General Motors Acceptance Corporation (U.K.) Ltd v Commissioners of Inland Revenue

JurisdictionEngland & Wales
Judgment Date16 December 1986
Date16 December 1986
CourtCourt of Appeal (Civil Division)

Court of Appeal.

General Motors Acceptance Corporation (UK) Ltd
and
Inland Revenue Commissioners

Mr. J.F. Parker Q.C. and Mr. A.G. Moses (instructed by the Solicitor of Inland Revenue) for the Crown.

Mr. D.C. Potter Q.C. and Mr. K.J. Prosser (instructed by Messrs. Slaughter & May) for the taxpayer company.

Before: Kerr, Nourse and Stocker L.JJ.

The following cases were referred to in the judgment of KerrL.J.:

Coates (H.M.I.T.) v. Arndale Properties Ltd. WLRTAX[1984] 1 W.L.R. 537; [1984] BTC 5

Fraser (H.M.I.T.) v. London Sports Car Centre Ltd. TAXTAX[1984] BTC 409, [1985] BTC 547(C.A.)

Furniss (H.M.I.T.) v. Dawson & Ors. ELRTAX[1984] A.C. 474; [1984] BTC 71

General Reinsurance Co. Ltd. v. Tomlinson (H.M.I.T.); Alherma Investments Ltd. v. Tomlinson (H.M.I.T.) WLRTAX[1970] 1 W.L.R. 566; (1970) 48 T.C. 81

Lupton (H.M.I.T.) v. F.A. & A.B. Ltd. ELR[1972] A.C. 634

Punjab Co-operative Bank Ltd. v. Commr. of Income Tax LahoreELR[1940] A.C. 1055

Reed (H.M.I.T.) v. Nova Securities Ltd. WLRTAX[1985] 1 W.L.R. 193; [1985] BTC 121

Corporation tax - Stock relief - Trading stock - Cars purchased by finance company for resale to dealers - Dealers to store or display cars before sale to public - Dealers paid handling charge to finance company - Finance company bought and sold cars at same price and made profit on handling charges - Whether finance company entitled to stock relief on cars - Whether cars were trading stock - Whether cars were let on hire to dealers - Finance Act 1976 schedule 5 subsec-or-para 29 schedule 5 subsec-or-para 29 schedule 5 subsec-or-para 29Finance Act 1976, Sch. 5, para. 29(1)(2), (5) (later Finance Act 1981 schedule 9 subsec-or-para 28 schedule 9 subsec-or-para 28 schedule 9 subsec-or-para 28Finance Act 1981, Sch. 9, para. 28(1), (2), (5)).

This was the appeal of the Crown against a decision of Walton J. ([1985] BTC 328) that a finance company was entitled to stock relief under the Finance Act 1976 schedule 5Finance Act 1976, Sch. 5, in respect of cars which it bought and sold in the process of providing financing for franchised car dealers.

General Motors Acceptance Corporation (UK) Ltd. ("the company") was a wholly owned subsidiary of Vauxhall Motors Ltd. which was itself a wholly owned subsidiary of General Motors Corporation of Detroit. Under a sale or return scheme in operation since 1978, dealers would order cars from Vauxhall and the company would purchase them from Vauxhall on the same terms as if dealers had purchased them directly. The cars were then delivered to dealers on sale or return terms, the property in them passing to the company as security until resale by a dealer to a customer. Dealers paid the company a handling charge calculated by reference to the interest which the company had to pay to finance the purchase of the cars and to make a profit.

The company claimed, but was refused, stock relief under theFinance Act 1976 schedule 5 subsec-or-para 9Finance Act 1976, Sch. 5, para. 9, for the increase in value of the cars it owned for its accounting periods ended 31 December 1978, 1979 and 1980. Special Commissioners dismissed an appeal against the Revenue's refusal, on the ground that the cars were not the company's trading stock within the definition in Finance Act 1976 schedule 5 subsec-or-para 29Sch. 5, para. 29(1)(a). The High Court allowed the company's appeal against that decision, and the Crown appealed to the Court of Appeal.

The Crown submitted that trading stock could only consist of current assets acquired for the purposes of the trade in question with a view to resale at a profit. The company bought and sold cars in connection with its business as a finance company and not as a trader in cars. No profit was ever made on the cars themselves. Furthermore, the cars were let on hire to the dealers within the exception contained in para. 29(2)(c), disallowing stock relief for goods let on hire. The company submitted that the cars were in fact sold in the ordinary course of its trade within the meaning of para. 29(1), and that they were brought into account in computing the profits of its trade within the meaning of para. 29(5), and that they were not let on hire.

