Waharaka Investment Co., Ltd. v. Com. of Stamps.
Present: MacdonelL C.J. and Garvin S.P.J.
WAHARAKA INVESTMENT CO., LTD. v.COMMISSIONER OF STAMPS.
18 (Inty.)—Appeal under section 32 of Stamp Ordinance.
Stamps—Incorporation of Company—Transfer of shares to Company—Con-sideration for transfer—Market value of shares—Duty on instrument—
Ordinance No. 22 of 1909, ss. 20 dnd 22.
A company styled the Waharaka Investment Company was formed,principally for the purpose of acquiring all the interests in Ceylon ofone R. D. and was registered on March 15, 1930.
It was part of the arrangement entered into with R. D. upon whichthe Company was incorporated, that the Directors would not allot anyshares in the Company to any persons other than the said R. D. orpersons nominated by him, and that upon the application and paymentin full by the said R. D. for shares, they would be allotted to him or hisnominees.
On March 18, 1930, a resolution was passed at a meeting of theDirectors, all of whom were nominees of the said R. D., that they shouldnegotiate for the purchase of the assets, the. property of R. D., specifiedin the resolution for the prices stated therein.
One of the assets conveyed consisted of 670 shares in the Great WesternTea Company transferred to the Company by the instrument in question.The consideration for the transfer was Rs. 13,400 while the market valueof the shares was Rs. 63,650.
Held, that the consideration- for the transfer was the price specified inthe instrument and that the instrument was chargeable with dutyassessed on that consideration.
PPEAL from a decision of the Commissioner of Stamps under
section 30 of the Stamp Ordinance to the effect that the transferof certain shares in the Great Western Tea Company of Ceylon by oneA. R. Dawson to the appellant Company was liable to a stamp duty ofRs. 640 instead of Rs. 135, which the Company claimed was the dutychargeable. The facts are briefly stated in the headnote.
H. V. Perera (with him Choksy and D. W. Fernando), for appellant.—Thetrue consideration is the actual value paid. It is only legal considerationthat- matters. A person may be willing to sell at different prices to
Waharaka Investment Co., Ltd. v. Com. of Stamps.
different individuals. If the transaction is genuine then the reasons thatdetermine the consideration do not matter. A transaction is genuinewhere it is for the agreed consideration. Stamp duty is payable only onthe consideration stated in the document. If the consideration is morethan the value of the property then stamp duty will be payable on theconsideration and noi on the value of the property, (Ex parte Chellappax).There is no doubt that consideration is not merely money consideration.But the consideration must be stated in the document. The wordconsideration must be understood in its legal sense. Motive is excluded.Section 74 of the Finance Act of 1891 deals with cases in which theconsideration is so inadequate as to make the transaction almost a gift.Valuable consideration does not mean adequate consideration. Theelement that matters is the good faith of the parties.
In the present case it cannot be said that there is another considerationover and above the one expressed in the instrument of transfer. Thereis no evidence of an agreement to that effect. The transferor is themajor shareholder in the Waharaka Company but he cannot for thatreason be identified with the Company, which being a corporate body isa separate legal entity. (Foster & Sons. v. Commissioner of InlandRevenue3.) The transfer in this case falls within the principle in Spar go'scase
M.W. H. de Silva, Acting Deputy S.-G. (with him Basnayake, C.C.), forthe Commissioner of Stamps.—The shares were sold to the Company at therate of 20 rupees. The market value is 75 rupees. Therefore on the faceof the transaction.it was one that no ordinary person would have enteredinto. The Commissioner was entitled therefore to inquire into thecircumstances under which the transfer was made (Guiiawardene v.Gunasekera*. The mention of a payment in the transfer does not makeit the true consideration. The payment for the shares at a rate farbelow the market value clearly shows that there is some otherconsideration. The further consideration is the agreement to allot sharesin the Waharaka Company. Even though there is no express agree-ment, since the shares were actually allotted, it must be presumed thatthere was an agreement to allot shares. The money payment is not thereal transaction. The real transaction was a transfer of the assets ofDawson to the Company of which he was the major shareholder forshares in the Company. A money value had to be placed on the assetsin order to determine how many shares in the Company were to begiven in exchange. The value of the assets might be fixed by an expertor be merely arbitrary. In either case Dawson is in the same position.The true value of the shares would be the value of the assets conveyed.If the contention of the appellant is to succeed every time a personconveys assets to a company in lieu of shares the revenue can bedefrauded considerably. The Commissioner has a right where he suspectsthat property transferred is not properly valued to inquire into the propervalue and to require stamps accordingly. For stamp duty one mustinquire what the actual transaction is, not what is on the face of the
* 19 N. L. R. 116 at p. 119.2 (1872) L. R. 8 Ch. Ap. 407.
2 (1894) 1 Q. B. 516.* 1 Times Lato Reports 90.
