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Cite as: [1998] IEHC 24, [1998] 2 IR 553

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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.