Chilcott and Others v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 30 July 1981 |
| Date | 30 July 1981 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income tax, Schedule D, Case VI-Artificial transactions in land-Sale of shares in company owning land sold for development-Whether a sale of property deriving its value from land-Whether Appellants received a gain of a capital nature obtained from the disposal of the land-Whether gain realised by any indirect method-Income and Corporation Taxes Act 1970, s 488.
The Appellants owned the shares of a property dealing private company, K Ltd., which owned land in Leman Street, London E.1. They procured the transfer by K Ltd. of the land to MH Ltd. for £1,900,000 which K Ltd. received at noon on 16 February 1973 in the form of 506,666 shares in MH Ltd. At 2.30 p.m. on 16 February 1973 the Appellants transferred their K Ltd. shares (now enhanced by K Ltd.'s profits) to THD Ltd. for £1,233,235. They received this sum in the form of 328,863 MH Ltd. shares, part of the 506,666 such shares which K Ltd. had owned for 2 1/2 hours. The Appellant thereby realised a gain in the form of shares which had been derived from or substituted for the land, in that they represented part of the proceeds of sale of the land by K Ltd.
The Special Commissioners held that the disposal rendered the Appellants liable to tax under s 488 of the Income and Corporation Taxes Act. They held: (1) (it having been conceded before them that the Appellants, as "connected persons" within (12)(b) had made gains of a capital nature from the disposal of the land by K Ltd.) that since K Ltd. had ceased to hold the land as trading stock by the time its shares were disposed of to THD Ltd., the exemption conferred by s 488(10) was not available, and (2) that, on the facts, there was an arrangement or scheme effected as respects the land within the meaning of s 488(2)(ii), and not one which affected the shares only. The four Appellants appealed.
Held, in the Chancery Division, allowing the Appellants' appeals, that:
(1) the process by which the transaction was brought within s 488(2)(i) also brought it within the exception in s 488(10);
(2) the arrangement or scheme which the Special Commissioners found to exist could not be said to be one which enabled the Appellants to realise a gain by an indirect method.
Per Curiam: The sidenote to the section was a permissible and useful guide throwing further light on the mischief aimed at: Regina v. Schildkamp [1971] AC 1 and Mangin v. Inland Revenue Commissioner [1971] AC 739, at page 755 considered.
Stated under the Taxes Management Act 1970, s 56, by the Commisioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held from 11 to 14 December 1978 Paul Edward Chilcott (hereinafter called "Mr. Chilcott") appealed against the following assessments: (a) to income tax, in respect of profits described as "transactions in property deriving its value from land" (s 488, Income and Corporation Taxes Act 1970):
Year |
Amount |
£ |
|
1969-70 |
327,525 |
1972-73 |
329,858; |
(b) to consequential surtax for all the same years and amounts.
2. By agreement between all parties these appeals were heard together with appeals by (a) Mr. D. Summers (b) Mr. D. Lee and (c) Messrs. W. J. Germing and D. Lee as executors of J. Lever decd., in respect of assessments arising out of the same transactions. Separate Cases have been demanded by and stated for Mr. Summers, Mr. Lee, and Messrs. Germing and Lee. Messrs. Chilcott, Summers, Lever and Lee are hereinafter collectively referred to as "the four shareholders".
3. Shortly stated the question for our decision was whether Mr. Chilcott was chargeable to tax under the provisions of s 488 of the Income and Corporation Taxes Act 1970, in respect of the transactions (or some of them) hereinafter specified.
4. Copies of the following documents were admitted or proved before us:
(I) Re Prescot Property
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(II) Re Loommap Developments Ltd. (Loommap) (Files A, B, C).
(2) Memorandum of association-12 September 1960 (A1).
(3) Amended articles of association and special resolution adopting the same-10 December 1969 (A2).
(4) Minutes authorising purchase of Prescot Street and Leman Street for £725,000-8 April 1969 (A3).
(5) Minutes appointing David Lee as a director-4 June 1969 (A4).
(6) Minutes authorising borrowing of £400,000 from Continental Bankers Agents Ltd., and £270,000 from Lever Finance Ltd.-5 June 1969 (A5).
(7) Minutes appointing P. Chilcott and J. Lever as directors-16 June 1969 (A6).
(8) Minutes ratifying agreement for lease to J. H. Minet & Co. Ltd. (Minet)-consideration of uses and possible sale of Leman Street in view of its liabilities-7 August 1969 (A7).
(9) Minutes relating to failure to let Leman Street and authorisation to obtain a valuation for sale purposes-20 August 1969 (A8).
(10) Minutes authorising sale of Leman Street to Kolinol Property Trading Co. Ltd. (Kolinol) for £30,000-9 December 1969 (A9).
(11) Minutes of E. G. M. increasing share capital and amending articles of Loommap (A10).
(12) Minute re allotment of shares-11 December 1969 (A11).
(13) Minutes of lease of Prescot Street to Metallic Property Trading Co. Ltd. (Metallic)-11 December 1969 (A12).
(14) Minutes re work to be carried out by Drimkon Property Trading Co. Ltd. (Drimkon), 12 December 1969 (A13).
(15) Minutes re sale of debt to Lekos Investment Co. Ltd. (Lekos)- 16 December 1969 (A14).
(16) Minutes approving transfer of shares to Molkin Investment Co. Ltd.-1 January 1970 (A15).
(17) Minutes recommending dividend of £1,190,000, 18 March 1970 (A16).
(18) Minutes of E. G. M. approving dividend, 18 March 1970 (A17).
