Commissioners of Inland Revenue v Lithgows, Ltd
| Jurisdiction | Scotland |
| Judgment Date | 02 December 1960 |
| Date | 02 December 1960 |
| Court | Court of Session (Inner House - First Division) |
COURT OF SESSION (FIRST DIVISION)-
Income Tax and Profits Tax - Sale between associated companies - Whether one person had "control" of both companies - Income Tax Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 10), Sections 333 (1) and 469.
In 1951 and 1952 the Respondent Company sold two ships to another company, N Ltd., at less than the market price. At the time of each sale a majority of the ordinary shares in the Respondent Company was held by four trustees under a deed of provision and nearly all the ordinary shares in N Ltd. were held by three trustees under another deed of provision, the first-named trustee being the same person in each case. On the footing that the first-named trustee of the two deeds of provision had the power to exercise the majority of votes of both the Respondent Company and N Ltd., and thus had "control" of both companies within the meaning of Section 333 (1), Income Tax Act, 1952, the Commissioners of Inland Revenue made a direction under Section 469 (3), Income Tax Act, 1952, that the provisions of Sub-section (1) of that Section should apply in relation to these sales.
On appeal against the direction the Respondent Company contended that the same person was not in control of the two companies and accordingly that the provisions of Section 469 (3) could not be applied in relation to the sale of the two ships. The Special Commissioners upheld the Company's contention and allowed the appeal.
Held, that the decision of the Special Commissioners was correct.
Stated for the opinion of the Court of Session, as the Court of Exchequer in Scotland, under the Income Tax Act, 1952, Section 64.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held at Glasgow on 12th October, 1959, for the purpose of hearing appeals, Lithgows, Ltd., appealed against:
(a) a direction made by the Commissioners of Inland Revenue under Section 469 (3) of the Income Tax Act, 1952, whereby they directed that the provisions of Sub-section (1) of the said Section 469 should apply in relation to the sale of two ships by Lithgows, Ltd., to the Nile Steamship Co., Ltd.; and
(b) the following assessments made pursuant to the said direction:
(c) Income Tax-1952-53 in the sum of £650,000; 1953-54 in the sum of £400,000.
(d) Profits Tax-chargeable accounting period 1st January, 1951, to 31st December, 1951, in the sum of £121,200 (tax); chargeable accounting period 1st January, 1952, to 31st December, 1952, in the sum of £39,550 (tax).
2. The said Section 469 so far as material provides as follows:
(1) Subject to the provisions of this section, where, on or after the tenth day of April, nineteen hundred and fifty-one, any property is sold and-(a) the buyer is a body of persons over whom the seller has control or the seller is a body of persons over whom the buyer has control or both the seller and the buyer are bodies of persons and some other person has control over both of them; and (b) the property is sold at a price less than the price which it might have been expected to fetch if the parties to the transaction had been independent persons dealing at arm's length, then, in computing the income, profits or losses of the seller for income tax and profits tax purposes, the like consequences shall ensue as would have ensued if the property had been sold for the price which it would have fetched if the transaction had been a transaction between independent persons dealing as aforesaid: Provided that this subsection shall not apply where the buyer is resident in the United Kingdom and is carrying on a trade therein, and the price of the property falls to be taken into account as a deduction in computing the profits or gains or losses of that trade for income tax purposes.... (3) The preceding provisions of this section shall not apply in relation to any sale unless the Commissioners of Inland Revenue so direct, and where such a direction is given all such adjustments shall be made, whether by additional assessment, repayment of tax or otherwise, as are necessary to give effect to the direction.… (5) In this section, "body of persons" includes a partnership and "control" has the meaning ascribed to it by subsection (1) of section three hundred and thirty-three of this Act, and, for the purposes of this section, a sale shall be deemed to take place at the time of completion or at the time when possession is given, whichever is the earlier.
