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F. S. Securities Ltd. Vs. Inland Revenue Commissioners. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Reported in[1965]58ITR756(Cal)
AppellantF. S. Securities Ltd.
Respondentinland Revenue Commissioners.
Cases ReferredGriffiths v. J. P. Harrison
- sellers l.j. - i have had the advantage of considering the judgment which donovan l.j. has prepared and is about to deliver, in which he has set out the facts and referred to the authorities relied on in the respective arguments. i agree with his judgment and the conclusion that the appeal should be dismissed. i would only add this briefly.f. s. securities ltd., in so far as they trade at all, and it must be accepted that they did, traded in stocks and shares and the three securities in questions which they held were the main part of their stock-in-trade (griffiths v. j. p. harrison (watford) ltd. the company claimed to have made a loss and were regarded by the inland revenue so to have done and were paid over 400,000 pounds as are payment of tax on that basis, but as their trade brought.....
SELLERS L.J. - I have had the advantage of considering the judgment which Donovan L.J. has prepared and is about to deliver, in which he has set out the facts and referred to the authorities relied on in the respective arguments. I agree with his judgment and the conclusion that the appeal should be dismissed. I would only add this briefly.

F. S. Securities Ltd., in so far as they trade at all, and it must be accepted that they did, traded in stocks and shares and the three securities in questions which they held were the main part of their stock-in-trade (Griffiths v. J. P. Harrison (Watford) Ltd. The company claimed to have made a loss and were regarded by the Inland Revenue so to have done and were paid over 400,000 Pounds as are payment of tax on that basis, but as their trade brought in earning of over 1,600,000 Pounds gross dividends received, the company in fact made a fabulous profit on 100 Pounds subscribed capital. If the facts are to be accepted as establishing a 'trading' or any loss, a more fictions or home-made loss it would be hard to devise in business affairs.

As the shares of the three companies which F. S. Securities Ltd. acquired and with which they traded were their stock-in-trade producing trade earnings, the same shares were not a separate source producing an investment income and without that income being established as investment income the respondent company cannot be held to be an investment company, however desirable it would be that such transactions as were carried out by or on behalf of the few members of the company should make their contribution, by means of taxation, to the requirements of the countrys revenue. Enrichment without any service to the community and without taxation is hard to countenance.

DONOVAN L.J. - This is an appeal by the Commissioners of Inland Revenue from a decision of Ungoed-Thomas given in favour of the tax-payers, F. S. Securities Ltd.

Against that company the Special Commissioner of Income Tax had made a direction under the provisions of the Income-tax Acts dealing with the under-distribution of dividends by a limited company, with consequent avoidance of surtax by the shareholders.

In 1936 the legislature, stung to action by the continued ingenuity of the taxpayer and his advisers in avoiding surtax by means of the incorporation of a company and the withholding of dividends, passed legislation which in effect divided such companies into two categories - (1) trading companies and (2) companies which Parliament labelled 'investment companies'. The trading company would continue to be liable to surtax on its profits only if it had failed to distribute a reasonable part thereof, having regard to its requirements for the maintenance and development of the business. The 'investment company,' on the other hands, was to be subject to certain limitations in this respect. Then in 1939 it was enacted that an 'investment company' should be liable to surtax on all its profits however much or however little it had distributed by way of dividend. This legislation has now been codified in the Income-tax Act of 1952. (See Chapter III thereof, comprising sections 245 to 264 inclusive.) In this field, therefore, it is advantageous to be a trading company and disadvantageous, as a rule, to be an investment company.

The legislature originally defined an 'investment company' by section 20 of the Finance Act, 1936. The like definition is now contained in section 257(2) of the Act of 1952. I had better quote it in ful : 'In this section, and in the subsequent provisions of this Chapter, investment company means a company the income whereof consists mainly of investment income, and investment income means, in relating to a company, income which, if the company were an individual, would not be earned incom :....

