England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Henderson

[2009] EWHC 62 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		28/07/2010

Lord Justice Rimer :

Introduction

1. This appeal by The Commissioners for Her Majesty's Revenue and Customs ('HMRC') is against an order dated 16 June 2009 by which Henderson J dismissed their appeal against the majority decision dated 1 August 2005 of the General Commissioners of Income Tax for the Division of North West London that certain expenses incurred by the respondent, Dr Banerjee, were deductible under section 198(1) of the Income and Corporation Taxes Act 1988 ('ICTA'). Henderson J's judgment ([2009] EWHC 62 (Ch)) is reported at [2009] STC 1930; [2009] 3 All ER 915; [2010] 1 WLR 800.
2. Dr Banerjee, now a consultant dermatologist, was during the relevant years of assessment employed as a specialist registrar in dermatology under a succession of NHS employment contracts on terms requiring her to attend various training courses. It was the expenses she incurred in doing so that are in question. HMRC's appeal is said to raise a question of importance, not least because Henderson J's decision is said to stand in apparent contrast to the decision of Patten J (as he then was) in Revenue and Customs Commissioners v. Decadt [2008] STC 1103, a case with obvious similarities to the present appeal and which Henderson J did not suggest had been decided incorrectly. Mr Sam Grodzinski, for HMRC, impressed upon us that it is in the interests both of HMRC and the general body of taxpayers that any inconsistency between the two decisions should be resolved. That was the reason why Jacob LJ gave permission to appeal, whilst also making clear that he was far from confident that an appeal would succeed.
3. The appeal before Henderson J was by way of a question raised under a case stated on 15 March 2007 by the General Commissioners under section 56 of the Taxes Management Act 1970. I will first summarise the facts found by the General Commissioners upon which the appeal depends.

The facts

4. The matter before the General Commissioners was Dr Banerjee's appeal against amendments to her tax returns for the years 1997/98, 1998/99 and 1999/2000 disallowing her claimed deduction of expenses of £2,700, £3,750 and £2,050 respectively incurred in attending meetings, conferences and courses held for training purposes. During the years of assessment, Dr Banerjee was employed as a Specialist Registrar in Dermatology. She was so employed by the St George's Healthcare NHS Trust at St George's Hospital London from 7 October 1996 to 4 October 1998 and from 11 October 1999 to 13 March 2001; and was similarly employed by the St Helier NHS Trust during the gap in the dates just given, namely from 5 October 1998 to 10 October 1999. She had a career break from 14 March 2001 until 1 August 2001, when she was appointed as a Consultant Dermatologist at another hospital.
5. The General Commissioners found that from 11 October 1999 to 2 October 2000 Dr Banerjee was employed at St George's under a contract on terms contained in a document headed 'Statement of Terms and Conditions of Employment' dated 6 December 1999, one scheduled to the case stated. That Statement recorded Dr Banerjee's 'fixed term appointment as Specialist Registrar in Dermatology'. It then set out, under a succession of clauses, provisions relating to her salary scale, her commencing salary and its method of payment; a term relating to 'Training', to which I shall return; her hours of work (40 standard hours a week plus 23 additional duty hours); a restriction on doing locum work; her annual leave entitlement; the notice provisions under the contract; a provision confirming that she would have indemnity cover for all NHS work she carried out and encouraging her to have adequate defence cover for any other work she did; her pension entitlement; sick pay provisions; and a provision relating to patient confidentiality.
6. As for the 'Training' clause, the General Commissioners found that it was in terms identical to a clause in her previous employment contract with St George's and which also applied during the whole course of her employment described in [4] above, including her employment by the St Helier NHS Trust. (I add that, whilst the General Commissioners appear only to have made an express finding that the 'Training' clause was in each of Dr Banerjee's employment contracts, I infer that they implicitly found that each such contract was otherwise also in terms essentially similar to those in the Statement). The 'Training' clause read:

'Training: Employment is dependent on your continuing to hold a National Training Number. Your fixed term training number is THS/005/005/N.

This placement is for the fourth year of your training programme.'

Dr Banerjee was required to continue to hold a National Training Number throughout the whole of her five-year training period. Whilst her employers during that period were two NHS Trusts, the specialist registrar post she held was one funded by the South Thames Deanery (now the London Deanery). A Deanery is responsible for post-graduate medical training.

7. I continue by quoting from paragraph 5 of the case stated, which sets out the facts found by the General Commissioners:

'(g) The mandatory requirement to continue to hold a National Training Number required mandatory attendance at meetings/courses/conferences in carrying out the duties of her employment as prescribed by the Supervisor, Dr Ian White, who was the Supervisor and Programme Director for Dermatology Specialist Registrars in the South Thames area to which [Dr Banerjee] was subject.

(h) All the courses and training for which [Dr Banerjee] has claimed the expenses were compulsory and a pre-requisite of her maintaining her post and employment, and the requirement to remain up to date.

(i) The employers [St George's and St Helier] required [Dr Banerjee] to undertake these courses and to incur the expenditure. No qualifying training courses were provided in house or paid for or part paid for by her employers.

(j) [Dr Banerjee] would not have been allowed to continue her employment as a Specialist Registrar if she had failed to attend the external training sessions and her compliance was monitored to maintain her National Training Number.

(k) This arrangement was not unique to [Dr Banerjee] and it applied to all Specialist Registrars in Dermatology during the course of their Contracts of Employment; save that some training hospitals provide some in house training and/or some financial assistance.

(l) [HMRC] acknowledged that the training courses were compulsory to [Dr Banerjee] remaining as a Specialist Registrar; and this was necessary to proceed to becoming a Consultant Dermatologist. [HMRC] further acknowledged that if the training had not been done by [Dr Banerjee] during her period of employment as a Specialist Registrar that employment would have determined.

8. Those findings reflect in part the factual content of various letters also before the General Commissioners and also scheduled to the case stated. The reference to Dr White in paragraph (g) is to what he said in a 'to whom it may concern' letter of January 2004. It reads:

'[Dr Banerjee] was employed as a specialist registrar in dermatology from 1996 to 2001 by St George's and St Helier Hospitals. This specialist registrar post in the hospital is funded centrally by the South Thames Deanery. Her employment had mandatory requirements of attending these meetings/courses/conferences in carrying out the duties of the job. I am supervisor of these requirements for the duties of the post of specialist registrar in dermatology in South Thames and thus the requirements of this employment and duties of the job. These are expenses incurred wholly as part of the duties of her employment. These were wholly, exclusively and necessarily in the performance of the duties of the employment.'

9. Whilst the statements in the last two sentences must be viewed with caution, since they purport to answer the very question before the General Commissioners, the rest of the letter provided useful additional factual flesh. Another scheduled letter, one dated 3 February 2004 from Katie Olsen on behalf of the St George's Healthcare NHS Trust, explained that the duties of Dr Banerjee's post were 'determined by the programme director and supervisors of the South Thames Specialist Registrars'. A third scheduled letter, dated 8 June 2004 from Dr Marsden (physician to the skin department at St George's), recorded that during her employment with St George's Dr Banerjee 'was expected, as part of her training, to attend the following courses which are considered compulsory.' Nine courses or meetings were then listed, including a management course. Dr Marsden's letter continued that the Specialist Registrar post is:

'… essentially a training post and that the above courses are a condition of their training and thus the duties of the post as dictated by the Regional Deanery. Seeing patients, i.e. the service commitment, is only one aspect of training.'

