The Swedish Central Railway Company, Ltd v Thompson (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 13 March 1925 |
| Date | 13 March 1925 |
| Court | King's Bench Division |
NO. 518.-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
COURT OF APPEAL.-
HOUSE OF LORDS.-
Income Tax, Schedule D - English company controlled abroad - Residence - Rents arising abroad - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Schedule D, Case V.
A Company which was incorporated in England under the Companies Acts for the purpose of constructing a railway in Sweden subsequently leased the railway to a Swedish concern for an annual rent of £33,500.
In October, 1920, the Articles of Association were altered so as to remove the control and management of the Company to Sweden, and it was admitted by the Revenue that thereafter the Company was not assessable to Income Tax under Case I of Schedule D. Assessments were, however, raised upon it, as being resident in the United Kingdom, in respect of the full amount of the said annual rent of £33,500 under Case V of Schedule D.
The rent was paid to the Company in Sweden, where all directors' and shareholders' meetings were held and dividends were declared, and no part of its profits was transmitted to the United Kingdom except in satisfaction of dividends and interest to shareholders and debenture holders in this country. Such dividends and interest were paid from the registered office of the Company in London, where the Company's seal was kept, and where all transfers of shares were made and registered. The Secretary of the Company resided in London, the Company had a banking account there, and there its accounts were made up and audited.
Held, (Lord Atkinson dissenting), that the Company remained resident in the United Kingdom, notwithstanding the removal of the control and management to Sweden, and that it had been rightly assessed to Income Tax under Case V of Schedule D in respect of the annual rent in question.
Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts 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 on 31st July, 1922, for the purpose of hearing appeals, The Swedish Central Railway Company, Limited (hereinafter called the Company), appealed against assessments to Income Tax in the sum of £33,500 for the years ending 5th April, 1921, and 5th April, 1922, made upon them under the provisions of the Income Tax Acts.
2. The assessments under appeal were made upon the Company under Case V of Schedule D of the Income Tax Act, 1918, in respect of an alleged rent paid to them under the following circumstances.
3. The Company was incorporated under the Companies Acts, 1862 and 1867, in December, 1870, with the objects of (inter alia):-
(a) acquiring a concession for the construction of a railway between Frovi and Ludvika in the Kingdom of Sweden and constructing the railway authorised by such concession;
(b) maintaining and working the railway so to be constructed, and entering into any working or other arrangements with any other company for connecting the said railway with any other system;
(c) leasing the said railway to any person, persons or company.
The objects for which the Company was formed are set out fully in the Memorandum of Association of the Company, a copy of which is attached hereto and forms part of this Case.(1)
4. The Registered Office of the Company is situate at 11, Ironmonger Lane, London, E.C.2.
5. By an agreement dated 10th February, 1900, and made between the Company of the one part and the Traffic Company Grangesberg Oxelosund (hereinafter referred to as the Traffic Company) of the other part the Company leased to the Traffic Company its railway between Frovi and Ludvika for a term of 50 years as from 1st January, 1900, with a right to either party to terminate the said agreement after the same had been in force for 10 years.
6. The sum of £33,500 (in the said agreement called an annual rent) was payable quarterly in advance by the Traffic Company to the Company, such quarterly payments to be made at the Company's Office in London.
7. The said agreement of 10th February, 1900, was entered into at Stockholm and is in Swedish.
An English translation of the said agreement, which was handed in at the hearing of this appeal, is attached hereto and forms part of this Case.
8. At an Extraordinary General Meeting of the Company held at the Registered Office of the Company, 11, Ironmonger Lane, London, on 7th October, 1920, a resolution was passed with a view to the alteration of the Articles of Association of the Company.
The said Resolution was confirmed at a subsequent Extraordinary General Meeting on 22nd October, 1920.
Copies of the said Resolution and of the Articles of Association are attached hereto and form part of this Case.(1)
The alterations made in the Articles of Association in pursuance of the said Resolution are shewn in green ink.
9. The alterations in the Articles of Association were framed with the object of removing the control and management of the business of the Company from England to Sweden, and we are satisfied that since 22nd October, 1920, the business of the Company has been and now is controlled and managed from the Head Office, Stockholm, Sweden. This fact was admitted on behalf of the Respondent.
