Wigram Family Settled Estates, Ltd ((in Liquidation)) v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 23 January 1958 |
| Date | 23 January 1958 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Surtax - Investment company - Apportionment of income "in accordance with the respective interests of the members" - Finance Act, 1922 (12 & 13 Geo. V, c. 17), Section 21 and First Schedule, Paragraph 8; Finance Act, 1939 (2 & 3 Geo. VI, c. 41), Section 14.
The Appellant Company, which had originally been formed to deal in real estate but was at the material times an investment company to which Section 14, Finance Act, 1939, applied, had issued to an assurance company non-voting redeemable first preference shares on the terms that it would maintain a redemption fund out of the profits which would otherwise be available for dividend. In the years ended 31st March, 1950, 1951 and 1952, the sums of £4,000, £10,000 and £4,000 respectively out of the Company's taxed profits were transferred to the redemption fund; all the classes of shares prior to the ordinary shares were well secured or covered.
The Company's income for the years 1949-50, 1950-51 and 1951-52 was apportioned for Surtax purposes among the members in accordance with their respective interests on the footing that the assurance company's interest was represented only by its right to a dividend on the redeemable preference shares. On appeal, the Company contended that the amounts transferred to the redemption fund should also be taken into account as constituting an interest of the assurance company; for the Crown it was contended that the method adopted was the most equitable and fair, having regard not only to income rights and to voting rights but also to the interests of the ordinary shareholders on a winding-up. The Special Commissioners accepted the Crown's contentions, holding that the contract for the maintenance of a redemption fund was no more than a security for the repayment of the capital and that it would be wrong to attribute to the assurance company a double interest measured by both the dividend rights and the amounts credited to that fund.
Held, that the Commissioners' decision was correct.
Stated under the Income Tax Act, 1952, Sections 229(4) and 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 7th and 8th June, 1955, Wigram Family Settled Estates, Ltd. (in liquidation) (hereinafter called "Wigram") appealed against directions made upon it by the Special Commissioners under the provisions of Section 21, Finance Act, 1922, and Section 14, Finance Act, 1939, in respect of the years of assessment 1949-50, 1950-51, and 1951-52 and against the consequential apportionments among the members of the actual income of Wigram for the said years. The sole point for our determination in the said appeal against the directions was whether or not Wigram existed wholly or mainly for the purpose of carrying on a trade or for the purpose of co-ordinating the administration of a group of two or more companies each of which was under its control within the meaning of Section 14(7), Finance Act, 1939. It was common ground between the parties that if Wigram did so exist the directions for the said years fell to be discharged. In the alternative Wigram objected to the apportionments of its actual income for the said years among its members on the ground that they had not been made in accordance with the provisions of Paragraph 8, First Schedule, Finance Act, 1922.
2. At the conclusion of the hearing of the appeals we gave our decision confirming the directions and the apportionments in principle. Our decision on the appeal against the directions has been accepted by Wigram and no question now arises upon that part of the case.
(i) At the hearing of the appeal against the apportionments the following documents were produced in evidence before us and are attached to and form part of this Case(1):
Summary of balance sheets and profit and loss accounts of Wigram for the years 1948 to 1952 inclusive and for the period ended 19th May, 1952 (exhibit A).
Memorandum and articles of association of Wigram (exhibit B).
Composition of provisions made to the redeemable preference shares redemption fund during the years ended 31st March, 1950 to 1952, inclusive (exhibit C).
(ii) The following documents, which were produced in evidence before us in reference to Wigram's appeal against the directions for the said years of assessment 1949-50 to 1951-52 inclusive, are not part of this Case but are available if required for the information of the High Court:
Consolidated accounts of Wigram and subsidiary companies (exhibit D).
Statutory declaration of the directors of Wigram dated 16th June, 1937 (exhibit E).
Summary of balance sheets and profit and loss accounts of Wigram's subsidiary companies (exhibit F).
Statement of subsidiary companies' bankers (exhibit G).
(iii) The facts found by us on the foregoing evidence or admitted and/or proved before us are stated in the following paragraphs numbered 4 to 12 inclusive.