268MACDONELL C.J.—Waharaka Investment Co., Ltd. v. Com. of Stamps.
document. (The Great Western Railway Co. v. The Commissioner ofInland Revenue *). The case is also governed by section 20 of theOrdinance. The instrument is a conveyance of marketable security.Section 20 comes into operation only when an instrument becomeschargeable ad valorem (Jayawickreme v. Amarasuriya2). If the Commis-sioner is not satisfied he can call for the proof of the true consideration.This word is here used as meaning any motive which induces a manto act in the way he does* It is a matter entirely within the discretionof the Commissioner to decide what consideration passed. His decisionmust be treated as a decision on a question of fact by a subordinateCourt.
H. V. Perera, in reply.—The facts are all in our favour. The decisionof the Commissioner is based on his interpretation of section 20. Thewords “ in respect of any stock ” must not be read with the word“ instrument ”. They go with the words “ chargeable ad valorem ”.The ordinary rule of contracts would apply. Section 20 does not applywhere you take into account not the value of the shares but the moneyconsideration. See section 6 of the Stamp Act, 1891. The Commissionerif he has been guided by section 20 lias ruled on a wrong principle. Con-sideration cannot include what is known as causa under the Roman-Dutchlaw. Under that law causa may support a contract where there is noconsideration. The word consideration here is used in the English senseas something passing from one party to the other.
November 14, 1932. Macdonell C.J.—
This is an appeal under section 32 of the Stamp Ordinance, No. 22 of1909, against a decision of the Commissioner of Stamps under section 30of that Ordinance that the transfer of a certain 670 fully paid shares inthe Great Western Tea Company of Ceylon by one James AndersonRamage Dawson to the appellant Company was liable to stamp duty ofRs. 640 instead of Rs. 135 which the appellant Company claim was thestamp duty chargeable. The facts were these : —
The appellant Company was registered as a company limited by shareson March 15, 1930, among the objects in its Memorandum of Associationbeing the purchase of property of every kind. Its nominal capital wasRs. 5,000,000 in shares of Rs. 100 each, and the seven signatories to theMemorandum state therein that they agree to take one share each. OnMarch 18, 1930, the Directors of the Company passed a resolution toacquire certain assets, landed property, mortgages, debenture stocks andordinary stocks, the property of the said Ramage Dawson as at April 1,1930. These assets and the price at which each was to be acquired wereset out in the resolution. Eventually on a date not given the appellantCompany did acquire all these assets, save one item, at a total stated priceof Rs. 1,978,460. Among the ordinary stocks acquired by the appellantCompany from Mr. Dawson were these 670 shares of the Great WesternTea .Gefcnpany of Ceylon priced at Rs. 13,400, that is at Rs.' 20 a sharebeing their value at par ; it would appear that tj^e date when the appellant
1 (1894) 1 Q. B. 507.3 SO N. L. R. 289.
MACDONELL. C.J.—Waharaka Investment Co., Ltd. v. Com. of Stamps. 26fl
Company acquired these shares from Mr. Dawson was May 5, 1930.The “issued capital” of the appellant Company is stated at that dateto have been Rs. 21,500, i.e., 215 shares of Rs. 100 each—the word“ issued ” is clearly an error, clerical or other—and it is further statedthat Mr. Dawson had by then been allotted, and was the registered ownerof 8 shares, that he was also the beneficial owner of another 7 sharesregistered one each in the name of each signatory to the Memorandum ofAssociation, and that he was an applicant for shares to the value ofRs. 723,500, i.e., 7,235 shares. At some date not stated but prior toSeptember 15, 1931, the position was as follows:—the total issuedcapital of the Company was 21,000 shares of Rs. 100 each, whereof20,800 had been allotted for cash in the name of Mr. Dawson or hisnominees—these latter being the 7 signatories of the Memorandum ofAssociation and one other—and Mr. Dawson is stated to be the beneficialowner of these 20,800 shares j the remaining 200 shares had been allottedto Mrs. Dawson and her daughter as beneficial owners. The appellantsin stating the above add “ the total consideration paid for the propertytransferred by Mr. Ramage Dawson to the Company was Rs. 1,978,460which constituted the valuation agreed upon between the parties priorto the sale ”. On June 10, 1931, the proctors for the appellant Companyhad stated as follows:—“It is not correct to assume that WaharakaInvestment Company was formed to take over all Mr. Ramage Dawson’sinterests in Ceylon and that Mr. Ramage Dawson transferred his assetsin Ceylon to the Company in consideration of the Company allotting tohim shares to cover the value of the assets so transferred. The Companywas formed to take over all Mr. Ramage Dawson’s interests in Ceylonand as vendor he transferred his assets for a cash consideration paid bythe Company to him.”
