British Commonwealth International Newsfilm Agency, Ltd v Mahany (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 20 December 1962 |
| Date | 20 December 1962 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax, Schedule D-Annual payment made to a trading company- Whether trading receipt - Whether recipient entitled to repayment of tax - Income Tax Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 10), Section 123, Schedule D, Case III.
The Appellant Company was set up in March, 1957, by R Ltd. and the B.B.C. for the purpose of providing a newsfilm service. On 28th March, 1958, they entered into a deed of covenant under which each was to pay the Company each year until 1964-65 one-half the amount of its trading deficit for the year. R Ltd.'s share of the deficit for the period ending 31st March, 1958, was £62,590 5s. 2d. and it paid the Company that amount after deducting £26,600 17s. 2d. in respect of tax. The Company claimed repayment of tax under Section 341, Income Tax Act, 1952, and Section 15(3), Finance Act, 1953.
The Special Commissioners disallowed the Company's claim, finding that the sum paid to the Company was a trading receipt and was not an annual payment of pure income profit within the provisions of Case III of Schedule D.
Held, that there was evidence on which the Special Commissioners could arrive at their decision.
Stated under the Income Tax Act, 1952, Section 64, and the Finance Act, 1953, Section 15(4), by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 13th May, 1959, and thence adjourned to 14th May, 1959, British Commonwealth International Newsfilm Agency, Ltd. (hereinafter called "the Appellant"), applied for an adjustment of its liability to Income Tax for the year 1957-58, under the provisions of Section 341, Income Tax Act, 1952, and Section 15(3), Finance Act, 1953, in respect of a loss sustained by it in a trade carried on by it and charged to tax under Schedule D, and for a certificate authorizing repayment of so much of the sum paid for tax as would represent the tax upon income equal to the amount of the loss.
2. Evidence was given at the hearing of the claim by John Davis (hereinafter referred to as "Mr. Davis"), deputy chairman and managing director of Rank Organisation, Ltd. (hereinafter referred to as "Rank"); Kenneth Winckles (hereinafter referred to as "Mr. Winckles"), assistant managing director of Rank; William Norman Henderson Dickson (hereinafter referred to as "Mr. Dickson"), commercial manager of the Appellant; William Swaby Greenhalgh (hereinafter referred to as "Mr. Greenhalgh"), group co-ordinating accountant of Rank; and Derek Oswald Bailey, a member of the Institute of Chartered Accountants of England and Wales employed by Price, Waterhouse & Co., chartered accountants; and the following documents were produced and admitted or proved:
(i) a deed of covenant dated 28th March, 1958 (hereinafter referred to as "the deed of covenant"), made between the British Broadcasting Corporation (hereinafter referred to as "the B.B.C."), Rank and the Appellant;
(ii) a letter dated 31st March, 1958, from Mr. Greenhalgh to the secretary of the Appellant;
(iii) a certificate of deduction of Income Tax dated 3rd July, 1958, signed by the secretary of Rank;
(iv) the memorandum and articles of association of Film Development & Research, Ltd.;
(v) the memorandum and articles of association of Rank;
(vi) the annual report for 1957 of Rank;
(vii) a bundle of extracts from reports from Mr. Davis to the board of Rank, in the form of letters addressed to the Rt. Hon. Lord Rank (hereinafter called "Lord Rank") as chairman of the board;
(viii) the annual report for 1958 of Rank;
(ix) an agreement dated 31st October, 1957 (hereinafter referred to as "the agreement"), made between the B.B.C., Rank, the Canadian Broadcasting Corporation and the Australian Broadcasting Commission;
(x) a deed of trust dated 31st October, 1957 (hereinafter referred to as "the deed of trust"), made between the B.B.C., Rank and others;
(xi) the memorandum and articles of association of the Appellant;
(xii) the trading and profit and loss account of the Appellant for the period 8th March, 1957, to 31st March, 1958, and balance sheet at that date;
(xiii) a schedule of purchases by the Appellant from subsidiaries of Rank;
(xiv) a schedule of sales by the Appellant to subsidiaries of Rank.
