John Hood & Company, Ltd, v Magee

• Jurisdiction: Ireland
• Judgment Date: 19 June 1917
• Date: 19 June 1917
• Court: King's Bench Division (Ireland)

John Hood & Company, Ltd.,

and

Magee (1).

K. B. Div.

CASES

DETERMINED BY

THE KING'S BENCH DIVISION

OF

THE HIGH COURT OF JUSTICE IN IRELAND,

AND ON APPEAL THEREFROM IN

THE COURT OF APPEAL,

AND BY

THE COURT FOR CROWN CASES RESERVED.

1918.

Revenue — Income Tax — “Person residing in the United Kingdom” — Company registered in Ireland — Managing Director resident in the U. S. A. — Business carried on both in Ireland and abroad — Income Tax Act, 1853 (16 & 17 Vict. c. 34), sect. 2, Schedule D.

A “one-man.” company, whose sole director and manager is ordinarily resident in the United States of America, may be resident in the United Kingdom within sect 2, Schedule D, of the Income Tax Act, 1853 (16 & 17 Vict. c. 34), and liable to pay income-tax upon the whole of its profits wherever earned.

De Beers Consolidated Mines, Ltd., v. Howe, [1906] A. C. 455, distinguished.

Case Stated under 43 & 44 Vict. c. 19, s. 59, by the commissioners for the special purposes of the Income Tax Acts, to whom at a meeting of the commissioners held at Belfast on the 5th of November, 1915, the plaintiffs had appealed against two several assessments made upon them under sect. 2, Schedule D, of the Income Tax Act, 1853 (16 & 17 Vict. c. 34), in respect of the profits of the business carried on by them. The only point raised by the case was whether the plaintiff company was resident in the United Kingdom for the purposes of the Income Tax Acts. The following statement of the facts is taken from the judgment of Gibson J.:—

By agreement, dated 11th December, 1912, John Hood sold to David M'Ilroy, as trustee for the intended company, the business of John Hood at New York and Belfast, as linen merchant and commission agent, for the sum of £28,661 13s. 9d., to be paid by allotment of 1,030 fully paid £10 ordinary shares and £18,361 13s. 9d. cash. From August 31st, 1912, all profits were to be received by the company, who were to be responsible for all losses. All existing employees were to be taken over. The contract was adopted by the company on 9th April, 1913. Both the original and the confirming agreements were executed by

Mr. Hood in Belfast. The company was incorporated on January 10th, 1913, under memorandum and articles mentioned in the agreement of December 11th, 1912. It was also registered in America. The date of this registration is not stated, nor was the constitution of the American company or relevant American law proved. It was assumed at the Bar (doubtless rightly) that the registration was only for the purpose of American law, and that the American company was essentially the Irish company, with identical capacity and powers. The owning company was that registered in Belfast. The memorandum was signed by John Hood, of 104 Franklin Street, New York, linen importer, and David M'lroy, of 14 Linenhall Street, Belfast, linen merchant, who were each taking one share. The objects of the company were of the widest character both as regarded business and locality of operations. The capital was 1,000 preference £10 shares and 2,000 ordinary £10 shares.

