Anglo-French Exploration Company Ltd v Clayson
| Jurisdiction | England & Wales |
| Judgment Date | 29 February 1956 |
| Date | 29 February 1956 |
| Court | Court of Appeal |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income Tax, Schedule D - Mining finance company - Provision by company of agency and secretarial services for other companies - Sum paid in consideration of resignation of agency and secretaryship - Whether a trading receipt.
The Appellant Company, which carried on business as a mining finance company, also acted as secretary and agent for a number of other companies. The companies for which it provided these services included a South African company from which it received remuneration of £1,500 per annum under a contract terminable at six months' notice. The Appellant Company's shareholding in this South African company together with that of a second shareholder constituted a controlling interest in that company. These two shareholders arranged to sell all their shares in the South African company, and it was part of the arrangement with the purchaser of the shares that the Appellant Company would resign its office as secretary and agent of the South African company in consideration of the further payment by the purchaser of the sum of £20,000. It was further arranged that the Appellant Company would pay a proportionate part of this sum to the second shareholder in the South African company.
On appeal against the inclusion of £16,138 4s. 2d., being its share of the sum of £20,000, in an assessment to Income Tax made on it under Case I of Schedule D, the Appellant Company contended that its contract to provide agency and secretarial services for the South African company constituted a capital asset, and that the sum received was a capital receipt. The Crown contended that the sum received by the Appellant Company was compensation for the loss of one of its agencies in the ordinary course of business, and alternatively, that it arose from a financial dealing, and that in either case it was a revenue receipt. The General Commissioners held that the sum in question was a trading receipt that should be included in computing the profits of the Appellant Company for Income Tax purposes.
Held, that the Commissioners' decision was correct.
Stated by the Commissioners for the General Purposes of the Income Tax for the City of London pursuant to the provisions of Section 64 of the Income Tax Act, 1952, for the opinion of the High Court of Justice.
I. At meetings of the said Commissioners held at Gresham College, Basinghall Street, in the said City on 18th and 25th October, 1954, the Anglo-French Exploration Co., Ltd. (hereinafter called "Anglo-French"), appealed against an estimated assessment to Income Tax made upon it under Schedule D of the Income Tax Acts in respect of the profits of its trade or business for the year ended 5th April, 1951, in a sum of £50,000 less capital allowances £100.
II. The question for the determination of the Commissioners was whether or not, in the circumstances hereinafter described, a sum of £16,138 4s. 2d. (part of a total of £20,000) received from Philip Hill Securities Corporation, Ltd., was a trading receipt which should be included in the computation of its profits for Income Tax purposes.
III. The circumstances referred to in paragraph II hereof have been agreed between the parties to this appeal and are as follows:-
Agreed Statement of Facts
(2) Anglo-French is a public company incorporated in the United Kingdom in 1889 under the Companies Acts, 1862 to 1886. The registered office of Anglo-French is in London, and control of the Company is exercised by the board of directors from London. Anglo-French has a branch office in Johannesburg.
(3) The objects for which Anglo-French is established are set out in the memorandum of association (app. 1).
(4) Anglo-French carries on the business of a mining finance company and its profits therefrom are assessed to tax under Schedule D, Case I.
(5) For many years also Anglo-French has provided agency, secretarial and other similar services in London and Johannesburg for a number of companies, and the receipts and outgoings in respect of such services were included in Anglo-French's Case I assessment. In 1949 Anglo-French were providing such services both in South Africa and in London for three companies and in London only for a further five companies.
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(6) Anglo-French has either (a) provided such services for companies without holding shares in the companies concerned, or (b) held shares in companies for which it did not provide such services, or (c) provided such services for companies in which it has also held shares. The names of the eight companies for which such services were being rendered in 1949 and the years in which those services began to be rendered were as follows:-
Year of
Name of company
commencement
(1) Anglo-Burma Tin Co., Ltd.
1926
(2) Apex Mines, Ltd.
1898
(3) Apex (Trinidad) Oilfields, Ltd.
1919
(4) Geevor Tin Mines, Ltd.
1934
(5) Kleinfontein Estates & Township, Ltd.
1899
(6) Messina (Transvaal) Development Co., Ltd.
1945
(7) Rooiberg Minerals Development Co., Ltd.
1908
(8) Rose, Lloyd & Co., Ltd.
