C L Dreyfus v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 17 June 1929 |
| Date | 17 June 1929 |
| Court | King's Bench Division |
NO. 727.-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
COURT OF APPEAL.-
Super-tax - Société en nom collectif - Whether a partnership - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Section 20 and Schedule D, Cases I and II, Rule 10.
The Appellants in these two cases were, for the years material in the present connection, the only persons interested in the profits of a "Société en nom collectif", a business organisation under French law in many respects similar to a partnership. The Société was directed and controlled in France but carried on business in various countries including the United Kingdom. It was assessed to Income Tax in respect of the profits of the trade carried on in the United Kingdom.
Super-tax assessments were made upon each of the Appellants upon the footing that they were in the position of partners in a partnership, the amounts of the assessments being arrived at by dividing the amounts of the Income Tax assessments in the same proportion as, it was understood, the total distributed profits of the Société were divisible between the Appellants.
The Appellants' main contentions were that the trade exercised in the United Kingdom from which the profits assessed arose was the trade of the Société, that the Société was an entity distinct from themselves, that they were not partners in a partnership exercising a trade in the United Kingdom and that no profits arose to themselves individually in the United Kingdom, and that there was therefore no liability to Super-tax.
Held, that the Société was a legal person distinct from the individuals composing it and that the profits in question were not the profits of a partnership within the meaning of Section 20 of the Income Tax Act, 1918.
(1) C.L. Dreyfus v. The Commissioners of Inland Revenue.
CASE
Stated under the Income Tax Act, 1918, Sections 7 (6) and 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts, held on the 9th November, 1927, for the purpose of hearing appeals, Charles Louis Dreyfus (hereinafter called the Appellant) appealed against assessments to Super-tax in the sum of £16,412 for the year ending the 5th April, 1925, and in the sum of £9,309 for the year ending the 5th April, 1927, made upon him under the provisions of the Income Tax Acts.
2. The assessments under appeal were computed by taking forty-nine per cent. of the Schedule D assessments for the respective preceding years made upon Louis Dreyfus et Compagnie in respect of the profits of the trade carried on by them as grain merchants in the City of London. The assessments under appeal were made on the assumption that Louis Dreyfus et Compagnie was a partnership firm of which the Appellant was a partner entitled to forty-nine per cent. of the profits of the partnership. The Appellant has no other income liable to British Income Tax. No question arises as to figures.
3. The only other person who has an interest in the profits of Louis Dreyfus et Compagnie is Louis Louis Dreyfus, the Appellant's brother, their interests being 49 per cent. and 51 per cent. respectively. Both the Appellant and his brother reside in Paris, where the head office of Louis Dreyfus et Compagnie is situated, and neither of them resides in this country.
4. Louis Dreyfus et Compagnie was founded in 1883 as a "Société commerciale en commandite", Leopold Louis Dreyfus being the "seul gérant", and the only other member E. Hirtz being "simple commanditaire". In 1904 Leopold Louis Dreyfus having acquired a banking business in addition to the grain business formerly carried on, and being desirous that his three sons should be associated with him in the business, arranged that as from the 1st January, 1905, Louis Dreyfus et Compagnie should be a "Société en nom collectif", consisting of Leopold Louis Dreyfus, the said Louis Louis Dreyfus, the said Charles Louis Dreyfus, and Robert Louis Dreyfus, all of whom were "associés en nom collectif" and E. Hirtz who remained "simple commanditaire". In 1905, E. Hirtz assigned his rights to Leopold Louis Dreyfus; in 1907, Robert Louis Dreyfus died; and in 1915, Leopold Louis Dreyfus died.
5. The position at all times material to this appeal is that Louis Dreyfus et Compagnie has been a "Société en nom collectif" of which the Appellant and his brother Louis Louis Dreyfus are the only "associés en nom collectif" and "gérants". The business of the Société is that of grain merchants and this business is carried on in France, Great Britain, the United States of America, and elsewhere. It is directed and controlled from Paris.
