Estate Brownstein v Commissioner for Inland Revenue

• Jurisdiction: South Africa

Estate Brownstein v Commissioner for Inland Revenue
1957 (3) SA 512 (A)

1957 (3) SA p512

Citation	1957 (3) SA 512 (A)
Court	Appellate Division
Judge	Schreiner ACJ, Reynolds JA, Brink JA, Beyers JA and Malan JA
Heard	May 14, 1957
Judgment	May 23, 1957

Flynote : Sleutelwoorde

Revenue — Death duties — Estate duty — 'Property' within D meaning of paras. (f), (g) and (h) of sec. 3 (2) of Act 29 of 1922 — What constitutes — Shares in company registered outside Union with transfer office conducted by an agent in Union — Company one within meaning of sec. 40 of Act and shares 'property' — Dividends E constituting debt recoverable in Union within meaning of sec. 3 (2) (f) — Right to dividend 'property'.

Headnote : Kopnota

An association limited by shares has an office within the Union within the meaning of section 40 of Act 29 of 1922 when it has a transfer office within the Union, whether conducted by itself on premises owned by it or conducted on its behalf by an agent on premises owned by the latter.

Where a company registered outside the Union maintained a transfer F register in the Union at the office in the Union of a company which acted as secretary and had a local committee which saw to the payment of dividends to persons on the register.

Held, that the office was an 'office' and the company a 'company' within the meaning of section 40 of Act 29 of 1922 and that shares in the company were 'property' under paragraphs (g) and (h) of section 3 (2) of the Act.

Held, further, that a dividend declared by the company to a person on G the register was a debt recoverable in the Courts of the Union within the meaning of section 3 (2) (f) of the Act; accordingly that the right to the dividend was 'property' under the sub-section.

The decision in the Witwatersrand Local Division in Estate Brownstein v Commissioner for Inland Revenue, confirmed. H

Case Information

Appeal from a decision in the Witwatersrand Local Division (NESER, J.) dismissing an application for an order declaring that no liability for estate duty existed in respect of certain amounts. The facts appear from the judgment of SCHREINER, A.C.J.

B. A. Ettlinger, Q.C. (with him J v Lazarus), for the appellant: The deceased's shares in Nchanga Consolidated Copper Mines, Ltd. are not liable for estate duty in terms of Act 29 of 1922 as amended. Sec. 3 (2) contains an exhaustive list of property in relation to an estate

1957 (3) SA p513

for the purpose of estate duty. See Torf's Estate v Minister of Finance, 1948 (2) SA at pp. 288 - 9; Estate Droste v C.I.R., 1946 T.P.D. 435. Estate duty only attaches therefore to the shares in question if such shares fall within sub-secs. (g) or (h) of sec. 3 (2). Nchanga Consolidated Copper Mines, Ltd., is not a company within the A meaning of the definiton of 'company' in sec. 40. The word 'includes' where is appears for the first time in the definition should be read as 'means and includes'. The definition was intended to be exhaustive. See Dilworth v Commissioner of Stamps, 1899 A.C. at p. 105; Estate Droste v C.I.R., supra at pp. 437 - 9. In this regard, the judgment in Jones B & Co v C.I.R., 1926 CPD 1, would appear to be wrong and in any event the reasoning therein is inapplicable to the present case. If the word 'includes', where it appears for the first time in the definition, was intended to extend the meaning of the words 'any company', the latter part of the definition would be meaningless and the use of the words 'body corporate' in sec. 3 (3), 3 (4) and 3 (5) would be C unnecessary. See too, secs. 33 and 37 (2) (a). The Company in the present case clearly does not fall within the terms of the definition. It was incorporated as a public company in England and compliance with the provisions of Chap. V of Act 46 of 1926 did not result in it becoming registered in the Union; see sec. 208. Nor does the Company D 'carry on business' within the Union. The fact that it has established in the Union a Dominion register of its members resident in the Union does not amount to the carrying on of business by the Company. See Grant v Anderson & Co., 1892 (1) Q.B. at pp. 112 - 3, 117. Nor does a company carry on business with its shareholders when it registers transfer of shares; cf. definition of 'company' in sec. 1 of Act 45 of E 1955. None of the other activities of the Company in the Union amounts to the carrying on of business by the Company. See Smith & Anderson, 15 Ch. at pp. 258 - 9; Grant's case, supra at p. 117; Sully v The Attorney-General, 29 L.J. EX. at p. 466; Grainger & Son v Gough, 1896 A.C. at pp. 335 - 6; de Beers Consol. Mines, Ltd v Howe, 1906 A.C. at p. 458. Neither the fact that a Company has, as one of its objects, the F transaction of business in the Union, nor the fact that a Dominion register may only be kept in a Dominion in which the company transacts business, can affect the question whether the company in fact or in law carries on business in the Union. See Fry v Salisbury House Estate Ltd., 1930 A.C. at p. 451. Furthermore, the fact that a company on G occasions transacts business in the Union does not mean that it carries on business in the Union. On the contrary, the facts establish that the company carries on business outside the Union. The Company has no 'office or place of business' in the Union. If it does not carry on business in the Union, it cannot have a place of business in the Union. H The definition of 'place of business' in sec. 204 of Act 46 of 1926 is of no assistance in determining whether the company has a place of business in the Union inasmuch as such definition is confined to the special purposes set out in Chap v Similarly in regard to sec. 198 (5) of the repealed Act 31 of 1909 (T). It is the policy of the Act that a foreign company should comply with the provisions of Chap. V, not only if it transacts business or holds itself out as transacting

