Canadian Eagle Oil Company v The King; Selection Trust Ltd v Devitt (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | Viscount Simon,Lord Thankerton,Lord Russell of Killowen,Lord Macmillan,Lord Simonds |
| Judgment Date | 30 July 1945 |
| Judgment citation (vLex) | [1945] UKHL J0730-1 |
| Date | 30 July 1945 |
| Court | House of Lords |
[1945] UKHL J0730-1
Viscount Simon
Lord Thankerton
Lord Russell of Killowen
Lord Macmillan
Lord Simonds
House of Lords
After hearing Counsel as well on Tuesday the 29th day of May last, as on Friday the 1st, Monday the 4th, Tuesday the 5th, Wednesday the 6th, Thursday the 7th, Monday the 11th, Wednesday the 13th and Thursday the 14th, days of June last, upon the Petition and Appeal of Canadian Eagle Oil Company, Limited, of Canadian Bank of Commerce Building, Toronto, Canada, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal, of the 24th of May 1944, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order might be reversed, varied, or altered, or that the Petitioners might have such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of His Majesty's Attorney-General (on behalf of His Majesty the King) lodged in answer to the said Appeal, and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, in the name of the House of Lords, by the Lords of Appeal sitting in the House of Lords during the Dissolution of Parliament, by virtue of a Writing by His Majesty the King under His Sign Manual, dated the 15th day of June 1945, pursuant to the provisions of the Appellate Jurisdiction Act, 1876, That the said Order of His Majesty's Court of Appeal, of the 24th day of May 1944, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondent the Costs incurred by him in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
These two appeals were heard in immediate succession, in order that the House might give judgment upon them together.
Canadian Eagle Oil Company's Appeal.
The Suppliant in this Petition of Right, the Canadian Eagle Oil Company Limited, is a company incorporated in Canada and not resident in the United Kingdom. Many of its shareholders, however, are resident in this country. Their shares are of three different categories, cumulative First Preference Shares entitling the holders to dividends at a fixed rate, Participating Preference Shares entitling them to dividends at a fixed rate and in certain circumstances to further dividends at a rate determined upon each particular occasion of distribution, and Ordinary Shares which entitle them to dividends at rates so to be determined. Their dividends are paid to them, under deduction of tax, by the Midland Bank Limited as agent in this country for the suppliant company.
The company does not carry on trade in the United Kingdom; but it receives income amenable to the Income Tax Acts in this country from three sources, viz., dividends on shares in British companies, interest on loans, and interest on moneys deposited with banks; in respect of the two former income tax is levied by deduction at the source, in respect of the last by direct assessment.
For a number of years, the company received repayments of the tax thus deducted by the Midland Bank from dividends paid to its shareholders resident in the United Kingdom, according to the rule adopted by the Court of Appeal in Gilbertson v. Fergusson (1881) 7 Q.B.D.562; 1 Tax Cases 501; that is to say, so much of the amount of tax deducted against shareholders of all three classes as was found by means of a proportionate sum to be attributable to that part of the company's income which was, as above stated, subject to United Kingdom income tax, was repaid to the company. Later, however, this repayment was confined to a similar proportion of the tax deducted against the holders of Ordinary Shares alone, a practice which was not disapproved by the House of Lords in Barnes v. Hely-Hutchinson [1940] A.C.81; 22 Tax Cases 655. At a later stage, however, in 1940, in deference to certain observations made in that case, the proportion for repayment was calculated only in relation to the company's directly-assessed income from deposits, and the two categories of income upon which tax was deducted against the company at the source were left out of account. The comparatively small sum thus tendered in repayment was refused by the company.
As a result, the company, relying still upon the full application of the rule in Gilbertson v. Fergusson, claims to be entitled to repayment in respect of dividends on both classes of Preference Shares for the years ending 5th April, 1932, 1934, 1937, 1938, 1939 and 1940 (the years intervening and omitted are years in which no dividend was paid); and in respect of dividends on the Ordinary Shares for the year ending 5th April, 1940. It is claimed that the amount repayable should be calculated, in relation to all three categories of the company's income that are charged in the United Kingdom, by the method already mentioned.
