Commissioners of Inland Revenue v Clydebridge Properties Ltd
| Jurisdiction | Scotland |
| Judgment Date | 22 November 1979 |
| Date | 22 November 1979 |
| Court | Court of Session (Inner House - First Division) |
COURT OF SESSION (FIRST DIVISION)-
Corporation tax - Stock relief - Whether available to property company for stock of tenement flats - Finance (No. 2) Act 1975, Sch 10, para 16.
A company dealing in the purchase and sale of small flats situated in tenement blocks claimed that its stock of unsold properties at the end of an accounting period was trading stock as defined in para 16(1) of Sch 10 to the Finance (No. 2) Act 1975(2). The Inspector of Taxes, relying on the meaning given to the word "land" by s 3 of the Interpretation Act 1889, refused relief on the ground that the flats were "land" and by reason of para 16(2)(b) did not qualify for relief.
The Special Commissioners allowed the claim, holding that "land" was used in para 16 in its ordinary meaning and did not include buildings.
The Court of Session, held that "land" was used in para 16 with its ordinary meaning and that the extended definition in the Interpretation Act 1889 did not apply.
Stated for the opinion of the Court of Session as the Court of Exchequer in Scotland under the Taxes Management Act 1970, s 56.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 7 March 1978 Clydebridge Properties Ltd. (hereinafter called "the Company") appealed against an assessment to corporation tax for the accounting period of 12 months ended on 12 May 1974 in the sum of £1,889 in respect of its trade as a property dealer.
2. Shortly stated the question for our decision was whether, in valuing its trading stock, the Company was entitled to the relief provided by s 54 of and Sch 10 to the Finance (No. 2) Act 1975.
3. Evidence was given before us by Mr. John Burns a partner in the firm of Arthur Bowers & Co., of 7 Fortrose Street, Glasgow, the accountants and auditors to the Company. We had no documentary evidence before us.
4. We find the following facts proved or admitted:
(2) The Company was incorporated in 1972 and since then has carried on the trade of dealing in property. The principal activity of that trade has been the purchase and sale of small tenement properties; that is to say small flats designed for separate occupation but situated in tenement blocks.
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(3) The Company normally seeks to buy flats with vacant possession to sell on the open market to people who intend to go into occupation. In that case the purchaser will usually pay a deposit and sign a contract, paying off the
balance of the purchase price over a period of up to five years. The ownership of the property remains with the Company until the end of that period. (4) Rented properties are also bought in the course of the trade: some of them are sold to the sitting tenants and some are held until vacant possession is obtained, when they are sold on the open market.
(5) The Company has not so far in its existence, purchased a complete tenement block, but has dealt only in individual properties. In no case does the Company own all of the flats comprised in any tenement block.
(6) The profits of the Company are charged to corporation tax under Case I of Schedule D and at the end of each accounting period it holds a substantial number of such properties which fall to be valued as stock-in-trade for accounting purposes, in accordance with normal and accepted accounting principles.
5. It was contended on behalf of the Company that: (1) the Company's trading stock came within the definition of "trading stock" in para 16(1) of Sch 10 to the 1975 Act and relief was, prima facie, due under s 54 of that Act; (2) relief was not excluded by para 16(2) of Sch 10 since the trading stock did not constitute "land" within the meaning of that term in the context of Sch 10.
6. It was contended on behalf of the Inspector of Taxes that: (1) the term "land" in para 16(2) of Sch 10 to the 1975 Act must be construed so as to include buildings by virtue of s 3 of the Interpretation Act 1889 unless the context otherwise requires and that no contrary intention is there indicated; (2) the Company's trading stock consisted of land for the purposes of para 16(2); (3) there was no evidence that the said land was such as was ordinarily sold by the Company after being developed; and (4) accordingly no relief was due under Sch 10.
7. We were referred to the following cases:
Smith v. Richmond 4 TC 131; [1899] AC 448;Whimster...
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