Under the articles a general meeting was to be held once a year at any place determined by the directors, and at such meeting two members personally present were to be a quorum. The chairman, if any, of the board was to preside. Every member had one vote for each share, whether preference or ordinary. John Hood was to be the first director. The number of directors was to be fixed at a general meeting, which also had power to elect such directors. The general management of the company was vested in the directors, who might be represented by proxies. They were to meet for the despatch of business at such time and place as they thought fit. A resolution by one director was to be valid. Proper minutes were to be kept. An auditor was to be appointed at each ordinary general meeting. Subject to the rights of preference shareholders, the profits were divisible among the ordinary shareholders in proportion to the amounts paid up. Transfer of shares could be refused by the directors. Under the memorandum and articles, John Hood, while he was director, had exclusive and supreme control. The only ostensible checks would be the general meeting (at which two were to be a quorum), and the auditor—neither check of value. The place of meeting to be appointed by Mr. Hood. The quorum of two, to be personally present, of members living so far apart made Mr. Hood's continuance as sole director with automatic powers safe, and he would appoint the directors. The checks on him were only paper checks. The proceedings of the company after registration were recorded in the official minutes as follows:—By resolution passed by John Hood at Belfast on April 9th, 1913, the date of the statutory meeting, the two signatories to the memorandum (that is John Hood and David M'Ilroy) were allotted one share each; the seal of the company was to be attached to the agreement ratifying the sale; 1,030 shares were allotted as fully paid to John Hood; G. F. Shanks was appointed auditor; banks were named for Belfast and America; cheques on the Irish bank were to be drawn by any one of the directors or by David M'Ilroy, and on the American bank by any director or by such person or persons as John Hood should appoint. Negotiable instruments on behalf of the company might be executed by any director or by David M'Ilroy. In accordance with applications received, allotments of shares were made; preference as follows:—Paul Rudolph, 200; Frederick William Smith, 67; Frederick Hoelscher, 67; James Shaw, 350; George F. Shanks, 37; ordinary as follows:—Frederick William Smith, 33; Frederick Hoelscher, 33; James Shaw, 310; David M'Ilroy, 20—all to be paid by allotment. By resolution passed on 16th April, 1913, also at Belfast, David M'Ilroy was appointed secretary. His salary is nowhere stated, nor is the remuneration of the auditor. By resolution of John Hood, dated 1st May, 1913, at New York, and entered in the company's minute-book, 200 ordinary shares were allotted to Paul Rudolph, certificate to be issued on payment. By like resolution, dated 19th June, 1913, at New York, endorsements on behalf of the company in respect of cheques, &c., with the American bank were authorized to be made by John Hood, David M'Ilroy, and Frederick Hoelscher. David M'Ilroy lived in Ireland, and the authority to endorse American drafts is noticeable. By like resolution, dated 26th July, 1913, at Belfast, special authority as to powers of attorney in respect of Customs requirements was conferred. By like resolution, dated 13th August, 1913, at Belfast, 100 ordinary and 50 preference shares were allotted to Mr. Alfred Dewsbury, to be paid 50s. per share on allotment and the balance on or before 31st December next.

On November 30th, 1913, the date to which the first accounts were made up, there were six preference shareholders holding 771 shares, and seven ordinary shareholders (including John Hood) holding 1,768 shares. They are named in paragraph 9 of the case. Three have the same address, 104 Franklin Street, New York: namely, John Hood; Smith, described as salesman; and Hoelscher, described as clerk; M'Ilroy's address is 14 Linenhall Street, Belfast, and he is described as secretary; James Shaw, with a Belfast address, with the largest holding of both preference and ordinary shares, 350 each, is described as a solicitor's clerk. The third Belfast shareholder was Shanks, described as accountant. The two members outside Ireland and America were Paul Rudolph of Waldorf, Saxony, manufacturer, holding 200 of each class of shares, and Alfred Dewsbury, gentleman, residing in England. If the shareholders were independent and differed from Mr. Hood on the management of the company, they had nominally a majority of votes had they chosen to attend a general meeting—a remote possibility, considering their separate distant residences, their interests, the sufficiency of a quorum of two, and the right of Mr. Hood to appoint the place of meeting.

On the 17th February, 1914, the certified accounts and balance sheet were considered by Mr. Hood at Belfast, dividends recommended on the net profit, £2,291 2s., and a report prepared for the first general meeting. On 20th February, 1914, the certificate of the auditor, Mr. Shanks, was attached to the accounts. It states he has amalgamated the audited and certified New York accounts. These latter are not set out in the case. The account D. states purchases as £47,164 12s. Though the case mentions Scotch business, it was stated by the appellants' counsel that this sum represents Irish buying. The large sum for salaries, £5,455 12s., is not accounted for by showing how much was for Irish employees and how much for others, nor where they were employed, nor is the item for consignment sales explained. The first general meeting was held at Belfast on March 2nd, 1914, when Mr. Hood, Mr. M'Ilroy, and Mr. Shanks were present. The report of Mr. Hood was adopted and dividends declared accordingly. Mr. Hood was re-elected sole director for the ensuing year, and Shanks was elected as auditor. It is strange that Mr. Hood's presence on this occasion, the most important event in the life of the company, is omitted from paragraph 14 of the case, enumerating his visits to Ireland. The only other accounts in the case are as to Belfast sales certified on date 6th November, 1914. At this first meeting, it was ordered that shareholders in New York and Germany were to be paid from the New York house, and those in Belfast and England from the Belfast office on receipt of cash from New York. The second annual general meeting was held on 16th April, 1915, at Belfast, in the presence of Mr. Hood and the other two. All dividends were to be paid direct from New York. Mr. Hood was re-elected sole director as before and Mr. Shanks was elected auditor. New York auditors were also named. The course of business is described in the 14th and following...