Dickenson v Gross, [1927] 11TC614
Citation:Dickenson v Gross, [1927] 11TC614
Rule of thumb 1:What happens if there is a business structure in place to reduce tax which does not accord with reality & is based on trust to make it work? It will be deemed to be a sham & not enforceable.
Rule of thumb 2:What happens if a partnership is formed purely to reduce tax, with some of the so-called partners actually contributing very little, and this purely designed to reduce tax? This will be deemed to be a sham partnership which will not be enforceable.
Judgment:
Where an arrangement is in place that makes no business sense it is regarded as a sham, and it will not be considered to exist for tax purposes. The facts of this case were that was there was a farmer and his 3 sons who had all alleged to have entered into a partnership to produce agricultural goods – where they would contribute expenses and share profits, and which involved rent of property – and an agreement as to how the arrangement would be carried out between them was signed. When it came to declaring the profits, none of the so-called partners then made it into the top taxing earning bracket, meaning that very little income tax was paid. When the inspector looked into the matter, it became clear that the so-called partners had not been asked for expenses, and they had really had very little to do with the operation, as well as the partnership not needing this many people, and the Court held that there was not a genuine partnership there – the Court held that this was a sham that was set up to avoid tax due to the people involved actually doing very little. The Court held that where an agreement is not enforced then it is not deemed to exist, ‘when you find the deed is disregarded, and also that it was entered into for the purpose of obtaining relief from taxation one is apt, perhaps naturally and quite properly upon the question of fact, to pay a little more attention to those circumstances and those points in which it was disregarded.” The term “sham” is used, a previous one being RowlattJ’s own judgment in CIR v Sansom39 in which he explains the difference between regarding a corporation as a “sham” and regarding it as real with the sham being that its purported business is not its own’. Rowlatt J
Ratio-decidendi:
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