April 20, 1943

LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

We might as well deal with

this other matter, the question of what we mean by "controlling interest." I wonder how it would be if I placed this case on Hansard, by consent; it is a pretty good case. It is a House of Lords' decision, and a very good one. Perhaps that would be the best way, and this would be the appropriate point. The previous cases are referred to here, and the decision covers less than two pages of the report. I think it would be helpful to place it on Hansard instead of reading it immediately.

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PC
LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

It is British American

Tobacco Company Limited versus Inland Revenue Commissioners. It was heard on December 7, 8 and 9, 1942, and is reported in the "All-England Law Reports," annotated, 1943, volume 1, part 1, page 13. It will take a little printing, but perhaps it is worth it.

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NAT
LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

We mean "controlling interest" in the light of the decision in that case.

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NAT

Gordon Graydon (Leader of the Official Opposition)

National Government

Mr. GRAYDON:

I think the minister intended and perhaps neglected to ask for unanimous consent to have the case placed upon Hansard.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Yes; I should have unanimous consent; otherwise I would have to read it.

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LIB

Joseph-Arthur Bradette (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

The CHAIRMAN:

No one objected, and

I took unanimous consent for granted.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Then the case will appear

in Hansard at this point.

British American Tobacco Co., Ltd. v. Inland Revenue Commissioners

[House of Lords (Viscount Simon, L.C., Lord Atkin, Lord Thankerton, Lord Russell of Killowen, Lord Porter), December 7, 8, 9, 1942]

Revenue-National defence contribution-"Controlling interest" in company-Indirect control

-Finance Act, 1937 (c. 54), Sched. IV, paras.

4, 7 (b), 11.

The appellant company held shares in 11 companies operating outside the United Kingdom, which were not, therefore, liable to he assessed to national defence contribution. In the case of 4 of these companies, the appellant company itself controlled more than 50 per cent of the votes. In the case of the remaining 7 companies, more than 50 per cent of the votes were controlled by the appellant company in conjunction with a company or companies in which the appellant company controlled more than 50 per cent of the votes:-

Held: the appellant company had a controlling interest in all the companies within the meaning of the Finance Act, 1937, Sched. IV, para. 7 (b), and the dividends received by the appellant company from these companies should be included in its income liable to national defence contribution.

Decision of the Court of Appeal ([1941] 2 All E.R. 651) affirmed.

[Editorial Note.-It has been unsuccessfully contended that a control by a bare majority holding is insufficient. The argument was that, to have a controlling interest, a controlling company must have such a holding that it could ensure the passing of resolutions which must be passed by more than a bare majority of votes. This contention has been rejected by all the courts and in a few sentences Viscount Simon, L.C., has shown that a bare majority of votes is sufficient for effective control of a company.

As to Control of Company, see Halsbury, Hailsham Edn., Vol. 17, pp. 89-92, para. 187, p. 290, para. 576; and for Cases, see Digest, Vol. 28, pp. 25-30, Nos. 136-154.]

Case referred to:

(1) Noble v. Inland Revenue Comrs. (1926), 12 Tax Cas. 911.

Appeal by the taxpayer from an order of the Court of Appeal, dated June 30. 1941, and reported [1941] 2 All E.R. 651, dismissing an

appeal from a decision of Lawrence, J., dated Apr. 8, 1941, and reported [1941] 2 All E.R. 86, where the facts are fully set out.

J. Millard Tucker, K.C., and John S. Scrimgeour for the appellants.

The Attorney-General (Sir Donald Somervell, K.C.), J. H. Stamp and Reginald P. Hills for the respondents.

Viscount Simon, L.C.: My Lords, this appeal is brought, by special leave of this House, from the order of the Court of Appeal (Scott, Clauson and Goddard, L.JJ.), which dismissed an appeal by the appellants from a judgment of Lawrence, J., on a case stated by the commissioners for special purposes of the Income Tax Acts. The matter arises upon an assessment to national defence contribution made upon the appellant company under the Finance Act, 1937, Part III, and the question in dispute is whether the appellant company had "a controlling interest" in certain foreign companies referred to in the case within the meaning of that expression as contained in the Finance Act, 1937, Sched. IV.

7 (b), so as to require that dividends received by the appellant company from these foreign companies should be included in its income liable to national defence contribution.

