De Beers Consolidated Mines v Howe
| Jurisdiction | England & Wales |
| Judgment Date | 30 July 1906 |
| Date | 30 July 1906 |
| Court | King's Bench Division |
NO. 284.-IN THE HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
COURT OF APPEAL.-
HOUSE OF LORDS.-
Income Tax.-Schedule D.-Residence.-A Company registered in South Africa works diamond mines there. It has also its Head Office there, and the general meetings of the shareholders are held in that country. Directors' meetings are held both in South Africa and London, but it is in the United Kingdom that the majority of the Directors and Life Governors in fact reside, and the Directors' meetings held in London are the meetings where the real control is exercised in all the important business of the Company.
Held, that the Company is for Income Tax purposes resident in the United Kingdom, and that it is assessable on the whole of its profits under the 1st Case of Schedule D in Section 100 of the 5 and 6 Vict., cap. 35.
CASE stated under the Statute 43 and 44 Vict. cap. 19, section 59, by the Commissioners for the General Purposes of the Income Tax Acts for the City of London for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax Acts for the City of London held at the Guildhall in the said City on Thursday the 31st day of July 1902 De Beers Consolidated Mines Limited (hereinafter termed "the Appellant Company") of 62 Lombard Street in the City of London appealed against a Supplementary Assessment made upon them for the year ending the 5th day of April 1901 in the sum of £1,557,693 and against an additional assessment for the year ending the 5th day of April 1902 in a similar sum of £1,557,693 in respect of the profits of the Company in the United Kingdom and elsewhere.
2. The Appellant Company was registered with limited liability in the Deeds Office of Griqualand West in the Colony of the Cape of Good Hope (hereinafter for brevity termed "the Cape Colony") on the 13th March 1888. It was also registered on the 3rd September 1888 as an Incorporated Company in the said Colony in terms of section 3 of Act 13 of 1888 of the
said Colony according to the laws then subsisting in the said Colony. The Appellant Company is not registered in the United Kingdom as a Joint Stock Company.3. The present authorized capital of the Appellant Company is £4,500,000 in 800,000 preference shares and 1000,000 deferred shares of £2 10s. each having been increased to that amount from £3,950,000 in December 1901. The Company has also £3,500,000 5 per cent. first Mortgage Debentures authorized and issued in 1894 under a scheme for consolidation and conversion of the Company's Debenture Debt of which there are outstanding £2,638,320 also £301,780 De Beers 41/2 per cent. Bulfontein Obligations authorized and issued in May 1900 of which there are outstanding £205,480 and also £1,750,000 De Beers South African Exploration 41/2 per cent. Debentures authorized and issued in June 1900 all of which are outstanding.
4. By Article 3 of the Articles of Association it is provided that the Head Office of the Company shall be in Kimberley in the Cape of Good Hope or at such other place either in the said Colony or in such other country as the Directors shall from time to time consider advisable with such branch or branches elsewhere as the Directors shall deem fit or with such agent or agents in the places or countries as the Directors may deem fit. The Company have offices at London and at Kimberley.
5. The Appellant Company owns or is interested in extensive diamond mines and mining property in South Africa together with various farms and landed property there and investments in English Government securities and shares in an English joint stock company.
6. The profits of the Company during the years of assessment and for many years previously have been chiefly made by the raising and sale of diamonds the produce of their said mines to a Syndicate composed of six or seven firms of diamond merchants with whom the Company have had a series of contracts in that behalf since the year 1895. The said contracts were negotiated and executed in London and the firms composing the Syndicate are all therein described as of London. These contracts which vary greatly in detail provide for the purchase by the syndicate (with delivery at Kimberley) of the produce of the mines up to the amounts specified and specified prices with various and often complicated options in respect of the remainder and with provisions for the Company sharing in certain profits to be made by the Syndicate on resale and other provisions designed to control or affect the output and sale of diamonds from the Company's mines.