The above facts are taken from the correspondence between theappellant Company and the Commissioner of Stamps. On October 25,1930, the appellant Company had sent to the Commissioner of Stamps atransfer by Mr. Dawson in his favour of these 670 shares in the GreatWestern Tea Company of Ceylon, Limited, with a request that he would interms of section 30 of the Stamp Ordinance let the Company have hi»opinion as to the duty with which the transfer was chargeable. Thetransfer, a printed form, is a declaration by Mr. Dawson as follows: —
“ I, James Anderson Ramage Dawson of Balado, in the County ofKinross, Scotland, in consideration of the sum of Rupees Thirteenthousand Four hundred (Rs. 13,400) paid to me by the WaharakaInvestment Company, Limited, of 45, Queen street, Fort, Colombo,do hereby transfer to the said the Waharaka Investment Company,Limited, Six hundred and seventy (670) fully paid shares numbered6,844/6,968, 29,544/29,993, and 31,879/31,973 respectively all inclusivein the Great Western Tea Company of Ceylon, Limited, standing, inmy name in the books of the Company, to hold unto the said theWaharaka Investment Company, Limited, its successors and assigns,subject to the several conditions on which I hold the same; and I, thesaid the Waharaka Investment Company, Limited, do hereby agree totake the said shares subject to the same conditions.”
270 MACDONELL C.J.—Waharaka Investment Co., Ltd. v. Com. of Stamps.
A lengthy correspondence followed between the appellant Companyand the Commissioner of Stamps, and on February 11, 1932, the latterannounced his decision that the instrument, i.e., this transfer of the 670shares, was “ liable to a stamp duty of Rs. 640, the duty being assessed onthe basis of the market value of the shares on the date of the executionof the transfer ”, which would be May 5, 1930. It is from this ruling thatthe present appeal is brought.
The Commissioner had in the correspondence between him and theappellant Company asked for and received the information set out aboveas to the relations between Mr. Dawson and the Company, and in his ownletters he does not anywhere question or doubt any of the statements offact made to him on its behalf. The only passages in the correspondencethrowing light on the reasons of the Commissioner for his ruling ofFebruary 11, 1932, are to be found in the following letters from him.On March 25, 1931, he asks “ whether it is correct to assume that theWaharaka Investment Company was formed to take over all Mr. Dawson’sinterests in Ceylon and that Mr. Dawson transferred his rights in Ceylon. to the Company in consideration of the Company allotting to him sharesto cover the assets of the Company so transferred ”. The answer to thishas been given above in the Company’s letter of June 10, 1931, the gistof which is that Mr. Dawson transferred his assets not in considerationof the Company allotting him shares but for a cash consideration paid bythe Company to him. Then in a letter of June 18, 1931, the Commissionerinquired what was the present value of the shares in the appellantCompany allotted to Mr. Dawson, and the Company answered on June 25that it was of opinion that the shares could not be valued at more thanpar. Finally on December 23, 1931, the Commissioner asked the followingquestion:—“Was the consideration, Rs. 20 per share, the average priceor the market value of a share in the Great Western Tea Company,Limited, on the date of the transfer, viz., the 5th May, 1930? If neither,what was the average price or the market value of such share in that Com-pany on that day? ” It will be seen that this question follows very closelyth£ wording of section 20 of Ordinance No. 22 of 1909. The answer tothis was contained in the Company’s affidavit of January 27, 1932, ofwhich the following is the relevant passage:—“ There were no transactionsaffecting shares in the. said Great Western Tea Company of Ceylon,Limited, on the said 5th day of May, 1930, other than the transfer referredto above in which the price paid per share was Rs. 20 as expressed in therelative instrument and was the true purchase consideration agreed uponbetween the purchaser and the seller and paid in cash at the executionof the said transfer. ” But the same affidavit states that the marketvalue of such shares on May 5, 1930, .was Rs. 95 per share and this state-ment is supported by a certificate from a well known firm of brokers.With regard to the question that the Commissioner asked on December23, 1931 (quoted above), the appellant Company replied on January 27,1932: “ It is not understood what the average price or the market value. of the shares in question has to do with the chargeability of the instrumentwith stamp duty, seeing that the instrument clearly expressed the
MACDONELL C.J.—Waharaka Investment Co., Ltd. v. Com. of Stamps. 271
‘ purchase consideration or money ’ as required by item 22 (b) of Part I.,Schedule B, to the Stamp Ordinance, namely, a certain sum of moneyagreed upon between the parties and paid, and ample evidence isavailable to establish this. ”
At the conclusion of the argument of this appeal it was agreed that theappellant Company could, if it so desired, file an additional affidavit,which it did. This affidavit was sworn to by Mr. D. C. Wilson who hasbeen a Director of the appellant Company continuously from May 5,1930, to the present time and is one of the signatories to the transfer ofthe shares in question. In it he states “ Neither before nor at the dateof nor after the execution of the aforesaid transfer Was or had there beenany undertaking given by the Directors of the Waharaka InvestmentCompany, Limited (hereinafter called * The Waharaka Company ’),to the aforesaid James Anderson Ramage Dawson or his attorney inCeylon by which the Directors undertook to allot shares in the WaharakaCompany to the said James Anderson Ramage Dawson or in accordancewith his directions to the value of the consideration paid by the WaharakaCompany to the said James Anderson Ramage Dawson for the said 670shares in the Great Western Tea Company, Limited, or for all the assetsacquired by the Waharaka Company from the said James AndersonRamage Dawson or at all. Although there was no formal agreementbetween the parties it was part of the arrangement come to with the saidJames Anderson Ramage Dawson upon which the Waharaka Companywas incorporated and was well understood by the Directors of the Waha-raka Company that the Directors would not allot any shares in theWaharaka Company to any persons other than the said James AndersonRamage Dawson or persons nominated by him and that upon the applica-tion and payment in full by the said James Anderson Ramage Dawsonfor shares in the Waharaka Company such shares would be allotted tohim or to his nominees by the Directors. ” These then are the facts inthe present appeal.
