J.P. Harrison (Watford)Ltd v Griffiths (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 15 March 1962 |
| Date | 15 March 1962 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax, Schedule D - Purchase and sale of shares - Dividend-stripping - Claim for relief for loss - Whether carrying on trade of dealing in shares.
The Appellant Company carried on the business of merchants but on 8th October, 1953, its memorandum of association was amended to enable it to carry on, inter alia, the business of share dealing. On 4th December, 1953, it purchased for £16,900 all the issued share capital of C Ltd. On 26th January, 1954, C Ltd. declared a dividend of £28,912 13s. 3d., and the Appellant Company later sold the shares for £1,000. The Appellant Company did not buy or sell any other shares in 1953-54, but it admittedly carried on a trade of dealing in shares in 1954-55.
In an application for adjustment of its liability for 1954-55 under Section 341 of the Income Tax Act, 1952, and Section 15 of the Finance Act, 1953, the Company included, inter alia, a loss of £15,900 in respect of the transaction. The Special Commissioners held that the Company was not carrying on a trade of dealing in shares during the year 1953-54 and disallowed the application in so far as it related to the transaction.
Held, that, on their findings of fact, the Commissioners' decision could not be justified.
Stated by the Commissioners for the Special Purposes of the Income Tax Acts under the Income Tax Act, 1952, Section 64, and the Finance Act, 1953, Section 15.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 26th May, 1959, the parties to the present appeal attended before us in connection with an application for relief under Section 341 of the Income Tax Act, 1952, made by J.P. Harrison (Watford), Ltd., for the year 1953-54 to which H.M. Inspector of Taxes had objected pursuant to Section 15 of the Finance Act, 1953. At the outset we heard argument as to what was the issue we had to determine. It was argued by Counsel for J.P. Harrison (Watford), Ltd., that our duty was to hear and determine an objection by H.M. Inspector of Taxes to its application and that it was accordingly for H.M. Inspector of Taxes to make good his objection. On consideration of the terms of the said Section 341 and the said Section 15 we decided that our duty was to hear and determine J.P. Harrison (Watford), Ltd.'s application for relief. The facts set out in paragraphs 2 to 8 inclusive and in paragraph 10 hereof were admitted or proved before us.
2. J.P. Harrison (Watford), Ltd. (hereinafter called "the Company"), was incorporated in 1948 and carried on business as merchants up to some date in the year 1953-54 when that business ceased. Its memorandum and articles of association are annexed hereto, marked "A", and form part of this Case(1). For the year 1952-53 the Company incurred in the said business a loss of £13,585, which was admittedly available for carry forward to 1953-54 for the purposes of relief under the said Section 341 by virtue of the said Section 15 of the Finance Act, 1953. The question for our determination was whether the Company's transactions in shares of Claiborne, Ltd., as hereinafter detailed, constituted a trade or an adventure in the nature of trade in which the Company sustained a loss in 1953-54 available for further relief under the said Section 341.
3. At an extraordinary general meeting of the Company held on 8th October, 1953, the following resolutions were passed as special resolutions:
(2) Resolved that the provisions of the Memorandum of Association of the Company with respect to the objects of the Company be altered by inserting therein immediately after paragraph A the following new paragraph namely:-
To carry on the business of buying or otherwise acquiring and selling, exchanging, turning to account or dealing in and disposing of or otherwise turning to account real property, chattels real and personal, shares, stocks, bonds, debentures or other securities of any company or corporation or any participations in syndicates or other rights or interest which may seem capable of profitable handling.
(3) Resolved that the Articles of Association of the Company be altered in that Clause 66 of Table "A" to the Companies Act 1929 shall henceforth not apply to the Company and Article 2 of the Articles of Association of the Company shall be amended accordingly.
4. On 4th December, 1953, the Company purchased all the issued share capital (1,000 £1 shares) of Julius Bendit, Ltd., for £16,900, borrowing £15,900 for the purpose from another company, Boclift, Ltd. Shortly afterwards Julius Bendit, Ltd., changed its name to Claiborne, Ltd., by which name it is hereinafter referred to. The shares of Claiborne, Ltd., were bought by the Company on a blank transfer, which was not registered and was passed on to the purchaser when the Company sold the shares on 4th June, 1954. The Company paid no Stamp Duty on the purchase of these shares.
