Koitaki Para Rubber Estates Limited v Federal Commissioner of Taxation [1940] HCA 33

Koitaki Para Rubber Estates Limited v Federal Commissioner of Taxation [1940] HCA 33 - HCA 1940 case summary — Zoe

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there ; Sydney is the place where its directors reside and meet and where the meetings of its shareholders are held. Its seal, minute- book, register of members and records are kept at its registered office. As its Sydney manager, it employs a practising accountant, and, subject to the board of directors, he and his staff do the work of the company in Sydney. The duties of secretary are performed by him, and his office is the company's registered office. At Port Moresby some book-keeping is necessarily done, but the general accounts of the company are kept in Sydney. The company's rubber plantations are at Koitaki, near Port Moresby, and they are managed by an officer of the company who resides in Papua. He acts under a power of attorney by which the company authorizes him to manage, carry on and conduct in Papua its property, affairs and business and confers upon him ample powers to that end. He has an office at Koitaki staffed by an assistant manager and a book- keeper. A large amount of labour is employed on the plantations, and it is all under his control. He sends, however, a weekly report of the working of the plantations to the chairman of directors in Sydney, and periodically he sends to the manager in Sydney for presentation to the directors reports setting out all particulars concerning the running of the plantations and the yield of rubber. From the books kept at Koitaki information is supplied to the Sydney manager to enable the writing up of the books in Sydney. All the tubber produced on the plantations, after being treated, prepared and baled in Papua, is shipped to Sydney and consigned to the company. The Sydney manager sells the rubber through a firm of selling agents in Sydney, who are remunerated by a commission. He hands them the documents relating to each shipment, and they _ take charge of all matters concerning the delivery and sale of the goods. They send account sales and a cheque for the net proceeds _ to the Sydney manager. The receipts are paid into the company's bank in Sydney, where its main bank account is kept. To cover _ working expenses at the plantations monthly remittances are made _ to the manager at Port Moresby, where another bank account is _ kept. This account is used only for the payments in of the remit- tances and the drawings for working expenses. My conclusion from these facts is that the company is not a resident of the Territory of Papua. That it is a resident of New South Wales admits of no doubt. It is there that the company is administered and controlled ; it is where the directing power of the company's affairs and the centre _ of its trading alike abide ; it is the place of the central control and 'VOL, LXIV. 2

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Sydney as distance allows and the course of operations in Papua is subject to direction from Sydney. Since the decision in Swedish Central Railway Co. Ltd. v. Thompson (1), a great deal of difficulty has been felt as to the tests to be applied when a company claims that it is resident in more than one country. But, unless it can be said that a company is resident wherever it carries on productive or manufacturing opera- tions on a substantial scale, I do not think that the appellant company should be considered a resident of Papua. The better opinion, however, appears to be that a finding that a company is a resident of more than one country ought not to be made unless the control of the general affairs of the company is not centred in one country but is divided or distributed among two or more countries. The matter must always be one of degree and residence may be constituted by a combination of various factors, but one factor to be looked for is the existence in the place claimed as a residence of some part of the superior or directing authority by means of which the affairs of the company are controlled. The decision in De Beers Consolidated Mines Ltd. v. Howe (2) had been taken as authoritatively restating the tests which had long before been laid down in Cesena Sulphur Co. Ltd. and Calcutta Jute Mills Co. Ltd. v. Nicholson (3) for determining whether a company was resident in a country, tests which had been already applied by the House of Lords in San Paulo (Brazilian) Railway Co. Ltd. v. Carter (4). In the De Beers Case (5) Lord Loreburn said : - " In apply- ing the conception of residence to a company, we ought, I think, to proceed as nearly as we can upon the analogy of an individual. A company cannot eat or sleep, but it can keep house and do business. We ought, therefore, to see where it really keeps house and does business. . . . The decision of Kelly C.B. and Huddleston B. in the Caleuwtta Jute Mills v. Nicholson (3) and the Cesena Sulphur Co. v. Nicholson (3), now thirty years ago, involved the prin- ciple that a company resides for the purposes of income tax where its real business is carried on. Those decisions have been acted upon

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to ascertain what is its real residence." In Bradbury v. English Sewing Cotton Co. Ltd. (1) Viscount Cave L.C. said that the company was resident in England where (in Lord Loreburn's language) the seat and directing power of the affairs of the company were located and its chief operations, both in the United Kingdom and elsewhere, were controlled, managed and directed. Lord Wrenbury (2) again quoted the statement of Lord Loreburn in the De Beers Case (3), "a company resides where the central management and control actually abides," a statement originally made in the same form (even to the singular verb) by Kelly C.B. in the Cesena Sulphur Co.'s Case (4). In the Swedish Central Railway Co.'s Case (5) the place of control was Sweden ; it was there that the directors and the shareholders held their meetings and where the dividends were paid. But the company was incorporated in England, had its seal, its registered office, and its register of shareholders there. Its 'secretary lived in London and a committee of directors met there to affix the seal to instruments, to deal with transfers of shares and to sign cheques on the company's London bank account. Its balance sheet was made up and audited in London. The Commis- sioners of Inland Revenue found that the company was resident in England. The House of Lords upheld this decision on the ground that a company might have two places of residence and the Swedish Central Railway Co. was resident in Sweden and in England. But

Viscount Cave L.C. clearly stated that the reason was that there 'was a division between the two countries of the " central manage- ment and control." He said, speaking of the Cesena Sulphur Co. and Calcutta Jute Mills Cases (4) : - ' The effect of this decision is that, when the central management and control of a company abides in a particular place, the company is held for purposes of income tax to have a residence in that place ; but it does not follow that it cannot have a residence elsewhere. An individual may clearly have more than one residence : See Cooper v. Cadwalader (6) ; and on principle there appears to be no reason why a company should not be in the same position. "The central management and control of a company may be divided, and it may ' keep house and do business ' in more than one place ; and if so, it may have more than one residence " (7). Lord Dunedin and Lord Sumner con- curred. Lord Buckmaster was less specific but said nothing incon- sistent with Lord Cave's view. Lord Atkinson dissented on the

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Before

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Judgment (45 paragraphs)

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