The interpretation of 'controlling interest' in tax liability under the Finance Act, 1937 is based on the relationship that brings about control in fact, regardless of the means used to achieve it.

JUDGMENT

SCOTT, L. J. - This in an appeal by the taxpayer from a judgment of Lawrence, J., with regard to the measure of its liability to National Defence Contribution under the Finance Act, 1937. The operative provisions of Part III of that Act are these; Section 19, " (1) There shall be charged, on the profits arising in each chargeable accounting period falling within the five years beginning on the first day of April, nineteen hundred and thirty-seven, from any trade or business to which this section applies a tax (to be called the national defence contribution) of an amount equal to five per cent. of those profits in a case where the trade or business is carried on by a body corporate and four per cent. of those profits in any other case. (2) Subject as hereafter provided, the trades and businesses to which this section applies are all trades or businesses of any description carried on in the United Kingdom, or carried on, whether personally or through an agent, by persons ordinarily resident n the United Kingdom." Then in the Fourth Schedule the statute provides :"7. Income received from investmenents or other property shall be included in the profits in the cases and to the extent provided in this paragraph, and not otherwise.

(b) in the case of any other trade or business, being a trade or business carried on by a body corporation, the profits shall include all income received by way of dividend or distribution of profits from any other body corporate in which the first mentioned body corporate has a controlling interest and which is not liable to be assessed to the national defence contribution."

The appellant company is a very large concern. It carries on business in the United Kingdom and is therefore liable to pay National Defence Contribution on its profits. It also possesses shares, with voting power attached, in each of eleven corporate bodies which carry on business outside the United Kingdom, some within the British Empire, others in foreign countries. These corporations, to which for convenience I will refer generally as " the foreign corporations", are there fore themselves " not liable to be assessed to national defence contribution", for they fall within the concluding words of the part of the provision which i have quoted. The crown, however, contends that the company itself is liable to National Defence Contribution in respect of dividends received from all the eleven foreign corporations, on the ground that it has a " controlling interest ", direct or indirect, in each one of them (whether registered in its own name or in that of its nominees), partly by itself owning shares in the controlled companies, or partly by owning shares in intermediate foreign corporations over which it has de facto control, either direct or indirect, which, in turn, own shares in the controlled companies. The Commissioners upheld that contention; and the judge in a short judgment upheld their conclusion, holding in effect that there was evidence to support the finding and that the Commissioners had committed no error of law.

I agree with his judgment, but as the legal issue is one of general importance, it is perhaps better to state my reasons. The whole appeal turns on the simple but far reaching question what does the phrase " controlling interest " mean in its context in paragraph 7 of the Fourth Schedule ? The company contends that " interest " necessarily means a proprietary interest in the foreign corporation owned by the British company of the foreign corporations shares registered in the name of itself, or its nominee, or by means of some other proprietary interest such as an option over shares. To such a control counsel for the company gave the name " direct " and contended that the statute excludes indirect control through another corporation, however complete may be the British companys effective control over its intermediary. He relied on the omission from the paragraph of any qualifying epithet, attached to the phras