Holmleigh (Holdings) Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Date | 1967 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Stamp duty - Conveyance or transfer on sale - Exemption - Transfer between associated companies - Agreement for sale of shares in principal company - Subsidiaries to be hived off - Whether principal company beneficial owner of shares in subsidiaries - Consequential transfer by sub-subsidiary to subsidiary - Consideration money paid out of funds provided from price of shares in principal company - Whether transfer in connection with arrangement whereunder consideration to be provided by stranger - Finance Act 1930 (20 & 21 Geo. 5, c.28), s.42; Finance Act 1938 (1 & 2 Geo. 6, c.46), s.50.
On 13th July 1956 the shareholders of F Ltd. entered into an agreement with G Ltd. for the sale of the share capital of F Ltd. after hiving off assets not required by the purchaser which were owned by F Ltd., its wholly-owned subsidiary M Ltd. (the Appellant in the second case), and P Ltd. and H Ltd., which were respectively wholly-owned and 90 per cent. subsidiaries of M Ltd. The F companies were not parties to the sale agreement, but the vendor shareholders, who included the directors of F Ltd., undertook to procure their compliance with it. The agreement provided that F Ltd. should form and become the beneficial owner of the subscription shares in two new companies, which would acquire the excluded assets in return for shares in themselves, and that the share capital of the new companies should then be sold to the vendor shareholders, who were to pay for it out of the cash part of the consideration for their shares in F Ltd. Part of that consideration was to consist in shares to be allotted by G Ltd., and the agreement was expressed to be conditional on Stock Exchange permission to deal therein being granted.
The two new companies (the Appellants in the first and third cases) were formed on 26th June 1956 and acquired the excluded assets by transfers from F Ltd. on 23rd July and M Ltd. on 24th July in return for the allotment of shares to those companies. On 23rd July P Ltd. and H Ltd. had transferred the excluded assets held by them to M Ltd. for cash, which they advanced to M Ltd. On 27th July the Stock Exchange granted permission to deal in the new shares of G Ltd. On 30th July the boards of F Ltd. and M Ltd. formally resolved to sell their shares in the new companies to the vendor shareholders. On 31st July the sales of the share capital of F Ltd. and the new companies were completed, and M Ltd. paid off the advances from P Ltd. and H Ltd. with the cash passed on to it by the vendor shareholders out of the sum received from G Ltd.
The Commissioners of Inland Revenue assessed the transfers to the new Companies and M Ltd. of 23rd and 24th July 1956 to ad valorem duty under the head "Conveyance or transfer on sale" in Sch. 1 to the Stamp Act 1891. They were of opinion that the shares issued by the new companies in consideration of the transfers were part of their issued share capital for the purpose of the exemption under s.42, Finance Act 1930, in respect of transfers between associated companies, and they were not satisfied either that the consideration shares were in the beneficial ownership of F Ltd. and M Ltd. or that the subscription shares were at any material time in the beneficial ownership of F Ltd.; furthermore, for the purposes of s. 50, Finance Act 1938, the Commissioners were not satisfied that the transfers were not made in pursuance of or in connection with an arrangement whereunder the consideration for them was to be provided directly or indirectly by persons other than companies associated with the transferor or transferee, i.e. out of the moneys to be paid by G Ltd. to the vendor shareholders of F Ltd. The Appellants contended that the sale agreement, to which F Ltd. and M Ltd. were not parties and which was expressed to be conditional on permission to deal in the new shares of G Ltd., did not at the time of the transfers affect the beneficial ownership of the shares in the new companies or attract the provisions of s.50, Finance Act 1938.
Held, that the assessments were correct
(1) as regards the transfers to the new companies, because
(a) for the purpose of s. 42, Finance Act 1930, the beneficial ownership of the share capital of the new companies immediately before the transfers made to them was relevant;
(b) by virtue of the undertaking of the directors of F Ltd. to procure its compliance with the agreement that it should sell its shares in those companies F Ltd. was not the beneficial owner of the subscription shares, the vendor shareholders having by procuring the transfers implicitly waived the condition in the sale agreement about permission to deal;
(c) the transfers were made in pursuance of an arrangement whereunder the consideration was to be provided by a person other than the companies associated with the transferor or transferee, viz. the vendor shareholders of F Ltd., and, at a further remove, G Ltd.;
(2) as regards the transfers to M Ltd., because they were made in connection with such an arrangement as aforesaid.
