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He sold the land and timber to a company he formed and received as consideration all the fully paid shares.
The company carried the business of felling and milling timber. Macaura had earlier insured the timber against loss of by fire in his own name. He subsequently sold the plantation to a company of which he was the only shareholder, through the purchase money remained owing to him.
The plaintiff, who was the major shareholder and managing director of the company, sought to conduct the company’s defence.
The court held that the income-tax authorities were entitled to pierce the veil of corporate entity and to look at the reality of the transaction to examine whether the corporate entity was being used for tax evasion.The ‘corporate veil’ surrounds the company of Murphy & Co Ltd and prevents outsiders challenging the operation of the company.However, although the principle of separation is central to company law, there are a number of situations when the company and its members can be identified together and treated as the same.For all intents and purposes, all acts taken by these two company types are taken by the owners themselves.The company becomes a legal person in its own right, distinct from the This was seen in the famous case of Salomon v Salomon & Co Ltd (1897).