Revenue Commissioners v Associated Properties Ltd

• Jurisdiction: Ireland
• Judgment Date: 01 January 1952
• Date: 01 January 1952
• Court: Supreme Court

Supreme Court.

Revenue Commissioners v. Associated Properties, Ltd.

THE REVENUE COMMISSIONERS

Appellants

and

ASSOCIATED PROPERTIES, LIMITED

Respondents.

Revenue - Corporation profits tax - Subsidiary company - Whether shares of post-appointed day company held by "the shareholders" of pre-appointed day company - Deductions in respect of directors' remuneration - Directors having "controlling interest" - Whether director beneficial owner of or able to control more than 5 per cent. of company's ordinary shares - Finance Act, 1944 (No. 18 of 1944), s. 14 - Finance Act, 1941 (No. 14 of 1941),s. 36, sub-s. 4.

Case Stated by a Commissioner for the special purposes of the Income Tax Acts, pursuant to s. 149 of the Income Tax Act, 1918, and s. 56, sub-s. 6, of the Finance Act, 1920, on the hearing of an appeal by Associated Properties, Ltd., against assessment for corporation profits tax. The facts are fully set out in the Case Stated which was as follows:—

"1. At a sitting by a Commissioner for the Special Purposes of the Income Tax Acts held on the 9th day of January, 1948, at Dublin Castle, for the purpose of hearing appeals, Associated Properties, Ltd., appealed against the undermentioned assessments to corporation profits tax made by the Revenue Commissioners upon that Company under the provision of Part V of the Finance Act, 1920, as extended by the Finance Act, 1941, s. 46; Finance Act, 1942, s. 20; Finance Act, 1943, s. 13, sub-s. 4; and Finance Act, 1944, s. 18, in respect of profits which arose in the accounting periods, thus:—

Accounting Period	Duty
1st January, 1941, to 31st December, 1941	£137 10 0
1st January, 1942, to 31st December, 1942	£230 0 0
1st January, 1943, to 31st December, 1943	£245 0 0
1st January, 1944, to 31st December, 1944	£468 18 0
1st January, 1945, to 31st December, 1945	£570 12 0

2. The figures are not disputed. The three issues arising for decision in this case are:—

• (a) whether a company known as Orwell, Ltd., is a subsidiary of Associated Properties, Ltd., by virtue of sub-s. 9, (b) (i) of s. 14 of the Finance Act, 1944, and if so, must its profits be included as profits of Associated Properties, Ltd., in the latter Company's corporation profits tax assessments for the two accounting periods ended 31st December, 1944, and 31st December, 1945;

• (b) whether Associated Properties, Ltd., is a company the directors of which have a controlling interest therein within the meaning of s. 36, sub-s. 4, of the Finance Act, 1941, and, if so,

• (c) whether Mr. W. J. Byrne, the managing director and secretary of Associated Properties, Ltd., is a director who is the beneficial owner of or able (directly or through the medium of other companies or by any other indirect means) to control more than 5 per cent. of the ordinary stock or shares of that company within the meaning of sub-s. 4 of s. 36 of the Finance Act, 1941. The answer to this question will decide whether or not the remuneration as charged in the accounts of the Company (including Orwell, Ltd., for the two years ended 31st December, 1945) is to be allowed in full or restricted to £1,000 for each year in computing the profits for assessment.

The following facts, set out in pars. 3 to 15, inclusive, of this Case were proved or admitted:—

3. Associated Properties, Ltd., was formerly a society registered under the Industrial and Provident Societies Acts, 1893 to 1936, and was converted into a Company by virtue of s. 54, sub-s. 1, of the 1893 Act. It is a public Company and was incorporated under the Companies Acts, 1908 to 1924, on the 10th day of August, 1937.

[A copy of the Company's Memorandum and Articles of Association was attached to, and formed part of, the Case Stated.]

4. The nominal capital of Associated Properties, Ltd., is £350,000, comprising 175,000 6 per cent. cumulative preference shares of £1 each and 175,000 ordinary shares of £1 each of which 60,340 6 per cent. cumulative preference shares of £1 each and 142,886 ordinary shares were issued at 31st December, 1941. The ordinary issued share capital remained at the same figure up to 31st December, 1945.

5. The ordinary shares of Associated Properties, Ltd., are held as follows:—

	14/2/41	13/2/42	12/2/43	14/2/44	14/2/45
P. A. Mungovan, Director	806	806	816	816	816
P. Morgan ,,	805	805	815	815	815
J. S. O'Connor ,,	805	805	815	815	815
A. E. Smith ,,	805	805	815	815	815
W. A. Dixon ,,	805	805	815	815	815
W. J. Byrne ,,	815	855	825	825	865
(holds approx. 0.6 per cent.) Managing Director and Secretary
	4,841	4,881	4,901	4,901	4,941
Estates Development, Ltd. (holds 96 per cent.)	137,200	137,200	137,200	137,200	137,200
	142,041	142,081	142,101	142,101	142,141
84 to 94 Sundry Shareholders	845	805	785	785	745
	142,886	142,886	142,886	142,886	142,886

6. Each ordinary share shall have one vote (the preference shares may vote in certain circumstances but they are not material to this case) (Article 75).

