner [1990] STC 6, at p. 11f-g as follows "on the facts, the taxpayers' sons occupied only surplus places at the college and their right to do so was entirely discretionary". I regard it as important in considering the benefit which is to be subject to taxation that the benefit should be identified. The benefit which the taxpayers in this case received was the placing of their children in surplus places at the college, if as a matter of discretion the college agreed to do so. As I read the stated case there was no question of the taxpayers being entitled to have their children educated at the school. They were in a similar position to the person coming along on a standby basis for an airline seat as against the passenger paying a full fare, and without the full rights of a standby passenger, in the sense that the decision whether or not to accommodate them in the college was entirely discretionary. If one regards the benefit in this light I cannot see that the cost incurred in, or in connection with, the provision of the benefit, can properly be held to include the cost incurred, in any event, in providing education to fee paying pupils at the school who were there as a right in return for the fees paid in respect of them. The expenses incurred by the college were all incurred necessarily in order properly to provide for these pupils. No further expense over and above that was incurred in, or in connection with, the provision of surplus places to the taxpayers' children. Although the later words of s. 63(2) provide that the expense incurred in, or in connection with, the provision of a benefit includes a proper proportion of any expense relating partly to the benefit and partly to other matters, I consider that the expenses incurred in provision of places for fee paying pupils were wholly incurred in order to provide those places. The benefit conferred upon the taxpayers was one which logically followed only when it was determined that there were surplus places and the authorities of the college in their discretion agreed to admit the taxpayers' children to these places. This decision was the decision to provide the benefit to the taxpayers' children and this decision involved no further expense on the college. I conclude that looking at the matter from the point of view of expense incurred and not from the point of view of loss to the employer no expense could be regarded as having been incurred as a result of the decision of the authorities of the college to provide this particular benefit to the taxpayer.

Notwithstanding the views that have found favour with others I consider this to be a reasonable construction of the statutory provisions and I am comforted in the fact that, apart from an attempt to tax airline employees, which was taken to the special commissioners who decided in favour of the taxpayer, this has been the practice of the Inland Revenue in applying the relevant words where they have occurred in the Income Tax Acts for so long as they have been in force, until they initiated the present cases.

At the very least it appears to me that the manner in which I have construed the relevant provisions in their application to the facts in this appeal is a possible construction and that any ambiguity there should be resolved in favour of the taxpayer.

For these reasons I would allow these appeals. I should perhaps add that I was not a member of the committee who heard these appeals in the first hearing since I became involved only when your Lordships who sat in the first hearing suggested a second hearing