Arranmore Investment Company Ltd v Commissioners of Inland Revenue
| Jurisdiction | Northern Ireland |
| Judgment Date | 20 February 1973 |
| Date | 20 February 1973 |
| Court | Court of Appeal (Northern Ireland) |
COURT OF APPEAL (NORTHERN IRELAND)-
Income tax - Corporation tax - Error or mistake relief - Prevailing practice - Whether Case may be stated on appeal from decision on prevailing practice - Taxes Management Act 1970 (c. 9), s. 33.
The Appellants were land investment companies. Their liabilities to income tax and corporation tax for a number of years and accounting periods had been settled on the basis of computations submitted on their behalf in which transactions of a certain character were treated as attracting liability to tax under Case VI of Schedule D by virtue of s. 23, Finance Act 1962. In 1969 it came to the notice of the Companies that in July of that year the Special Commissioners had decided on another taxpayer's appeal that such transactions did not fall within s. 23 and that the Inland Revenue had not appealed against that decision. They claimed relief on the ground that they had overpaid tax by reason of an error or mistake in their returns, but the claims were refused by the Commissioners of Inland Revenue, and, on appeal, by the Special Commissioners, on the ground that the computations had been made in accordance with the practice prevailing when they were submitted.
On the demand of the Companies the Special Commissioners stated Cases for the opinion of the Court of Appeal in Northern Ireland, in which the questions of law arising were stated to be whether the prevailing practice rule applied to the claims and if so whether there was evidence justifying their decision that the computations had been made in accordance with such practice. It was contended for the Crown, as a preliminary point, that the Cases raised no point of law arising in connection with the computation of profits and accordingly the Commissioners had no power to state them.
Held, that the Cases raised no point of law arising in connection with the computation of profits and no appeal lay to the Court.
(1) Arranmore Investment Co. Ltd. v. Commissioners of Inland Revenue
CASE
Stated under the Taxes Management Act 1970, s. 56, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the Court of Appeal in Northern Ireland.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 22nd June 1971, Arranmore Investment Co. Ltd. (hereinafter called "the Company") appealed against the refusal of the Board of Inland Revenue to give any relief by way of repayment of tax for error or mistake under s. 33 of the Taxes Management Act 1970.
At the same meeting, by agreement of all parties, a similar appeal by Carnalea Investment Co. Ltd. was heard. The latter appeal is the subject of a separate Case Stated, which, in order to save costs, is in skeleton form.
Also at the same meeting we, the Commissioners, had referred to us under s. 49(1) of the Taxes Management Act 1970 an application for hearing out of time an appeal by the Company in respect (in the event) of the assessment for the year 1963-64 hereinafter mentioned.
2. Shortly stated, the questions for our decision were whether (a) by reason of the proviso to s. 33(2) of the Taxes Management Act 1970 the Company was precluded from repayment of tax allegedly paid in error; (b) under s. 49(1) of the Taxes Management Act 1970 late notice of appeal against (in the event) the assessment for the year 1963-64 hereinafter mentioned should be allowed.
3. The following witnesses gave evidence before us: (a)John Leonard Field (hereinafter referred to as "Mr. Field"), H.M. Inspector of Taxes attached to the office of H.M. Chief Inspector of Taxes (Property); (b) Robert John Townson (hereinafter referred to as "Mr. Townson"), H.M. Inspector of Taxes, Belfast 8th District.
4. The following documents were proved or admitted before us:
(2) Copy memorandum and articles of association.
(3) Specimen printed building contract.
(4) Specimen printed agreement for sublease.
(5) Specimen printed sublease.
(6) Copy computation for year ended 31st December 1967.
(7) List of assessments relevant to appeal.
(8) Copy extract from Chief Inspector's Instructions (9/70 I.M. 1724-1727).
(9) Copy letter dated 17th June 1971 from the Company's accountants to H.M. Inspector of Taxes.
(10) Copy reply dated 17th June 1971 from H.M. Inspector of Taxes to the Company's accountants.
Copies of such of the above as are not annexed hereto as exhibits are available for inspection by the Court if required.
5. As a result of the evidence, both oral and documentary, adduced before us we find the following facts proved or admitted:
(2) The Company is a private company limited by shares incorporated in Northern Ireland on 14th June 1961 with the main object of acquiring property for the purposes of investment only.
