J. Bibby & Sons, Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 17 May 1945 |
| Date | 17 May 1945 |
| Court | King's Bench Division |
HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Excess Profits Tax - Whether a "controlling interest" held in a company - Finance (No. 2) Act, 1939 (2 & 3 Geo. VI, c. 109), Section 13(9).
The issued share capital of the Company, which carried on the business of seed crushing and oil refining, was £1,250,000, divided into 750,000 5 per cent. cumulative preference shares and 500,000 ordinary shares of £1 each. The ordinary shares alone carried voting rights.
The directors of the Company held between them in their own right 209,332 ordinary shares, i.e., less than 50 per cent. of the ordinary share capital of the Company.
Three of the directors, who were brothers and trustees of the marriage settlement of a sister, were, as such trustees, the registered joint holders of 57,500 ordinary shares. These three directors had a contingent interest in the shares so held, the trust fund being divisible among them in the event of the sister's death without issue.
The Company was assessed to Excess Profits Tax for the chargeable accounting period of nine months ended 31st December, 1939, on the footing that it was not a company the directors whereof had a controlling interest therein. On appeal against this assessment, the Company contended (1) that the three directors had a beneficial interest in the 57,500 ordinary shares held in trust, and (2) that, in determining whether the Company was director-controlled, the 57,500 ordinary shares should be added to the 209,332 ordinary shares held by the directors in their own right.
The Special Commissioners were of the opinion that the 57,500 ordinary shares did not give the trustee-directors a present interest enabling them and their co-directors to control the Company. They held that the Company was not one the directors whereof had a controlling interest therein, and confirmed the assessment.
The Court of Appeal held that, apart from the special case of a bare trustee, shares owned by directors as trustees should be taken into account in ascertaining whether the directors of a company have a controlling interest therein.
The House of Lords, without pronouncing upon the part of the judgment of the Court of Appeal dealing with the case of a bare trustee, unanimously affirmed the Order of the Court of Appeal.
Stated under the Finance (No. 2) Act, 1939, Section 21(2), and the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 10th April, 1942, J. Bibby & Sons, Ltd. (hereinafter called "the Company") appealed against an additional assessment to Excess Profits Tax in the sum of £1,199 for the chargeable accounting period beginning 1st April and ending 31st December, 1939. The question for determination was whether the Company was one the directors whereof have a controlling interest therein within the meaning of Section 13(9) of the Finance (No. 2) Act, 1939.
If the Company satisfied that test it would be entitled under Sub-sections (3) and (9) of the above Section 13 to an increase in its standard profits for the standard period (which in this case was, by election under Sub-section (4), the two years ending 31st December, 1936, and 31st December, 1937) of an amount equal to 10 per cent. on the increased capital which it employed in the chargeable accounting period, as compared with the capital employed in the standard period. If, on the other hand, the Company failed to satisfy that test, the increase in the standard profits to which it would be entitled would be 8 per cent. thereof instead of 10 per cent.
2. The Company was incorporated on 12th August, 1914, and is a private company carrying on the business of seed crushing and oil refining.
The authorised and issued ordinary share capital of the Company is £500,000 divided into 500,000 ordinary shares of £1 each, all fully paid. Each ordinary share entitles the holder to one vote.
There are also issued and fully paid 750,000 5 per cent. cumulative preference shares of £1 each, but these shares do not carry any right of voting at any general meeting nor qualify any person to become a director of the Company. No question arises as to these shares.
A copy of the memorandum and articles of association of the Company is attached hereto, marked "A", and forms part of this Case(1).
3. There are eight directors of the Company, holding in their own names and beneficially in their own right a total of 209,332 ordinary shares, i.e., less than 50 per cent. of the ordinary share capital.
Three of the directors, namely, John Pye Bibby, James Edward Bibby and Henry Percy Bibby, are the registered joint holders of 57,500 ordinary shares which they hold as trustees of a marriage settlement dated 1st December, 1916, made upon the marriage of their sister Mary Beatrice Bibby to Frank Deeks Sharples.
This settlement shortly stated contains (inter alia) the following provisions:-
Clause 2. Direction for the payment of the income from the said shares to Mrs. Sharples during her life without power of anticipation.
Clauses 3 and 4. After the death of Mrs. Sharples if she should leave a child or children surviving her or issue of any child who should have died in her lifetime then subject to a provision in favour of her husband the trustees shall hold the trust fund upon trust for such children or child, or issue as shall attain the age of 21 years.
Clauses 6 and 9. In the event of the failure of the foregoing trusts in favour of the children of the marriage the trust fund is divisible (subject to a provision in favour of Mrs. Sharples' husband) among such of her brothers and sisters as shall be living at her death with a substitutionary gift in favour of the issue of any brother or sister dying in her lifetime.
Clause 13. Power of appointment over the trust fund to Mrs. Sharples in favour of the children or child of any subsequent marriage.
A copy of this settlement is attached hereto, marked "B", and forms part of this Case(1).