The object and effect of such arrangements by the Company (who practically control the diamond trade of the world) is to regulate and support the market for diamonds and the negotiations and maintenance of such arrangements is an essential part of the business of the Company. Copies of the above-mentioned contracts seven in number are attached and marked "A" "B" "C" "D" "E" "F" and "G."1
7. The Articles of Association of the Appellant Company together with the minute books and annual reports and accounts were put in evidence. Prints of the Articles of Association and reports and accounts for the four years ending June 1901 and extracts from minute books at London and Kimberley are herewith attached and may be referred to as forming part of this case and are respectively marked with the letters "H" "I" "J" "K" "L" and "M."1
8. The management of the business and the control of the Appellant Company during the years of assessment was under the provisions of the Articles of Association vested in three Life Governors or permanent Directors and sixteen ordinary directors. The persons filling the office of Life Governors and Directors were as follows.
LIFE GOVERNORS :-
The Right Honourable Cecil J. Rhodes (Chairman of the Board of Directors of the Company).
Mr. Alfred Beit.
Mr. Julius Wernher.
DIRECTORS :-
Mr. Carl Meyer (Deputy-Chairman).
Mr. C.E. Atkinson.
Mr. F. Baring-Gould.
Mr. G.W. Compton.
Sir Donald Currie G.C.M.G.
Mr. Robert English.
Lt.-Col. D. Harris C.M.G.
Dr. L.S. Jameson C.B.
Mr. S.B. Joel.
Mr. H. Mosenthal.
Mr. C.E. Nind.
Mr. Francis Oats.
Capt. H.M. Penfold.
Mr. C.D. Rudd.
Mr. Thomas Shiels
and
Mr. T.E. Fuller.
The following were the Trustees for the 5 per cent. Debenture-holders:-
Lord Rothschild.
Mr. Alfred Rothschild
and
Sir Donald Currie G.C.M.G.
The Trustees for the South African Exploration Debentures were :-
Lord Rothschild
and
Sir George Faudel Phillips Bart G.C.I.E.
Under the Articles of Association it is provided that "four at least of the Directors shall reside in England."
9. Meetings of Directors have been held at the Company's Office in London weekly from the 21st of November 1888.
Weekly Meetings of Directors have also been held at Kimberley during the same period and Minutes kept.
At the first Meeting in London on the said 21st November 1888 twelve Directors were present including two Life Governors.
Minutes of the proceedings at all Meetings in London and Kimberley have been duly kept.
There is an exchange of Minutes between the two places London and Kimberley.
The proceedings of the Board of Directors sitting in Kimberley and London are regulated by bye-laws framed pursuant to Nos. 117 and 119 (S.S. 21) of the Company's Articles of Association.
10. These bye-laws having been drawn up in London and communicated to Kimberley were discussed and finally approved at Meetings of Directors held in London on the 10th 12th and 17th February 1891. Fifteen Directors including the Chairman (The Right Honourable Cecil J. Rhodes) being present at the Meeting on the 10th of February 1891 ten Directors present on 12th February 1891 and fourteen (including Cecil J. Rhodes Chairman) at the Meeting of the 17th February 1891.
The Bye-Laws are as follows :-
1. The course of business as respects the technical management of the Company's work and operations at its mines and the expenditure there for wages materials and such like shall be determined upon by the Directors for the time being in Kimberley who will however where practicable consult the Directors for the time being in London on matters of exceptional importance.
2. All other expenditure exceeding £25,000 shall be determined upon by the majority of all the Directors for the time being but the Directors for the time being in Kimberley with the previous sanction of the present Chairman of the Board the Honourable Cecil John Rhodes may should special circumstances arise expend or incur liabilities not exceeding altogether at any one time £50,000 in addition to the above £25,000. No further expenditure or liability under this proviso shall be incurred until the previous exercise of the authority hereby given has been confirmed by the majority of all the Directors for the time being.
3. That the policy of the Board...
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