Gold Coast Selection Trust Ltd v Humphrey (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | Viscount Simon,Lord Uthwatt:,Lord Oaksey |
| Judgment Date | 14 July 1948 |
| Judgment citation (vLex) | [1948] UKHL J0714-1 |
| Court | House of Lords |
[1948] UKHL J0714-1
House of Lords
Viscount Simon
Lord Uthwatt
Lord du Parcq
Lord Oaksey
After hearing Counsel, as well on Tuesday the 3d, as on Wednesday the 4th, Thursday the 5th, Friday the 6th and Monday the 9th, days of February last, upon the Petition and Appeal of Gold Coast Selection Trust Limited, whose registered office is at Finsbury Pavement House, Moorgate, in the City of London, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal of the 22d of November 1946, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of W. E. Humphrey (His Majesty's Inspector of Taxes), lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal, in the Court of Parliament of His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal of the 22d day of November 1946, complained of in the said Appeal, be, and the same is hereby, Discharged except as to Costs, and that the Order of the King's Bench Division of the High Court of Justice, of the 15th day of May 1946, be, and the same is hereby, Discharged except as to Costs: And it is further Ordered, That the Case be, and the same is hereby, remitted back to the Commissioners for the General Purposes of the Income Tax with a Direction to reconsider and fix the proper figure in accordance with the majority opinions expressed in this House in the Cause Gold Coast Selection Trust Limited v. Humphrey (Inspector of Taxes): And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the King's Bench Division of the High Court of Justice to do therein as shall be just and consistent with this Judgment.
My Lords,
These are two appeals from Orders of the Court of Appeal (Scott, Somervell & Cohen, L.JJ.) dismissing appeals by the Appellant from Orders of the King's Bench Division of the High Court (Wrottesley, J.), whereby (1) an appeal by the Appellant upon a Case Stated by the Commissioners for the General Purposes of the Income Tax for the City of London was dismissed and the determination of the said Commissioners affirmed, and (2) an appeal by the Respondent upon the said Case Stated was allowed. The main question involved is one of substantial importance and of considerable difficulty.
The Appellant, the Gold Coast Selection Trust, Limited (hereinafter called "the Trust"), has at all material times carried on the trade of a dealer in stocks and shares and an exploiter of and dealer in gold-mining concessions in the Gold Coast Colony. Its practice has been to acquire concessions for land considered to have gold bearing possibilities. Concessions so acquired were exploited by the Trust to the extent necessary for the ascertaining of their potentialities. If a concession was proved to be gold bearing, and if it appeared to the Trust that further development might result in the profitable production of gold, the Trust transferred such concession to a company, the business of which was to work the concessions and market the gold produced. The transferee company was in every case a public company; its directors were drawn from the directorate of the Appellant Company; and the consideration for the transfer of the concession was in each case satisfied by an issue of fully paid-up shares in the transferee company.
The shares so issued (hereinafter called "Vendor Shares") were of a par value equal to the price named in the agreement for the sale of the concessions as the sale price. Permission to deal in the shares of the transferee companies was, in due course, accorded by the London Stock Exchange in each case, and dealings in these shares in limited quantities in fact took place. The Vendor Shares issued to the Trust together with other holdings acquired by it were large enough to give the Trust control over the company which was acquiring the concession from it. So large a block of shares could not be readily disposed of in the Stock Market without killing the market, and there was evidence before the Commissioners that the proper way to deal with them, if it was desired to turn the block of shares into cash, would be to approach Trust Companies or financial houses and endeavour to place them. The evidence is of somewhat ambiguous effect, for while it indicates that a successful operation of this sort might be accomplished in reference to a substantial fraction of the total holding, it was not clearly stated that the whole block could be realised in this way, at any rate within a short time.
Three sales of a concession by the Trust are involved. One, by an agreement made on July 28th, 1934, with the Marlu Gold Mining Areas, Limited (hereinafter called "Marlu"); the second by an agreement made on July 9th, 1935, with the Gold Coast Main Reef, Limited; and the third by agreement made on December 2nd, 1936, with the Bremang Gold Dredging Company, Limited. The main question of law is the same in all three cases, and it will be convenient to take the Marlu case as an example. Marlu had been incorporated on July 26th, 1934, with an authorised capital of £2,000,000 divided into eight million shares at 5s. each. The consideration moving from Marlu to the Trust for the sale and transfer of the concession was stated in the agreement of July 28th, 1934, to be "the sum of £800,000, which shall be paid and satisfied by the allotment and issue to the Vendor or its nominees of 3,200,000 shares of 5s. each credited as fully paid up." The purchase was completed and the fully paid shares allotted on November 30th, 1934. On July 30th, 1934, two days after the agreement, Marlu issued a prospectus offering for subscription at par 2,000,000 shares of 5s. each. The Trust underwrote 1,600,000 of these shares at par in consideration of an option to subscribe for 1,200,000 shares of 5s. each at the price of 6s. up to the 31st July, 1936. The whole of the shares offered were subscribed; the Trust itself took up and paid for 10,579. The Trust purchased some additional shares in the market, and later bought 545,939 shares at 6s. under its option.
The question is whether fully paid shares acquired under the agreement of July 28th by the Trust, should, for Income Tax purposes, be valued at any and what figure in money and thus enter into the computation of the profits and gains of the Trust for the year ending 5th April, 1935, so as to justify a corresponding assessment to Income Tax for the year ending 5th April, 1936. A similar question arises, with a difference in figures and amounts, in the other two cases.
The books of the Trust entered the cost to the Trust of the concessions sold to Marlu, viz. £107,875, as the purchase price for the 3,200,000 fully paid shares allotted under the sale agreement. It seems obvious that when the concession has been proved to be auriferous, its value cannot be limited to this. Then, year by year, as shares were sold, the profit on such sales was brought to account.
The Commissioners found:—
"1. That when the Marlu, Main Reef and Bremang shares were allotted to the Trust there was a realisation of the assets sold to those companies.
2. That at the date of the allotment the value of the shares received by the Trust was par, the price agreed to be paid by the purchasing companies."
The Appellant does not dispute the first finding. But it challenges the second which, in the case of the Marlu shares, has the result that the 3,200,000 shares credited as fully paid-up which were received by the Trust as the consideration for parting with the relevant concession to Marlu must be valued for Income Tax purposes in the year 1934-5 at the figure of £800,000.
The Appellant's argument comes to this, that no asset such as a block of shares fully paid-up can, for Income Tax purposes, be represented by a figure of cash in the year of account in which the transaction takes place, unless the asset is readily convertible into money in that year. If it was not, no money value could be attributed to it, because realisation was not presently possible. The Appellant further contended that upon examining the material set out in the Case Stated, the Commissioners' conclusion as to value was vitiated since they had proceeded on the assumption that the block of shares must be valued at £800,000 because they were allotted as the agreed method of satisfying a consideration of £800,000.
The Respondent concedes that if the Commissioners had arrived at their figure on the view that the block of shares must necessarily be valued at the figure named, this was an error, and that the fact that the contract stipulated for an allotment of fully paid shares to an amount which at par was equivalent to the money figure might raise a presumption that this was the correct value, but was not conclusive. If, for example, at the time of the purchase of the concession the shares of the company stood at a high premium, an allotment of 5s. shares as fully paid as the method of discharging the consideration might confer on the company an asset worth more than the par equivalent of the shares. Equally, if contemporary dealings indicated a fall, the money value of the new asset might be less than par. But the Respondent argues that it is all a question of valuation, which is a matter for the Commissioners to determine, provided...
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