payment of dividends due to the American shareholders of Kodak, Limited. The residue of the dividends had always been left with the Rochester Trust and Safe Deposit Company at the order of Kodak, Limited, and no moneys whatever attributable to the dividends coming to Kodak, Limited, from the Eastman Kodak Company had ever in fact been remitted to the United Kingdom. It was contended on behalf of the company : 1. That the business carried on by the Eastman Kodak Company was carried on in America, and neither wholly nor partly in the United Kingdom, and that there was no fact from which it could be found or held that the business was carried on in the United Kingdom, and, therefore, that no assessment could be made by or under the Income Tax Acts in respect of the profits of the business upon Kodak, Limited. 2. That the profits of the business of the Eastman Kodak Company were not the profits of Kodak, Limited. 3. That Kodak, Limited, had only such an interest in the business and profits of the Eastman Kodak Company as holders of shares in the latter company could have and no other; that they were entitled only to such profits as were converted into and distributed in the shape of dividends in respect of these shares and to nothing else. 4. That the dividends to which Kodak, Limited, were entitled in respect of shares in the Eastman Kodak Company were taxable only (at most and if at all) under case 4 or case 5 of s. 100, Sched. D, of the Income Tax Act, 1842, and not otherwise. 5. That the dividends upon the shares of Kodak, Limited, in the Eastman Kodak Company were taxable only (if at all) to the extent to which they were actually received in the United Kingdom, and that, as no part of any such dividends had been received in the United Kingdom in fact, Kodak, Limited, were not taxable in respect of any part of such dividends. 6. That as no part of the dividends had been constructively received in the United Kingdom, Kodak, Limited, could not be assessed in respect of any part of any such dividends. C. A. 1903 KODAK, LIMITED v. CLARK. C. A. 1903 KODAK, LIMITED v. CLARK. 7. That the Eastman Kodak Company and Kodak, Limited, were distinct and independent entities, and that the ownership by the latter of shares, even to the extent of 98 per cent. of the total shares in the former, did not make the business and profits of the former the business and profits of the latter, and that there was no evidence from which it could properly be found that the business or profits of the former were the business or profits of the latter, or that the business of the former was carried on or managed by the latter, and that the holding of shares was not such evidence. It was contended on behalf of the surveyor : - 1. That Kodak, Limited, having their registered office in England, were liable to assessments upon their total profits, including those of the Eastman Kodak Company. 2. That if Kodak, Limited, were held to be chargeable under cases 4 or 5 of the Income Tax Act of 1842, Sched. D, s. 100, then that the whole of the dividends of the Eastman Kodak Company, if not specifically, were constructively received in the United Kingdom. Paragraph 15 of the special case was as follows: "After hearing and fully considering the whole of the evidence adduced on behalf of the appellant company and the surveyor of taxes. . . . we found as a fact that the English company controlled the American company from England, and that the head and seat and directing power of the appellants' company are at the appellants' registered office in London. Paragraph 16: "We therefore held as follows: "1. That the American company is carried on by and is the business of the appellants, and that the profits and business are technically the profits and business of Kodak, Limited. "2. That if the business at Rochester and the profits made thereat are technically the business and profits of the American company, the American company for all purposes are the agents of the appellant company. "4. That Kodak, Limited, is liable for its profits made in America under Sched. D, case 1. . . .' The question for the opinion of the Court was whether on the facts there was any evidence to justify these holdings, and whether such holdings were correct in point of law or erroneous. Kodak, Limited, appealed from the decision of the Commissioners, and Phillimore J. gave judgment, allowing the appeal. (1) The respondent appealed. Sir R. B. Finlay, A.-G., and Sir E. Carson, S.-G. (S. A. T. Rowlatt) with them), for the Crown. Under the first case of Sched. D, s. 100, of the Income Tax Act, 1842, income tax is chargeable on the net profits arising from a business; under the fifth case it is chargeable only upon the actual sums received in Great Britain. The authorities shew that profits of business are chargeable under the first case if the business is carried on either wholly or in part in Great Britain: in order that such profits may be chargeable under the fifth case, the business must be carried on exclusively abroad. It was held in Colquhoun v. Brooks (2) that a person resident in Great Britain, who was a partner in a business carried on exclusively in Australia, was liable to be assessed for income tax under the fifth case of Sched. D, and not under the first case. In San Paulo (Brazilian) Ry. Co. v. Carter (3) it was held that an English company, which owned a railway in Brazil, was