C.H.W. (Huddersfield)Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 20 June 1963 |
| Date | 20 June 1963 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Surtax - Undistributed income of trading company - Control transferred during accounting period to company outside Section 245, Income Tax Act, 1952 - Whether income can be apportioned to members prior to transfer - Resolution to pay no dividend on ordinary shares followed by resolution at later date to pay a dividend - Whether dividend paid within reasonable time - Income Tax Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 10), Sections 245, 248(1) and 256(2)(c)(i) and (4).
The Appellant Company had four members only until 29th January, 1957, and carried on the trade of wool merchants until 31st January, 1957. On 28th January, 1957, the Company agreed (a) to sell its undertaking and assets, except £25,000 cash, to two other companies in return for shares in those companies and bills of exchange and (b) to sell the said shares and bills of exchange to its members for £279,500. On 29th January the four members of the Company sold the entire issued share capital, 90 per cent. being acquired by a company outside Section 245, Income Tax Act, 1952.
At a general meeting on 14th February, 1957, the Company adopted accounts for the period 1st April, 1956, to 31st January, 1957, showing a net profit of £32,103, and writing back reserves and provisions no longer required amounting to £129,742. It also resolved that no dividend should be paid for that period except the dividend on its 20,000 6 per cent. £1 redeemable preference shares.
On 27th August, 1957, a notice was issued to the Company under Section 250(1), Income Tax Act, 1952, in respect of the period 1st April, 1956, to 31st January, 1957. At an extraordinary general meeting on 13th December, 1957, the Company resolved to pay a dividend for that period on its ordinary shares amounting to £34,000 net (£59,130 gross). On 7th July, 1958, a direction under Section 245 was given in respect of the said period, and the actual income was apportioned as follows: to holders of the redeemable preference shares, £1,000; to holders of the ordinary shares (on a time basis) for the period 1st April, 1956, to 28th January, 1957, £54,282, and for the period 29th to 31st January, 1957, £537.
On appeal, the Company contended (a) that under Section 256(4) it was outside Section 245, because at the date to which the accounts were made up it was controlled by a company outside Section 245; alternatively, (b) that the whole of the Company's income was distributed within a reasonable time; alternatively, (c) that the basis of the apportionment was erroneous. For the Crown it was contended (i) that the Company was within Section 245 by virtue of Section 256(2)(c)(i) and the proviso to Section 256(4), and (ii) that the Company had not distributed a reasonable part of its actual income within a reasonable time after the end of the accounting period. The Special Commissioners held (1) that, on the assumption that a direction could be given, more than half the Company's income could, under the decision in Fendoch Investment Trust Co. v. Commissioners of Inland Revenue, 27 T.C. 53, be apportioned to the individuals who were members up to 28th January, 1957, and accordingly the Company was not a "subsidiary" within Section 256(4); (2) that, having resolved at its general meeting on 14th February, 1957, to pay no further dividend for the period to 31st January, 1957, the Company had not made a reasonable distribution within a reasonable time after the end of that period; (3) that the time basis was the correct basis for the apportionment.
Held, in the Court of Appeal (which upheld the Commissioners' decision that the Company was a company to which Section 245 applied), that the Commissioners were entitled to reach their decision on the question of fact whether the dividend had been paid within a reasonable time.
in the House of Lords, that the interests of the members to be considered under Section 248, Income Tax Act, 1952, were the interests surviving at the end of the relevant period, and accordingly the Company was not a company to which Section 245 applied.
Fendoch Investment Trust Co. v. Commissioners of Inland Revenue,27 T.C. 53, distinguished.
(1) C.H.W. (Huddersfield), Ltd. v. Commissioners of Inland Revenue
Stated under the Income Tax Act, 1952, Sections 229(4) and 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
I. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 18th and 19th June and 21st December, 1959, C.H.W. (Huddersfield), Ltd. (hereinafter called "the Appellant Company"), appealed against a direction and an apportionment made under the provisions of Sections 245 and 248 of the Income Tax Act, 1952, in respect of the period from 1st April, 1956, to 31st January, 1957, on the grounds that:
(a) at the date to which the Appellant Company's accounts were made up, 90 per cent. of its issued share capital was held by a company to which Section 245 did not apply, and the Appellant Company was therefore a subsidiary company within the meaning of Section 256(4) and was exempted from the provisions of Section 245 by Section 256(1); and, alternatively,
(b) the whole income of the Appellant Company for the period was distributed within a reasonable time.
