Kellystown Company v Hogan

• Jurisdiction: Ireland
• Judge: GRIFFIN J.,Henchy J.
• Judgment Date: 01 January 1985
• Neutral Citation: 1984 WJSC-SC 2353
• Court: Supreme Court
• Docket Number: No. 159/1983
• Date: 01 January 1985

KELLYSTOWN COMPANY v INSPECTOR OF TAXES

KELLYSTOWN COMPANY

v.

H. HOGAN INSPECTOR OF TAXES

1984 WJSC-SC 2353

Henchy J.

Griffin J.

Hederman J.

No. 159/1983

59-1983

THE SUPREME COURT

Subject Headings:

STATUTORY INTERPRETATION: ordinary meaning

REVENUE: corporation profits tax

1 Judgment of Henchy J.delivered the 13th July 1984

2 This case raises a question of statutory interpretation in relation to the incidence of corporation profits tax.

3 The Corporation in question is Kellystown Company ("Kellystown"), which was incorporated in 1929 as a company without limited liability. Its activity has always consisted of the holding of investments. It has never carried on trade. In the accounting period ending on the 31 March 1974 it received two dividends. One was for £108,800, paid by a company called Hardwicke Limited ("Hardwicke"), in which Kellystown was a shareholder. The other was for a sum £124,959, paid by a company called Judd Brothers Limited ("Judd"), in which Kellystown was a shareholder. In each case the amount of the dividend derived from a sale of capital assets and in neithercase were the proceeds of the sale assessed to corporation profits tax in the hands of either Hardwicke or Judd.

4 When it was sought to assess Kellystown to corporation profits tax on£233,759 (being the aggregate of those two dividends) Kellystown took an appeal to the Circuit Court. That appeal was heard by the President of the Circuit Court. He held that Kellystown had been properly assessed, but at the request of Kellystown he stated a case for the opinion of the High Court as to whether he was correct in so deciding. In the High Court McWilliam J. held that he was correct. Kellystown now takes a further appeal to this Court.

5 The incidence of corporation profits tax derives primarily from s. 52 of the Finance Act, 1920 (as amended and adapted). That section provides that the profits to which the tax is to apply shall include the profits of an Irish company carrying on any trade or business, or any undertaking of a similar character, including the holding ofinvestments.

6 S. 53(2) of the Finance Act, 1920 contains the following proviso:

"Provided that, for the purposes of this Part of this Act -"

(a) profits shall include all profits andgains arising from investments or any other source and received in the accounting period, not being interest, dividends, or income received directly or indirectly from a company liable to be assessed to corporation profits tax in respect thereof, and no deduction shall be allowed on account of the annual value of any premises used for the purposes of the company".

7 The words "in respect thereof" in that proviso are relied on by counsel for Kellystown as providing an exemption from the liability to corporation profits tax claimed by the Inspector. His submission may be summarised as follows. The proviso exempts from corporation profits tax profits and gains not being interest, dividends or income received directly or indirectly from a company liable to be assessed to corporation profits tax in respect thereof. The words "in respect thereof" refer back to interest, dividends or income. In the context of the present case they must refer to dividends. While Hardwicke and Judd as Irish companies were liable to be assessed to corporation profits tax on their profits, they were not liable to that tax in respect of dividends received by them. Therefore, the moneys in question here being dividends, and Hardwicke and Judd not being liable to be assessed to corporationprofits tax in respect of dividends, Kellystown is entitled to the exemption given by the proviso.

8 I accept that if the proviso is read literally in the way suggested it could lead to the result contended for by Kellystown. But I consider that such a reading would be contrary to the true legislative intent. I have no doubt that the object aimed at by the proviso was to ensure that profits received by Company A from Company B in the form of interest, dividends or income would not be liable to be assessed to corporation profits tax if they were already liable to such assessment in the hands of Company B. In other words, the exemption in the proviso is to apply if the same money would be subject to double taxation, first in the hands of Company B and then in the hands of Company A.

9 The interpretation contended for by Kellystown, while it may have the merit of literalness, is at variance with the purposive essence of the proviso. Furthermore, it would lead to an absurd result, for moneys which are clearly corporation profits would escape the tax and, indeed, the tax would never be payable on dividends on shares in any Irish company. I consider the law to be that, where a literal reading gives a result which is plainlyContrary to the legislative intent, and an alternative reading consonant with the legislative intent is reasonably open, it is the latter reading that should prevail.

10 If the words "in respect thereof" are read as referring to the moneys represented by the interest, dividends, or income referred to earlier in the sentence, the resulting meaning will accord with commonsense and with the legislative intent. I have no doubt that that is what the draftsman intended. While it is not the function of the courts to extend artificially the ambiguous words of a statutory provision so as to produce a liability to taxation, where the words used are reasonably capable of a meaning which is in accord with the essence of the provision, it is that interpretation that should prevail.

11 I would uphold the liability of Kellystown found in the Circuit Court and the High Court and dismiss this appeal.

12 JUDGMENT delivered on the 13th July 1984by GRIFFIN J..

13 I agree with the judgment delivered by Mr. Justice Henchy, and I would like to add only a few remarks.

14 By s. 52 of the Finance Act, 1920, corporation profits tax is expressed to be a charge on all profits to which Part V of the Act applies. In the proviso to s. 53(2) (a) "profits" is defined as including "all interest, dividends and other income arising from investments" with an exclusion in respect of "interest, dividends, or income received directly or indirectly from a company liable to be assessed to corporation profits tax in respect thereof". The clear purpose of the proviso is, in my view, to ensure, in ease of the company receiving a dividend, that that company will not be chargeable to this tax if the paying company has already paid or is liable to be assessed to corporation profits tax in respectofthe profits out of which the dividend is paid. In other words, as Counsel for the Inspector submitted, and as Mr. Justice Henchy has said in his judgment, to ensure that the same money would not be subject to double taxation in the hands of the paying company and again in the hands of the receiving company. The words "in respect thereof" can in the proviso only refer to the particular dividend received by the receiving company, and it is necessary to look to the source of that...