The special commissioners in the present case were dealing with the income of the company for the period September 1, 1954, to March 31, 1955. They took the view that the income of the company consisted during this period mainly of investment income as defined by section 257(2); and they accordingly made a direction upon the company which, if valid, has the effect, when coupled with an apportionment of that income among the companys members, that a large sum of surtax becomes payable to the Crown. The company appealed to the special commissioners against this direction, arguing that it was a trading company and not an investment company. This argument failed before the special commissioners but succeeded before Ungoed-Thomas J.

The court is here concerned with a dividend stripping operation. The company was incorporated on August 19, 1954, with a capital of 100 Pounds and 83 per cent. of the capital was held by two persons jointly. The memorandum of association proclaimed that one of the objects of the company was to carry on the business of stock and share dealers. On December 10, 1954, the company purchased the entire share capital of B. & Co., Wool Merchants (Bradford) Ltd. On March 3, 1955, it purchased the entire share capital of Cranwell (Holdings) Ltd. and on March 25, 1955, the entire share holding of N. E. T. Holdings Ltd. These purchases cost altogether 1,317,565 Pounds and one might well ask where this 100 Pounds company not the money from. The answer is that as to 93 per cent. of it, it came from the companys bankers on loan.

These three companies were, as the saying goes, 'full of dividend' - that is, of undistributed profit represented by liquid resources - and the advantage of these purchases to their shareholders was that they thus obtained the equivalent of these undistributed profits as tax free capital. The advantage to the respondent company was that it could, as the law then stood, and as the practice of the revenue then was, recover a very large sum of income-tax. This was achieved as follows. The respondent company caused dividends to be paid to it by the three companies whose shares it had acquired, the total of such dividends being 927,408 Pounds after deduction of income-tax at the standard rate, the equivalent gross amount being 1,686,198 Pounds.

The market value of the shares in the three companies naturally dropped as a result, and on March 31, 1955, their market value was estimated at 424,114 Pounds, a figure which is not disputed. Since the company had bought them for 1,317,565 Pounds, the difference was 893,451 Pounds. The company claimed that this difference was a loss sustained in the trade of dealing in shares, and that under section 341 of the Income-tax Act of 1952 it was accordingly entitled to receive back from the Inland Revenue the income tax deducted at source from the dividends totalling 1,686,198 Pounds (gross) declared by its three subsidiary companies. The repayment would be limited under that section to a sum equivalent to income tax on a figure of 895,487 Pounds, the alleged trading loss; that is, the aforesaid 893,451 Pounds plus a small loss on other stocks and shares. Even so, the tax reclaimed would amount to 404,020 Pounds. The Inland Revenue admitted the claim and paid this sum. The cash receipts of the company up to this point were thus as follow : dividends (net), 927,408 Pounds; repayment of tax 404,020 Pounds; totalling 1,331,428 Pounds. The company still had the shares of the three subsidiary companies valued at 424,114 Pounds, and this gives a total of assets of 1,755,542 Pounds. Deducting the sum of 1,317,565 Pounds required to buy the shares in the three subsidiary companies in the first place, the profit was 437,977 Pounds, all made by a company with a subscribed capital of only 100 Pounds. This is subject, of course, to the interest paid to the bank for borrowed money which was, however, a comparatively small sum.

The question now arise : was this company, for the period in question - that is, September 1, 1954, to March 31, 1955 (its first accounting period) - an investment company under section 257(2 This depends on whether its income during this period was mainly 'investment income' and this depends in turn on whether its income was mainly income which, had the company been an individual, would not have been earned income. Earned income is defined by section 525 of the Income tax Act of 1952, and the part of that definition here relevant is that contained in section 525(1)(c), namel : 'any income which is charged under Schedule B or Schedule D and is immediately derived by the individual from the carrying on or exercise by him of his trade...'

One has to assume, therefore, that the company is an individual, and an individual trading in stocks and shares. On that assumption the question is whether these dividends totally 1,686,198 Pounds gross were income charged under Schedule B or Schedule D, and were they immediately derived from the carrying on of a trad If so, they will be earned income and the company will not be an investment company. If not they will not be earned income and the company will be an investment company.