6. A copy of the "Statuts" of the Société dated the 21st December, 1904, and a copy of a translation thereof are attached marked A and B respectively and form part of this case(1). As regards this translation it was agreed between the parties that such words and expressions as "Company", "Articles of Association", etc. were to be treated as entirely without prejudice to any question as to the true meaning of the French words and expressions represented thereby. A short summary of the Articles to which attention is particularly drawn is given below:-
Article 1. From the 1st January, 1905, Louis Louis Dreyfus, Charles Louis Dreyfus and Robert Louis Dreyfus, sons of Leopold Louis Dreyfus are admitted in the capacity of "associés en nom collectif". Consequently from that date the Société will continue between the four persons as "associés en nom collectif", E. Hirtz remaining "simple commanditaire".
Article 3. The duration of the Société which was to have come to an end in 1908 is extended to the 31st December, 1929.
Article 4. The style of the Société remains unchanged.
Article 5. Either jointly or separately the four associés have the widest powers of management and administration of the affairs of the Société. In particular they may make or cancel contracts, accept bills, contract loans, and so forth, and do everything that is necessary or useful to the carrying on of the Société's business. All four of them can use the signature of the Société.
Article 6. Leopold Louis Dreyfus is to devote to the affairs of the Société such time as he thinks necessary and may take part in any other business. Louis, Charles and Robert must devote all their time to the business of the Société and may not take part in any other commercial, financial, or industrial operations except with the common consent of the associés.
Article 7. The capital of the Société is raised to twenty million francs divided as follows:-
Francs. |
|
Leopold Louis Dreyfus |
14,900,000 |
E. Hirtz (the Commanditaire) |
100,000 |
Louis Louis Dreyfus |
2500,000 |
Charles |
1500,000 |
Robert |
1000,000 |
20,000,000 |
Each associé is to be credited in his capital account with his share of the capital, and five per cent. interest on capital is to be credited to the current account of each associé annually on the 31st of December.
Article 8. Each associé is to have a current account with the Société, to which is to be credited interest on capital as provided by Article 7, interest on the amount of the current account itself, and any sums which the associé may pay in or lend to the Société with the consent of the other associés.
Article 9. Separate accounts are to be opened for each category of fixed assets owned by the Société and a maximum rate of depreciation is provided for each class of such assets, to be written off annually at each inventory.
Article 11. An inventory is to be taken on the 31st December of each year of the Société's position showing the result of the year's trading. Provision is made for valuing stocks in hand, investments and debts. Each inventory is to be signed by the associés.
Article 12. After each annual inventory the net profits of the Société's business are to be distributed in certain proportions among the associés and the commanditaire. The losses, if any, are to be distributed in the same way with the proviso that in the case of the commanditaire his share in the losses is not to exceed the amount of his investment.
Article 13. The profits so allocated to the four associés are to be credited to their current accounts with the Société. Leopold Louis Dreyfus is allowed to draw out the whole of his share if he thinks fit, but the three other associés are limited in their power of drawing upon their shares of the profits.
Article 14. Leopold Louis Dreyfus shall have the right to cease to be a managing associé and become a "simple commanditaire". If he does this he ceases to take part in the administration of the Société's business, and will be liable for the debts of the Société only to the amount of his investment.
Article 15. Leopold Louis Dreyfus reserves to himself personally the power of causing the Société to cease so far as regards all or any of his three sons, by giving notice to those associés with regard to whom he wishes the contract to cease, and by making certain payments. If he exercises this right he becomes owner of the share or shares of the outgoing associé or associés, even if he himself has meanwhile become "simple commanditaire" under Article 14. Unless Leopold Louis Dreyfus has exercised this right in the case of all the other associés the Société is to continue among the remaining associés.
Leopold Louis Dreyfus has also the right at any time to pay out E. Hirtz, the commanditaire, and to acquire his rights in the Société by paying him the amount of his investment. If Leopold Louis Dreyfus dies or ceases to be a member of the Société this right will belong to the three other associés. In any case this right will be exercised if E. Hirtz dies.
Article 17. If Leopold Louis Dreyfus dies leaving a widow, his widow will become a commanditaire and the Société will continue...
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