Bullock (HM Inspector of Taxes) v The Unit Construction Company, Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 30 November 1959 |
| Date | 30 November 1959 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax - Companies - Residence.
Three companies, wholly owned by B Ltd., a company resident in the United Kingdom, were formed in East Africa with the intention that they should be solely resident there. Each subsidiary company had its registered office in East Africa and carried on its business there. The articles of association of each subsidiary provided for the management and control of its business to be placed in the hands of its directors, whose meetings might be held anywhere outside the United Kingdom. In fact, directors of the subsidiaries were elected to and, when the occasion arose, removed from office on the instructions of the parent company. None of the directors was a director of the parent company.
In view of the lack of success of the African subsidiaries, the parent company decided in 1950 to take over their management and control. There was at no time any formal agreement to this effect with the African subsidiaries, but the decision was communicated to the company's senior representative in East Africa, who was the chairman of the board of each of them, and was accepted by him. From then on, all decisions on matters of major importance and many on minor matters were made by the parent company. The East African directors never met as boards, and did not all have access to all the documents and information concerning their companies. Decisions were, however, taken locally on the day-to-day running of their companies' trading activities, within the general policy directions of the parent company.
In 1952 and 1953, the Respondent Company, which was resident in the United Kingdom and was another wholly-owned subsidiary of B Ltd., made certain payments to the three African subsidiaries. On appeal to the Special Commissioners against assessments to Income Tax under Schedule D for the years 1953-54 and 1954-55, the Company claimed that each of the
African subsidiaries was resident in the United Kingdom at the material time within the meaning of Section 20 (9) of the Finance Act, 1953 (which relates to payments between associated companies in respect of losses). It was common ground that if they were so resident the Company was entitled by virtue of that Section to deduct the payments in computing its profits. The Commissioners found that the controlling power and authority, which according to the constitution of each of the African subsidiaries was vested in its board of directors, was actually exercised to a very substantial degree by the board of the parent company, and held that the three companies were resident in the United Kingdom at the material timeHeld, that there was evidence justifying the Commissioners' conclusion.
Stated under the Income Tax Act, 1952, Section 64, 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 15th, 17th, 18th and 24th May, 1956, the Unit Construction Co., Ltd. (hereinafter called "Unit") appealed against assessments to Income Tax made upon it under Case I of Schedule D for the year 1953-54 in the sum of £110,000 less £36,388 capital allowances and for the year 1954-55 in the sum of £200,000 less £50,000 capital allowances.
(2) The appeal concerned the following payments made by Unit, which Unit claimed to deduct in computing its profits for the purposes of the assessments under appeal:
(3) £15,000 paid to Booth & Co. (Africa), Ltd., in 1952.
(4) £8,000 paid to Booth & Co. (Africa), Ltd., in 1953.
(5) £29,000 paid to Booth & Co., Ltd., in 1952.
(6) £27,500 paid to Booth & Co., Ltd., in 1953.
(7) £33,000 paid to Bulleys Tanneries, Ltd., in 1952.
(8) £11,500 paid to Bulleys Tanneries, Ltd., in 1953.
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(9) The sole question in dispute was whether Booth & Co. (Africa), Ltd., Booth & Co., Ltd., and Bulleys Tanneries, Ltd., were, in 1952 and 1953, companies resident in the United Kingdom within the meaning of Section 20 (9) of the Finance Act, 1953. It was common ground that if they were so resident then the payments in question were subvention payments which Unit was entitled to deduct in computing its profits, by virtue of the said Section 20.
(2) The following documents are annexed hereto, marked as indicated, and form part of this Case(1):
(3) Memorandum of association of Alfred Booth & Co., Ltd. (marked "A").
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(4) Extracts from the board minutes of Alfred Booth & Co., Ltd. (marked "B").
(5) Extracts from the minutes of meetings of the executive directors of Alfred Booth & Co., Ltd. (marked "C").
(6) Printed memoranda and articles of association of Booth & Co. (Africa), Ltd., Booth & Co., Ltd., and Bulleys Tanneries, Ltd. (marked "D", "E" and "F" respectively).
(7) Letter dated 17th October, 1950, from Hollander Hyams, Ltd., to Alfred Booth & Co., Ltd. (marked "G").
(8) Document entitled "East African Financial Statements as at 27th December, 1952" (marked "H").
