Commissioners of Inland Revenue v Collco Dealings Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal
JudgeLORD JUSTICE PEARCE,LORD JUSTICE HARMAN,THE MASTER OF THE ROLLS
Judgment Date10 Mar 1960
Judgment citation (vLex)[1960] EWCA Civ J0310-3

[1960] EWCA Civ J0310-3

In The Supreme Court of Judicature

Court of Appeal

Before:

The Master of the Rolls

Lord Justice Pearce

Lord Justice Harman

Between
Commissioners of Inland Revenue
Appellants
- and -
Collco Dealing Ltd.
Respondents
And Between
Commissioners of Revenue
Appellants
- and -
Lucber Dealing Ltd.
Respondents

MR JOHN FOSTER, Q.C., and MR P. SHELBOURNE (instructed by Messrs R.M. Bull & Co., 152, Chiswick High Road, W.4) appeared as Counsel for the Appellants.

THE ATTORNEY GENERAL (Sir Reginald Manningham-Buller, Q.C.) MR E. BLINSHARD STAMP and MR ALAN ORR (instructed by the Solicitor of Inland Revenue, Somerset House. Strand. London. W.C.2) appeared as Counsel for the

1

The Appelants in this appeal, Collco Dealing Ltd., are, in effect, seeking to recover as being a person resident in the Irish Republic.

2

The facts of the case are set out in paragraph 2 of the Case Stated, and I need do no more than summarise those facts. The Appellant company and November it purchase shares in English companies from another English company called Matrine Finance Ltd. To the ordinary man the story has an arresting quality. The shares in the first company so purchased were shares had at the material time an issued capital 1,000 ordinary shares of £1 each. That company then proceeded, no doubt under the impetus of the new share owners, to declare and pay a dividend of 17,450 percent on the shares. That large dividend was paid to a substantial extent, at any rate, out of the accumulated past profits in respect of which United Kingdom income tax had been paid. The transaction fell within a description known as "dividend Stripping".

3

Apart from the 1955 legislation the Irish Appellant would, as I have already stated, either certainly or in all probability, have been able to recover from the English Revenue net, as we were informed, the actual tax which had been paid in respect of the accumulated profits, but a sum of income tax (which might have been larger) calculated by grossing up this vast dividend; but the right so to recover such a sum must - and I put this early in my judgment and in the forefront of it - depend upon some statutory right to be found in English legislation.

4

Now, as a matte of history, a series of Agreements had been made between representatives of the Government, on the one side, of the United Kingdom, and on the other side of what was formerly the Irish Free State and later became the Irish Republic. Those Agreements were confirmed in both countries by appropriate legislation. So far as this case is concerned, it will only be necessary to pay regard, except in passing, to the English legislation contained in the consolidating Income Tax Act of 1952, and section 349, of that Act in particular, and in section 4 of the Finance act, 1955, to which I have earlier alluded. But in order to make more clear the history and, I hope, the arguments, it is necessary to have in mind that the first of the Agreements which I have mentioned was made in the year 1926 between the representatives of the two Governments I have named. It is now to be found in Schedule 18 of the Income Tax Act of 1952. The effect of it, so far as relevant, was that a person who should prove to the satisfaction of the Commissioners of Inland Revenue in England that he was a resident in the Irish Free State and not a resident in Great Britain or Northern Ireland should be entitled to exemption for British income tax for the year in question in respecto properties situated in and profits and gains arising in or from Great Britain and Northern Ireland, and also to exemption from British supertax for the same year. There was a corresponding arrangement for the benefit of English residents ad respects property in the Irish Free State. That was the purpose of the Agreement, and it was executed by Ministers on both sides.

5

Article 8 provided as follows: "This Agreement shall be subject to Confirmation by the British Parliament and by" - the Irish Free State Parliament - "and shall have effect only if and so long as legislation confirming the Agreement is in force in both countries". That, it is hardly necessary to say, was necessary in order that individual citizens of the two countries should, in fact, enjoy the rights which the Agreement intended to confer or provide.