The argument on this narrow question of construction has travailed over a wide field, but I need done more than summarise it. For the Crown it is contended that dividends declared by a company resident in the United Kingdom are not, as such, charged to income tax whether under Scheduled D or any other Schedule. This proposition rests on the authority of a lengthening line of cases beginning with Purde v. The King and ending for the moment with Cenlon Finance Company Ltd. v. Ellwood; and it is not disputed. Then it is said that while, according to the views expressed in the last mentioned decision, dividends received under dedication of income tax by a trader in stocks and shares would form part of his trading receipts and thus enter into the computation of his trading profits, this of itself does not involve the consequence that the dividends thereby become 'charged under ... Schedule D.' For what is charged under that Schedule is the balance emerging when expenses have been put against receipts. For the company it is contended that pursuant to what was said in the Cenlon decision, these dividends are trading receipts. They must, therefore, be brought into the computation of trading profits, albeit that some allowance will have to be made eventually for the tax suffered by deduction. Since they have to be brought into this computation they are 'charged under.... Schedule D' within the meaning of section 525(1) (c) of the Act of 1952.

The Cenlon case concerned what is colloquially known as a 'capital dividend', that is, one paid out of non-taxable profits of the distribution company. The company could not, therefore, deduct income tax at source, and the recipient shareholder - that is, the Cenlon company - was not liable to income tax on the dividend as such. But that company traded in stocks and shares, and the Inland Revenue, exercising the privilege of changing its mind, eventually contended that the dividend must therefore be brought into the computation of the companys trading profits, although originally the Inland Revenue had acquiesced in the companys contrary view.

During the argument of the case in this court it was said for the company that dividends taxed at source were not brought into the computation of profit made by a dealer in stocks and shares, so why should a dividend not so taxed be brought i Deduction or non-deduction of tax was, it was argued, an immaterial consideration. The answer given was that dividends taxed at source ought to be brought into such a computation. Strictly speaking, of course, this was obiter, but it would have been unsatisfactory not to deal with the point thus raised. In the House of Lords Viscount Simonds and Lord Denning expressed the same vie : and accordingly even if, on reflection, I thought I had been mistaken in what I myself said in this court, I would certainly defer to their view. But I see no reason to depart from what I said. Viscount Simonds did say, however, that it has always been the practice of the revenue to include taxed dividends in the computation of a share dealers profits for the purpose of assessment. This apparently was not s : Rex v. Commissioners of Income tax for the City of London, Ex parte Inland Revenue Commissioners. This would not be the first time, however, where revenue practice and the law parted company. I say this in no spirit of criticism. This is a difficult code to administer, and practical considerations no doubt justify at times some departure from strict law for the common convenience of the revenue and the taxpayer.

In my opinion one must take it to be the case that in law the dividends taxed at source with which we are here conceded should, if they were receipts of the companys trade in dealing in stocks and shares, have entered into the computation of the profits of that trade. I entertain no doubt that these dividends were part of the companys trading receipts. No other view is reasonable open on the facts, though one must say a little more on this aspect of the matter later.

Under Schedule D the calculation of the trading profit which is to be taxed necessarily involves an arithmetical exercise in which expenses will be set against receipts. Does this involve that the receipts are 'charged under...... Schedule D Originally, at any rate, this was the root question in the case. Section I of the Income Tax Act, 1952, provides that where any Act enacts that income-tax shall be charged for any year, then the tax shall be charged for that year 'in respect of all property, profits or gains respectively described or comprised in the Schedules.'

