Booth (E. v) (Holdings) Ltd v Buckwell
| Jurisdiction | England & Wales |
| Date | 1980 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Corporation tax-Chargeable gains-Contract for sale of shares-Separate consideration allocated to shares and to settlement of loan account-Whether consideration may be re-allocated for tax purposes.
In 1965 Holdings transferred its assets to a new company in exchange for two £1 shares issued at par and £61,680 which was left outstanding on loan account. In June 1970, when the loan account balance was £55,839, the company sold the two shares under a contract which provided "The total consideration payable…for the said shares shall be £35,000." The contract continued "In addition to the said purchase price and in part consideration [Holdings] shall be entitled to withdraw in full and final settlement of any balance due…on loan account such an amount as shall be equal to the excess of current assets (excluding stock-in-trade) over current liabilities…" Under this formula the amount available for withdrawal was £20,969. Holdings withdrew this sum from its loan account with the new company and wrote off the balance of £34,870.
For Holdings it was contended that the consideration for the sale of the shares was £130 (£35,000 less the £34,870 written off). The General Commissioners accepted the Inspector's contention that the consideration for the shares was £35,000. Holdings appealed.
Holdings' The Chancery Division, dismissing appeal, held that on a true construction of the contract the parties had expressly allocated £35,000 as the consideration for the disposal of the shares and £20,969 to the separate disposal of the loan account balance and they could not subsequently seek to re-allocate the consideration for tax purposes.
Aberdeen Construction Group Ltd. v. Commissioners of Inland Revenue52 TC 281; [1978] AC 885 distinguished.
Stated under s 56, Taxes Management Act 1970, by the Commissioners for the General Purposes of the Income Tax for the Division of West Morley for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax held on 27 May 1977 E.V. Booth (Holdings) Ltd. (hereinafter called "the Company") appealed against the following assessment to corporation tax: accounting period to 31 March 1971, £3,000.
2. The grounds of the appeal were that the sum of £34,677 sought to be included in the assessment in respect of a chargeable gain in respect of a disposal of shares was not assessable to corporation tax.
3. Evidence was given before us by Mr. E.V. Booth.
4. The following document was proved or admitted before us: an agreement (hereinafter called "the agreement") made 1 June 1970 between Erle Vivian Booth and Maggie Booth and the Company ("the vendors") of the one part and Terry of Bradford Ltd. of the other part. A copy of the agreement is attached to and forms part of this Case(1).
5. The following facts are matters of record or were found by us from the evidence both oral and documentary adduced before us:
(A) The Company was incorporated on 22 October 1938 under the name W. Parker & Sons Ltd.
(B) The Company engaged in the building trade, acquired property and also engaged in farming.
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(C) The shareholdings in the Company were as follows:-
E. V. Booth
2483
Mrs. M. Booth
2482
Children of E. V. and Mrs. M. Booth
12640
Total issued
17605.
(D) In 1963 the Company ceased farming operations but the farm was retained and let to C.M. Booth, the son of Mr. E.V. Booth.
(E) In 1964 Mr. E.V. Booth began to look for a buyer for the building business. In order to facilitate its sale a new company was incorporated on 31 March 1965 and the building trade assets of the Company were transferred to the new company in exchange for two £1 shares at par and the balance £61,680 as a loan account. Included in the transfer was goodwill £40,000.
(F) The new Company took the name W. Parker & Sons Ltd. and the Company changed its name to E.V. Booth (Holdings) Ltd.
(G) W. Parker & Sons Ltd. was a wholly-owned subsidiary company of the Company. The two issued shares of W. Parker & Sons Ltd. were held as to one each by Mr. E.V. Booth and his wife as nominees of the Company.
(H) The agreement was entered into on 1 June 1970 and provided for the acquisition by Terry of Bradford Ltd. of the two shares owned by the Company in W. Parker & Sons Ltd.
(I) The date fixed by the agreement for completion of the sale was 1 June 1970. The agreement provided for payment of £35,000 purchase price by Terry of Bradford Ltd. to the vendors who were to be entitled to withdraw in addition to the said purchase price and in part consideration and in full and final settlement of any balance still due to them on loan account such an amount as should equal the excess of current assets (excluding stock-in-trade) over current liabilities in the accounts of W. Parker & Sons Ltd. prepared on the same basis as previously as at the date of completion. The agreement provided for this amount to be discharged by payment by W. Parker & Sons Ltd. to the vendors either in cash or by way of transfer of specific assets of W. Parker & Sons Ltd. as the vendors should require. Terry of Bradford Ltd. were to collect amounts owing to W. Parker & Sons Ltd. at the date of completion and account to the vendors on the last day of each succeeding month for such moneys collected less any amounts paid to...
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