Finally, another scheduled letter, dated 19 April 2005 from Catherine O'Sullivan, a Human Resources Adviser, on behalf of the same NHS Trust, also explained that Dr Banerjee's:

'… post was entirely a training post and all the courses she attended were part of this training, and which were a pre-requisite of the post. All these were a requirement of all specialist registrars in her position. In addition, this was a supernumerary post.

Whilst attending these courses she was performing the duties as required by the hospital for this post. All Specialist Registrars are required to undertake these courses and incur the expenditure.'

Henderson J said, and I agree, that the General Commissioners were entitled to have regard to the factual content of these letters in order to supplement the rather uninformative content of the written Statement of Conditions of Dr Banerjee's employment. Mr Grodzinski did not challenge that before us.

10. I add that the General Commissioners did not in terms find that Dr Banerjee's attendance at the training activities took place during her normal working hours. In paragraph [16] of his judgment, however, Henderson J recorded that before him Dr Banerjee confirmed that this was the case, without objection from HMRC. He also explained that Dr Banerjee had given oral evidence to the General Commissioners.
11. Having set out the facts they found that I have repeated in [6] above, the General Commissioners set out the parties' rival contentions as to whether the expenses claimed were incurred by Dr Banerjee wholly, exclusively and necessarily in the performance of the duties of her employment so as to be deductible under section 198(1) of ICTA. In paragraph 9, they then set out their majority decision:

'(a) At all relevant times [Dr Banerjee] was employed as a Specialist Registrar by [St George's].

(b) At all relevant times [she] was subject to Terms and Conditions of Employment which contained a mandatory provision to continue her National Training Number.

(c) The expenses claimed related to the mandatory requirements of [her] Terms and Conditions of Employment and were all incurred wholly and exclusively and necessarily as an intrinsic part of the performance of her duties.

(d) The fact that [she] would have been dismissed for failure to comply meant the fact that the expenditure was also for her professional development and advancement of her knowledge were of secondary importance.

(e) Accordingly pursuant to our interpretation of Section 198 and the Law [Dr Banerjee's] appeals against the Revenue amendments for the years in question are allowed and we confirm the self assessment figures in the amounts prior to the Revenue's amendments the subject of these appeals.'

The legislation

12. For the first of the three years of assessment in question, section 198(1) of ICTA provided as follows:

'(1) If the holder of an office or employment is necessarily obliged to incur and defray out of the emoluments of that office or employment the expenses of travelling in the performance of the duties of the office or employment, or of keeping and maintaining a horse to enable him to perform those duties, or otherwise to expend money wholly, exclusively and necessarily in the performance of those duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed.'

For the two following years, section 198(1) applied as amended by section 61(1) of the Finance Act 1998 but it is agreed that the amendments made no change material to the issues in the present case, and it is unnecessary to set them out (the judge did so in paragraph [7] of his judgment). It was and is also common ground that if, as has been held below, the costs of the attendance at the various courses, conferences and meetings were deductible, so too were the associated travel and accommodation costs.

The arguments on the appeal

13. Were the expenses incurred in attending the training courses incurred and defrayed by Dr Banerjee 'wholly, exclusively and necessarily in the performance of [the] duties' of her employment? Only if they were are they deductible.
14. Mr Grodzinski, for HMRC, does not dispute that their incurring was a requirement of Dr Banerjee's employment contract. That, however, is not by itself enough to justify their deduction. He emphasised that, as section 198(1) shows, it is also essential that the expenses are incurred 'in the performance of the duties' of the employment; and, he said, whether they are so incurred depends not on the terms of the employment contract by which the employee is engaged but on the nature of the job for which he/she is engaged. Dr Banerjee's job was, he said, that of a qualified clinical dermatologist whose duties were to treat patients. The attendance at the training courses for which she incurred the expenses was, he said, not done in the performance of those duties, nor did it enable her to perform them. Such attendance was no more than a means to the end of better performing such duties and of improving her professional skills so as to promote her personal professional development (she is now a consultant dermatologist).
15. Secondly, Mr Grodzinski said that even if the expenditure was to any extent incurred in the performance of Dr Banerjee's duties as a doctor, it was not 'exclusively' so incurred but must also have served a second, or dual, purpose. It was, he said, incurred as part of Dr Banerjee's training, whereas training cannot be an end in itself, it is always a means to an end which, in the present case, was the improving of Dr Banerjee's professional skills and the paving of the road to her present status of a consultant dermatologist. Mr Grodzinski made no point in relation to the 'wholly' requirement also prescribed by section 198(1), which it is common ground is usually regarded as relating only to quantum. Accepting that Dr Banerjee was contractually required by her employers to attend the courses, Mr Grodzinski recognised that the consequence of his submissions may make this an apparently hard case but he pointed out that the eye of the section 198(1) needle is well-known as being a narrow one that is not easily negotiated.
16. Mr Grodzinski's submissions were based on principles that find a solid base in the reported authorities. Mr Michael Ashe QC, leading Mr Julian Hickey, for Dr Banerjee did not dispute them. His response to the appeal was based on his submission as to the true nature of Dr Banerjee's job with St George's, to which I shall come. I should, however, refer first to the authorities that underpin Mr Grodzinski's submissions since they provide the essential legal backdrop against which this appeal has to be judged.
17. In Brown v. Bullock (HM Inspector of Taxes) 40 TC 1; [1961] 1 WLR 53 (Danckwerts J); [1961] 1 WLR 1095 (Court of Appeal), the taxpayer was a bank manager under whose terms of employment it was 'virtually a condition' that he should join a local club so as to foster local contacts. He joined the Devonshire Club and the question was whether he could deduct as an expense the subscription he had to pay, one for which the bank reimbursed him so that it became part of the emoluments of his employment. Danckwerts J observed (40 TC 1, at 6) that 'that Rule [the predecessor of section 198(1)] has again and again been criticised judicially for being extremely narrow …' and held that it was too narrow to accommodate the manager's claim. In his view, when the manager attended the club he was not acting in the performance of his duties as a manager even though he was 'no doubt adding to his usefulness as a bank manager….' This court agreed, Donovan LJ saying (40 TC 1, at 10):

'The test is not whether the employer imposes the expense but whether the duties do, in the sense that, irrespective of what the employer may prescribe, the duties cannot be performed without incurring the particular outlay.'

Applying that test to this case, Mr Grodzinski invites an affirmative answer to the question whether Dr Banerjee could have performed her duties as a doctor without incurring the expense of attending the courses.

