- (1.) Pollock and Peel Ltd. was incorporated in May, 1942, for the purpose of carrying on an engineering business. At the close of the calendar year, which was also the chargeable accounting period, ended December 31, 1951, the issued share capital of that company consisted of 2,004 fully paid shares of pound I each, all of the same class. Mr. and Mrs. pollock were the sole shareholders and the two directors of the company. On November 6, 1952, by an appropriate resolution under the articles, the company capitalised a sum of pound 28,056 of profits and applied that sum in paying up on behalf of the two shareholders 28,056 pound I shares, the capital being increased accordingly. Thereafter, the issued share capital was 30,060 shares of pound I each. On October 31, 1953, that company went into voluntary liquidation, and a week later, on November 6, the liquidator entered into an agreement for the sale of the assets and undertaking of the company, with one exception hereafter mentioned, to a new company incorporated for the purpose of acquiring the assets, and having the same name as the liquidated company and having also as its shareholders Mr. and Mrs. Pollock. The consideration for the sale was the issue by the new company to the liquidator of the old of 30,060 shares of pound I each fully paid up in the new company, and those shares in the course of the liquidation were distributed, or transferred and handed over, to the two shareholders, Mr. and Mrs. Pollock. On November 8, 1953, Mr. Pollock died, so that his part of the share consideration passed to his personal representatives. The one exception was a sum of cash which, so far as is relevant, may be stated as pound 15,030, a figure which was arithmetically exactly 50 per cent. of the amount of the issued share capital of the old company. The balance figure of pound 15,030 was in the due course of liquidation paid out to the representatives of Mr. Pollock and to Mrs. Pollock as the contributories of the old company. The Crown claimed that a distribution charge was payable by virtue of section 35(I) of the Finance Act, 1947. The relevant parts of the case stated by the Commissioners for the Special Purposes of the Income Tax Acts are set out in the report of the proceedings before Upjohn J. The commissioners held that the sum of pound 15,030 was not a "gross relevant distribution to proprietors" for the purposes of a charge to profits tax. On appeal by the Commissioners of Inland Revenue, Upjohn J. dismissed their appeal, and they now appealed to the Court of Appeal. Sir Reginald Manningham-Buller Q.C., A.G., Sir Reginald Hills and E. Blanshard Stamp for the Crown. Roy Borneman Q.C. and Hilary Magnus Q.C. for the respondent company.
(2.) Cases cited in argument not referred to in the judgments : Inland Revenue Commissioners v. Bell & Nicholson Ltd. 1; In re Doughty 2; Montague Burton (in liquidation) Ltd. v. Inland Revenue Commissioners 3; Lamson Paragon supply Co. Ltd. v. Inland Revenue Commissioners 4; In re Ramel Syndicate Ltd. 5
(3.) LORD EVERSHED M.R. The question raised in this appeal is whether the tax known as profits tax, or more strictly a certain aspect of profit tax called the "distribution charge," is leviable in respect of the sum of pound 15,030 which was paid out, to use a neutral phrase, by the liquidator of a company known as Pollock & Peel Ltd. to the two shareholders of that company in the course of its liquidation.;