John Milliken and Thomas Sherwood Wheating v Commissioner of Inland Revenue

• Jurisdiction: Guyana
• Judge: Crane, J.
• Judgment Date: 18 March 1969
• Neutral Citation: GY 1969 HC 5
• Court: High Court (Guyana)
• Date: 18 March 1969

High Court

Crane, J.

John Milliken and Thomas Sherwood Wheating

and

Commissioner of Inland Revenue

Appearances:

C. Lloyd Luckhoo, Q.C. with John Stafford for the appellants.

Doodnauth Singh for the respondent.

Estate Duty - Valuation of shares — Net assets or liquidation valuation — Dividend yield and profits earnings valuation — Tax Ordinance Cap. 298 — Estate Duty Ordinance Cap. 301 s. 14.

Estate Duty - Interest on — Payable from date assessment served.

Charles Wheating died in England 1960, testate but domiciled in Guyana. The inventory of his property showed him owning shares in Wieting & Richter Ltd. valued at $20.00 each. The Estate Duty Ordinance Cap. 301 makes no provision as to the method to be used in valuing shares of a deceased person. The C.I.R. being dissatisfied with this valuation valued the shares at $585.00 each, using a net assets or liquidation value method of valuation under which each item of the company's property was valued, liabilities as shown on the company's balance sheet were subtracted from the total, and the value of a share ascertained by dividing the number of fully paid up shares into the net result. On appeal.

HELD: — that (i) the real value of shares which a deceased person holds in a company at the date of his death will depend more on the profits the company has been making and should be capable of making having regard to the nature of its business than upon amounts which the shares would be likely to realise upon, liquidation; the dividend policy of the company was to pay out small dividends and retain the major part of the profits in business in order to finance the company and to replace assets. In these circumstances the appropriate method of valuation is to use the dividend yield and profits earnings valuation in conjunction, resulting in a share valuation of $85.00 per share.

• (ii) interest on estate duty becomes payable from the date when a proper notice of assessment has been served by the C.I.R. on the party accountable and this is so even though the deceased died abroad and was domiciled in Guyana.

Appeal allowed.

Crane, J.

1 This is an appeal under s. 14(3) of the Estate Duty Ordinance, Cap. 301, by the executors of the late Charles Wheating, who died testate in England on August 18, 1960, but was domiciled in Guyana.

2 Among the many items of property appearing in the inventory consisting of both local and English assets, as delivered and declared by the executors, is a block of 341 shares valued at $ 20. each, i.e. $ 6,820.00, in Messrs. Wieting & Richter Ltd., hereinafter called “the Company”.

3 Messrs. Wieting & Richter Ltd. is a well known local company, and these 341 shares represent part of its total issued share capital of 4,127 shares of a par value of $100 each.

4 Subsequent to the delivery of the inventory, i.e., between June 1961 and September 1966, much correspondence concerning it passed between the executors and the Commissioner of Inland Revenue. The Commissioner was not satisfied that the inventory disclosed the true number and value of those shares, and so in his letter of the 21st September, 1966, he fixed for estate duty purposes what he thought to be their correct number and value — 839 shares at $585 each, i.e. $490,815.00. This letter, which includes his assessment, is of sufficient importance to warrant its being set out in full since it clearly indicates the terms of his dissatisfaction and the areas of disagreement on which the parties went to law.

“Estate: Charles Wheating, decd.

I have now been able to complete my examination of the Declaration and Inventory of the property of the abovementioned Estate, and I regret to say that I am dissatisfied with the inventory and estimate shown therein. I have therefore made an inventory and estimate, by virtue of the powers vested in me under the provisions of section 14(1) of the Estate Duty Ordinance, Chapter 301, a copy of which is hereto attached for your information and guidance.

2. Kindly note that in accordance with my aforementioned inventory and estimate, I have this day assessed the estate to duty amounting to $ 225,710.07 (two hundred and twenty-five thousand, seven hundred and ten dollars and seven cents) as shown on the attached form. You will note that the sum of $ 22,874.88 (twenty-two thousand, eight hundred and seventy-four dollars and eighty-eight cents) has been paid on the 6th December, 1961.

3. If after due consideration of my inventory and estimate you are dissatisfied with my assessment, you may appeal by petition under the provisions of Section 14(3) of the aforementioned ordinance to the Supreme Court, in which case, the amount of duty in dispute need not be immediately paid. If you do not intend to appeal, the whole amount should be paid immediately.

