Commissioners of Inland Revenue v Kent Process Control Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 25 November 1988 |
| Date | 25 November 1988 |
| Court | Queen's Bench Division |
Queen's Bench Division.
Sir Gervase Sheldon.
Mr. John Mummery (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr. Robin Mathew (instructed by Taylor Walker, Harpenden) for the defendant.
The following cases were referred to in the judgment:
Baytrust Holdings Ltd. v. I.R. Commrs. WLR[1971] 1 W.L.R. 1333
Central and District Properties Ltd. v. I.R. Commrs. WLR[1966] 1 W.L.R. 1015
Crane Fruehauf Ltd. v. I.R. Commrs. UNK[1975] 1 All E.R. 429
Stamp duty - Relief - Reconstruction or amalgamation of company - Undertakings of two subsidiaries were transferred to a third subsidiary in return for issue of new shares - New shares subsequently transferred to holding company for cash - Whether conditions for relief were satisfied - Whether provisional relief granted should be forfeited - section 55 subsec-or-para (1) section 55 subsec-or-para (6)Finance Act 1927, sec. 55(1)(c)(i), (6)(a) (repealed by theFinance Act 1986 section 74 subsec-or-para (1) part IX schedule 23Finance Act 1986, sec. 74(1) and Sch. 23, Pt. IX).
This was a claim by the Commissioners of Inland Revenue against the defendant, Kent Process Control Ltd., for stamp duty and interest said to be payable in respect of the issue by the defendant of 5002,325 new shares of £1 each on its acquisition of the undertakings, property and assets of two associated companies.
The defendant and two other companies ("Introl" and "BBK") were wholly owned subsidiaries of a holding company. In carrying out an internal reconstruction within the group Introl and BBK transferred their undertakings to the defendant under agreements dated 24 December 1979 and, after those undertakings had been valued, the defendant, pursuant to a resolution passed on 25 July 1980, issued new shares of corresponding value in its own undertaking which it allotted to Introl and BBK. On 15 December 1980 Introl and BBK transferred their newly acquired shareholdings in the defendant to the holding company in return for cash.
On 16 October 1980 the Revenue had granted provisional relief from stamp duty to the defendant under the section 55 subsec-or-para (1)Finance Act 1927, sec. 55(1) in the belief that the transfer by Introl and BBK of their undertakings in exchange for the issue of the new shares effectively constituted the whole of the scheme. At that date they were not aware of the intended final stage, which was yet to be implemented, involving the transfer by Introl and BBK of their new shares to the holding company.
When the Revenue discovered the further facts they issued a writ claiming that the exemption provisionally granted should be deemed not to be allowed.
It was conceded by the Revenue that the transfer of undertakings for the issue of new shares and the eventual transfer of those shares to the holding company formed part of one scheme for reconstruction within the meaning of section 55 subsec-or-para (1)sec. 55(1).
The issue was whether the provisional relief granted should be forfeited under section 55 subsec-or-para (6)sec. 55(6)(a) on the ground that the condition required by section 55 subsec-or-para (1)sec. 55(1)(c) had not been fulfilled.
The Revenue contended that, for there to be an "issue of shares" within the meaning of section 55 subsec-or-para (1)sec. 55(1)(c)(i), Introl and BBK must have taken the shares as beneficial owners. Here, as the scheme for reconstruction involved, as its final phase, the transfer of the newly issued shares by Introl and BBK to the holding company (a transfer which the holding company could compel), Introl and BBK were never able to deal with the shares as beneficial owners.
The Revenue further contended that the words "consideration for the acquisition" in section 55 subsec-or-para (1)sec. 55(1)(c) were not limited to consideration given by the defendant for the undertakings of Introl and BBK. The cash paid for the shares by the holding company was to be regarded as part of the consideration, the result being that the consideration did not consist as to at least 90 per cent of the issued shares.
