Commissioners of Inland Revenue v Collco Dealings, Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 02 March 1961 |
| Date | 02 March 1961 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax - Dividend-stripping - Repayment of tax deducted from dividends claimed by companies resident in the Republic of Ireland - Income Tax Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 10), Section 349 and Eighteenth Schedule, Part I, Paragraph 1 (a); Finance (No. 2) Act, 1955 (4 & 5 Eliz. II, c. 17), Section 4 (2).
The Respondent Companies were at all material times resident in the Republic of Ireland and not resident in the United Kingdom. They claimed repayment of tax deducted from dividends received on shares of a class to which Section 4 of the Finance (No. 2) Act, 1955, applied, on the ground that they were not persons "entitled under any enactment to an exemption from income tax" within the terms of the said Section 4 (2). The Commissioners of Inland Revenue rejected their claim.
On appeal, the Special Commissioners accepted the Companies' contention that the words of Section 4 (2) did not apply to persons resident in the Republic of Ireland, who were exempted by treaty from United Kingdom Income Tax.
Held, that the words of Section 4 (2) included persons exempted from United Kingdom Income Tax by virtue of their residence in the Republic of Ireland.
Commissioners of Inland Revenue v. Collco Dealings, Ltd.
CASE
Stated under the Income Tax Act, 1952, Section 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 10th and 11th November, 1958, Collco Dealings, Ltd. (hereinafter called "Collco"), appealed against the refusal of the Commissioners of Inland Revenue to grant exemption from United Kingdom tax in respect of certain dividends received by Collco from English companies. Collco was at all material times resident in Eire and not in the United Kingdom, and claimed exemption from British tax by virtue of Section 349 and Paragraph 1(a) of Part I of the Eighteenth Schedule to the Income Tax Act, 1952. The refusal of such claim was based on the provisions of Section 4(2) of the Finance (No. 2) Act, 1955, and the question for our decision was whether Collco came, within the words of that Section, "a person entitled under any enactment to an exemption from income tax", or did not come within such words because it was a resident of Eire.
2. The following facts were agreed:
(a) Collco Dealings, Ltd., was incorporated in the Republic of Ireland on 29th May, 1957, and has at all material times been resident in the Republic of Ireland and not resident in the United Kingdom.
(b) On 31st October, 1957, 1000 ordinary shares of £1 each, fully paid, in Carpets & Textiles (Wholesale), Ltd. (being the whole of the issued share capital of that company), were sold by Matrim Finance, Ltd., to, and acquired by, Collco.
(c) On 1st November, 1957, an interim dividend of £174 10s. per share, subject to deduction of Income Tax, was declared by Carpets & Textiles (Wholesale), Ltd., and became payable, as a result of which Collco received a gross dividend of £174,500 from which United Kingdom Income Tax of £74,162 10s. had been deducted.
(d) The dividend so declared was wholly paid out of profits accumulated before the date on which the shares were acquired by Collco.
(e) Carpets & Textiles (Wholesale), Ltd., is a company incorporated on 1st April, 1950, under the Companies Act, 1948, and has throughout been resident in the United Kingdom.
(f) The ordinary shares in Carpets & Textiles (Wholesale), Ltd., acquired as aforesaid, are shares of a class to which Section 4 of the Finance (No. 2) Act, 1955, applies, as defined in Sub-section (8) (c) thereof.
(g) Also on 31st October, 1957, 2000 ordinary shares of £1 each, fully paid, in a company then known as Afco Agencies, Ltd., and hereinafter referred to as "Afco", although now known as A.F. Finance, Ltd. (being the whole of the issued share capital of that company), were sold by Matrim Finance, Ltd., to, and acquired by, Collco.
(h) On 1st November, 1957, an interim dividend of £52 per share, subject to deduction of Income Tax, was declared by Afco and became payable, as a result of which Collco received a gross dividend of £104,000 from which United Kingdom Income Tax of £44,200 had been deducted.
(i) The dividend so declared was wholly paid out of profits accumulated before the date on which the shares were acquired by Collco.
(j) Afco is a company incorporated on 1st March, 1951, under the Companies Act, 1948, and has throughout been resident in the United Kingdom.
