Gilbertson v Fergusson
| Jurisdiction | England & Wales |
| Date | 1879 |
| Court | Court of Appeal |
Revenue - Income Tax - Foreign Corporation - Dividends to Shareholders in the United Kingdom - Dividends intrusted to Agents for Payment - 16 & 17 Vict. c. 34, s. 10.
A foreign company carrying on business and earning profits abroad, had an agency in London which conducted a branch and earned profits. The dividends of the company were payable, at the option of the shareholders, abroad or by the London agency. In a particular year the London agency earned an amount of profits which enabled them to pay all the dividends demanded of them in that year without requiring or obtaining any remittance from the company abroad. The London agency were assessed to income tax under Schedule D on the profits earned in the United Kingdom on an average of the three preceding years, the amount on which they were so assessed being less than the amount actually earned by them in that year. They further made a return under 16 & 17 Vict. c. 34, s. 10, that no interest, dividends, or other annual payments payable out of or in respect of the stock, funds, or shares of the company had been intrusted to them for payment in the United Kingdom, and appealed against an assessment of the commissioners whereby they were assessed in respect of the dividends paid by them:—
Held, affirming the judgment of the Exchequer Division, that the London agency were intrusted with the payment of dividends in the United Kingdom, within the meaning of 16 & 17 Vict. c. 34, s. 10, and that they were liable to be assessed on the full amount of the dividends they so paid in the year, but that since the dividends were payable out of the general earnings of the company, consisting of profits made partly in the United Kingdom and partly elsewhere, and the London agency had already been assessed to income tax on the former under Schedule D, they ought not to be further assessed under 16 & 17 Vict. c. 34, s. 10, and pay income tax in respect of that portion of the dividends which represented profits arising out of the United Kingdom.
APPEAL from the judgment of the Exchequer Division, in favour of the respondent on a case stated for the opinion of such Division by the commissioners for the special purposes of the Income Tax Acts. The case is set out at length in the report of it in the Exchequer Division.F1
The question for the opinion of the Court was as it is there stated to be, whether any portion of the profits made out of the United Kingdom by a Turkish corporation, carrying on business in Constantinople, London, and elsewhere, under the name of the Imperial Ottoman Bank, and not actually remitted to the United Kingdom was as profits, or as forming part of dividends paid in the United Kingdom, the subject of assessment to income tax under Schedule D of the Act 16 & 17 Vict. c. 34 in the circumstances appearing in the case.
The Imperial Ottoman Bank was a corporation carrying on business as bankers in Constantinople, with branches or agencies at London and Paris. The affairs were regulated by a concession from the Government of Turkey and certain statutes, the terms of which are fully stated in the case, as set out in the report in the Exchequer Division. The capital of the bank was divided into shares, the certificates of which were made out to bearer, and the shares themselves were transferrable by delivery of the certificates, and the dividends payable thereupon were payable, at the option of the holders, at Constantinople, Paris, or London, by means of coupons attached to the certificates.
In November, 1875, two returns for income tax for the year ending the 5th of April, 1875, were made by the appellant on behalf of the London agency of the bank, one being in respect of the English profits of the bank, and the other being in respect of the dividends of the bank. The return in respect of the English profits was: “The London agency act in the character of agents for the Imperial Ottoman Bank, which resides at Constantinople, in the Empire of Turkey. The amount of profits and gains accruing to the bank from the trade of banker exercised within Great Britain, viz., at London, for the year ending the 5th of April, 1875, computed on a just and fair average of three years, ending the 31st of December, 1873, the last-mentioned day being the day on which the accounts of the said bank have been usually made up, is 81,477l. 14s. 8d.” The return in respect of the dividends of the bank was: “There were no interest, dividends, or other annual payments payable out of or in respect of the stocks, funds, or shares of the said Imperial Ottoman Bank, and (within the meaning of the said ActF2), intrusted to the said London agency for payment to persons, corporations, companies, or societies in the United Kingdom, and payable by the said London agency for the year ending the 5th of April, 1875.”
It appeared that in the year 1874–75 the amount of the dividends paid in England in respect of the profits of the Imperial Ottoman Bank was 98,322l. 10s. In former years sums had been remitted from abroad out of the foreign profits of the bank to make up, with the money in the hands of the London agency derived from the English profits, the sums required for the payment of the dividends which were paid in England by such London agency, but in the year 1874–75 the amount of English profits (145,539l. 0s. 2d.) being in excess of the amount required for the dividends payable in England, no remittance from abroad out of foreign profits was required or made towards payment of the said sum of 98,322l. 10s.
The commissioners, for special purposes, made an assessment for the year 1874–75 on the said 81,477l. 14s. 8d. for the English profits, and no objection was made to this by the appellant on behalf of the London agency.
The said commissioners considered however that the bank was liable to income tax in respect of so much of the amount paid in the United Kingdom by way of dividend as consisted of profits earned abroad, but having no information as to how much of the money so paid represented English profits, which were included in the assessment on English profits, and how much represented foreign profits, they made in the first instance, an assessment, which was called in the case an assessment on dividends, on the whole of the said 98,322l. 10s., leaving the London agency to prove upon appeal what amount should be deducted as having been included in the assessment on the English profits. The commissioners also made, as an alternative assessment, an assessment, called in the case an assessment on general profits, on 115,935l., which they ascertained to be the amount on an average of the three preceding years of the proportion of the foreign profits distributed in dividends in England, and which sum, with the addition of the sum of 81,477l. 14s. 8d., the amount of the assessment on the English profits, amounted to a total assessment in respect of profits of 197,412 14s. 8d. The way in which the commissioners arrived at this result was shewn by a statement of account set out in the...
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