Commissioners of Inland Revenue v Westleigh Estates Company ; Commissioners of Inland Revenue v South Behar Ry. Company ; Commissioners of Inland Revenue v Eccentric Club
| Jurisdiction | England & Wales |
| Judge | Lord Dunedin,Lord Atkinson,Lord Sumner,Lord Buckmaster,The Lord Chancellor |
| Judgment Date | 19 February 1925 |
| Judgment citation (vLex) | [1925] UKHL J0219-2 |
| Date | 19 February 1925 |
| Court | House of Lords |
[1925] UKHL J0219-2
House of Lords
Lord Chancellor.
Lord Dunedin.
Lord Atkinson.
Lord Sumner.
Lord Buckmaster.
After hearing Counsel for the Appellants, as well on Friday the 23d as Monday the 26th, days of January last, upon the Petition and Appeal of the South Behar Railway Company, Limited, whose registered office is situate at 25, Buckingham Palace Road, in the City of Westminster, 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 17th of December 1923, 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 the Commissioners of Inland Revenue, lodged in answer to the said Appeal; and Counsel appearing for the Respondents, but not being called upon; and due consideration being had of what was offered for the said Appellants:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 17th day of December 1923, 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 Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
It is admitted that this Company was no abortive paper conception, but that it actually, after its formation, proceeded to carry on business. What was that business? Necessarily, the business contemplated by its Memorandum and Articles of Association. Now if these be read it becomes apparent that during the life of the Company there would be, so to speak, two periods, the first during which the Company would be active and engaged in furnishing funds and plant, the second during which it would be quiescent, and engaged in receiving its proportion of the profits of the railways which had been created through its efforts. Accordingly, up to 1906 it seems to me undoubted that this Company was carrying on business.
The sole question, therefore, seems to be, did the agreement of 1906 have the effect of sending the Company out of business? What was the agreement of 1906? It was simply this, that instead of taking its remuneration in the form of a percentage of profits, a sum which must necessarily fluctuate, it agreed to take a fixed sum. My Lords, I cannot think that that operated any change in what the Company was doing. The Appellants say that after 1906 the Company became an annuitant. I do not find in the Memorandum any provision to ask the Company to undertake the business of an annuitant, if indeed such a phrase is not in itself absurd, no one ever having heard of such a business. I am, therefore, of opinion that the Company carried on business after 1906 precisely as it did before, and that the Appeal consequently fails.
My Lords,
I have had the pleasure and advantage of reading the judgment delivered by my noble and learned friend on the Woolsack and I entirely concur in it.
My Lords,
The question here appears to be whether there was evidence before the Commissioners upon which it could be predicated of the Appellant Company, that, during the year of charge, it was "carrying on any trade or business or any undertaking of a similar character, including the holding of investments." Perhaps I ought to add the words "within the meaning of the Finance Act, 1920, section 52 (2) ( a)," but I think this really adds nothing to the quoted words themselves, and only indicates where they may be found. The statute does not define any of these words, but leaves them to their vernacular meaning and, where the Legislature did not think fit to tread, I certainly have no mind to rush in. Nor is much help to be got from the authorities, for the expression "carrying on a trade or business," has generally been discussed in totally different contexts. Thus the distinction between a trust for holding property and a "carrying on of a business" is illustrated in ( Smith v. Anderson 15 Ch. D. 247), but there can be no question here of any trust holding property for beneficiaries and the issue is between carrying on a business and being out of business altogether.
To ascertain the business of a limited liability company one must look first at its Memorandum and see for what business that provides and whether its objects are still being pursued ( Korea Syndicate's case 1921, 3 K.B. 258). It is common ground that the Company, when first incorporated and for some years afterwards, did carry on a business, or an undertaking of a similar character, for it embarked its very considerable capital in making a railway, and there, as a matter of fact, that capital still remains. That the actual construction and working of the line were by agreement entrusted by the Company to third parties, does not affect the matter, for this was merely the way in which the Company's business was carried on. Under the contract with the Secretary of State for India, which the Company was formed to enter into, the line may be sufficiently, if not exactly, described as a line built with the Company's money on land provided by the Secretary of State, and worked for the Company by the Secretary's nominees for 45 per cent. of the gross earnings. The residue of the gross earnings belonged to the Appellants. Under this system, the profits made by the Company in carrying on this business would certainly vary from year to year and may have been precarious, but, such as they were, they accrued from the Company's interest in the working of the line, which its money had built. In 1906, this system was altered by a further agreement and, instead of sharing in the gross takings of the line, the Company now received from the Secretary of State a fixed sum of 30,000 l. a year. This sum was not to be secured by any charge or lien on the railway or its earnings, but, as the original contract provided for no such security for the Company's share of the gross takings, this provision seems to have been inserted merely ex abundanti cautela. In other important respects the principal contract remained unaffected, although it may well be, that, during the year of charge and other years both before and after it, some of the provisions of the contract did not in these respects actually become operative. Thus the right of the Secretary of State to purchase the line at a defined price remained and remains unexercised and in being. Accordingly as long as the Secretary of State caused his current obligations to be discharged and did not exercise this right of purchase, the line built with the Company's money would remain beyond its control and the capital embarked in it would be unrealisable. So, too, sundry obligations upon the Company to find further capital remained outstanding, e.g., for the repair of extraordinary damage to the line, and for reasonable alterations in or additions to it. Thus the change made in 1906 would appear to have been less considerable than it looks at first sight. The Company's capital was locked up as before and might be liquidated as before, if the right of purchase were exercised. The outstanding and contingent obligations remained as before. A fixed sum, for which the Secretary of State was liable, replaced that fixed percentage of gross earnings, over which, for better for worse, the Company had no control. This, then, was the only...
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