Commissioners of Inland Revenue v Westleigh Estates Company
| Jurisdiction | England & Wales |
| Judgment Date | 19 February 1925 |
| Date | 19 February 1925 |
| Court | Court of Appeal |
NO. 45*.-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
COURT OF APPEAL.-
HOUSE OF LORDS.-
(1) A limited company was formed to acquire certain freehold estates with the object of managing the property on behalf of some 25 persons interested under two wills, fully paid shares being allotted to the beneficiaries in proportion to their interests. The revenue of the company consisted of rents payable under surface and mining leases. No property was purchased by the company and with two exceptions none was sold.
Held, in the Court of Appeal, that the company was carrying on a trade or business or undertaking of similar character, and was therefore liable to Corporation Profits Tax.
(2) Down to 1906 the South Behar Railway was held by the Respondent Company (subject to an option to purchase by the Secretary of State for India) and worked by another company on behalf of the Secretary of State, the Respondent Company being entitled to a share in the profits in consideration of having supplied funds and materials for the construction of the railway. In 1906 the Respondent Company relinquished the possession of the railway to the Secretary of State, and it was arranged that, until the option to purchase was exercised, a fixed annuity of
£30,000 should be paid in lieu of the share of profits. After 1906 the Company did nothing but receive and distribute the said annuity to its shareholders, its only other income being small sums from National War Bond interest, deposit interest, and transfer fees.Held, in the House of Lords, that the company was carrying on a trade or business or undertaking of similar character, and was therefore liable to Corporation Profits Tax.
(3) A company, limited by guarantee, was incorporated, inter alia, to conduct a social club and to provide refreshments to members for payment. It was a members' and not a proprietary club, the members of the company and the club being identical. By its memorandum and articles of association the income and property of the club were to be applied towards the promotion of the objects of the club, no member being entitled to receive any dividend or bonus out of the profits, and on winding-up any surplus was not to be distributed to members, but was to be dealt with as the committee of the club might determine. There were no receipts from anything in the nature of trade from persons other than members, and the company had not been assessed to Income Tax in respect of profits or surplus.
The Company was assessed to Corporation Profits Tax for the year 1920 on the amount by which its income for that year (including subscriptions and entrance fees) exceeded the expenditure.
Held, in the Court of Appeal, that the company was not carrying on a trade or business or undertaking of similar character within the meaning of Section 52 (2) (a) of the Finance Act, 1920, and was therefore not liable to Corporation Profits Tax.
(1)
THE COMMISSIONERS OF INLAND REVENUE v. THE WESTLEIGH ESTATES CO., LTD.
CASE
Stated under the Finance Act, 1920, Section 56 (6), and the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice.
At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 29th November, 1921, for the purpose of hearing appeals, The Westleigh Estates Company, Limited, (hereinafter called the Company) appealed against an assessment to Corporation Profits Tax in the sum of £190 for the accounting period ending 30th June, 1920, made upon it by the Commissioners of Inland Revenue under the provisions of the Finance Act, 1920, Part V.
1. The Company claimed exemption from the provisions of Corporation Profits Tax as contained in the Finance Act, 1920, Part V.
2. The Company was formed in August, 1900, to acquire the interests of the persons hereinafter mentioned in certain freehold estates (hereinafter referred to as the property) in the Manchester district. The nominal capital of the Company consists of £96,000 of Ordinary Stock of which £94,833 6s. 8d. is issued. There is issued and outstanding £1,166 13s. 4d. "A" Debenture Stock of the Company. This Stock was issued to and is held by trustees for a beneficiary under one of the wills mentioned, in paragraph 4 hereof, who is not of full age. When the beneficiary in question attains majority the said sum of "A" Debenture Stock will be exchanged for a like amount of Ordinary Stock which (when issued) will bring the total amount of the Company's Ordinary Stock issued up to £96,000.
