Clark v Follett (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 19 March 1973 |
| Date | 19 March 1973 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income tax, Schedule D - Trade - Purchase and sale of land - Agricultural land acquired by Air Ministry in 1943 and sold to original owner in 1964 - Land immediately resold at a profit - Whether an adventure in the nature of trade - Whether an equitable interest in the land acquired by original owner in 1943 or during negotiations with Air Ministry for repurchase - Value of any such interest.
The Appellant acquired the freehold of M farm in 1940 and commenced farming there. In 1943, after parts of the farm had been requisitioned by the Air Ministry, he sold the fee simple in the whole of the land to the Secretary of State under threat of a compulsory acquisition order under the Defence Acts 1842 to 1873 in respect of the balance remaining in his occupation. He removed to a farm elsewhere in the same county, where he carried on farming, at first on his own account and since 1952 in partnership with his wife.
The Air Ministry converted M farm into an airfield with concrete runways for the use of Bomber Command. After the war it was occupied by the Ministry of Agriculture for agricultural purposes, and S, a neighbouring farmer, had a licence to farm part of it. In 1954, in consequence of the Crichel Down case, the then Minister of Agriculture announced that, where agricultural land which had been acquired compulsorily or under threat of compulsion by a Government Department was no longer needed for the original purpose or any other purpose attracting compulsory purchase powers, it would be sold, and the former owner or certain of his successors would be given a special opportunity to buy it at the current market price as assessed by the District Valuer. Accordingly in August 1961 the Air Ministry asked the Appellant whether he was interested in rehabilitating and reacquiring M farm. He replied that he was, but in the event he had difficulty in finding the money. After negotiations with the Appellant's representative the District Valuer offered in September 1963 to recommend to the Air Ministry a price of £14,250, and in November 1963 the Appellant, who had already been licensed to cultivate the farm and had let in S for that purpose, accepted an offer at that price subject to contract. He did so because of an understanding that if he could not finance the reacquisition S would purchase the farm for £15,250. Formal contracts were exchanged with the Ministry in July 1964. Having been advised that the realisable value of the land was substantially in excess of £15,250, the Appellant did not implement the arrangement with S but sold it at auction in October 1964 for £39,000 (which it was common ground was the realisable value in July). The difference between the purchase and resale prices was accounted for partly by an underestimate by the District Valuer in the first instance and partly because it would have been contrary to the Air Ministry's practice in the circumstances to revise the price offered by reference to values prevailing at the time of the formal contract. The Appellant had no previous history of property dealing.
The Appellant was assessed to income tax under Case I of Schedule D, and in the alternative under Case VII (short-term gains) of that Schedule, for the year 1964-65 in respect of the profit arising on the purchase and resale. On appeal, he contended (inter alia) (a) that on selling the land in 1943 he had acquired an equitable right of pre-emption under s. 128 of the Lands Clauses Consolidation Act 1845, which (he contended) applied by virtue of the Lands Clauses Consolidation
Acts Amendment Act 1860 to any land acquired under the Defence Acts 1842 to 1873, and that the value of that equitable right was equal to the difference between the purchase and resale prices in 1964; alternatively, (b) that as the result of his discussions with the Air Ministry in August 1961 he had acquired an equitable right of that value under the doctrine of proprietary estoppel; alternatively, (c) that his purchase from the Air Ministry was not a bargain made at arm's length, and therefore either the purchase and resale was not a trading adventure or the cost of the land sold should be brought in at the market value of £39,000. The General Commissioners rejected all these contentions and held that the excess of the resale price over the purchase price (less incidental expenses) was the profit of an adventure in the nature of trade. They consequently allowed the appeal against the Case VII assessment. Both parties demanded CasesIn the High Court the Appellant advanced the further alternative contention that the profit arose to the farming partnership of himself and his wife.
Held, (1) that purchase with an intention of immediate resale constituted an adventure in the nature of trade;
(2) that there was no evidence to support the contention that the profit arose to the partnership, and in any event the point could not be raised at that stage;
(3) that, assuming (without deciding) that on the facts the 1860 Act attracted the 1845 Act, the right of pre-emption under s. 128 did not apply to the Appellant because he had sold the whole of the land in 1943; alternatively, if he had such a right its exercise followed by an immediate resale was an adventure in the nature of trade, and only the actual purchase price could be brought into account in computing the profits thereof;
(4) that he acquired no equitable proprietary right in 1961, and if he had the consequences would have been the same as for a right under the 1845 Act;
(5) that the purchase was a bargain made at arm's length.
