Farmer (Inspector of Taxes) v Bankers Trust International Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 22 June 1990 |
| Date | 22 June 1990 |
| Court | Chancery Division |
Chancery Division.
Harman J.
Mr Alan Moses QC and Mr Launcelot Henderson (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr Harvey McGregor QC (instructed by Stitt & Co) for BTI.
The following cases were referred to in the judgement:
Gallic Leasing Ltd v Coburn (HMIT) TAX[1989] BTC 143
Pattison (HMIT) v Marine Midland Ltd ELRTAX[1984] AC 362; [1983] BTC 448
Prenn v Simmonds WLR[1971] 1 WLR 1381
Corporation tax - Group relief - Claims - Two claims made apparently covering whole of claimant company's profits - Later claim made before claimant company's profits finally ascertained - Whether later claim to be construed as back-up claim to have effect if earlier claims did not absorb total profits of claimant company - Whether claimant company entitled to withdraw earlier claims and substitute later claim after two-year time limit - Income and Corporation Taxes Act 1970 section 258 section 264Income and Corporation Taxes Act 1970, sec. 258, 264 (now Income and Corporation Taxes Act 1988 section 402 section 412Income and Corporation Taxes Act 1988, sec. 402, 412).
This was an appeal by the Crown against the decision of a special commissioner that the taxpayer company ("BTI") was entitled to choose the manner and extent to which claims for group relief under theIncome and Corporation Taxes Act 1970 section 258Income and Corporation Taxes Act 1970, sec. 258 in respect of losses of three companies in the group were to be set off against BTI's profits.
BTI was a member of a group of companies which included three other companies ("RL", "BTH" and "Bulkers"). On 22 December 1975 BTI claimed group relief for its accounting period ended 31 December 1973 in respect of the losses of RL and BTH.
By a letter dated 25 February 1976 BTI gave notice to the inspector of a provisional claim for group relief for the same period in respect of Bulkers' losses. The letter explained that, under an agreement between RL, Bulkers and BTI, RL could be compelled to claim, or procure BTI to claim, group relief in respect of Bulkers' losses. The letter noted that since BTI's profits were covered by the RL and BTH claims, no further relief was "apparently" necessary, reserving the position that since BTI's profits were not then settled the correct figure might be substantially higher. The letter went on to state that BTI wished to "protect the interests" of Bulkers under the agreement. The inspector acknowledged the letter without comment.
In 1979 BTI sought to withdraw the two earlier claims and to substitute Bulkers' claim.
The special commissioner allowed BTI's appeal holding that the Bulkers' claim was made within the two-year time limit imposed by Income and Corporation Taxes Act 1970 section 264sec. 264 of the 1970 Act and BTI was entitled to choose the manner and extent to which the losses of the three companies might be set off against its profits.
The Crown accepted that the Bulkers' claim was within the time limit but argued that the letter of 25 February 1976 was only a claim to the extent that the profits of BTI might turn out to exceed the losses of RL and BTH. The letter itself ranked the claim behind the two other claims. Although it was irrelevant that the amount of any profits or losses were not ascertained when claim was made, a claimant for group relief must specify what was claimed and from whom. A claimant could not, after the two-year time limit for making claims, change the claim which had been made.
BTI contended that from the reference in the letter to the group relief agreement the inspector must have understood that Bulkers might insist on BTI making a claim and paying for the losses even if BTI did not need them for setting off against its profits for 1973. In those circumstances the claim was to be understood as a claim for Bulkers' losses as finally ascertained and BTI might apply the three claims in any order it chose.
Held, allowing the Crown's appeal:
Under the terms of the letter of 25 February 1976 there was a series of claims, first for the losses of RL and BTH and in addition, if and so far as might be necessary, the claim in respect of Bulkers. The inspector could not have understood that Bulkers might insist on BTI making a claim for relief which it could not use and to pay a sum of money as consideration for that useless claim. Effect had to be given to the claim contained in the letter according to its terms. A different claim which had never been advanced could not be substituted.
It was therefore unnecessary to decide whether Income and Corporation Taxes Act 1970 section 258sec. 258 permitted a claimant to claim group relief, whether in respect of a specified sum or in respect of the whole or a proportion of its profits, leaving that claim to be allowed or disallowed when its profits and the losses of other group companies were finally determined.
