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Brooklands Selangor Holdings Ltd v Commissioners of Inland Revenue

Weekly Law Reports Cited authorities 14 Cited in 25 Precedent Map Related
JurisdictionEngland & Wales
Judgment Date03 December 1969
Date03 December 1969
CourtChancery Division
[CHANCERY DIVISION]BROOKLANDS SELANGOR HOLDINGS LTD.v.INLAND REVENUE COMMISSIONERSKUALA PERTANG SYNDICATE LTD.v.INLAND REVENUE COMMISSIONERS1969 Dec. 1, 2, 3Pennycuick J.

Revenue - Stamp duty - Increase of capital - Partition of parent company's assets between majority and minority shareholders - Majority shareholder to continue trading through parent company, minority to realise assets - Taxpayer company incorporated for purpose of acquiring part of assets of parent company - Minority shareholders to own entire capital of taxpayer company - Capital increased for purpose of purchase of parent company's assets; for consideration in part cash, in part shares - Whether “a scheme for the reconstruction of any company” - Finance Act, 1927 (17 & 18 Geo. 5, c. 10), s. 55 (1) (A) (8)(as amended). - Revenue - Stamp duty - Conveyance or transfer on sale - Declaration of trust by parent company of certain property in favour of subsidiary taxpayer company - Transfers to taxpayer company by parent company of stock in other companies - Whether “a scheme for the reconstruction of any company” - Whether consideration consisted as to not less than 90 per cent. in shares in taxpayer company - Finance Act, 1927, s. 55 (1) (B) (8)(as amended) - Finance Act, 1930 (20 & 21 Geo. 5, c. 28), s. 42.

B.S.R. Ltd. owned three rubber estates and shares in subsidiary companies. P.H. Ltd. acquired 72 per cent. of the preference stock and more than 50 per cent. of the ordinary stock in B.S.R. Ltd. P.H. Ltd. wished to continue trading through B.S.R. Ltd. and its subsidiaries, but the minority shareholders of B.S.R. Ltd. wished the assets to be realised. A partition of B.S.R. Ltd.'s assets was agreed upon, whereby B.S.R. Ltd. was to retain certain of the estates and shares and the remainder were to be vested in a new company of which the minority shareholders were to own the entire capital. For this purpose, the taxpayer company, B.S.H. Ltd., was formed, with an initial share capital of £100 in 2s. stock units, all of which were beneficially held by B.S.R. Ltd. In 1965 the assets of B.S.R. Ltd. to be taken over by B.S.H. Ltd. were valued. The taxpayer was to purchase the assets for £115,593 in cash, and £1,120,869 in shares in the taxpayer company which would be converted forthwith into stock. In December, 1966, the capital of B.S.H. Ltd. was increased to £349,900, divided into 3,499,000 shares of 2s. for that purpose; B.S.R. Ltd. executed a deed declaring that it held certain estates upon trust for B.S.H. Ltd., and B.S.R. Ltd. executed transfers to B.S.H. Ltd. of shares in three subsidiaries. At the same time two subsidiaries of B.S.R. Ltd. transferred to the other taxpayer company, K.P.S. Ltd., their holdings of shares in another company. The declaration of trust and the transfer were submitted for adjudication, and were adjudged liable to ad valorem stamp duty under section 112 of the Stamp Act, 1891, and to conveyance or transfer on sale duty respectively. The taxpayer companies appealed against the adjudication on the grounds that section 55 (1) (A) (ii) of the Finance Act, 1927,F1 applied and that therefore the amount by which the capital had been increased, £349,900, should be treated as being reduced by the amount credited as paid up on those stock units allotted as consideration, of £300,399 2s., and that stamp duty was chargeable only on the balance; and that the declaration of trust and the stock transfers were relieved from duty by section 55 (1) (B), or alternatively by section 42 of the Finance Act, 1930.F2 The commissioners were of the opinion that section 55 did not apply because the scheme was not “a scheme for the reconstruction of any company”; and that section 42 did not apply because before the execution of the declaration of trust and the stock transfers B.S.R. Ltd. had ceased to be the beneficial owner of the issued capital of B.S.H. Ltd. The issues in the case of K.P.S. Ltd. were, mutatis mutandis, the same.

On appeal by the taxpayer companies:—

Held, dismissing both appeals, (1) that for a scheme to be a scheme for the reconstruction of a company, “substantially the business and the persons interested must be the same”; in the present cases the holders of the stock in B.S.H. Ltd. were most substantially different from the holders of the stock in B.S.R. Ltd., and the transaction was the transfer of a part of B.S.R. Ltd.'s undertaking from the holders of the whole of the stock in B.S.R. Ltd. to the holders of a little less than half the stock in B.S.R. Ltd. The transactions were, therefore, not within section 55 of the Act of 1927.

Dictum of Buckley J. in In re South African Supply & Cold Storage Co.[1904] 2Ch.268, 286 applied.

(2) At the time of the execution of the declaration of trust and the stock transfers, B.S.R. Ltd. owned the issued capital of B.S.H. Ltd. subject to an unconditional obligation, under the scheme, to transfer that capital, and had no right to deal with that stock as its own. That was not beneficial ownership, and therefore section 42 of the Act of 1930 did not apply.

