Commissioner of Inland Revenue v Brown Bros Ltd

• Jurisdiction: South Africa
• Judge: Murray J, Blackwell J and Neser J
• Judgment Date: 24 February 1955
• Court: Transvaal Provincial Division

E Blackwell, J.:

Brown Brothers Limited, hereinafter referred to as the Company, was incorporated in South Africa in July, 1945, as a private Company with a capital of £100,000. It carries on business as shippers and brokers. In February, 1946, it established a subsidiary company in New York known as Brown Brothers Export Corporation, hereinafter referred to as the Corporation. The share capital in this Corporation is F wholly provided and held by the Company. The Corporation carries on business in New York as shippers and brokers and as a confirming house. A confirming house arranges for the confirmation of an order for goods by way of making a firm contract with the supplier and paying such supplier the cost of the goods on behalf of the merchant placing the G order. In addition, a confirming house does all other things necessary to get the goods away to the ordering merchant on time, such as arranging and paying for shipping space and insurance on behalf of such merchant. A confirming house makes its income by way of charging the merchants who place orders with it a commission.

Apart from its interest in the New York business the Company does business locally and through another subsidiary in London. Vis-à-vis the H Corporation the Company acts as its agent by way of obtaining orders for goods from merchants in the Union and sending such orders on to the Corporation in respect of which it receives a commission on all orders accepted by the Corporation. The Company itself carries on no trading or business activities in the United States of America.

Blackwell J

From 11th February, 1946, to 15th December, 1947, the relationship between the Company and its American subsidiary was governed by a written agreement which defined the respective functions of the two concerns and provided for the payment to the Company of a commission of A 1½ per cent on the net invoice price in dollars of orders placed. This commission was also in dollars. From 15th December, 1947, a new written agreement operated under which the Company received 50 per cent of the commission earned by the Corporation, also payable in dollars. The capital of the Corporation originally was £50,000 in dollars and was to be provided entirely by the Company. For this purpose it was necessary B to obtain permission from the exchange control branch of the Treasury to remit the money to America. Permission originally was given to send £25,000, but later on, in view of the rapid expansion of the Corporation's business, this was extended to cover another £25,000. A term of the permission granted was:

'that the ascertained net profits of the subsidiary be transferred to C the Union at regular intervals of not more than twelve months'.

The Company complained that the American house was gravely hampered by lack of capital and that the smallness of its capital resulted in its receiving a low rating in financial circles in America, with consequent difficulty in borrowing money or raising capital in that country. On 8th September, 1948, a further application was...