FEES OF DIRECTORS.

New Zealand Herald, Volume LXVII, Issue 20656, 30 August 1930, Page 12

FEES OF DIRECTORS.

EFFECT ON COMPANY'S TAX. AMOUNT HELD EXCESSIVE. POWERS OF COMMISSIONER. APPEAL COURT JUDGMENT. !„Y TEMCGIIAPI!.— —OWN CORRESPONDENT.] WELLINGTON, Friday. Reserved judgment was delivered today in a case heard in the Court, of Appeal in .July, between Aspro, Limited, appellant, and the Commissioner of Taxes, respondent, which involved the point whether the Commissioner of Taxes bad the right to interfere with Iho allocation

of directors' fees in a private company

In the case of Aspro, Limited, the whole of the capital is held equally by (":. K, and A. M. Nicholas, of Melbourne, who, since the inception of tho company, have been the sole directors. Tho appeal was from a decision in the Magistrate's Court by Mr. K. Page, S.M.. that tho commissioner was entitled- to a portion of the fees for taxation purposes. Two of tho Judges who heard the ap peal, Mr. Justice Herdmnn and Mr. ,Justico Blair, delivered judgments expressing tho opinion flmt the appeal should be dismissed, but the Chief Justice, Sir Michael Myers, said he was unable to

agree with the conclusion arrived at by the other members of tho Court.

In accordance with tho practice that a majority decision is accepted, tho appeal was dismissed with £lO 10s costs. Tho facts, as set out by the Chief Juslice in his judgment, were that in making his assessment of lax as against tho company for tho year ended March 31, 19213, tho Commissioner of Taxes disallow Oil £BOOO, part of tho £IO,OOO paid by way fit directors' fees, 'io this assessment tho company objected, and the magistrate decided in favour of tho commissioner. A Matter for the Company. "It seems (o me," said His Honor, "that it is for tho company, and the company alone, to say what amount it is to pay tho directors as their remuneration. Tho alternative is that the amount to be paid to the directors is, in effect, to be determined by the Commissioner of Taxes, and for this view 1 can find no statutory or other authority. *• "The amount whi h the company may choose to pay its directors may seem to be excessive, but that, as it seems to me. is a matter for the company itself to determine, and for no ono else. It would have been quite competent for the Messrs. Nicholas in tho present case, had they thought lit, to require an agreement. from the company on its incorporation to pay them £SOOO a year, or any othe-r sum, as directors' tees, or a fixed sum and a share, however large, of the profits. Had such an arrangement been mado 1 do not seo how it. could possibly have been challenged by the Commissioner of Taxes.

' Or if, at the beginning of any year, a similar agreement were entered into with regard to remuneration for tho year then commencing, I do not seo how it could bo attacked by tho commissioner." In His Honor's opinion tho appeal should be allowed. Question ol Bona Fides. "If proof that the shareholders of the company fixed the directors' remuneration is to be the beginning and tho end of this business transaction," said Mr. Justice Herdman. "then, if a, company has an income of £50,000, the shareholders may vote away £49.000 for directors' fees, without its being in the power of the commissioner to call for proof of the bona fides of the transaction, or to disallow tho whole or part of the claim for deduction when satisfied that the transaction is merely a device for evading payment of tax, and that included in the £49,000 is part of the taxpayers' assessable income.

''lt was said in argument that if the Commissions of Taxes is to bo a Mowed to question allowances mado by shareholders of companies to directors, it. will mean that he, ami not the shareholders of a priv.ito company, will decide in every caso what is to be allowed. Tho answer to that is that, each caso must bo decided in tho light of its own facts, and that a reasonable expenditure will never bo Questioned. "Jn tho present case tho outlay is, in my opinion, so unreasonable and extravagant that it at once raises tho presumption that it is illicit. T, therefore, think that, the appeal should bo dismissed, with costs."

Tn his judgment Mr. Justice Blair said that when tho history of the company showed that in past years tho same persons had mado a practice of disposing of virtually two-thirds of tho profits, ostensibly as directors' fees, one was driven to Ihe conclusion that (he socalled directors' fees were not what they purported to be, but were a method of distributing profits. On tho application of Mr. A. Gray, K.C., who, with Mr. White, appealed for tho appellant, conditional leave to appeal to (he Privy Council was granted, security being fixed at £SOO, to bo given within three months. Tho Solicitor-Gen-eral, Mr. A. Fair, K.C., appeared for the respondent.