W.H. Muller and Company (London)Ltd v Lethem (HM Inspector of Taxes)

Stated under the Taxes Management Act, 1880, Section 59, 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 2nd May, 1921, for the purpose of hearing appeals, W.H. Muller & Co. (London), Ltd., (hereinafter called the London Company) appealed against the undermentioned assessments to Income Tax made by the Additional Commissioners of Income Tax for the City of London under the provisions of the Income Tax Acts upon the London Company as agents for the Nederland Steamboat Company in the sum of £5,000 for the year ending 5th April, 1916, and in the sum of £5,000 for the year ending 5th April, 1917, and as agents for the General Shipping Company in the sum of £5,000 for the year ending 5th April, 1916, and £5,000 for the year ending 5th April, 1917, in respect of the profits of their business of ship-owners.

2. The London Company is a company incorporated in England under the Companies Acts, 1862 to 1900, on 19th June, 1902, with the following objects, (inter alia):-

1. (a) To carry on the business of merchants, shipowners, shipbrokers, insurance brokers, underwriters, managers of shipping property, freight contractors, carriers by land or sea, forwarding agents, commission agents, colonial and produce brokers, corn factors, ore and metal brokers and dealers, and any other business which usually is or conveniently can be carried on in conjunction with any of these businesses.

2. (b) To do all or any of the matters aforesaid, alone or in conjunction with, or as agents for, foreign firms, companies or persons, and generally for other companies and persons, and to establish, regulate and discontinue agencies for the purposes of the Company.

3. At all material times a preponderating interest in the share capital of the London Company was held by Mr. Kroller, a Dutchman, who was a partner in a Dutch registered partnership, W.H. Muller & Co., of Rotterdam, having its head office at The Hague, (herein-after referred to as the Dutch firm). All the ordinary shares in the Dutch firm were held by Mr. Kroller, his wife and his brother, but there were a large number of 6 per cent. preference shares held by outsiders and dealt in upon the Dutch Exchange.

4. The Nederlandsche Stoombootmaatschappy (herein called the Nederland Steamboat Company) is a Dutch company established and incorporated in Rotterdam in 1896. Its business is to run a freight and passenger service between Rotterdam and London with the right to run insurance risks on its own vessels and goods shipped on those vessels. Article 10 of its Statutes provided for the management of the Company by a Director under control of the Board consisting of at least three and not more than nine members. Article 11 gives the Director, under the control of the Board, the management and the control of the Company and in consequence thereof all power which has not been assigned to the general meeting of shareholders or to the Board. The Director represents the Company in law and outside the law. Article 19 provided for the distribution of profits, and Article 41 that the Dutch firm should be nominated the first Director of the Nederland Steamboat Company. By minute of general meeting dated 12th October, 1896, three members of the Board of the Nederland Steamboat Company were authorised to enter into a tenancy agreement already contracted provisionally on behalf of the Company by the Dutch firm with the City of London Electric Lighting Co., Ltd., concerning the Custom House and Wool Quays Wharf, Lower Thames Street, London, and for the term of the said tenancy agreement the Dutch firm were appointed cargo superintendents of the Nederland Steamboat Company in the Netherlands and the firm of Phillips & Graves of London were appointed agents of the Nederland Steamboat Company in London. Phillips and Graves resigned the agency in London in 1899, and for a time the Nederland Steamboat Company did anything that it was necessary to do here for themselves, but after the formation of the London Company in 1902 the Nederland Steamboat Company ceased to do anything themselves in this country, but appointed the London Company as their agents as appears by correspondence hereinafter appearing and the London Company carried on the agency for the Nederland Steamboat Company. The Dutch firm were the shipping agents and managers of the ships of the Nederland Steamboat Company.

5. W.H. Muller & Co's. Algemeene Scheepvart-Maatschappy (herein called the General Shipping Company) is a Dutch company established and incorporated in Rotterdam in 1899, with the following purposes, (inter alia):-

1. (a) The carrying on of a shipowner's business;

2. (b) The ownership of shares in companies carrying on shipowners' business;

3. (c) The purchasing, building, launching, equipping, managing, chartering, re-chartering, engaging and selling of sea and river craft;

4. (d) Transport of passengers, goods and cattle, the establishment of new, the purchase of existing, and the management of places for the building, docking and repairing of vessels and machinery for the loading and discharging of vessels or for the storage of goods;

5. (e) The insurance of all sorts of risks.

Article 9 of the Statutes of the General Shipping Company provided that the Company is managed by a Director under control of the Board, who are all nominated and dismissed by the general meeting of shareholders, and Article 10 that the Director represents the Company in law and also outside the law, and has full power except that which has been granted to the general meeting or to the Board. Article 19 provided for the distribution of profits, of which the Director was to receive 5 per cent., after the payment of 6 per cent. on the issued share capital and the transfer of 10 per cent. to reserve, and Article 41 that the Dutch firm are nominated as the first Director of the General Shipping Company and four Dutch gentlemen as members of the Board.

6. By a deed of contribution dated 29th June, 1899, it was recorded that the Dutch firm contributed large assets-set out in detail in the deed-to the General Shipping Company on condition (inter alia):-

1. (2) That the Dutch firm should act as exclusive shipping agents and exclusive cargo superintendents of the Company both in Rotterdam and in those places where the...