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Issues Involved:
1. Interpretation of "controlling interest" under Section 13(9) of the Finance (No. 2) Act, 1939. 2. Consideration of trustee-held shares in determining controlling interest. 3. Impact of beneficial interest on controlling interest. 4. Applicability of statutory provisions and precedents. Detailed Analysis: 1. Interpretation of "Controlling Interest" under Section 13(9) of the Finance (No. 2) Act, 1939 The primary issue revolves around whether the directors of the company have a "controlling interest" within the meaning of Section 13(9) of the Finance (No. 2) Act, 1939. The determination of this issue affects the company's entitlement to an increase in standard profits by either 8% or 10%. The Court of Appeal concluded that the phrase "controlling interest" should not be limited to beneficial interests, meaning that shares held by directors as trustees must be included in the calculation. This interpretation focuses on the voting power vested in the directors rather than their beneficial interest in the company. 2. Consideration of Trustee-Held Shares in Determining Controlling Interest The Court of Appeal held that shares held by directors as trustees should be taken into account when determining if the directors have a controlling interest. The judgment stated, "The control must be derived solely from voting power attached to shares which are held by the directors and of which the directors are the absolute beneficial owners." The Court of Appeal rejected the Special Commissioners' and Macnaghten J.'s view that trustee-held shares should be excluded, emphasizing that the power to control the company through voting is the key factor, irrespective of beneficial ownership. 3. Impact of Beneficial Interest on Controlling Interest The judgment explored whether the beneficial interest of directors in shares impacts their controlling interest. The Court of Appeal opined that the possession of some beneficial interest by directors in shares held as trustees is irrelevant for determining control. The Court stated, "The test which is to exclude a company's business from sub-section (9)(a), and include it in (9)(b), is the voting power of its directors, not their beneficial interest in the company." This means that the directors' ability to control the company through voting is not diminished by the fact that they hold shares as trustees. 4. Applicability of Statutory Provisions and Precedents The judgment also addressed arguments based on other sections of the 1939 Act and the Finance Act, 1937, where the phrase "the directors whereof have a controlling interest therein" appears. The Court found no justification for limiting "controlling interest" to beneficial interest alone. It referenced the British American Tobacco Co. v. Inland Revenue Commissioners case, which rejected a similar argument regarding National Defence Contribution. The Court emphasized that the statutory language should not be restricted without clear legislative intent. The judgment concluded that the company's directors, as registered holders of the majority of ordinary shares, have a controlling interest, even if some shares are held as trustees. This interpretation aligns with the natural meaning of "controlling interest" and avoids unnecessary complications in determining beneficial ownership. The appeal was dismissed, affirming the Court of Appeal's decision that the directors' voting power constitutes a controlling interest under Section 13(9) of the Finance (No. 2) Act, 1939.
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