LUPTON Vs. F. A. & A. B. LTD.

JUDGEMENT

(1.) LORD DENNING M. R. The legislature has recently killed dividend -stripping, but this is one of its death struggles. The strippers seek to make the revenue pay them pounds 4,00,000. So it is worth fighting about.

(2.) AS usual, the financial transaction are very complicated. They to be if they are to succeed. Simple traders cannot manage them. Nor can the general run of accountants or lawyers. It needs a specialist dividend -stripper to do it. The taxpayers, F. A. & A. B. Ltd., were experts. That is apparent from the five transactions described in the case stated. In all five of them, Megarry J. found that they were not trading transactions but tax devices, and nothing else. So the taxpayers received nothing. The taxpayers accepted his decision in four of them. They appeal in the fifth. This depends so much on the facts that I must explain them as best I can.

(3.) THE plan was carried out in this way : a parent company was found, called Oakroyd Investments Ltd. The Gill family held all the shares in Oakroyd. Then an intermediate company was found, called Elm Tree Industrial Finance Co. Ltd. Oakroyd held all the shares in Elm Tree. So the Gill family were, through Oakroyd, in control of Elm Tre. Elm Tree, in turn, held nearly all the shares in the Spencer Wire Co. So the Gill family were still in control of the Spencer group. The Spencer Wire Co. declared a dividend of pounds 800,000 net of tax. It was paid to Elm Tree. The result was that on March 20, 1960, Elm Tree had in hand a sum of pounds 800,000 net of tax (grossed up it was pounds 1,360,000, less tax paid of pounds 560,000, making pounds 800,000 net of tax). On that date - March 20, 1960 -Oakroyd had no profits in hand from this venture, but it could confidently expect that in the future Elm Tree would declare a dividend of pounds 800,000 net of tax. This was the future dividend to be stripped. By stripping it, the dealers hoped to get pounds 400,000 out of the revenue and divide it between the Gill family and themselves. Then these elaborate transaction took place, just before the Budget.