In relation to Schedule D, section 122 of the Act provides, so far as is here materials, that tax shall be charged under Schedule D in respect of '(a) the annual profits or gains arising or accruing - ..... (ii) to any person residing in the United Kingdom from any trade... whether carried on in the United Kingdom or elsewhere,' and the wording of the charge conclude : 'in each case for every 20s. of the annual amount of the profits or gains.' Section 127 enacts that tax shall be charged under Cases I and II of Schedule D' on the full amount of the profits or gains...' Case I, of course, is the Case under which trading profits are taxed. There are numerous other sections which follow, all using the depression 'profits or gain' as the subject-matter of the charge to tax. See, for example, section 128, 129, 130, 136, 137 and so on. This, of course, is not surprising. One pays tax to be a charge on 'profits or gains.' Furthermore, on occasions when Parliament has intended to refer to the receipts of a trade as distinct from the profits of the trade, it has said so in quite clear terms. Thus, section 342(4) of the Act refers to 'any... dividends on investments ... which would fall to be taken into account as trading receipts in computing the profits or gains of the trade for the purpose of assessment under that case' - this is, Case I; and section 4 of the Finance (No. 2) Act, 1955, the provision which ended the attraction of dividend-stripping, enacts, in sub-section (1), so far as is here materials, 'the net amount of the dividend received on the shares... shall... be brought into account in computing the profits or gains or losses of the trade.....' So far, therefore, there seems to be no support for the view that trading receipts as such are 'charged under.... Schedule D.' Mr. Talbot, however, contends that if it were not so, then the decision in the House of Lords in Hughes v. Bank of New Zealand would have had to be than opposite of what it was.

The Bank of New Zealand was a non-resident company carrying on business at a branch office in London. As part of the assets of that branch it held some 5 per cent. Wan Loan and some India Government stock, securities of the Grand Pacific Railway and securities of the Auckland Electric Power Board, and on these various holdings it received interest. The War Loan had been issued by the Treasury with a condition that the interest should be exempt from all taxation in the hands of a beneficial holder not ordinarily resident in the United Kingdom, and section 46 of the Income Tax Act, 1918, gave statutory effect to this exemption. The other three security qualified for a similar exemption, under Schedule C as regards the Indian Government stock, and under Miscellaneous Rule 7 of Schedule D as regards the remaining two securities. The Crowns argument was that the exemption from tax was confined to the interest as such, and not to any profits or gains of the trade of which the interest formed part of the receipts. For some reasons they abandoned this argument in the House of Lords as regards the War Loan interest, but maintained it as regards the interest on the other securities. The House rejected it, on the ground that exemption from tax meant what it said, and that even as a component part of the profits of a trade all the interest was exempt.

It does not, in my judgment, necessarily follow from this decision that in the opinion of the House of Lords the interest, regarded as gross receipts of the companys trade, was charged under Schedule D and escaped tax by reasons only of the exemption. The House did not need to decide that question one way or the other. On the view they took it was enough to say that the interest was exempt from all taxation, and it did not matter how it was charged.

In the Cenlon case a similar argument was raised. It was said 'This dividend is not charged to tax. If it is treated as part of the profits of the trade, it will be taxed, and thus the freedom from tax will be lost. This is contrary to the decision in Hughes v. Bank of New Zealand.' Again the argument did not succeed. Nothing in that case, in my opinion, compels us to the conclusion that the dividends in the present case must be taken to be 'charged under Schedule D.' Mr. Talbot also referred to and relied upon, certain observations of a general character made by Lord Dunedin in Whitney v. Inland Revenue Commissioners, a case deciding that non-resident were liable to super-tax on income arising here. Lord Dunedin sai : 'My Lords, I shall now permit myself a general observation. Once that it is fixed that there is liability, it is antecedently highly improbable that the statute should not go on to make that liability effective. A statute is designed to be workable, and the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable. Now, there are three stages in the imposition of ta : there is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next there is the assessment. Liability does not depend upon assessment. That, ex hypothesi, has already been fixed. But assessment particulars the exact sum which a person taxed does not voluntarily pay.' I am afraid I do not see how this passage helped in the present case. The declaration of liability we have to consider is that made by the statute in the shape of Schedule D. The question is, however, on what is liability imposed, and that it seems to me must be decided by construing the language of the Act, and in particular Schedule D itself.