(3) The Company's business at all material times was that of a land investment company: it was never a dealer in or developer of land.
(4) In each of the relevant years or accounting periods the Company made a series of lettings of sites for dwelling houses in three housing estates, called respectively "Cherrymount", "Chippendale Park" and "Inglewood", all situated in or near the town of Bangor, Co. Down. The houses on the sites were erected by or on behalf of a land development company called Cherrymount Development Co. Ltd. ("Cherrymount"), which was also a private company and was at all relevant times "associated with" the Company within the meaning of that expression as used in s. 23 of the Finance Act 1962. The standard procedure was as follows: (i) Acting through estate agents Cherrymount attracted customers for the houses. (ii) Cherrymount then entered into a standard form of building contract with each individual customer. (iii) Cherrymount arranged for the customer to enter into an agreement with the Company for the granting by the Company to the customer of a building sublease of the site of the customer's house for 999 years (or similar long terms) at an annual rent. (iv) In due course the Company granted the customer the building sublease agreed upon as mentioned at (iii) above. On average the annual rent reserved was in the range £20 to £25.
(5) As the development of the three sites proceeded from the year 1961 onwards the Company's accountants, Messrs. Henderson & Donnelly, chartered accountants, 129 Ormeau Road, Belfast (hereinafter referred to as "the accountants"), submitted a series of computations for tax purposes, in which (inter alia) they set out details of the ground rents created by the various site subleases made by the Company, the lease rent payable by the Company under its own lease, the profit rental created by the Company, the capital value of the profit rental and the original cost of the land out of which the profit rental had been created. In each of the relevant returns the accountants also set out their calculation of the Company's liability for income tax, or, as the case might be, corporation tax, under s. 23 of the Finance Act 1962. In making such returns the accountants bona fide believed that the act of the Company in making each of the subleases referred to above constituted a "disposing of [its] land" within the meaning of that expression as used in s. 23(1) and so attracted a charge to tax thereunder. A typical computation in the said series was that for the year ended 31st December 1967, a copy of which is exhibited hereto, marked "A"(1).
-
(6) Assessments were made on the Company as follows:
-
(a) Income Tax
Amount
Description
Tax
Year
assessed
of profits
chargeable
£
£
s.
d.
1963-64
1673
Disposal of land
365
16
0
1964-65
134
"
51
18
6
1965-66
498
"
205
8
6
-
(b) Corporation Tax
Period
Amount
Description
Tax
ended
assessed
of profits
chargeable
£
£
s.
d.
31st December 1966
697
Case VI
278
16
0
31st December 1967
2180
"
912
17
6
Total 1814
16
6
-
(7) With the exception of the above assessment for the year 1963-64, all other assessments above were in estimated amounts of £3,000, which were duly appealed and subsequently determined by agreement under s. 510 of the Income Tax Act 1952 in the above amounts of tax chargeable, which were in due course paid by the Company.
(8) On 28th and 29th July 1969 an appeal by Ferbro Estates Ltd. (hereinafter called "Ferbro") was heard in London by two of the Special Commissioners. The appeal was against assessments made on the footing that s. 23 of the Finance Act 1962 applied to the transactions there in question. The appeal was upheld
and the assessments were discharged. The Special Commissioners' decision (hereinafter called "the Ferbro decision") was not challenged by the Commissioners of Inland Revenue. Knowledge of the Ferbro decision reached the accountants later in 1969, and they took up the matter with Mr. Townson. The accountants argued that the Ferbro decision (which until then was unknown to Mr. Townson) was to the effect that the letting by an investment company of a plot of land as the site for a house, without premium, did not amount to a disposal of land within the meaning of the said s. 23, and that accordingly no charge to tax could have arisen in respect of similar lettings by the Company. Mr. Townson did not accede to those arguments. Eventually the Company refused to pay any further tax whatsoever, and their accountants submitted a formal claim under s. 66 of the Income Tax Act 1952 (now s. 33 of the Taxes Management Act 1970) for repayment of tax paid in error, namely, the total of £1,814 16s. 6d. referred to in subpara. (5) above. The claim for repayment was refused by the Commissioners of Inland Revenue by letter dated 29th July 1970.(9) During the hearing before us counsel for the Company produced what purported to be an unofficial note...
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