50 shares in Versailles and Schoon Ord. Ltd. at $17	$ 850.00
676 shares in Enmore Estates Ltd. at $45	30,420.00
432 shares in Enmore Estates Ltd. at $45	19,440.00
839 shares in Wieting & Richter Ltd. at $ 585	490,815.00
Amount at credit in books of Wieting & Richter Ltd.	107,038.26
Assets outside the colony as per English Estate Duty
Affidavit — £11,547 6s. 10d. 55,427.24	$703,990.50
Less
Debts and funeral expenses	68,390.30
	$635,600.20

ASSESSMENT

Property subject to duty at 17 1/2% $25,000	4,375.00
Property subject to duty at 35% $ 610,600.20	213,710.07
	218,085.07
English rebate of £550 16s. 3d.	2,643.90
Plus interest at the rate of 6% p. a. from	215,441.17
20.2.61–6.12.61 (290 days at $ 35.41 a day)	10,268.90
	$225,710.07
Less paid on 6.12.61	22,874.88
	$202,835.19”

5 There is, therefore, a difference of $483,995.00 on the value of the Wieting & Richter shares, and this obviously makes such a tremendous difference to the amount of estate duty to be paid that it was the plank on which two of the three grounds of appeal were constructed.

6 In the statement of grounds of appeal from the Commissioner's assessment, it is objected, firstly that in so far as his decision relates to the value of the shares in Wieting & Richter Ltd., it is erroneous because it is based on the value of the assets of the company and not on the market value of the shares; secondly, that in so far as the decision seeks to assess duty on 839 shares, it is erroneous, because the deceased died possessed of only 341 shares and not 839; and, thirdly, that the amount of $10,268.90 representing interest at 6% per annum for 290 days at $ 35.41 per day, contained in the extract from the Commissioner's letter (above), is erroneous in that it is added to the amount of estate duty assessed before deducting the payment of duty acknowledged by the Commissioner on December 6, 1961. It is said that the effect of this is tantamount to an attempt to collect compound interest, which is contrary to the provisions of the Tax Ordinance, Cap. 298.

7 It will be seen from the first ground of appeal that there is a difference of opinion on which of two methods of valuation employed was correct in ascertaining the value of the shares. This is a straight question of law. The Commissioner made use of the “net assets” or liquidation value method. This is arrived at by valuing each individual item of the company's property. All liabilities, as shown on the company's balance-sheet, are then subtracted from the total. The value of a share is then ascertained by dividing the number of fully paid-up shares into the net result. So that when the figure of 4,127 shares is divided into $ 2,416,262, as shown on the company's balance sheet (Ex. “F”) as the net result, the figure of $585. per share is the answer. Such was the method employed by the Commissioner, which is questioned by the petitioners as being the inappropriate one to use in the circumstances of the company as a going concern where there were no immediate or remote prospects of a liquidation or any “take-over bid,” and where the deceased's shareholding was only a minority one.

8 There is no provision in our Estate Duty Ordinance, Cap. 301, for valuing such assets of a deceased as consist of shares, as there exists in England in the shape of the Finance Act, 1894, s. 7(5). This defines “Principal value” as “The value of any property shall be estimated to be the price which, in the opinion of the Commissioners, such property would fetch if sold in the open market at the time of the death of the deceased.” S. 7(5) requires the gross open market price, i.e., what the purchaser pays and not what the vendor receives, to be taken as the valuation figure. (See Duke of Buccleuch & Anor. v. Inland Revenue Commissioners, [1967] 1 All E.R. 129, 148).

9 What, then, is the correct machinery to employ in valuing shares for estate duty purposes, and what are the criteria for its determination? In Guyana we have no equivalent of the Finance Act, 1894, s. 7(5), on the matter of share valuation; there is no directive that shares are to be valued with reference to the principle of the open market. At one time in Australia a similar situation to ours existed, and the judicial approach had been to adopt the same line as indicated in Inland Revenue Commissioners v Crossman, [1937] A.C. 26, in the event that their revenue statutes did not direct any particular method of estimating value of assets. The courts took the view that “it is proper to estimate the value of the shares held by a deceased in a company, the Articles of Association of which contain restrictions on transfer, in the same manner …” i.e., as in Crossman's case see per WILLIAMS, J., in Abrahams v Federal Commission of Taxation, 70 C.L.R. 23 at page 29. This is the approach I will adopt in this case.

10 The Australians, however, remedied the situation by protecting the public revenue against the depletion of valuations and the consequent reduction in duty assessable...