18. In McKie (HM Inspector of Taxes) v. Warner 40 TC 65; [1961] 1 WLR 1230 Plowman J applied the same approach in rejecting the employee's claim to deduct an expense. It is unnecessary to relate the facts but I shall quote what Plowman J said at 40 TC 65, at 71/72:

'It has been pointed out many times, and it is unnecessary for me to refer to any of the occasions because it is notorious, that it is very difficult for a taxpayer under Schedule E to bring his expenses within the Paragraph that I have just read [Rule 7, the predecessor of section 198(1)]. In order to succeed in a claim under the Rule the taxpayer has to prove, first of all, that the expense is one which he was necessarily obliged to incur and, secondly, that it was incurred wholly, exclusively and necessarily in the performance of his duties. As regards the first of those two requirements, the authorities show that the word "necessarily" in the expression "necessarily obliged to incur" refers to the necessities of the office or the employment. In order to qualify, the expense must have been necessitated by the duties of the employment. The fact that it was required by the employer is not sufficient, nor is the fact that it was thought necessary by the employee. In this connection, I need only refer to a sentence taken from the judgment of Donovan LJ in the recent case of Brown v. Bullock [and Plowman J cited the sentence I have quoted] … Then, as regards the second requirement, the authorities show that the expression "in the performance of the said duties" is a very stringent one: it has quite a different connotation from what I might call the corresponding provision in Section 137 of the Act relating to expenses for purposes of Schedule D, where the relevant words are "for the purposes of"; and, in Rule 7, the necessity for expenditure "in the performance of the duties" means that the sums in question must be defrayed in the actual discharge of the duties – "in doing the work of the office" is the expression which Rowlatt J used in Nolder v. Walters, 15 TC 380, at page 387. But even if the expenditure was necessarily incurred in doing the work of the office, it must also have been defrayed wholly in discharge of the duties and exclusively in discharge of the duties.'

19. We were also referred to Lupton (HM Inspector of Taxes) v. Potts 45 TC 643; [1969] 1 WLR 1749 in which the question was whether a solicitor's articled clerk could deduct as an expense his fees paid to enable him to sit a Law Society examination. Plowman J's answer was 'no' because the outlay was neither 'necessarily' incurred in the performance of the taxpayer's duties under his employment nor was it incurred 'exclusively' in such performance. The payment was not made to benefit or to fulfil an obligation to the employer but to benefit the taxpayer because he wanted to become a solicitor.
20. Mr Grodzinski also cited the decision of the House of Lords in Fitzpatrick and Others v. Commissioners of Inland Revenue 66 TC 407; [1994] 1 WLR 306. The House was there concerned with appeals from Scotland and England raising similar questions, namely whether expenses incurred by ten journalists in purchasing newspapers and periodicals were deductible under the predecessor of section 198(1). The journalists were respectively employed by The Glasgow Herald, The Glasgow Evening Times, the Daily Mail and The Mail on Sunday. Each received a newspaper allowance from his employer which was part of the emoluments of his employment and each spent at least that allowance in buying newspapers and periodicals. The Scottish journalists had failed in the tribunals below in their bid to be entitled to deduct their expense in doing so. That was because whilst the reading of the material so bought prepared them for the performance of their duties as journalists, it was not undertaken 'in the performance' of such duties. With one exception, all the English journalists achieved the reverse result in the tribunals below, on the basis that such reading was undertaken 'in the performance' of their duties as journalists. It fell to the House of Lords to resolve this difference of approach.
21. The journalists' evidence had been that they needed to read the publications they purchased in order to keep up to date on all aspect of the news. There was also evidence that their employers expected or required them to read widely and that if they did not read other newspapers and periodicals, the quality of their work would suffer and they would expect to be reprimanded or even dismissed. Lord Templeman observed that the facts in all the cases were indistinguishable and that the different decisions on each side of the border could not both be right. He referred (66 TC 407, at 521C) to the decision of Rowlatt J in Simpson v. Tate [1925] 2 KB 214, in which the judge had disallowed the claim by a medical officer of health to deduct the expenses of subscribing to professional societies whose meetings and publications kept him up to date, saying it was not open to a professional person to deduct expenses incurred for the purpose of keeping himself fit to perform the duties of his office. Lord Templeman continued (66 TC 407, 521H):

'Similarly in the present case it seems to me that a journalist does not purchase and read newspapers in the performance of his duties but for the purposes of ensuring that he will carry out his duties efficiently. If deductions of this kind were allowed in one case every journalist or other similar employee would claim to be entitled to deduct the payment made by him for every newspaper and period which he chose to purchase "… and there would be no end to it" [a quotation from Simpson]. A sports reporter is employed to report sport, not to read newspapers, a photographer is employed to produce pictures for his newspaper not to study the pictures of others. An editor is employed to select, draft and arrange items in his newspaper, not to read other newspapers. A journalist who reads newspapers does so in order to be able to perform his duties to the highest possible standard but he does not read "in performance of his duties."'

22. At 521A, Lord Templeman referred to Blackwell (HM Inspector of Taxes) v. Mills 26 TC 468, a case in which a student assistant in the research laboratory of a company was required, as a condition of his employment, to attend classes in preparation for the final examination for the Bachelor of Science degree. Macnaghten J refused the student's claim to deduct the expenses of attending such classes, saying at 470:

'The duties of his employment were as a student assistant in the research laboratories of the General Electric Company. It seems to me impossible to say that, when he was listening to the lecturer at the Chelsea Polytechnic, he was performing the duties of a student assistant at the laboratories of the company.'

Lord Templeman applied that decision, saying that it showed that it was irrelevant whether or not the journalists were required as a condition of their employment to read newspapers and periodicals of their choice. Adapting Macnaghten J's words, he said (66 TC 407, at 523E) that:

'… it seems to me impossible to say that when the sports reporter was reading newspapers in the quiet of his home he was performing the duties of a sports reporter either at the offices of the newspaper or on location.'

23. After referring to Lomax v. Newton [1953] 1 WLR 1123, in which it was held that a regimental officer was not allowed to deduct his annual subscription to the mess of which he was obliged to a member and would have been transferred or cashiered if he had failed to pay; to Humbles v. Brooks 40 TC 500 in which it was held that a headmaster required to teach history was disallowed the expense of attending a series of weekend history lectures, since he did not do so 'in the performance' of his duties as a history teacher but merely to keep qualified to perform them or to add to his usefulness in doing so; and to Brown v. Bullock 40 TC 1 (see above), Lord Templeman said at 525B:

'It does not matter, therefore, whether in the present case the journalists were contractually bound to their employers to expend money in the purchase of other newspapers and magazines or whether they did so voluntarily. Whether or not a journalist thinks it necessary to read one or more newspaper and periodical his duty is in the production of his employer's newspaper and he is not carrying out that duty when he is reading other newspapers.'

24. Lord Templeman's overall conclusion was that when the journalists were reading other newspapers and periodicals, they were not doing so 'in the performance of' of their various duties as journalists. The Scottish decisions had therefore been correct and the English decisions wrong. Lord Keith of Kinkel, Lord Jauncey of Tullichettle and Lord Mustill agreed with him. Lord Browne-Wilkinson, dissenting as to the English appeals, would have dismissed them too on the basis that they were justified by the findings of fact made by the General Commissioners. In particular, he referred at 535 to the fact that they had found that reading the newspapers was a necessary part of the duties of a sub-editor, one that he held was amply supported by the findings of primary fact.
25. Rather closer to the factual home of the present case, Mr Grodzinski referred us to two more recent decisions. The first was Snowdon v. Charnock (Inspector of Taxes) [2001] STC (SCD) 152. There the taxpayer was employed by an NHS trust as a 'Higher Specialist Registrar in Psychotherapy', a training post designed to train psychotherapists. The main duties were to conduct consultation interviews of new patients referred for psychotherapy; to conduct psychotherapy with patients accepted for treatment; and to undertake some administrative duties. The employment was at a standard salary, was pensionable and was for a standard 40-hour week. The letter of appointment described it as 'participation in a training programme' and that it was dependent upon the taxpayer continuing to hold a national training number. The job description stated that the training requirements of the Royal College of Psychiatrists would be met. There was a shared programme of lectures, seminars and supervised clinical work. Each trainee had an individual tutor and the job description also stated that 'all trainees are expected to be in at least three times weekly personal therapy'. It was a condition of the employment that 'the successful candidate is expected to be undergoing personal psychotherapy during the terms of the appointment'. The issue was as to the taxpayer's claim to deduct some £2,000 paid by way of psychotherapy training fees for personal analysis. His case was that he was required to undergo these psychotherapy sessions as a duty of his employment. The contrary case was that, whilst that was true, the taxpayer was not obliged to spend those fees 'in the performance' of his duties.
26. The Special Commissioner, Dr Nuala Brice, held that the fees were not deductible. At paragraph [15], she recognised the distinction between incurring expenditure in the performance of duties (which is deductible) and incurring it to put the taxpayer in a position to perform them (which is not). She referred to Simpson (Inspector of Taxes) v. Tate and Blackwell (Inspector of Taxes) v. Mills (to both of which Lord Templeman had referred in Fitzpatrick) and expressed her conclusions in paragraphs 17 and 18 as follows:

'17. Applying those principles to the facts of the present appeal I find that the duties of the taxpayer were as a specialist registrar trainee. The personal psychotherapy sessions were for the purpose of enabling him to acquire his additional qualification in psychotherapy and were not in the performance of his duties. When he was undergoing the personal psychotherapy sessions, he was not performing the duties under his contract of employment. Applying the principle in Fitzpatrick v. IRC (No 2) [1994] STC 237, [1994] 1 WLR 306 the nature of the job did not require the personal psychotherapy sessions which merely enabled the taxpayer to acquire the necessay qualifications to do the job or to do it better. …

18. … I accept that, as in Blackwell v. Mills, the sessions were a condition of the employment. However, the decision as to whether expenditure is "in the performance of the duties of the employment" within the meaning of s. 198 is a matter to be decided on the facts and evidence in each case and in the light of all relevant authorities and a statement by an employer cannot be conclusive.'

27. Finally, Mr Grodzinski referred to Revenue and Customs Commissioners v. Decadt [2008] STC 1103, which I mentioned in [2] above. The taxpayer, a qualified registrar in general surgery, was employed at a hospital as a specialist registrar in general surgery. Under his contract, he was required to attend training courses and to obtain a specialist training certificate in order to qualify as a consultant surgeon. Clause 6 of his contract recorded that he had been issued with a National Training Number for the duration of his participation in a training programme and clause 7 provided that his appointment was dependent upon his continuing to hold that number and required him to take all reasonable steps to secure the issue of a Certificate of Completion of Specialist Training. His contract was of a type set up to encourage doctors to qualify as specialist surgeons. He incurred expense in pursuing the required training. The General Commissioners allowed the taxpayer's appeal that he should be allowed to deduct such expense under the successor provision to section 198(1).
28. Patten J (before whom the taxpayer was unrepresented, nor did he appear in person) allowed HMRC's appeal, holding that he was not so entitled. He said, at [5], that:

'… It has been decided by a series of cases that, for expenditure which is incurred as a term of a contract of employment to be deductible it has not only to be incurred in the sense that the taxpayer is obliged to incur it as part of his employment, but it has to be necessarily incurred as a result of the nature of the duties of the employment….'

After referring to Blackwell (HM Inspector of Taxes) v. Mills (1945) 26 TC 468, Fitzpatrick v. IRC 66 TC 407, [1994] STC 237, [1994] 1 WLR 306, and Snowdon v. Charnock [2001] STC (SCD) 152, he expressed his conclusions as follows:

'13. For the purposes of this appeal I am prepared to accept that the respondent is correct, and that under the terms of the contract there is an obligation on him to undergo the course of training referred to and to sit the examinations, which he has done with the consequent expense. That course of training I do not doubt for a moment, better qualifies him to practise both as a specialist surgical registrar and in due course as a consultant surgeon, but it is clear from the authorities that I have referred to that the fact that the training in question is mandatory under the terms of the training proper, is not enough to render the relevant expenditure allowable. As Dr Brice indicated in her judgment, the cases distinguish between time spent undergoing clearly relevant and perhaps on one view, necessary training, from time spent in actually carrying out the duties of the office or employment in question. The costs and expenses involved in undergoing training to qualify the taxpayer to carry out those duties are not themselves deductible as expenditure within the meaning of s. 336 of [the Income Tax (Earnings and Pensions) Act 2003].

14. The General Commissioners approached this matter simply by asking themselves whether or not it was a part or a term of the contract that Dr Decadt should obtain the CCST in order to become a specialist surgeon. They seem to have regarded that as decisive of the outcome of the appeal. In my judgment, that an error of law. It is clear, as I have already indicated, that the fact that the training is undergone as a term of the contract is not of itself enough.'

29. Against that background of authoritative guidance as to the applicable principles, Mr Grodzinski advanced a criticism of both decisions below. As for that of the General Commissioners, the reasoning for their conclusion was in paragraph 9, which I have quoted in full and of which the kernel of the reasoning is in paragraphs 9(c) and (d). They were apparently influenced by the point they had made in paragraph 9(b) that the terms of the taxpayer's employment required her to maintain her National Training Number, and the first half of paragraph 9(c) was essentially a repetition of that point. The authorities show, however, that the mere fact they were so required does not by itself answer the question whether they were necessarily and exclusively incurred 'in the performance' of the duties of the employment. The second half of paragraph 9(c) was, it was said, a conclusion based on no more than the finding in the first half. Paragraph 9(d) explicitly recognised that there was a secondary purpose to the expenditure – namely, Dr Banerjee's professional development and the advancement of her knowledge – so that it cannot have been incurred 'exclusively' in the performance of her duties as found in paragraph 9(c). Mr Grodzinski submitted that the General Commissioners appear to have overlooked that Dr Banerjee's only duty as a specialist registrar in dermatology was that of treating patients. He said that they appear to have done no more than focus on the employment contract, find that it required Dr Banerjee to incur the relevant expenditure and conclude that it followed that it was so incurred exclusively and necessarily in performing the duties of her employment.
30. As for Henderson J's decision, Mr Grodzinski pointed out that in paragraph [29] the judge correctly reminded himself that any duality of purpose in the incurring of the expenditure was fatal to the satisfaction of the 'exclusively' requirement in section 198(1), but failed to apply that consideration to his disposition of the appeal. He criticised his approach in paragraph [33] in which he had crucially characterised the quintessence of Dr Banerjee's contract as being that of a 'training contract', whereas the General Commissioners had not proceeded on such a basis. He criticised his conclusion in paragraph [34] that the General Commissioners had been entitled to take the view that the attendance at the courses was an objectively necessary requirement of Dr Banerjee's employment itself and asserted that the General Commissioners had apparently done no more than look at the contractual terms of the employment. He criticised his conclusion in paragraph [35] that it was 'well open to the Commissioners to conclude that Dr Banerjee's sole purpose in attending the courses was to fulfil the duties of her employment.' There was no finding by the General Commissioners to that effect and section 198 says nothing about the 'purpose' of the expenditure. The question that section 198 poses requires an objective construction of the requirements of the job.
31. Mr Ashe, in response, submitted that the present appeal raised no question of principle. The General Commissioners had found that the incurring of the expenditure was for purposes that were an intrinsic part of Dr Banerjee's duties as an employee (paragraph 9(c)). That was because her employment contract was a training contract so that when she was attending the training courses, she was performing the duties of her employment as much as when she was on the wards. Those duties were determined by the programme director. The purpose of the training contract was to train her as a dermatologist. That was why her post was a supernumerary one. She was being paid a salary to undergo a course with both practical and theoretical elements to it. HMRC's argument that the theoretical element of the employment merely served the purpose of enabling her to perform her practical duties better was fallacious. The sole and whole purpose of the employment contract was to get her better trained. This is apparent from the fact that the contract was funded by the Deanery. It was paying to train her, but a return benefit was also achieved by the fact that she was also required to look after some patients.