At the argument it was maintained that section 20 of OrdinanceNo. 22 of 1909 was strongly in favour of the ruling of the Commissioner ofStamps, and it becomes necessary, therefore, to consider. this sectionand its effect. It is as follows: —
“ 20. Where an instrument is chargeable with ad valorem dutyin respect of any stock or of any marketable or other security, such dutyshall be calculated on the value of such stock or security according tothe average price or the value thereof on the day of the date of theinstrument. ”
This section seems simply to provide for the manner in which ad valoremduty on an instrument relating to a stock or other security is to be arrivedat, once, it is clear that such instrument relating to a stock or security ischargeable with an ad valorem duty, but it- does not say what thoseinstruments are, nor does it say that because an instrument relates to astock or other security, therefore it must be chargeable with an ad valoremduty. In effect, it is not an enabling section conferring a power but one
272 MACDONELL C.J.—Waharaka Investment Co.j Ltd. v. Com. of Stamps.
6&ying how a power given elsewhere in another part of the law, is to beexercised. This is clear from the previous section 19 : —
*' Where an instrument is chargeable with ad valorem duty in respectof any money expressed in any currency other than that of Ceylon,such duty shall be calculated on the value of such money in thecurrency of Ceylon according to the current rate of exchange on the dayof he date of the instrument.”
It could hardly be argued that because an instrument is expressedin a currency other than that of Ceylon it must be chargeable with a dutyad valorem. What section 19 does is to explain hpw a sum of moneyexpressed in a currency other than that of Ceylon is to be reduced to thecurrency of Ceylon whenever the instrument expressing such sum is aninstrument chargeable with an ad valorem duty. It is not, then, section20 of the Ordinance which makes the present instrument, the transfer ofthese shares, chargeable with duty.
The provision which does so is article 22 (b) of Part I., Schedule B,which is as follows : —
“(b) Conveyance or transfer of any movable property for anyconsideration—
Where the purchase or consideration money therein orthereupon expressed, or if the consideration be otherthan a pecuniary one, or partly pecuniary and partlyother than pecuniary, the value of the property shallbe—
Over Rs. 500 and not over Rs. 1,000.. 10 0
Every further Rs. 500 or part thereof..5 0
These shares were certainly movable property and the instrument ofMay 5, 1930, was a conveyance or transfer of them. In that instrumentthe consideration is stated definitely to be Rs. 13,400, then this is “ thepurchase or consideration money therein or thereupon expressed”. Iil'so, it would seem that the stamp duty according to the scale set out irarticle 22 (b) would be Rs. 135. If effect is to be given to the words oJthe article 22 (b), then this was an instrument where “ the purchase oiconsideration money ” was expressed to be a certain sum of money, ancif, so the article says sufficiently clearly that the stamp duty should becalculated on and with relation to that sum of money. *
First, however, the words of the article must be considered. Thejdeal with the consideration for the transfer and state that it may be «pecuniary consideration or one other than pecuniary or partly one antpartly the other. It seems to me beyond question that “ consideration ’as used here must mean what it means in English law. It cannot b<equated with the causa of Roman-Dutch law which is not only a leganotion wider than the consideration- of English law, Jayawickrama z. Amarasuriya since it looks to the deliberation of the purpose shownthe party to be charged as the test whether his promise is to bind him
. i 20 N. Jj. It. 289.
