Robertson v Commissioner of Inland Revenue

[1959] NZLR 492

Between: Robertson
And: Commissioner of Inland Revenue

Court:
Supreme Court, Wellington

Judges:
McCarthy J

Subject References:
Revenue
Gift duty
Shareholder in Company Entering into Deed of Trust authorizing Trustees to invest Trust Fund in Securities approved by Trustees
Capital of Company later increased with Issue of New Shares Pari Passu to Existing Holdings
Shareholder Consenting to Trust Funds being used in Purchase of New Shares
General Meeting allotting Shareholder's New Shares to Trustees under Deed of Trust, and thereby giving Trustees Interest in Company and diminishing Shareholder's Estate by Like Amount
Such Transaction a "disposition of property" and, being without Consideration, a "gift"

Legislative References:
Death Duties Act 1921 - s 38; s 39(f)
Death Duties Amendment Act 1925 - s 5(4)
Estate and Gift Duties Act 1955 - s 41; s 42(1)(f); s 69(8)

Hearing date: 12, 16 December 1958
Judgment date: 12 February 1959

Wellington


The word "transaction", as used in para. (f) of the definition of "disposition of property" in s. 39 of the Death Duties Act 1921, can cover a series of acts or steps linked together to attain a definite objective, and the understanding between the parties need not be of a legally binding character.

There must be a designed movement of a portion of one person's estate to another, but such a movement may be effected through an intermediary such as a company and consist merely in a transfer of values without there being a transfer of specific property.

Grimwade v Federal Commissioner of Taxation (1949) 78 C.L.R. 199 ; Birks v Commissioner of Taxation (1953) 10 A.T.D. 266 , and Newton v Commissioner of Taxation of the Commonwealth of Australia [1958] A.C. 450 ; [1958] 2 All ER 759 , applied.

Section 5 (4) of the Death Duties Amendment Act 1925 (now s. 69 (8) of the Estate and Gift Duties Act 1955) provided that:


"Any allegations of fact comprised in a case stated by the Commissioner pursuant to section sixty-two of the principal Act may be disputed by the appellant on the hearing of the appeal, but, in the absence of sufficient evidence adduced by the appellant to the contrary, all such allegations shall be presumed to be correct".

In the absence of evidence from the appellant (as in this case), the Court must accept as correct the allegations of the Commissioner mentioned in s. 5 (4), as they consist of facts or proper inferences from those facts. Although proper conclusions from facts may be themselves questions of fact, it is still for the Court to say whether the particular conclusions are properly drawn; and, to that extent, the Court can review the Commissioner's allegations.

Bomford v Osborne [1942] A.C. 14 ; [1941] 2 All ER 426 , followed.

As a Magistrate presiding at an inquiry under s. 15 of the Inland Revenue Department Act 1952 is restricted to the recording of evidence and is not empowered to make findings, it is preferable, where the question of intention is of importance, that a procedure should be adopted which provides the appellant with an opportunity to give evidence before the Court by which such questions as intention have ultimately to be decided.

The appellant, R., a director of and shareholder in a private company incorporated in 1931, entered into a deed of trust dated August 30, 1954, between himself of the one part and his wife and G. as trustees of the other part. The deed recited that R., being minded to make provision for his wife and their grandchild, had paid to the trustees £100, and it witnessed that that sum was held by the trustees to invest in certain classes of securities, and, with the consent of R., in any other investments the trustees should think fit, and then to pay the annual income to Mrs R. during her life, and upon her death to stand possessed of both capital and income for the grandson absolutely if he should attain twenty-one years with remainders over. It empowered the trustees to accept sums of money, shares, or other property from the appellant or any other person to augment the trust fund.

On September 22, 1954, less than a month after the execution of the deed of trust, a general meeting of shareholders of the company was held. At that date the share capital of the company was £1,000 divided into one thousand ordinary £1 shares fully paid. R. held 315 shares and an equal one-fifth interest in 300 shares held by the trustees of his deceased father's estate.

Resolutions were passed increasing the nominal capital by the creation of a further 1,000 shares of £1 each, ranking pari passu with the original shares. At the same meeting, 375 of the new shares were allotted to the trustees under the deed, that being the number which, had there been a pari passu issue to existing shareholders, would have been available to R., having regard to his holding 315 shares in his own name and to his beneficial interest in sixty of the 300 shares held by his deceased father's estate. Another resolution passed on the same day called up £1 per share on each of these new shares. Five days later, a memorandum of subscription was completed by the allottees mentioned in the resolution. R. consented, pursuant to the terms of his deed of trust, to the funds in the trust being used in the purchase of the new shares, and he advanced to the trustees under that deed by way of loan the sum of £275. This sum, together with the amount already held by them, £100, enabled the trustees to meet the call on the shares.

