British Commonwealth International Newsfilm Agency Ltd v Mahany
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE UPJOHN,LORD JUSTICE DIPLOCK |
| Judgment Date | 01 March 1962 |
| Judgment citation (vLex) | [1962] EWCA Civ J0301-2 |
| Date | 01 March 1962 |
| Court | Court of Appeal |
[1962] EWCA Civ J0301-2
In The Supreme Court of Judicature
Court of Appeal
The Master of The Rolls (Lord Evershed)
Lord Justice Upjohn and
Lord Justice Diplock
MR F. N. BUCHER, Q. C. and MR PHILIP SHELBOURNE (instructed by Messrs Richards, Butler & Co., Cunard House, 88, Leadenhall Street, London, E.C.3.) appeared as Counsel for the Appellant.
MR ROY BORNEMAN, Q. C. and MR ALAN S. ORR (instructed by The Solicitor Inland Revenue, Somerset House, Strand, W. C.2.) appeared as Counsel for the Respondent.
This appeal has raised a question of considerable interest and some novelty, though it has an affinity to certain recently decided cases, upon the Speeches in one of which (the latest, known as the Epping Forest case) Mr Bucher has particularly relied. The case has arisen out of a claim under Section 341 of the Income Tax Act, 1952, by the company which is the Appellant here, British Commonwealth International Newsfilm Agency Limited, for recovery of a sum in respect of income tax which, according to the Appellant's case, must be treated as having been paid on its behalf, although during the year in question – namely, the tax year 1957-58 the company in fact made no profits.
It is necessary to pay regard to the history of the Appellant company. It was incorporated on the 8th March, 1957. It appears that until that date the preparation of items of news for transmission to those who watch television and for showing to those who may go to the cinema had been largely, if not exclusively, in the hands of American photographers and others, so that the items of news as presented to British viewers or cinema-goers were not, it was said, sufficiently British in character to be of real interest to those viewers. So there came about the formation of this company, and those most responsible for its formation were, first, the British Broadcasting Corporation, and, second, a company known as Rank Organisation Limited, which we understand is in truth a holding company, holding controlling interests in a number of other companies which are proprietors of or are otherwise concerned in what I will call the cinema business. These two bodies, with which were associated also the Canadian Broadcasting Corporation and the Australian Broadcasting Commission, therefore caused the formation of the Appellant company, the main purpose of which was the obtaining of news items of the kind I have described but of a nature that would be particularly appropriate and of interest to the British viewer.
From the accounts which were before the Special Commissioners, it is made plain that the total authorised capital of the company was £176,000, divided into shares of different classes. That division does not matter for present purposes. It is sufficient to note that, of the issued share capital, 128,000 of £1 each, the British Broadcasting Corporation and the Rank Organisation Limited each held. 48,000, the remaining 32,000 being held, among other, at any rate, by the Canadian and Australian Corporations I have mentioned. By the terms of the Memorandum and Articles, the two Corporations – the British Broadcasting Corporation and Rank Organisation Limited – were between them entitled to appoint six directors, and by that means to control the management of the company. As I have said, its purpose was the obtaining of news items of the kind mentioned.
It was apparently anticipated that, at any rate for a period, the company would be unlikely to trade otherwise than at a loss. However that may be, in the month of October, 1957, an agreement was made to which the parties were the four Corporations already mentioned – that is, the British Broadcasting Corporation, the Rank Organisation Limited and the Canadian and Australian Corporations – and which provided, first of all, according to the recitals in the Case Stated, for the formation of the Appellant company, although in truth the company had then been in existence for some six months. But for present purposes the, important clauses of the agreement are those set out against the numbers 8 and 9 on page 12 of the Case Stated. Clause 8 reads: "If in any year the moneys paid or payable to the company" – that is the Appellant company – "by way of subscription by the subscribers to the service are insufficient to cover the cost of operating the service B. B. C. and Rank agree each to pay to the company an additional subscription which shall be equal to one-half of the amount of such deficit". By way of exposition of thatlanguage, I should state that the subscribers mentioned were the persons (that is to say, those operating television services or cinemas) who would get from the Appellant company the news items they had photographed and recorded, and the subscriptions mentioned were in truth fees paid by the subscribers for the services of the kind I have indicated. It will follow from the language of the paragraph that the two Corporations, B. B. C. and Rank, together undertook to make up entirely the deficit on the trading operations for the year in question.
Clause 9(a) states: "The parties" – and I recall that they are the four Corporations already mentioned – "record that their aims in establishing the service are not those of commercial gain and that it is their intention that any profits earned from time to time by the company" – that is the Appellant company – "from the operation of the service shall be applied firstly in improving the quality and expanding the range of the service and subject thereto and the provisions of" another clause "in reducing the amount payable by subscribers for the benefit of the service". Although, therefore, it was stated not to be the intention to make a commercial gain, it none-the-less cannot be for a moment doubted, I think, that the enterprise which this newly-formed company was to undertake was a commercial enterprise as that phrase is ordinarily understood; and the qualification about gain meant this, that they would, so to say, feed back into the company any profits so as to expand the services, and that, subject thereto, the subscribers would then get the benefit of having to pay less for those services. I mention (although I do not wish to over-emphasis this) that the subscribers would include a number of the Rank Organisation Limited's subsidiaries, and although it is perfectly true that this part of their operations is shown to be a very small part, it nevertheless was a part of their ordinary commercial work, and Rank Organisation Limited, as the holding company, was therefore, naturally, commercially interested in the result if things worked out as was hoped. There is one other thing only that I state about the agreement of the 31st October, 1957, and that is that, not unnaturally since its first object was apparently expressed to be the formation of the Appellant company, although it had been formed, the Appellant company was not a party to it. The consideration which bound the contracting parties was, of course, the fact that the other contracting parties were similarly bound.
That having been the document recording the purposes, and so on, of the newly-formed Appellant company, it then occurred to the Rank Organisation Limited that it might be a good thing from their point of view, having regard particularly to the vexed but pressing modern problem of taxation, that they should, with the British Broadcasting Corporation, enter into a form of document, which is of a kind familiar to many particularly in relation to donations to charity, known as a seven-year covenant. So, on the 28th March, 1958 – in fact, three days before the end of the first financial year of the Appellant company – a Deed of Covenant was entered into by the British Broadcasting Corporation and the Rank Organisation Limited with the Appellant company.
The Deed is fully recited in the Case Stated, and from the reoital it appears – and this, I think, is not insignificant – that the word "deficit" was there defined. It was defined in this language: "In relation to each covenant year, the amount (if any) by which the cost of operating the company's service of providing visual news items to television stations, nowsreel makers and other subscribers exceeds the moneys paid or payable to the company by way of subscriptions by the subscribers to the service, the deficit in respect of each covenant year being ascertained by reference to the amounts of the cost and the subscriptions shown by the company'saccounts for the company's year which ends within that covenant year". Then there was a recital of the agreement of October, 1957 and particularly of Clause 8 thereof, which I have read; and the operative form of the covenant was thus so far as the Rank company was concerned....
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British Commonwealth International Newsfilm Agency Ltd v Mahany
...dismissed with costs. The Contents have it. [Solicitors:-Richards, Butler & Co.; Solicitor of Inland Revenue.] 1 Reported (C.A.) [1962] 1 W.L.R. 560; 106 S.J. 194; [1962] 2 All E.R. 139; 233 L.T. Jo. 247; (H.L.) [1963] 1 W.L.R. 69; 107 S.J. 14; [1963] 1 All E.R. 88; 234 L.T. Jo. 1 20 T.C. 6......
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