CLARK and The LANGRANGE TRUST and INVESTMENT Company, Ltd ((in Liquidation)) v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 28 March 1947 |
| Date | 28 March 1947 |
| Court | House of Lords |
NO. 1367-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Sur-tax - Settlement - Transfer of assets to company controlled by transferor - Consideration applied in acquisition of ordinary and deferred shares in the company - Settlement by transferor of deferred shares for benefit of children - Whether series of operations an arrangement constituting a "settlement" - Undistributed income of investment company - Direction and apportionment of company's income - Whether apportionment valid - Finance Act, 1938 (1 & 2 Geo. VI, c. 46), Sections 38 and 41; Finance Act, 1939 (2 & 3 Geo. VI, c. 41), Section 15.
The Appellant Company, an investment company within the meaning of Section 20 (1) of the Finance Act, 1936, was incorporated in November, 1929, to acquire the individual Appellant's residence, and certain of his investments and life policies. On receipt of the purchase money, the Appellant subscribed for 98 out of 100 ordinary shares and 29,900 out of 30,000 deferred shares in the Appellant Company. He executed a deed of settlement dated 19th December, 1929, by which it was declared that the trustees - himself, his wife and his solicitor - should hold the said 29,900 deferred shares on trust for the benefit of his two children (both of age at 5th April, 1936) and their issue and spouses as he should from time to time appoint. In 1933 the trustees subscribed for and were allotted 14,202 out of a further issue of 15,000 deferred shares.
By a revocable deed of appointment dated 1st July, 1931, the Appellant, in exercise of his powers of appointment under the settlement of 1929, appointed the trust fund to be divided into two equal shares to be appropriated to his son and daughter respectively, the son's share of the income to be accumulated until he attained the age of 30, and the daughter's share until she became 21, on reaching which ages the children were to become entitled to life interests on protective trusts. The Appellant revoked this deed by a deed of revocation and appointment dated 4th October, 1933, and made an irrevocable appointment of the trust funds whereby their income was to be accumulated until 1950, or until the death of the settlor, whichever was the earlier. The deed reserved a restricted power of variation of the period of accumulation but for the period material to the case the whole of the income was in fact accumulated.
The Company was a private one and its constitution gave the Appellant the widest powers over its destiny and the application of its income and assets, both in his capacity as governing director and as the holder of 97 ordinary shares. His wife also held one ordinary share.
An additional assessment to Sur-tax was made on the Appellant for the year 1937-38 under Section 38 of the Finance Act, 1938, and directions were made on the Appellant Company for the years 1938-39, 1939-40 and 1940-41 under Section 21 of the Finance Act, 1922, and Section 14 of the Finance Act, 1939, the actual income of the Company being wholly apportioned for those years to the Appellant. Appeal was lodged against the additional assessment to Sur-tax and against the apportionments for the years in question (but not against the directions). The Special Commissioners held that, as regards the additional assessment on the Appellant for 1937-38, the formation of the Appellant Company, the transfer to it of assets by the Appellant, the execution of the deed of settlement of 19th December, 1929, together with the later deeds of appointment and revocation, and the allotment of the Appellant Company's shares, together constituted an arrangement and therefore a "settlement" within the meaning of Section 41 (4) (b) of the Finance Act, 1938, and that the "settlement" came within the terms of Section 38 of the Finance Act, 1938. As regards the apportionments for the years 1938-39 to 1940-41, they held that the necessary requirements of Section 15 of the Finance Act, 1939, had been satisfied and that the whole of the actual income of the Appellant Company for each of the years in question had been correctly apportioned to the Appellant.
Held, (1) (Court of Appeal) that the general arrangements under which the Company was formed, the deed of settlement was entered into and the deed of appointment made did not constitute a "settlement" within the meaning of Section 41 (4) (b) of the Finance Act, 1938. Chamberlain v. Commissioners of Inland Revenue, 25 T.C. 317, followed;
(2) (House of Lords) that the apportionment of income of the Appellant Company under Section 15 of the Finance Act, 1939, for the years 1938-39 to 1940-41 was correct. Commissioners of Inland Revenue v. L.B. (Holdings), Ltd., 28 T.C. 1, followed.