A further argument by Mr. Talbot which he submitted as an alternative was this. He began by posing the questio : 'Why are dividends in the hands of an individual liable to surtax at all as part of his total incom ?' and the answer he gave was this. Income tax is levied by section I of the Act on profits and gains arising under the specified Schedules. The same must be true of surtax which the legislature declares to be income tax at an additional rate. So that one pays surtax on income charged to income tax and nothing else, and there is no provision specifically imposing a charge to surtax on dividends or saying that dividends must be included for surtax proposes in an individuals total income. So that if surtax is imposed on income charged to income tax and on nothing else, and if dividends as such are not liable to income tax, how does surtax become chargeable on dividends at al The answer he suggested was that the legislature does not regard dividends as a new income for income tax purposes, but simply as part of a fund which has already been charged to income tax in the hands of the company paying the dividend. Thus it is right to say that the dividends here in question have been 'charged to tax under Schedule D' and the definition of earned income in section 525 is so far satisfied.

This is an engaging argument, but I do not think it is right. The reason suggested why dividends are liable to surtax may be sound enough, but we have to get back to the meaning of the words 'charged under Schedule D' appearing in section 525. There is nothing in that section, in my opinion, which justifies tracing back the history of a dividend until one can find it forming part of trading profits. How far back would one be entitled to g There might be one or more holding companies interposed between the trading company and the individual who ultimately receives, via the holding companies, a share of the trading companys profits, but no machinery is provided for finding this out, or dealing with such a situation.

Then again, the words of section 525 defining earned income include the words 'and is immediately derived by the individual from the carrying on or exercise by him of his trade.' These words clearly point to income derived by the individual as a trader himself, and not merely as a shareholder in a trading company, so that the preceding words, 'charged under Schedule D', would seem to connote a charge on the individual himself. Furthermore, if Mr. Talbot is right, an extraordinary difference would result for present purposes between a company whose income consisted of dividends from a fund of profits charged in some other companys hands under Schedule D, and a company whose income consisted of dividends from a fund of profits charged in some other companys hands under Schedule C. The latter company would be an investment company while the former would not, a distinction for which there would be no rhyme or reason. Accordingly I reject this alternative argument. I should add that in any event the court does not know that the dividends now being considered came out of trading profits taxed under Schedule D in the hands of the three subsidiary companies or any of them. There is no finding in the case one way or the other. Mr. Major Allen also submitted, for additional reasons, that the word 'charged under Schedule D' ought to be regarded as satisfied in the case of dividends, if those dividends were derived from shares in a trading company and were a distribution of its trading profits. I have already given my reasons for taking a contrary view, and need not repeat them.

So far my conclusion would be that looking at these dividends by themselves it could not be said that they were charged under Schedule D; that they were therefore not earned income; that consequently under section 257(2) of the Act they were 'investment' income; and that since they were the main part of the companys income for the period in question, the company was for that period an investment company. I am not sure that on this particular aspect of the case I am really differing from Ungoed-Thomas J. He said that the charge under Schedule D was on the annual profits or gains from the trade, and commented 'There is no income which is charged under Schedule D except in the sense of either being, or of entering into the computation of, 'the annual profits or gains. In either sense the companys main income is trading income which is charged to Schedule D.' Only if the last sentence means that in the judges view gross receipts of a trade are 'charged' merely by being brought into the computation of trading profit, would I venture with respect to disagree.

On this aspect of the case attention my usefully be drawn to certain provisions in Chapter III of Part IX of the Act of 1952. Section 245 refers to a company which has not distributed 250 requires a company on request by the special commissioners to deliver to them, inter alia, a statement of the 'actual income of the company from all sources...' Section 255(3) requires that such income shall be estimated 'in accordance with the provisions of this Act relating to the computation of income from that source...'