II. The following documents were produced and admitted at the hearing of the appeal.
(A) Copy of the memorandum and articles of association of the Appellant Company.
(B) Copy of the special resolutions passed at the extraordinary general meeting of the Appellant Company on 23rd January, 1957.
(C) Copy of an agreement of 28th January, 1957, between George Garside & Son, Ltd. (subsequently the Appellant Company), C.H.W. (Huddersfield), Ltd., and C.H.I. (Huddersfield), Ltd.
(D) Copy of an agreement of 28th January, 1957, between George Garside & Son, Ltd. (subsequently the Appellant Company), of the one part, and W. Garside, T. Spencer, G. Garside and K.H. Spencer, of the other part.
(E) Copy of an agreement of 29th January, 1957, between W. Garside, T. Spencer, G. Garside and K.H. Spencer, of the one part, and Standard Industrial Trust, Ltd., and Anglo-French Trust, Ltd., of the other part.
(F) Copy of an ordinary resolution passed at an extraordinary general meeting of the Appellant Company on 1st February, 1957.
(G) Copy of the accounts of the Appellant Company for the periods from 1st April, 1956, to 31st January, 1957, and for the following 14 months to 31st March, 1958, together with copies of the directors' reports of 11th February, 1957, and 24th November, 1958.
(H) Copies of summaries of the accounts of the Appellant Company and of its shareholdings and loans to members.
(I) Copy of a special resolution passed at an extraordinary general meeting of the Appellant Company on 14th February, 1957.
(J) Copy of an extract from the minutes of the annual general meeting of the Appellant Company on 14th February, 1957.
(K) Copy of special resolutions passed at an extraordinary general meeting of the Appellant Company on 27th February, 1957.
(L) Copy of a notice issued to the Appellant Company under Section 250(1), Income Tax Act, 1952, together with an agreed bundle of correspondence.
(M) Copy of a minute of a resolution passed at an extraordinary general meeting of the Appellant Company on 13th December, 1957.
Copies of documents marked "F", "H", "I", "J", "K" and "L" are not annexed hereto and do not form part of this Case, but are available for the use of the High Court if required.
III. The following facts were agreed and admitted:
1. The Appellant Company was incorporated as a private company on 20th April, 1949, under the name of George Garside & Son, Ltd., to take over, as a going concern, the trade of wool merchants carried on in partnership by W. Garside, T. Spencer, G. Garside and K.H. Spencer under the name or style of George Garside & Son at Halifax.
2. The registered office of the Appellant Company was at 23, Square Road, Halifax, until 13th February, 1958, when it was changed to 73-78 High Holborn, London, W.C.1.
3. The nominal capital of the Appellant Company was £50,000 divided into 50,000 shares of £1 each, and, pursuant to the memorandum and articles of association, this capital was sub-divided into 20,000 6 per cent. non-cumulative redeemable preference shares of £1 each and 30,000 ordinary shares of £1 each. A copy of the Appellant Company's memorandum and articles of association is annexed hereto, marked "A"(1).
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4. Under a vending agreement dated 20th April, 1949, the Appellant Company purchased the above business from the four above-mentioned partners for a consideration of £187,238, satisfied as follows:
£
£
20,000
6 per cent. non-cumulative redeemable £1 preference shares in the Appellant Company.
30,000
£1 ordinary shares in the Appellant Company.
95,455
Partners' loans taken over by the Appellant Company.
41,783
Former partner's loan taken over by the Appellant Company (J. E. Garside, deceased).
137,238
187,238
4. This trade was carried on by the Appellant Company until the close of business on 31st January, 1957.
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4. The original loans taken over were as follows:
£
W. Garside
…
…
…
36,059
T. Spencer
…
…
…
32,745
G. Garside
…
…
…
14,308
K. H. Spencer
…
…
…
12,343
Executors of J. E. Garside
…
…
…
41,783
137,238
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5. The whole share capital of the Appellant Company was issued and, at all material times prior to 23rd January, 1957, held as follows:
Registered holder
Preference shares
Ordinary shares
G. Garside
5000
14,990
K. H. Spencer
5000
14,990
T. Spencer
5000
10
W. Garside
5000
10
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5.
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6. The directors of the Appellant Company as from 21st April, 1949, were as follows:
Date of
Date...
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