MACDONELL C.J.—Waharaka Investment Co., Ltd. v. Com. of Stamps.273
but is based on a different idea, since consideration looks rather to thepossibility of placing a money value on the act or forbearance as thetest whether the person acting or forbearing or promising to do so, is to bebound. If it cannot be equated with causa, there is certainly nothingelse in Roman-Dutch law with which it can be, and indeed considerationbeing a doctrine peculiar to English law and found in no other system—how far it resembles or differs from the quid pro quo of the Canonists fromwhich historically it seems to have been derived, can be left to thoselearned in Canon law to decide—I would say that wherever in one of ourstatutes the term “ consideration ” occurs, there is a strong presumptionthat it must be given the meaning it has in English law, and indeed whatother meaning can you give it, if it is a term peculiar to English law?Then, in this article 22 (b) “ consideration ” must have the meaninggiven to it in that law where it has been defined thus, “ a valuable con-sideration in the sense of the law may consist in some right, interest,profit or benefit accruing to one party or some forbearance, detriment,loss or responsibility given suffered or undertaken by the other ” (Curriev. Misax). Here “ the profit or benefit accruing ” to the vendor and the“ detriment or loss suffered ” by the Company is stated as Rs. 13,400.This then is the consideration money on the instrument and the stampduty payable will be Rs. 135, as the appellant Company contends.
From the argument one did not understand that the above statementof the law was disputed by the respondent, but it was argued that theRs. 13,400 expressed in the instrument as the consideration was not the* purchase money ’ or ‘ consideration money ’ but that on the true con-struction of the whole transaction the consideration was “ other than apecuniary one” or was at any rate “partly pecuniary and partly otherthan pecuniary ”, in which case the stamp duty payable on the instru-ment must be fixed according to “ the value of the property ”, which wasRs. 95 a share, its “ average price or value ” on the date of the instrument,section 20. The contention that the consideration for the transfer effectedby this instrument was other than pecuniary or only partly pecuniary wasput in various ways. This was confessedly a one-man Company. Thesignatories of the Memorandum of Association who are also its Directors,were the nominees of Mr. Dawson, since it is admitted that though eachof them had one share registered in his name, Mr. Dawson was the benefi-cial owner of each such share. These Directors were trustees for him,' not purchasers from him for cash. They had given a promise to allothim shares in .the Company in proportion to or at any rate in return forthe assets he transferred to the Company. Then that promise or theshares allotted in accordance with that promise, would be the considera-tion for the transfer by him of these shares -in the Great Western TeaCompany, obviously a consideration other than pecuniary, and by conse-quence the transfer of the Great Western Tea Company shares wouldrequire a stamp according to the value of those shares at the date of theinstrument transferring them. 'It was urged,that though the appellantCompany might call it a sale or purchase of assets from Mr. Dawson, reallythe transaction between them, viewed as a-whole or in detail was, not a
' L. li. 10 Ex. 162.
274 MACDONELL. C.J.—Waharaka Investment Co., Ltd. v. Com. of Stamps.
purchase or sale, that is a transfer for money, but a taking over of hisassets in return for something other than money, that is for shares orthe promise thereof in the appellant Company. It was argued furtherthat this transfer by Mr. Dawson of his assets to the appellant Companywas an “ evasion ” of the stamp law : a price had to be put on those assets,in sum and in detail, and the only factor which influenced the price wasthe obligation to pay stamp duty and the intention to pay as small astamp duty as possible, “ his property to the value of so much is takenover by the Company but he credits himself with something less and soevades payment of stamp duty on the difference ”, and the Court wasurged to look at the real, essential nature of the transaction betweenMr. Dawson and the Company.
One answer to these arguments seems to be this ; is the respondentprepared to say that the statements of the appellant Company in itsletters and affidavits are untrue ? Those statements are clear anddefinite—the transfer of these shares was for a cash consideration ofRs. 20 a share, that was the “ purchase or consideration money ” fortheir transfer, and if that be so, then the stamp duty thereon must begoverned by the amount of that cash consideration. Now at no stagein this matter, neither when it was before the Commissioner of Stampsnor when before this Court, was it suggested that the statements of theappellant Company were untrue. Section 30 (2) provides that theCommissioner of Stamps when asked to adjudicate on any instrument“ may require such affidavit or other evidence as he may deem necessaryto prove that all the facts and circumstances affecting the chargeabilityof the instrument with duty, or the amount of the duty with which itis chargeable, are fully and truly set forth therein, and may refuse toproceed upon any such application until such affidavit or other evidencehas been furnished accordingly ”, and it may be doubtful how far thissub-section binds the Commissioner of Stamps to accept the statements inthe affidavits furnished him under its provisions, and how far it allows him tofind that the facts are contrary to what has been stated in such affidavits.In the absence of anything to the contrary one must take the facts to beas deposed to by the appellant Company. The evidence in this matteris wholly documentary, and therefore this Court is in as good a positionto find the facts as was the Commissioner, but, if I understood the argu-ment for the respondent correctly, this Court was not asked to find as afact that what the appellant Company stated was untrue, but rather tolook at “ the real nature of the transaction ”.