1957 (3) SA p514

business in the Union, but also if the company establishes a share transfer or share registration office in the Union so as to enable its shares to be quoted and dealt in in the Union. Chap. V was introduced not only for the protection of creditors but also for the protection of shareholders. It was only by sec. 1 of Act 45 of 1935 that the A definition of 'company' was enlarged for the purposes of estate duty so as to include a company which 'maintains a share transfer register in the Union'. Both the English and South African Companies Acts distinguish between the office of a person who makes up a Dominion register for a company and the office of that company. See secs. 110 B (2) and 120 (2) of the English Companies Act; sec. 25 bis of the SA Companies Act 1926 as amended. Sec. 119 (2) of the English Act indicates that the Dominion register is to be at an office, but not necessarily at an office of the company. The dividend in respect of the said shares is not subject to estate duty in terms of Act 29 of 1922 as amended. The declaration of a dividend creates a debt and is therefore C only subject to estate duty if it is a 'debt recoverable or a right of action enforceable in the courts of the Union'. See sec. 3 (2) (f) of Act 29 of 1922 as amended. The words 'recoverable' and 'enforceable' do not extend to the case in which the jurisdiction of the South African D Court is founded upon attachment. As the Company in the present case is a foreign company, the debt created by the declaration of the dividend is not recoverable in the Union save in an action in which jurisdiction has been founded upon attachment of property. See Pollak, South African Law of Jurisdiction (pp. 97 - 101). The Legislature cannot have intended to regard as property for purposes of Union estate duty a right E of action which would not ordinarily be enforceable in the Union but which might become enforceable in the Union when there happened to be assets of the debtor in the Union which the creditor could, if he wished and if he was sufficiently vigilant, attach ad fundandam jurisdictionem. If it is correct that the Company does not carry on business in the F Union, jurisdiction cannot be founded on the basis that the cause of action arises out of such business or was connected therewith in terms of the rule set out in Appleby (Pty.), Ltd v Dundas Ltd., 1948 (2) SA at p. 912; and Pollak, supra at p. 99. The fact that a summons might validly be served on the Company is irrelevant. Alternatively, even if the establishment of the Dominion register in the Union amounted G to the carrying on of business in the Union by the Company, the debt arising from the declaration of a dividend to shareholders did not arise out of and was not connected with such business. See Lamb v C.I.R., 1955 (1) SA at pp. 278 - 81.

W. G. Trollip, Q.C., with him E. K. Weber, for the respondent: The H definition of 'company' in sec. 40 of Act 29 of 1922 as amended is not exhaustive of a 'company', and whether or not the Company in the present case falls within that definition, it is a company within the ordinary meaning of the word in sec. 3 (2) (g) and (h). The expression 'any company' (giving 'any' its full force) in sec. 3 (2) (g) or (h) in its ordinary meaning, would include all companies whether incorporated in the Union or overseas. See Hayne & Co v Kaffrarian Steam Mill Co., Ltd., 1914 AD at p. 371; R v Hugo, 1926 AD at

1957 (3) SA p515

p. 271; Fine Wool Products of S.A v Director of Valuations, 1950 (4) SA at p. 504. Consequently, unless the definition of 'company' in sec. 40 limited that ordinary meaning and was exhaustive of the kinds of association mentioned therein, the present Company would be such a 'company'. See Jones & Co v C.I.R., 1926 CPD at p. 4. The A definition of 'company' in sec. 40 is not exhaustive and does not curtail the ordinary meaning. This is indicated by the use of the word 'includes' which ordinarily...