O’Dwyer (Inspector of Taxes) and the Revenue Commissioners v Irish Exporters and Importers Ltd (In Liquidation)
| Judge | Maguire P,Hanna J and Maguire J. |
| Judgment Date | 13 November 1942 |
| Court | High Court |
Income tax and corporation profits tax - whether or not a sum of money payable and paid to a limited liability company under a prior agreement by the Minister for Agriculture in the event of his having terminated, within a prescribed period, a supply of the raw material of the trade of another company, (promoted by the first company at the request of said Minister), is or is not a receipt of the first company’s trade - ITA 1918 Sch D, Case 1, FA 1920 s 53.
The respondent company was incorporated early in the year 1934. The following objects were included in its Memorandum of Association (inter alia):
- (i) to carry on the business of exporters and importers of cattle and other live stock,
- (ii) to buy and sell in Saorstát Éireann, by wholesale or retail, all kings of meat and bacon etc, and to carry on the business of meat and food contractors, and
- (ii) to carry on the business of importers, exporters, and manufacturers of motor cars and parts, etc.
It was also empowered by its Memorandum:
- (a) to take shares in other companies having similar objects
- (b) to enter into, with any governments or authorities, arrangements conducive to its objects and
- (c) to promote any company or companies for (inter alia) any purpose calculated to benefit itself.
On 18 October 1934, the respondents entered into an agreement (hereinafter called the “preliminary agreement”) with the Minister for Agriculture whereby the respondent company undertook at the said Minister’s request to promote a company (hereinafter called “the Roscrea Co”) with certain objects including, inter alia, (a) the erection and operation of an abattoir for the slaughter of cows, and a meat products factory, at Roscrea, Co Tipperary, and (b) the exportation and dealing in cattle under licence of the said Minister. By this agreement the respondents covenanted to take up and pay for in cash sufficient shares in the Roscrea Co so as to provide specified sums towards the erection of the requisite factory and other buildings at Roscrea and to provide sufficient working capital for the Roscrea Co. The Roscrea Co was duly incorporated and 9/10ths of its share capital was taken up for cash by the respondent company. The remaining 1/10th of the Roscrea Co’s share capital was taken up by the individuals who were the owners of the entire share capital of the respondent company but in different proportions. On the same date, ie, 18 October 1934, the Minister for Agriculture entered into an agreement with the Roscrea Co which is hereinafter referred to as the “operation agreement”. Under the operation agreement the Minister undertook to supply a specified number of cows, free on rail, to the Roscrea Co weekly during a period of four years but reserved the right to terminate this arrangement upon the giving by him of a specified notice. On a said date of further agreement (hereinafter referred to as the “option agreement”) was entered into between the Minister and the respondent company. Under this agreement it was provided that if the Minister should avail himself of the power (reserved to him by the operation agreement) of determining his obligation to supply cattle to the Roscrea Co, he would pay to the respondent company “by way of liquidated damages and not as a penalty” a sum to be determined in the manner set forth in the agreement. On 11 March 1935, the respondent company executed a Declaration of Trust (expressed to be supplemental to the option agreement) whereby it declared it would hold any moneys it might thereafter receive as compensation under the option agreement, as trustee for and on behalf of the ordinary shareholders for the time being of the Roscrea Co.
By a further agreement dated 8 September 1938, and made between the respondent company, the liquidator of the Roscrea Co, and the Minister for Agriculture, after reciting therein that the respondent company, by reason of the fact that the Minister had terminated the supply of cows, had become entitled to compensation under the provisions of the option agreement, it was agreed that the Minister should pay, and that the respondent company would accept, a sum of £16,888 in satisfaction of all claims to compensation under the said option agreement.
The respondent company had ceased to trade directly in cattle from the date of the formation of the Roscrea Co but continued to trade in motor cars. It also performed services for the Roscrea Co, the charges for which were referred to in the respondent company’s accounts as “handling charges”. Assessments to income tax for the years 1937/39 and 1938/39, and to corporation profits tax, were made upon respondents on the basis that the said sum of £16,888 was a trading receipt. The respondent company appealed, and the Special Commissioners discharged the assessments, holding that the respondent company “was not carrying on the trade of a company promoter” and “that the sum of £16,888 was not a trading receipt “ of the company either for income tax or corporation profits tax purposes.
