Green v Commissioners of Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 15 July 1975 |
| Year | 1982 |
| Date | 15 July 1975 |
| Court | High Court of Justiciary |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Surtax-Tax advantage-Counteraction-Payments to husband and wife- Wife not separately assessable-Whether husband chargeable on payments to both -Finance Act 1960 (8 & 9 Eliz. 2, c. 44), s. 28; Finance Act 1962 (10 & 11 Eliz. 2, c. 44), s. 25(4).
The Appellant and his wife (who at all material times was living with him and not separately assessable to surtax) were the directors of a gravel company and the sole holders of its ordinary shares. On 1st April 1960 the company resolved to issue and allot to them in equal proportions 80 preferred shares carrying, in effect, the right to the entire dividend recommended by the directors not exceeding the available profits of the company. On the same day they sold the preferred shares to G Ltd. for £300,000 payable as to £10,000 forthwith and as to the balance by instalments on or before 31st May in each year from 1961 to 1965, subject to a reduction of the purchase price if the dividends did not reach a stipulated figure. In each of the years 1961-62 to 1964-65 G Ltd. paid to the Appellant and his wife instalments equal to the net dividends on the shares, making a total of £229,680.
The Commissioners of Inland Revenue gave notice to the Appellant under s. 28(3), Finance Act 1960, that the adjustments requisite for counteracting the tax advantage obtained by the said transactions in securities was that the instalments of the balance of the purchase price (except the sum paid to his wife in 1961-62) should be treated for surtax purposes as if they were the net amounts of dividends payable under deduction of tax at the date of receipt. On appeal, the Appellant contended that the relevant transactions in securities were all carried out before 5th April 1960 and the receipt of the instalments was not a transaction in securities; alternatively, that the tax advantage was not obtained in consequence of those receipts; and in any event that the proposed adjustments were inappropriate. The Special Commissioners confirmed the notice.
In the High Court the Appellant abandoned his previous contentions, but contended (1) by reference to figures derived from the accounts of the gravel company appended to the Case, that the distributable profit of the company was not in any of the relevant years sufficient to provide the gross dividend declared; (2) that the effect of s. 25(4), Finance Act 1962, was to attribute the sums paid to the Appellant exclusively to his wife and conversely, so that only one-half of the amounts paid by G Ltd. in the years 1962-63 to 1964-65 was attributable to the Appellant.
The Chancery Division held (1) that the question of the amount of the company's distributable profits raised an issue of fact which could not be raised at that stage; (2) that s. 25(4) required the Appellant to be treated as if he had been the vendor of his wife's preferred shares as well as his own.
Held, in the Court of Appeal, that, even if the question of the amount of the company's distributable profits could be raised in full at this stage, which was very doubtful, it was plain on the figures as they appeared from the accounts that there were sufficient distributable profits unless the figures for depreciation and depletion of land values were deducted, and no such deduction could be made in computing the distributable profits for the purposes of ss. 184-6, Income Tax Act 1952.
Stated under the Income Tax Act 1952, s. 64, Income Tax Management Act 1964, s. 12(5) and the Finance Act 1960, s. 28, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 4th and 5th December 1967 Frederick John Holt Green (hereinafter called "Mr. Green") appealed against:
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(a) a notice (hereinafter called "the Notice") in the following terms given by the Commissioners of Inland Revenue on 24th January 1967 under the provisions of s. 28, Finance Act 1960:
"Whereas on 3rd February 1966 the Commissioners of Inland Revenue issued a notification to you in accordance with subsection (4) of Section 28 of the Finance Act, 1960, that they had reason to believe that the said Section 28 (which relates to the cancellation of tax advantages from certain transactions in securities) as amended, might apply to you in respect of the transactions described in the attached schedule. And whereas, on 22nd December 1966, the Tribunal constituted under the said Section 28, having taken into consideration the statutory declaration made by you under subsection (4) of that Section and the certificate and counter-statement of the Commissioners of Inland Revenue under subsection (5) thereof, determined that there was a prima facie case for proceeding in this matter. Now therefore the Commissioners of Inland Revenue, being of opinion that Section 28 of the Finance Act, 1960, applies to you in respect of the aforesaid transactions hereby give notice, in accordance with sub-section (3) of that Section, that the adjustments described overleaf are requisite for counteracting the tax advantage thereby obtained or obtainable.