3. The question for our determination was whether Lithgows, Ltd., and the Nile Steamship Co., Ltd., were (as the Crown alleged) both controlled by the same person. The definition of "control" imported into Section 469 by reference to Section 333 (1), Income Tax Act, 1952, is as follows:
"control", in relation to a body corporate, means the power of a person to secure, by means of the holding of shares or the possession of voting power in or in relation to that or any other body corporate, or by virtue of any powers conferred by the articles of association or other document regulating that or any other body corporate, that the affairs of the first-mentioned body corporate are conducted in accordance with the wishes of that person....
4. A statement of agreed facts was put before us, as follows:
"On 4th July, 1951, and 15th March, 1952 (hereinafter referred to as "the relevant dates"), Lithgows, Ltd., sold two ships to Nile Steamship Co., Ltd. The first ship, sold on 4th July, 1951, was the S.S. "Coulbeg" (later re-named S.S. "Jutland"), and the second ship, sold on 15th March, 1952, was the S.S. "Dornoch" (later re-named S.S. "Dunrobin"). Both ships were sold by Lithgows, Ltd., to Nile Steamship Co., Ltd., at prices less than the prices which they might have been expected to fetch if the parties to these transactions had been independent persons dealing at arm's length.
At the relevant dates, the issued ordinary capital of Lithgows, Ltd., was 9800 shares of £100 each: 6300 of these shares were held at the relevant dates by the trustees acting under Sir James Lithgow's deed of provision in favour of Margaret Helen Lithgow and others. The trustees then acting under the said deed of provision were Sir Andrew Macharg, Mr. A.H. White, Mrs. Jean Semple and Sir Ian Bolton. Sir Andrew Macharg was the person first named on the register of shareholders of Lithgows, Ltd., in respect of the said shareholding of 6300 shares. Articles 8, 11, 77, 79, 80, 96 and 97 (i) of the articles of association of Lithgows, Ltd., are reproduced in Appendix A.
At the relevant dates, the issued ordinary capital of Nile Steamship Co., Ltd., was 5000 shares of £10 each. Of these issued shares, 4997 shares were held by trustees acting under Sir James Lithgow's deed of provision in favour of William James Lithgow. At the relevant dates the trustees acting under the said deed of provision were Sir Andrew Macharg, Mr. H.B. Semple and Mr. A.H. White. Sir Andrew Macharg was the person first named in the share register of Nile Steamship Co., Ltd., in respect of the 4997 shares held by these trustees. Articles 10, 11, 66, 68, 70, 80, 99 and 102 (4) of the articles of association of Nile Steamship Co., Ltd., are reproduced in Appendix B."
The Appendices A and B referred to in the said statement are annexed hereto and form part of this Case(1).
It was further agreed during the course of argument that the two bodies of trustees above referred to were registered in the company's books as trustees, both in the case of Lithgows, Ltd., and of the Nile Steamship Co., Ltd.
5. It was contended on behalf of Lithgows, Ltd., that, in view of the definition of "control" contained in Section 333 (1), the same person was not in control of the two companies, and accordingly that the provisions of Section 469 (3) of the Income Tax Act, 1952, could not be applied in relation to the sale of the said two ships of the Respondent Company.
6. It was contended on behalf of the Crown:
(i) that "control" in relation to a body corporate as defined in Section 333 (1) of the Income Tax Act, 1952, and the expression "controlling interest" in a company as...
To continue reading
Request your trial
-
Farnborough Airport Properties Company v The Commissioners for HM Revenue and Customs
... ... These are the outcome of consultations between the Inland Revenue and representatives of industry. I was urged last year by a number of important groups of companies, and in particular those with ... 35 The FTT also found assistance in Commissioners of Inland Revenue v Lithgows, Ltd (1960) 39 TC 270 , where the First Division of the Court of Session considered the meaning of materially identical language in the definition ... ...
-
John Steele and Another v Evc International Nv (Formerly European Vinyls Corporation (Holdings) Bv)
... ... MR L HENDERSON QC (Instructed by Inland Revenue Solicitors Department, WC2R 1CB) appeared on behalf of the ... EVC appealed to the Special Commissioners and its appeal was allowed on 22nd November 1993 on the basis, in summary, ... cf IRC v Lithgows Ltd (1960) 39 TC 270 ... But EVC then submits that the fact that the ... ...