Discussion and conclusion

32. The key to the issue raised by this appeal lies in my view in an analysis of the nature of Dr Banerjee's employment contract and, more particularly, of the duties required of her in performing it. It is of the essence of HMRC's case that, whilst Dr Banerjee may have been required by the terms of her contract to attend the various training courses and to pay for the privilege and benefit of doing so, the beginning and end of the duties that she had to perform in her capacity as a specialist registrar under that contract was the attendance upon patients. If that analysis is correct, I would agree that the decisions below were arrived at in error. On that basis, the contractual requirement that she must also attend the various training courses would not be carried out 'in the performance' of those duties. It would merely enable her to perform them better and/or to improve her general professional skills. The authorities all support the conclusion that the expense incurred in attending the training courses would not be deductible.
33. I suspect that there are few, if any, High Court judges currently in office with a greater understanding and experience of this area of the law than Henderson J has, and it can be said with confidence that he fully grasped the basis of HMRC's challenge to the General Commissioners' decision. He arrived, however, at the conclusion he did because his reading of the findings of the General Commissioners differed fundamentally from the reading that HMRC favours. His reading was that they had found that the true nature of Dr Banerjee's employment during the relevant years was that she was employed under a training contract under which she was being paid not just to attend patients on the wards but also to attend the compulsory training that was as much part of the obligations of her job owed to her employer as was her attendance upon patients. She was, in short, being employed exclusively for training purposes. That was the whole purpose of the contract. The relevant expenditure was therefore incurred in participating in the training exercises which she was employed to undergo in fulfilment of such purpose and for which participation she was being paid a salary.
34. I have found this appeal difficult, not least because I am not sure that I would myself have extracted what Henderson J did from the somewhat meagre fact-finding exercise performed by the General Commissioners. Henderson J was, however, I consider entitled, as he did, to flesh out the factual picture created by that exercise by reference also to the various letters to which the General Commissioners plainly had regard, and which they scheduled to the case, and to arrive at the conclusion that he did as to the General Commissioners' finding as to the nature of Dr Banerjee's employment. The heart of his decision as to its nature is to be found in paragraphs [33] and [34], which followed hard upon references to McKie v. Warner, Brown v. Bullock, Blackwell v. Mills and Lupton v. Potts, to which I have also referred. Henderson J said:

'33. By contrast, however, the present case seems to me to be clearly distinguishable from cases like Blackwell v. Mills and Lupton v. Potts. Dr Banerjee's employment as a specialist registrar constituted part of her five year training programme. The post was, in Dr Marsden's words, "essentially a training post", and the courses etc that Dr Banerjee attended formed a mandatory and essential part of her training. The "service commitment" of seeing patients was, of course, another part of her training, but it was not the only part. Her attendance at the courses took place during normal working hours, and was part of the job that she was paid to do. Her post was a supernumerary one, funded by the South Thames Deanery, and not by the NHS Trusts themselves. The purpose of the training was, no doubt, to produce a supply of qualified consultants, as Dr Banerjee herself subsequently became, and thus to improve the specialist knowledge and qualifications of those working in the field of dermatology for the National Health Service.

34. In the light of these considerations, the majority of the General Commissioners were in my judgment fully entitled to take the view that attendance at the courses was an objectively necessary requirement of Dr Banerjee's employment itself. The training was an intrinsic part of the job that Dr Banerjee was paid to perform. It was not merely a collateral contractual obligation undertaken by her at her employer's request (as in Brown v. Bullock), nor was it an "extra-curricular" obligation that she chose, or was required, to undertake in order to qualify herself to do her job, or improve her prospects of promotion. When Dr Banerjee was attending a course, she was performing the duties of her employment just as much as when she was attending patients in the hospital wards. This is what the majority means, as it seems to me, when they said in paragraph 9(c) of the case stated that the expenses claimed were all incurred "as an intrinsic part of the performance of her duties".'

35. In my judgment, that interpretation of the findings made by the General Commissioners was properly open to the judge; and I would not question it. Like the judge, I can also see no reason in principle why Dr Banerjee's successive contracts during the five-year training period cannot and should not be characterised as 'training' contracts by which she was employed – and paid - to undergo both practical and theoretical exercises whose ultimate aim was the generation of a supply of qualified dermatology consultants for the benefit of the National Health Service. Once the contracts are so characterised, I can equally see no reason why the incurring by Dr Banerjee of the expenses in question was not necessarily incurred in the performance of her duties under those contracts. I would therefore respectfully reject the different analysis of the facts advanced to us by Mr Grodzinski and accept Mr Ashe's submissions.
36. That does not dispose of the appeal because, whilst nothing turns on the 'wholly' in section 198(1), there does remain an issue as to whether the expenditure was 'exclusively' incurred in the performance of the duties of Dr Banerjee's employment. The General Commissioners appear to have disposed of that consideration by what they said in paragraph 9(c) and (d). The judge dealt with it in paragraph [35], as follows:

'35. … That leaves the additional requirement imposed by the adverb "exclusively", which is directed at duality of purpose. Here too it seems to me that it was well open to the Commissioners to conclude that Dr Banerjee's sole purpose in attending the courses was to fulfil the duties of her employment. The evidence established that she would have been liable to dismissal had she failed to attend the courses, as the Revenue expressly acknowledged (see paragraph 13(c) above) [a reference to what the General Commissioners had noted in paragraph 5(l) of the case stated]. No doubt attendance at the courses would also promote Dr Banerjee's personal professional development, and advance her knowledge, but the majority of the Commissioners considered that these motives were of secondary importance: see paragraph 9(d) of the case stated. I find it impossible to say that they erred in law in taking this view, given that the post was essentially a training one, and given the sanctions for non-compliance. To assert the contrary would amount to saying that, as a proposition of law, it is impossible for the test in section 198 to be satisfied in any case where the taxpayer is paid to undergo training. Stringent though the section undoubtedly is, I can see no reason why it should be construed in such an extreme way.' (Emphasis supplied)

