Fraser v London Sports Car Centre
| Jurisdiction | England & Wales |
| Judgment Date | 26 October 1984 |
| Date | 26 October 1984 |
| Court | Chancery Division |
Chancery Division.
Mr. R. Carnwath (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr. D.C. Milne (instructed by Messrs. Titmuss, Sainer & Webb) for the company.
Before: Nicholls J.
Corporation tax - Stock relief - Trading stock subject to reservation of title - Whether taxpayer company entitled to stock relief - Whether phrase "its trading stock" implied requirement that stock be owned by claimant - Finance Act 1976 schedule 5 subsec-or-para 9 schedule 5 subsec-or-para 29 schedule 5 subsec-or-para 29Finance Act 1976, Sch. 5, para. 9, 29(1), 29(5).
This was an appeal by the Crown from a decision of the Special Commissioners that the taxpayer company was entitled to stock relief on stock which was brought into account in computing the company's profits, but which it did not own.
The company carried on the trade of selling sports cars. It obtained cars from a supplier ("AR") under an agreement the purpose of which was to defer payment of value added tax and car tax on a car until it was sold by the company. Under the agreement, the cars were delivered to the company after payment of the full price, excluding VAT and car tax. The cars remained the property of AR unless and until one of a number of events (including the sale of the car) should occur. Upon the happening of such an event the company paid AR a sum equal to the VAT and car tax attributable to the vehicle in question.
It was not disputed that the proper accounting treatment of the cars was that they should be brought into account in computing the company's profits. The question before the court was whether the words "its trading stock" in Finance Act 1976 schedule 5 subsec-or-para 9para. 9(1) of Sch. 5 to the Finance Act 1976 restricted the availability of stock relief to stock owned by the taxpayer.
For the Crown it was submitted that the phrase "its trading stock" meant "trading stock belonging to it". Other phrases in the legislation implied that relief was only given in respect of stock to which the trader had title. On the taxpayer's construction, it was argued, the word "its" in Finance Act 1976 schedule 5 subsec-or-para 9para. 9 would be otiose.
The company contended that use of the word "its" did not justify the inference that the stock must belong to the trader. The word was used simply to make it clear that the stock which fell to be valued was the stock with which the company claiming the relief was trading. Alternatively, the phrase "its trading stock" meant "the stock which the trader holds for the purposes of its trade". If stock met the requirement that it was properly shown as trading stock according to ordinary accounting principles, there was no reason to impose the additional requirement that the trader had to own the stock.
Held, dismissing the Crown's appeal:
1. The phrase "its trading stock" referred to trading stock with which the person claiming relief was carrying on its trade. There was nothing in the phrase, read alone or in conjunction with the other provisions of Finance Act 1976 schedule 5Sch. 5, to suggest that stock which a trader did not own could not be as much part of its trading stock as that which it did own.
2. If the proper accounting treatment of stock was that it should be brought into account in computing a trader's profits, there was no reason why stock relief should not be available to such a trader. Accordingly the company was entitled to relief in respect of cars which remained the property of the supplier.
1. At a meeting of the Commissioners for the special purposes of the Income Tax Acts held on 4 June and 9 October 1981 London Sports Car Centre Limited (hereinafter called "the Respondent") appealed against an assessment to corporation tax in respect of the accounting period to 31 December 1976 in an estimated amount of £10,000.
2. Shortly stated the question for our decision was whether vehicles held by the Respondent on consignment terms were, for the purposes of obtaining relief under Finance Act 1976 schedule 5 subsec-or-para 9para. 9, Sch. 5Finance Act 1976, trading stock as defined in Finance Act 1976 schedule 5 subsec-or-para 29para. 29(1) of that Schedule.
3. Mr. Trevor Christopher Gidman, a chartered accountant and since 1973 employed as Chief Accountant by the Board of Inland Revenue gave evidence before us as an expert witness.
4. The following documents were proved or admitted before us:
(2) Letter dated 23 August 1979 from Alfa Romeo (Great Britain) Ltd. to the Respondent and copy of Consignment Agreement dated 1 October 1974.
(3) Audited Balance Sheet and Accounts of the Respondent for the year ended 31 December 1976.
(4) Audited Balance Sheet and Accounts of the Respondent for the year ended 31 December 1977.
(5) Copies of the above are not annexed hereto as Exhibits but are available for inspection by the court if required.