4. The remaining ordinary shares are all held in such a manner that it was admitted that they could not be taken into account in considering the question of the directors' "controlling interest", except in so far as they form an element in calculating the total issued ordinary share capital of the Company. A copy of a statement showing the manner in which the shares in the Company were held is attached hereto, marked "C", and forms part of this Case(1).
5. One of the original trustees of the settlement of 1st December, 1916, died in 1917, viz., Joseph Morton Bibby, and by a deed dated 12th March, 1923, the said Henry Percy Bibby was appointed trustee in his place. From time to time the property comprised in the settlement was augmented as provided for in clause 12 of the said deed of settlement, and in the year in question the number of shares in the Company held by the trustees was, as stated above, 57,500. The settlement comprised certain other assets.
6. Mrs. Sharples has no children, but her husband is alive. The said John Pye Bibby has four children, three of whom are of age. The said James Edward Bibby has four children, two of whom are of age. The said Henry Percy Bibby has three children, all of whom are infants. Mrs. Sharples had two other brothers and a sister, all of whom died unmarried.
7. It was contended on behalf of the Company:-
(2) That the said John Pye Bibby, James Edward Bibby and Henry Percy Bibby being directors and trustees with a personal prospective interest had a beneficial interest in the said 57,500 ordinary shares.
(3) That in order to determine whether the Company was one the directors whereof have a controlling interest therein, the said 57,500 ordinary shares should be added to the said 209,332 ordinary shares.
8. It was contended on behalf of the Commissioners of Inland Revenue:-
-
(2) That the expression "controlling interest" was not satisfied by control by virtue of ownership as trustees.
(3) That the shares held by the directors in a representative capacity should not be taken into account in considering whether they had a "controlling interest" except in calculating the total issued ordinary share capital.
(4) That shares in which the directors' beneficial interest was merely contingent and partial similarly ought not to be taken into account.
(5) That the directors had not a "controlling interest" in the Company.
9. We, the Commissioners who heard the appeal, were of opinion that the said 57,500 ordinary shares did not give the trustee directors a present interest enabling them and their co-directors to control the Company.
We found that the Company was not one the directors whereof have a controlling interest therein. We confirmed the assessment.
10. Immediately upon our determination of the appeal the Company expressed to us its dissatisfaction therewith as being erroneous in point of law, and in due course required us to state a Case for the opinion of the High Court, pursuant to the Finance (No. 2) Act, 1939, Section 21(2), and the Income Tax Act, 1918, Section 149, which Case we have stated and do sign accordingly.
H.H.C. GRAHAM, C.C. GALLACHER, Commissioners for the Special Purposes of the Income Tax Acts.
Turnstile House,
94/99 High Holborn,
London, W.C.1.
12th November, 1942.
The case came before Macnaghten, J., in the King's Bench Division on 21st, 22nd and 23rd July, 1943, when judgment was reserved. On 28th July, 1943, judgment was given in favour of the Crown, with costs.
Macnaghten, J.-The Appellants, J. Bibby & Sons, Ltd., a private company limited by shares, carrying on the business of seed crushing and oil refining, bring this appeal against a decision of the Special Commissioners confirming an additional assessment to Excess...
To continue reading
Request your trial
-
Commissioners of Inland Revenue v Lithgows, Ltd
...Avenue, SCTAX1950 S.C. 441; 29 T.C. 475.J. Bibby & Sons, Ltd. v. Commissioners of Inland Revenue,UNKUNKTAX170 L.T. 370 and 173 L.T. 17; 29 T.C. 167. In reT.H. Saunders & Co., Ltd., ELR[1908] 1 Ch. 415.Wolfe v. Richardson, UNK1927 S.L.T. 490.Wyse v. Abbott, UNK8 R. 983.Barclays Bank, Ltd. v.......
-
Steele v E.v.C. International N.v (formerly European Vinyls Corporation (Holdings) B.v)
...The following cases were referred to in the judgment: Barclays Bank Ltd v IR Commrs ELR[1961] AC 509 Bibby (J) & Sons Ltd v IR Commrs TAX(1945) 29 TC 167 British American Tobacco Co Ltd v IR Commrs TAX(1942) 29 TC 49 IR Commrs v Commerzbank AG TAX[1990] BTC 172 IR Commrs v Lithgows Ltd TAX(......
-
Barclays Bank Ltd v Commissioners of Inland Revenue
...I think that your Lordships should accept the guidance given by this House in J. Bibby & Sons, Ltd. v. Commissioners of Inland Revenue, 29 T.C. 167. That case determined that control must be ascertained by reference to the company's constitution and that it is irrelevant that a shareholder ......
-
Commissioners of Inland Revenue v Park Investments Ltd
... ... brothers as being in control of the company and including in their holding the shares of the trust by the use of the decision in the case of Bibby , which came before the House of Lords in somewhat different circumstances in 1944, reported in 29 Tax Cases at page 167 ... There the question was, ... I think that Bibby & Sons Ltd. v. Inland Revenue Commissioners (1944) 29 Tax Cases 167 , a decision of the House of Lords, requires us to reach this result. I also think that ... ...