Bass Holdings Ltd v Money (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 04 March 1993 |
| Date | 04 March 1993 |
| Court | Chancery Division |
Chancery Division.
Sir Mervyn Davies (sitting as a High Court judge).
David Goldberg QC (instructed by Linklaters & Paines) for the company.
Alan Moses QC (instructed by the Solicitor of Inland Revenue) for the Crown.
The following case was referred to in the judgment:
Gallic Leasing Ltd v Coburn (HMIT) TAX[1991] BTC 451
Corporation tax - Stock relief - Transitional relief - Taxpayer forgot to claim transitional relief within time-limit from end of accounting period of 52 weeks - Claim for transitional relief covering 104-week "period of account" comprising two accounting periods including the period attracting transitional relief - Whether 104-week period was a "period of account" for stock relief purposes - Finance Act 1981 section 35 schedule 9 subsec-or-para 26 schedule 10Finance Act 1981, sec. 35, Schs. 9, para. 26, 10. (Stock relief was abolished by the Finance Act 1984.)
This was an appeal by a company against the decision of the special commissioners that a claim for stock relief had to be made in relation to a company's normal accounting period.
The stock relief scheme was amended by the Finance Act 1981.Finance Act 1981 section 35Section 35, andFinance Act 1981 schedule 9Sch. 9 provided for the new scheme. Schedule 10 provided transitional relief which could be claimed at the old, more advantageous rate, for a "period of account" which ended on or included 14 November 1980.
The company made up accounts for a year ended 26 September 1981 which included the material date, 14 November 1980. It was thus in a position to claim transitional relief. The company failed to make an election for the transitional relief but did not appreciate the position until July 1984 by which time it was too late.
Having made a claim on the basis of the new relief for both accounting periods ending 26 September 1981 and 1982, the company sought to remedy its omission by making a claim instead in relation to a period of account of 104 weeks covering both accounting periods.
The company appealed to the special commissioners against the inspector's refusal to accept the 104-week claim. The commissioners took the view that the 104-week period was a "period of account" for stock relief purposes but dismissed the appeal on the ground that the company was not entitled to make a claim for that period.
On appeal to the High Court the company submitted that the 104-week claim was permissible because a "period of account" was defined inFinance Act 1981 schedule 9 subsec-or-para 26Sch. 9, para. 26 as "a" period for which an account is made up in relation to the trade in question. The use of the indefinite article in regard to a period was also maintained elsewhere in the legislation. The definition showed that in relation to stock relief an account had to be in relation to the trade and the account submitted by the company in the course of the 104-week claim was said to be such an account. The stock relief "period of account" was not the same as an "accounting period" because stock relief was not limited to companies and an accounting period would be inappropriate in the case of an individual. Moreover,Finance Act 1981 schedule 9 subsec-or-para 23Sch. 9, para. 23 contemplated that a period of account might be longer than 18 months and there was nothing to prevent the company making up an account for stock relief purposes for any period that it might choose.
Held, dismissing the company's appeal:
A "period of account" in the 1981 Act meant a "period of account" that would be shown in the company's accounting records and not a period of account made specially for stock relief purposes. The phrase had to be looked at in the context of corporation tax and not in isolation. A period of account for stock relief purposes meant, in relation to a company, any period of account used by the company for assessing profits for corporation tax purposes.
On 10, 11 and 12 February 1992, the commissioners for the special purposes of the Income Tax Acts (Mr THK Everett and Mr D A Shirley) heard the appeals of Bass Holdings Ltd "the company" against two decisions on stock relief in respect of corporation tax.
The company declared its dissatisfaction with the determination of the commissioners and required a case to be stated pursuant to theTaxes Management Act 1970 section 56Taxes Management Act 1970, sec. 56.
The questions of law for the court were whether the commissioners erred in holding:
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(2) that the 104-week period relied on by the company in making a stock relief claim submitted on 14 September 1984 was a "period of account" within the meaning of
(a) Finance Act 1976 schedule 5 subsec-or-para 28Finance Act 1976, Sch. 5, para. 28(1);
(b) Finance Act 1981 section 35 subsec-or-para (3) schedule 9 subsec-or-para 26Finance Act 1981, sec. 35(3) and Sch. 9, para. 26.
