Commissioners of Inland Revenue v Park Investment Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 21 April 1966 |
| Date | 21 April 1966 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Surtax-Investment company-Company under control of five or fewer persons-Whether a "company in which the public are substantially interested"- Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), ss. 245, 256 and 262.
At all material times the Respondent Company was an investment company, and its shares, which were all of one class and each carried one vote, were quoted and dealt in on the London Stock Exchange. The shares were held as to 54 per cent. by a family of three brothers and four sisters, 12 per cent. by their respective spouses, 32 per cent. through a nominee company by the brothers as trustees of five settlements and 2 per cent. by persons outside the family. The beneficiaries of the settlements were the issue of the brothers and sisters and the wives of two of the brothers.
On appeal against surtax directions under ss. 245 and 262, Income Tax Act 1952, in respect of its income for the years ended 31st July 1955 to 1959 inclusive, the Company contended that all the shares except those held beneficially by the brothers and sisters, or alternatively both the settled shares and those held outside the family, had been acquired unconditionally by, and were at the material times beneficially held by, the public, within the meaning of s. 256(5) of that Act, so that ss. 245 and 262 did not apply. For the Crown it was contended that only the shares held outside the family were held by the public. The Special Commissioners accepted the Company's first contention.
Held, that the Company was not, within the meaning of s. 256(5), Income Tax Act 1952, one in which shares carrying not less than 25 per cent. of the voting power had been acquired unconditionally by, and were at the material times beneficially held by, members of the public, because (a) shares held by members of the controlling group as trustees must be taken into account in ascertaining the voting power held by the controlling group, and on that footing 86 per cent. of the voting power was held by the brothers and sisters; (b) no relative, as defined in s. 256(3), of a member of the controlling group was a member of the public; (c) since the settled shares had been acquired by the trustees and not by the beneficiaries, and the trustees were members of the controlling group, those shares could not be treated as acquired by the public.
Morrisons Holdings Ltd. v. Commissioners of Inland Revenue, page 176 ante; [1966] 1 W.L.R. 553; approved; J. Bibby & Sons Ltd. v. Commissioners of Inland Revenue (1945) 29 T.C. 167 applied; Tatem Steam Navigation Co. Ltd. v. Commissioners of Inland Revenue24 T.C. 57; [1941] 2 K.B. 194; explained.
Stated under the Income Tax Act 1952, ss. 229(4) and 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 11th June 1963, Park Investments Ltd. (hereinafter called "the Company") appealed against directions made by the Special Commissioners under the provisions of ss. 245 and 262(1) of the Income Tax Act 1952, by which the income of the Company for the years ending 31st July 1955, 1956, 1957, 1958 and 1959 was to be deemed to be the income of its members for the respective years. No argument was heard on the consequential apportionments under the provisions of s. 248(1), which were also under appeal.
2. The question for our determination in this appeal is whether the Company is one in which the public at all material times was substantially interested, within the meaning of the provisions contained in s. 256 of the Income Tax Act 1952, so as to exclude it from surtax directions under the provisions of s. 245 of the Income Tax Act 1952.
3. The following facts were admitted between the parties:
(a) The Company was incorporated on 10th December 1919 under the Companies Acts 1908 to 1917, with a nominal capital of £50,000 divided into 50,000 shares of £1 each, which were later subdivided into 200,000 shares of 5s. each. 10,000 £1 shares were offered for public subscription at once to obtain working capital.
(b) At that time and at all times material to these appeals the name of the Company was Maroc Ltd. It was changed to Park Investments Ltd., on 4th December 1959.
(c) The Company was formed to carry on business as a prospecting and development company with a view, in particular, to prospecting in Morocco and other parts of Africa. The memorandum of association contained all the powers required for this purpose.
(d) By the middle of 1952 the Company had become dormant, and a resolution for a members' voluntary winding-up was due to be submitted to a meeting called for 19th November 1952. The meeting was, however, adjourned for consideration of an offer to purchase all the shares which had been received from Wood Hall Trust Ltd. This offer was accepted by a sufficient number of shareholders, and for a few months the Company was under the control of Wood Hall Trust Ltd.