37. I do not, with respect, find that paragraph wholly easy to understand. The first emphasised passage appears to reflect the judge's understanding that the General Commissioners had found as a fact that Dr Banerjee's sole purpose in attending the courses was to fulfil her employment obligations, an understanding that I presume followed from the second half of paragraph 9(c) of the case stated. The second emphasised passage suggests, perhaps inconsistently, that Dr Banerjee had a dual purpose in attending the courses, of which the secondary one was the advancement of her professional development and knowledge, a suggestion that I presume followed from what was said in paragraph 9(d) of the case stated. If the General Commissioners' finding was that she did have such a dual purpose, I would have my doubts as to whether she could claim that she incurred the relevant expenditure 'exclusively' in the performance of the duties of her employment.
38. I am, however, of the view that the better view of the General Commissioners' findings is that they were not in fact finding that Dr Banerjee was motivated by any such dual purpose. They found in paragraph 9(c) that she incurred the expenses 'exclusively … as an intrinsic part of the performance of her duties'. That was, I consider, a finding of fact supporting Henderson J's interpretation in the first emphasised passage. As for what the General Commissioners then said in paragraph 9(d), I do not read that as a finding that, contrary to what they had just said in paragraph 9(c), Dr Banerjee had been motivated by a dual purpose in incurring the expenditure. I interpret it as meaning no more than that the potential for future professional advancement that she derived from the courses was at most a secondary, or incidental, benefit of her expenditure. If so, I would not regard that as excluding her from a right of deduction under section 198. As the Court of Appeal of Northern Ireland held in Elwood (HM Inspector of Taxes) v. Utitz 42 TC 482, expenditure incurred in the performance of the duties of an employment will not be excluded from a right of deduction merely because it results either in another objective necessarily inherent in its incurring or because it incidentally results in a personal benefit to the taxpayer (see per Lord MacDermott CJ, at 497; and per Curran LJ, at 500).
39. I might add that I in fact find the considerations last discussed all rather unreal. It appears to me tolerably obvious, as the General Commissioners found, that the reason why Dr Banerjee attended the courses and incurred the expense she did in doing so was because she was required to attend them as part of the duties of her employment and because if she did not do so, her employment would have been terminated. Had her employment so terminated, she would not have completed her training course and her prospect of qualifying as a consultant would presumably have been either destroyed or diminished. The reality is that it was not the attendance at the individual courses that provided the key to her future professional advancement, it was the completion of the training course as a whole that did so; and the relevant expenditure was incurred so as to enable her to complete it. It therefore appears to me to be artificial to fix upon particular aspects of the training contract and identify the expenditure relating to it as in part incurred for the purpose of obtaining some collateral benefit over and above the purpose of satisfying the obligations of the employment contracts. Nor, more importantly, do I consider that that is what the General Commissioners in fact found.
40. I would therefore uphold Henderson J's decision. I ought, however, not to part with the case without reverting to the decision in Revenue and Customs v. Decadt [2008] STC, upon which HMRC placed considerable reliance before Henderson J and which he reviewed at length between paragraphs [38] and [42] of his judgment, citing from Patten J's judgment the same passages that I have. I should also cite what Henderson J said about Decadt in paragraph [42]:

'42. There are obviously some close similarities between the terms of Dr Decadt's employment as a specialist registrar in general surgery in North Manchester and the terms of Dr Banerjee's employment as a specialist registrar in dermatology in South West London. Indeed, I strongly suspect that a detailed examination of the full facts surrounding both their employments would show them to be indistinguishable. However, an appeal to the High Court is concerned only with the facts actually found by the General or Special Commissioners in the case under appeal, and with the application of the law to the fact so found. It is unnecessary for me to say whether I would have reached the same conclusion as Patten J if I had heard Dr Decadt's appeal [the appeal was in fact by HMRC], and I certainly do not wish to suggest that it was wrongly decided. The contract in question was not identical to Dr Banerjee's, and so far as one can tell from the report there was no documentary evidence before the Commissioners equivalent to the five letters in the present case. The distinction of law drawn by Dr Brice, and applied by Patten J, is unquestionably correct, and Mr Hickey in his submissions for Dr Banerjee did not for a moment seek to question it. He submitted, however, that every case turns on its own facts, and I should not be deflected by the decision in Decadt from asking myself whether the Commissioners in the present case were entitled to reach the conclusion which they did. I agree, and although it may seem unfortunate that the conclusion which I have reached in this case is different from the conclusion reached by Patten J in Decadt, the difference merely reflects the very limited and non-inquisitorial role which the High Court has in appeals of this nature.'

41. I agree with Henderson J that the difference in outcome between his decision in the present case and that of Patten J in Decadt is unfortunate. I also agree that these cases are fact-sensitive and that the task before Henderson J was to consider whether the General Commissioners in the present case were entitled to reach the decision they did on the facts they found. I regard it as likely that a close comparison of the facts of Decadt and the present case will lead to the conclusion that Patten J's decision is irreconcilable with my own. But I see no need to engage in that exercise myself. The correctness or otherwise of Patten J's decision in Decadt is not before us.
42. I would dismiss the appeal.

Lord Justice Pitchford :

43. I am indebted to my Lord, Rimer LJ, for his comprehensive review, which I gratefully adopt, of the background facts, the Case Stated, the arguments for the parties and the authorities from which the relevant legal principles are to be extracted. I regret, however, that I am unable to concur with his conclusion for reasons which I shall endeavour to explain.
44. The statutory provisions upon which Dr Banerjee relied to establish the deductibility of her Schedule E expenses are contained in section 198(1) Income and Corporation Taxes Act 1998 and, later, that section as amended by section 61(1) Finance Act 1998. In its relevant parts section 198 read:

"(1) If the holder of...employment is necessarily obliged to incur and defray out of the emoluments of that...employment...to expend money wholly, exclusively and necessarily in the performance of those duties there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed."

As amended by section 61, section 198(1) read:

"(1) If the holder of...employment is obliged to incur and defray out of the emoluments of the...employment –

(a) qualifying travelling expenses, or

(b) any amount (other than qualifying expenses) expended wholly, exclusively and necessarily in the performance of the...employment, there may be deducted from the emoluments to be assesses the amount so incurred and defrayed."

As Rimer LJ has observed (at paragraph [12] above) it is common ground that the effect of these provisions for present purposes is identical.

45. There are, as Plowman J held in the articled clerk case, Lupton (HM Inspector of Taxes) v. Potts 45 TC 643, two qualifying conditions for deductibility:

(1) The taxpayer has an obligation to incur and defray the expenses out of the emoluments of the employment in the performance of the duties of that employment; and

(2) The expenses were incurred exclusively in the performance of the duties of that employment.

46. In Lupton (at page 647D-F), Plowman J held that the Commissioners erred in law in finding that it was an implied term of the articled clerk's Articles that "he should sit for the Law Society's examinations" notwithstanding that his Principal covenanted that "he will...give all reasonable facilities to the Clerk to enable him...to make such attendance at a course of legal education at a law school". Such an implied term was not necessary to give business efficacy to the agreement. Had there been such an implied term, Plowman J observed at page 647G:

"...it would obviously be much easier for him to succeed...That would not, however, be automatic, since the mere fact that the [taxpayer's] principal may have imposed on him duties to take his examination does not necessarily make the examination fees deductible."

47. The judge proceeded to apply the test explained by Donovan LJ in Brown v. Bullock [1961] 1 WLR 1095, namely whether the duties of the employment could be performed without incurring the particular outlay. This was an application of the first limb of the two-stage test described at paragraph [45] above. Plowman J (at page 648G-I) reminded himself that the question was whether the duties could not be performed without incurring the particular outlay in the sense that the outlay was necessarily incurred in the performance of the duties of the employment. It was not enough that the taxpayer incurred the expense in qualifying to perform, or in keeping himself qualified to perform, the duties of the employment; nor was it enough that the expense was incurred in order to add to the taxpayer's usefulness in the performance of those duties. Plowman J accepted and adopted the observation of Ungoed-Thomas J in Humbles v. Brooks [1962] 40 TC 500 that:

"An expenditure may be "necessary" for the holder of an office without being necessary to him in the performance of that office; it may be necessary in the performance of those duties without being exclusively referable to those duties; it may perhaps be both necessarily and exclusively, but still not wholly referable. The words are indeed stringent and exacting; compliance with every one of them is obligatory if the benefit of the Rule is to be claimed successfully."

