Rhodesia Railways and Others v Commissioner of Taxes

• Jurisdiction: South Africa
• Judge: Solomon ACJ, De Villiers JA and Stratford AJA
• Judgment Date: 20 May 1925
• Citation: 1925 AD 438
• Hearing Date: 02 April 1925
• Court: Appellate Division

Stratford, A.J.A.:

This is an appeal from the judgment of RUSSELL, J in the High Court of Southern Rhodesia in the matter of consolidated appeals by four Railway Companies against the assessment of the Commissioner of Taxes for the year ending 31st March, 1923.

All the circumstances relating to the position and activities of each company, so far as they bear upon the present enquiry, are set forth by the learned judge very clearly and concisely and need not be repeated. Indeed the task of this Court has been considerably lightened by his very lucid and able judgment.

The first and main question is whether the appellant companies were rightly assessed in the amounts which they now dispute, and this depends upon whether they are derived from a source within the territory or deemed to be within the territory. Section 5 of the Income Tax Act provides that "an amount shall be deemed to be derived from a source within the territory if it is received by or accrues to or in favour of any person ordinarily resident or carrying on business within the territory, and is received or accrues from any source. . . . . . . . . . in the adjoining territories of the Bechuanaland Protectorate and of the Mozambique Company." It

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is this proviso which I propose first to examine in its relation to the circumstances and position of each of the appellant companies. It is now admitted that both the Beira Company and the Beira Junction Company are not resident within the territory. The former owns a line of railway 1681 miles in length, which, with the exception of six miles at its western end in Southern Rhodesia, lies wholly in Portuguese East Africa. The latter has all its line in Portuguese East Africa. It is the contention of both these companies that the income derived from the working of these lines (except that obtained from the six miles) should not have been assessed by the Commissioner. That contention is based upon the submission that the companies do not ordinarily reside or carry on business within the territory. The learned judge decided the question of residence in favour of the appellants, and the Attorney-General for Southern Rhodesia, who appeared for the respondent no longer questions the correctness of that decision. Do these companies carry on business within the territory? The solution to this question depends upon the meaning of the phrase ordinarily resident or carrying on business within the territory which is contained in section 5 of the Act and upon its application to the position and activities of each company. The Mashonaland Company and the Rhodesia Company will be considered at a later stage, but much of the discussion will have a direct bearing upon the contentions advanced by these two companies as well. Primarily of course the question must be determined on a consideration of the language of the Income Tax Act under which the assessment is made, with such assistance as may properly be derived from decided cases where similar words or phrases have been considered. And it is the first or principal contention of the appellant's counsel that a company carries on business where it resides and nowhere else. For this it is said there is authority in the English cases decided under the Income Tax Acts of the United Kingdom. It is advisable, therefore, to examine shortly the principal decisions relied upon. In the case of De Beers Consolidated Mines Ltd. v Home (1906, A.C. 465) the question was whether that company ought to be assessed to income tax on the footing that it was a company resident in the United Kingdom. Under the 2nd section of the Income Tax Act, 1853, Sched. D,

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any person residing in the United Kingdom was obliged to pay on his annual profits arising from any kind of property situated in the United Kingdom or elsewhere and also "from any profession, trade, employment or vocation whether the same shall be respectively carried on in the United Kingdom or elsewhere." On the facts of the case it was decided by the House of Lords that the Company had its residence in the United Kingdom. Lord LORE-BURN said: "In applying the conception of residence to a company we ought, I think, to proceed as nearly as we can upon the analogy of an individual. . . . The decision of KELLY, C.B and HUDDLESTON, B in the Calcutta Jute Mills and the Cesena Sulphur Co. v Nicholson (1876, 1 Ex. D. 428) now thirty years ago, involved the principle that a company resides for the purposes of income tax where its real business is carried on. I regard that as the true rule, and the real business is carried on where the central management and control actually abides." It was held that the company's central management and control was in London, that consequently its real business was carried on there and that, therefore, that was the place where it resided. This conclusion, it is said, establishes the proposition that a company only carries on business where it resides. I am unable to see any justification for the inference. The case emphatically does not decide that the place of a company's real business or the place of its principal business is the only place where it can carry on business. The analogy with the conduct of an individual (adopted also by LORD PARKER in Daimler Co. Ltd. v Continental Tyres and Rubber Co. - 1916, 2 A.C. 307) which the LORD CHANCELLOR invokes would certainly destroy such an inference. For it would be to deny the obvious to say that an individual cannot carry on business in more places than one and consequently in places where he does not reside. Moreover, if the LORD CHANCELLOR had laid down the proposition suggested, it appears to me that he would have denied the very idea which the Act he was interpreting and applying had recognised, for if reference is made to the italicised words of the Act quoted above it will be seen that the English Legislature contemplated the case of a person resident in the United Kingdom and carrying on business elsewhere.

Two other cases were relied upon - San Paulo Railway Co. v

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Carter (111 T.C. 407; 1896, A.C. 31) and London Bank of Mexico v Apthorpe (111 T.C. 143; 1891, 2 Q.B.D. 376), both of which were decisions under the Income Tax Act 5 and 6, Vict. C. 35, Sched. D., section 100. It is necessary to remember, as Lord WATSON pointed out in thee former case, that "once it is ascertained that a person interested in the profits of a trade has his residence in the United Kingdom in such sense as to bring him within the incidence of the Income Tax Act s, the only question remaining for determination is whether the measure of his liability is to be found in the first or the fifth case of Schedule D. In the one case he is liable to pay duty in respect of the net profits accruing to him from such trade, in the other in respect only of such part of these profits as shall have been received by him in this country. But he cannot, according to the rule established in Colquhoun v Brooks, escape from liability under the first case unless he is able to show that no part of the trade is carried on within the United Kingdom, or, what comes to precisely the same thing, that it is exclusively carried on in a country or countries outside the United Kingdom, whether subject to His Majesty or not. If he succeeds in proving that fact, his liability will be under the fifth case." In this...