The taxpayer companies had purported to pay interest on debentures, but these payments were ultra vires and void.
Held: The court upheld the Special Commissioners’ disallowance of payments of interest ‘grotesquely out of proportion to the principal amounts secured’ as not being interest within the meaning of section 169. The sums could not accordingly be annual payments under the 1952 Act. Moreover, the payments of so-called interest were in fact gratuitous (and so unlawful) dispositions of the company’s money. Pennycuick J said: ‘A company can only lawfully deal with its assets in furtherance of its objects. The corporaters may take assets out of the company by way of dividend or, with leave of the court, by way of reduction of capital, or in a winding up. They may, of course, acquire them for full consideration. They cannot take assets out of the company by way of voluntary disposition, however described, and, if they attempt to do so, the disposition is ultra vires the company.’
Judges:
Pennycuik J
Citations:
[1964] 1 WLR 479
Statutes:
Jurisdiction:
England and Wales
Cited by:
Cited – Progress Property Company Ltd v Moorgarth Group Ltd SC 8-Dec-2010
The appellants appealed against rejection of their claim that there had been an unlawful distribution of capital when the appellant had sold the share capital of a subsidary at an undervalue to the respondent purchaser. The valuation had . .
Lists of cited by and citing cases may be incomplete.
Company, Income Tax
Updated: 06 May 2022; Ref: scu.427161