Commissioners of Inland Revenue v Collco Dealings Ltd

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeViscount Simonds,Lord Morton of Henryton,Lord Reid,Lord Radcliffe,Lord Guest
Judgment Date02 March 1961
Judgment citation (vLex)[1961] UKHL J0302-2
Date02 March 1961

[1961] UKHL J0302-2

House of Lords

Viscount Simonds

Lord Morton of Henryton

Lord Reid

Lord Radcliffe

Lord Guest

Collco Dealings Limited
Commissioners of Inland Revenue

Upon Report from the Appellate Committee, to whom was referred the Cause Collco Dealings Limited against Commissioners of Inland Revenue, that the Committee had heard Counsel, as well on Wednesday the 8th, as on Thursday, the 9th, days of February last, upon the Petition and Appeal of Collco Dealings Limited, whose registered office is situate at 3 College Green, in the City of Dublin, in the Republic of Ireland, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 10th of March 1960, might be reviewed before Her Majesty the Queen, in Her 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 Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of the Commissioners of Inland Revenue, 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, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 10th day of March 1960, 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.

Viscount Simonds

My Lords,


This is, in my opinion, a very clear case and I am so well satisfied with the judgments of Mr. Justice Vaisey and of the Master of the Rolls and his colleagues in the Court of Appeal that I propose to deal with it at no great length.


The Appellant company was incorporated in the Republic of Ireland on the 29th May, 1957, and has at all material times been resident there and not in the United Kingdom. On the 31st October, 1957, it acquired 1,000 ordinary shares of £1 each in a company called Carpets and Textiles (Wholesale) Limited which on the next day declared an interim dividend of £174 10s. 0d. per share subject to deduction of income tax. It accordingly received a sum of £100,337 10s., £174,500 less income tax £74,162 10s. The dividend was wholly paid out of profits accumulated before the shares were acquired by the Appellant company. On the same 31st October it acquired 2,000 ordinary shares of £1 each in a company called Afco Agencies Limited, which company in its turn on the next day declared an interim dividend of £52 per share subject to deduction of tax. The Appellant company accordingly received a net dividend of £59,800, £104,000 less income tax £44,200. This dividend also was wholly paid out of profits accumulated before the shares were acquired by the Appellant company.


These transactions, which might seem strange to those unversed in the devious ways of tax avoidance, had their natural sequel in a claim for repayment of the tax that had been deducted. It was this claim and its rejection that led to these proceedings.


Upon what, then, was the claim based and upon what its rejection?


By a series of Agreements made by the British Government first with the Government of the Irish Free State and afterwards with the Government of the Republic of Ireland provision was made ( inter alia) for the reciprocal exemption from income tax and supertax, later, surtax, of persons resident in Great Britain (including Northern Ireland) or in the Irish Free State (or Republic of Ireland) but not resident in both countries. Each of such Agreements, of which the first was dated the 14th April, 1926, and the last that is material for our present purpose was dated the 21st July, 1947, provided that it should be subject to confirmation by legislation both by the United Kingdom Parliament and by the Irish Legislature and should have effect only if and so long as that legislation was in force. Each Agreement was duly confirmed by appropriate legislation in both countries. It is necessary only to refer to section 349 of the Income Tax Act. 1952, which confirmed and gave statutory force to them, thereby giving to persons residing only in the Republic of Ireland the statutory right to exemption from United Kingdom income tax and surtax. The Act further provided by clause 4 of the Eighteenth Schedule that any claim for exemption from tax on the ground that the claimant was resident in the Republic of Ireland and was not resident in the United Kingdom should be made to the Commissioners of Inland Revenue in such form as they might prescribe and the Commissioners should on proof of the facts to their satisfaction allow the claim accordingly.


On the basis of this Act the Appellant company claimed the return of the several sums of tax which had been deducted from the dividends that I have mentioned. I do not doubt that the claims must have been allowed but for the Act to which I now refer. In the meantime, however, the United Kingdom Government had become aware of the practice compendiously, if not felicitously, called "dividend stripping", of which the transactions that I have already mentioned were conspicuous examples. Not only residents in Ireland but certain other corporations or bodies, to which exemption from tax had been conceded, were using the concession in a manner that could not have been contemplated when it was made. Accordingly, by the Finance (No. 2) Act, 1955, it was provided by section 4 (2):

"(2) Where a person entitled under any enactment to an exemption from income tax which extends to dividends on shares becomes entitled to receive a dividend on a holding of shares of any class to which this section applies, being shares sold or issued to him or otherwise acquired by him after the said twenty-sixth day of October and not more than six years before the date on which the dividend becomes payable, and the dividend is to any extent paid out of profits accumulated before the date on which the shares were so acquired, then, if those shares, or those shares together with"


other shares therein specified "amount to ten per cent. or more of the issued shares of that class, the exemption shall, to an extent proportionate to the said extent to which the dividend is paid out of profits accumulated before the date on which the shares were acquired, not apply to the dividend".


The shares, in respect of which the dividends in question were received by the Appellant company, were "shares of a class to which the section applies".


Here, then, was the answer to the claim for return of tax and the Commissioners of Inland Revenue rejected it accordingly. The company appealed from the rejection to the Commissioners for the Special Purposes of the Income Tax, who allowed the appeal. But when the matter was brought before the High Court on Case Stated their determination was reversed by Mr. Justice Vaisey, whose decision was unanimously upheld by the Court of Appeal. Your Lordships are now asked to restore the determination of the Special Commissioners and declare that the Appellant company are entitled to exemption from tax in respect of the dividends in question.


My Lords, the argument in favour of the appeal was not lacking in vigour or ingenuity, but in my opinion it was not well founded. The words of the relevant subsection are very clear. The single question is whether the Appellant company is "a person entitled under any enactment to an exemption from income tax.…" At least it claims to be so entitled in the present case: that is the foundation of these proceedings. But it is said in the first place that it is not entitled under an enactment but under an agreement (which the Appellant company, to add weight to the argument, prefers to call a treaty). But this contention cannot be accepted. The company has no rights under any agreement. Its rights arise under the Act of Parliament which confirms the agreement and gives it the force of law. It was said that its rights then arose not "under" the enactment but "by virtue of it". This distinction appears to me too tenuous to form the basis of a serious argument: but, if I had to make a choice, I should say that the rights arose "under" rather than "by virtue of".


Then it was said that the words of the subsection are wide and general. The maxim " generalia specialibus non derogant" was invoked. But this contention fell by the way when it was pointed out that every case in which exemption had been granted was a special case and that this contention...

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