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Revenue Commissioners v. Sisters of Charity of the Incarnate Word [1998] IEHC 24; [1998] 2 IR 553 (11th February, 1998)
THE
HIGH COURT
REVENUE
1997
No. 69R
BETWEEN
THE
REVENUE COMMISSIONERS
APPELLANTS
AND
SISTERS
OF CHARITY OF THE INCARNATE WORD
RESPONDENTS
Judgment
of Mr. Justice Geoghegan delivered the 11th day of February, 1998
1. This
is a case stated by his Honour Judge O'Higgins as a Judge of the Circuit Court
(as he then was) pursuant to Section 430 of the Income Tax Act, 1967 as
amended. The case had come before the Circuit Court in Ennis, Co. Clare in the
form of an appeal from a decision of the Appeal Commissioners upholding a
decision of the Appellants refusing the Respondents a claim to exemption from
Income Tax under Sections 333 and 334 of the Income Tax Act, 1967 as amended on
the grounds that it had not been proven to their satisfaction that the Sisters
of the Incarnate Word - Carrigoran House Branch was established in the State,
as the Appellants claimed, was required by Section 333 and 334 of the 1967 Act,
it not being contested by the Appellants that the Respondents were established
for charitable purposes only. As the learned Circuit Court Judge correctly
discerned in the case stated, there was only one net question for determination
before him and that was whether the Respondents were "established" within the
meaning of the said Sections of the 1967 Act.
2. The
case stated sets out the following facts as having been either proved or
admitted before the Circuit Court. These were:-
"(a) The
Congregation of the Sisters of Charity of the Incarnate Word hereinafter
referred to as (C.C.V.I.) is a Pontifical Institute of the consecrated life of
the Roman Catholic Church and was founded in 1866 and is registered in
Galveston in the State of Texas in the United States of America. Essentially
the Congregation is an Order of Catholic nuns who are spread throughout the
world. The by-laws of the Congregation were proved before me and are annexed
here and form part of this case stated. The Congregation has its headquarters
in Houston, Texas and conducts its apostolic ministry primarily through civil
law corporate structures known formally as:
(i) the
C.C.V.I. (an acronym for its title in Latin 'Congregatio Caritatis Verbi
Incarnati') which was incorporated in 1975 as a Texas non profit federal income
tax exempt corporation; its exclusive purpose as stated by its Articles of
Incorporation is to carry out the religious, charitable and educational
purposes of the Congregation;
(ii) the
S.C.H., namely, the Sisters of Charity of the Incarnate Word which was
incorporated in 1910 under the name Sisters of Charity of the Incarnate Word of
the diocese of Galveston; in 1966 its name was changed to Sisters of Charity of
the Incarnate Word, Houston, Texas. This corporation is also a Texas non
profit federal income tax exempt corporation.
(b) There
is within the State an establishment known as Carrigoran House situated at
Newmarket-on-Fergus in the County of Clare which is an Old People's Home
catering for approximately 150 patients. The home is run by the Respondents
and was set up in 1972. It has 52 beds and a staff of 85, four of whom are
members of the Order. The building is comprised of a large split-level two
story building with a large dining room and chapel together with plenty of
recreation areas, sun porches and a gift shop, library and lounges with
televisions. There are sixty acres of landscape grounds with walks together
with chalets for visitors.
(c) The
Organisation in Ireland is run by a Board of Governors. The organisational
matters are set out in the by-laws referred to above. The operation at
Carrigoran is merely a branch of the S.C.H. referred to above. Audited
accounts signed by an Administrator are submitted annually to Texas.
(d) The
establishment of the Nursing Home was financed by a thirty year loan at 10%
interest made by C.C.V.I. and S.C.H. in Houston in the sum of £800,000
which was secured on a mortgage of the property in Carrigoran. In the first
ten years, neither interest nor principal were payable, such that although the
balance now outstanding is £1,600,000 it is unlikely that the loan will be
paid off by the Respondents.
(e) The
operation at Newmarket-on-Fergus is subject to the Articles and by-laws of the
S.C.H. Houston. Directors can be nominated by either of the two bodies,
C.C.V.I and S.C.H. and although they are in fact sent a list of directors for
approval they can veto the appointment of any individual director.
(f) The
entire operation in Newmarket-on-Fergus is a branch of the organisations in
America. All major financial and property matters such as the construction of
buildings and the sale of lands are subject to limitations and sanctions from
America.
(g) Any
action in relation to the philosophy of the branch requires Board approval from
America in accordance with the underlining Catholic ethos of the Congregation
and Board approval from America is also required in relation to its underlining
financial stability. In essence, the Respondents are under the control and
management of Houston although they look after their day to day administrations
such as staffing levels, hospital regulations, etc. themselves. An Auditor's
report to the Board of Directors of Sisters of Charity of the Incarnate Word,
Houston, Texas is prepared annually by Ernst and Young on behalf of the
Respondents and is then signed by the Administrator and submitted to Houston.