The adjustments referred to:
The computation or recomputation of your liability to surtax for the years of assessment 1961-62, 1962-63, 1963-64 and 1964-65 on the basis that the sums shown below should be taken into account as if they were the net amounts received in respect of dividends payable at the date of receipt thereof from which deduction of tax was authorised by subsection (1) of Section 184 of the Income Tax Act, 1952, and any assessments or further assessments to surtax which may be requisite to give effect to such computation or recomputation.
Surtax 1961-62
£
s.
d.
Payment received by you on 3rd November 1961
24,800
0
0
Add for income tax at 7s. 9d. in the £
15,689
15
10
Gross equivalent thereof
40,489
15
10
Surtax 1962-63
£
s.
d.
Payments received by your wife and yourself on 28th December 1962
49,600
0
0
Add for income tax at 7s. 9d. in the £
31,379
11
10
Gross equivalent thereof
80,979
11
10
Surtax 1963-64
Payments received by your wife and yourself on 9th March 1964
40,000
0
0
Add for income tax at 7s. 9d. in the £
25,306
2
4
Gross equivalent thereof
65,306
2
4
Surtax 1964-65
Payments received by your wife and yourself on 12th March 1965
90,480
0
0
Add for income tax at 7s. 9d. in the £
57,242
9
4
Gross equivalent thereof
147,722
9
4
Schedule
The transactions referred to:"
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(2) The special resolution of Henry Streeter (Sunbury) Ltd. (hereinafter called "the Company") on 1st April 1960, converting 80 of the unissued shares of the Company of £1 each into Preferred Shares of £1 each entitling the holders thereof to the following rights as to dividend:
(i) The right as from 1st June 1960 to be paid out of the profits of the Company available for dividend a fixed cumulative preference dividend in respect of each financial year of the Company at the rate of 6 per cent. per annum on the capital for the time being paid up thereon in priority to any payment to the holders of any other class of shares in the capital of the Company.
(ii) The right, pro rata to their respective holdings, to the payment in respect of each of the financial years or other periods of the Company ending on the 31st day of May (or such other day on which the Company's financial period may end) in the years 1960 to 1965 both inclusive of a net dividend (after deduction of income tax) of such an amount as may be declared or recommended by the Directors not exceeding the aggregate of the profits of the Company arising for each such financial year or other period (to be determined in the manner set out in paragraphs 4 and 5 of the Third Schedule to the Finance (No. 2) Act, 1955) or the accumulated profits of the Company available for dividend (whichever shall be the less) in either case after deduction of the net amount of the said fixed cumulative preferential dividend in respect of each such financial year or other period.
-
(3) Provided Always (a) that the total amounts paid by way of dividends under the provisions of paragraph (ii) above in respect of the said five financial years or other periods shall not exceed £375,000 before deduction of income tax and (b) that no dividends shall be declared or paid on any other class of shares in the capital of the Company until 1st June 1965 or until the date on which the total amount paid by way of dividends under the provisions of paragraph (ii) above reaches £375,000 before deduction of income tax, whichever shall be the earlier.
(4) Except when the Directors shall consider that the financial position of the Company shall not justify such course, the first fixed cumulative preferential dividend shall be paid on 1st June 1961, in respect of the period 1st June 1960 to 31st May 1961 and thereafter yearly on 1st June. Each dividend payable under the provisions of paragraph (ii) above shall be paid within one month after the date upon which the Company in general meeting approves the accounts for the financial year in question. The Directors may however from time to time pay interim dividends on the said Preferred Shares which shall be deemed to be payments on account on those payable under the provisions of paragraph (ii) above.
(5) The allotments on 1st April 1960 to you and your wife respectively who were the respective owners of the only two Ordinary Shares of £1 each that the Company had at that time issued of 40 each of the said Preferred Shares.
(6) The agreement dated 1st April 1960, whereby you and your wife sold the said 80 Preferred Shares to Gensal Securities Ltd. at the price of £300,000, such price which was subject to adjustment as provided in the said agreement to be paid in instalments as therein provided.
(7) The receipts by you and your wife from...
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