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(e) In May and June 1953 the following events occurred:
(i) The majority of the Company's issued share capital, which now consisted of 137,514 shares of 5s. each, was bought by two brothers, Arnold and Ralph Silverstone, and their families and relations.
(ii) The former directors of the Company resigned and thereafter throughout the period under consideration the board of directors consisted of Arnold Silverstone (chairman), Ralph Silverstone and Cedric A. Smith (also secretary from 30th November 1953).
(iii) The shareholders received a circular letter dated 15th June 1953 from the chairman informing them that the new directors intended to pursue a more active policy in regard to the Company's resources and to endeavour to build up the Company's financial position to a point at which dividends could be resumed. The shareholders were also informed that a new subsidiary company (which was in fact called Marocone Ltd.) had been formed to acquire a large property in the City of London, called Moorfields House, and hold it as an investment, and that it was intended to take advantage of similar suitable opportunities for investment in the future either in the Company's own name or through the medium of subsidiary companies.
(iv) At the directors' request the Company's shares were transferred in the daily list of the London Stock Exchange from the mining section to the section headed "Financial Trusts, Land &c."
(f) By a special resolution passed at an extraordinary general meeting on 30th December 1953, the memorandum of association was altered so as to show as the Company's principal object the investment of funds in the acquisition of land and other property for the advantages to be derived from the income arising therefrom. New articles of association were also adopted. A copy of the amended memorandum and the new articles of association is annexed hereto, marked "I", and forms part of this Case(1).
(g) In accordance with this declared object, the Company's business throughout the period under consideration was that of a property investment company, the properties being held for investment purposes by a number of subsidiary companies.
(h) Arnold Silverstone and Ralph Silverstone were the sole shareholders of 11 companies holding freehold and leasehold properties ("the property investment companies"), and it was proposed that the Company should acquire the entire issued share capitals of the property investment companies. Arnold and Ralph Silverstone thought it an opportune moment to settle funds for the benefit of their families and other relations, and shares in certain of the property investment companies were first so settled by deeds of settlement dated 17th March 1955 (referred to and more particularly described in sub-para. (n)).
(i) In order to carry out the proposed acquisition by the Company of the shares in the property investment companies from Arnold and Ralph Silverstone and the trustees of the settlements, it was found necessary, owing to the control on issues under the Control of Borrowing Regulations existing at that time, to interpose a company which would ultimately be wound up, and an investment holding company, Maroctwo Ltd., whose two issued shares were held by Arnold and Ralph Silverstone, was the vehicle used for this purpose. A copy of the scheme of division of the interests of Arnold and Ralph Silverstone and the family trusts in Maroctwo Ltd. and Maroc Ltd. is annexed hereto, marked "II", and forms part of this Case(1).
(j) On 17th March 1955 the whole of the issued share capitals of the property investment companies owned by Arnold and Ralph Silverstone and by the trustees of the settlements were acquired by Maroctwo Ltd., the consideration for such acquisition consisting of the issue of 4004 shares of £1 in Maroctwo Ltd. to the holders of the share capitals of the property investment companies. A copy of the vending agreement is annexed hereto, marked "III", and forms part of this Case(1).
(k) On 4th April 1955 an agreement was made between (1) Arnold Silverstone, (2) Ralph Silverstone, (3) Arnold Silverstone and Joseph Ellis Stone (therein called "the First Trustees") and (4) Ralph Silverstone and Joseph Ellis Stone (therein called "the Second Trustees"), the said four parties being jointly called "the Vendors", of the one part, and the Company, of the other part, whereby it was agreed,inter alia, as follows:-
1. The Vendors shall sell and the Company shall purchase as at the 4th day of April 1955 the whole of the issued 4006 shares of £1 each in Maroctwo together with all rights accruing to such shares free from all liens charges and encumbrances. 2. The consideration for the transfer of such shares to the Company shall be the allotment to the Vendors or their nominees of 800,000 shares of 5s. each in the Company credited as fully...
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R v Inspector of Taxes, ex parte Clarke
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