(k) The ordinary shares in Afco, acquired as aforesaid, are shares of a class to which Section 4 of the Finance (No. 2) Act, 1955, applies, as defined in Sub-section (8) (c) thereof.
3. It was also admitted by Counsel for the Commissioners of Inland Revenue, during the course of the hearing, that repayments of Income Tax at the full standard rate had been made to Irish residents between 1945 and 1948 on dividends from which Income Tax had been deducted when payment was made by companies resident in the United Kingdom which had received double taxation relief.
4. It was not contended by Counsel for Collco that Collco would be liable to pay Irish tax in respect of the dividends in question.
5. The Finance Acts passed by the Parliament of Eire for the years 1926, 1928, 1948 and 1958 were in evidence before us, and copies are available for the use of the Court if required.
6. It was contended on behalf of Collco that the wide words of Section 4(2) were to be limited and controlled on well-known principles so as to exclude residents of Eire, who were by treaty excluded from the ambit of British Income Tax.
7. It was contended on behalf of the Appellants, the Commissioners of Inland Revenue, that Section 4(2) applied to Collco notwithstanding that it was a resident of Eire, and that it was not entitled to the exemption claimed.
8. We, the Commissioners, took time to consider our decision, and gave it in writing as follows:
1. The question for our decision is whether the words "a person entitled under any enactment to an exemption" in Section 4(2) of the Finance (No. 2) Act, 1955, apply to persons resident in Eire and not in the United Kingdom, to whom exemption from British tax was granted by the various Sections reenacted by Section 349 of the Income Tax Act, 1952. It is clear that the general words quoted are wide enough to cover Eire residents so entitled to exemption, but the very wideness and generality of the words lets in the argument that they are to be controlled and limited in their application under certain well-recognised principles of construction.
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2. We are unable to accept the argument that the general policy of the Income Tax legislation compels us to impose the limitation asked for. We have, however, come to the conclusion that Eire residents have to be excluded from the wide application of the words of Section 4(2) by reason of two principles of construction which have found expression in the decided cases. In the first place, it appears to be settled law that, if possible, a construction is not to be given to general words in a Statute which would have the effect of imposing the will of Parliament upon persons not within its jurisdiction (see Colquhoun v.Heddon(1), 25 Q.B.D. 129, at page 134, Ex parteBlain, 12 Ch.D. 522), and we consider that Parliament, by entering into the treaty of April, 1926, with the Government of Eire, in effect relinquished jurisdiction in matters of Income Tax over residents of Eire who are not also residents of the United Kingdom. That this is so is, we consider, emphasised by paragraph 7 of the treaty. In the second place, if the inroad contained in Section 4(2) upon the exemption to tax is effective against residents of Eire, it would in our opinion be a breach of the treaty which afforded absolute exemption from British tax to such residents: and it appears to be a recognised principle of English law that words in an Act of Parliament are not to be construed in a sense which would create a breach of a treaty between this country and another unless such words are so explicit as to allow of no other interpretation. The principal authority for this view appears to be the case of The Queen v. Wilson, 3 Q.B.D. 42; and, although the actual decision in that case can be explained on the ground that the Order in Council itself imposed limitations upon the extradition powers in accordance
with Section 2 of the Extradition Act, 1870, Cockburn, C.J., in his judgment, used words which seem to us to recognise such a principle as axiomatic. 3. The view we have taken of the proper construction of Section 4 (2) appears to us to receive strong confirmation from the course of legislation with regard to the liability of Eire residents prior to the Act of 1955. The Finance (No. 2) Act, 1945, uses words, in Section 52, which have on their face the widest application and would in their natural meaning apply to Eire residents. But when the treaty of 21st July, 1947, was subsequently concluded, by which the two countries mutually agreed that the limitation upon repayments set out in Section 52 was to be applied to Eire residents, it was thought necessary to give effect to that treaty so far as English taxation was concerned by Section 37 of the Finance Act, 1948. This seems to us an indication that Section 52 was not considered by the Legislature, despite its wide terms, to apply to Eire residents.
4. In our opinion, therefore, Section 4 (2) of the Finance (No. 2) Act, 1955, has no application to Collco, and it is entitled to repayment of tax deducted from the dividends in question. We accordingly make an order for repayment of the sum agreed upon between the parties, namely £118,362 10s.
9. The Commissioners of Inland...
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