Lamb v Commissioner for Inland Revenue

• Jurisdiction: South Africa

Lamb v Commissioner for Inland Revenue
1955 (1) SA 270 (A)

1955 (1) SA p270

Citation	1955 (1) SA 270 (A)
Court	Appellate Division
Judge	Centlivres CJ, Greenberg JA, Schreiner JA, Van Den Heever JA and Hoexter JA
Heard	November 23, 1954
Judgment	December 2, 1954

Flynote : Sleutelwoorde E

Revenue — Income tax — Source of income — Dividends in company with principal register in London but dominion register in Johannesburg — Taxpayer's stock registered in dominion register — Dividend however derived from property in England.

Headnote : Kopnota

F The appellant, who carried on business in Johannesburg, received during the year of assessment ended on 30th June, 1952, a dividend of £1,575 in respect of certain stock held by him in the N.C. Copper Mines Ltd., a company incorporated in England on 8th March, 1937, as a public company under the English Companies Act, 1929. At all material times the G address of the registered office of the Company was in London and its principal register of members had been kept there. In 1937 the Company established a dominion register in Johannesburg. Only members of the Company with addresses in the Union might be entered in the dominion register, whether or not they actually resided there. No specific number of stock units was assigned to this register but entries arose in the first place through the removal of stock by stockholders from the principal to the dominion register. A member who had his stock registered on the dominion register might have his holding transferred H to the principal register by lodging with the Local Committee his stock certificates together with a completed removal application form whether or not he continued to reside in the Union. The Local Committee thereupon removed the stockholder's name from the dominion register, cancelled the Johannesburg certificates and requested the London Transfer Office of the company to enter the stockholder on the principal register and to issue to him appropriate certificates. The appellant had at all times up to December, 1953, had his stock in the company registered on the dominion

1955 (1) SA p271

register at Johannesburg. The Company, after obtaining the consent of the British Treasury, had transferred its management and control to Northern Rhodesia where it established its Head Office. Since 1st January, 1951, all meetings of stockholders and directors had taken place in that country and since that date all dividend declarations by the Company had been made there, but all dividends due to members of the Company whose names appeared on the dominion register in Johannesburg were paid to those members through the Johannesburg Local Committee. During the year of assessment under consideration the Company had A derived no income from sources within the Union but had incurred expenditure in the Union mainly in connection with the Johannesburg Local Committee. The Commissioner in his determination of the appellant's liability to super tax for the year ended on June 30th, 1952, had included the dividend of £1,575 in the appellant's income subject to super tax. The appellant had lodged an objection and appeal on the ground that the dividend was derived from a source outside the B Union. The Special Court having dismissed the appeal, in a further appeal under section 81 (1) (b) of Act 31 of 1941, as amended,

Held, per CENTLIVRES, C.J., GREENBERG, J.A., and VAN DEN HEEVER, J.A., concurring, as the dominion register was, in terms of section 120 (1) of the English Act, deemed to be part of the Company's principal register in London, that the appellant's stock was therefore located in England and the dividend was derived from property which was in England.

Held, per SCHREINER, J.A., HOEXTER, J.A., concurring, that for the purposes of our Income Tax Act the locality of the source of the C dividend was not where the particular shares happened to have been registered at a particular date, but where the shares of the company were generally speaking registrable, and that, where there was more than one register, was the locality of the principal register.

Held, accordingly, that the dividend received had not been received from a source within the Union and should have been omitted from the appellant's assessment. D

Case Information

Appeal under sec. 81 (1) (b) of Act 31 of 1941, as amended, from a decision in the Special Income Tax Court. The facts appear from the judgment of CENTLIVRES, C.J.