Stated under the Finance Act, 1927, Section 42(7), and Income Tax Act, 1918, Section 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 12th September, 1941, C.F. Clark and the Langrange Trust and Investment Co., Ltd. (in liquidation) (hereinafter called respectively "the Appellant" and "the Appellant Company") appealed against:-
(2) an additional assessment to Sur-tax made on the Appellant for the year ending 5th April, 1938, in the sum of £20,258;
(3) apportionments of the income of the Appellant Company for the years ending 5th April, 1939, 1940 and 1941.
2. The said additional assessment to Sur-tax was made on the Appellant under the provisions of Section 38 of the Finance Act, 1938. The said apportionments apportioning the actual income of the Appellant Company wholly to the Appellant were made under the provisions of Section 15 of the Finance Act, 1939. There was no appeal against the directions made in respect of the years ended 5th April, 1939, 1940 and 1941 on the Appellant Company. There is no appeal in respect of the apportionment of its estate or trading income for these years.
3. The Appellant Company, which is an investment company within the meaning of Section 20(1) of the Finance Act, 1936, was incorporated on 29th November, 1929. A copy of its memorandum and articles of association is annexed hereto, marked "A", and forms part of this Case(1) . It was formed to acquire from the Appellant his residence called Ripley Grange, certain investments and policies of life assurance, valued at £114,046. Our attention at the hearing was directed in particular to paragraph 5 of the memorandum, to articles 5, 13, 14 and 22 and to the deletion of article 13 and substitution of another article therefor by extraordinary resolution dated 12th September, 1939. A copy of the extraordinary resolution is annexed hereto, marked "B", and forms part of this Case(1).
4. On 13th December, 1929, the Appellant entered into an agreement with the Appellant Company to sell to it the aforesaid property, investments and policies of life assurance for the sum of £30,000. A copy of this agreement is annexed hereto, marked "C", and forms part of this Case(1). On receipt of the purchase money the Appellant applied and subscribed for 98 ordinary shares and 29,900 deferred shares in the Appellant Company. By his direction these 29,900 deferred shares were allotted to trustees of a settlement dated 19th December, 1929, hereinafter referred to.
5. In 1933 the authorised capital of the Appellant Company was increased to 45,000 shares by the creation of a further 15,000 deferred shares of £1 each. The trustees of the said settlement subscribed for and were allotted 14,202 of the said further deferred shares.
The issued capital of the Appellant Company, at all times material to this appeal, was £44,202 and was held as follows:-
Ordinary |
Deferred |
|
Appellant |
97 |
- |
His wife |
f1 |
- |
His son |
1 |
- |
His daughter |
1 |
- |
Trustees of the settlement dated |
||
19th December, 1929 |
- |
44,102 |
Copies of the accounts of the Appellant Company for the years ending 31st March, 1938, 1939 and 1940 and for the period to 12th August, 1940, are contained in a bundle which is annexed hereto, marked "D", and forms part of this Case(1).
The Appellant Company went into voluntary liquidation on 13th August, 1940.
6. By a deed of settlement dated 19th December, 1929, made between the Appellant as settlor and the Appellant, his wife and Mr. R.C. Bartlett, a solicitor, as trustees, it was declared that the trustees should stand possessed of the said 29,900 deferred shares in the Appellant Company upon trust for the benefit of the Appellant's two children, Charles Alexander Clark born in 1906 and Kathleen Clark born in 1912 and their respective issue and spouses at such ages or times and in such shares and in such manner in all respects as the settlor should from time to time by deed revocable or irrevocable or by will or codicil
appoint. Both the said children were of age at 5th April, 1936. A copy of this deed is annexed hereto, marked "E", and forms part of this Case(1).7. By a revocable deed of appointment dated 1st July, 1931, made between the same parties, the Appellant in the exercise of his powers of appointment under the said deed dated 19th December, 1929, appointed that the trust fund should be divided into two equal shares to be appropriated to his said son and his said daughter respectively; that until the said son attained the age of 30, the whole of his share of the income was to be accumulated, whereupon he was to become entitled to a life interest on protective trusts; and that the share of the said daughter was to be held upon a similar trust except that the income was to accumulate until she attained the age of 21. A copy of this deed is annexed hereto, marked "F", and forms part of this Case(1).
8. By a deed of revocation and appointment dated 4th October, 1933, made between the same parties, the...
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