1943
(7)
(8) With the exception of the two additions (nos. 6 and 8) mentioned in the above list, and the addition of a private company being a wholly-owned subsidiary of Messina (Transvaal) Development Co., Ltd. (no. 6 above), namely, M.T.D. Copper (Sales), Ltd., in 1950, for upwards of the past fifteen years there have been no changes in the companies for which Anglo-French has so acted. The annual rates of fees and rents receivable by Anglo-French from the above-mentioned companies for the provision of secretarial services and office accommodation as at March/ April, 1949, is set out in a schedule (app. 2).
(9) Kleinfontein Estates & Township, Ltd. (hereinafter referred to as "Kleinfontein Estates"), for whom Anglo-French provided secretarial services in London and Johannesburg, and in which Anglo-French held shares, was at all material times a public company incorporated in South Africa and carrying on business there.
(10) From 19th June, 1931, the terms and conditions upon which Anglo-French provided such services to Kleinfontein Estates in Johannesburg were regulated by a formal agreement made between the two companies on that date (app. 3). The said agreement by its terms provided that it should continue in force from year to year until determined by either party giving six calendar months' notice. The agreement further provided, inter alia, that Kleinfontein Estates should by way of remuneration pay to Anglo-French £1,200 per annum and a further sum of £60 per annum for rental of office accommodation. The terms of the said agreement were modified in August, 1941, by an exchange of letters between the companies (app. 4a and 4b), and thereafter Anglo-French was itself appointed secretary of Kleinfontein Estates. The said sum of £1,200 per annum payable by way of remuneration was subsequently increased, by mutual agreement, to £1,500 per annum.
(11) In addition to acting as secretary of Kleinfontein Estates in Johannesburg and providing all necessary secretarial services Anglo-French also provided similar services for Kleinfontein Estates in London. The services rendered by Anglo-French in London consisted of secretarial matters such as the provision of a London secretary for Kleinfontein Estates, registration of share transfer deeds and payment of dividends on behalf of the company. The fee paid by Kleinfontein Estates to Anglo-French for these services in London was £60 per annum.
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(12) In May, 1949, the total issued shares in Kleinfontein Estates were held as follows:-
Number of
Share-
Name
registered
holding
shareholders
(a) Anglo-French and nominees of Anglo-French
6
25,689
(b) Estate of the late Sir George Farrar and nominees there of
5
27,930
(c) Estate of the late Sydney Howard Farrar
1
16,872
(d) Remaining shareholders
35
14,509
Total number of shareholders
47
Total issued capital (fully paid shares of 5s. each)
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85,000
(13)
(14) There had been no substantial change in the above shareholdings between September, 1947, and May, 1949. All such shares were of the same class and all carried equal voting rights. Anglo-French has never had a controlling interest in Kleinfontein Estates.
(15) In 1947 approaches were made by two different parties to Mr. Stewart, Anglo-French's manager in Johannesburg, with a view to the purchase of Anglo-French's shares in Kleinfontein Estates. Negotiations proceeded on the footing that the shares should be sold at a fair price and that in consideration of Anglo-French relinquishing its office as secretary and agent of Kleinfontein Estates the purchaser should pay a lump sum by way of compensation. The managing director of Anglo-French, who was visiting Johannesburg at the time, explained the position to his co-directors in London in a letter dated 23rd September, 1947 (app. 5). In this letter the managing director stated, inter alia, that it had already been agreed by the board of directors of Anglo-French that the offers made for the purchase of shares in Kleinfontein Estates should be considered on the footing that Anglo-French was a trustee for the other shareholders of Kleinfontein Estates; and the managing director recommended that he should be authorised to complete the negotiations on the basis of an offer of 35s. per share to all shareholders and that he should settle the terms of compensation for loss of office at his discretion. The managing director also pointed out that Mr. Stewart considered 35s. per share to be a fair offer and endorsed the managing director's recommendation, although both as a matter of prestige and of reduced annual office income he (Mr. Stewart) did not wish to lose the Kleinfontein Estates appointment. In the events which occurred the negotiations referred to above were subsequently broken off.
(16) In May, 1948, and March, 1949, further...
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...looser formulation of Lord Macmillan's test which was put forward by Lord Evershed in Anglo-French Exploration Co., Ltd. v.Clayson(2) 36 TC 545, where he indicated that it was sufficient to make the receipt a capital receipt if it was received in return for parting with a substantial part o......
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