Commissioners of Inland Revenue v Herdman
| Jurisdiction | England & Wales |
| Judge | Lord Reid,Lord Morris of Borth-y-Gest,Lord Pearce,Lord Wilberforce,Lord Diplock |
| Judgment Date | 29 January 1969 |
| Judgment citation (vLex) | [1969] UKHL J0129-1 |
| Date | 29 January 1969 |
| Court | House of Lords |
[1969] UKHL J0129-1
House of Lords
Lord Reid
Lord Morris of Borth-y-Gest
Lord Pearce
Lord Wilberforce
Lord Diplock
Upon Report from the Appellate Committee, to whom was referred the Cause Commissioners of Inland Revenue against Herdman, that the Committee had heard Counsel, as well on Monday the 9th as on Tuesday the 10th, days of December last, upon the Petition and Appeal of the Commissioners of Inland Revenue, of Somerset House, London, W.C.2, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal in Northern Ireland of the 2d of May 1967, so far as therein stated to be appealed against, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order, so far as aforesaid, 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 John P. Herdman, 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 in Northern Ireland, of the 2d day of May 1967, in part 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 Respondent the Costs incurred by him in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
This case depends on the correct interpretation of section 412 (1) of the Income Tax Act 1952 and I shall only set out those facts which are relevant in that connection. In 1951 the Respondent controlled a company which carried on business near Strabane Co. Tyrone, and he resided some fifteen miles away in Co. Donegal in the Republic of Ireland. In order to obtain some tax advantage in the Republic he caused a new company to be incorporated there and transferred to it shares in his Northern Ireland company worth £81,000 together with his residence and some assets there. In consideration of that transfer the new company allotted its whole share capital to the Respondent and to his family trust and assumed a liability to pay him £76,917 payable on demand.
Thereafter the company in the Republic received dividends paid by the Northern Ireland company after deduction of tax, but recovered this tax in one way or another. For the six years with which this case is concerned the gross dividends amounted to £14,300 per annum. This was almost the whole income of the company in the Republic and it used this money in paying its expenses, and in paying in reduction of its debt to the Respondent sums amounting to nearly £27,000 during those six years. It declared no dividend and at the end of the period held some £12,000 carried forward as a balance in its Profit and Loss account.
The Respondent has been assessed to tax in the gross amount of the dividends paid by the Northern Ireland company to the company in the Republic and it is said that these assessments are justified by the provisions of section 412. I need only set out subsection (1) which is as follows:
"412. For the purpose of preventing the avoiding by individuals ordinarily resident in the United Kingdom of liability to income tax by means of transfers of assets by virtue or in consequence whereof, either alone or in conjunction with associated operations, income becomes payable to persons resident or domiciled out of the United Kingdom, it is hereby enacted as follows:—
(1) Where such an individual has by...
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