48. Plowman J held that the taxpayer's Articles of Clerkship had a dual nature by which (1) the articled clerk agreed to serve his principal for the purposes of being instructed and his principal undertook to instruct him, and (2) created a contract of employment by which the articled clerk was paid an emolument and was required to serve his principal faithfully and diligently as his clerk. The judge found that the articled clerk's expenses for tuition at evening classes and the costs of his entry for the Law Society's examinations were not incurred in the performance of his duties as a clerk to his principal. Those duties were "perfectly capable of being performed without incurring the particular outlay with which I am concerned in this case". That conclusion was enough to dispose of the appeal in Lupton.
49. However, Plowman J went on to apply the second limb of the two-stage test, namely whether the expenses had been exclusively incurred in the performance of his duties under the contract of employment. They were, the judge found, incurred to benefit the taxpayer because he wanted to become a solicitor. There was no distinction in principle between the taxpayer's tuition towards and his entry for those Part 1 examinations completed before the Articles of Clerkship were agreed and his tuition towards and entry for the Part 1 examinations completed during the currency of his articles.
50. In the present appeal we are concerned with "Training" contracts between Dr Banerjee on the one hand and St George's Healthcare NHS Trust and St Helier NHS Trust, respectively, on the other. Dr Banerjee undertook, inter alia, two separate obligations under these contracts, (1) to treat patients as a specialist registrar and (2) to maintain her National Training Number. Dr Banerjee could only maintain her National Training Number if she continued her post-graduate medical training under the direction of her training supervisor. As a matter of fact completion of the training contracts took Dr Banerjee's steps closer to her qualification as a consultant dermatologist. The contracts were funded by the South Thames Deanery. The specialist registrar posts were themselves "supernumerary".
51. It was common ground before us that the training contracts were contracts of employment. For my part, I am content to accept that expenses incurred by Dr Banerjee in attending the courses and training required to maintain her National Training Number were indeed necessarily incurred in the performance of her duties under the contracts of employment (see paragraphs [58]-[60] below).
52. Where I have the misfortune to part company with my Lord and with Henderson J, to whose expertise in this area of the law I pay tribute, is in the analysis of whether these expenses were incurred exclusively in the performance of Dr Banerjee's employment under the contracts. Rimer LJ has extracted paragraphs 34 and 35 of Henderson J's judgment at paragraph [34] above. As I have said, I accept Henderson J's conclusion that, "When Dr Banerjee was attending a course, she was performing the duties of her employment just as much as when she was attending patients in hospital wards".
53. At paragraph 5 (k) and (l) of their statement of the Case the Commissioners recorded their findings of fact that the arrangement made under the contracts of employment was not unique to Dr Banerjee. It applied to all specialist registrars in Dermatology, although some training hospitals provided "some in house training and/or some financial assistance". The training courses were necessary if Dr Banerjee was to proceed to become a consultant dermatologist (as indeed she became) but, if she had not undertaken her training towards that end her employment would have been determined.
54. In their Decision at paragraph 9 the Commissioners said:

"9. We the General Commissioners who heard the appeals decided by a majority as follows:

(a) At all relevant times the Respondent was employed as a Specialist Registrar by St George's Healthcare NHS Trust.

(b) At all relevant times the Respondent was subject to Terms and Conditions of Employment which contained a mandatory provision to continue her National Training Number.

(c) The expenses claimed related to the mandatory requirements of the Respondent's Terms and Conditions of Employment and were all incurred wholly and exclusively and necessarily as an intrinsic part of the performance of her duties.

(d) The fact that the respondent would have been dismissed for failure to comply meant the fact that the expenditure was also for her professional development and advancement of her knowledge were (sic) of secondary importance.

(e) Accordingly pursuant to our interpretation of Section 198 and the law the Respondent's appeals against the Revenue amendments for the years in question are allowed and we confirm the self assessments figures in the amounts prior to the Revenues amendments the subject of these appeals."

55. Contrary to the view of Rimer LJ, it seems to me that the inevitable effect of paragraph 9 sub-paragraphs (c) and (d) is that the Commissioners reasoned as follows: (1) Dr Banerjee undertook her training obligations partly because it was her duty under the training contracts to do so and partly for her professional development and advancement, (2) if Dr Banerjee neglected to undergo the training to which she had committed herself under the training contracts, she could be dismissed, and (3) the existence of the right to dismiss Dr Banerjee for such neglect rendered any expense incurred in complying with the contractual duty exclusively referable to her employment and not wholly or partly to her own professional development and advancement.
56. At paragraph [36] above Rimer LJ has extracted paragraph 35 of Henderson J's judgment upholding this approach. In particular, the judge said:

"No doubt attendance at the courses would also promote Dr Bannerjee's personal professional development, and advance her knowledge, but the majority of the Commissioners considered that these motives were of secondary importance: see paragraph 9 of the case stated. I find it impossible to say that that they erred in law in taking this view, given that the post was essentially a training one, and given the sanctions for non-compliance. To assert the contrary would amount to saying that, as a proposition of law, it is impossible for the test in section 198 to be satisfied in any case where the taxpayer is paid to undergo training. Stringent though the section undoubtedly is, I can see no reason why it should be construed in such an extreme way."

57. Section 198(1) of the 1988 Act and section 61(1) of the 1998 Act do not, in my opinion, require the Revenue, the Commissioners or the court to ascertain the primary purpose for the expense incurred in order to decide whether the expense is deductible. Their task is to decide whether the expense was necessarily and exclusively incurred in performance of the duties of the employment. If the expenses were incurred partly in performance of the taxpayer's duties under the contract and partly to advance the taxpayer professionally, then it seems to me to follow that they were incurred exclusively neither in the former, nor in the latter, but in both. It was not, in my view, open to the Commissioners or the judge to relegate a significant, if "secondary", purpose to the point of extinction without a factual basis for doing so. It does not seem to me that the existence of the right of dismissal was of itself capable of relegating Dr Banerjee's secondary purpose to immateriality. The majority of the Commissioners failed, in my view, to apply the statutory test, properly construed.
58. I would not go so far as Henderson J, who concluded that such an interpretation would make it "impossible for the test in section 198 to be satisfied in any case where the taxpayer is paid to undergo training". It is in my view possible to envisage circumstances in which, on the evidence, training was undertaken necessarily and exclusively for the employer's purposes, for example by a machine operator to prepare him for production of a new line of components to be manufactured by his employer. I accept that an incidental but immaterial benefit to the taxpayer consequentially received would not change the quality of the expense incurred. In Elwood (HM Inspector of Taxes) v. Utitz 42 TC 482 the Court of Appeal of Northern Ireland was considering a provision identical to section 198(1). The taxpayer incurred the expense of membership at clubs at which he stayed for the purpose of conducting his employer's business in London. He acknowledged that by reason of his membership he received incidental benefits he would not have obtained had he stayed at an hotel. The taxpayer justified his deduction by his assertion that he stayed at the clubs because it was cheaper and not in order to obtain the incidental benefits. It was argued against him, following an observation of Lord Blanesburgh in Ricketts v. Colquhoun [1926] AC 1, that his intention was irrelevant since the test was objective. At page 496 Lord MacDermott CJ said:

"In my view, however, this was said with particular reference to the condition that the expenses must be "necessarily incurred in the performance of the duties of the office", and I do not think that Lord Blanesburgh can have meant that the words "wholly" and "exclusively" must also be applied by an entirely objective process. In their ordinary significance these adverbs seem to me to demand in this context at least some consideration of the purposes and objects which the particular individual or individuals concerned had in mind....