D. Gould, Q.C. (with him J. B. Edwards) for the appellant: On any view E other than the one advanced for appellant in Boyd v C.I.R., 1951 (3) SA 525, the dividend in that case would have been derived from a source within the Union. Accordingly, the reasons advanced by this Court in support of its conclusion were obiter; cf. Willoughby's Consolidated Co., Ltd v Copthall Stores, Ltd., 1918 AD at p. 21; Smith & Another v Mahey & Another, 1926 OPD at pp. 36 - 7; Pretoria City Council v. F Levinson, 1949 (3) SA at p. 317; R v Butelezi, 1951 (3) SA at p. 42. Alternatively, if the source of a dividend must be regarded as the recipient's shareholding in a company, this Court erred in adopting the view that, for purposes of income taxation, the recipient's shares must be regarded as being located in the country in which a register on which G they can be effectively dealt with is kept. If this submission is correct, it is open to this Court, more particularly because the issue was not canvassed in argument on behalf of appellant in Boyd's case supra, to revise that view; see Harris and Others v Minister of the Interior & Another, 1952 (2) SA at pp. 425 et seq. There is ample authority consonant with the first view expressed by this Court in Boyd's case as to what constitutes the source of a dividend, namely, H that the source of a dividend is the recipient's shareholding; see e.g. I.R.C v Reid's Trustees, 1949 (1) A.E.R. at pp. 362 - 4; In re Chalmers, 13 N.S.W. S.R. 711 referred to in Nathan v F. C. of T., 25 C.L.R. at pp. 195 - 6. But the second ground advanced in Boyd's case for holding that the dividend had been received

1955 (1) SA p272

from a source within the Union would appear to be correct, namely, that the source of a dividend is not the recipient's shareholding but the formal act of declaration by the Company and that the locality of the A source is the place of the Company's residence i.e. the place where its controlling power and authority is exercised; see Boyd's case at pp. 534 - 5. Alternatively, if the source of the dividend must be regarded as the recipient's shareholding in the company, then, for purposes of income taxation the shareholding must similarly be regarded as being located at the place of the company's residence. For the view that the situs of a share is the country where the register which constitutes B evidence of the holder's title is kept, reliance was placed in Boyd's case on Brassard v Smith and Others, 1925 A.C. 371; Erie Beach Co., Ltd v A - G. for Ontario, 1930 A.C. 161; R v Williams & Another, 1942 A.C. 541; Treasurer of Ontario v Blonde & Others, 1947 A.C. 24; Gunn, Commonwealth Income Tax Law & Practice. All the cases relied on in Boyd's case were concerned with the determination of the C situs of the shares in joint stock companies for purposes of death duties. As to their effect for purposes of death duties, see Dymond, Death Duties (pp. 479 et seq.); Green, Death Duties (3rd ed., p. 390 et seq.); Dicey, Conflict of Laws (6th ed., p. 306); Cheshire, Private International Law (3rd. ed., p. 623). These rules are, however, D inappropriate and inapplicable for the determination of the situs of shares for purposes of income taxation. Shares are incorporeals and, like all incorporeals, have in a sense no real situs or local habitation at all; see Brassard's case, supra at p. 375; R v Williams & Another, 1942 (2) A.E.R. at p. 95. For certain purposes, however, a local situation must be attributed to them, even though it may only be of a E fictional nature; see Dicey, supra at p. 303; R v Williams and Another ibid; Treasurer of Ontario case, supra at p. 30. In evolving rules for the determination of the locality properly assignable to different kinds of property, the English Courts have, in the main, been guided by maxims derived from the practice of the Eclesiastical Courts; see Dicey, supra at p. 303. In the result they have not only evolved F different rules for the determination of the situs of different kinds of incorporeal property but also, in some cases, different rules for determining the situs of the same type of incorporeal property according to different purposes for which the determination is required; see Dicey, op. cit. pp. 303 - 9; Cheshire, supra pp. 594 - 625. An analysis of these rules reveals that they were evolved as rules of G convenience, based upon logical considerations, and that rules evolved for the determination of the situs of property in one field cannot be mechanically transferred to another; see Martin Wolff, Private International Law (2nd ed., pp. 542 - 3). The rule that shares in a company are located where they can be effectively dealt with has also for logical reasons been applied by the English Courts in matters H relating to probate jurisdiction and the vesting of enemy property; see A - G v Higgins, 2 H. & N. 339; Stern v Reg. 1896 (1) Q.B. 211; Baelz v Public Trustee, 1926 Ch. 863; Re Aschrott, Clifton v Strauss, 1927 (1) Ch. 313. This rule has likewise been applied in the Union for similar purposes; see The Treasury v Consolidated Mines Selection Co. Ltd., 1918 T.P.D. 13; Randfontein Estates Gold Mining Co. Ltd v Custodian of Enemy Property, 1923

1955 (1) SA p273

A.D. 576; Farrar's Estate v C.I.R., 1926 T.P.D. 501. But this rule has, in England, been regarded as inapposite for the determination of the situs of shares in the interpretation of...