This was pressed upon us again at the further argument of ihis matterafter the filing of the additional affidavit sworn to by Mr. D. C. Wilson.That affidavit, it was urged, proves that there was an agreement—“ partof the arrangement ” between the parties—that shares in the Companywere to be allotted to Mr. Dawson as well as money paid to him for theGreat Western shares he transferred to it, and that this agreement couldnot be split up and each bit of property transferred to the Companytaken separately ; the agreement or undertaking was therefore part ofthe 'vncideration. To this there seem to be two answers, each decisive.
MACDONELL C.J.—Waharaka Investment Co., Ltd. v. Com. of Stamps. 275
Let ns suppose that after these Great Western shares have beentransferred by Mr. Dawson and he has received from the Company theRs. 13,400 agreed upon, the Company suddenly develops an independentwill of its own and delays or declines to allot him shares at his request,and that Mr. Dawson then sues the appellant Company for something morethan the Rs. 13,400 it has paid- him, say for an allotment of shares in theCompany proportioned io the market value on May 5, 1930, of the GreatWestern shares transferred to it ; the Company could then have repliedwith the plea, payment, arid to that plea I can see no answer ; see for thesame principle In re Harmony & Montague &c. Company The contractwas for the Company to buy certain Great Western shares and to payRs. 13,400, it has received the shares and paid the money, and thatmoney was the consideration in law for those shares. Then that wasthe contract between the parties, it has been carried out between them,and there is nothing further in that contract for the law to take hold of.If this be doubted, consider the matter further. The Company havingdeveloped a will of its own presses for cancellation of the contract for thepurchase of these Great Western shares, and Mr. Dawson consents. TheCompany gives back to Mr. Dawson the scrip of these shares, Mr.Dawson gives back to the Company the Rs. 13,400 ; could it. possiblybe contended that the contract had not been cancelled, that some furtherportion of it remained in existence ? And if it could not be so contended,where is the consideration for the purchase of these Great Western sharesother than, in addition to, the Rs. 13,400 ? Test the question yetfurther. After the cancellation of the contract in this manner, theappellant Company asks that there be given back tp it a block of theshares it has allotted to Mr. Dawson (we will assume that it has actuallyallotted them) and in so asking adopts the argument of the respondents,“ it was part of the arrangement that shares were to be allotted as wellas money paid ”, could such a request be maintainable in law, and if yousay it could, how would you frame the action ?
The further answer to the respondent’s argument is this. The“ arrangement ” or “ understanding ” upon which he relies seems on theevidence before us to have been made before the Company was formedand before as a legal entity it had any existence. Then it was not madeby the Company at all and the Company could not be bound by it, andcould not ratify it.even. Kelner v. Baxter3—a case whose authority hasnever been doubted—decides that a Company cannot be bound by anagreement entered into by a person or persons professing to contracton its behalf at a time when it, the Company, did not yet exist. NatalLand &c. Co. v. Pauline &c. Syndicate3—a Privy Council decision onappeal from a Colony governed by Roman-Dutch law—decided that aCoriipany cannot by adoption or ratification obtain the benefit of a con-tract purporting to have been made on its behalf before it came intoexistence. The combined effect of these decisions is. that the Companycan neither be bound by nor have the benefit of an agreement madebefore it came into existence—a fortiori if, as in the present case, it was1 L. R. 8 Ch. App. 407.3 L. R. 2 C. P. 174.
* (1904) A. C. 120.
276GARVIN S.P.J.—Waharaka Investment Co., Ltd. v. Com. of Stamps.
not a definite agreement but an “ arrangement ” or an “ imderstanding ”merely. But if so, how can that arrangement be part of the considera-tion for a sale which ex confesso can only have been made after the Com-pany came into existence ?
For the foregoing reasons I think that this appeal should be allowedwith costs and a declaration made that the transfer, the subject of thisappeal, is liable to stamp duty to the amount of Rs. 135 and not of anylarger sum.
This is an appeal from the determination by the Commissioner ofStamps of the duty chargeable in respect of an instrument submittedto him'under the provisions of section 30 of the Stamp Ordinance. Thedocument is in form a transfer by James Anderson Ramage Dawson of 670fully paid shares in the Great Western Tea Company of Ceylon, Limited,to the Waharaka Investment Company, Limited, for a consideration ofRs. 13,400. The instrument bore a stamp of Rs. 135 computed on thebasis of the consideration mentioned in the transfer. The questionhaving arisen as to whether or not the transfer was duly stamped, it wassubmitted to the Commissioner of Stamps who on February 11, 1932,intimated his decision that the instrument was chargeable with astamp duty of Rs. 640. In reply to an inquiry addressed to him theCommissioner stated that the computation was the result of his decisionthat the instrument was stampable under Item 22 (b) of Schedule B,Part I., of the Stamp Ordinance.