5. We the Commissioners who heard the appeal took time to consider our decision and gave it in writing on 23 November 1981, allowing the appeal in principle subject to agreement of figures. A copy of that decision, which sets out the relevant facts, the contentions of the parties and the grounds on which we allowed the appeal is annexed hereto and forms part of this case.
6. The Revenue submits that the first sentence on p. 21 of the decision contains the implication that we consider the views expressed by Mr. Gidman to be ones which no reputable accountant could possibly hold. We are not satisfied that the passage imports such an implication: it hardly needs to be said that that was not our intention.
Our view is that if the sum in question had been described in the accounts as a "deposit", it would have been necessary to add a note to the effect that such "deposit" was, as an asset of the business, tied up in consigned motor vehicles; and, in commercial terms, irrevocably so. Whether or not it was wholly accurate to describe the sum as "stock", the question remains as to how a deposit of that nature should be treated for stock relief purposes.
7. Figures were not agreed between the parties until 22 March 1982 and on 16 April 1982 we adjusted the assessment accordingly.
8. The Appellant immediately after the determination of the appeal declared to us his dissatisfaction therewith as being erroneous in point of law and on 14 May 1982 required us 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 which Case we have stated and do sign accordingly.
9. The questions of law for the opinion of the court are:
(2) whether it is correct that to qualify for entitlement to relief under Finance Act 1976 schedule 5 subsec-or-para 9para. 9, Sch. 5,Finance Act 1976 it is not necessary for the claimant to own title to the goods with which he trades;
(3) if that conclusion is wrong, whether it is correct that the Respondent nevertheless had a sufficient interest in the vehicles delivered to it on consignment to satisfy the restricted meaning of "trading stock" contended for by the Appellant.
1. We have before us an assessment to corporation tax for the accounting period to 31 December 1976 on London Sports Car Centre Limited ("the appellant"). The question for determination is whether vehicles held by the appellant on consignment terms are, for the purposes of obtaining relief under Finance Act 1976 schedule 5 subsec-or-para 9para. 9, Sch. 5, Finance Act 1976, trading stock as defined in Finance Act 1976 schedule 5 subsec-or-para 29para. 29(1) of that Schedule.
2. The appellant was represented by Mr. P.G.H. Rudge, a director and shareholder of the appellant, and, although not in practice as such, a chartered accountant. The Inland Revenue was represented by Mr. R.F. Walters of the Office of the Solicitor of Inland Revenue.
3. We find the following primary facts.
3.1. The principal activity of the appellant is that of selling sports cars. At the material times, the appellant obtained vehicles for sale from Alfa Romeo (Great Britain) Limited ("AR") under an agreement dated 1 October 1974 which remained in force until 22 January 1979, when a new agreement was entered into. The material provisions of that agreement, which is headed "Vehicles on consignment", were that vehicles were accepted by the appellant from AR on consignment and that immediately before a vehicle was delivered to the company a sum equal to the current basic retail purchase price of the vehicle (including any extras) less the discount specified from time to time by AR was to be paid by the appellant to AR, which was to place that sum to the credit of the appellant (cl. 3). The vehicle was to remain the property of AR unless and until one or more of certain events should occur (cl. 4, which we set out in full below). The appellant undertook to indemnify AR against any claim made against AR for payment of VAT and car tax on any vehicle (cl. 5). Upon the happening of any event specified in cl. 4 the appellant was to pay to AR a sum equal to VAT and car tax attributable to the vehicle plus any difference between the current basic retail price (including any extras) less the discount allowed and the amount already paid under cl. 3. Until payment such sums were to be held or deemed to be held by the appellant on trust for AR, kept separate or deemed to be kept separate, from the appellant's other moneys, and paid or deemed to be paid into a bank account in AR's name (cl. 6). The appellant was to indemnify AR against loss, damage or deterioration, and to insure (at the appellant's expense) in a sum not less than the full current recommended retail price (including any extras) less the discount (cl. 7). Until title passed, the appellant was, inter alia, to keep the vehicle properly housed in his premises and in good repair, to allow inspection by AR, to keep certain records and to supply certain information to AR...
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Fraser v London Sports Car Centre
...schedule 5 subsec-or-para 29 schedule 5 subsec-or-para 2929(1), 29(5). This was an appeal by the Crown from a decision of Nicholls J. ([1984] BTC 409) that a taxpayer's trading stock for stock relief purposes was stock with which it carried on its trade whether or not the taxpayer owned tha......
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