Dicta of Lord Donovan and Harman L.J. in Wood Preservation Ltd. v. Prior[1969] 1W.L.R.1077, 1096, 1097; [1969] 1All E.R.364, C.A. applied.

The following cases were referred to in the judgment:

Craddock v. Zevo Finance Co. Ltd.(1946) 27T.C.267; [1944] 1All E.R.566, C.A.

Hooper v. Western Counties & South Wales Telephone Co. Ltd.(1892) 68L.T.78.

South African Supply & Cold Storage Co., In re[1904] 2Ch.268.

Tillotson (Oswald) Ltd. v. Inland Revenue Commissioners[1933] 1K.B.134, C.A.

Wood Preservation Ltd. v. Prior[1969] 1W.L.R.1077; [1969] 1All E.R.364, C.A.

The following additional cases were cited in argument:

Downing (T. H.) & Co. Ltd., In re[1940] 1All E.R.333, C.A.

Foster (John) & Sons v. Inland Revenue Commissioners[1894] 1Q.B.516, C.A.

Gold Coast Selection Trust Ltd. v. Humphrey[1948] A.C.459; [1948] 2All E.R.379; 30T.C.209, H.L.(E.).

Leigh Spinners Ltd. v. Inland Revenue Commissioners(1956) 35A.T.C.58.

Oceanic Steam Navigation Co. Ltd., In re[1939] Ch.41; [1938] 3All E.R.740.

Shop & Store Developments Ltd. v. Inland Revenue Commissioners[1967] 1A.C.472; [1967] 2W.L.R.35; [1967] 1All E.R.42, H.L.(E.).

Wigan Coal & Iron Co. Ltd. v. Inland Revenue Commissioners[1945] 1All E.R.392.

CASES STATED by the Inland Revenue Commissioners. The relevant paragraphs are as follows:BROOKLANDS SELANGOR HOLDINGS LTD. v. INLAND REVENUE COMMISSIONERS

1. The opinion of the court is desired as to the stamp duty chargeable on certain instruments (hereinafter called “the adjudicated instruments”) presented by the taxpayers, Brooklands Selangor Holdings Ltd. (Holdings), to the Commissioners of Inland Revenue under section 12 of the Stamp Act, 1891, for the opinion of the commissioners as to the stamp duty with which they are chargeable. The adjudicated instruments consist of:

(a) A statement of increase of the nominal capital of Holdings made pursuant to section 112 of the Stamp Act, 1891(as amended), on December 20, 1966.

(b) A declaration of trust in favour of Holdings of certain land in Malaysia, dated December 29, 1966.

(c) Three stock transfers, each dated December 29, 1966, being transfers to Holdings of ordinary stock in other companies.

2. The adjudicated instruments came into existence in the circumstances hereinafter mentioned.

3. (a) Brooklands Selangor Rubber Co. Ltd. (hereinafter called “B.S.R.”), was incorporated on April 11, 1910, under the Companies (Consolidation) Act, 1908, as a company limited by shares. At all relevant times up to December 29, 1966, the issued capital of B.S.R. was £662,001 8s. consisting of £52,500 cumulative preference stock and £609,501 8s. ordinary stock, transferable in each case in amounts and multiples of 2s., and its share premium account stood at £700,803 3s. Both classes of stock were officially quoted and dealt in on the London Stock Exchange.

(b) The business of B.S.R. consisted at all relevant times of the ownership and cultivation both directly and through subsidiary companies of rubber estates.

(c) At all relevant times up to and including October 10, 1966, B.S.R. was the beneficial owner of the whole of the issued capitals of Semenyih Rubber Estate Ltd., Tarun (Malay) Rubber Estates Ltd., Kuala Pertang Syndicate Ltd., and Bukit Selangor Rubber Estates (1920) Ltd. (hereinafter called “Semenyih,” “Tarun,” “Pertang” and “Bukit” respectively), all four of which were companies incorporated in England and owners of rubber estates, and the issued capital of each of which consisted of ordinary stock. One of the questions in issue in this appeal is at what date after October 10, 1966, B.S.R. ceased to be beneficial owner of such stock.

(d) At all relevant times up to and including October 10, 1966, Semenyih and Tarun were the beneficial owners of 60,000 shares and 75,000 shares respectively of the 450,000 issued shares of Kuala Pahi Development Co. Ltd. (“Pahi”), a company which owned a rubber estate, the other 315,000 of such shares being in the beneficial ownership of persons having no association with the group of companies controlled by B.S.R.

4. As a result of a partially successful take-over offer in 1965 Plantation Holdings Ltd. (hereinafter called “P.H.”), a company incorporated in England, became the beneficial owner of approximately 72 per cent. of the issued preference stock and just over 50 per cent. of the issued ordinary stock of B.S.R. This gave rise to a divergence of views. It was P.H.'s policy that both B.S.R. and its subsidiary companies should retain their rubber estates and continue to exploit them. The ordinary stockholders of B.S.R. who did not accept the offer of P.H. (hereinafter called “the minority”) preferred a policy whereunder B.S.R. would cause the said estates to be realised with a view to the eventual liquidation of B.S.R. and the distribution of its surplus assets among its stockholders...

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