Golder (HM Inspector of Taxes) v Great Boulder Proprietary Gold Mines, Ltd

JurisdictionEngland & Wales
Judgment Date15 January 1952
Date15 January 1952
CourtHigh Court

HIGH COURT OF JUSTICE-

(1) Golder (H.M. Inspector of Taxes)
and
Great Boulder Proprietary Gold Mines, Ltd.(2) Commissioners of Inland Revenue v Great Boulder Proprietary Gold Mines, Ltd.

Income Tax and Profits Tax - Profits of trade - Deduction - Sum paid in settlement of claim for damages and compensation.

The Company was a gold-mining concern which in 1934 and 1935 entered into transactions connected with the formation of other companies. The profits from these transactions were included in subsequent Income Tax assessments. In 1941 and 1942 civil actions were brought against the Company in connection with the formations, and the Company paid £25,000 to settle the actions. Legal costs were also incurred.

On appeal before the Special Commissioners against assessments to Income Tax and Profits Tax, it was contended for the Company that the sum of £25,000 and the legal costs were admissible deductions in computing its profits for taxation purposes. It was contended on behalf of the Crown that, notwithstanding the earlier Income Tax assessments, the Company was not engaged either in a separate trade of company promotion or in a composite trade of gold-mining and company promotion so that the question of the deduction could not arise; or alternatively that the £25,000 and legal costs were not laid out wholly and exclusively for trade purposes. The Special Commissioners held that the transactions formed part of the Company's trade and that the £25,000 and legal costs were wholly and exclusively laid out for trade purposes.

Held, that the Commissioners' decision was correct.

CASES

(1) Golder (H.M. Inspector of Taxes) v. Great Boulder Proprietary Gold Mines, Ltd.

CASE

Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.

1. At meetings of the Commissioners for the Special Purposes of the Income Tax Acts held on 23rd and 24th March, 1950, Great Boulder Proprietary Gold Mines, Ltd., hereinafter called "the Company" or "the "Respondent Company", appealed against assessments to Income Tax for the years 1945-46 and 1946-47 made upon the Company under Case I of Schedule D, Income Tax Act, 1918. The said assessments were respectively in the sums of £115,000 less £26,000 wear and tear, and £120,000 less £25,000 wear and tear.

2. The Company was incorporated in the United Kingdom as a public company in 1894. A copy of the memorandum and articles of association is annexed, marked A, and forms part of this Case(1). The Company is a gold-mining company, and its trade as such consisted, during the whole of the relevant period, in the prospecting for and winning of gold in Western Australia, where it operated a mine at Kalgoorlie, and the selling of bullion: the objects relating to this gold-mining trade are set forth at length under clause 3 of the memorandum. The Company also entered, in the course of the years 1934 and 1935, into three transactions, as hereinafter appearing, which, according to its contentions but contrary to the contentions of the Crown, were trading transactions and formed part of its trade, as company promotions falling within object (P) of clause 3 of the memorandum. The opening words of object (P) are as follows:-

To promote, organise, and to register and to aid and assist in the "promotion, organisation, registration, operations and objects of any "Company or Companies either in Great Britain, Ireland or elsewhere, "for the purpose of acquiring any of the property of this Company or "any other purpose…

3. The three transactions above referred to led to civil actions being brought against the Company, in association with other defendants, in 1941 and 1942. In 1945 the Company made a payment of £25,000 in settlement of these actions: it also incurred relative legal costs, amounting in all to £2,495.

4. The ground of the Company's appeal was a claim that it was entitled to a deduction in respect of these sums in the appropriate years as being money wholly and exclusively laid out or expended for the purposes of its trade, in terms of Rule 3 (a), Rules applicable to Cases I and II of Schedule D, or, alternatively, as constituting a loss arising out of the Company's trade within the meaning of Rule 3 (e) of the said Rules. The Company's claim was resisted by the Crown on the ground, firstly, that the Company was not engaged either in a separate trade of company-promoting or in a composite trade of gold-mining and company-promoting, and secondly, that, even if it were so engaged, the sum of £25,000 and the relative legal costs were not admissible as deductions under either of the heads on which the Company relied.

