Ramsden v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 31 July 1957 |
| Date | 31 July 1957 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income Tax - Avoidance of tax by transfer of assets abroad - "Sum… payable by way of…repayment of a loan" - "Power to enjoy income" - Income Tax Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 10), Sections 412 and 413.
In 1939 and 1947 the Appellant, being then a director of M Ltd., a company incorporated in Kenya, and beneficial owner of all its issued share capital, transferred to it shares in another foreign company. The cost of the shares was credited to him by M Ltd. in an account in which there were also credited the cost of other shares so transferred and disbursements made by him from time to time on the company's behalf and there were debited cash paid to him by M Ltd., rent payable by him to the company and disbursements made on his behalf by the company. The account was described in the company's minutes as a loan account, and the balance outstanding thereon (which fluctuated between 1939 and 1953 from £119,000 up to £166,000 and down to £78,000, where it stood at 31st March, 1953) was shown in the balance sheet as due to the Appellant on open account. In 1940 the board of M Ltd. had resolved to seek his agreement that no interest should be payable or receivable on amounts standing to the credit or debit of any of his accounts in the company's books. In 1948 the Appellant transferred his interest in M Ltd. to his son and resigned his directorship. In the year to 31st March, 1953, M Ltd. received a gross dividend of £8,898 on the aforesaid shares, which was credited to the income and expenditure account, and the net income of that account was £7,463.
An assessment to Income Tax under Sections 412 and 413, Income Tax Act, 1952, in the sum of £7,463, was made on the Appellant, as a person ordinarily resident in the United Kingdom, for the year 1952-53. On appeal the Appellant contended (a) that he did not in that year possess any rights by virtue of which he had, within the meaning of Section 412, power to enjoy any income of M Ltd. and (b) that the sum owing to him by M Ltd. was not, within the meaning of Section 412, a capital sum as being payable by way of repayment of a loan. It was contended for the Crown (i) that the sum owing in 1952-53 to the Appellant in respect of the shares transferred was a capital sum within the meaning of Section 412(2) and, alternatively, (ii) that he was to be deemed to have power to enjoy income of M Ltd., and it was to be deemed to be his income, by virtue of Section 412(1) and (5). The Special Commissioners, finding that the Appellant's account with M Ltd. in 1952-53 was a loan account, held that the company's income for that year was deemed to be the income of the Appellant under Section 412(2) and expressed no view on the application of Section 412(1).
Held, (1) that the debt constituting the unpaid balance of the purchase money of the shares could not be treated as a loan but
(2) that, as the payment of the dividend to M Ltd. increased the value of the Appellant's right to recover his debt, he had power to enjoy income of the company within the meaning of Section 412(1)and (5)(b).
Stated under the Income Tax Act, 1952, Section 64, 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 July, 1956, Sir John Ramsden, Bt. (hereinafter called "the Appellant"), appealed against an assessment to Income Tax made upon him for the year 1952-53 under Case VI of Schedule D by virtue of the provisions of Section 412 and Section 413(1) of the Income Tax Act, 1952.
2. The question for our determination was whether income arising in the year 1952-53 to Marula Trust, Ltd. (hereinafter referred to as "Marula"), a company resident abroad, should be deemed to be income of the Appellant for all purposes of the Income Tax Act, 1952, by virtue of the provisions of the said Section 412.
3. The following documents, which were proved or admitted at the hearing before us, are attached to and form part of this Case(1):
A. A bundle of correspondence between the solicitors to the Appellant and the Special Commissioners of Income Tax.
B. The accounts of Marula Trust, Ltd., for the year ended 31st March, 1939.
C. The accounts of Marula Trust, Ltd., for 5 years ended 31st March, 1940, 1941, 1942, 1944 and 1946.
D. The accounts of Marula Trust, Ltd., for the 7 years ended 31st March, 1953.
E. Copy of the account of the Appellant with Marula Trust, Ltd.
F. Excerpts from the minutes of a meeting of the directors of Marula Trust, Ltd., held on 24th September, 1947.
G. Memorandum and articles of association of Marula Trust, Ltd.
4. The facts found by us are set out in paragraphs 5 to 10 inclusive below.
5. In the year 1952-53 the Appellant was ordinarily resident in the United Kingdom.
6. Marula was incorporated in Kenya on 31st March, 1938, with an authorized capital of Shillings 100,000 divided into 5000 shares of 20s. each. The Appellant subscribed in cash for three shares, two of which were allotted to him in his own name and one to a nominee of the Appellant. Up to and including the year with which this appeal is concerned the issued share capital of Marula remained at three shares. By a special resolution of Marula
dated 17th June, 1939, an additional article of association was adopted which provided, inter alia, that of the original share capital of Marula 100 shares of 20s. each (including the three shares subscribed for by the Appellant) should be converted into preference shares. By virtue of article 68 (exhibit G) the Appellant was named as one of the first directors of Marula. Article 80 (exhibit G) provides,inter alia, that the directors named in article 68 shall hold office until death, resignation or removal by Marula in general meeting.The Appellant remained a director of Marula until October, 1948, when he resigned his directorship. At the same time he transferred to his son his holding of two shares in Marula and directed that his nominee for the third issued share of Marula should hold that share for the benefit of the Appellant's son.
Clause 3 (a) of the memorandum of Marula (exhibit G) reads as follows:-
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3. The objects for which the Company is established are:-
(a) To take over from Sir John F. Ramsden, Bart., certain shares and the benefit of a Debenture allotted to him as Trustee for a Company to be formed pending the formation of the present Company.
7. During the year ended 31st March, 1939, the Appellant transferred shares to Marula, which shares are shown on the balance sheet of Marula at 31st March, 1939 (exhibit B), under the headings of "Investments" and "Investments in subsidiary companies". Included in the shares transferred were 5295 shares of 20s. each, fully paid, in Flax, Ltd. It was admitted on behalf of the Appellant that all the transfers of shares by him to Marula in the year ended 31st March, 1939, were transfers of assets by virtue or in consequence whereof income became payable to a person resident abroad.
In 1945 the Appellant bought shares in certain companies on behalf of Marula. These shares were transferred to Marula on 10th August, 1945, and are included in Marula's balance sheet at 31st March, 1946 (exhibit C), under the heading "Investments". On 24th September, 1947, the Appellant transferred to Marula a further 15,399 shares of 20s...
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Khan v Golechha International Ltd
...of the authorities which he intended to have by him in court. There is no dispute that the Revenue case referred to was Ramsden v. Commissioners of Inland Revenue (1937) Tax Cases, 619. It deals with the complicated provisions of section 412 of the previous Income Tax Act and concerned a ru......