(9) Document entitled "Bulleys Trading Company Financial Return for the eleven months ended 30th November, 1952" (marked "I").
(10) Document entitled "Extract from File No. 45 for 1953" (marked "J").
(11) Document entitled "Extract from File No. 11 for 1952" (marked "K").
(12) The following additional documents were produced to us; they are not annexed hereto but are available for the use of the Court if required:
(13) Accounts of Unit as at 31st December, 1953, and 1954.
(14) Document entitled "Notes on Bulleys Tanneries, Ltd.".
(15) Folders of correspondence between London and Nairobi during 1952 and 1953.
(16) Minute books of Booth & Co. (Africa), Ltd., Booth & Co., Ltd., and Bulleys Tanneries, Ltd.
(17) Original memorandum of association of Alfred Booth & Co., Ltd.
(18) Accounts of Booth & Co. (Africa), Ltd., Booth & Co., Ltd., and Bulleys Tanneries, Ltd., for 1952 and 1953.
(19) We also heard evidence from Mr. J. W. Booth and Mr. P. Meinertzhagen.
(20) The facts found by us are set out in the following paragraphs of this Case.
4. Unit is a wholly-owned subsidiary of Alfred Booth & Co., Ltd. Booth & Co. (Africa), Ltd., Booth & Co., Ltd., and Bulleys Tanneries, Ltd. (which, when it is necessary to refer to them together, are hereinafter called "the African subsidiaries") are also wholly-owned subsidiaries of Alfred Booth & Co., Ltd.
It was admitted on behalf of Unit that the African subsidiaries were at all material times resident in East Africa.
Alfred Booth & Co., Ltd., is a company incorporated and resident in England, and is the parent of a group of ten or more companies trading in many parts of the world. It was incorporated in 1914 to carry on banking, merchanting and manufacturing businesses of all descriptions, and it did carry on a number of businesses in different parts of the world, including in particular building contracting and businesses connected with the leather industry, all of which it had, by August, 1949, transferred to subsidiary companies incorporated for the purpose. In August, 1949, it adopted a new memorandum of association (exhibit A), with the objects of an investment trust company, with power to carry on the business of banking.
The board of directors of Alfred Booth & Co., Ltd., met regularly in London, and exhibit B contains extracts from the minutes of its meetings concerning the affairs of the African subsidiaries. In addition to the board meetings, a committee of executive directors held weekly meetings in London, at which matters relating to the affairs of various subsidiary companies were considered from time to time, extracts from the minutes of which (so far as concerns the African subsidiaries) are in exhibit C.
The chairman of the board of directors and of the executive committee was Mr. J. W. Booth; he had been a director since 1935, but for some years prior to May, 1950, had no managerial duties; in May, 1950, he became a managing director (with special responsibility on the board and on the executive committee for the African subsidiaries); in July, 1952, he became chairman, and at the same time the special responsibility for the African subsidiaries was divided as under:
Mr. J. W. Booth was responsible for their general trading and mining interests.
Mr. E. Booth (another of the directors of Alfred Booth & Co., Ltd.) was responsible for their building interests.
Mr. E. W. Espenhahn (another of the directors of Alfred Booth & Co., Ltd.) was responsible for their hide and skin and tanning interests.
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(2) The African subsidiaries, which were incorporated in 1948 and 1949 with the objects set out in their respective memoranda of association (exhibits D, E and F) carried on the following businesses:
(a) Booth and Co. (Africa), Ltd.
(b) Building contracting in East Africa. A mining venture in Uganda. A forwarding agency at Mombasa, which acted principally as agent for the African subsidiaries themselves. A merchanting business, carried on as a separate department under the name of Bulley's Trading Co.; this dealt chiefly in prefabricated buildings exported from England by Booth & Co. (England), Ltd. (another subsidiary of Alfred Booth & Co., Ltd.) and extended to other articles such as paints, imported by Booth & Co. (Africa), Ltd., into East Africa from England.
(c) Booth & Co., Ltd.
(d) The business consisted in the earning of commissions by purchasing hides and in the purchase and sale of skins, and was conducted through a number of posts set up in East Africa. In the case of hides, the company acted as agents for Hollander Hyams, Ltd. (a company which had no connection with the Alfred Booth & Co., Ltd., group of companies). This part of the business was governed by an agreement dated 17th October, 1950 (exhibit G), which is referred to more specifically in paragraph 6 (4) below. This agreement allowed Booth &...
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