(19) Accounts for 30 November 1970 (A18).
(20) Accounts for 30 November 1971 (A19).
(21) Notice under s 460 of the Income and Corporation Taxes Act 1970 (A20).
(22) Letter to H.M. Inspector of Taxes, 14 December 1970 (A21).
(23) Lease of Prescot Street to Minet, 24 July 1969 (B1).
(24) Schedule of works to be carried out at Prescot Street, 10 July 1969 (B2).
(25) Agreement for lease, Loommap to Metallic-11 December 1969 (C1).
(26) Lease, Loommap to Metallic, 11 December 1969 (C2).
(27) Agreement for sale of freehold reversion, Loommap to Drimkon, 12 December 1969 (C3).
(28) Agreement re building and other works, Loommap and Drimkon, 12 December 1969 (C4).
(29) Notice, Loommap to Metallic, 12 December 1969 (C5).
(30) Agreement, Metallic to Berkrol Trading Property Co. Ltd. (Berkrol), 12 December 1969 (C6).
(31) Agreement, Berkrol to Drimkon, 12 December 1969 (C7).
(32) Assignment, Berkrol to Drimkon, 16 December 1969 (C8).
(33) Offer, Lekos to Loommap, 16 December 1969 (C9).
(34) Transfer, Loommap to Drimkon, 16 December 1969 (C10).
(35) Agreement, Drimkon to Minet, 16 December 1969 (C12).
(36) Transfer, Drimkon to Minet, 23 February 1970, (C11).
(37) Re Drimkon (File E)
(38) Memorandum and articles, 10 November 1969 (E1).
(39) Minutes, 1 December 1969 (E3).
(40) Special resolution, 2 December 1969 (E6).
(41) Minutes, 4 December 1969 (E4).
(42) Minutes, 12 December 1969 (E2).
(43) Minutes, 15 December 1969 (E5).
(44) Re Molkin (File F)
(45) Memorandum and articles, 7 November 1969 (F1).
(46) Minutes, 31 December 1969, (F5).
(47) Bundle of nine share certificates in Molkin, Chilcott & others, 30 December to 1 January 1970 (F8).
(48) Agreement, Chilcott & others with Molkin-31 December 1969 (F6).
(49) Bundle of four transfers of shares in Loommap, Chilcott & others to Molkin, 31 December 1969 (F7).
(50) Minutes, 1 January 1970 (F3).
(51) Letter from John M. Winter & Sons to H.M. Inspector of Taxes, 2 January 1970 (F9).
(52) Letter from Loommap & Molkin to H. M. Inspector of Taxes, 2 January 1970 (F10).
(53) Letter from J.M. Winter & Sons to H.M. Inspector of Taxes, 5 March 1970.
(54) Letter from H.M. Inspector of Taxes to J. M. Winter & Sons, 11 March 1970 (F12).
(55) Minutes, 24 March 1970 (F4).
(56) Special resolution, 24 March 1970 (F2).
(57) Accounts, 30 November 1970 (F13).
(58) Re Ransgold Investment Co. Ltd. (Ransgold) & Yarline Investment Co. (Yarline) (File D)
(59) Agreement for loan, 18 March 1970, Ransgold to Mr. Lee (D1).
(60) Agreement for loan, 18 March 1970, Ransgold to Mr. Lever (D2).
(61) Agreement for loan, 18 March 1970, Ransgold to Mr. Chilcott (D3).
(62) Agreement for loan, 18 March 1970, Ransgold to Mr. Summers (D4).
(63) Agreement for loan, 18 March 1970, Yarline to Mr. Lever (D5).
(64) Agreement for loan, 18 March 1970, Yarline to Mr. Lee (D6).
(65) Agreement for loan, 18 March 1970, Yarline to Mr. Chilcott (D7).
(66) Agreement for loan, 18 March 1970, Yarline to Mr. Summers (D8).
(67) Minutes of Ransgold (18 March 1970) (D12).
(68) Request from Abadron Property Trading Co. Ltd. (Abadron) to Ransgold, 18 March 1970 (D13).
(69) Letter from Ransgold to Hodgson Baker & Sandelson, 18 March 1970 (D14).
(70) Agreement to sell Ransgold, Abadron to Molkin, 25 March 1970 (D9).
(71) Agreement to sell Yarline, Abadron to Molkin, 25 March 1970 (D10).
(72) Allotment letters-Ransgold and Yarline-with renunciations, 25 March 1970 (D11).
(73) Minutes of Ransgold, 25 March 1970 (D15).
(74) Minutes of Ransgold, 25 March 1970 (D16).
(75) Minutes of Ransgold, 25 March 1970 (D17).
(76) Minutes of Ransgold, 25 March 1970 (D18).
(77) Accounts of Yarline to 30 November 1970 (D19).
(78) Accounts of Yarline to 30 November 1971 (D20).
(79) Re Mr. Bradman's scheme (File G).
(80) Letter to Mr. Lee, 17 October 1969 (G1).
(81) Proforma, prepared 17 November 1969, revised 11 December 1969 (G1, 2).
(82) Proforma, prepared 17 November 1969, revised 12 December 1969 (G4, 5).
(83) Letter to Mr. Lee, 20 December 1969 (G6-11).
(84) Letter to Mr. Lee, 18 March 1970 (G12-13) enclosing (58)-(61) next.
(85) Diagram re Yarline Investment Co. Ltd. (Yarline) and Ransgold Investment Co. Ltd. (Ransgold)...
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