Commissioners of Inland Revenue v Park Investments Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 21 April 1966 |
| Judgment citation (vLex) | [1966] EWCA Civ J0421-3 |
| Court | Court of Appeal |
| Date | 21 April 1966 |
[1966] EWCA Civ J0421-3
In The Supreme Court of Judicature
Court of Appeal
Mr. F. HEYWORTH TALBOT, Q.C., Mr, G.B. GRAHAM, Q.C. and Mr. STEPHEN T. CRUMP (instructed by Messrs. Slaughter & May) appeared on behalf of the Appellant Company.
Mr. ARTHUR BAGNALL, Q.C., Mr. J. RAYMOND PHILLIPS and Mr. J.P.F. WANNER (instructed by Solicitor of Inland Revenue) appeared on behalf of the Respondent Commissioners.
LORD JUSTICE SELLERS: This case has been subject to some vicissitudes of fortune. The appellant company, an investment company, were thought by those responsible for taxing them to fall under section 245 of the Income Tax Act, 1952 and they were accordingly treated in accordance with those provisions. It was held that they had failed to distribute a reasonable proportion of their income for the relevant years, which started in 1954/55 and ran up to 1958/59. The income was apportioned (as is required by the relevant sections of that Act) between the members. It was deemed to be the members' income and consequently would be subject to surtax if that were payable.
An appeal was taken to the Special Commissioners in their judicial capacity and they allowed the appeal and held that the appellant company was not a company to which section 245 applied. A Case was stated, and the decision of Mr. Justice Buckley, before whom the appeal came, restored the directions and the findings of the original Commissioners.
Section 245 is familiar and I need not further refer to it. The issue which arises in this case is as to whether the appellant company is a company to which that section applies. That involves a consideration of section 256 - indeed only part of that section in the circumstances of this case becomes relevant. That section is as follows: "(1) Section 245 of this Act shall apply to any company which is under the control of not more than five persons and which is not a subsidiary company or a company in which the public are substantially interested". In this case it has been accepted, and indeed it is clearly established, that the company is under the control of not more than five persons. It is accepted also that it is not a subsidiary company, and the whole question is whether it is, on the right interpretation of the law, a company in which the public are substantially interested.
I need not read (although it is not without its importance) sub-section 2; but sub-section 3 of section 256 is as follows: "In determining for the purposes of this section" –and it says, "of this section" – "whether a company is or is not under the control of not more than five persons, persons who are relatives of one another, persons who are nominees of any other person together with that other person, persons in partnership and persons interested in any shares or obligations of the company which are subject to any trust or are part of the estate of a deceased person shall respectively be treated as a single person. For the purposes of this sub-section (a) 'relative' means husband, wife, ancestor, lineal descendant, brother or sister; and (b) a person shall be deemed to be a nominee of another person if, whether directly or indirectly, he possesses on behalf of that other person, or may be required to exercise on the direction of or on behalf of that other person, any right or power which, by virtue of any of the provisions of this section, is material in determining whether a company is or is not to be deemed to be under the control of not more than five persons".
Sub-section 4 I need not read: that deals with a subsidiary company. Sub-section 5 is the most important sub-section. "For the purposes of this section, a company shall be deemed to be a company in which the public are substantially interested if shares of the company (not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) carrying not less than 25 per cent, of the voting power have been allotted unconditionally to, or acquired unconditionally by, and are at the end of the year or other period mentioned in section 245 of this Act for which the accounts of the company have been made up beneficially held by, the public (not including a company to which the said section 245 applies) and any such shares have in the course of such year or other period been the subject of dealings on a stock exchange in the United Kingdom and the shares have been quoted in the official list of such a stock exchange".
Under that sub-section it has been accepted that the shares of the company have been quoted in the official lists of a stock exchange and there have been dealings in the company's shares on a stock exchange. The question for consideration is relative to the 25 per cent. The more than 25 per cent. -voting power which it is said by the appellants has been allocated to the public.
There is no definition of "the public" and the Court has to construe this matter as best it can - in this case not free from some control in the construction and application of this section because there was in 1941 a case under the predecessor of this section under another Act in somewhat similar terms, the decision of Tatem, which has to be regarded, and the Court is called upon to interpret and apply the provisions and the decision.
For myself, although we have heard no argument on the other side, if one were free to do so one would feel inclined to give weight to the submission which was merely indicated by learned counsel for the Crown, that "the public" here could be regarded in a very general and acceptable way by relating the 25 per cent. of the shares of a company which would otherwise be within this Act to an unconditional offer by the company of at least 25 per cent. of the shares as an allocation to the public which had been taken up – that is, taken up by the public at large – or to the circumstances where members of the family or within the group had sold shares up to 25 per cent. at least so that the public had acquired them. But, having regard to the Tatem case, it was submitted by the Crown, I think rightly, that that argument was not open to them here, and therefore we have to decide this case on some narrower ground and in the light of such guidance as this Court has.
Before coming to the Tatem case it is unnecessary, I think, to set out the facts in detail. They appear in the Case and they are stated clearly in the judgment of the learned judge. But it is important to consider how this company does fall within these provisions, at any rate in so far as the control is said to be a control of not more than five persons. When one looks at the whole of the members, apart from a small percentage, 2 per cent., who do not come into consideration at all, they are all members of a family in their different relationships. They are set out on page 10 of the Case and are referred to in the judgment. The Crown has grouped together, or there had been grouped together, various people having regard to the provisions which I have just read of sub-section 3, showing that with regard to this Silverstone family (one of the brothers who is I think a doctor has altered his name from Silverstone to Joseph Stone) the grouping which has taken place is of Arnold Silverstone and Ralph Silverstone, who are brothers, and then Joseph Stone, who is the brother who is a doctor, and four sisters. The relationship was that of brothers and sisters. They are grouped together and their total holdings come to some 508,265 shares. At the material time the issued shares of this company were 937,514 shares, 50 per cent. of which would be 468,757 shares and 25 per cent. of which would be 234,379 shares. So that that grouping of those brothers and sisters did give them 54 per cent. of the shares and therefore control. There was another grouping of the wives and the husbands, the spouses, of those seven persons enumerated under Heading "A", and they each had various holdings amounting in total to over 111,000 shares, or something over 11 per cent. of the holding of the company. There was another grouping of shares which were held upon trust: they were in the names of nominees - Barclays Nominees (Branches) Limited, but that is of no moment having regard to the provisions of subsection 3. they were in fact held by two of the three brothers in various associations, some five trusts in all, and were for the benefit again of members of the family within the class of relatives specified in sub-section 3. Those trust holdings amounted to 297, 500, or 31.73 per cent. of the total shares of the company, leaving only that small balance of 2.15 per cent which can undoubtedly be regarded as in the hands of the public.
The question in this case is, as I have said, under subsection 5, whether it can properly be said that it is established here approaching it directly from the point of view of the subsection, that not less than 25 per cent. of the voting power of the shares have been allotted unconditionally or acquired unconditionally by and are beneficially held by the public.
"The public" is not defined, but it would strike one at the outset that in circumstances such as these, and having regard to the provisions of the Act, one would not expect "the public" to include members of a family. But in the light of a decision of this Court it is said that that is not the right interpretation. It is said by the appellants that the case requires a strict application of the authorities and, however unreasonable it appears, the taxpayer is entitled to have the benefit of the decision in his favour.
The Tatem case arose in the course of the last war, in June 1941, and was considered by Lord Justice Scott, with whom the other two learned Lords Justices, Lord Justice Clauson and Lord Justice...
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