Gold Coast Selection Trust Ltd v Humphrey
| Jurisdiction | England & Wales |
| Date | 1943 |
| Year | 1943 |
| Court | Court of Appeal |
NO. 1405-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL -
HOUSE OF LORDS-
Income Tax, Schedule D - Profits of trade - Company dealing in gold mining concessions, etc. - Concessions sold for fully paid shares - Shareholding in one company changed into a shareholding in another company by reason of the liquidation of the former company - Whether the sales and the exchange constitute realisations - Valuation.
The G.C.S. Trust carried on the business of financiers, dealers in stocks and shares, and exploiters of and dealers in gold mining concessions. Its practice was to acquire concessions over land which might be gold bearing and, if on investigation a concession proved suitable, to promote a company to which the concession was transferred at a stated consideration which was satisfied by the issue to the Trust of fully paid shares.
The Trust was assessed to Income Tax on the footing that such transactions constituted realisations of the concessions and gave rise to immediate profits to be included in the trading profits for the purposes of Case I of Schedule D. On appeal the General Commissioners accepted this view, determining the amounts of the assessments under appeal by reference to the par value of the shares received.
With reference to one transaction the General Commissioners found that no profit for Income Tax purposes had arisen. In this case the Trust had purchased a controlling interest in company A which owned a concession. The concession was sold by company A to company B for fully paid shares in company B. Company A was liquidated, and its assets being distributed in specie the Trust received shares in company B. The Crown's appeal against the decision of the Commissioners on this point was allowed in the King's Bench Division, and was not further contested except on the question of the valuation of the shares in company B.
Held, that the Commissioners' main decision was correct (Court of Appeal); but that the shares acquired by the Trust on the transfer of the concessions and also the shares in company B should be valued as at the end of the accounting years of receipt, consideration being given to all the circumstances-marketability, etc. (House of Lords: Lord Oaksev dissenting). The cases were remitted to the Commissioners to reconsider the assessments accordingly.
Stated by the Commissioners for the General Purposes of the Income Tax for the City of London pursuant to the provisions of Section 149 of the Income Tax Act, 1918, for the opinion of the High Court of Justice.
1. At meetings of the said Commissioners held on 5th, 12th and 19th June, and 3rd, 17th and 31st July, 1944, at Gresham College, Basinghall Street, in the said City, Gold Coast Selection Trust, Ltd., an incorporated company having its registered office at Finsbury Pavement House, Moorgate, in the said City (hereinafter called "the Trust"), appealed against assessments to Income Tax made upon it under Case I of Schedule D of the Income Tax Act, 1918, in respect of "profits from trade, etc., of financiers" as follows:-
For the year ended 5th April, 1935: |
||
First assessment in the sum of |
£22,224 |
|
Additional assessment in the sum of |
£227,776 |
(hereinafter called |
"the Anfargah |
||
£250,000 |
assessment.") |
|
For the year ended 5th April, 1936: |
||
First assessment in the sum of |
£7,500 |
|
Additional assessment in the sum of |
£1,292,500 |
(hereinafter called |
"the Marlu |
||
£1,300,000 |
assessment.") |
|
For the year ended 5th April, 1937: |
||
Assessment in the sum of |
£150,000 |
(hereinafter called |
"the Main Reef |
||
assessment.") |
||
For the year ended 5th April, 1938: |
||
Assessment in the sum of |
£500,000 |
(hereinafter called |
"the Bremang |
||
assessment.") |
2. The Trust is a public company. It was incorporated on 16th November, 1928, under the Companies Acts, 1908 to 1917, as a company limited by shares with a capital of £70,000 divided into 50,000 ordinary shares of £1 each and 400,000 deferred shares of 1s. each. By special resolutions the said capital has from time to time been increased and is at present £750,000 divided into one class of 3000,000 shares of 5s. each. Some of these issues were made at a considerable premium, the share premium account (after deducting expenditure on option leases abandoned) standing at £639,528 in the balance sheet as at 31st March, 1936. The objects for which the Trust was established included the following:- "(A) To carry on and execute all kinds of financial, commercial trading, "and other operations and to carry on any other business which may seem "to be capable of being conveniently carried on in connection with any "of these objects …"
A copy of the memorandum and articles of association of the Trust is annexed hereto, marked "A", and may be referred to as part of this Case(1).