(1) Clark v. Follett (H.M. Inspector of Taxes)
CASE
Stated under s. 56 of the Taxes Management Act 1970 by the Commissioners for the General Purposes of the Income Tax for the Division of Freshwell in the County of Essex for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax for the Division of Freshwell in the County of Essex held on 19th, 20th, 21st, 22nd, 28th and 29th January 1970 Horace Linsell Clark, of Yeldham Farm, Finchingfield, in the County of Essex (hereinafter referred to as "Mr. Clark"), appealed against a further assessment for the fiscal year 1964-65 raised upon him under Case I of Schedule D on 13th January 1969 pursuant to s. 5(3) of the Income Tax Management Act 1964. The assessment was in the gross sum of £23,239, which was described as a profit on the sale of land.
2. The questions for our determination were whether the purchase and resale of Muchmores Farm by Mr. Clark in 1964 was an adventure in the nature of trade, and whether the difference between the purchase price and the resale price, i.e. £23,033, constituted a profit chargeable to income tax under Schedule D (in the course of the hearing before us it was agreed that the difference between the purchase and resale prices was in fact £23,033 and not £23,239 as charged in the assessment).
3. The following documents were admitted or proved and are annexed hereto and form part of this Case(1):
(i) Notice of assessment to income tax dated 13th January 1969 (exhibit 1).
(ii) Letter from Ministry of Defence to Messrs. Holmes & Hills dated 28th January 1969 (exhibit 2).
(iii) Copy of letter from Air Ministry to Mr. Cashman dated 31st July 1961 (exhibit 3).
(iv) Letter from Air Ministry to Mr. Clark dated 14th August 1961 (exhibit 4).
(v) Letter from Air Ministry to Mr. Clark dated 9th October 1962 (exhibit 5).
(vi) Copy letter from Mr. Clark to Air Ministry dated 15th October 1962 (exhibit 6).
(vii) Copy letter from District Valuer to Messrs. Balls & Balls dated 11th September 1963 (exhibit 7).
(viii) Memorandum signed by Mr. Swift on 17th September 1963 (exhibit 8).
(ix) Copy of letter from District Valuer to Messrs. Balls & Balls dated 17th September 1963 (exhibit 9).
(x) Letter from Messrs. Balls & Balls to District Valuer dated 19th September 1963 (exhibit 10).
(xi) Copy letter from District Valuer to Messrs. Balls & Balls dated 24th September 1963 (exhibit 11).
(xii) Letter from Air Ministry to Mr. Clark dated 30th October 1963 (exhibit 12).
(xiii) Copy letter from Messrs. Holmes & Hills to Air Ministry dated 22nd November 1963 (exhibit 13).
(xiv) Copy letter from Air Ministry to Messrs. Balls & Balls dated 11th December 1963 (exhibit 14).
(xv) Copy letter from Messrs. Balls & Balls to Air Ministry dated 21st December 1963 (exhibit 15).
(xvi) Letter from R.A.F. Lands Office to Messrs. Balls & Balls dated 20th April 1964 (licence) (exhibit 16).
(xvii) Copy letter from Messrs. Holmes & Hills to H.M. Inspector of Taxes' Sudbury, dated 31st January 1967 (exhibit 17).
(xviii) Copy letter from Messrs. Holmes & Hills to H.M. Inspector of Taxes, Sudbury, dated 24th October 1968 (exhibit 18).
(xix) Copy conveyance of Muchmores Farm from Mr. Clark to Air Ministry on 30th September 1943 (exhibit 19).
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(xx) Statement of disbursements and sale proceeds relating to Muchmores Farm (exhibit 20).
(xxi) The following two documents were also exhibits and form part of the Case, but, as they are available to the High Court in published form, for reasons of economy we have not annexed copies of them hereto:
(xxii) Hansard report dated 20th July 1954, and headed "Crichel Down", of a statement made in the House of Commons by Sir Thomas Dugdale, the then Minister of Agriculture, and the verbal exchanges which followed the statement.
(xxiii) Air Force (Application of Enactments) (No. 1) Order 1918.
(xxiv) Note made by District Valuer on 16th September 1963 of attendance Mr. Nott.
4. The following documents were admitted or proved in addition to those exhibited, and such documents are available for inspection by the Court if required:
(i) Letter from Ministry of Housing and Local Government to Messrs. Holmes & Hills dated 10th August 1967.
(ii)...
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