Mitchell (Surveyor of Taxes) v Egyptian Hotels Ltd

[1915] A.C. 1022

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(Decision by: Lord Parmoor (Read by Lord Sumner))

Between: Mitchell (Surveyor of Taxes)
And: Egyptian Hotels Limited

Court:

Judges: Earl Loreburn
Lord Parker of Waddington (Read by Lord Sumner)
Lord Sumner

Lord Parmoor (Read by Lord Sumner)

Subject References:
Revenue
Income Tax
Company resident in England
Trade carried on Abroad

Legislative References:
Income Tax Act 1842 - s. 100; Sched. D; First Case; Fifth Case
Income Tax Act 1853 - s. 2; Sched. D; s. 5

Case References:
Colquhoun v. Brooks - 14 App. Cas. 493
Liverpool and London and Globe Insurance Co. v. Bennett - [1911] 2 K. B. 577; [1912] 2 K. B. 41; [1913] A.C. 610
Ogilvie v. Kitton - 10 F. 1003; 5 Tax Cases 338
San Paulo (Brazilian) Ry. Co. v. Carter - [1896] A.C. 31

Hearing date:
Judgment date: 9 July 1915

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Decision by:
Lord Parmoor (Read by Lord Sumner)

My Lords, the point for the decision in this appeal is whether the respondents, whose registered office is situate in England, are liable to pay income tax under case 1 of Sched. D upon the whole of their profits, or under case 5 upon a sum not less than the full amount of actual sums remitted to Great Britain. The Commissioners for the General Purposes of Income Tax for the city of London held that, on the facts, the assessment was duly and properly made under case 1. This decision was upheld by Horridge J., but reversed in the Court of Appeal.

My Lords, in my opinion the principles to be applied in the decision of this appeal have been settled in this House in the two cases of Colquhoun v. Brooks (14 App. Cas. 493.) and of San Paulo (Brazilian) Ry. Co. v. Carter . ([1896] A.C. 31) In the latter case Lord Watson (at p. 40) states succinctly the ambit of the decision in Colquhoun v. Brooks (14 App. Cas. 493.): "In my opinion, the decision in Colquhoun v. Brooks (14 App. Cas. 493.) directly affirms the rule that every interest in the profits of trade, belonging to a person who is, within the meaning of the Act, resident in the United Kingdom, must be charged under the first case of Sched. D if the trade is carried on, either wholly or partly, within Great Britain or Ireland, and is chargeable under the fifth case, if the trade is exclusively carried on in any of Her Majesty's dominions out of the United Kingdom."

The question, therefore, to be determined in this appeal is whether the trade, of which the profits are sought to be charged, is carried on either wholly or partly within the United Kingdom, or exclusively carried on outside the United Kingdom. This is a question of fact to be determined by the Commissioners, if there is evidence before them from which their finding might, in reason, be drawn, or unless they have gone wrong on a point of law. I think that there was such evidence before them in the present case, and that their decision does not contravene any legal principle.

At an extraordinary meeting of the company held in London on August 10, 1908, certain special resolutions were passed and subsequently confirmed at a confirmatory meeting held in London on August 27, 1908. These special resolutions are set out in the case stated by the Commissioners. Their general effect is that the Egyptian business of the respondents should be carried on and managed by a local board, to the exclusion of the board of directors of the company, and that such local board should be wholly independent of any other directors and board of the company and of general meetings of the company (not being general meetings held in Egypt), and in no way under the control thereof.

The Egyptian business of the company includes all the company's affairs and business whatsoever in Egypt and the Soudan, including the business of carrying on the company's hotels in Egypt and the Soudan, and everything connected therewith, including the incurring of debts and liabilities, buying, selling, and supplying goods, the hiring, using, and supplying labour, paying of debts, and the doing of all things necessary or in any way incidental to such business. The profits of the company on which the income tax is sought to be charged are derived wholly from the Egyptian business. In the year of assessment the dividend was declared in June.

Mr. Peat, a director of the respondents, gave evidence that the special resolutions which became operative on August 27, 1908, had been strictly observed and acted upon, and that the local management of the hotels was carried on exclusively by the local board in Egypt, who reported the financial trading results to the board of directors of the company in England for the purpose of being incorporated in the company's accounts and balance-sheets and acted upon for the declaration of dividends. The Egyptian accounts were made up and audited in Egypt and subsequently forwarded to the respondents' office in London and submitted to the general meetings of the respondents in London. The balance-sheets and the profit and loss accounts of the company were made out in London, and all the accounts of the respondents, except so far as rendered unnecessary by the local audit in Egypt, were audited in England. As an instance of the extent to which the control of finance was exercised in England, the assistant secretary was authorized at a meeting of the respondents held in England on June 29, 1909, to obtain a loan of £ 10,750 from the Anglo-Egyptian Bank, and to transfer 2692l. 6s. 4d. to debenture interest account, and 10,925l. to dividend No. 5 account in Cairo and London, to meet the financial requirements as at June 30, 1909. Before and after August 27, 1908, all the meetings of the directors of the respondents have been held from time to time in England and not elsewhere.

In addition to parol evidence the Commissioners had in evidence before them the memorandum and articles of association of the respondents. The respondents are an English company having its registered office in England, and, subject to the special provisions affecting the Egyptian business, the general management of the affairs of the company is, in the ordinary way, entrusted to the directors. The control of the share capital of the company was left with the directors, including the question of its increase or reduction. It was within the power of the directors to say when the profit and loss account of the Egyptian business should be made out and in what manner the available assets should be allocated. The directors decided how much the Egyptian managers should be paid, and if the Egyptian business should be carried on at a loss in any particular year, the responsibility rested with them of making any necessary financial arrangements. On this evidence the Commissioners found that before and after August 27, 1908, the directors of the respondents were empowered to, and did, deal with the general affairs of the company, including all general financial arrangements of the company.

In my opinion there was evidence before the Commissioners on which within reason they could come to the above finding. It was open to the Commissioners to find that a business is not exclusively carried on outside the United Kingdom when all the general financial arrangements are dealt with and controlled at meetings held from time to time at the offices of the company in England. The Commissioners further found that the head and seat and controlling power of the company remained in England with the board of directors of the company. How far, in any particular case, the power over finance gives controlling power is a question for the Commissioners, but I find it difficult to appreciate how any trade or business can be exclusively carried on outside the United Kingdom by a company which has its offices in England and whose directors are empowered to and do deal with all the general financial arrangements of the company. I agree with Horridge J., that it is not possible to sever the business of the respondents in such a way as to hold that there is a cleaving line between general questions of finance and the local management in Egypt.

It was said in argument that although the directors in England had general controlling powers in matters of finance, there was no evidence that they exercised this power in relation to the Egyptian business. For the reasons already stated, I think that there was evidence on which the Commissioners could find that the directors of the respondents had not only the power to deal with all general financial arrangements of the company, but also exercised this power. It becomes, therefore, unnecessary to decide how far the reservation of a power of control, which has not been exercised, is in itself sufficient to negative a claim to be treated under case 5, but I do not desire to be understood as throwing any doubt on the decision in Ogilvie v. Kitton . (1)

My Lords, in my view the appeal should be allowed.