Legally available dividends test under Finance Act 1960 and taxpayer burden to prove the commercial exception

Section 28 of the Finance Act, 1960 was construed as requiring the taxpayer to prove that a share sale fell within the bona fide commercial reasons or ordinary investment management exception; the tribunal's finding failed because the evidence supported rejection of that exception, even though tax advantage was also in contemplation. The phrase "available for distribution by way of dividend" was interpreted as meaning legally available assets, not merely commercially prudent or practically available assets. On that construction, the cash received for the shares was treated as consideration representing such assets, so the statutory conditions for counteracting the tax advantage were satisfied.

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Issues: (i) whether the taxpayer had established that the sale of shares was carried out for bona fide commercial reasons or in the ordinary course of making or managing investments; (ii) whether the sums received represented assets which were available for distribution by way of dividend within section 28(2)(c) and (d) of the Finance Act, 1960.

Issue (i): whether the taxpayer had established that the sale of shares was carried out for bona fide commercial reasons or in the ordinary course of making or managing investments.

Analysis: The statutory conditions placed the burden on the taxpayer to prove that the transaction fell within the commercial or investment exception. The tribunal's finding, read as a whole, was supported by evidence and could not be impeached merely because tax advantage was also in contemplation. The failure to establish the exception did not depend on any misdirection of law sufficient to undermine the finding.

Conclusion: The issue was decided against the taxpayer and in favour of the Revenue.

Issue (ii): whether the sums received represented assets which were available for distribution by way of dividend within section 28(2)(c) and (d) of the Finance Act, 1960.

Analysis: The phrase "available for distribution by way of dividend" was construed as meaning legally available, not merely commercially prudent or practically available. The section's language, including the foreign law clause, pointed to a legal test of availability. Once that construction was adopted, the cash received for the shares fell within the statutory description of consideration representing such assets.

Conclusion: The issue was decided against the taxpayer and in favour of the Revenue.

Final Conclusion: The statutory conditions for counteracting the tax advantage were satisfied, and the tribunal's refusal to affirm the notice could not stand.

Ratio Decidendi: Under section 28 of the Finance Act, 1960, "available for distribution by way of dividend" means legally available assets, and a taxpayer must affirmatively prove the commercial or investment exception to escape the charge.

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