3. The objects of the Company as set out in the Memorandum of Association (a copy of which is annexed and forms part of this Case(1) ) were (inter alia):-
(a) To acquire and take over certain real estate and rents charge, subject to the leases and agreements for tenancies of some part thereof already granted, situate in or issuing out of land in Westleigh and Hindley in the County of Lancaster or the majority of the undivided shares therein, and with a view thereto to enter into the agreement referred to in Clause 3 of the Company's Articles of Association and to carry the same into effect with or without modifications.
(b) To acquire and take over from time to time any shares in such real estate and rents charge not comprised within the said agreement.
(c) To grant leases for any term of years or from year to year and whether absolute or determinable of all or any part of the property of the Company whether with or without the concurrence of the owner or owners of any other undivided shares or share herein in consideration of such royalties rents or reservations as the Company may think fit.
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(d) To purchase take on lease or in exchange hire or otherwise any real and personal property and any rights and privileges which the Company may think necessary or convenient for the purposes of its property or business and in particular any land buildings easements machinery plant stock in trade.
(e) To sell improve repair manage develop exchange lease mortgage farm or work as market gardens, dispose of, turn to account or otherwise deal with all or any part of the property and rights of the Company.
(f) To invest and deal with the monies of the Company not immediately required upon such securities and in such way as may from time to time be determined.
4. The property was formerly owned in equal shares by two brothers J. Hall and W. Hall, who both died a considerable number of years ago. At the date of incorporation of the Company about 24 persons were beneficiaries under the will of J. Hall and became entitled to his share of the property. Mrs. Bubb, daughter of W. Hall, became entitled to the whole of W. Hall's share of the property under the terms of his will.
5. In view of the great number of beneficiaries entitled under the wills and the diversity of their interests it was considered desirable that Mrs. Bubb and the beneficiaries under the will of J. Hall should agree to pool their interests and to place the control of the property in the hands of a limited company. Accordingly the property was conveyed by or on behalf of the beneficiaries to the Company, the agreement being dated 20th August, 1900: the consideration for such conveyance to be the issue to them of stock in that Company. Mrs. Bubb, and the beneficiaries under the will of J. Hall, received fully paid shares in proportion to their respective interests in the property. A copy of the said agreement is annexed and forms part of the Case.(1)
6. The following facts were either proved or admitted at the hearing:-
(a) The Company took over the property exactly as it stood under the wills of J. and W. Hall. When taken over by the Company the greater part of the property (which is coal-bearing land) was in lease to various colliery owners so that the Company acquired the reversion expectant on the termination of these leases, while as to the remainder, which was unlet, the Company acquired the freehold in possession.
(b) No land was ever purchased by the Company other than that obtained under the terms of the said agreement of 20th August, 1900.
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(c) No land has ever been sold by the Company with the following two exceptions-(1) the Willow Tree Inn was sold in 1910 for £1,050 owing to a difficulty having arisen with regard to licensing, (2) a small sale of property for £310 was effected in 1905 to the Leigh Corporation, who purchased this property for public purposes.
(d) The revenue of the Company is derived from rents obtained from surface and mining leases. A copy of the Revenue Account of the Company for the year to 30th June, 1920, and of the Balance Sheet of the Company as at 30th June, 1920, is annexed hereto and forms part of the Case.(1)
(e) The minerals under the surface of the property have been worked by the various lessees under leases which had and still have many years to run. On expiration these leases have been renewed or fresh leases granted to the same lessees. The Company has never itself worked any of the mines under the property.
(f) Mrs. Bubb holds half the shares in the Company, her husband is a permanent director of the Company. The shares in the Company can only be transferred among the existing shareholders and their families.
7. Section 52 (2), Finance Act, 1920, enacts that the profits to which this part of this Act applies are, subject as hereinafter provided, the following, that is to say:-(a) the profits of a British company carrying on any trade or business or any undertaking of a similar character, including the holding of investments. By Section 52 (3) of the same Act the expression "British company" means any company incorporated by or under the laws of the United...
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