Henry Briggs, Son & Company, Ltd ((in Liquidation)) v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 21 December 1960 |
| Date | 21 December 1960 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Profits Tax - Computation of profits - Dividends received from subsidiary company - Whether profits arising from trade or business carried on by principal company - Whether dividends franked investment income - Finance Act, 1937 (1 Edw. VIII & 1 Geo. VI, c. 54), Section 19 and Fourth Schedule, Paragraph 7.
The Appellant Company owned all the shares in B.C. Ltd., a company which had been formed in 1939 to acquire and carry on the coal mining activities of the Appellant Company and two of its subsidiaries. The Company also owned and operated a brickworks and a quarry, and held agricultural land, a number of leasehold houses (mostly occupied by colliery workers of B.C. Ltd.), and cash and investments. Five of the Company's ten directors were also on the board of B.C. Ltd. and the trades of the two companies were closely integrated. The day-to-day business of B.C. Ltd. was conducted by its own board of directors but important matters had to be referred to the board of the Company. Before the nationalisation of the coal industry, dividends from B.C. Ltd. formed by far the largest item of receipts in the Company's accounts.
On 1st January, 1947, all colliery assets owned by B.C. Ltd. were transferred to the National Coal Board. The colliery trade ceased and a right to compensation accrued to the company. The energies of B.C. Ltd. were thereafter devoted to obtaining the compensation, which it received by instalments; it also received certain payments of interim income under the coal nationalisation legislation out of which dividends were paid to the Company. No effort was made by B.C. Ltd. to embark upon any fresh trade or business. It was always the intention that so soon as B.C. Ltd. had recovered the compensation to which it was entitled it should go into liquidation and it was in fact put into liquidation in October, 1952.
Upon the nationalisation of its colliery interests, the Company considered various ways of employing its resources in different fields, but after 1948 it devoted itself to securing its compensation under the coal nationalisation legislation and ceased to seek for fresh businesses. In March, 1949, 15s. in the £ was returned to shareholders and in July, 1951, after the realisation of its remaining assets, the Company went into liquidation.
Assessments to Profits Tax for chargeable accounting periods commencing on 2nd January, 1947, and ending on 18th July, 1951, were made upon the Company in amounts which included the dividends paid by B.C. Ltd. out of the interim
income payments. On appeal to the Special Commissioners, it was contended on behalf of the Company (a) that its trade or business (in so far as it consisted in the ownership and management of a colliery undertaking) ceased on 1st January, 1947, and the dividends were not therefore profits arising from any trade or business carried on by it during the relevant chargeable accounting periods, and (b) that the dividends were exempt from Profits Tax as franked investment income, the functions of B.C. Ltd. after 1st January, 1947, having consisted wholly or mainly in the holding of property. The Commissioners rejected the Company's contentions, deciding that the Company was throughout a company whose business consisted wholly or mainly in the holding of investments or other property and that the dividends related to that trade or business; and that the dividends were not franked investment income because from January, 1947, B.C. Ltd. carried on no trade or business within the meaning of Section 19, Finance Act, 1937Held, in the Chancery Division, that the first part of the Commissioners' decision was primarily a finding of fact and there was evidence on which they could reach their decision.
Held, in the House of Lords, that the functions of B.C. Ltd. did not consist wholly or mainly in the holding of investments or other property and that accordingly the dividends were not franked investment income.
Stated under the Finance Act, 1937, Fifth Schedule, Part II, Paragraph 4, and the Income Tax Act, 1952, Section 64, 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 30th September and 1st and 2nd October, 1957, Henry Briggs, Son & Co., Ltd. (hereinafter called the "parent Company"), appealed against various assessments made upon it to Profits Tax for chargeable accounting periods commencing on 2nd January, 1947, and ending on 18th July, 1951, at which latter date the parent Company went into liquidation. The question for our decision was whether the parent Company was liable to include in the computation of its profits for the purposes of Profits Tax certain dividends received from a wholly-owned subsidiary, Briggs Collieries, Ltd. (hereinafter called "Briggs"), such dividends being received by the parent Company from Briggs at various dates from 30th September, 1946, to 20th April, 1951.