There is nothing new about the proposition that incidental effects, no matter how inevitable, do not necessarily colour the purpose or intent behind the acts that produce them..."

59. As Rimer LJ has demonstrated in his analysis of the cases, conclusions on section 61(1) will be extremely fact sensitive. The identification of the duties of the employment and the purpose of the expenditure will differ from case to case and the result may well depend upon critical nuances in the evidence.
60. Taking a broader view, I accept the opinion held by the parties that contracts of employment of this kind have as at least one of their primary objectives the training of specialist registrars towards qualification for consultant posts. Without such encouragement the emergence of properly qualified candidates for appointment to consultant posts would be put at serious risk. This is without question an important and legitimate interest pursued by the employers (and the Deanery) in the present case. It is achieved by providing the post-graduate student with an earned income (in place of a grant) payable for the services of both treating patients and continuing study. As the finding of the Commissioners demonstrates, however, it is an unavoidable conclusion that it is not just the interests of the employer which were being served under these contracts, and Dr Banerjee was not engaged under the contracts just in order to receive her emolument. As Mr Lupton wanted to qualify as a solicitor and needed to complete his articles in order to qualify, so Dr Banerjee engaged in her training contract because she wanted to qualify as a consultant. It does not seem to me to be inequitable or unfair to hold that the clothing of a contract of employment with terms which place on the employee duties towards the employer to train is not conclusive of its legal effect. If the effect of my conclusion would, as Henderson J feared, close off to many deserving taxpayers the avenue of deductibility for expenses incurred in undertaking that training, then it seems to me that this is the inevitable effect of the terms of the section which have long been recognised as stringent if not harsh in their effect.
61. It follows that I have reached my present conclusion by a consideration of the meaning of the word "exclusively" as it is used in sections 198(1) and 61(1). It is not a term whose effect is to bite only upon an analysis of the duties of employment. It bites, as Plowman J found in Lupton, also upon expenditure incurred for an employee's purposes. There are two illustrations which may serve in the present factual context. If I incur the expense of travelling to college I may incur that expense in performance of my duties to my employer because it is necessary to buy the fare to travel to college. But if, next door to the college, there is a solicitor's office where I have on the same day, after college, an interview for an alternative training contract, it is a question of fact whether I have incurred the expense of travel exclusively in performance of the duties of my employment or partly for purposes personal to myself. Alternatively, I may be attending college not just because I am required by my employer to do so and will be dismissed if I do not, but also because it is my personal wish to obtain the qualification to which my attendance will lead at the conclusion of my contract of employment, because it will enable me to embark on a professional career. In both instances, it seems to me, I have arguably not incurred the expense of travel to college exclusively in the performance of the duties of my employment. It is a question of fact whether I have in both cases, or in either case, incurred the expense partly in performance of my duties and partly for reasons personal to myself.
62. In Revenue and Customs Commissioners v. Decadt [2008] STC 1103 Patten J allowed the Revenue's appeal on the finding that although the contract of employment imposed the obligation on the employee to train (towards a qualification as consultant surgeon), the expenses of doing so were not necessarily incurred "as a result of the nature of the duties of the employment", which comprised hospital work as a specialist surgical registrar. The implicit finding was that training was not a duty of the taxpayer's employment properly analysed, notwithstanding that it was a term of his employment that he must train. In my opinion, and in common with Rimer LJ and Henderson J, it is perfectly possible, depending upon the facts of the case, for the employee's duties in performance of the contract of employment to include training, whether or not they better enable the taxpayer to perform his other duties under the contract of employment. If the employer requires the taxpayer to spend four days working in a factory and the fifth day, at his own expense and on pain of dismissal, studying in a college, it seems to me unrealistic to deny that expenses necessarily incurred in performing his duty to attend college on the fifth day were incurred in fulfilment of an obligation of his employment. When training is one of the employer's objectives, imposed as a duty of the employment, I agree that it would be unreasonable to disallow the deduction of the expense on the sole ground that the expense of training was not incurred in performance of the employee's other, even the main, duties of the employment. For the avoidance of doubt, I have founded my conclusion upon a wider consideration, namely whether the expense was incurred exclusively in performance of the employee's duty or concurrently with the employee's personal objective of professional self advancement. I have not substituted my own conclusion of fact for that of the Commissioners. I consider that I have applied the Commissioners' finding to the correct statutory test.
63. For these reasons I would allow this appeal and restore the Revenue's amendments to Dr Banerjee's self-assessments for the years under consideration.

Lord Justice Hooper :

64. I agree with the judgment of Rimer LJ and adopt his analysis of the facts, of the law and of the decision of the Commissioners and I shall not repeat it.
65. There is no dispute that the taxpayer incurred the expenditure "wholly" in the performance of her duties as an employee. All three members of this Court and Henderson J are of the opinion that the Commissioners did not err in law in finding that she incurred the expenditure "necessarily" in the performance of her duties as an employee under her training contract (funded by a third party). She incurred the expenditure "necessarily" because she was incurring the expenditure in the performance of her duties rather than incurring them so as to put herself in a position better to perform them (or indeed to be able to perform them at all).
66. Rimer LJ and Pitchford LJ disagree as to whether the Commissioners erred in law in finding that she incurred the expenditure "exclusively" in the performance of her duties as an employee. Rimer LJ concludes that they did not. Pitchford LJ concludes that they did. Pitchford LJ concludes that on the findings of fact reached by the Commissioners, the taxpayer had in law two purposes when she necessarily incurred the expenditure associated with the courses. If she had in law two purposes then, as the law makes very clear, the expenditure is not incurred exclusively in the performance of her duties as an employee.
67. All members of the court agree that she undertook the courses because she was contractually required to do so and failure to do so would result in the termination of her employment. If that was in law her sole purpose then the expenses were deductible.
68. Pitchford LJ concludes, on the findings of the Commissioner, that the taxpayer had a second purpose, namely to obtain professional self advancement and that the Commissioners erred in law in not recognising that. Like Rimer LJ, I do not agree.
69. It is also clear law that it does not follow from the fact that a taxpayer receives an incidental personal benefit from the expenditure, that the obtaining of the benefit necessarily becomes a "purpose" which defeats the "exclusivity" requirement. If the law were otherwise it is unlikely that any (honest) taxpayer would be able to satisfy the "exclusivity" requirement.
70. There is nothing to suggest that the Commissioners did not know these well established principles or, in my view, to apply them. If there be an error of law, it can only be that they reached a decision which no reasonable tribunal could have reached. I do not believe that they did.
71. I agree, in particular, with the analysis by Rimer LJ of the Commissioners' conclusions in paragraphs 38 and 39 of his judgment. Taking any individual course for which she is claiming that the expenditure incurred therewith is deductible, the Commissioners were entitled to find not only that the expenditure was "necessarily" incurred in the performance of her duties as an employee but also "exclusively". It was open to the Commissioners to find (applying the well established meaning of the word "exclusive") that her only purpose attending any individual course was that she was contractually required to do so.
72. I would, like Rimer LJ, dismiss the appeal.