Now, Item 22 (b) is as follows
Conveyance or transfer of any movable property for any consideration.—
Where th& purchase or consideration money therein or'thereupon expressed, or if the consideration be otherthan a pecuniary one, or partly pecuniary and partlyother than pecuniary, the value of the property shallbe—
Over Rs. 0andnot overRs.50.. 0 50
Over Rs. 50do.Rs.100..10
Over Rs. 100do.Rs.20020
Over Rs. 200do.Rs.300..30
Over Rs. 300do.Rs.400..40
Over Rs. 400 do. Rs. 500…50
Over Rs: 500do. •Rs.1,000. . 10 0
Every further Rs. 500 or part thereof50
The determination of the amount of duty payable shows that theCommissioner has computed thedutynot upon the consideration
expressed in the document but upon the value of the property. Theinference suggested is that in his opinion the consideration expressed isnot the true consideration and that the true consideration is other thana pecuniary one or alternatively partly pecuniary and partly other thanpecuniary. In his argument in support of the determination ,of theCommissioner pf Stamps, Counsel urged that there was another reasonwhy the stamp duty should be charged on the value of the property
GARVIN S.P.J.—Waharaka Investment Co., Ltd. v. Com. of Stamps. 277
and not on the consideration He referred to section 20 of the Ordinanceand sought to found upon it'the argument that whenever an instrumentchargeable with ad valorem duty relates to any stock or any marketableor other security duty was chargeable upon the value of such stock orsecurity.
Section 20 is in the following terms:—“Where an instrument ischargeable with ad valorem duty in respect of any stock or of any market-able or other security, such duty shall be calculated on the value of suchstock or security according to the average price or the value thereof onthe day of the date of the instrument. ” Counsel would appear to seekto place upon this section the same interpretation as if it read, “wherean instrument relating to or having any reference to any stock or anymarketable or other security is chargeable with ad valorem duty suchduty shall be calculated on the value of such stock or security That,however, is not how the section reads. Its meaning appears to me to bequite clear. It lays down a rule for the valuation of stocks or securitiesin any case in which an instrument is chargeable with ad valorem dutyupon the value of such stocks or securities. Before the section can bemade applicable to any instrument one has first to ascertain whether theinstrument “ is chargeable with ad valorem duty in respect of any stockor of any marketable or other security ”, that is to say, whether theinstrument is chargeable with duty assessable on the value of any stockor marketable security. When that has been determined, and it canonly be determined by a reference to the provisions of the Ordinance,in particular Schedule B of Part I., the value of the stock or security willhave to be assessed in accordance with the rule of valuation prescribedin the section.
An instrument transferring stock or other security is not speciallyprovided for in the schedule containing the duties on instruments, but,as the Commissioner of Stamps has determined, the case is cauglrTup bythe general provisions of Item 22 (b), “ conveyance or transfer of movableproperty for any consideration Whether the"instrument is chargeableupon the consideration or upon the value of the property must thereforedepend upon the answer to the questioir-what is^the true considerationfor this transfer. If the consideration expressed upon the face of theinstrument is the true consideration, then it has beerr-rightly stampedand the appeal must succeed. On the other hand, if it can be said thatthe consideration is other than a pecuniary one or partly pecuniary andpartly other than pecuniary, the determination of the Commissioner ofCtarTi-z is coriect and must be affirmed.
Much correspondence has passed between the petitioner and theCommissioner of Stamps, the purpose and object of which was to ascertainall the facts and circumstances affecting the chargeability of the instru-ment and the amount of the duty with which it was chargeable. Thatcorrespondence is before us and we have in addition an affidavit swornto by D. C. Wilson one of the Directors of the Company on October 1,1932, in which he deals specifically with-the question of the considerationfor this conveyance. The Waharaka Investment Company, Limited,the petitioner, was formed primarily for the purpose of acquiring all
278 GARVIN S.P.J.—Waharaka Investment Co., Ltd. Com. of Stamps.
Mr. Ramage Dawson’s interests in Ceylon. It was registered on March15, 1930. Three days later on March 18, a resolution was passed at ameeting of the Directors all of whom are nominees of Mr. Ramage Dawsonthat they should negotiate for the purchase of the assets, being theproperty of Mr. Ramage Dawson, specified in the resolution for the pricestherein stated. The assets were to be acquired as at April 1, 1930. TheXtotal sum offered for all the assets amounted to Rs. 2,073,460. With theexception of one valued at Rs. 100,000 all these assets have beenconveyed to the Company for the prices respectively set against themin the resolution. One of these consists of the 670 shares in the GreatWestern Tea Company of Ceylon, Limited, transferred to thd Companyby the instrument with which we are concerned. The market value ofthese shares at the date of this transaction was Rs. 95 per /share. TheCompany has by this transaction acquired shares of the market value qfRs. 63,650 for Rs. 13,400 or less than a quarter of their real value.Despite the striking disparity between the market value of these~shares_and the amount specified in the transfer as the purchase money, was itthe full and true and only consideration for the transfer ?