4. Wigram was incorporated on 12th December, 1932, to acquire and deal in real estate, its objects as set out in paragraph 3(a) and (b) of its memorandum of association (exhibit B) being to
purchase…or otherwise deal in any real or personal property…develop and turn to account any land by laying out and preparing the same for building purposes…and entering into contracts and arrangements of all kinds with builders, contractors, tenants and others.
The promoters and principal shareholders of Wigram were the late Mr. Lionel Wigram, a solicitor, who died on 3rd February, 1944, and Mr. F.B. Winham, sole proprietor of the firm of Messrs. Royds & Co., estate managers. At the time of Wigram's incorporation the late Mr. Wigram and Miss D.E. Chapman were the first directors, and at all times material to this appeal the directors of Wigram were Mr. A.F. Ferguson and Mr. H.L. Denton.
(i) At the time of its incorporation the authorised capital of Wigram was £5,000 divided into 3500 preference shares of £1 each and 1500 ordinary shares of £1 each, all of which were issued for cash.
(ii) By special resolution dated 6th April, 1933, the authorised capital of Wigram was increased to £7,500 by the creation of 2500 participating cumulative preference shares of £1 each, of which 2000 shares have been issued for cash.
(iii) By special resolution dated 12th December, 1934, Wigram's authorised capital was further increased to £57,500 by the creation of 50,000 6 per cent. redeemable preference shares of £1 each, all of which have been issued for cash.
(iv) By special resolution dated 14th April, 1936, Wigram's authorised capital was further increased to £107,500 by the creation of an additional 50,000 6 per cent. redeemable preference shares of £1 each, all of which were issued for cash on 22nd April, 1936, to the holders of the original issue of redeemable preference shares.
(v) The terms of issue of the first issue of redeemable preference shares were, inter alia, that they were to be repaid within five years from 31st March, 1935, and that Wigram was to set aside out of profits available for dividend in each year beginning with the year ended 31st March, 1936, a sum of £9,050, such sum to be credited to a redeemable preference shares redemption fund until that fund amounted to £50,000.
(vi) By the amendments effected by the special resolution of 14th April, 1936, providing for the second issue of redeemable preference shares (see sub-paragraph (iv) above) the following provisions (shortly stated) were made for the redemption of the 100,000 redeemable preference shares and incorporated in article 14A of Wigram's articles of association (exhibit B), namely, they were to be redeemed on the expiration of ten years from 31st March, 1935, and for the purpose of such redemption Wigram was to carry to the credit of a redeemable preference shares redemption fund, out of the profits of Wigram which would otherwise be available for dividend, for the year ended 31st March, 1936, the sum of £9,050, and for every subsequent year the sum of £7,797.
(vii) Under article 14A(c) the profits of Wigram were to be calculated, for the purpose of this article, without any deduction of any sums payable to Mr. Wigram and to Mr. Winham, or any firms in which they or either of them might be a partner, in respect of services as directors, solicitors, surveyors or otherwise.
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(viii) Both the first and second issues of redeemable preference shares were made to the Equity and Law Life Assurance Society (hereinafter called "the Society"), and the said provisions as regards the redemption of the preference shares were imposed by the Society as a condition precedent to subscribing for the shares in cash.
(i) Mr. F.B. Winham was never a director of Wigram but was at all material times its (unpaid) general manager. He also controlled Wigram during the material period by virtue of holding 1000 out of 1500 ordinary shares in the Company. Mr. Winham was the sole proprietor of the firm of Messrs. Royds & Co., estate managers, and the management of Wigram and, as they came into existence, of the subsidiary companies within the group was centred in his firm in conjunction with Wigram's solicitors, Messrs. Wigram & Co., in which firm the late Mr. Wigram was a partner. Properties acquired by Wigram in the course of its business were bought and sold by Messrs. Royds & Co. as Wigram's agents and that firm decided what to buy and what to sell. Accounts of Wigram and its subsidiaries were kept by the accounts department of Messrs. Royds & Co., who also undertook all architectural work and collected rents on behalf of Wigram and its group. Mr. Denton, one of the two directors of Wigram during the material period, was also a partner in Messrs. Wigram & Co., solicitors. The auditors...
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