(1) Holmleigh (Holdings) Ltd. v. Commissioners of Inland Revenue
This Case related to five instruments, exhibits O, P, Q, R and U to the Case Stated in The Hale (Holdings) Ltd. v. Commissioners of Inland Revenue set out below, which were assessed by the Commissioners of Inland Revenue to ad valorem conveyance duty. The facts are stated in that Case and the opinion of the Commissioners and the contentions of the Appellant were the same as in that Case.
(2) Metropolitan Boot Co. Ltd. v. Commissioners of Inland Revenue
This Case related to three instruments, exhibits L, M and T to the Case Stated in The Hale (Holdings) Ltd. v. Commissioners of Inland Revenue set out below, which were assessed by the Commissioners of Inland Revenue to ad valorem conveyance duty. The facts are stated in that Case and the contentions of the Appellant were the same as in that Case. The opinion of the Commissioners was stated as follows.
(a) The Commissioners were of the opinion that the relief from ad valorem "Conveyance on Sale" duty which had been claimed did not apply in this case.
(b) The Commissioners were not satisfied as regards any of the instruments that they were not executed in pursuance of or in connection with an arrangement whereunder the sum of cash paid by Metropolitan to Playfair or Hasare in consideration of the conveyance or transfer effected by such instrument was to be provided directly or indirectly out of the moneys to be paid as consideration for the sale by the persons in the principal Case called "the vendor shareholders" of their shares in A. & W. Flatau & Co. Ltd. to Great Universal Stores Ltd.
(c) The Commissioners were accordingly not satisfied as regards any of the instruments that they were not executed in pursuance of or in connection with such an arrangement as is referred to in s. 50 (1) (a) of the Finance Act 1938.
(3) The Hale (Holdings) Ltd. v. Commissioners of Inland Revenue
CASE
Stated by the Commissioners of Inland Revenue pursuant to s. 13 of the Stamp Act 1891.
1. Six instruments of conveyance or transfer on sale of freehold and leasehold interests in land to The Hale (Holdings) Ltd. (hereinafter called "Hale") have been presented to the Commissioners of Inland Revenue (hereinafter called "the Commissioners") under s. 12 of the Stamp Act 1891 for their opinion as to the stamp duty chargeable upon them. Copies of the six instruments are annexed hereto, marked "A", "B", "C", "D", "E" and "F" respectively(1). Short particulars of the instruments are as follows:
Description |
Expressed |
||
Date |
of instrument |
consideration |
|
Exhibit A |
23rd July 1956 |
Conveyance of freehold properties from A. & W. Flatau & Co. Ltd. (hereinafter called "Flatau") to Hale. |
£33,400 satisfied by the allotment to Flatau of 13,323 ordinary shares of 1s. each in the capital of Hale credited as fully paid. |
Exhibit B |
23rd July 1956 |
Assignment of leasehold properties by Flatau to Hale. |
£15,400 satisfied by the allotment to Flatau of 6144 ordinary shares of 1s. each in the capital of Hale credited as fully paid. |
Exhibit C |
23rd July 1956 |
Land Registry transfer from Flatau to Hale of properties valued at £415,300. |
Allotment by Hale of 165,670 ordinary shares of 1s. each credited as fully paid to Flatau or its nominees. |
Description |
Expressed |
||
Date |
of instrument |
consideration |
|
Exhibit D |
24th July 1956 |
Conveyance of freehold properties and one leasehold property from the Metropolitan Boot Co. Ltd. (hereinafter called "Metropolitan") to Hale (the properties comprised in this instrument were valued at £234,200). |
Covenant by Hale to allot 93,835 ordinary shares of 1s. each credited as fully paid to Metropolitan or its nominees. |
Exhibit E |
24th July 1956 |
Land Registry transfer from Metropolitan to Hale of properties valued at £27,700. |
Covenant by Hale to allot 10,775 ordinary shares of 1s. each credited as fully paid to Metropolitan or its nominees. |
Exhibit F |
24th July 1956 |
Land Registry transfer from Metropolitan to Hale of properties valued at £14,000. |
Covenant by Hale to allot 5451 ordinary shares of 1s. each credited as fully paid to Metropolitan or its nominees. |
All the above-mentioned instruments were executed in the circumstances hereinafter referred to.
2. Flatau was incorporated under the Companies (Consolidation) Act 1908 on 26th May 1909. At all times relevant to this appeal the nominal share capital of Flatau was £360,000 divided into 300,000 ordinary shares of £1 each and 60,000 preference shares of £1 each. Of the said ordinary shares 295,200 had been issued. The whole of the said preference shares had also been issued. On the 13th July 1956, the date of the agreement hereinafter more particularly mentioned (hereinafter called "the...
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