In his affidavit of October 1, 1932, Mr. D. C. Wilson says, “ Althoughthere was no formal agreement between the parties it was part of thearrangement come to with the said James Anderson Ramage Dawsonupon which the Waharaka Company was incorporated and was wellunderstood by the Directors of the Waharaka Company that the Directorswould not allot any shares in the Waharaka Company to any personsother than the said James Anderson Ramage Dawson or persons nomi-nated by him and that upon the application and payment in full by the saidJames Anderson Ramage Dawson for shares in the Waharaka Companysuch shares would be allotted to him or to his nominee by theDirectors. ”
This arrangement or understanding was after the incorporation of theCompany faithfully observed by the two signatories who in accordancewith the Articles of Association became the first Directors.
On September 16, the total issued capital of the Company wasRs. 2,100,000 consisting of 21,000 shares of Rs. 100 each, whereof 20,800shares were allotted to Mr. Ramage Dawson or his nominees—
To Mr. Ramage Dawson….20,792
To Mr. J. A. D. Finch Noyes..1
To Signatories to Memorandum of Association ..7
Mr. Dawson was the beneficial owner of all these shares amounting to20,800. The remaining 200 shares were allotted to Mrs. Ramage Dawsonand her two daughters. The total consideration paid to Mr. Dawsonfor the assets transferred by him was Rs. 1,978,460. It is to be notedthat even the seven shares held by the signatories they held in trust forMr. Dawson. Mr. Dawson therefore is the beneficial owner of everyshare issued with the exception of the 200 shares allotted to his wife anddaughters.
The immediate purpose of the incorporation of this Company and ofall these transactions, of which the transfer of the 670 shares in the Great
GARVIN SJP.J.—Waharaka Investment Co., Ltd. v. Com. of Stamps. 279
Western Tea Company is one, was that these assets which were in theindividual ownership of Mr. Ramage Dawson should be conveyed to andheld by a Company in which he was to be virtually the sole shareholder.
Although the Directors have faithfully carried out the arrangementmade prior to the incorporation of the Company not to allot shares toany person other than Mr. Ramage Dawson or his nominees the arrange-ment was not one which bound the Company.
But whether any remedy would have been available against theCompany or not the question is whether the arrangement referred to canbe treated as part of the consideration for the transfer. In answer toinquiries addressed to him Counsel stated that at no time was anyresolution passed by the Directors adopting the arrangement made bythe signatories with Ramage Dawson; and in the affidavit and state*ments before us it is specifically denied that as between the Companyand Ramage Dawson it was at any time agreed that this arrangementwas to be part of the consideration for the transfer of his shares in theGreat Western Tea Company or of any or all his assets.
Had Ramage Dawson sued for rescission of his contract on the groundof failure or partial failure of consideration his action could not but failfirst for want of evidence that the arrangement with the signatories waspart of the consideration and secondly because the arrangement wasone which was with the signatories or some of them and not with theCompany and could not therefore form part of the considerationproceeding from the Company.
The transfer of these shares was to the Company for the price specifiedin the instrument of conveyance. Whatever arrangements or under-standing there may have been between Ramage Dawson and the signa-tories or any of them prior to the incorporation, there is no evidenceupon which it can be found that the Company gave any considerationfor the transfer of these shares other than or in addition to thepecuniary consideration mentioned in the instrument.
Ramage Dawson was doubtless influenced by the assurance he hadreceived from those who would be Directors, when the Company cameinto existence, that no shares would be allotted to any one but himselfor his nominee to part with his property to the Company for very con-siderably less than its true value, thereby avoiding the payment of largerstamp duties which would have been payable, had he insisted that theproperty should be taken over by the Company at their true marketvalue. But, however strongly he may have been influenced by thearrangement and the confidence he had that those with whom he madethat arrangement would not break faith with him after the Companycame into existence, it is not possible to say that the arrangementwas part of the consideration proceeding from the Company forthe transfer.
In selling these shares to the Company for less than a quarter of theirvalue Mr. Ramage Dawson took a risk, for had those whom he trustedto allot the shares in the Company only to him or his nominees actedotherwise than they did, he would have sustained a serious loss. Heevidently thought the risk negligible and events have proved that he was
280GARVIN S.P.J.—Waharaka Investment Co., Ltd. v. Com. of Stamps.
right. In the result the Company in which he is virtually the soleshareholder has saved a considerable sum which might otherwise havebeen payable as stamp duty, and in the capacity of shareholder he hasderived the benefit of this saving. But the Company as such havinggiven no consideration other than the agreed pecuniary consideration thisinstrument is only chargeable with duty assessed on that considerationand was therefore rightly stamped.
The determination of the Commissioner is accordingly set aside withcosts.