The above documents are not attached to, and do not form part of, this Case, but are available for the use of the High Court of Justice if required.
3. We found the following facts admitted or proved on the evidence adduced at the hearing of the claim:
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(2) The Appellant was incorporated on 8th March, 1957, with a share capital of £176,000 divided into 176,000 shares of £1 each. The memorandum of association contained, inter alia, the following objects for which the Appellant was established:
(A) To establish, carry on and supply a service of world news recorded on film or by any other means and to issue, publish and circulate and otherwise turn to account the same and in particular to supply the same to subscribers throughout the world who are operators of television services, providers of television programmes or producers of cinematograph newsreels and to such other persons as may be thought fit. It is declared that in the carrying out of its objects under this sub-head the Company shall at all times ensure that the services rendered by it are politically independent and free from bias.
(3) The articles of association of the Appellant contained, inter alia, the following:
100. Subject to any preferential or other special rights for the time being attached to any class of shares, the profits of the Company which it shall from time to time be determined to distribute by way of dividend shall be applied in payment of dividends upon the shares of the Company in proportion to the amounts paid up thereon respectively otherwise than in advance of calls. All dividends shall be apportioned and paid pro rata according to the amounts for the time being paid up on the shares during the period in respect of which the dividend is paid except that if any share is issued on terms providing that it shall rank for dividend as if paid up (in whole or in part) as from a particular date such share shall rank for dividend accordingly.
101. The Company in General Meeting may from time to time declare dividends, but no dividend shall be payable otherwise than out of the profits of the Company. No higher dividend shall be paid than is recommended by the Directors.
102. The Directors may if they think fit from time to time pay to the members such interim dividends as appear to the Directors to be justified by the profits of the Company. If at any time the share capital of the Company is divided into different classes the Directors may pay such interim dividends in respect of those shares in the capital of the Company which confer on the holders thereof deferred or non-preferred rights as well as in respect of those shares which confer on the holders thereof preferential rights with regard to dividend and provided that the Directors act bona fide they shall not incur any responsibility to the holders of shares conferring a preference for any damage that they may suffer by reason of the payment of an interim dividend on any shares having deferred or non-preferred rights. The Directors may also pay half-yearly or at other suitable intervals to be settled by them any dividend which may be payable at a fixed rate if they are of opinion that the profits justify the payment.
103. The Directors may deduct from any dividend or other moneys payable on or in respect of any shares held by a member all sums of money (if any) presently payable by him to the Company on account of calls or otherwise in relation to the shares of the Company.
104. All unclaimed dividends may be invested or otherwise made use of by the Directors for the benefit of the Company until claimed. No dividends shall bear interest as against the Company.
105. Any dividend or other moneys payable on or in respect of a share may be paid by cheque or warrant sent through the post to the registered address of the member or person entitled thereto, and in the case of joint holders to any one of such joint holders, or to such person and such address as the holder or joint holders may direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent or to such person as the holder or joint holders may direct, and payment of the cheque or warrant, if purporting to be duly endorsed, shall be a good discharge to the Company. Every such cheque or warrant shall be sent at the risk of the person entitled to the money represented thereby.
106. If several persons are registered as joint holders of any share, any one of them may give effectual receipts for any dividend or other moneys payable on or in respect of the share.
107. The Directors may before recommending any dividend, whether preferential or otherwise, carry to reserve out of the profits of the Company (including any premiums received upon the issue of debentures or other securities of the Company) such sums as they think proper as a reserve or reserves which shall, at the discretion of the Directors, be applicable for any purpose to which the profits of the Company may be properly applied, and pending such application may, at the like discretion, either be employed in the business of the Company or be invested in such investments (other than shares of the Company) as the Directors may from time to time think fit. The Directors may also without placing the same to reserve carry forward any profits which they may think it prudent not to divide.
108. The Directors shall cause proper accounts to be kept in accordance with the...
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