1. On 26 May 1988, I, a commissioner for the special purposes of the Income Tax Acts, heard an appeal by Bankers Trust International Ltd ("BTI") against the refusal by the inspector of taxes of its claim to group relief under Income and Corporation Taxes Act 1970 section 258 subsec-or-para (1)sec. 258(1) of the Income and Corporation Taxes Act 1970 in respect of losses surrendered to it by Ocean Bulkers (UK) Ltd ("Bulkers") for the accounting period of 12 months to 28 February 1974.
2. Shortly stated the questions for decision were:
(2) whether BTI made a valid claim to relief for the said losses of Bulkers within the time allowed by statute; and
(3) if so, whether BTI was entitled to claim group relief for those losses against its profits for the year to 31 December 1973 in addition to group relief for the losses of two other companies also claimed against those profits: and if so whether BTI could claim that relief in the order and to the extent which it chose as between the losses of those three companies.
3. I heard no oral evidence. A bundle of agreed documents was put in evidence containing: an agreed statement of facts; correspondence and other documents.
4. I reserved my decision and gave it in writing on 15 June 1988 in favour of BTI on both points.
5. The Revenue immediately after the determination of the appeal declared to me dissatisfaction therewith as being erroneous in point of law and on 12 July 1988 required me to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970 section 56Taxes Management Act 1970, sec. 56.
6. The questions of law for the opinion of the court are:
(2) whether I was entitled on the evidence, to find that BTI had made a valid claim to the losses of Bulkers within the statutory time limit; and
(3) whether my conclusion, that BTI could apply the losses of the three companies in reduction of its own taxable profits to such an extent and in such order as it might choose, was erroneous in point of law.
The appellant company, Bankers Trust International Ltd ("BTI"), is a member of a group of companies which includes also Rodocanachi Leasing Ltd ("RL") Bankers Trust Holdings (UK) Ltd ("BTH"), which was formerly known as Rodo Investment Trust Ltd, and Ocean Bulkers (UK) Ltd ("Bulkers"). For convenience I use the historical present tense to describe the position at the relevant times: whether the group structure is the same today I do not know. The agreed question for determination in this appeal is whether BTI is entitled to claim group relief for the losses of RL, BTH and Ocean Bulkers, and to what extent, and whether BTI is entitled to claim group relief in such order and to such extent inter se as it chooses.
That question arises under Income and Corporation Taxes Act 1970 section 258 subsec-or-para (1)sec. 258(1) of theIncome and Corporation Taxes Act 1970 which provides that:
Relief for trading losses and other amounts eligible for relief from corporation tax may in accordance with the following provisions of this Chapter be surrendered by a company (called "the surrendering company") which is a member of a group of companies and, on the making of a claim by another company (called "the claimant company") which is a member of the same group, may be allowed to the claimant company by way of relief from corporation tax called "group relief".
Income and Corporation Taxes Act 1970 section 261Section 261 provides for cases where the accounting periods of the claimant company and the surrendering company do not precisely coincide andIncome and Corporation Taxes Act 1970 section 262sec. 262 provides for cases where a company joins or leaves the group during an accounting period. It is unnecessary to consider those sections in detail: it is sufficient to note that unless there is some overlap between the two companies' accounting periods no surrender of losses can be made. Claims are dealt with in Income and Corporation Taxes Act 1970 section 264sec. 264, of whichIncome and Corporation Taxes Act 1970 section 264 subsec-or-para (1)subsec. (1) reads:
A claim for group relief-
(a) need not be for the full amount available,
(b) shall require the consent of the surrendering company notified to the inspector in such form as the Board may require, and
(c) must be made within two years from the end of the surrendering company's accounting period to which the claim relates.
and the procedure for making claims is regulated by the general provisions in Taxes Management Act 1970 section 42sec. 42 of the Taxes Management Act 1970. The relevant parts ofTaxes Management Act 1970 section 42sec. 42 are:
(1) Where any provision of the Taxes Acts provides for relief to be given, or any other thing to be done, on the making of a claim, this section shall, unless otherwise provided, have effect in relation to the claim.
(2) Subject to any provision in the Taxes Acts for a claim to be made to the Board, every claim shall be made to an inspector.
(3) An appeal may be brought against the...
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