The Commissioner determined that, immediately before the increase of capital, the value of each share in the company was £80 and immediately thereafter was £40; if those figures were correct, the total value of R.'s interest in the company before the increase of share capital was £30,000 (being £25,000 in respect of the 315 shares held by him in his own name and £4,800 in respect of his interest in shares held in the name of his father's estate); that the total value of this interest immediately after the events narrated above was £15,000; and that, before those events, the trustees held no interest in the company but, immediately after that, their interest was of a value of £15,000. The effect of this, the Commissioner also determined, was that R.'s estate was diminished by £15,000, while the value of the estate of the beneficiaries under the deed of trust was increased by £14,625, being the value of the 375 new shares less the amount of £375 called up thereon.

On Case Stated by the Commissioner under s. 62 of the Death Duties Act 1921,

Held, That R. had made a "disposition of property" in that he had entered into a transaction "with intent thereby to diminish the value of his own estate and to increase the value of the estate of any other person" within the meaning of s. 39 (f) of the Death Duties Act 1921; and, as that disposition was not made for a consideration in money or money's worth the transaction constituted a "gift" within the meaning of s. 38 of that statute and was assessable for gift duty accordingly.

CASE STATED, pursuant to s. 62 of the Death Duties Act 1921 (s. 69 of the Estate and Gift Duties Act 1955).

The appellant, Wallace Alec Robertson, a director and shareholder in J. D. and L. Robertson Ltd. a private company incorporated in 1931 which conducts the business of timber merchants, sawmillers, etc., at Nelson, entered into a deed of trust dated August 30, 1954, between himself of the one part, and his wife, Ellen Myrtle Robertson, and Patrick Biss Griffin, a public accountant of Nelson, as trustees, of the other part. The deed recited that the appellant, being minded to make provision for his wife and their grandchild, had paid to the trustees £100, and it witnessed that that sum was held by the trustees to invest in certain classes of securities, and, with the consent of the appellant, in any other investments the trustees should think fit, and then to pay the annual income to Mrs Robertson during her life, and upon her death to stand possessed of both capital and income for the grandson absolutely, if he should attain twenty-one years with remainders over. It empowered the trustees to accept sums of money, shares or other property from the appellant or any other person to augment the trust fund. Less than a month after the execution of this document - namely, on September 22, 1954 - a general meeting of shareholders of the company was held. At that date the share capital of the company was £1,000 divided into one thousand ordinary £1 shares fully paid. The shareholding was as follows:

Appellant, his brother Harold James Robertson, and his mother Ellen Louise Robertson

(as trustees of the estate of the appellant's father, Joseph David Robertson, deceased)

300 shares
Appellant 315 shares
Harold James Robertson 315 shares
Constance Clara Robertson (wife of Harold James Robertson) 50 shares
Laurence Robertson (another brother of the appellant) 20 shares
Total: 1,000 shares

The beneficiaries under the trusts of the will of Joseph David Robertson, deceased, were equally entitled and were:

(a)
the appellant,
(b)
Harold James Robertson,
(c)
Laurence Robertson,
(d)
Winifred Maida Black (a daughter of Joseph David Robertson, deceased) and
(e)
Dorothy Newton (a daughter of Joseph David Robertson, deceased).

Three shareholders only attended the meeting held on September 22 - namely, the appellant and his brothers, Harold James Robertson and Laurence Robertson. Resolutions were passed increasing the nominal capital by the creation of a further 1,000 shares of £1 each, ranking pari passu with the original shares. At the same meeting the new shares were allotted as follows:

Trustees of the deed of trust executed by the appellant 375 shares

Constance Clara Robertson and Patrick Biss Griffin

as trustees under another deed of trust dated August 30, 1954, executed by Harold James Robertson

300 shares
Laurence Robertson 80 shares
Donald Hamilton Robertson (a son of Harold James Robertson) 75 shares
Winifred Maida Black 60 shares
Dorothy Newton 60 shares
Constance Clara Robertson 50 shares
Total: 1,000 shares

The questions for the determination of the Court were:

1.
Whether the appellant entered into a transaction with intent thereby to diminish the value of his estate and to increase the value of the estate of any other person within the meaning of s. 39 (f) of the Death Duties Act 1921, and if so,
2.
Whether such transaction constitutes a "gift" within the meaning of s. 38 of that Act.

Cur adv vult