A Petition of Right has been presented accordingly. The Attorney-General has demurred to the petition; and the demurrer has been upheld by the Courts below. (Macnaghten J : and in C.A., Scott, Goddard and du Parcq L.J J.)
At the time when Gilbertson v. Fergusson arose and was decided, the Income Tax Acts of 1842 and 1853 were the principal ones in force. By the latter Act, the more general terms of Schedule D in the Act of 1842, were replaced by granting the duties (so far as material to the present subject) "for and in respect of the annual profits or gains arising or accruing to any person residing in the United Kingdom from any kind of property whatever, whether situate in the United Kingdom or elsewhere …"; s. 2, Schedule D. Such a description includes (among many other matters) "all interest, dividends or other annual payments payable out of or in respect of the stocks, funds or shares of any foreign company …" and by s. 10 of the Act of 1853, in which those words are found, provision was made for the levy of the tax on this particular kind of income. This was done, it is important to notice, not by assimilating the procedure to that which regulated the levy of tax on the profits of a United Kingdom company or even of its shareholders, but by applying mutatis mutandis the provisions of s. 2 of the Income Tax (Foreign Dividends) Act, 1842, which related to dividends or shares of annuities payable out of the revenues of any foreign state. By s. 10 of the Act of 1853, then, when any "dividends … in respect of the … shares of any foreign company … have been … entrusted to any person in the United Kingdom for payment to any persons … in the United Kingdom," all persons "entrusted" with such payments or "acting therein as agents …" are required to do what was required of paying agents by the Foreign Dividends Act of 1842; that is, putting it shortly, to render accounts, submit to assessments, and pay the duty on such dividends; and moreover (for s. 2 of the Foreign Dividends Act, 1842, in its turn prays in aid the provisions of s. 93 of the Income Tax Act, 1842, relating to payments out of public revenues) to "set apart and retain" the amount of duty in making the payments to the persons entitled to receive them—in other words, to deduct the tax at the source; and s. 93 acquits and discharges the paying agents of the amount of the tax deducted as if it had been paid to the recipients of the dividends.
It is manifest from a consideration of the enactments thus summarised that the only power in the Revenue authorities to make repayment, or in the courts to order it, in accordance with the rule laid down in Gilbertson v. Fergusson, was for repayment through the paying agents who had deducted the tax to the shareholders who were entitled to receive the dividends. The company whose shares they held was not liable to the deduction of the tax, nor entitled to any repayment of it; this was recognised by Cotton L.J. in the passages of his judgment (7 Q.B.D. pp. 572, 574) which were referred to by Goddard L.J. in the Court of Appeal in the present case, as well as by Bramwell L.J. at p. 569. Indeed, in Gilbertson v. Fergusson, the company was not a party; the appellant, Mr. Gilbertson, was a member and the representative of the London Committee who acted as the paying agents.
So far as this point is concerned, the legal position has not been changed by the repeal of the Acts of 1842 and 1853 and their replacement by the Income Tax Act, 1918. The awkward arrangement of the relevant provisions has been but slightly modified by the Act of 1918, and their effect remains practically unaltered. By rule 7 (1) of the Miscellaneous Rules of Schedule D, "Where any … dividends … payable … in respect of the … shares of any foreign or colonial company … are entrusted to any person in the United Kingdom, for payment to any persons in the United Kingdom, the same shall be assessed and charged to tax under this Schedule by the special commissioners"; and by sub-rule (2) the provisions commonly called the "Paying Agents Rules" of Schedule C, which are primarily concerned with interest, etc., payable out of any public revenue, are extended to the tax to be assessed and charged under rule 7. Rule 3 of the Paying Agents Rules directs the person entrusted with payment, out of the moneys in his hands, "to pay the tax on the dividends "on behalf of the persons entitled thereto"; and he is to be acquitted in respect of all such payments. The substantive authority for charging dividends in respect of shares in a foreign or colonial company with tax is given by 1 ( a) (i) of Schedule D:—
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