- (1.) HARMAN , L.J. There are occasions, even in revenue cases, when what one comes to look for is substance and not form. Here were corporators owning a first -class educational business which paid 800 per cent. on its ordinary shares and made a living also for the majority shareholders. It paid tax, of course, like any other commercial concern. The object of the corporators was to sell this business at is full value without losing control of it. They left it to their accountant to find the best means, and what we have is his plan, which smells a little of the lamp. His plan was (1) to sell the goodwill to a concern still controlled by the vendors; (2) to find the price out of the profits of the business; (3) to get back the income tax which was being paid by the vendors, thus accelerating the payment of the purchase -money.
(2.) WHAT were the steps taken to carry it out ? The first was that a trust was set up, a trust for educational purposes only, and, therefore, a charitable trust, but as its name implies, it was to be tied to Daviess the name of the business. The object of the charitable trust was to take over the business from Daviess. The second step in this was the covenant which Tutors entered into the day after its formation, which was a covenant for seven years to pay 80 per cent. of its profits to the trust. The third step was that the trust was to use the money to pay for the business. I care not at all, like my Lord, whether this was a legally binding transaction or merely one that was morally binding on everybody. After all, all the participators in this scheme were on one side of the table. They were the corporators in this business. They were the people who were making a living out of it and who were hoping to get a good price for it. There is nothing wrong with that. But it makes a formal agreement quite unnecessary because it was to everybodys interest and it was everybodys intention to carry it out in this way of it would get back Tutors income tax. The fourth step was that the trust, being a charity, was to apply to get back the income tax payable by the vendors and return it to the vendors directly it was got back and so hasten the payment of the purchase price.
(3.) IT is on this last rock that the ship founders. If I pay my college at Oxbridge income payments over seven years, these are annual payments because I expect and get no return from my outlay. If I make conditions, such as a free place for my son, no tax is reclaimable. Judge the present case by this test. The covenanter makes his payment to the trust. Every one concerned knows the object of it : it is to get back the payments as instalments of the purchase -money for the business -item to recover through the trust the tax it has paid and return it to themselves as further instalments. No doubt when the seven years are up, there is to be a further covenant on a further understanding that the covenanted sums will go to pay for the vendors physical assets, freeholds and leaseholds. The prospect is that no one in this business will pay any tax for years. It is a splendid scheme. Meanwhile the business will remain under the control of the majority shareholders and provide them with salaries as managers of the business. It is almost too good to be true. In law quite too good to be true. It wont do. That is enough in my opinion to deal with this appeal. I follow the judge until he reaches this point precisely; but his further reasoning I cannot follow, and so far as I can follow it, I do not accept it; but it makes no difference. As to the second point, that the payments were applied for charitable purposes only, being payment made to buy an educational business, when looked at it is essentially the same point at a different stage. The payments to be made by the covenanter are not in my opinion for charitable purposes only because they are paid in pursuance of the understanding that they shall be devoted to the purchase of the business. Therefore it does not matter that the business is an educational business and therefore within the object of the charitable trust because the objects of the charitable trust because the objects of the charitable trust are not wholly charitable in this case putt to pay for a business, of which they themselves are the controllers. On both points, therefore, I would dismiss the appeal. Salmon, L.J. I have heard it said that golf is essentially an easy game made difficult. It seems to me that the question that arises in this case is essentially an easy question made difficult. It has been made difficult only by the irrelevant complexities and ingenuity under which it has been almost submerged. ;