Murphy (Inspector of Taxes) v Australian Machinery and Investment Company Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 19 February 1948 |
| Date | 19 February 1948 |
| Court | Court of Appeal |
No. 1406 - HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL-
Income Tax, Schedule D, Case I - Gold mining interests sold to Australian companies for shares in those companies - Shares sold in United Kingdom - Computation of profit from trade here - Whether cost of shares to be taken at par value, or at value of mining interests for which acquired.
The Company, incorporated in Australia, carried on business there as an investment company. It bought, mainly in 1930 and 1931, interests in a number of derelict Australian gold mines at a cost of £A.118,921. These interests were then sold for a total consideration of £A.3,500,000, satisfied in fully paid shares, to a number of West Australian companies formed for the purpose. In 1932 de B was appointed attorney for the Company, and came to the United Kingdom to dispose of the shares in the West Australian companies. He sold them at intervals up to 1937, the net proceeds amounting to about £1,500,000.
The Company was assessed to Income Tax for the years 1932-33 to 1936-37 on the footing that it had exercised a trade in the United Kingdom by the sale of the shares in the West Australian companies, and that the profits were the difference between the net proceeds of the sale of the shares (i.e., £1,500,000 in all) and the cost of the mining interests for which the shares were acquired (i.e., £A.118,921). On an appeal against these assessments, the General Commissioners decided that the Company carried on a trade in the United Kingdom, and was assessable in the name of its agent, but accepted the Company's contention that in computing its profits the par value of the shares in the West Australian companies (i.e., £A.3,500,000) must be deducted as the cost of the shares, and discharged the assessments.
Held, that in computing the assessable profits the amount to be deducted as the cost to the Company of the shares in the West Australian companies was the true value of the mining interests at the time of their sale to those companies.
Stated by the Commissioners for the General Purposes of the Income Tax for the City of London pursuant to the provisions of Section 149 of the Income Tax Act, 1918, for the opinion of the High Court of Justice.
1. At meetings of the said Commissioners held on 19th, 26th and 30th January and 5th February, 1942, at Gresham College, Basinghall Street, in the said City, Australian Machinery and Investment Co., Ltd. (hereinafter called "A.M.I.") through its agent, Claude Albo de Bernales, of Westralia House, 66 Gresham Street, in the said City, appealed against assessments made upon A.M.I. in the name of the said agent under Case I of Schedule D, Income Tax Act, 1918, as follows:-
For the year ending 5th April, |
1933 in the sum of |
£5,000 |
" " " " " " |
1934 " " " " |
£68,210 |
" " " " " " |
1935 " " " " |
£68,210 |
" " " " " " |
1936 " " " " |
£555,147 |
" " " " " " |
1937 " " " " |
£723,452 |
2. A.M.I. was incorporated in the year 1925 under the Companies Acts of the State of Victoria as a limited liability company with a capital of £100,000 divided into 100,000 shares of £1 each. Its registered office is situate at 494 Murray Street, Perth, in the State of Western Australia. A copy of the memorandum and extracts from articles of association of A.M.I. is attached hereto, marked "A", and may be referred to as part of this Case(1).
3. A.M.I. was originally formed by the said Claude Albo de Bernales (hereinafter called "the agent") as an investment company. It carried on business as such in Perth in the State of Western Australia and elsewhere, and held freehold properties, investments and mining leases. The agent was its governing director. Its income came mainly from rents and dividends. Up to 31st October, 1932, the principal assets of A.M.I. were two freehold properties in Australia, Hoskins Foundry and Overton House, and a large holding of £88,000 in the Wiluna Gold Corporation, Ltd., an English company which was bought in the year 1926.
4. Between the years 1930 and 1936, but chiefly during 1930 and 1931, A.M.I. acquired by purchase interests in a large number of Australian mines by acquiring reservations over old gold mines which had been abandoned some years previously when they failed to pay at the price which gold then commanded. They were acquired by A.M.I. because in the view of the agent the price of gold was likely to rise. The agent was chairman of a council that sought to obtain from the Commonwealth Government a bounty on gold produced from Australian mines, and on 16th December, 1930, Royal Assent was given to a provision whereby a bonus of £1 per ounce became payable on all gold so produced. In September, 1931, England went off the gold standard, and the value of gold at once rose considerably.
5. Between 1931 and 1936, but chiefly in 1932, A.M.I. formed West Australian companies to take over the various mining rights or reservations which it had acquired as aforesaid. About thirty-one such companies were formed, and the said mining rights and reservations were sold by A.M.I. to the said West Australian companies (i.e., some to each of them) for a total consideration of £A.3,500,000 satisfied by fully paid up shares to that amount in the West Australian companies being issued to A.M.I. The majority of the West Australian companies were registered on 24th June, 1932, after England had gone off the gold standard; and as a rule the sale to them of the aforesaid mining rights and reservations took place contemporaneously with or not long after their incorporation. At all material times these were their only assets. A.M.I. paid the cost of the formation of the West Australian companies, and as a result of the aforesaid sales, held all their shares. The contracts for sale of the mining rights and reservations were not written but verbal.