5. Claiborne, Ltd., had carried on business as cloth merchants up to 30th November, 1953, when such business ceased. At the time of the purchase of all its issued shares by the Company, Claiborne, Ltd., had no business but had considerable accumulated profits available for dividend; it was simply a company pregnant with dividend. The Company purchased the shares with a view to obtaining a dividend against which it could claim to set off its losses.
6. On 26th January, 1954, Claiborne, Ltd., declared a dividend of £28,912 13s. 3d., less Income Tax £13,010 14s.; and the net dividend of £15,901 19s.3d. was received by the Company.
7. On the same day, 26th January, 1954, the directors of the Company resolved:
(i) that out of the £15,901 19s. 3d. received as aforesaid, the Company should repay £15,900 to Boclift, Ltd., and
(ii) that the 1000 £1 shares in Claiborne, Ltd., be resold to a company named Lewistown, Ltd., for £1,000.
The said shares were in fact sold to Lewistown, Ltd., for £1,000 on 4th June, 1954.
8. A copy of the Company's accounts for the year ended 31st March, 1954, is annexed hereto, marked "B", and forms part of this Case(1). The gross amount of the Claiborne dividend (£28,912 13s. 3d.) is shown as credited to the Company's trading and profit and loss account. The Claiborne shares figure in the Company's trading and profit and loss account at £1,000, as part of its "folio of securities" held at the end of the year.
9. We had no evidence that the Company bought or sold any shares in the year 1953-54 apart from the purchase of the said shares in Claiborne, Ltd.
10. It was not disputed that in the following year (1954-55) the Company was carrying on a trade of dealing in shares. A schedule of the Company's purchases and sales of shares subsequent to April, 1954, is annexed hereto, marked "C", and forms part of this Case(1).
11. It was contended for the Company:
(2) that the Company was, in the year 1953-54, carrying on a trade or an adventure in the nature of a trade, consisting of dealing in shares;
(3) that the Company sustained a loss in the said trade of dealing in shares of £15,900 in 1953-54.
12. It was contended by H.M. Inspector of Taxes, the Respondent in this case, that the Company was not carrying on a trade or an adventure in the nature of trade, of dealing in shares, in 1953-54.
13. We, the Commissioners who heard the appeal, found that the Company's transaction in the shares of Claiborne, Ltd., was not entered into as part of any trade of dealing in shares and was not an adventure in the nature of trade, and that the Company was not carrying on any such trade in 1953-54. Accordingly we allowed the application only to the extent of a loss of £3,314, which was agreed between the parties as being the correct figure in relation to the loss sustained by the Company in its trade as merchants.
14. Immediately on our determination of the application the Company declared 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 Income Tax Act, 1952, Section 64, and the Finance Act, 1953, Section 15, which Case we have stated and do sign accordingly.
15. The question of law for the opinion of the Court is whether there was evidence on which we could arrive at our findings set out in paragraph 13 hereof.
H.G. Watson, R.A. Furtado Commissioners for the Special Purposes of the Income Tax Acts.
Turnstile House,
94-99, High Holborn,
London, W.C.1.
16th December, 1959.
The case came before Danckwerts, J., in the Chancery Division on 2nd November, 1960, when judgment was given against the Crown, with costs.
Danckwerts, J.-This is an appeal from a decision by the Commissioners for the Special Purposes of the Income Tax Acts, and I may say at once that feel the greatest difficulty in understanding how the Commissioners came to the conclusion to which they did. So far as I can tell, they did not care for the particular transaction which was carried out by the Appellant Company (and that kind of transaction has subsequently been restricted by Statute as to its effect), but at the date when this transaction was carried out it was perfectly allowable and nothing can be said against it.
The shortest course would be for me to read the facts. The Appellant Company
was incorporated in 1948 and carried on business as merchants up to some date in the year 1953-54 when that business ceased.
I think one may call it, from its original memorandum, something of the nature of an import-export company. Its memorandum and articles of association are annexed to the Case and form part of it.
For the year 1952-53 the Company incurred in the said business a loss of £13,585, which was admittedly available for carry forward to 1953-54 for the purposes of relief under Section 341 by virtue of…Section 15 of the Finance Act, 1953.
The question for the Commissioners' determination...
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