Princes Investments Ltd v Commissioners of Inland Revenue; Clore v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Date | 1966 |
| Year | 1966 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Surtax - Undistributed income of investment company - Whether dividend paid out of actual income of year of payment - Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), ss. 249 and 254.
Surtax - Procedure - Company under control of five or fewer persons - Sub-apportionment of income - Whether notice of sub-apportionment to be given to company whose income apportioned - Effect of failure to give notice - Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), ss. 248 and 254.
By virtue of a surtax direction in respect of the actual income from all sources of N Ltd., an investment company, for the year 1956-57, that income was sub-apportioned through the three Appellant Companies, in succession, to the fourth Appellant. The accounts of N Ltd. were properly drawn up in accordance with current principles of commercial accounting. Its accounts for the year to 31st March 1956 showed a commercial profit of £8,321, arrived at after taking credit (inter alia) for £15,771 (gross) in anticipation of an ordinary dividend for the year from R Ltd., of which it owned all the ordinary shares; in the balance sheet for that year the profit of £8,321 was shown as a deduction from the debit balance on profit and loss account brought forward from the previous year. The anticipated dividend of £15,771 from R Ltd. was declared on 19th October 1956, and paid on 24th March 1957, and accordingly formed part of the statutory actual income from all sources of N Ltd. for 1956-57, which amounted to £14,290, after deducting charges and management expenses. On 28th March 1957 N Ltd. declared and paid an interim dividend for the year to 31st March 1957 of £14,000 gross, £8,050 net. Its accounts for that year showed a commercial profit of £8,280, arrived at after taking credit (inter alia) for £15,771 (gross) in anticipation of an ordinary dividend for the year from R Ltd., which was declared on 31st December 1957, and paid on 10th February 1958.
Notice of apportionment of its actual income for 1956-57 was served on N Ltd., and notices of sub-apportionment on the three Appellant Companies but not on N Ltd. On appeal, the Appellant Companies contended that only the excess of the actual income over the dividend paid by N Ltd. in 1956-57 should have been sub-apportioned under s. 254, Income Tax Act 1952, since the dividend was covered by the amount of its commercial profits, or alternatively of its statutory income for that year; the fourth Appellant contended that, since notices of the sub-apportionments had not been served on N Ltd. in accordance with s. 248(2), no consequential assessment could be made on him, and also that the amount to be
sub-apportioned to him should have been computed in accordance with the Companies' contentions. The Special Commissioners held (1) applying Hudspeth v. Commissioners of Inland Revenue 38 T.C. 465; [1959] 1 W.L.R. 948, that s. 254 referred to statutory income, and since the ordinary dividend from R Ltd. which fell into the statutory income of N Ltd. for 1956-57 had been appropriated to writing off a loss brought forward, the dividend paid by N Ltd. in 1956-57 had not been paid out of that income; (2) that under s. 254(4) a notice of sub-apportionment was not required to be served on N LtdHeld, (1) that the Commissioners' decision on the income to be sub-apportioned was correct; (2) on the fourth Appellant's appeal, (a) that notice of the sub-apportionments should have been given to N Ltd., the company whose income was apportioned, and not to the companies through which it was sub-apportioned, and proceedings on the consequential assessment should be suspended until notice had been given to N Ltd. and it had had an opportunity of appealing; (b) that, on appeal against the assessment to surtax made on him in the name of N Ltd., the fourth Appellant was entitled to challenge the validity of the apportionment and sub-apportionments on which it was based.
(1) Princes Investments Ltd., Princes Realisations Ltd. and Envoy Investments Ltd. v. Commissioners of Inland Revenue
Stated under ss. 248(3) and 64, Income Tax Act 1952, 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 5th December 1963, and thence adjourned to 19th and 20th March 1964, Princes Investments Ltd. (hereinafter referred to as "the first Appellant"), Princes Realisations Ltd. (hereinafter referred to as "the second Appellant") and Envoy Investments Ltd. (hereinafter referred to as "the third Appellant") appealed against the undermentioned notices of sub-apportionments of the actual income from all sources of New Century Finance Co. Ltd. (hereinafter referred to as "New Century."), made by the Special Commissioners of Income Tax on 29th June 1962 under the provisions of s. 254, Income Tax Act 1952, for the year of assessment 1956-57:
Sub-apportionment to the members of Princes Investments Ltd. of the agreed amount (£14,289 10s. 6d.) of the actual income of New Century Finance Co. Ltd. apportioned to Princes Investments Ltd. (a member of New Century Finance Co. Ltd.)
