The Commissioners of Inland Revenue v Doncaster
| Jurisdiction | England & Wales |
| Judgment Date | 04 March 1924 |
| Date | 04 March 1924 |
| Court | King's Bench Division |
NO. 478.-IN THE HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
Super-tax - Total income - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Section 5.
The Respondent was one of several directors of a limited company who between them held all the ordinary shares therein. In June of each year from 1911 to 1915 inclusive, the company in general meeting set aside out of profits certain sums as a reserve fund to be at the complete disposal of the directors for the time being, and in particular as a provision for equalising dividends. On the retirement or death of any director a proportionate share of this "Dividend Equalisation Fund" was payable to him or his legal representatives.
On the 27th March, 1919, the company passed a resolution authorising the directors to distribute the Fund among the ordinary shareholders "as "a funded debt payable at the option of the directors in cash or in fully "paid preference shares at par", and four days later the directors resolved to pay the Fund in cash and to credit the amount to which each shareholder (director) was entitled to his loan account with the company, but no special arrangement was made as to interest on the amounts so credited or for their redemption by the company. The directors' loan accounts were used for crediting their fees, dividends and interest, and they were in the habit of withdrawing varying amounts therefrom from time to time. Interest was allowed on these accounts at 5 per cent. up to 1st April, 1917, and thereafter at 6 per cent.
Held, that the Dividend Equalisation Fund was receivable by the directors as income on the passing of the resolutions in March, 1919, and that the Respondent's share of the Fund was therefore properly included in computing his total income for Super-tax purposes for the year 1919-20.
The Commissioners of Inland Revenue v. Blott(2)distinguished.
Stated by the Commissioners for the Special Purposes of the Income Tax Acts, under the Income Tax Act, 1918, Section 149, 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 at York House, Kingsway, London, on 19th November, 1921, Mr. S. Doncaster, of Whinfell, Whirlow, Sheffield,
hereinafter referred to as Mr. Doncaster, appealed against an assessment to Super-tax made upon him in the sum of £29,488 for the year ended 5th April, 1920, under the provisions of the Income Tax Acts relating to Super-tax.2. Appeals were heard at the same time from Mr. Herbert Barber, Mr. B.W. Doncaster, Mr. C.M. Doncaster and Mr. J.H. Doncaster, the facts and circumstances relating to their appeals being in all essential respects similar to the facts and circumstances in the appeal of Mr. Doncaster.
3. Mr. Doncaster and the other gentlemen above mentioned, hereinafter jointly referred to as the directors, were in the year ended 5th April, 1919, and had been at least during and since 1911, directors of a Company called Daniel Doncaster and Sons, Limited, carrying on a business in Sheffield, hereinafter referred to as the Company. From a date prior to 1911 and up to 1916 there was in addition another director, namely, Mr. H. Graham Barber. The Company was incorporated as a public Company under the Acts relating to Companies on 4th September, 1902, and became a private Company on the 1st July, 1908. The Company has issued both preference and ordinary shares, but the preference shareholders have no power to vote (unless the dividend on the preference shares is unpaid) except upon matters specified in Article 86 of the Articles of Association of the Company. At all relevant times for the purpose of this Case the dividend on the preference shares has been duly paid. The directors and Mr. H. Graham Barber, while he was a director, have held all the ordinary shares in the Company in their own names or that of their nominees during and since the year 1911 up to December, 1920. In 1916 the said Mr. H. Graham Barber died, his shares passing under his Will to the said Mr. Herbert Barber.
A copy of the Memorandum and Articles of Association of the Company is attached hereto marked "A" and forms part of this Case.(1)
4. The Company has been a successful one, and on various dates, commencing on 12th June, 1911, it set aside out of its profits, by resolutions passed at its general meetings, a fund for equalising dividends. The resolution of the Company of the 12th June, 1911, was in the following terms:-
"That the sum of £6,000 be carried to a reserve fund which shall "be completely subject to the disposal of the directors for "the time being and to be dealt with from time to time as "they shall think fit, and in particular the same may be "used for the purpose of equalising dividends, and in case "of the death or retirement from the Board of Directors of "an ordinary shareholder the directors may pay to his "executors or to him such a sum as they in their uncontrolled "discretion shall consider to be his proportion of the fund "up to the date of such payment."
Similar resolutions were passed on 5th June, 1912, 11th June, 1913, 10th June, 1914, and 16th June, 1915, setting aside sums which in all amounted to £20,000. Copies of these resolutions are annexed hereto, marked "B," and form part of this Case.(1)
This fund was described in the Balance Sheets of the Company as a "Dividend Equalisation Fund."
5. By a Minute of the directors of the Company, dated 12th June, 1911 (a copy of which is annexed hereto, marked "C," and forms part of this Case(1) ), signed by all the then directors being the same persons as those above referred to, including Mr. H. Graham Barber, it was decided that the Dividend Equalisation Fund should be used after making provision for depreciation, bad debts, fall in value of investments, or other special needs, to maintain a dividend of 15 per cent. per annum upon the ordinary shares of the Company, that being approximately the average rate of dividend paid by the Company since its incorporation, and the Minute went on to provide as follows:-
It is an understanding agreed to by all the directors that in the "case of the death or retirement of a director, the amount "of his share...
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