liable to be assessed upon the net profits earned in Brazil under the first case, because the business was managed and controlled in this country, and therefore could not be considered as carried on exclusively abroad. It is submitted that the decision in the last-mentioned case applies to the present. It was applied to cases in which the facts were similar to those of the present in Frank Jones Brewing Co. v. Apthorpe (4), United States Brewing Co. v. Apthorpe (5), St. Louis Breweries v. Apthorpe (6), and Apthorpe v. Peter Schoenhofen Brewing Co. (7) Upon the findings of the Commissioners this case clearly falls within the principle laid down in San Paulo (Brazilian) Ry. Co. v. Carter. (3) The only question with which this Court can deal (1) [1902] 2 K. B. 450. (2) (1889) 14 App. Cas. 493. (3) [1896] A. C. 31. (4) (1898) 15 Times L. R. 113. VOL. I. 1903. 2 N (5) (1898) 4 Tax Cases, 17. (6) (1898) 79 L. T. 551. (7) (1899) 80 L. T. 395; 4 Tax Cases, 41. 2 C. A. 1903 KODAK, LIMITED v. CLARK. C. A. 1903 KODAK, LIMITED v. CLARK. is the question whether there is upon the facts stated in the special case any evidence to support the findings of the Commissioners. It is submitted that there is abundance of such evidence. It appears from the prospectus of Kodak, Limited, and the other documents referred to in the case, that the scheme, in pursuance of which that company was formed, was one by which an English company was to be formed in order to acquire the business of a previously existing English company, and not less than 95 per cent. of the shares of the American Eastman Kodak Company, for the express purpose of bringing under a single control all the Eastman Kodak businesses over the world, and for that purpose George Eastman, who was a director of both companies, was to be a managing director of Kodak, Limited, and to be appointed proxy to exercise the voting power of Kodak, Limited, at any meeting of the American company. It is submitted that an English company, which, like Kodak, Limited, in truth and in substance carries on business partly in this country and partly elsewhere, cannot escape from liability to income tax under case 1 by setting up the mere machinery of a nominally independent foreign company. Technically the American company may be a distinct entity, but the business is substantially that of the English company. On the assumption that the business and profits of the American company cannot technically be said to be the business and profits of Kodak, Limited, it is contended that, where there is a body abroad, whether a corporation or a group of individuals, who are in fact carrying on business and earning profits abroad as agents for a company which is carrying on business in this country, the latter are taxable on the profits so earned abroad. There is nothing to the contrary of that proposition in the decision in Salomon v. Salomon & Co. (1) In this case the facts and documents shew that there was in truth direct control of the business of the American company by Kodak, Limited, at any rate to some extent. Where an English company has the whole, or a controlling, interest in a foreign company, the business of that foreign company cannot be considered to be carried on exclu(1) [1897] A. C. 22. sively abroad. Kodak, Limited, receives profits therefore from a business not exclusively carried on abroad, and consequently, according to the decision in San Paulo (Brazilian) Ry. Co. v. Carter (1), is chargeable to income tax, upon the profits so received, under the first case. In Apthorpe v. Peter Schoenhofen Brewing Co. (2), St. Louis Breweries v. Apthorpe (3), and United States Brewing Co. v. Apthorpe (4), the English company, as in the present case, did not hold all the shares in the American company. [VAUGHAN WILLIAMS L.J. Those cases appear to have been dealt with on the footing that the Commissioners had by their findings stated the companies out of Court.] It appears to have been open in those cases to the company to raise the point that there was no evidence to support the findings of the Commissioners. [VAUGHAN WILLIAMS L.J. It was not found apparently in those cases that there were any really independent shareholders in the American companies, as there are in the present case.] [They also cited Bartholomay Brewing Co. v. Wyatt (5); Cesena Sulphur Co. v. Nicholson. (6)] Danckwerts, K.C., and Kerly, for Kodak, Limited. It is submitted that the judgment of Phillimore J. is correct. It is not denied that, on sums actually received in England from the American company by way of dividend on the 98 per cent. of the shares held by Kodak, Limited, they are liable to income tax under the fifth case of Sched. D, but they are not liable under the first case. In the cases upon which reliance has been placed for the Crown it will be found, on looking at the facts, that the English company really owned the foreign business and all its assets; in some cases they were both legal and equitable owners of all the assets; in others they were legal owners of some of the assets and equitable owners of the rest; in other cases they were equitable owners of the whole. In those cases the English company really carried on the business abroad, and the foreign company only existed as its (1) [1896] A. C. 31. (2) 80 L. T. 395; 4 Tax Cases, 41. (3) 79 L. T. 551. 2 N 2 (4) 4 Tax Cases, 17. 2 C. A. 1903 KODAK, LIMITED v. CLARK. |