Sub-sub-apportionment of £14,289 4s. 10d. to the members of Princes Realisations Ltd.
Sub-sub-apportionment of £14,286 7s. 8d. to the members of Envoy Investments Ltd.
The grounds of appeal by the first Appellant were that the amounts so sub-apportioned were excessive in so far as no allowance had been made under the provisions of s. 254, Income Tax Act 1952, in respect of income received by the first Appellant out of the actual income from all sources of New Century as hereinafter appeareth. The grounds of appeal by the second and third Appellants were the same mutatis mutandis as the grounds of appeal of the first Appellant.
2. Evidence was given at the hearing of the appeal by Reginald Langford Latimer, chartered accountant, a partner in the firm of Whinney, Smith & Whinney, chartered accountants; Edward Lawson, F.C.A., principal advisory accountant to the Board of Inland Revenue; Geoffrey Harold Pentelow, an assistant principal clerk in the office of the Special Commissioners of Income Tax.
The following documents were produced and admitted or proved:
(i) a statement in writing of agreed facts;
(ii) memorandum and articles of association of New Century;
(iii) resolution 28th March 1957 for payment of dividend;
(iv) deed of waiver of loan;
(v) letter of waiver of interest;
(vi) accounts of New Century for the year ended 31st March 1957 (exhibit A(1) );
(vii) profit and loss account of New Century for year ended 31st March 1957 on revised basis;
(viii) audited accounts of New Century for the year ended 31st March 1956;
(ix) summary of audited and revised profit and loss accounts of New Century for year ended 31st March 1956;
(x) summary of audited and revised profit and loss accounts of New Century for year ended 31st March 1957;
(xi) audited accounts of New Century for year ended 31st March 1958;
(xii) summary of audited and revised profit and loss accounts of New Century for year ended 31st March 1958;
(xiii) Crown version of revised accounts of New Century for year ended 31st March 1957;
(xiv) resolution of 28th February 1958 for payment of dividend;
(xv) letter and computation of 19th June 1962 from Special Commissioners of Income Tax to accountants.
The provisions of the above documents so far as relevant to this Case have been incorporated herein, but except for (vi) accounts of New Century for the year ended 31st March 1957 (exhibit A(1) ), copies of the said documents are not attached to and do not form part of this Case for reasons of economy.
3. We found the following facts admitted or proved on the evidence adduced at the hearing of the appeal.
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(2) New Century was at all times material to this appeal an investment company within the meaning of s. 257(2), Income Tax Act 1952. The issued share capital in the year of assessment 1956-57 was registered in the names of
and held beneficially by the first Appellant as to 29,999 shares and Checkendon Investments Ltd. (hereinafter referred to as "Checkendon") as to one share. (3) Checkendon was at all times material to this appeal an investment company within the meaning of s. 257(2), Income Tax Act 1952. During the year of assessment 1956-57 the issued share capital was registered in the names of and held beneficially by Charles Clore (hereinafter referred to as "Mr. Clore") as to 718 shares, Leonard Sainer as to one share and J.D. Brown as to one share.
(4) Princes Investments Ltd. (the first Appellant) was at no time an investment company within the meaning of s.257(2), Income Tax Act 1952. The issued share capital during the year of assessment 1956-57 was registered in the names of and held beneficially by Princes Realisations Ltd. (the second Appellant) as to 49,999 shares and Checkendon as to one share.
(5) The issued share capital of Princes Realisations Ltd. (the second Appellant) during the year of assessment 1956-57 was registered in the names of and held beneficially by Envoy Investments Ltd. (the third Appellant) as to 4999 shares and Checkendon as to one share.
(6) The issued share capital of Envoy Investments Ltd. (the third Appellant) during the year of assessment 1956-57 was registered in the names of and held beneficially by Mr. Clore as to 4999 shares and Checkendon as to one share.
(7) At all relevant times New Century was the beneficial owner of all the issued ordinary shares of Investment Registry Ltd. (hereinafter referred to as "Investment Registry"), namely, 157,710 ordinary shares of 10s. each. New Century was also the...
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