Held, dismissing the Crown's appeal:

1. The definition of trading stock in para. 29(1)(a) was not confined to property acquired with a view to its resale at a profit. (Reed (H.M.I.T.) v. Nova Securities Ltd. WLRTAX[1985] 1 W.L.R. 193; [1985] BTC 121, considered.)

2. In the ordinary course of its activities the company bought and sold cars and made a profit on the handling charge, and the sales were an integral part of the profit making process. The cars were sold in the ordinary course of the company's trade.

3. The cars were properly brought into the company's accounts as current assets and the handling charge was calculated by reference to their price. Thus they were brought into account in computing profits.

4. The cars were not let on hire. In the hands of dealers they were held on sale or return terms as indicated by the title of the scheme.

GROUNDS OF APPEAL

1. The cars which the company contended were its trading stock were not the stock in which the company actually traded. The cars were not, therefore:

The trading stock brought into account in computing the profits or gains of a trade… in accordance with Case I or, as the case may be, Case II of Schedule D.

The cars were not, therefore, trading stock to which theFinance Act 1976 schedule 5Finance Act 1976, Sch. 5referred (see Finance Act 1976 schedule 5 subsec-or-para 29Sch. 5, para. 29(5)).

2. The said cars were not trading stock within the meaning ofFinance Act 1976 schedule 5 subsec-or-para 29Sch. 5, para. 29 because they were not:

"Property such as is sold in the ordinary course of the (company's) trade" (see Finance Act 1976 schedule 5 subsec-or-para 29Sch. 5, para. 29(1)(a)).

3. Paragraph 29(1) did not apply because the cars were let on hire to dealers (see Finance Act 1976 schedule 5 subsec-or-para 29Sch. 5, para. 29(2)(c)).

4. For the reasons hereinbefore set out the judge erred in law in holding that the company was entitled to claim stock relief pursuant to the Finance Act 1976 schedule 5Finance Act 1976, Sch. 5 (and the provisions of the Finance Act 1981).

JUDGMENT

Kerr L.J.: This is an appeal by the Inland Revenue from a judgment of Walton J. delivered on 1 April 1985 ([1985] BTC 328). He allowed an appeal by way of case stated from the decision of Special Commissioners issued on 30 January 1984. The issue is whether the respondent company is entitled to trading stock relief for the years ending on 31 December 1978, 1979 and 1980. For the first two years the relevant provisions were Finance Act 1976 section 37sec. 37 of, and Finance Act 1976 schedule 5Sch. 5 to the Finance Act 1976. These were repealed and re-enacted in slightly different terms in the Finance Act 1981 in relation to any period of account ending after 14 November 1980. The third of the years of account in question was accordingly subject to the later legislation. But it is common ground that this made no change of substance for present purposes and that all the issues can be dealt with by reference to the Finance Act 1976.

Stock relief, as it is known for short, has now been abolished but for present purposes it is convenient to refer to it in the present tense, and the term "trading stock" is still part of our fiscal legislation, as mentioned hereafter. It is based on the difference in the value of a trading company's stock at the beginning and end of each period of account. There was some discussion before us whether the policy purpose of the legislation was to protect against inflation or to encourage re-stocking in times of threatened recession, or both. But these considerations are too general and speculative to assist in answering the problem raised by the present case. The Special Commissioners held that the taxpayer company was not entitled to stock relief. The judge reversed their conclusion and the Revenue now appeals. I must begin by describing the way in which the company carried on its business and then refer to the statutory provisions in some detail as well as a few authorities which were cited to us. But at the end of the day the short question is whether the motor cars which the company bought and sold in the course of its business of providing financial assistance for franchised dealers was "property such as is sold in the ordinary course of the [company's] trade". In addition there is an ancillary issue whether, pending their resale by the dealers to the public, the cars were "let on hire" to the dealers.

The respondent company, General Motors Acceptance Corporation (UK) Ltd. ("the company"), is a wholly owned subsidiary of Vauxhall Motors Ltd. ("Vauxhall"), which is itself a wholly owned subsidiary of General Motors Corporation of Detroit. It carries on business as a finance company which is interposed between Vauxhall and franchised dealers who sell Vauxhall cars to the public. For present purposes we are concerned with an "SOR scheme" (i.e. "sale or return") operated between Vauxhall, the company and franchised dealers. From the point of view of the dealers the purpose of the scheme is to enable them to obtain delivery of new cars without having to pay for the cars until their resale to their customers, which may be several months later, and to be protected against price increases in the interim. From the point of view of the company the business purpose is to make a profit from the finance or "handling" charge which is paid by the dealers and to have ownership of the cars by way of security until the dealers pay for them on their resale to the public. From the point of view of Vauxhall the purpose is to be paid in full by the company for each car as soon as ordered by a dealer, and of course to promote the sale of Vauxhall cars in co-operation with the company. At all material times some 60,000 to 70,000 cars would be within the scheme.

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