Government of India, Ministry of Finance (Revenue Division) v Taylor and another

JurisdictionUK Non-devolved
Judgment Date20 January 1955
Date20 January 1955
CourtHouse of Lords
[HOUSE OF LORDS.] GOVERNMENT OF INDIA, MINISTRY OF FINANCE (REVENUE DIVISION) APPELLANT; AND TAYLOR AND ANOTHER RESPONDENT. 1954 Nov. 23, 24, 25, 29. 1955 Jan. 20. VISCOUNT SIMONDS LORD MORTON OF HENRYTON, LORD REID, LORD KEITH OF AVONHOLM and LORD SOMERVELL OF HARROW.

Company - Winding up - Liabilities - Foreign tax debt - English company trading in India - Liquidation - “Liabilities” - Claim for Indian tax not provable - Companies Act, 1948 (11 & 12 Geo. 6, c. 38), ss. 278, 283, 302. - Conflict of Laws - Revenue laws - Whether enforceable in another State - Commonwealth countries. - Judicial Precedent - United States cases - Conflict of laws - As between state and state - Lack of weight here.

The Government of India sought to prove in the voluntary liquidation of a company registered in the United Kingdom but trading in India for a sum due in respect of Indian income tax, including capital gains tax, which arose on the sale of the company's undertaking in India:—

Held, (1) that claims on behalf of a foreign State to recover taxes due under its laws were unenforceable in English courts and there was no valid distinction for this purpose between foreign States and States adhering to the British Commonwealth.

In re Visser [1928] 1 Ch. 877; 44 T.L.R. 692 applied.

Dicta of Lord Mansfield C.J. in Holman v. Johnson (1775) 1 Cowp. 341 and Planché v. Fletcher (1779) 1 Doug. 251 considered.

(2) (per Viscount Simonds, Lord Morton and Lord Reid concurring); That the “liabilities” for which a liquidator is required to provide in the liquidation of a company by section 302 of the Companies Act, 1948, did not include claims unenforceable in the English courts, and, therefore, this claim was not such a “liability.”

Per Lord Keith of Avonholm and Lord Somervell of Harrow: Although the liability to Indian tax in India may be a “liability” within section 302, it is not one which is enforceable in relation to assets in England in a liquidation here.

In re Lorillard [1922] 2 Ch. 638; 38 T.L.R. 666 approved.

Decision of the Court of Appeal (sub nom. In re Delhi Electric Supply & Traction Co. Ld. [1954] Ch. 131; [1953] 3 W.L.R. 1085; [1953] 2 All E.R. 1452) affirmed.

APPEAL from the Court of Appeal (Evershed M.R., Jenkins and Morris L.JJ.).

This was an appeal from an order of the Court of Appeal dated November 11, 1953, dismissing an appeal by the appellant, the Government of India, Ministry of Finance (Revenue Division) from an order made by Vaisey J. in the Chancery Division of the High Court of Justice on July 30, 1953, whereby he refused to make an order on the appellant's application by summons dated June 4, 1953, under rule 108 of the Companies (Winding-up) Rules, 1949, for an order reversing a decision of the first respondent, Samuel Henry Taylor, as sole liquidator of Delhi Electric Supply & Traction Co. Ld., rejecting a proof of debt by the appellant, save that the appellant should pay the respondent's costs. On July 9, 1953, the second respondent, William Deuchars Hume, was appointed a liquidator of the company to act jointly with the first respondent and was admitted a party to the proceedings.

The facts are fully stated in the opinion of Viscount Simonds.

Sir Andrew Clark Q.C., Nelson Mustoe Q.C., Robert Phillips and J. H. C. Morris for the appellant.

James Tucker Q.C., Raymond Jennings Q.C. and Oliver Smith for the respondents.

Their Lordships took time for consideration.

Jan. 20, 1955. VISCOUNT SIMONDS. My Lords, the respondents to this appeal are the present liquidators in the voluntary winding up of an English company, the Delhi Electric Supply & Traction Co. Ld., which was in the year 1906 incorporated for the purpose of operating an electricity supply undertaking and tramway undertakings under a licence and order granted by the Municipality of Delhi. The appellant is the Government of India, a sovereign independent republic which acknowledges Her Majesty as head of the British Commonwealth. The question for your Lordships' decision is whether Vaisey J. and the Court of Appeal were right in rejecting the appellant's claim to prove in the liquidation of the company in respect of an amount of income tax due from the company to the appellant under Indian income tax law.