10. On the 22nd October, 1920, at a meeting of the Board of Directors of the Company, three Members of the said Board were appointed to be a Committee under Article 45a of the amended Articles of Association to deal with transfers of shares
in the United Kingdom, attach the seal of the Company to share and stock certificates, and to sign cheques on the London Banking Account of the Company.The Committee so appointed was empowered to transact merely formal administrative business in the United Kingdom.
11. Since the 22nd October, 1920, no Ordinary Meeting, General Meeting or Board Meeting of the Company has been held in the United Kingdom.
All dividends have been declared in Sweden, and no part of the profits of the Company has been transmitted to the United Kingdom except in payment of dividends to the shareholders in the United Kingdom. Copies of Minutes of Board Meetings and Shareholders' Meetings held between 22nd October, 1920, and 31st May, 1922, are attached hereto and form part of this Case.(1)
12. Since 22nd October, 1920, the said sum of £33,500 referred to in paragraph 6 hereof has been paid to the Company in Sweden.
13. The Secretary of the Company, Sir William B. Peat, resides in London, and the seal of the Company is kept at the Registered Office of the Company in London. The Company has a banking account in London. Transfers of shares are made in London and registered there. The accounts of the Company are made up and audited in London. Dividends are paid to English shareholders and interest to English debenture holders from the Registered Office in London.
14. It was contended on behalf of the Company that upon the facts as set out above :-
(a) the Company was not resident in the United Kingdom;
(b) the Company was not chargeable to Income Tax under Schedule D of the Income Tax Act, 1918; and alternatively,
(c) upon the true construction of the said agreement of 10th February, 1900, the said sum of £33,500 is not income arising from a rent in a place out of the United Kingdom within Rule 1 of Case V of Schedule D.
15. It was contended on behalf of the Respondent that :-
(a) the Company was resident in the United Kingdom and chargeable to Income Tax under Schedule D of the Income Tax Act, 1918;
-
(b) the agreement of 10th February, 1900, is a lease of the railway to the Traffic Company for a period of 50 years and the said sum of £33,500 is an annual rent
payable thereunder and the Company has been rightly assessed under Case V of Schedule D in respect thereof; (c) the assessment appealed against should be confirmed.
16. The following cases were referred to:-
Egyptian Hotels, Limited v. Mitchell TAX(1),
[1914] 3 K.B. 118 and [1915] A.C. 1022
Cesena Sulphur Co. v. Nicholson, TAXI Ex. D. 428; 1 T.C. 88
San Paulo (Brazilian) Railway Company v. Carter TAX(2),
[1896] A.C. 31
De Beers Consolidated Mines v. Howe TAX(3),
American Thread Co. v. Joyce, ELRTAX[1913] A.C. 29; 6 T.C. 1 & 163
Commissioners of Inland Revenue v. Korean Syndicate, Limited,ELR[1921] 3 K.B. 258
17. With the consent of the Appellants and Respondent we reserved our decision, which was communicated to the parties on 25th September, 1922, and was in the following terms :-
This is an appeal by the Swedish Central Railway Company, Limited, against assessments to Income Tax made upon them under Case V of Schedule D for the years 1920-21 and 1921-22.
The relative part of Schedule D which imposes the charge reads as follows:-
Tax under this Schedule shall be charged in respect of-
-
(a) The annual profits or gains arising or accruing-
(i) to any person residing in the United Kingdom from any kind of property whatever, whether situate in the United Kingdom or elsewhere.
The chief question for our decision is whether the Appellant Company is "a person residing in the United Kingdom" within the meaning of those words in the charging Schedule.
The Appellant Company was incorporated under the Companies Act in December, 1870, and its Registered Office is situate in London. It is, in our opinion, resident in the United Kingdom in the same sense as that in which the Egyptian Hotels Company, Limited, was admitted to be so resident.
On the other hand, we are satisfied that the real control and management of the Appellant Company has been since October, 1920, and now is, in Sweden.
We have carefully considered all the authorities on the question of residence in the case of companies. It is to be noticed that in laying down that the place of control is to be taken as the sole test for determining the place of residence of
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Unit Construction Company Ltd v Bullock (Inspector of Taxes)
... ... importance and in many matters of minor importance affecting the central management and control, and we find that the real control and management ... Twenty years later in the Swedish Central Railway Company Limited v. Thompson , 9 T.C. 342 at p. 352, ... ...