Wakilii

Commissioner of Income Tax v Bjordal (Privy Council Appeal No. 42 of 1953)

East African Court of Appeal · [1955] EACA 156 · 1955 Appeal Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Appeal from the Court of Appeal for Eastern Africa which reversed a decision of the High Court of Uganda
Decision
The decision of the Court of Appeal for Eastern Africa affirmed; Bjordal Mines Limited held to be a company in which the public are substantially interested

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Privy Council held that a shareholder holding 51% of voting power has controlling interest in a company, and remaining shareholders constitute 'the public'. The respondent held 73.96% of voting power in Bjordal Mines Limited and thus had controlling interest. His brother, holding 25.99% of voting power, was a member of 'the public' despite being a relative and co-director. The company therefore satisfied section 21(2) as a company in which the public are substantially interested, exempting it from the Commissioner's power to deem undistributed profits as distributed.

Outcome

The decision of the Court of Appeal for Eastern Africa affirmed; Bjordal Mines Limited held to be a company in which the public are substantially interested

Facts

The respondent held 8,881 shares (73.96% voting power) in Bjordal Mines Limited. His brother Sverre held 3,121 shares (25.99% voting power) purchased for full value, not as nominee. Five other persons each held one share. Both brothers were directors. The Commissioner of Income Tax sought to apply section 21(1) of the Income Tax Ordinance to deem undistributed profits as distributed dividends. Section 21(1) did not apply to companies in which 'the public are substantially interested'. Section 21(2) defined such companies as those where shares carrying at least 25% of voting power were beneficially held by 'the public' and freely transferable. The High Court of Uganda held the company did not qualify. The Court of Appeal for Eastern Africa reversed. The Commissioner appealed to the Privy Council.

Issues

  1. Whether Bjordal Mines Limited was a company in which 'the public are substantially interested' within the meaning of section 21 of the Income Tax Ordinance.
  2. What percentage of voting power constitutes a 'controlling interest' for the purposes of determining who are 'members of the public' under section 21(2).
  3. Whether a shareholder who is also a director ceases to be a 'member of the public' by virtue of holding directorship.
  4. Whether shareholders who are relatives should be grouped together in determining controlling interest.

Orders

  • Appeal dismissed.
  • Appellant to pay the respondent's costs of the appeal.

Rules and key headnotes

Income Tax — Controlling Interest — Percentage of Voting Power Required
For the purpose of determining controlling interest in a company under income tax legislation, a shareholder holding 51% or more of the voting power has controlling interest, as this enables the shareholder to pass ordinary resolutions, dominate director elections, and resist special resolutions contrary to their wishes.
Company Law — Public Interest in Company — Definition of 'The Public'
Members of 'the public' in a company are all shareholders other than those holding the controlling interest; where one shareholder holds 51% or more of voting power, all other shareholders are members of the public regardless of their relationship to the controlling shareholder or their role as directors.
Income Tax — Deemed Distribution — Companies in Which Public Substantially Interested
A company satisfies the requirement of being one in which the public are substantially interested where shares carrying not less than 25% of voting power are beneficially held by members of the public (being shareholders other than those with controlling interest), even where the controlling shareholder holds over 70% of voting power.
Company Law — Directors — Status as Members of the Public
Shareholders who are members of 'the public' do not cease to be such members by becoming directors of the company.
Statutory Interpretation — Family Relationships — Grouping of Relatives
Relationship by itself does not afford sufficient reason for grouping relatives together in determining where controlling interest resides; relatives holding shares independently are not to be treated as acting in concert absent evidence of concerted action or specific statutory provision.

Legislation cited (3)

  • Income Tax Ordinance 8 of 1940 (Uganda) s.21
  • Companies Ordinance s.21
  • Finance Act 1922 (England) s.21

Cases cited (1)

  • Tatem Steam Navigation Co. Ltd. v. Inland Revenue Commissioners (1941) 2 K.B. 194

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Commissioner of Income Tax v Bjordal (Privy Council Appeal No. 42 of 1953) [1955] EACA 156 (1 January 1955)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.