(3) that the company was not entitled to make a stock relief claim for a 104-week period encompassing the periods covered by earlier claims.
This case concerns a number of claims to stock relief submitted by Bass Holdings Ltd ("the company").
Stock relief was introduced initially by the Finance Act 1975 in order to assist traders with cash-flow problems during a period of high inflation. The relief was extended by the Finance (No. 2) Act 1975 and entirely recast by the Finance Act 1976. The relief was governed by the Finance Act 1976 between 1976 and 1981. During that period a trader was given relief for the whole of the increase in the value of his trading stock over a period of account less a deduction for a certain percentage of the income of the trade. In the case of corporations, the percentage was 15 per cent. If the value of a trader's stock fell during a period of account, there was provision for a claw back of relief which had been given.
On 13 November 1980 the Chancellor of the Exchequer announced that the 1981 Finance Bill would include legislation to reform stock relief and a consultative paper was published on 14 November 1980. In due course the relevant legislation was enacted by the Finance Act 1981 section 35 schedule 9 schedule 10Finance Act 1981, sec. 35 and Schs. 9 and 10. In the opinion of the company's advisers, the new system of stock relief was less favourable to the company in financial terms than the old. The new relief took effect from 14 November 1980, the date of publication of the consultative paper.
In addition to providing for a new system of stock relief, theFinance Act 1981 also provided, by Finance Act 1981 schedule 10Sch. 10, a system of transitional reliefs designed to give a taxpayer the amount of old relief to which he would have been entitled if his period of account had actually ended on 14 November 1980 and the old system of relief would have been more beneficial to the trader than the new relief. In order to obtain the benefit of the transitional relief, the taxpayer had not only to claim relief but also to make an election within two years after the end of the period of account: Finance Act 1981 schedule 10para. 2 of Sch. 10 to the Finance Act 1981.
The company had a period of account which ended on 26 September 1981. Accordingly it was entitled to elect for transitional relief as that period of account began on 28 September 1980 and therefore spanned the date on which the new relief came into effect on 14 November 1980. By an oversight the company forgot to elect for transitional relief. That accident gave rise to the subsequent events which led in due course to the hearing of these appeals before us.
In form these proceedings are appeals by the company against determinations by the inspector of taxes of the company's claims to stock relief. The first such appeal is against the inspector's decision on 16 August 1985 to the effect that stock relief due to the company under Finance Act 1981 schedule 9para. 12 of Sch. 9 to the Finance Act 1981 for the accounting period ended 26 September 1981 is £1,607,141. It is common ground between the parties that the inspector's decision correctly gave to the company new relief pursuant to the Finance Act 1981.
Having failed to make an election for transitional relief the company submitted to the Revenue on 14 September 1984 a claim for transitional relief covering the 104-week period of account ending 25 September 1982 and therefore spanning the critical date of 14 November 1980. That claim was refused by the inspector on 9 May 1990.
1. The company is a member of the Bass Group and a wholly-owned subsidiary of Bass plc. The company is the principal trading company of the group.
2. The company's normal accounting period ends on the last Saturday in September in each year and therefore some accounting periods are for 52 weeks whilst others are for 53 weeks. The mean date for accounting purposes of the company is agreed to be 30 September in each year.
3. On 20 September 1983 the company lodged a claim for stock relief with the inspector of taxes for the accounting period ended 26 September 1981 in the sum of £1,607,141. No election having been made by the company pursuant to Finance Act 1981 schedule 10Sch. 10 to theFinance Act 1981, the computation was made in accordance withFinance Act 1981 schedule 9Sch. 9 of that Act.
4. On 11 November 1983 an assessment was made on the company by the inspector of taxes for the accounting period ended 25 September 1982. The company lodged an appeal against that assessment on 28 November 1983.
5. On 5 April 1984 accounts and computations were lodged with the inspector of taxes by the company in relation to the accounting period ended 26 September 1981. The computations and accounts included stock relief computations on the basis of transitional relief in accordance with Finance Act 1981 schedule 10Sch. 10 to theFinance Act 1981 (despite no election having been made in accordance with that schedule).
6. On 20 July 1984 an internal file note shows that the company had...
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