Anglo-French Exploration Company Ltd v Clayson (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE JENKINS,LORD JUSTICE BIRKETT |
| Judgment Date | 29 February 1956 |
| Judgment citation (vLex) | [1956] EWCA Civ J0229-4 |
| Date | 29 February 1956 |
| Court | Court of Appeal |
[1956] EWCA Civ J0229-4
In The Supreme Court of Judicature
Court of Appeal
The Master of the Rolls (Lord Evershed)
Lord Justice Jenkins
Lord Justice Birkett
MR H. H. MONROE (instructed by Messrs Coward, Chance & Co.) appeared on behalf of the Appellant.
MR ROY BORNEMAN, Q.C. and SIR REGINALD HILLS (instructed by the Solicitor of Inland Revenue, Somerset House, Strand, London W.C.".) appeared on behalf of the Respondent.
The question involved in the present case relates to a sum of £16,138. 4s. 2d. which was received by the Applicant Company, Anglo-French Exploration Company Limited, in the year 1949 in circumstances which I will later mention.
It is right that, at the outset of my judgment, I should refer to the terms of the Schedule under which the claim is made, namely, Schedule "D" of the Income Tax Act, 1918, which was the Act of Parliament then in force. Its terms are very familiar, but I hope I shall be excueed if I recite them: "Tax under this Schedule shall be charged in respect of (a) The annual profits cr gains arising or accruing…. (iii) to any person…. from any trade, profession, employment or vocation exercised within the United Kingdom". I have thought it right and relavent to refer to the forms of that Schedule because, in my judgement, Mr Bornoman correctly reminded us that the cases of individual persons sought to be charged under Schedule "E" of the Act. where the charge is "in respect of every employment of profit" do not form a safe guide to cases under Schedule "E" of the Act, where the charge is "in respect of every employment of profit", do not form a safe guide to cases under Schedule "D", at least as a general proposition. We must consider the correctness or otherwise of the assessment here made in the light of the language which I have read of Schedule "D".
The question, so interpreted, as it is before us can be thus expressed: Does this sum of £16,000 odd represent profit or gains of the Angle-French Exploration Company Limited erising from its trade: in other words, was it a sum received by the Appellant Company in the ordinary course or stream of its trading operation?
The facts of the case are not in dispute, and since they are fully recited in the Case Stated, it is unnecessary for me to repeat the whole of the narrative. The essential facts, however are as follow. The Anglo-French Exploration Company Limited – I will henceforth call it "Anglo-French" – Was formed as an English Company at the end of last century: its business being that of a mining and finance company particularly concerned, according to the terms fo the Case Stated, with seeking scope for the investment of capital in South Africa.
Among the South African companies in which Anglo-French held for many years a substantial shareholding was the kleinfontein Estates & Township Limited, which I will henceforth call "Kleinfontein". In that company Anglo-French held at all relevant dates rather less than one-third of the total of its share capital which consisted of shares of 5s. Od. denomination. A similar but slightly larger shareholding in Kleinfontein was at all material times held by persons who were the trustees of the late Sir George Farrar. Anglo-French and the Farrar trustees had each of them two nominee Directors on the board of Kleinfontein; but, in fact, the fees which were paid to the Anglo-French nominee Directors were in turn paid over by them to Anglo-French.
In addition to that shareholding interest Anglo-French for many years acted, under the terms of a written agreement and certain correspondence, as agents and secretaries of Kleinfontcin for the annual fee of £1,500 sterling. The substance of the obligation as agents and secretaries undertaken by Anglo-French was that they provided office accomodation and office staff for Klenfontein in Johannesburg. The agreement was determinable by six months' notice on either side; but in pratice, and so long as Anglo-French and the Farrar trusteeco-operated together, Kleinfontein would not be able to determine the agreement against the wishes of Anglo-French. In May, 1949, Philip Hill Securities Corporation Limited, another English company, made an offer for the shares of the Kleinfontein company at a price of 35a. Od. per share. It was also part of that offer that, when the stage was reached whereby more than 50 per cent of the issued shares of Kleinfontain had been acquired, the Philip Hill company would pay the sum of £20,000 in consideration of the resignation by Anglo-French of its office as agents and secretaries.
As Mr Monroe has said, and said rightly, the true transaction must be carefully analysed. I will read part of the paragraph in the offer which related to that last-mentioned matter. "Subject to your Company's acceptance of this offer and upon delivery to our Company of 43,000 of the said shares" – 43,000 being just over 50 per cent – "with transfer forms as aforesaid attached thereto, your Company will tender its resignation as agents and secretaries to the Kleinfontein Company, acceptance of which we undertake to procure forthwith upon its being tendered, and upon the tender of such resignation we shall pay ot your Company in cash the sum of £20,000". Those offers, the offer to buy the shares at 35s. Od, each, and the offer in respect of resignation by Anglo-French, were accepted by Anglo-French. In due course, and in accordance with the terms of the arrangement, the £20,000 having been received, part of it was paid over by Anglo-French to the Farrar trustees, the figure of £16,138. 4s. 2d. representing the balance of the £20,000 retained by Anglo-French.
I observe two things: (1) the £20,000 was not part of the purchase price of the shares, as was indeed conceded in the Courts below, and as has been here conceded on the part of the Crown. Had it been otherwise, had it been part of the purchase price, then either Anglo-French would have got more than the other shareholders for their shares (which is inconsistent with the Philip Hill Company's offer) or to avoid that result Anglo-French would have had to distribute £20,000 rateably among all the shareholders: (2) the agency agreement being on the face of it determinable by six months' notice, it was quite plainly only worth a sum like £20,000 so long as Anglo-French and its friends, the Farrar trustees, could control the Kleinfontein Company. That Plain fact is recognised by the terms fo the offer, as also by the distribution by Anglo-French of the £20,000 when they received it.
Mr Monroe's argument before us, which, if he will allow me to say so, was presented with cogency and lucidity, was to this effect: (1) The £20,000 was paid in truth as consideration for the giving up or destruction as distinct from the more discharge of the agency, that being, he said, the legal effect of the true analysis of the bargain as recorded in the document: (2) It in nihil ad rem that £20,000 was far in excess of the true value of the agreement, since the parties to the arrangement could put...
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