Cook v Billings
| Jurisdiction | England & Wales |
| Judgment Date | 24 May 1999 |
| Date | 24 May 1999 |
| Court | Chancery Division |
Chancery Division.
Laddie J.
Michael Furness (instructed by the Solicitor of Inland Revenue) for the Crown.
Christopher J Sokol (instructed by Cripps Harries Hall) for the taxpayers.
Income tax - Business expansion scheme (BES) relief - Taxpayers were seven individuals each owning 15 per cent of the shares in a company qualifying for BES relief - Relief not available to a person connected with the company - A person was connected with the company if he owned or was treated as owning more that 30 per cent of the shares in the company - Whether taxpayers were connected with the company - Whether taxpayers entitled to relief - Income and Corporation Taxes Act 1988 section 291 subsec-or-para (1) section 291 subsec-or-para (8)Income and Corporation Taxes Act 1988, ss. 291(1)(c), (8)(business expansion scheme relief was replaced by enterprise investment scheme relief by the Finance Act 1994 from 1 January 1994).
This was an appeal by the Revenue against a decision of the general commissioners for Gravesend that, for the purposes of claiming business expansion scheme ("BES") relief, the fact that individual shareholders were associated with each other did not mean that they were connected with the company.
In 1993 seven individuals applied for shares in a BES company. Between them, they held all the issued share capital of the company, each holding 15 per cent. Their claim for relief was refused on the ground that each of them was connected with the company within theIncome and Corporation Taxes Act 1988 section 291 subsec-or-para (1)Income and Corporation Taxes Act 1988, s. 291(1)(c) as an "associate" of the others and that each of them, when taken together with the others, had a relevant interest in more than 30 per cent of the share capital of the company. If each shareholding could be notionally added to the holdings of all the others, each would be treated as holding 100 per cent of the shares.
There was no dispute that the taxpayers were all associates of each other within the meaning of Income and Corporation Taxes Act 1988 section 291s. 291. The issue was whether they were connected with the company. The Revenue relied on Income and Corporation Taxes Act 1988 section 291 subsec-or-para (8)s. 291(8) which provided that, for the purposes of the section, an individual should be treated as entitled to acquire anything which he is entitled to acquire at a future date or will at a future date be entitled to acquire, and went on to say that "there shall be attributed to any person any rights or powers of any other person who is an associate of his".
The Revenue contended that the second part of Income and Corporation Taxes Act 1988 section 291 subsec-or-para (8)s. 291(8) should be read as a separate provision not dependent on the first part of the subsection. The second part alone indicated thatIncome and Corporation Taxes Act 1988 section 291 subsec-or-para (4)s. 291(4), which provided that an individual was connected with the company if he was entitled to acquire more than 30 per cent of the company's shares, indicated that the rights of associated persons such as the taxpayers should be aggregated in deciding whether persons were connected with the company.
Held, dismissing the Revenue's appeal:
1. If the legislature had intended to aggregate the interests of a participant in a company with all the other participants, it would have said so clearly. Aggregation of the interests of such persons as employees and directors was provided by Income and Corporation Taxes Act 1988 section 291 subsec-or-para (2) section 291 subsec-or-para (3)ss. 291(2) and (3), but the second part of Income and Corporation Taxes Act 1988 section 291 subsec-or-para (8)s. 291(8) provided only that there should be attributed to any person "any rights and powers of any other person who is an associate of his" without any express words of aggregation. The difference in wording indicated that uniform treatment was not intended.
2. The reference to "directly or indirectly" in Income and Corporation Taxes Act 1988 section 291 subsec-or-para (4)s. 291(4) suggested that it was intended to widen the net of relevant ownership beyond the participant. Had it been intended that share ownership of an associate should be counted with share ownership of the participant, it could easily have been spelt out.
3. The more natural way to have made an all-embracing provision would have been to set it out separately in its own subsection rather than leave it as the second half of Income and Corporation Taxes Act 1988 section 291 subsec-or-para (8)s. 291(8). The Revenue's construction did not marry up with the rest of Income and Corporation Taxes Act 1988 section 291s. 291. To readIncome and Corporation Taxes Act 1988 section 291 subsec-or-para (8)s. 291(8) as a whole, was easy to understand and apply.
1. The general commissioners for the division of Gravesend stated a case for the opinion of the High Court.
2. At a meeting held on 16 January 1997 the following taxpayers each appealed against the refusal of claims for relief for the years 1992-93 and 1993-94: Jill Cawood; Veronica Clifford; Ronald John Billings; Clive John Billings; Stephen John Billings; Sheila Elizabeth Jeffries; Andrew J Billings.
3. On the application of all parties and pursuant to SI 1994/1812 section 7reg. 7 of the General Commissioners (Jurisdiction and Procedure) Regulations 1994 (SI 1994/1812) the commissioners decided to hear the separate appeals by all of the taxpayers at the same time.
4. Each of the taxpayers was appealing against refusal of claims made under Income and Corporation Taxes Act 1988 section 289s. 289 of the Income and Corporation Taxes Act 1988 for relief from income tax in respect of subscription for eligible shares in a qualifying company under the business expansion scheme.
5. Shortly stated, the question for determination was whether in relation to subscriptions by each of the taxpayers for ordinary shares in Fernhead Homes Ltd ("the company") each of the taxpayers was "connected with the company" within the meaning of Income and Corporation Taxes Act 1988 section 291s. 291 of the 1988 Act (and therefore not entitled to claim relief) and in particular whether in determining that there should be attributed to each taxpayer the rights of the other taxpayers as associates pursuant to Income and Corporation Taxes Act 1988 section 291s. 291.
6(a) The taxpayers were represented by Mr A Gooch, chartered accountant of Messrs Carley & Co. Mr GF Cawood made submissions on behalf of his wife, the taxpayer Jill Cawood.
(b) Mrs SM Davies, HM Inspector of Taxes, appeared on her own behalf. She did not call any witnesses.
7. No documents were put before the commissioners as evidence.
8. The commissioners found the following facts which were agreed by the parties:
(a) Each taxpayer subscribed £40,000 for ordinary shares in Fernhead Homes Ltd issued on 16 March 1993 and a further £40,000 each for shares issued on the 29 November 1993.
(b) The issued share capital in the company was at all times held equally by the seven taxpayers.
(c) The company was a qualifying company within the meaning ofIncome and Corporation Taxes Act 1988 section 293s. 293 of the 1988 Act.
(d) Each of the taxpayers satisfied the conditions at (a) and (b) ofIncome and Corporation Taxes Act 1988 section 291 subsec-or-para (1)s. 291(1).
(e) Each of the taxpayers was associated with all of the others.
9. It was contended by the taxpayers that:
(a) None of them was at any time in the relevant period connected with the company within the meaning of Income and Corporation Taxes Act 1988 section 291 subsec-or-para (1)s. 291(1) of the 1988 Act and therefore qualified for the relief claimed.
(b) That none of the taxpayers directly or indirectly possessed or was entitled to acquire more than 30 per cent of the rights or powers referred to in Income and Corporation Taxes Act 1988 section 291 subsec-or-para (4)s. 291(4).
...
To continue reading
Request your trial
-
Cook v Billings
...The following cases are referred to in the judgment: Cadogan Estates v McMahon WLR[2000] 3 WLR 1555 Cook (HMIT) v Billings & Ors TAX[1999] BTC 220 Income tax - Relief - Business expansion scheme - Individuals qualifying for relief - Individuals connected with company - Seven individuals sub......