Audited reports for the years 30th June, 1990, 30th June, 1991 and 30th June,
1992 were admitted in evidence before me and are annexed hereto and form part
of this case stated. Sale of property requires permission from Rome because
the Respondents are a canonical Congregation."
3. The
Appellants contend that:-
1.
Sections
333 and
334 of the
Income Tax Act, 1967 as amended apply to bodies or persons
established for charitable purposes but only if they are established within the
State.
2. That
the charity in this case is not established within the State.
4. It
is contended on behalf of the Respondents:-
1. That
had the legislature intended to limit the provisions of the Sections to bodies
or persons or charities as established within the State, it would have said so
and that it is not justified to give the exemption provision in the Sections
the confined interpretation contended for by the Appellants.
2. That
at any rate even if the Appellants' interpretation is correct the charity in
this case is in fact established within the State through its branch at
Newmarket-on-Fergus and in this connection the Respondents invoke in aid the
provisions of the Companies Acts which enable a company incorporated outside
the State to have an established place of business within the State and the
regulatory provisions in the Companies Acts concerning such companies.
5. I
will start with the issue concerning the interpretation of the Sections. The
statutory provisions in contention are effectively re-enactments of equivalent
statutory provisions contained in the Income Tax Act, 1918 and the Finance Act,
1921 as amended. The question of whether the word "established" had a
geographical limitation or not was considered by the High Court, Court of
Appeal and House of Lords in England in
The
Camille and Henry Dreyfus Foundation, Inc. - v - Commissioners of Inland Revenue
(1955) 36 T.C. 126. In that case Wynn-Parry J. in the High Court, Sir Raymond
Evershed M.R., Jenkins L.J. and Hodson L.J. in the Court of Appeal and Lord
Moreton of Henryton, Lord Porter, Lord Normand, Lord Keith of Avonhom and Lord
Somervell of Harrow in the House of Lords all agreed that the limited
geographical meaning should be given to the expression "established" in the
relevant statutory provision. Although I am not bound by any of those
decisions, I would be very slow to dissent from such a weight of judicial
opinion. It is, however, only fair to say that for all practical purposes the
House of Lords simply adopted the reasoning of the Court of Appeal. In the
Court of Appeal the most closely reasoned judgment came from Jenkins L.J. and I
find myself unable to disagree with his reasoning. It is important, however,
to clear one argument out of the way which was referred to in the oral
submissions before me. The basis of the original judgment of Wynn-Parry J. is
that he felt bound by dicta (arguably obiter dicta) of Lawrence J. in
Commissioners
of Inland Revenue -v- Gull
21 T.C. 374. Those dicta were to the effect that as certain English enactments
made after the coming into being of the Irish Free State specifically conferred
exemption on the income of "a body of persons or trust established in the Irish
Free State for charitable purposes only" Parliament was thereby providing a
legislative interpretation of the exemption enactment itself i.e. Section 37 of
the Income Tax Act, 1918. Mr. O'Keeffe argued strongly before me that the
meaning of a particular statutory provision cannot be arrived at by reference
to a subsequent statutory provision. I agree with his submission but as I read
the judgments of the Court of Appeal in the
Camille
case, that Court also rejected any such principle. Sir. Raymond Evershed M.R.
at p.138 had this to say on the view taken by Lawrence J.
"It
does not, however, appear that the case of
Ormond
Investment Co. Limited -v- Betts
,
13 TC 400 was cited to the learned Judge. The speeches of the noble Lords in
that case and the speeches in the later case before the House of
Commissioners
of Inland Revenue -v- Dowdall O'Mahoney & Co. Limited
,
33 TC 259 must be taken to have established clearly that an expression,
explicit or implicit, by Parliament in a later Act of its intention in an
earlier Statute cannot be treated as altering, ex post facto, the effect of the
earlier enactment according to the proper interpretation of the language
therein used."
6. However,
Sir. Raymond Evershed M.R. and the other Lords Justices of Appeal in the
Camille
case
took the view independently of any such principle as enunciated by Lawrence J.
that the exemption under Section 37 of the 1918 Act must be confined to
charities established in the United Kingdom. The Judges of the Court of
Appeal, however, following the view taken by the House of Lords in the
Ormond
Investment Co.
case cited above accepted that in a case where Acts are to be read together and
there was a provision in an earlier Act that was so ambiguous that it was open
to two perfectly clear and plain constructions, it could in that instance by a
subsequent incorporated Statute be interpreted so as to make the second Statute
effectual. In that limited sense only, the subsequent enactment could be
relevant to interpretation of an earlier enactment. But independently of any
of that the Court of Appeal came to the conclusion that the exemption under
Section 37 was limited as contended for by the Crown. At the end of a lengthy
and, as I have already indicated, closely reasoned judgment Jenkins L.J. summed
up his view of the matter as follows at p.152:-
"The
phrase to be construed is the whole phrase 'body of persons or trust
established for charitable purposes only', and it must be construed in its
context. Whether the claim for exemption is made on behalf of a body of
persons or on behalf of a trust, the body or trust must be shown to be
established for charitable purposes only, and that requirement must have the
same quality in the case of a body of persons as it has in the case of a trust.