Held, in the High Court: (a) that, although one of the commissioners who had heard and determined the appeal had retired from the public service before the case stated was ready for signature, he was still competent to sign same since doing so involved a purely ministerial and not a judicial act, and that such signature, as well as that of the continuing Special Commissioner, was essential before the Court would consider the case stated, and (this having been done), (b) that the findings of the Special Commissioners were findings of fact supported by evidence and could not be disturbed.
ITA 1918 Sch D Case 1, FA 1920 s 53, ITA 1967 ss 53, 416, 428.
Agricultural Credit Corporation v Vale 2 ITC 46, [1935] IR 681.
Alliance and Dublin Consumer’s Gas Company v R G Davis 1 ITC 114, [1926] IR 372.
Californian Copper Syndicate v Harris 5 TC 159, 6F 894.
Commissioners of Inland Revenue v The Budderpore Oil Company Ltd 12 TC 467.
Commissioners of Inland Revenue v The Scottish Automobile and General Insurance Company Ltd [1932] SC 87, [1932] SLT 7, 16 TC 381.
Cooper v Stubbs 10 TC 29, 2 KB 753.
Duke of Westminster v The Commissioner of Inland Revenue 19 TC 490, [1936] AC 1.
Grocock v Grocock [1920] 1 KB 1.
Rees Roturbo Development Syndicate Ltd v Ducker 13 TC 366, [1928] AC 132.
Rees Roturbo Development Syndicate Ltd v CIR 13 TC 366.
T Benyon and Co Ltd v Ogg 7 TC 125.
Martin v Lowry [1926] 1 KB 550, [1927] AC 312, 41 TLR 574, 11 TC 297.
Case stated under the ITA 1918 s 149, by a Commissioner for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice
1. At meetings of the Commissioners for the Special Purposes of the Income Tax Acts held on 28 June 1940, and 18 June 1941, at Dublin Castle, for the purpose of hearing appeals, the Irish Exporters and Importers Ltd (in liquidation) (hereinafter referred to as “the respondent company”) appealed against additional assessments to income tax under ITA 1918 Sch D Case 1, made upon the respondent company for the years of assessment 1937/38 and 1938/39 in respect of the profits of its trade and also against assessments to corporation profits tax for the accounting period ending 24 June 1938.
2. The sole question in dispute is whether in computing for assessment to income tax and corporation profits tax the profits of the trade carried on by the respondent company a sum of £16,888 paid by the Minister for Agriculture to the respondent company under the terms of an agreement dated 18 October 1934, should or should not be brought into account as a trading receipt of the respondent company.
3. The following facts were admitted or proved:
The respondent company was incorporated on 24 February 1934. Clause 3 of its Memorandum of Association sets out the objects for which it was established. These objects include:
- (1) To carry on the business of exporters and importers of cattle, sheep and other livestock, and of meat, bacon, and other foodstuffs generally and all branches of such respective trades or businesses.
- (2) To buy and sell, by wholesale or retail, in Saorstát Éireann or elsewhere all kinds of meat, pork, bacon, and other foodstuffs, and generally to carry on the trades of meat and food contractors, merchants and salesmen in all their branches.
- (3) To carry on the business of importers, exporters, manufacturers of, and dealers in Motor cars, etc.
- (9) To take or otherwise acquire and hold shares etc, in any other company having objects altogether or in part similar to those of the respondent company, or carrying on any business capable of being conducted so as directly or indirectly to benefit the respondent company.
- (10) To enter into arrangements with any governments or authorities that may seem conductive to the respondent company’s objects, or any of them.
- (21) To promote any company or companies for the purpose of acquiring all or any of the property, rights and liabilities of the respondent company, or for any other purpose which may seem directly or indirectly calculated to benefit the respondent company.
Under clause 5 of the Memorandum of Association the share capital of the respondent company is £10,000 divided into...
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