In F. P. H. Finance Trust Ltd. v. Inland Revenue Commissioners (No. 2) the House of Lords, construing the expression now reproduced in section 257(2), namely, 'a company the income whereof consists mainly of investment income,' held that the words 'the income whereof' meant the 'actual income from all sources computed as for income-tax'; and in the recent case of C. H. W. Huddersfield Ltd. v. Inland Revenue Commissioners Lord Hodson said that 'The relevant income is not the income from day to day but the income tax income when ascertained,' and he quoted the remark of Lord Atkin in Fattorini (Thomas) v. Inland Revenue Commissioners that 'Actual income does not mean the specific receipts that come in from time to time, but the income tax income as calculated at the end of the year of assessment.' Lord Pearce says the same thing, and these observations support the views I have so far expressed.

At the end of the argument for the respondent, however, Mr. Major Allen raised another point. Consistently with the decision in the Cenlon case, all the dividends received by the company in the period under consideration must, he said, be considered as part of the receipts of the companys trade in dealing in stocks and shares. When these are brought into the computation of the profits of that trade, the result is to produce a trading profit. The figures ar : dividends received from quoted securities, Pounds 3,043; from unquoted securities (that is, the 'stripped' shares), Pounds 1,686,198; totalling Pounds 1,689,241. Deduct the trading loss of Pounds 895,487, and the balance of profit is Pounds 793,754. That figure, which I will call a round Pounds 800,000 is the figure of profit from the companys trading and is the only income of the company. Since it is entirely trading income the company cannot be an investment company within the statutory definition.

There is no trace of any such contention as this in the stated case, and we were informed that the point was not taken, either before the special commissioners or before Ungoed-Thomas J., and in fairness to both of them this should be stated. No doubt before the special commissioners the parties were not in possession of the Court of Appeals decision in the Cenlon case. That decision was given on May 1, 1961. The last hearing before the special commissioners was apparently on February 1, 1961, when they reserved their decision and gave it on March 20, 1961. In this they were able to refer to the Cenlon decision, but only on the point regarding the non-chargeability to income-tax of dividends as such. Cross J. had so decided in that case, but had gone further and said that the dividend in question in that case could not be included in the computation of Cenlons trading profits from dealing in stocks and shares. On this latter point his decision was subsequently reversed. Nevertheless, the point could have been taken before Ungoed-Thomas J. who heard the case on three days in the latter part of November, 1962, and gave judgment on December 7, 1962.

A certain hesitation on the part of the company to take the point is understandable. It had represented to the revenue that for the period in question it had made not a trading profit of Pounds 800,000, but a trading loss of Pounds 895,000, and on that footing had recovered from the public purse a sum of no less than Pounds 404,020. The present point involves the company in contending that this was all wrong, and that under the repayment section of the Income Tax Act, 1952 (section 341), which it had invoked, nothing was repayable to the company at all. Before us, the Crown raised no question of estoppel, nor did it object to this point now being raised. In all the circumstances the court decided to admit it, treating the argument simply as another facet of the companys contention that it had no 'investment income.'

The answer given to the point by Sir Frank Soskice was this. Conceding that upon a true view of the relevant law the company must be considered as having made a trading profit in the period of Pounds 800,000, it is proper to go on and dissect that profit to see whether it contains any investment income. When the dissection is performed, here it is found that it contains Pounds 1,689,241 of investment income. He says that this is the result of applying section 257(2) and is consonant with Lord Simons speech in F. P. H. Finance Trust Ltd. v. Inland Revenue Commissioners (No. 2).

As I have said, section 257(2) defined an investment company as a company 'the income whereof consists mainly of investment income....', and the Crown here argues that the word 'consists' justifies the dissection or analysis of the companys trading profit to find out whether it 'consists' to any extent of investment income.

