Bradbury v English Sewing Cotton Company Ltd

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeThe Lord Chancellor,Lord Shaw of Dunfermline.,Lord Sumner.,Lord Wrenbury.,Lord Phillimore.
Judgment Date21 June 1923
Judgment citation (vLex)[1923] UKHL J0621-1
Date21 June 1923

[1923] UKHL J0621-1

House of Lords

Lord Chancellor.

Lord Shaw.

Lord Summer.

Lord Wrenbury.

Lord Phillimore.

Bradbury (Inspector of Taxes)
and
English Sewing Cotton Company, Limited.

After hearing Counsel, as well on Tuesday the 20th, as Thursday the 22d and Friday the 23d, days of March last, upon the Petition and Appeal of George Bradbury, of 184, Deansgate, Manchester, one of His Majesty's Inspectors of Taxes, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal, of the 30th of May, 1922, might be reviewed before His Majesty the King in His Court of Parliament, and that the said Order might be reversed, varied, or altered, or that the Petitioner might have such other relief in the premises as to His Majesty the King in His Court of Parliament might seem meet; as also upon the printed Case of the English Sewing Cotton Company, Limited, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 30th day of May, 1922, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellant do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.

The Lord Chancellor .

My Lords,

1

This Appeal from the Court of Appeal in England raises the question whether certain dividends received by the Respondent Company (the English Sewing Cotton Company, Limited) on stock in an American Company called the American Thread Company in the tax years 1914–15, 1915–16 and 1916–17, can be brought into average in computing the liability of the Respondent Company to be taxed on their income from foreign possessions in respect of the succeeding tax years 1917–18, 1918–19 and 1919–20.

2

The Respondent Company, a company registered and carrying on business in the United Kingdom, was during the above-mentioned years the holder (by itself or its nominees) of the whole of the common stock of the American Thread Company. That company was incorporated and registered in New Jersey, and its purchases and sales of cotton and thread were made in the United States or elsewhere abroad. But in the year 1903 the byelaws of the American Company were altered so as to provide that, while the current business of the Company was to be carried on by an Executive Committee of directors sitting in New York, the decisions of the Board of Directors on questions such as the purchase or leasing of any business or plant, the sale or lease of the Company's real estate, the borrowing of money, the selection of the Executive Committee, the making of agreements which were to bind the Company for more than a year, and the appointment of the principal officers, were to be dealt with exclusively by extraordinary meetings of the Hoard to be held in Great Britain. This change was doubtless made at the instance of the Respondent Company, as the holder of the common stock of the American Company, in order that all important questions of policy might be settled in England, where four of the seven directors of the American Company (who were also directors of the Respondent Company) resided and under the eye of the Respondent Company; and this in fact happened, the extraordinary meetings of the Board being held by permission of the Respondent Company at the Respondent Company's offices in Manchester, and being regularly attended by an assistant secretary who also resided in the United Kingdom.

3

Under these conditions the Commissioners of Inland Revenue assessed the American Company to income tax under Case I. of Schedule D. of the Income Tax Acts in respect of the tax years 1914–15, 1915–16 and 1916–17 (which I will call the first three years) on the whole of the annual profits and gains arising from its trade wherever carried on, the assessment being made on the ground that, having regard to the facts above recited, the American Company had become for all income tax purposes a person resident in the United Kingdom. The American Company appealed against this assessment to the Commissioners for the General Purposes of the Income Tax Acts for the Division of Manchester; but those Commissioners, after hearing the parties, dismissed the Appeal and, at the request of the American Company, stated a case for the opinion of the High Court. The material findings of the last-mentioned Commissioners were stated in the Case as follows:—

"The Commissioners have heard counsel on behalf of the Appellant Company and the Inspector of Taxes for the Inland Revenue, and having taken into consideration the documents and the evidence of witnesses adduced before them, came to the conclusion that the control of the management of the affairs of the Appellant Company was intended to rest and did rest with the directors of the Appellant Company resident in England in extraordinary session, who constituted a majority of the Board and who are also directors of the English Sewing Cotton Company, Limited, which owns the entire common stock or ordinary shares of the Appellant Company, and further that such control was constantly exercised at meetings of the Board of the Appellant Company in extraordinary session held in England.

"The Commissioners determined that the Appellant Company is a person residing in the United Kingdom and is liable as such to be assessed under Section 2 of the Income Tax Act, 1853, Schedule D., paragraph 1, subsection 1, on the whole of the annual profits and gains arising or accruing from its trade whether the same was carried on in the United Kingdom or elsewhere and accordingly confirmed the assessment."

4

The arguments on the Case so stated were heard by Mr. Justice Hamilton, who held that there was evidence on which the Commissioners could come to the above conclusion, and accordingly affirmed their decision; and appeals against this judgment, first to the Court of Appeal and then to the House of Lords, were dismissed. The case is reported ( American Thread Co. v. Joyce, 1913, 6 Tax Cases, pp. 1 and 163).

5

During the period of three years above mentioned the dividends on the common stock of the American Company, though apparently settled by the directors in England, were declared in the United States and were remitted by cheque from the United States to the Respondent Company, the income tax levied on the American Company in England being deducted.

6

After, and probably by reason of, this decision, the American Company again altered its byelaws so as to put an end to its "residence " in the United Kingdom, and to transfer the whole control and management of its business to the United States. This transfer was completed shortly before the 5th of April 1917; and, accordingly, as from the end of the tax year 1916—17, the Crown was no longer in a position to assess the American Company to income tax, and could only assess the Respondent Company under Case 5 of Schedule D. in respect of its dividends on the common stock in the American Company, as being income from foreign possessions. In making this assessment for each of the tax years 1917—18, 1918—19 and 1919—20 (which I will call the second three years) the Commissioners of Inland Revenue claimed to bring into computation for the three years' average to be struck under Case 5 (in addition to the income of certain other foreign possessions, which need not be further mentioned) the dividends received by the Respondent Company on the common stock of the American Company during the first three years. In other words, they claimed that in assessing the Respondents to tax on their receipts from foreign possessions for the tax year 1917—18, they were entitled to take into account the dividends received in England during the first three years, plus the tax deducted from those dividends, and to strike an average accordingly; and so as to each of the two following tax years. This claim was resisted by the Respondents, who contended that the American Company having during the first three years been resident in England, the dividends on its stock were not income from foreign possessions at all, and accordingly could not be brought into the computation for the purpose of the three years' average. It is this dispute which falls to be decided upon the present Appeal; and its importance to the parties may be gathered from the fact that the dividends so received amounted in the year 1914—15 to £111,600, in the year 1915—16 to £200,880, and in the year 1916—17 to £185,925 (gross before deduction of tax).

7

The dispute having been referred to the Commissioners for the special purposes of the income tax, those Commissioners, after hearing the parties, gave their decision in favour of the Respondents, and reduced the assessments accordingly, but on the application of the Crown, stated a Case for the opinion of the High Court. In this Case the Commissioners referred to and in effect adopted the findings in the case of the American Thread Company v. Joyce (to which I have accordingly freely referred in the above statement) and stated their conclusions as follows:—

"We are of opinion that dividends on shares in a company which, though incorporated in a foreign country, is resident and carries on business in the United Kingdom, and is assessed on the whole of its profits under Case I. of Schedule D., are not income from a foreign possession within Case V., and that the dividends declared by the American Thread Company and received by the English Sewing Cotton Company, Limited, subject to...

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