5. The three transactions leading to civil actions against the Company, as aforesaid, were, briefly stated, as follows. The Company was concerned in the promotion of three English companies: in April, 1934, in that of Southern Cross Gold Development, Ltd., hereinafter referred to as "Southern "Cross Development"; in July, 1934, in that of Murchison Gold Development, Ltd., hereinafter referred to as "Murchison"; and in July, 1935, in that of Great Boulder Mining and Finance, Ltd., hereinafter referred to as "Mining and Finance". Copies of the Southern Cross Development, Murchison, and Mining and Finance prospectuses are annexed, marked B, C and D respectively, and form part of this Case(1).

6. In the Southern Cross Development promotion and in the Murchison promotion what the Company did was to buy shares in an Australian gold-mining company-and also in the former case a gold-mining reservation- and sell them to the newly formed English company. In both cases the Company bought the said shares from an Australian company called Australian Machinery and Investment Company, Ltd.

In the Mining and Finance promotion the Company sold to Mining and Finance shares which it owned in certain gold-mining companies. The Company was associated in the prospectus of July, 1935, with the above-mentioned Australian Machinery and Investment Company, Ltd., which sold to Mining and Finance shares and options in a number of Australian gold-mining companies.

7. Before giving particulars of the aforesaid transactions, we think it convenient to refer to the nature and activities of the Australian Machinery and Investment Company, Ltd., hereinafter referred to as "A.M.I.", and to the origin of the Australian gold-mining companies, of the shares in which it was disposing. The Respondent Company was associated with A.M.I. and the said gold-mining companies (together with a number of individuals) as defendants in the actions already referred to in paragraph 3 of this Case as brought in 1941 and 1942. Some account of A.M.I. and the said gold-mining companies is essential to this Case.

8. The main sources of information in these matters are two Reports made by Sir William McLintock to the Board of Trade (of which the second was consequent on the Stock Exchange having withdrawn permission to deal in the shares of Murchison, Mining and Finance, and other similar English companies), and the case of Murphy v. Australian Machinery and Investment Company, Ltd. (Assessed in the name of de Bernales as agent), which is reported in 30 T.C. 244.

The first of the reports made by Sir William McLintock, hereinafter referred to as "the first McLintock report", was a report of 30th April, 1940, made on the affairs of the Respondent Company to the Board of Trade (Companies Department). A print of the first McLintock report is annexed, with covering letter from the Board of Trade to the Respondent Company, dated the 16th May, 1940: it is marked E, and forms part of this Case.(1)

The second of the reports made by Sir William McLintock, hereinafter referred to as "the second McLintock report" was a summarised report of 3rd July, 1940, made on the affairs of eight English companies known as the "de Bernales Group of Gold-mining Companies". Three of these companies were those in the promotion of which the Respondent Company was concerned (see paragraphs 5 and 6 above), viz. Southern Development, then in liquidation, Murchison, and Mining and Finance. Sir William McLintock had been appointed to investigate, on the Stock Exchange suspending dealings, as aforesaid, and applying to the Board of Trade for the appointment of an inspector. A copy of the second McLintock report is annexed, marked F, and forms part of this Case.(1)

9. Paragraph 2 of the second McLintock report deals with events leading up to the formation of the English companies (the de Bernales group). From this it appears that A.M.I. was formed by de Bernales in 1924 as a family investment company, part of its funds being invested in the Western Australian gold-mining industry. Some time before December, 1930, de Bernales arranged that a Mr. Urquhart, A.M.I.'s chief mining engineer, should go into the records of abandoned mines which had shown satisfactory results in the past. Paragraph 2 of the report proceeds as follows:-

As a result of Urquhart's researches A.M.I. acquired at very little "cost a number of mining properties, unworked for many years and in "most cases waterlogged. Their condition was such as to make it "impossible for Urquhart to carry out any exhaustive underground tests, "and there is no evidence that any attempt was made by A.M.I. to "unwater and prove the mines.

"A.M.I. then formed a series of Western Australian companies with "large authorised capitals, each of which acquired from A.M.I. one of "the mining properties. The purchase prices were arbitrary sums bearing "no relation to A.M.I.'s expenditure and were satisfied by the issue to "A.M.I. of large blocks of the purchasing companies' shares.

"By 1932, therefore, the position had been reached that A.M.I. were "the owners of hundreds of thousands of shares in Western Australian "gold-mining companies whose only assets were mines, unworked for "many years, which had cost A.M.I. only a small fraction...

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