Counsel for the appellant company put forward two contentions in support of the view that the appellant company had no such controlling interest. First, he argued that "interest" in this connection means interest of a proprietary nature and that tjie condition that there should be a controlling interest would only be satisfied if the appellant company itself owned a sufficient shareholding in the other company to control the latter. Secondly, he contended that, in any event, a controlling interest is not constituted by the control of the bare majority of shares (whether directly or through other companies), but that the control must be of such proportion of shares as -would secure the passing of a special resolution or other resolution for which a special majority ' is required by the terms of the constitution of the foreign company.

These two contentions have been rejected as unsound by each tribunal which in turn has dealt with the appellant company's claim, and at each stage the decision arrived at has been in favour of the crown. Notwithstanding the full and careful argument addressed to the House. I take the view that the decision arrived at below was correct, and I understand that your Lordships are in agreement with me that the appeal should be dismissed.

The case turns on the meaning of the -words "controlling interest" in the context in which they are used. The appellant argues that, in order that one company should have a controlling interest in another, it must be the beneficial owner of a requisite number of shares in that other company, either registered in its own name or in the name of its nominees; and that if company No 1 owrns all the shares in company No. 2, which in turn owns all the shares in company No. 3, company No. 1 has no interest, controlling or otherwise, in company No. 3.

It is true that in such circumstances company No. 1 owns none of the assets of company No. 2, and a fortiori owns none of the assets of company No. 3, and in that sense neither owns, nor has an interest in, company No. 3. But that is to treat the phrase "controlling interest" as capable of connoting only a proprietary right, that is, an interest in the nature of ownership.

Income War Tax

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Section agreed to. On section 8-Government annuities.


NAT
LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

This allows payments on government annuities as offsets against com-* pulsory savings.

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PC

George Russell Boucher

Progressive Conservative

Mr. BOUCHER:

Can the minister tell us something about payments on existing government annuities incurred some few years ago, under contracts that were convertible in the sense that the holder of the annuity could increase his annual payments. Having made annual payments at a low rate, could the annuity holder increase his annual payments and thus have that much more credited against his compulsory savings?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

I shall have to look into that. I know what the hon. gentleman means, and I am concerned about the section myself. It may be that it is all right., but I am concerned with what we have done here, because my recollection is that some years ago purchasers of annuities in some instances paid fifty cents or a dollar and had the option of taking out an annuity for any amount, almost up to the limit, at any time they wanted to do so, on the same terms. I think the hon. gentleman's question means this: Can one of these persons who paid a dollar down and really got an option on an annuity, which he did not exercise until after June 23, 1942, now exercise that option and get the benefit of payments on that annuity as an offset. That is the question, is it not?

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PC

George Russell Boucher

Progressive Conservative

Mr. BOUCHER:

More than that. For instance, a person had an annuity, had made payments under it at a certain rate, and by ' the original contract had the right and privilege to increase that payment, and reduce the maturity date of his annuity from the age of sixty-five or seventy years to that of fifty-five years, or also by making payments and advancing the payment date of the annuity.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

I should like to have this section stand.

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LIB

George Henry Ross

Liberal

Mr. ROSS (Calgary East):

Does the

amendment apply to existing annuity contracts as well as to future ones?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

It does not apply to future ones at all. It applies only to contractsprior to June 23, 1942. The point troublingme at the moment is whether one can say that an annuity contract existed prior toJune 23, 1942. in any real sense, if a person

paid merely a nominal sum down. Should he now be permitted to come in, buy an annuity and get the benefit of this, when a person who did not get any option cannot get the benefit of it? My concern is to see

Income War Tax

that there is no discrimination here. The point is worthy of consideration, and I am asking that the section stand.

Section stands.

Sections 9 and 10 agreed to.

On section 11-Expenditures on dry oil

wells.

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LIB

George Henry Ross

Liberal

Mr. ROSS (Calgary East):

I understand there are a number of wells that were spudded-in before January 1 last. They have not been fully financed, and the owners are not able to carry on now. They were not able to complete financial arrangements by reason of the heavy taxation imposed last year. I had hoped this section would affect such wells. May I ask if the crown corporation being formed, which will have the right to acquire land and drill wells, from the commencement, will have the right to go in and take over these wells which have been commenced, but closed down on account of the owners being unable to complete financial operations. Will the crown company have the right to go in and take over these wells, complete them, take the cost of completion out of production, and then turn the wells back to the owners, the same as they would if there were no oil well at all?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

I cannot answer that. The hon. member will recall that it was the Minister of Munitions and Supply who informed the house with respect to the proposed operations of the crown company. I do not know what its powers wdll be, or how it is to operate.

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April 20, 1943