Controlling interest turns on actual voting power, and courts may look through a corporate shareholder to find who controls its votes.

Controlling interest under paragraph 11 of Schedule IV to the Finance Act 1937 depends on who in fact exercises the relevant voting power, not merely on beneficial ownership or the register. Where a substantial shareholding is held by a corporate shareholder, the court may look through that body corporate to identify the person directing its votes. On the agreed facts, the corporate shareholder's votes in the company were effectively controlled by one director, who also held the directors' own shares; taken together, the directors therefore controlled the company's voting power. The company was treated as a director-controlled company for profits tax purposes, and the tax authority's contrary view was rejected.

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Issues: Whether, for the purposes of paragraph 11 of Schedule IV to the Finance Act, 1937, the directors of the company had a controlling interest in it where a substantial block of shares was registered in the name of another company controlled by one of the directors.

Analysis: The controlling interest inquiry was held to concern voting power rather than beneficial ownership, and the authorities were read as requiring regard to the practical source of the voting voice where the registered shareholder was itself a body corporate. The reasoning in the earlier cases on trusts and register-based control did not preclude looking through a corporate shareholder to identify who in fact controlled that shareholder's votes. On the agreed facts, the Danish company's votes in the English company were effectively under the will and ordering of Ludwig Elsass, who also held the directors' own shares, so the directors together controlled the company's voting power.

Conclusion: The directors were held to have a controlling interest in the company, and the tax authority's view was rejected.

Final Conclusion: The appeal succeeded because the company fell within the statutory description of a director-controlled company for profits tax purposes.

Ratio Decidendi: For paragraph 11 of Schedule IV to the Finance Act, 1937, controlling interest is determined by who in fact wields the relevant voting power, and where the registered shareholder is a body corporate the court may look beyond the register to identify the person or persons controlling that body corporate's votes.

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