7. Mr. W. J. Byrne is a director who is required to devote substantially the whole of his time to the service of the company in a managerial or technical capacity (Finance Act, 1941, s. 36, sub-s. 4.)

8. The business of Associated Properties, Ltd., consists of the acquisition and development of estates, issuing loans on mortgage and the renting of houses and shops and as estate agents.

The objects as stated in its Memorandum of Association include to carry on the industries, trades and business of builders and to buy, sell, hire, let and develop lands.

9. Estates Development, Ltd., which, as will be seen from para. 5, holds 137,200 ordinary shares in Associated Properties, Ltd., is a holding company and was formerly a society registered under the Industrial and Provident Societies Acts, 1893 to 1936, and was converted into a Company by virtue of s. 54, sub-s. 1, of the Act of 1893. It is a public Company and was incorporated under the Companies Acts, 1908 to 1924, on the 26th October, 1937. [A copy of its Memorandum and Articles of Association was attached to and formed part of the Case Stated.]

10. The nominal capital of Estates Development, Ltd., is £125,000 comprising 50,000 preference shares of £1 each and 75,000 ordinary shares of £1 each.

11. The issued share capital of Estates Development, Ltd., is 61,730 ordinary shares of £1 each during the period of the assessments. These shares are held thus:—

P. A. Mungovan, Director	4,165
P. Morgan ,,	5,005
J. S. O'Connor ,,	12,840
A. E. Smith ,,	11,740
W. A. Dixon ,,	14,840
W. J. Byrne ,,	13,139
Mrs. Julia M. Byrne (wife of W. J. Byrne)	1
	______
	61,730

Estates Development, Ltd., is a director-controlled Company and 21.28 per cent. of the issued shares are held by Mr. W. J. Byrne.

12. The voting rights of Estates Development, Ltd., in Associated Properties, Ltd., were never in fact exercised (Articles 78 and 79) by, or delegated to, anyone (Articles 105 and 114).

13. Orwell, Ltd., a private Company, was incorporated on the 18th June, 1943, with a nominal capital of £10,000 in ordinary shares of £1 each of which 120 had been issued and were held on the 17th December, 1945, as follows:—

P. A. Mungovan, Director	20
P. Morgan ,,	20
J. S. O'Connor ,,	20
A. E. Smith ,,	20
W. A. Dixon ,,	20
W. J. Byrne ,,	20

[A copy of the Memorandum and Articles of Association was attached to and formed part of the Case Stated.]

14. Orwell, Ltd., is engaged in building construction and the turnover of its business from the 18th June, 1944, to 31st July, 1945, was £43,029.

15. Orwell, Ltd., was incorporated after Associated Properties, Ltd. (Finance Act, 1944, s. 14, sub-s. 9 (a) (i)). Orwell, Ltd., was separately assessed to excess corporation profits tax for the year ended 17th June, 1944, and this assessment was discharged by the Circuit Court Judge on grounds entirely unconnected with s. 14, Finance Act, 1944. The assessment on Associated Properties, Ltd., for the year ended 31st December, 1944, includes the profits of Orwell, Ltd., for the year ended 31st December, 1944.

16. A certified copy of the order made by the Revenue Commissioners in virtue of the provisions of sub-ss. 4 and 5 of s. 14 of the Finance Act, 1944, is attached hereto . . . . and forms part of this Case. The order directs that Orwell, Ltd., shall be treated for the purpose of corporation profits tax as being a subsidiary of Associated Properties, Ltd., only.

17. As regards the first issue in this case it was contended on behalf of Associated Properties, Ltd.:—

• (a) that the profits of Orwell, Ltd., should not be included with its profits for corporation profits tax, and that Orwell, Ltd., was an independent Company and although a post-appointed day company (incorporated after the 7th day of May, 1941) it was not subsidiary or auxiliary to Associated Properties, Ltd. (a pre-appointed day Company) within the meaning of s. 14 of the Finance Act, 1944.

• (b) Associated Properties, Ltd., holds no shares as a company in Orwell, Ltd. The directors of Associated Properties, Ltd., are also directors of Orwell, Ltd. The shareholders in Associated Properties, Ltd., varied in number, during the assessment years the subject of the appeal, between 91 and 101. The mere fact that certain individual shareholders (the directors) in Associated Properties, Ltd., held all the shares in Orwell, Ltd., does not mean that the latter Company is to be deemed an auxiliary of Associated Properties, Ltd. The construction of s. 14, sub-s. 9 (b) (i) of the Finance Act, 1944, contended for on behalf of the Revenue involved the substitution of the words, "a shareholder or any shareholder," for the words, "the shareholders," which are the words in the section.

18. As regards the second issue in this Case, it was contended on behalf...