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Bromilow and Edwards Ltd. Vs. Inland Revenue Commissioners. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Reported in[1970]77ITR633(Cal)
AppellantBromilow and Edwards Ltd.
Respondentinland Revenue Commissioners.
Cases ReferredInland Revenue Commissioners v. Ayrshire Employers Mutual Insurance Association Ltd.
Excerpt:
- .....of an enactment can be expressed with sufficient clarity in more than one way. the directors here paid a dividend involving an excess of pounds 140,000 over the standard amount, and they paid this dividend that was due in the ordinary course of events to be paid in the year 1966-67 because, had it been paid in the year 1966-67, it would have attracted liability under section 47(3). it seems to me, with great respect to the argument, that on the plain language of the section, their purpose in paying was to avoid or reduce a liability under section 47(3) in respect dividends paid in the year 1966-67.it was accepted, at least by one of the counsel appearing for the taxpayers, in argument, that if the phrase had been merely 'avoid or reduce a liability under section 47(3) of this act' and.....
Judgment:
RUSSELL L. J. - Mr. Monroe, we need not trouble you.

I do not propose to detail the circumstances of this case, which are published in the report of the case below before Megarry J. [1969] 1 W. L. R. 1081.

The first point that the taxpayers take is that since it is impossible in law, if a dividend is paid after April 5, 1966, for a company to avoid or reduce a liability under section 47(3) in respect of that dividend, then the company cannot, when it accelerated the final dividend of Pound 170,000 by a declaration shortly before April 5, 1966, by the board of a second interim dividend of that amount, have had the purpose of achieving that impossibility.

The argument involves, as I see it, the proposition that the whole of section 83 was stillborn. Of course, I bear in mind that this has happened before to a child of fiscal legislation, even though its features were recognisable : Inland Revenue Commissioners v. Ayrshire Employers Mutual Insurance Association Ltd., a case, of course, in which a taxing section misfired in fact because the legislature misunderstood the existing law.

For my part, I really cannot accept that argument for a moment. It is quite a common occurrence that the intention of an enactment can be expressed with sufficient clarity in more than one way. The directors here paid a dividend involving an excess of Pounds 140,000 over the standard amount, and they paid this dividend that was due in the ordinary course of events to be paid in the year 1966-67 because, had it been paid in the year 1966-67, it would have attracted liability under section 47(3). It seems to me, with great respect to the argument, that on the plain language of the section, their purpose in paying was to avoid or reduce a liability under section 47(3) in respect dividends paid in the year 1966-67.

It was accepted, at least by one of the counsel appearing for the taxpayers, in argument, that if the phrase had been merely 'avoid or reduce a liability under section 47(3) of this Act' and had not gone on to say 'in respect of dividends paid after that year', the argument of the taxpayer under this head could not stand up. Nor, it seems to me, could it stand up had the phrase only been 'liability under section 47(3) of this Act in respect of dividends'. But the only liability under section 47(3) is, so far as relevant to a question of payment of excess dividends, in respect of dividends and in respect of dividends paid after the particular year. In my view, the added words are no more than descriptive of that liability imposed by section 47(3) that could be related to an excess distribution by way of dividends; to insist that in principle some result must be achieved by them and that the only result that can be achieved by them is to stultify the whole section is, in my view, to carry general approaches to questions of construction to a point of absurdity.

It was suggested that a meaning could be attributed to those words that would not wholly stultify the operation of section 83, or, rather, would not make it possible to say that the burden under section 83(11) was successfully discharged in every case. It was suggested that a case might be covered in which a company in general meeting in March, 1966, declared a dividend to be paid in June, and the directors then finding that it would be caught by section 47(3) if paid in June, decided to hasten on the payment and pay before April 6. It is said : 'Now, that would be a case in which section 83 would operate, and without section 83(11) necessarily excusing the company.'

I cannot myself see that is a valid argument, any more than it would be if the board of directors decided to distribute an interim dividend just inside the year 1966-67 and then, on being told that they would get in to trouble with this new taxation system if they did that, resolved to cancel the declaration of the interim dividend and substitute one accelerated. It seems to me that if the point that the taxpayer takes is a should point, then it only be on the basis that the whole of the section in all cases must be stultified.

Then it was said as an alternative that although the directors were aware that the dividend of Pounds 170,000 involved an excess of Pounds 140,000 - and I quote from the stated case - 'they did not concern themselves with that.' It was said on the basis of that they could not have had the relevant main purpose 'in paying that excess.'

I take the view, with, I think, the special commissioners, that the short answer to that is that if the main purpose in regard to the whole of the Pounds 170,000 dividend was to avoid or reduce a liability under section 47(3), then that main purpose must apply to the whole of that dividend, including the excess. Both the special commissioners and the judge, on this question of excess, remarked that the excess of Pounds 140,000, if you looked at the language of the measuring section, was in one sense a part of the whole of the three dividends that were paid in the year 1965-66 - a final of Pounds 170,000 in August, 1965 an interim of Pounds 113,000 in January, 1966, and this second interim on March 31, 1966, of Pounds 170,000. It is said, if that be so, it is quite plain that the company had (to use a general phrase) no tax avoidance purpose in connection with the dividends No. (8) and No. (9) in August, 1965, and January, 1966. Therefore, since the excess of Pounds 140,000 over the whole year must be attributed in part to all three of those dividends and since - and I entirely accept this - the special commissioners found no relevant main purpose in relation to those two dividends, the Crown failed because you cannot attribute to any one of those dividends any tax avoidance purpose.

I think that the correct approach in construing section 83(11) is and must be that you are considering there the purpose in making payments, and when you are considering the purpose in making payments involving an excess, you must look at the dividend or dividends that in fact produce as a result of their payment the relevant excess figure; just as - and I am indebted to Megaw L. J. for this example if you have a 4 1/2 gallon tank and you pour in 4 gallons and then you pour in a fifth gallon and it overflows, the overflowing, the excess, is properly to be attributed to the fifth and last gallon.

For those reasons, in my judgment, this appeal fails and should be dismissed.

SALMON L. J. - Interesting as I have found the arguments addressed to us, and much as I appreciate their ingenuity, I find myself so wholly in agreement with what has fallen from my Lord and with the decision of the special commissioners and the judgment of Megarry J. that there is nothing that I can usefully add.

MEGAW L. J. - I also agree

Appeal dismissed with costs.

Leave to appeal to House of Lords refused.

Solicitors : Hextall, Erskine & Co., for Laces & Co., Liverpool; Solicitor of Inland Revenue.


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