1955 (1) TMI 33 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of "the public" under Section 21 of the Income Tax Ordinance, 1940 of Uganda.
2. Determination of controlling interest percentage necessary to classify a company as one in which "the public are substantially interested."
3. Whether the respondent and his brother Sverre Bjordal should be considered as acting in concert and thereby not part of "the public."
4. The relevance of directorship in defining "the public."

Issue-wise Detailed Analysis:

1. Interpretation of "the public" under Section 21 of the Income Tax Ordinance, 1940 of Uganda
The primary issue revolved around the interpretation of the term "the public" as used in Section 21 of the Income Tax Ordinance, 1940. The section exempts companies in which "the public are substantially interested" from certain tax implications. The court examined whether the shares held by the respondent's brother, Sverre Bjordal, could be considered as held by "the public." The court noted that the term "the public" was not defined in the Ordinance, leading to reliance on precedents and statutory interpretations from similar English laws. The court concluded that "the public" includes all shareholders except those who control the company, either individually or as a group acting in concert.

2. Determination of controlling interest percentage necessary to classify a company as one in which "the public are substantially interested."
The court had to determine the percentage of voting power that constitutes a controlling interest. The appellant argued for a 75% threshold, while the respondent contended that 51% was sufficient. The court decided that a 51% voting power is adequate to confer control over a company. This decision was based on the ability of a 51% shareholder to influence ordinary resolutions and resist special resolutions contrary to their wishes. The court rejected the 75% threshold, noting that it would unduly restrict the application of the statute and would not align with the legislative intent.

3. Whether the respondent and his brother Sverre Bjordal should be considered as acting in concert and thereby not part of "the public."
The court examined whether the respondent and Sverre Bjordal were acting in concert, which would exclude Sverre from "the public." The court found no evidence that Sverre was acting in concert with the respondent. The shares held by Sverre were acquired independently and were not subject to any concerted action with the respondent. The court emphasized that familial relationships alone do not imply concerted action unless supported by additional evidence.

4. The relevance of directorship in defining "the public."
The appellant argued that directors should not be considered part of "the public." However, the court held that being a director does not disqualify a shareholder from being part of "the public." The court found no statutory basis to exclude directors from "the public" and emphasized that shareholders remain members of "the public" regardless of their directorial status.

Conclusion:
The court affirmed the judgment of the Court of Appeal for Eastern Africa, holding that Bjordal Mines Ltd. was a company in which "the public are substantially interested." The respondent alone held the controlling interest of 51%, and Sverre Bjordal, holding more than 25% of the voting power independently, was considered part of "the public." The appeal was dismissed, and the appellant was ordered to pay the respondent's costs.