Smyth v Revenue Commissioners

• Jurisdiction: Ireland
• Judgment Date: 23 March 1931
• Date: 23 March 1931
• Court: High Court (Irish Free State)

Smyth v. Revenue Commrs.

In the MATTER of the FINANCE ACT, 1894, and EDWARD WEBER SMYTH, Deceased; E. A. SMYTH and WEBER SMYTH

Petitioners

and

THE REVENUE COMMISSIONERS

Respondents.

Revenue - Estate duty - Valuation of shares - Private company - Restriction on transfer of shares - Principle of valuation - Sale in open market - Excess of assets over liabilities - Profit earning capacity of shares - Value on basis of a voluntary winding-up - Finance Act, 1894 (57 & 58Vict. c. 30), sect. 7, sub-sect. 5.

Petition.

The petition was brought by Elizabeth Anna Smyth and Weber Smyth, the executors of Edward Weber Smyth, deceased. The petition having stated that the petitioners were the widow and son of the said Edward Weber Smyth, late of 6 & 7 St. Stephen's Green, in the City of Dublin, and Cuil-Min, Sydney Avenue, Blackrock, in the County of Dublin, merchant (hereinafter called "the testator), who died on the 23rd day of May, 1928, set out the facts as follows:—

"2. The testator was at the dates of his will and death the chairman and managing director of the limited company known as Robert Smyth & Sons, Limited, Tea and Wine Merchants, carrying on business at 6 & 7 St. Stephen's Green aforesaid (hereinafter referred to as 'the company'), and was possessed of 18,501 shares in the company.

3. The testator made his will, dated the 17th day of February, 1927, and thereby, after reciting that he was possessed of the houses and premises Numbers 6 & 7 St. Stephen's Green and premises in Anne's Lane, and of certain shares in the company, with other property, appointed your petitioners executors of his said will, and bequeathed his said shares as follows, that is to say, to your petitioner, Elizabeth Anna Smyth, 3,210 shares; to each of his sons, Temple Smyth and Randal Smyth, 1,910 shares; to your petitioner, Weber Smyth, 7,461 shares; to his son, Godfrey Smyth, 2,351 shares; and to his son, Reginald Osborne Smyth, 1,661 shares.

4. The testator further by his said will bequeathed to your petitioner, Weber Smyth, his houses and premises, Numbers 6 & 7 St. Stephen's Green and Anne's Lane (hereinafter referred to as 'the Stephen's Green premises'), and directed that so long as any of his children, other than your petitioner, Weber Smyth, or their descendants, or your petitioner, Elizabeth Anna Smyth, should be entitled in the aggregate at least to one-fourth of the shares in the company, the annual rent to be paid by the company to your petitioner, Weber Smyth, while carrying on business on the St. Stephen's Green premises, should be £200, and directed that the company should not be disturbed as tenants; and after sundry other bequests he left the residue of his property to your petitioner, Elizabeth Anna Smyth, and his said five sons in equal shares.

5. Probate of the said will was granted to your petitioners on the 1st day of August, 1928, forth of the Principal Probate Registry of the High Court of Justice, Saorstát Éireann éireann.

6. The company was incorporated under the Company's Acts, 1862-1898, as a company limited by shares with a share capital of £30,000, divided into 30,000 shares of one pound each, of which 23,007, and no more, had been issued prior to the death of the testator. Your petitioner, Weber Smyth, was, as stated in the said will, the registered owner of 4,251 shares, which were his own property.

7. The company was established in the year 1898 for the purpose of acquiring by purchase as a going concern the business of tea and wine merchants carried on by the testator under the style of Robert Smyth & Sons on the Stephen's Green premises. The said business was originally founded by Robert Smyth, grandfather of the testator, in the year 1807, and has been ever since 1839 carried on upon the Stephen's Green premises, and there has been virtually no change in the character of the business since it was established.

8. Shares in the company are transferable, subject to the right of the directors to refuse to register any transfer of shares upon which the company has a lien, or a transfer to a transferee of whom the directors do not approve. Every member of the company is entitled to one vote for every share held by such member, and the holder of at least one-fifth part of the capital represented at any general meeting of the company may demand a poll.

9. The number of directors is fixed by the articles of association at not less than three or more than five, and a director to qualify must hold in his own right shares of the company of the nominal value of £200. The directors are empowered from time to time to appoint any other persons to be directors provided that the maximum number be not exceeded.

10. If the company should be wound up the assets of the company, after discharging all liabilities and providing for preference shareholders (if any), are divisible among the holders of the ordinary shares, and the liquidators may, with the sanction of an extraordinary resolution, divide any part of the assets in kind among the contributories.

11. The company is a solvent company. Its accounts are made up to the 30th day of September in each year, and the last balance sheet for the year ending the 30th day of September, 1928, shows surplus of assets over liabilities of £36,399 8s. 1d., reducible by the profits from the date of death (23rd May, 1928) to the said 30th September, 1928, £919 8s. 6d., leaving the surplus at the date of death £35,479 19s. 7d. The shares are all held by the testator's wife, children, and relatives, and are not dealt in on any Stock Exchange, and have no market quotation.

12. The principal asset of the company consists of the stock in trade, valued in the last balance sheet at £23,329 10s. 2d., but which if realised on a break-up sale or winding-up would not, your petitioners are advised, produce more than £15,553.

13. Your petitioners, when making their return for the purpose of estate duty, valued the testator's said shares at 15s. each, their estimate of value being based on the average dividend for the preceding period of six years and the market price of similar shares of other trading companies dealt in on the Dublin Stock Exchange, a valuation which they subsequently offered to increase to 17s. 6d., rut the Revenue Commissioners (hereinafter called 'the Commissioners') declined to accept either of these values, and have assessed the shares at 22s. 6d. each, on the basis that the testator, as holder of the majority of the shares in the company, and having the preponderating voting power, was in a position to wind up the company voluntarily, and that the shares should, therefore, be valued on the basis of the excess of assets over liabilities in a winding-up, an excess which the, Commissioners estimate at £25,882 17s. 6d., but which your petitioners are advised would not at most exceed £22,500, and which would be reduced if the allowance for bad debts is insufficient.

14. Your petitioners charge that, taking the basis adopted by the Commissioners as correct, the estimate of the Commissioners is excessive, and is based on the assumption that the purchaser or purchasers of the shares would have the control of the company, enabling him or them to wind up the same voluntarily.

15. Your petitioners further submit that the basis of valuation adopted by the Commissioners does not comply with the provisions of sect. 7, sub-sect. 5, of the Finance Act, 1894, which provides that for the purposes of assessment of estate duty the principal value of any property shall be estimated to be the price which such property would fetch if sold in the open market at the time of the death of the deceased. The average profits available for dividends for the six years ending the 30th September, 1927, amounted to £1,225, or 5.3 per cent. on the issued capital of £23,007, a rate of dividend which, far from justifying a market price of 17s. 6d., or even 15s., for the shares, would entitle a holder to look for a price of 10s. or 12s. 6d. at most, having regard to the market value of shares of other trading concerns substantially similar in character, several instances of which have been supplied by your petitioners to the Commissioners.

16. Your petitioners have paid to the Commissioners, without prejudice to this appeal, the sum of £2,390 5s.

Your petitioners, therefore, humbly pray as follows:—

1. For a declaration that the decision of the Commissioners that the shares in the company...