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Corporation of Foreign Bondholders Vs. Inland Revenue Commissioners. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata
Decided On
Reported in[1945]13ITR11(Cal)
AppellantCorporation of Foreign Bondholders
Respondentinland Revenue Commissioners.
Cases ReferredInland Revenue Commissioners v. Yorkshire Agricultural Society. In
Excerpt:
- macnaghten, j. - in this case the corporation of foreign bondholders, which was constituted in 1898 by a private act of parliament (61 & 62 vict. c. 49), appeals from a decision of the special commissioners rejecting its claim for exemption from income tax under the provisions of section 37 (1) (b) of the income tax act, 1918, which provides that exemption shall be granted from tax' in respect of any yearly interest or other annual payment forming part of the income of any body of persons, established for charitable purposes only, and so far as the same are applied to charitable purposes only.'in 1868 a number of gentlemen in the city of london formed a voluntary association to protect the rights of foreign bondholders, and in 1873 this association was converted into a company limited by.....
Judgment:
MACNAGHTEN, J. - In this case the Corporation of Foreign Bondholders, which was constituted in 1898 by a private Act of Parliament (61 & 62 Vict. c. 49), appeals from a decision of the Special Commissioners rejecting its claim for exemption from income tax under the provisions of Section 37 (1) (b) of the Income Tax Act, 1918, which provides that exemption shall be granted from tax' in respect of any yearly interest or other annual payment forming part of the income of any body of persons, established for charitable purposes only, and so far as the same are applied to charitable purposes only.'

In 1868 a number of gentlemen in the City of London formed a voluntary association to protect the rights of foreign bondholders, and in 1873 this association was converted into a company limited by guarantee with the name of the Corporation of Foreign Bondholders. The private Act which constituted the appellant, dissolved that company and transferred its assets, which were considerable, to the appellant. The question at issue on this appeal is whether the appellant is 'a body of persons established for charitable purposes only.' It is necessary, therefore, to see what are the purposes for which the appellant was constituted. There are set out in Section 4 of the private Act. The first object is 'to watch over and protect the rights and interests of holders of public securities wherever issued, but especially of foreign and colonial securities issued in the United Kingdom.' There follows a number of other objects, but these are all incidental and subsidiary to that primary object.

The control of the business and the operations of the corporation are vested in a council consisting of twenty-one members, with power to increase their number of thirty. Seven of the members of the council retire annually, and of the seven members to be appointed in their place two are appointed by the Central Association of the Bankers of London, two are appointed by the London Chamber of Commerce, and the remaining three are appointed by the council, but of those three members two at least must be bona fide holders of foreign bonds to a nominal amount of Pounds 5,000.

Counsel for the appellant submitted that the protection of the interests of persons who hold foreign bonds is a charitable purpose; that is comes within the class of charities which, without being for the relief of the poor, or the advancement of religion or education, are beneficial to the community. He conceded, of course, that the mere fact that the object of a society is beneficial to the community does not necessarily make it a charity, since the case of Income-tax Special Purposes Commissioners v. Pemsel established once and for all that the words 'charitable purposes' in the Income-tax Acts are not used in a popular sense, or in any other sense that that attributed to them by the Court of Chancery. Counsel argued that the purpose for which the appellant was constituted was beneficial to the community, because it deals mainly with foreign debtors who have defaulted, or are likely to default upon their obligations, and for economic and political reasons it is to the interest not only of the bondholders, but also of the whole community, that such obligations should be observed. This case was, he said, analogous to the case of Inland Revenue Commissioners v. Yorkshire Agricultural Society. In that case it was held that although the members of the society did get personal benefits from the operations of the society, that was a purpose subsidiary to its main purpose, which was the advancement of the science of agriculture and the improvement of agriculture throughout the country. It seems to me that this present case cannot be analogous to the case of Inland Revenue Commissioners v. Yorkshire Agricultural Society. In that case the primary object was the advancement of agriculture. In this case the primary object is that creditors in this country may get payment of their debts.

The Special Commissioners held that the protection of the interests of foreign bondholders is not a charitable purpose within the scope of the preamble of the statute of Elizabeth or within any of the decided cases. I agree with that the decision, and the appeal must be dismissed with costs.'

Tucker, K. C., and Scrimgeour, for the appellants.

The Solicitor General (Sir David Maxwell Fyfe, K. C.), J. H. Stamp and Reginald P. Hills, for the respondents.

LORD GREENE, M. R. - The appellants are a corporation founded under the Corporation of Foreign Bondholders Act, 1898, by virtue of which they succeeded an earlier body incorporated as a company limited by guarantee under the Companies Act. They had accumulated a fund of Pounds 100,000 and Parliament thought it right that the affairs and activities of the earlier corporation should be set upon a more satisfactory basis and accordingly the appellants were incorporated.

It has been the practice of investors in this country to invest money in the bonds and corporations of foreign States. Their experiences in so doing have often been unfortunate, and the original corporation was formed and its subscriptions obtained to protect the interests of investors of that class. The present corporation has similar objects. In addition to protecting, watching over and generally doing its best to further the interests of such bondholders (a comprehensive phrase which I use for brevity) it places its information and statistics and all the other matter collected at the service of any member of the public who is interested in such matters. The object of the corporation may summarily be stated in this way. It exists to enable a certain limited class of investor to protect, as far as possible, his investment, and to get his money back, or as much of it as may be extracted, from a reluctant foreign government. That is the object of the corporation. Nobody can suggest that the investors themselves are to be regarded in any sense as doing anything more than looking after their private interests. Yet, it is said that this corporation, whose object is to assist them in so doing, is established for charitable purposes.

Counsel for the appellants, in an engaging argument adorned with excursions into elementary economics, has endeavoured to put this body before us as one which exists for the public purpose of protecting the foreign investments of this country and thereby doing a public good. It cannot, I think, be disputed that in the matter of helping the investor in foreign bonds and applying whatever persuasion can be brought to bear upon defaulting foreign Governments, the country is benefited by the operations conducted by this corporation; but it is quite untrue to say that a body which is established for the purpose of protecting private investors becomes a charity because one of the results of its operations is to do something which is beneficial to the State. In my opinion the fact have only to be understood for the question raised by the appeal to be answered.

It must be dismissed with costs.

MACKINNON, L. J. - I agree.

LUXMOORE, L. J. - I also agree.

Appeal dismissed.


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