6

Now, that is the Agreement, the intended benefit of which the Appellant in this case asserts. The Agreement was later modified twice during the relevant period. The first modification came about in the year 1928 and was rendered desirable or necessary because there was in this country substituted for what was called super-tax a new designation, surtax, so that appropriate United Kingdom legislation, would be inapposite since it referred to super-tax and not surtax. In the same way in 1947 another Agreement was made between representatives or the two countries in order to deal with this sort of case: an English company might not in truth have paid British income tax at the standard rate because, owing to arrangements applicable between this country and other countries also on shrined in English legislation, the English company in question might only have paid a smaller rate, called not United Kingdom rate; and the Agreement signed in July, 1947, was intended to make applicable to Irish residents comprehended by the original Agreement the net United Kingdom rate of tax instead of the standard British income tax rate, where applicable.

7

I have mentioned these later Agreements in order that the history may be understand, but as I said earlier, the claim here rests upon the effect (as implemented in legislation) of the 1926 Agreement, and we are not in this case concerned with the later modifications save to the extent that part of Mr Foster's forcible argument for the Appellant turned in some measure upon what happened in 1945, 1947 and 1948 in connection with this so-called net United Kingdom rate, and to that argument I shall presently return.

8

The 1926 Agreement was, in accordance with the contemplation of its eighth Article, implemented by English legislation shortly afterwards. That legislation wan later reproduced in section 349 of the consolidating Act, the Income Tax Act, 1952. I will therefore at once turn to that section. Subsection (1) reads: "(1) The confirmation, by section twenty-three of the Finance Act, 1926, section twenty-one of the Finance Act, 1928, and section thirty-seven of the Finance Act, 1948, of the agreements in force at the passing of this Act between the United Kingdom and the Republic of Ireland which are set out in part I of the Eighteenth Schedule to this Act is not affected by the repeal by this Act, of the said sections twenty-three, twenty-one and thirty-seven." The purpose of that subsection is obvious. As I have stated, the Agreements in questions are set out in the Eighteenth Schedule from which I have already read some reference. I come to subsection (2) of Section 349: "Accordingly the first of the said agreements," - that is, the 1926 Agreement - "as modified by the second and third of the said agreements, shall, for any year assessment for which, under the law of the Republic of Ireland, it has effect with respect to exemption and relief from Republic Of Ireland tax, have effect with respect to exemption or relief to be granted from United Kingdom tax, and the reference in the said agreements to enactment repealed by this Act shall be taken for that purpose to be reference to the corresponding provisions of this Act", and there was then a provision which I can pass over.

9

I make one short reference to subtraction (3): "For the purpose of giving effect to the said agreements, this Act, in relation to. (c) claims by persons resident in the Republic of Ireland, shall, for any year for which the said agreement are in force, have effect subject to the modifications set out in Part III of the said Eighteenth Schedule."

10

Part III of the Eighteenth Schedule is headed: "Provisions for giving effect to to Agreements set out in Part, 1 of this Schedule", including of course, the 1926 Agreement, and it is true to say that it is substantially what are would call a series of mechanical provisions to make appropriate for the cases contemplated the relevant parts of the fiscal legislation in England, which is notoriously complex, in particular to make applicable the terms of Schedule D for the purposes of taxation computations, and so forth. We have not examined closely the precise effect of these provisions, and I am not suggesting that they in any real way qualify the prime facie right which would be given to an Irish resident by section 349, subsection (2), standing alone, that is to say, by the statement that the Agreement and the rights intended to be enjoyed by Irish residents should have effect in England. I only observe that by the terms of subsection (3) the giving effect to the Agreements should for any year have effect subject to certain modifications. It is sufficient to say that in so far as there was any modification of the rights intended to be conferred it would obviously not go to the root of the matter but would be a modification based rather on procedural considerations. Still, I mention it for reasons which may later become more apparent.

11

It is plain enough so far that what the English Parliament did in 1952 was to say that the terms of the 1926 Agreement as stated in Part I of the Eighteenth Schedule should be incorporated in the English law as part of the Income Tax Act, 1952, and should take effect and be effective in English law. It is clear and must not be forgotten (and, indeed, I have already stated it) that if an Irish citizen desires to take advantage of the benefit which the 1926 Agreement intended that he should enjoy, he must be able to invoke for that purpose some provision of the English law, more...

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