De Beers Consolidated Mines Ltd v Howe

[1906] A.C. 455

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(Decision by: LORD LOREBURN L.C.)

DE BEERS CONSOLIDATED MINES, LIMITED
AND HOWE (SURVEYOR OF TAXES)

Court:

Judges:
LORD LOREBURN L.C.LORD MACNAGHTEN
LORD JAMES OF HEREFORD
LORD ROBERTSON
Lord Atkinson

Subject References:
Revenue
Income Tax
Residence
Person residing in the United Kingdom
Company registered Abroad
Head Office Abroad
General Meetings Abroad
Directors' Meetings in England and Abroad
Majority of Directors in England
Company's Business in England and Abroad

Legislative References:
Income Tax Act 1853 - s 2; Sch D

Case References:
Cesena Sulphur Company Ltd v Nicholson - (1876) 1 TC 88
The Calcutta Jute Mills Company Ltd v Nicholson - (1876) 1 TC 83

Judgment date: 30 July 1906

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Decision by:
LORD LOREBURN L.C.

My Lords, the question in this appeal is whether the De Beers Consolidated Mines, Limited, ought to be assessed to income tax on the footing that it is a company resident in the United Kingdom. Had the appellants prevailed upon that question, an ulterior point would have demanded consideration. Your Lordships, however, being satisfied upon the first point, dispensed with further argument.

Under the 2nd section of the Income Tax Act, 1853, Sched. D, any person residing in the United Kingdom must pay on his annual profits or gains arising or accruing to him "from any kind of property whatever, whether situate in the United Kingdom or elsewhere," and also "from any profession, trade, employment, or vocation, whether the same shall be respectively carried on in the United Kingdom or elsewhere." Now, it is easy to ascertain where an individual resides, but when the inquiry relates to a company, which in a natural sense does not reside anywhere, some artificial test must be applied.

Mr. Cohen propounded a test which had the merits of simplicity and certitude. He maintained that a company resides where it is registered, and nowhere else. If that be so, the appellant company must succeed, for it is registered in South Africa.

I cannot adopt Mr. Cohen's contention. In applying the conception of residence to a company, we ought, I think, to proceed as nearly as we can upon the analogy of an individual. A company cannot eat or sleep, but it can keep house and do business. We ought, therefore, to see where it really keeps house and does business. An individual may be of foreign nationality, and yet reside in the United Kingdom. So may a company. Otherwise it might have its chief seat of management and its centre of trading in England under the protection of English law, and yet escape the appropriate taxation by the simple expedient of being registered abroad and distributing its dividends abroad. The decision of Kelly C.B. and Huddleston B. in the Calcutta Jute Mills v. Nicholson (1876) 1 Ex. D. 428. and the Cesena Sulphur Co. v. Nicholson (1876) 1 Ex. D. 428., now thirty years ago, involved the principle that a company resides for purposes of income tax where its real business is carried on. Those decisions have been acted upon ever since. I regard that as the true rule, and the real business is carried on where the central management and control actually abides.

It remains to be considered whether the present case falls within that rule. This is a pure question of fact to be determined, not according to the construction of this or that regulation or bye-law, but upon a scrutiny of the course of business and trading.

The case stated by the Commissioners gives an elaborate explanation of the way in which this company carried on its business. The head office is formally at Kimberley, and the general meetings have always been held there. Also the profits have been made out of diamonds raised in South Africa and sold under annual contracts to a syndicate for delivery in South Africa upon terms of division of profits realised on resale between the company and the syndicate. And the annual contracts contain provisions for regulating the market in order to realise the best profits on resale. Further, some of the directors and life governors live in South Africa, and there are directors' meetings at Kimberley as well as in London. But it is clearly established that the majority of directors and life governors live in England, that the directors' meetings in London are the meetings where the real control is always exercised in practically all the important business of the company except the mining operations. London has always controlled the negotiation of the contracts with the diamond syndicates, has determined policy in the disposal of diamonds and other assets, the working and development of mines, the application of profits, and the appointment of directors. London has also always controlled matters that require to be determined by the majority of all the directors, which include all questions of expenditure except wages, materials, and such-like at the mines, and a limited sum which may be spent by the directors at Kimberley.

The Commissioners, after sifting the evidence, arrived at the two following conclusions, viz.:- (1.) That the trade or business of the appellant company constituted one trade or business, and was carried on and exercised by the appellant company within the United Kingdom at their London office. (2.) That the head and seat and directing power of the affairs of the appellant company were at the office in London, from whence the chief operations of the company, both in the United Kingdom and elsewhere, were, in fact controlled, managed, and directed.

These conclusions of fact cannot be impugned, and it follows that this company was resident within the United Kingdom for purposes of income-tax, and must be assessed on that footing. I think, therefore, that this appeal fails.

I will merely add that I agree with the Master of the Rolls that residence of a company within the meaning of the Income Tax Acts is not necessarily the same thing as residence for the purpose of serving a writ.