In the prospectus offering the shares of the Trust for subscription it was stated that the Trust had been formed with the object of acquiring, developing and floating gold-mining properties situated on the Prestea Reef formation in Gold Coast Colony adjoining or in the vicinity of the mine now being developed by Ariston Gold Mines, Ltd.
3. The business carried on by the Trust was that of financiers, dealers in stocks and shares and exploiters of and dealers in gold mining concessions as described below. Its practice was to acquire concessions over land in the Gold Coast Colony which it was thought might be gold bearing. The concessions were exploited to the extent necessary to ascertain their potentialities, and if they were proved to be gold bearing in such circumstances that with further expenditure gold might be produced on a profit-making basis, the Trust proceeded to part with the concession to another company the business of which would be to develop and work the gold. It was not the business of the Trust to continue its investigation of any concession beyond the initial stage, as herein described, and at no time did it attempt the production of gold on a commercial scale. The usual method was to incorporate or promote a public company and to transfer to that company the concession at a price to be satisfied by the issue of fully paid shares. The Trust and its associated companies were represented on the boards of such mining companies and from time to time the Trust, in addition to its vendor shares, took up further shares offered for subscription in such companies as appeared to it likely to be successful.
4. The main questions for the determination of the Commissioners were (i) whether the transactions hereinafter described, whereby the Trust parted with concessions in consideration of issues of fully paid shares in companies formed to exploit the concessions, amounted to realisations of the concessions giving rise to immediate profits to be included in the computations of the profits of the trade of the Trust for the purposes of Income Tax under Case I of Schedule D, and, if so, (ii) upon what basis should such profits be ascertained.
5. Up to 1930 mining in West Africa was not very successful owing to the climate, labour insufficiency, high working costs and difficulties of transport. In 1930 the port of Tarkwa was constructed and new motor roads were made, the mosquito menace was under control, and these improvements, together with an expert report on the Prestea Reef, caused the beginning of a revival of interest. In 1931 Great Britain went off the gold standard and the value of gold rose considerably, and concessions which were on the margin in 1930 had become profitable by 1933, and the share market in West Africa gold mines became active from early in 1933. In the course of 1932 and 1933 the capital of the Trust was increased, and the board of directors was reorganised, some prominent figures in gold mining and gold mining finance, including Mr. H. G. Latilla who was chairman, being directors. In 1933 the following important mining companies held large blocks of shares in the Trust as under:-
Ashanti Goldfields Corporation, Ltd., 213,000 shares-10 per cent. of the capital of the Trust.
Anglo-American Corporation of South Africa, Ltd., 170,000 shares-81/2 per cent. of the capital of the Trust.
Consolidated Goldfields of South Africa, Ltd., 266,000 shares- 13 per cent. of the capital of the Trust.
6. The Marlu, Main Reef, and Bremang assessments were raised in respect of concessions sold by the Trust to the following companies respectively, viz., Marlu Gold Mining Areas, Ltd. (hereinafter called "Marlu"); Gold Coast Main Reef, Ltd. (hereinafter called "Main Reef"), and Bremang Gold Dredging Co., Ltd. (hereinafter called "Bremang"). These companies were incorporated or promoted by the Trust as above-mentioned for the purpose of acquiring its concessions, and details of each of the said companies and of the concessions transferred to them by the Trust appear more fully in the paragraphs next hereinafter following.
7. The report of the directors of the Trust upon the audited accounts for the year ended 31st March, 1933, shows that at 11th December, 1933, the Trust held 20 concessions and 17 options. Of these concessions those named Bogosu North, Bogosu South, Damassie and Mansalaie (subsequently renamed New Bogosu) and those named Assekukessi North, Assekukessi South, Kukrokukro North and Kukrokukro South (subsequently renamed New Assekukessi) were in due course transferred to Marlu. One option-the option relating to the Ntubia concession-was exercised. A lease of the concession was taken and was in due course transferred to Ntubia Gold Areas, Ltd. (hereinafter called "Ntubia"). In the cases of the remainder of these concessions and options, prospecting and preliminary development operations showed unfavourable results and the concessions and options were abandoned.
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