6. It was admitted (a) that in the books of A.M.I. the shares which it had received as aforesaid from the West Australian companies of the nominal value of £A.3,500,000 were entered at £A.118,921 3s. 10d., and (b) that it was very likely that it would be easier for A.M.I. to sell shares in a company on the London market than to sell the mining rights and reservations.
7. Section 26 of the West Australian Companies' Act, 1893, and an article numbered 6 of the articles of association common to all the West Australian companies were referred to in the course of the hearing, and they were as follows:-
Section 26. "Every share in a company, excepting a no-liability "company, shall be deemed to have been issued and be held subject to "the payment of the whole amount thereof in cash, unless it shall have "been otherwise determined by the memorandum or articles or by a contract, "duly made in writing, and filed with the Registrar, at or before the "issue of such shares."
Article 6. "Any property purchased or acquired by the Company, or "services rendered to the Company, may be paid for by the issue to the "vendors or to the persons who rendered such service of scrip or shares "in the Company as fully or partly paid up and any such shares shall be "held and deemed to have been issued on a cash payment of the amount "shown as fully or partly paid up thereon, although no contract shall have "been filed or registered as mentioned in Section 26 of the Companies' "Act 1893."
8. On 21st June, 1932, A.M.I. appointed the Appellant its attorney in the United Kingdom in the name and on behalf of the Company to do all such acts and things and to execute all such deeds and instruments as in the opinion of such attorney might be necessary or convenient to protect or promote the interests of the Company in England, and in particular to do (inter alia) the following things:-
(1) To negotiate for the sale and or exchange of and sell and or "exchange all of the assets, shares and undertaking of the Company at such "consideration to be satisfied in such manner as the said Attorney should "think fit.
A copy of the power of attorney above referred to is annexed hereto marked "B", and may be referred to as part of this Case(1).
9. In August, 1932, the agent came to England, and from 1st November, 1932, to 31st October, 1937, he acted under the terms of the said power of attorney. In his absence from Australia Mr. Edwin Watkinson, the secretary of A.M.I., was appointed its governing director in the place of the agent, and carried on the Australian business of A.M.I.
10. As attorney for A.M.I. the agent sold in England between 1932 and 1937 all the shares in the West Australian companies acquired by A.M.I. as stated in paragraph 5 above, to seven English companies which had been formed to acquire them. The English companies so formed were as follows:-
Name |
Incorporated |
||
Anglo Australian Gold Development, Ltd. |
18. |
2. |
1933 |
Goldfields Australian Development, Ltd. |
5. |
11. |
1932 |
North Kalgurli United Gold Development, Ltd. |
23. |
2. |
1934 |
Southern Cross Gold Development, Ltd. |
14. |
4. |
1934 |
Commonwealth Mining and Finance, Ltd. |
10. |
5. |
1934 |
Murchison Gold Development, Ltd. |
20. |
7. |
1934 |
Great Boulder Mining & Finance, Ltd. |
2. |
7. |
1935 |
The consideration for the said sales amounted to approximately £1,500,000 and consisted in part of cash, and in part of shares and options on shares, in the purchasing companies. Some of these shares and options were later sold by A.M.I.
A copy of the sale agreement and the prospectus issued in connection with the sale of shares to Anglo Australia Gold Development, Ltd. (which may be regarded as typical) are annexed hereto, marked "C1" and "C2", and form part of this Case(1).
11. The assessments under appeal were made upon A.M.I. in the name of the agent on the footing that A.M.I. as a non-resident had exercised a trade in this country by the sale of the shares in the West Australian companies as aforesaid, and that the profits of such sales were...
To continue reading
Request your trial
-
Pyrah (Inspector of Taxes) v Annis & Company Ltd
...to the Commissioners in order that they may, in effect, allow the taxpayer to start again were stated in the case of Murphy v. Australian Machinery and Investment Co. Ltd. reported in 30 Tax Cases at page 244 Mr. King referred to the language used by Lord Justice Tucker, Lord Justice Somerv......
-
Hurley v Taylor (Inspector of Taxes)
...(1973) 51 TC 1 Kingsley v Billingham (HMIT) TAX[1992] BTC 9365 TC 133 Murphy (HMIT) v Australian Machinery & Investment Co LtdTAX(1948) 30 TC 244 R v Special Commrs, ex parte MartinTAX (1971) 48 TC 1 Ransom (HMIT) v HiggsWLR [1974] 1 WLR 1594 Rea v Highnam (HMIT)TAX (1990) 63 TC 287 Yuill v......
-
Hurley v Taylor (Inspector of Taxes)
...The cases include R A Bird & Co v IR CommrsTAX(1924) 12 TC 785 at p. 794, Murphy (HMIT) v Australian Machinery and Investment Co Ltd TAX(1947) 30 TC 244 at p. 260,Bradshaw v Blunden (HMIT) TAX(No. 2) (1960) 39 TC 73 at p. 80,Yuill v Wilson (HMIT) WLR[1980] 1 WLR 910 at pp. 920-921 (Lord Edm......
-
Petition Of The Scottish Lion Insurance Company Limited V. Goodrich Corporation And Others
... ... Company ; In re English, Scottish and Australian Chartered Bank [1893] 3 Ch 385, per Lindley LJ ... ...