2. The following facts were proved or admitted:
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(a) The parent Company was incorporated on 5th April, 1865, as a company limited by shares with a capital of £135,000. By special resolutions from time to time passed the capital was altered, and ultimately (at 18th July, 1951), the issued share capital was 710,000 5s.shares. The objects for which the Company was established according to its memorandum of association were those of a colliery company. A copy of the memorandum and articles of association is hereto attached, marked "A" (1). On incorporation, the parent Company took over the trade of coal mining previously carried on at Whitwood, near Leeds, and elsewhere by a partnership under the name of Henry Briggs & Son.
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(b) The parent Company held shares in a number of subsidiary companies acquired in the manner following:
(i) The Whitwood Chemical Co., Ltd. (hereinafter called "Whitwood"), was incorporated in 1883 by the parent Company and certain other persons to carry on a trade of manufacturing coke, gas and other by-products from coal. In or about the year 1940 the parent Company purchased from such other persons the remainder of the issued share capital.
(ii) Crawshaw & Holiday, Ltd., was incorporated in 1932 by the parent Company with certain other persons to acquire the share capital in Robert Holiday & Sons, Ltd., and Crawshaw & Warburton, Ltd., two companies each engaged in the trade of coal mining. The parent Company held just over half the ordinary share capital of Crawshaw & Holiday, Ltd., until 12th September, 1945, at which date these shares were transferred to Briggs.
(iii) Ledston, Ltd., the shares in which were acquired by the parent Company in 1937. This company held the entire share capital in a company called the Micklefield Coal & Lime Co., Ltd. (hereafter called "Micklefield"), which owned and operated two collieries and a lime quarry.
(c) In 1939 the parent Company, Micklefield, and Ledston, Ltd., promoted a scheme under the Mining Industry Act, 1926, the Coal Mines Act, 1930, and the Coal Act, 1938, for the amalgamation of the trade carried on by them and for the formation of a new company, to be called Briggs Collieries, Ltd., to acquire and carry on the coal mining activities of the three companies. A copy of the scheme is hereto attached, marked "B"(1).
(d) In conformity with the scheme Briggs Collieries, Ltd. (i.e., Briggs), was incorporated on 1st July, 1939, with a share capital of £1,200,000 divided into 1000,000 ordinary shares of £1 each and 200,000 6 per cent. non-cumulative redeemable preference shares of £1 each, all of which were issued fully paid to the parent Company. By the memorandum of Briggs it was provided that the objects for which it was incorporated were to acquire the colliery undertakings of Henry Briggs, Son & Co., Ltd., the Micklefield Company and the Ledston Company. A copy of the memorandum and articles of association of Briggs is hereto attached, marked "C" (1).
(e) On 1st July, 1939, which was the "appointed day" under the scheme, Briggs acquired the colliery undertakings owned by the parent Company and by Micklefield together with all property and assets owned and used in connection therewith, and carried on such undertakings thereafter.
(f) Subsequent to 1st July, 1939, the parent Company owned and operated a brickworks, a lime quarry and (until 1940) a gasworks. It also held 1500 acres (more or less) of agricultural land originally acquired for the more convenient working of its collieries, with approximately 400 leasehold houses. Such houses were previously occupied by its colliery employees, but subsequent to July, 1939, were occupied mainly by the colliery employees of Briggs.
(g) Subsequent to 1st July, 1939, the Company also owned all the £1,200,000 share capital of Briggs and held amongst its current assets general investments, tax reserve certificates and cash of upwards of £963,932.
(h) There is attached hereto, marked "D"(1), a copy of the balance-sheet and profit and loss accounts of the parent Company and its subsidiary, Briggs, for the year ended 30th June, 1946, from which can be obtained an impression
of the parent Company's functions and activities at that time. The issued share capital appears, as previously mentioned, at £710,000. It had a general reserve of £562,468 and a contingency reserve of £435,808. Among its assets appears the above-mentioned shares in Briggs at £848,169 and the shares in the Whitwood Chemical Co., Ltd., at £25,146. Among its current assets are investments at £778,608, tax reserve certificates at £100,000, and cash at bank and in hand of £78,066. The lime and brickworks appear at £3,163 and £1,000, respectively. It appears from the profit and loss account that, out of total receipts amounting to £136,980, net dividends...To continue reading
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