In F. P. H. Finance Trust Ltd. v. Inland Revenue Commissioners (No. 2) the House of Lords decided that the words 'the income whereof' appearing in the provision which was the predecessor of section 257(2), meant the total income of the company from all sources, and it was with that total income that such part of it as consisted of investment company had to be compared, to see whether the company was an investment company. For the period in question F. P. H. Finance Ltd., a company trading in stocks and shares before it went into liquidation on April 1, 1938, had made a trading loss, but this loss was, conformably with the practice then obtaining, calculated without taking into account dividends received. Curiously enough, before the House of Lords, the company sought to raise for the first time the point that these dividends were trading income and therefore earned income; but were not allowed to do so that stage. In the last 15 months before liquidation the companys receipts from dividends were more than counterbalanced by its trading losses, and it was therefore argued by the company that it had no 'total income from all sources' for that period. It had none at all. This view was upheld. Lord Simon said that one should not first compute the trading income and then compare the investment income with the trading income. One had to compare investment income with the total income of the company from all sources. This was important where there was a trading loss which exceeded the investment income, for then the companys income was nothing.

In this I can find nothing to support the Crowns contention in the present case that one must first ascertain the total income of the company and then, even if that total income be found to consist entirely of trading profit, go on to analyse that trading profit to see whether dividends contributed towards it and, if so, in what measure. The House of Lords was not considering that point at all, and indeed would not allow the point to be taken in the House for the first time that the dividends were trading receipts. The situation before the House was, therefore, simply the case of a company with a trading loss but also with income from investments, that income not being treated as trading income. I cannot, as I say, find support for the Crowns present contention in that decision.

So far as the intrinsic merits of the argument are concerned, of course it follows from section 257(2) that once you have found what the total income of the company is, you must find out whether that total income 'consists' to any, and, if so, to what, extent, of investment income. For example, if one finds that a company has both trading profit and income from investments comprised in its total income, one must sort out the investment income and compare it with the amount of the total income. But this is a very different thing from saying that once you have found what the trading income is, you can then further analyse that income, to see whether dividends have contributed to it. In the present case the companys trading income computed in accordance with the Cenlon decision was, as I say, Pounds 800,000 and this was its total income. That being so, the company cannot be an investment company, unless it is permissible to dissect that admitted trading income to see whether it has been computed by including dividends as trading receipts, and then trading such receipts to that extent as 'investment income.' Such dividends have become part of the trading profit which is 'earned income' within the definition contained in section 257(2). They are not, for the purpose of the inquiry, one thing one moment and another thing the next. To my mind this new point allowed to be taken by the company is conclusive of the appeal in its favour.

In the concluding part of their decision the commissioners refer to the companys primary object in purchasing the shares in the three 'stripped' companies as being to obtain the dividends and not to deal in the shares themselves, which would thereafter only be sold at a loss and which in fat have so far been retained. The commissioners go on to say that in those circumstances the nature of the income from the shares 'is more akin to investment way of saying that the shares in question were not held as part of the companys trade in dealing in stocks and shares, but as investments outside that trade. But there is no specific finding to that effect, and it is not consistent with the finding in the case that the whole object of the company in acquiring the shares was to carry out a dividend stripping operation, which object necessarily involved that the shares should be part of the companys trading stock.

Furthermore, at the outset of their decision the commissioners find that the company carried on a trade of buying and selling stocks and shares without distinguishing in this respect any particular stocks and shares of the companies as being outside the ambit of this trade. In any event, even had the commissioners found specifically that the shares in these three companies were not part of its trading stock, I do not see how such a decision cold have stood, having regard to the evidence, and to the decision of the House of Lords in Griffiths v. J. P. Harrison (Watford) Ltd. Sir Frank Soskice, however, has reserved the point.

I reach the conclusion, therefore, that the appeal must be dismissed. Subject to any time limit that may be applicable, the special commissioners presumably remain free to consider the companys position as regards surtax on the footing that for the period in question it had a trading income of some Pounds 800,000.

RUSSELL L.J. - I also agree, for the reasons given by Donovan L.J., that the appeal should be dismissed, but in connection with the reference by Sellers L.J. to enrichment without service and without taxation, I am quite ready to countenance a substantial sweepstake with provided the winning ticket is mine.

Appeal dismissed with costs.

Leave to appeal to the House of Lords.

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