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TMI Blog1955 (1) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... ncreased by any tax payable thereon or less than sixty per cent. of the total income of the company ascertained in accordance with the provisions of this Ordinance for that period, he may, unless he is satisfied that having regard to losses previously incurred by the company or to the smallness of the profits made, the payment of a dividend or a larger dividend than that declared would be unreasonable, by notice in writing order that the undistributed portion of sixty per cent. of such total income of the company for that period shall be deemed to have been distributed as dividends amongst the shareholders as at the said last date and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purposes of this Ordinance : " Provided that-(a) . . . (b) this subsection shall not apply to any company in which the public are substantially interested or to a subsidiary company of such a company if the whole of the share capital of such subsidiary company is held by the parent company or by the nominees thereof. " (2) For the purpose of this section a company shall be deemed to be a company in which the pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a company in which the public were substantially interested as defined by section 21(2) of the Ordinance, and the effect of that decision was that the respondent became liable to income tax on £ 3,580, the appropriate apportioned part of the income of the company for the year 1949 deemed to have been distributed to him as dividend. The High Court of Uganda (Pearson J.), on appeal by the respondent, upheld the decision of the commissioner that the public were not substantially interested in the company. On further appeal by the respondent to the Court of Appeal for Eastern Africa (Nihill P., Worley V. -P. and Ainley J.) a reserved judgment was delivered unanimously allowing the appeal. The Commissioner of Income Tax appealed. 1954. Nov. 25, 29. John Senter Q. C. and Roderick Watson for the appellant. The question, a short one, is, what does " the public " mean in the context of the Uganda Income Tax Ordinance, 1940 ? Practically the whole point is whether Sverre Bjordal, the respondent's brother and a co-director with a substantial shareholding in the company, falls to be treated as a member of the public. It is not possible on section 21 of the Ordinance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s brother and himself in a position to control the company, and was not therefore a member of " the public ". Roderick Watson following. The two sets of persons are the directors and the members of the company, and the special position of the directors may afford a test in itself, and the test here is one of fact having regard to all the circumstances. In considering the division of the members of a company into two classes the directors are not members of the public because of their special and particular position in relation to the releasing of the company's profits by way of dividends. Heyworth Talbot Q. C. and H. Major Allen for the respondent. The word " public " in the ordinary usage of the English language means and includes all the members of the community. If, therefore, in this case any restriction is to be placed on its meaning, it can only be by necessary inference from the context in which it appears in section 21. No such inference can be drawn, unless it is that " the public " is contrasted with some person who, by reason of his voting power, is in a position to exercise control over the company's dividend distributions, or wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case at all ; the respondent had over 51 per cent. and Sverre does not come into it. If, however, 75 per cent. is necessary, then admittedly Sverre is involved, and there is a quite different argument : if, say, Sverre and another hold 40 and 12 per cent. respectively, they are not taken unless they are bound in concert-they are otherwise all members of the public. The control conception in the Ordinance in its original form in 1940 was omitted from the Ordinance of 1943. " Members of the public " in subsection (2) of section 21 goes to show that " the public " means members of the public. There is a very strong inference that the Uganda legislature was using those words in the sense in which they had been construed in England, where they had been defined by reference to the control test. There is no ground from which any distinction can be drawn between the meaning of controlling interest construed by the House of Lords in British American Tobacco Co. Ltd. v. Inland Revenue Commissioners ([1943] 1 All E. R. 13 ; 11 I. T. R. Suppl. 29)-51 per cent.-and any kind of control that may be relevant for tax purposes. The first and primary argument, therefore, is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conditions stated in subsection (1) of the existing section 21 are satisfied the commissioner has the power to make an order under which the undistributed portion of 60 per cent. of the total income of a company for a period specified in the subsection is notionally to be regarded as having been distributed, and the " proportionate share thereof of each shareholder " is to be regarded as having been received by the shareholder for purposes of assessing the amount of income tax payable by him. Clause (b) of the proviso to the subsection takes away the power of the commissioner to make such an order with regard to a company " in which the public are substantially interested. " Subsection (2) of section 21 lays down a set of conditions upon the satisfaction of which a company is to be " deemed " to be one in which the " public are substantially interested. " The question for decision by their Lordships is whether Bjordal Mines Ld. satisfies the conditions laid down in subsection (2). The difficulty in deciding this question lies in the words " the public " appearing in the subsection. There is no definition of this term in the O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest the requisite percentage was 51 or over. That as the respondent alone possessed this percentage no other member or group of members could possess the requisite percentage and that, therefore, in the absence of concerted action between the respondent and any other member, the respondent by himself must be held to have a controlling interest. If this argument be correct, then as the shares of the other members carried more than 25 per cent. of the voting power the company must be held to be one in which the public were substantially interested within the meaning of subsection (2) of section 21. It was not disputed that the shares possessed by members other than the respondent had been " allotted unconditionally to or acquired unconditionally by " those owning them, that at the end of the relevant period they had been " held beneficially " by those owners and had been " freely transferable " by the owners as stipulated by subsection (2) of section 21. Both the appellant and the respondent agree that the chief factor determining the question where the controlling interest resides is percentage of voting power, although they are not agreed as to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent, have fallen into a group holding the controlling interest. The remaining shareholders would have been members of " the public. " There is nothing to indicate that Sverre was acting in concert with the respondent. He must therefore be regarded as a member of " the public " within the meaning of the subsection. The fact that Sverre is a brother of the respondent was pointed out as a reason why Sverre and the respondent should be regarded as a group in combination and not as two separate individuals in respect of their holdings of shares. Their Lordships are unable to accede to this suggestion. They do not think that relationship by itself affords a sufficient reason for grouping relatives together in the process of determining where the controlling interest resides. They are supported in this view by the decision in Tatem Steam Navigation Co. v. Inland Revenue Commissioners ([1941] 2 K. B. 194, 202 ; 10 I. T. R. Suppl. 85). In that case the principal shareholder had given to his niece the greater part of the shares held by her and it was contended, on the ground of relationship among other grounds, that the niece could not be regarded as holding these ..... X X X X Extracts X X X X X X X X Extracts X X X X
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