Fraser v London Sports Car Centre

Nourse L.J. This is an appeal by the Crown against a decision of Nicholls J. given on 26 October 1984 in proceedings relating to an assessment to corporation tax. The question is whether a trader's entitlement to stock relief under the Finance Act 1976 depends on his being the owner of the stock. Both the Special Commissioners and Nicholls J. have held that it does not. In their view a trader who does not own the stock is entitled to the relief if it is stock with which he carries on his trade. The Crown continues to maintain that that view is incorrect.

The material facts are fully stated in the judgment of the learned judge which is reported at [1984] BTC 409, [1985] STC 75. It is only necessary for us to summarise the salient features of the arrangement between the respondent, London Sports Car Centre Ltd. ("the taxpayer") and Alfa Romeo (Great Britain) Ltd., ("AR") as contained in the agreement dated 1 October 1974 and as found by the Commissioners.

1. (2) A car was not delivered to the taxpayer until it had paid to AR everything which it would owe in respect of it except the amount of the VAT and car tax.

2. (3) After delivery the car was at the completely free disposal of the taxpayer by sale or otherwise unless and until (see cl. 9 and 11(b) of the agreement)

   1. (a) the agreement was determined by either party by seven days notice in writing, or

   2. (b) the taxpayer went into liquidation or the like, or

   3. (c) the taxpayer was in default under the agreement and AR had demanded the return of the car. Conversely, although AR remained the owner of the car until the occurence of one of the events described in cl. 4 of the agreement, it was not in any real sense available to or at the disposal of AR.

(4) Although the taxpayer was entitled under cl. 11(a) to return the car to AR at any time during the currency of the agreement, that would in practice, save in exceptional circumstances, have led to AR determining it under cl. 9(a). The purpose of the arrangement was not to enable the taxpayer to return cars to AR, nor to enable AR to recover them from the taxpayer. Its sole purpose was to defer payment of VAT and car tax until a car was sold to a customer of the taxpayer.

(5) Despite the provisions of cl. 6 of the agreement, in practice it was the taxpayer and not AR which obtained, or rather retained, the benefit of any rise in the price of the car between delivery and sale to a customer.

We venture to think that anyone who could look at the arrangement without having to trouble himself with the material provisions of the 1976 Act would conclude that its effect was to enable the taxpayer to trade in the cars directly they had been delivered to it. He would, we think, be startled by the suggestion that they did not become part of the taxpayer's trading stock and remained part of AR's. But that is what the Crown says was Parliament's intention as expressed in the 1976 Act. And so we must turn to the material provisions to see whether that is so.

Mr. Park, for the Crown, referred us to certain parts of the earlier and subsequent legislation which dealt with stock relief before its abolition by the Finance Act 1984. Like Nicholls J., we find it necessary to refer only to Finance Act 1976 section 37sec. 37 of the 1976 Act and the material provisions ofFinance Act 1976 schedule 5Sch. 5 to that Act. Those provisions are sufficiently referred to in the judgment of the learned judge. We need only state the terms of Finance Act 1976para. 9(1) and 29(1) which are as follows:

1. 9(1) Where a company carries on a trade in respect of which it is within the charge to corporation tax under Income and Corporation Taxes Act 1988Case I of Sch. D and

   1. (a) the value of its trading stock at the end of a period of account (the "closing stock value") exceeds

   2. (b) the value of its trading stock at the beginning of that period ("the opening stock value").

the company shall, subject to the provisions of this Schedule, be entitled to relief under this paragraph by reference to the amount of that excess (the "increase in stock value").

29(1) Subject to the provisions of this paragraph, in this Schedule "trading stock" means property of any description, whether real or personal, being either

1. (a) property such as is sold in the ordinary course of the trade, profession or vocation in question, or would be so sold if it were mature or if its manufacture, preparation or construction were complete; or

2. (b) materials such as are used in the manufacture, preparation or construction of any such property as is referred to in paragraph (a) above,

and includes work in progress.

The Crown submits that if the definition of trading stock, so far as material, is incorporated into Finance Act 1976para. 9(1)(a) and (b) those provisions are seen to refer to "its property such as is sold in the ordinary course of its trade". Then it is said that "property" is a word which connotes ownership. Accordingly the words, "its trading stock" refer only to trading stock which is owned by the company. The fallacy in this submission is its assumption that the word "property" as it appears in Finance Act 1976para. 29(1) connotes ownership. It only does that when governed by some other word, for example a possessive pronoun. In Finance Act 1976para. 29(1) it is not so governed. Its function there is not to describe something which is possessed by some particular trader but, by making use of the well known terms "real property" and "personal property", to identify those things which, subject to subpara. (2), are embraced in the succeeding words in (a) and (b). Clearly it includes the cars which are to be considered in the present case. The correct course is to read Finance Act 1976para. 9(1) as referring to "its cars such as are sold in the ordinary course of its trade". Mr. Park said that those words still refer only to cars owned by the taxpayer. We disagree. Once you get rid of the word "property" the reasoning of the Commissioners and Nicholls J. on this point is unanswerable. Indeed were it not for the need to dispose of a number of other points which achieved prominence in the argument of the Crown in this court, we would have been content to do no more than gratefully adopt the judgment of Nicholls J. as our own.

Mr. Park submitted that what the taxpayer owned was not the cars but choses in action to recover in certain events the sums which it had paid to AR under cl. 3...