The relevant facts can be very shortly stated. The company having carried on its undertaking in India until the year 1947, in that year sold the whole of them to the Government of India as from March 2, 1947, for the sum of Rs.82,11,580. The greater part of this sum was paid to the company in India on March 1, 1947, and was remitted to England a few days later. The balance was paid to the company in India in September, 1948, and remitted to England shortly afterwards.

On April 18, 1947, the Indian Income Tax and Excess Profits Tax (Amendment) Act, 1947, was passed and by section 6 thereof section 12B was inserted in the Indian Income Tax Act, 1922. The opening words of section 12B are as follows:

“The tax shall be payable by an assessee under the head ‘Capital gains’ in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effected after March 31, 1946; and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer took place.”

This amendment is deemed by section 1 (2) of the Act of 1947 to have come into force on March 31, 1947.

On May 25, 1949, the company went into voluntary liquidation by special resolution and the respondent Taylor and one Lovering were appointed joint liquidators. They had previously as directors of the company made a statutory declaration as to the solvency of the company and later in their statement as to the position of the liquidation of the company they referred to the liability for special taxation in India. They also in March, 1951, inserted a notice in the Gazette of India calling upon all creditors to prove their debts or claims and acceded to a request by the Commissioner of Income Tax at Delhi to stay the liquidation proceedings to enable his Department to prove their claim.

On October 24, 1951, the Commissioner of Income Tax served a demand notice under section 29 of the Indian Income Tax Act, 1922, for the year 1948–9 calling on the company to pay Rs.16,54,945.11.0 of tax, which consisted mainly of a sum of Rs.15,62,817.3.0 representing tax on the surplus on the sale of the company's undertakings. I need not pursue the various steps that were taken in India, appeals against the assessment, payment of a sum on account out of assets which were still in India, re-assessment of the amounts claimed to be due under the head “capital gains” and further demands which culminated in a claim upon the surviving liquidator Taylor in February, 1953 (Lovering having in the meantime died), for sums of Rs.15,62,817.3.0 and Rs.13,001.10.0. The quantum of those assessments is still a matter of appeal in India, but that there is some liability in India in respect of tax for capital gains is beyond doubt, and there appears to be also an ascertained liability in respect of what I may call ordinary income tax which is not under appeal.

It was in those circumstances that the respondent Taylor in April and May, 1953, rejected the appellant's claims, stating that no part of the company's assets (all of which were then in England) could properly be applied in payment of any claim for taxes by a foreign Government. Thereupon the appellant applied to the High Court in England for an order reversing the rejection of its claim and on July 30, 1953 (the respondent Hume having in the meantime been appointed joint liquidator with the respondent Taylor) Vaisey J. made an order refusing the appellant's application. From this order the appellant appealed to the Court of Appeal (Evershed M.R., and Jenkins and Morris L.JJ.) and that court unanimously dismissed the appeal.

The questions raised in the appeal to this House are two: (a) whether there is a rule of law which precludes a foreign State from suing in England for taxes due under the law of that State, and (b) whether (assuming the first question to be answered in the affirmative) a claim for Indian taxes is nevertheless a “liability” within the meaning of section 302 of the Companies Act, 1948, which the liquidators are bound to discharge. The Court of Appeal agreed with Vaisey J. in answering to the first question “Yes” and to the second question “No” and I have no doubt that they were right.

My Lords, I will admit that I was greatly surprised to hear it suggested that the courts of this country would and should entertain a suit by a foreign State to recover a tax. For at any time since I have had any acquaintance with the law I should have said as Rowlatt J. said in the King of the Hellenes v. BrostronF1:

“It is perfectly elementary that a foreign government cannot come here — nor will the courts of other countries allow our Government to go there — and sue a person found in that jurisdiction for taxes levied and which he is declared to be liable to in the country to which he belongs.”

That was in 1923. In 1928 Tomlin J. in In re Visser, Queen of Holland v. DrukkerF2 after referring to the case of Sydney Municipal Council v. BullF3 in which the same proposition had been unequivocally stated by Grantham J. and saying that he was bound to follow it, added:

“My own opinion is that there is a well-recognized rule, which has been enforced for at least 200 years or thereabouts, under which these courts will not collect the taxes of foreign States for the benefit of the sovereigns of those foreign States; and this is one of those actions which these courts will not entertain.”

My Lords, it is not seemly to weigh the pronouncements of living judges, but it is, I think, permissible to say that the opinions of few, if any, judges of the past command greater respect than those of Lord Tomlin and Rowlatt J. and what appeared to one of them to be a “well recognized rule” and to the other...

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