Baldeo G. Singh v The Board of Inland Revenue
| Jurisdiction | UK Non-devolved |
| Judge | Lord Millett |
| Judgment Date | 01 March 2000 |
| Judgment citation (vLex) | [2000] UKPC J0301-1 |
| Court | Privy Council |
| Docket Number | Appeal No. 73 of 1998 |
| Date | 01 March 2000 |
[2000] UKPC J0301-1
Privy Council
Present at the hearing:-
Lord Browne-Wilkinson
Lord Goff of Chieveley
Lord Mustill
Lord Hutton
Lord Millett
[Delivered by Lord Millett]
RET Limited ("the company") went into voluntary liquidation on 27th February 1976. The appellant was the holder of 436 of the 453 issued shares in the capital of the company. In the course of the winding-up he received during the income year 1978 payments totalling $457,230 out of the proceeds of the liquidation. The greater part of this sum represented the proceeds of the realisation of work in progress. The Tax Appeal Board held that the payments in question were "distributions" within the meaning of section 23(1)(b) of the Income Tax Ordinance Chapter 33.01 (now section 49(1)(b) of the Income Tax Act Chapter 75.01) and as such were taxable under section 5(1)(k) of the Ordinance (now section 5(1)(k) of the Act). The Board's decision was upheld by a majority of the Court of Appeal (Sharma and Hosein J.J.A, Hamel-Smith J.A. dissenting).
With the leave of the Court of Appeal the appellant now appeals to their Lordships. In his Printed Case the appellant raises an additional claim which was not dealt with by the Court of Appeal, namely that, if the payments in question are subject to income tax in his hands, then he is entitled to the benefit of a dividend income allowance pursuant to section 24 of the Ordinance (now section 56 of the Act). The appellant had not raised this claim before the Tax Appeal Board because it was inconsistent with his claim that the payments were distributions of capital and as such were not taxable at all.
There is no material difference between the terms of the relevant provisions of the Ordinance and the corresponding provisions of the later Act, and like the Court of Appeal their Lordships will for convenience refer throughout to the provisions of the Act.
The relevant statutory provisions are as follows:-
(i) Section 5 of the Act provides:-
"Income tax shall … be payable … upon the income of any person … in respect of …
(k) dividends or other distributions".
(ii) Section 2(1) provides that "distribution" has the meaning assigned to that expression in section 49.
(iii) Section 49 provides:-
"(1) In relation to any company 'distribution' means -
(a) any dividend paid by the company including a capital dividend;
(b) any other distribution of the assets of the company (whether in cash or otherwise) in respect of shares of the company, except so much as represents the repayment of share capital, or is equal in amount or value to any new consideration given on the distribution …"
(iv) Section 56 provides that a taxpayer who receives a distribution from a resident company is entitled to a dividend income allowance calculated in the manner set out in the Fourth Schedule. Section 56(4) however provides:-
"In this section and in the Fourth Schedule 'distribution' does not include … a distribution made out of - …
(c) profits or gains of a company on which before 1st January 1966 no income tax was paid or after that date no corporation tax was paid."
Accordingly the questions for determination in this appeal are:-
(1) Are the sums totalling $457,230 paid by the liquidator out of the proceeds of the winding-up of the company and received by the appellant as a contributory "distributions" within the meaning of section 49(1)(b) of the Act? and if so
(2) Is the appellant entitled to a dividend income allowance in respect of such payments in accordance with section 56 of the Act?
Their Lordships begin by observing that the payments in question fall fairly and squarely within the statutory formula contained in section 49(1)(b) of the Act. They were paid by the liquidator out of the assets of the company and the appellant received them by virtue of his shareholding in the company. They were thus distributions of assets of the company made in respect of the company's shares. It is true that the payments were made by the liquidator and not by the company itself, but while payment by the company is a requirement of section 49(1)(a) there is no similar requirement in section 49(1)(b). For the purpose of the latter subsection it is enough that the payment is made out of the assets of the company.
The appellant contends that section 49(1)(b) should be construed as limited to distributions by the company while a going concern and not as including distributions in a winding-up. He supports that contention by pointing out that the Act is an Income Tax Act and that the principal charging section (section 5) imposes a charge to tax upon income and not upon capital. He submits that the construction for which the Board of Inland Revenue contends results in the double taxation of income and the taxation of tax-free capital gains. The Board is seeking to charge him with income tax on distributions which represent either retained profits which have already borne corporation tax or capital gains which are not taxable.
Their Lordships are not impressed by these arguments. Section 5 charges income tax upon the income of the taxpayer. It is a commonplace that what is capital in the hands of the payer may be income in the hands of the recipient. As the inclusion of capital dividends in section 49(1)(a) demonstrates, the section is not confined to income payments. That section 49(1)(b), like section 49(1)(a), extends to payments of capital is confirmed by the exception of "so much as represents the repayment of share capital", for these words would be otiose if the operation of the paragraph were limited to income. Section 49(1)(a) is, no doubt, limited to payments by the company while a going concern since, as Hamel-Smith J.A. pointed out, a company loses its powers to make a distribution on going into liquidation. There is, however, no reason for limiting section 49(1)(b) in the same way, given that the distribution need not be made by the company so long as it is made out of its assets. On the contrary, their Lordships regard the difference in wording as a strong indication that section...
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