Held, giving judgment for the defendant:
1. To disqualify the transaction from exemption from stamp duty, the limitation on Introl's and BBK's ability to deal with the shares must have been imposed by the defendant itself as the company issuing the shares as part of the consideration for the acquisition of their undertakings. Here, the limitation was not imposed by the defendant. The obligation of Introl and BBK to pass on the shares to the holding company was therefore no part of the consideration given by the defendant for their undertakings and Introl and BBK were to be regarded as having received the shares as beneficial owners. (Baytrust Holdings Ltd. v. I.R. Commrs. WLR[1971] 1 W.L.R. 1333, considered;Crane Fruehauf Ltd. v. I.R. Commrs. UNK[1975] 1 All E.R. 429, applied.)
2. Because the monetary consideration provided by the holding company for the forward transmission to it of the new shares by Introl and BBK did not form part of the consideration provided by the defendant for Introl's and BBK's undertakings, the whole consideration consisted of the shares. Thus the requirement that at least 90 per cent of the consideration must consist of the issued shares was satisfied. (Crane Fruehauf Ltd. v. I.R. Commrs. UNK[1975] 1 All E.R. 429 andCentral and District Properties Ltd. v. I.R. Commrs. WLR[1966] 1 W.L.R. 1015, applied.)
3. If the relief were not to be granted in this case, the result would seem to frustrate the object of the legislation which was to secure exemption from stamp duty where, as the result of an amalgamation of the businesses of more than one company, the businesses remained in substance owned by the same persons. (Dictum of Stamp L.J. in Crane Fruehauf Ltd. v. I.R. Commrs. UNK[1975] 1 All E.R. 429, applied.)
4. The defendant was entitled to the relief provisionlly granted and the Revenue's claim to payment of stamp duty failed.
Sir Gervase Sheldon: This is a claim by the Commissioners of Inland Revenue against the defendant, Kent Process Control Ltd., for stamp duty and interest said to be payable in respect of the issue by the defendant of 5002,325 new ordinary shares of £1 each on its acquisition of the undertakings property and assets of two associated companies now known as Introl Ltd. and BBK Investments Ltd.
Subject to the question of relief, there is no dispute on the figures as to the amounts of stamp duty and interest for which the defendant is liable, totalling respectively £399,769 and £121,569.09, an aggregate of £521,338.09.
The principal issue is whether the defendant is entitled to relief pursuant to the provisions of section 55sec. 55 of the Finance Act 1927 - provisions which have now been repealed and replaced but which were operative at the date of the events with which this case is concerned.
The defendant and the other companies directly involved in these events may be described as a sub-group of a larger group of companies controlled by Brown Boveri Kent (Holdings) Ltd., itself a member of an even larger group of which the holding company is incorporated in Switzerland. Theirs are all well-known names with world-wide reputations in what may compendiously be described as the field of electrical engineering and instrumentation.
Of the sub-group with which this case is concerned, the holding company (formerly George Kent Ltd.) is now known as Brown Boveri Kent plc. Subsidiary to it is the defendant, now Kent Process Control Ltd. (formerly Kent Instruments Ltd.), Introl Ltd. and BBK Investments Ltd. (formerly Kent Automation Systems Ltd.). For convenience I will refer to those four companies respectively as "the holding company", the defendant, "Introl" and "BBK".
In Crane Fruehauf Ltd. v. I.R. Commrs. UNK[1975] 1 All E.R. 429 at p. 436, the section in question was introduced by Scarman L.J. in these terms:
section 55Section 55 of the Finance Act 1927 provides relief from capital and transfer stamp duty in the case of reconstructions or amalgamations of companies. The section is now nearly 50 years old. It has been described in successive editions of Sergeant on Stamp Duties as "one of the longest and most complicated sections in revenue legislation". This description has, however, been dropped from the 6th edition - perhaps because the legislative activity of Parliament over the years has produced worthy rivals.
Even so, in his opinion, the section still remained "a formidable challenge to the advising skills of solicitors and accountants and a problem for judges".
For present purposes, however, the relevant provisions of the section are as follows:
55(1) If in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any companies it is shown to the satisfaction of the Commissioners of Inland Revenue that there exist the following conditions, that is to say -
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(b) that the company (in this section referred to as "the transferee company")…has increased its...
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