I have already expressed the view that 'trust' in an Act of the United Kingdom
Parliament means a trust taking effect and enforceable under the law of the
United Kingdom. It follows that, in my opinion, a 'trust established for
charitable purposes only' must here mean a trust taking effect and enforceable
under the law of the United Kingdom and creating an obligation enforceable in
the Courts of the United Kingdom to apply its funds for purposes which are,
according to the law of the United Kingdom, exclusively charitable. I can
attribute no different meaning to the phrase 'established for charitable
purposes only' when applied to a body of persons. So applied, I think it is
only satisfied by a body of persons which under the law of the United Kingdom
is subject to an obligation enforceable in our Courts to apply its funds for
purposes which are according to that law exclusively charitable.
Accordingly,
I would hold that the Foundation is not established for charitable purposes
only within the meaning of Section 37(1)(b) of the Income Tax Act, 1918.
I
am fortified in this conclusion by the consideration that an exemption
substantially in this form has appeared in Income Tax legislation ever since
1799, at which date there was no question of taxing, and therefore none of
exempting non resident foreigners. I also find some support for my view in the
administrative difficulties attending the other construction, to which I have
already averted, and to which I might add the difficulty of ascertaining
whether a foreign allegedly charitable institution is in fact applying its
income in accordance with its avowed objects. Finally, if I have rated the
case against the Foundation too high, I think it can hardly be denied that the
question is left at least in a state of ambiguity which can properly be
resolved by reference to the legislative interpretation placed on Section 37 by
the above cited enactments concerning charities in the Irish Free State."
7. I
accept the reasoning and conclusions of Jenkins L.J. and therefore of the Court
of Appeal and House of Lords.
8. That
being so, I must now move to the second question which arises which is whether
this charity is in fact established in Ireland. The Foundation which was the
charity considered in the
Camille
case had no place of business (using the word "business" in a very loose sense)
in the UK at all. What was being considered there was income coming from a UK
source to a foreign body of persons holding and applying such income for
charitable purposes but not ostensibly for any UK charitable purpose. In a
passage in the Judgment of Sir. Raymond Evershed M.R. at p.138 the former
Master of the Rolls comments as follows:-
"A
body such as the Foundation, though incorporated under the laws of a foreign
country and being, therefore, a foreign corporation, might derive all its
income from the United Kingdom and carry on all its activities in the United
Kingdom. In such case, though it is not necessary for me to decide the point,
the Foundation might successfully assert that it was a body of persons
established for charitable purposes only. But on the facts of this case, and
since the activities of the Foundation are carried out exclusively in America,
the Foundation fails, in my judgment to bring itself within the terms of
Section 37 of the Act and so fails to make good its claim to the exemption
which that Section confers."
9. Now
although Sir. Raymond Evershed M.R. postulates the example of a foreign charity
carrying on all its activities in the UK, he nevertheless in that passage goes
on to emphasise that the activities of the Foundation being considered in that
case were carried out "exclusively" in America. Taking that passage as a
whole, I interpret it as leaving open the question of what the position would
be if a foreign charity had any actual establishment in the United Kingdom even
if it had activities elsewhere. I now move to the judgment of Jenkins L.J. at
p.143 where he states as follows:-
"The
Foundation has at all material times been resident outside the United Kingdom,
that is to say in the State of New York; and while under paragraph 4 of the
certificate its operations, though principally to be conducted in the United
States of America, are not limited to that territory, it has never in fact
conducted any of its operations in the United Kingdom."
10. In
another part of this judgment at p.148 Jenkins L.J. refers to the fact that the
word "established" has been held to mean nothing more than "formed with some
degree of permanence". Having regard to the fact that the Respondents in this
case own and manage a Nursing Home in Ireland that the exemption is being
sought only in relation to the Respondents activities in Ireland, the case, in
my opinion, is totally distinguishable from the
Camille
case.
In my view, there is sufficient "establishment" in Ireland to give rise to the
exemption. I think that the rather extreme interpretation being contended for
by the Appellants could have wide unintended repercussive effects in Ireland
where there must be many religious Orders running charitable Institutions but
subject to varying degrees of control by Superiors outside of Ireland. Put
shortly, I am of opinion, that a foreign charity with no activities base (for
want of a better expression) in Ireland is not entitled to an exemption but a
foreign charity which does have such a base is entitled to it in respect of
funds applied towards the Irish charitable activities.
11. I
therefore hold that Judge O'Higgins was correct in determining that the
Respondents were entitled to the benefit of the provisions of Sections 333 and
334 of the Income Tax Act, 1967 as amended. I do not find it necessary,
therefore, to consider the relevance of the provisions of the Companies Act,
1963 relating to foreign Companies with a place of business in Ireland.
© 1998 Irish High Court
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