Kirkham v Williams (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NOURSE,LORD JUSTICE RALPH GIBSON,LORD JUSTICE LLOYD |
| Judgment Date | 24 May 1991 |
| Judgment citation (vLex) | [1991] EWCA Civ J0524-6 |
| Date | 24 May 1991 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 91/0529 |
[1991] EWCA Civ J0524-6
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE VINELOTT)
Royal Courts of Justice
Lord Justice Lloyd
Lord Justice Nourse
Lord Justice Ralph Gibson
91/0529
MR GILES GOODFELLOW, instructed by Messrs Poole, Alcock & Co. (Sandbach), appeared for the Appellant (Appellant).
MR LAUNCELOT HENDERSON, instructed by The Solicitor of Inland Revenue, appeared for the Respondent (Respondent).
The question here is whether it was open to the General Commissioners for the Division of Macclesfield to decide that the purchase, development and sale of a piece of land was an adventure in the nature of trade giving rise to a charge for income tax under Case I of Schedule D. On an appeal by the taxpayer to the High Court by way of case stated Mr Justice Vinelott held that it was. The taxpayer now brings a further appeal to this court. In both courts he has contended that the true and only reasonable conclusion from the facts found by the Commissioners is that the transaction was not an adventure in the nature of trade.
The facts are fully stated or referred to in the judgment of Mr Justice Vinelott [1989] S.T.C. 333, where the case stated is also set out in full. I will restate the facts so far as the arguments advanced on this appeal make it necessary to do so.
From June 1974 to November 1982 the taxpayer, Mr William Brian Kirkham, worked on his own account as a general dealer and demolition contractor doing a limited amount of farming as well. His work included plant hire subcontract work, levelling, draining and ditching. During that period he and his family lived at Purdy House, 81 Rudyard Road, Biddulph Moor, Stoke-on-Trent.
The facts on which the outcome of this appeal mainly depend are stated in paragraph 5(ii), (iii) and (iv) of the case stated. I will restate them in the Commissioners' own words, although I have rearranged the sentences in paragraph 5(iii) so that they conform with what both sides agree is their chronological sequence:
"(ii)…Whilst living at Purdy House the Appellant experienced difficulties with the Local Authority over the storage of demolition materials at his Mother's address at Fairview, Biddulph Moor, Staffordshire.
(iii) An opportunity presented itself to the Appellant to carry out demolition works at Havannah Mills Congleton Cheshire for a Mr Radivan. The Contract involved the demolition of one of the two Mills which were on site, together with five Cottages and some outbuildings. After the Contract had been concluded the owner of Havannah Mills offered to sell the Appellant what was left, which by that time comprised of one remaining Mill and ten acres of adjoining land. The site was acquired principally to provide office and storage space for the Appellant's demolition and Plant Hire business. Havannah Mills was purchased in the Appellant's sole name for the sum of £17,000 by a Conveyance dated 9th May 1978. Of the purchase price £8,000 was left outstanding under a private Mortgage with the Vendor Mr Radivan. Subsequently the Appellant used the site for the storage of materials for use in connection with his business. He used part of the Mill as his office. He grew a few crops on the land and bought a few calves for fattening up for re-sale; but the level of his farming activities in this regard were very limited to the extent that they were never recorded in his books of Account. The site continued to be used in these various ways until its sale in October 1982.
(iv) Subsequently in or about October 1978 the Appellant applied for Planning Permission for the erection of an Agricultural workers dwelling at Havannah Mills. That application was refused. A further Application was submitted to the Local Planning Authority and Outline Planning Permission was granted on 22nd August 1980 for the erection of an Industrial/Agricultural Dwellinghouse for the Appellant at The Old Mill, Havannah Lane, Eaton…."
Before the learned judge an additional fact was agreed, namely that the contract to purchase Havannah Mills was entered into by the taxpayer in the summer of 1977 at the latest. It is also agreed that the reference in paragraph 5(iv) to October 1978 as being the month when the taxpayer first made an application for planning permission is an error for October 1977. It is therefore agreed that the taxpayer entered into the contract before making any application for planning permission.
Following the grant of outline planning permission on 22nd August 1980 the taxpayer instructed a local builder to draw up plans for the construction of a dwellinghouse on the property and thereafter, with some assistance from his brother-in-law and over a period of about nine months, he erected a dwellinghouse on the property. In paragraph 5(vii) of the case stated we find this:
"It was never the Appellant's intention at any time to purchase Havannah Mills as a residence for himself and his family…"
In about November 1980, before he erected the dwellinghouse at Havannah Mills, the taxpayer first became interested in another property, Sandy Lane Farm, Giants Wood Lane, Hulme Walfield, Congleton, Cheshire. On 6th October 1982 Havannah Mills was sold by the taxpayer for £110,000, realising a net profit of £90,971. Completion of the sale took place on 29th October 1982. On 3rd June 1982 contracts had been exchanged for the purchase of Sandy Lane Farm in the joint names of the taxpayer and his wife at a price of £176,000. Completion of the purchase took place on 9th November 1982. In the same month the taxpayer and his family moved into Sandy Lane Farm as their home. Purdy House was sold in September 1983 for £13,000. The Commissioners found that the taxpayer did not entirely cease in business as a general dealer and demolition contractor when he moved into Sandy Lane Farm, but that thereafter he increased his interest in business as a farmer.
In due course the Inspector of Taxes assessed the taxpayer to income tax for the year 1982/83 under Case I of Schedule D on a sum of £91,000, being the approximate amount of the net profit on the sale of Havannah Mills. The business of the taxpayer not having included dealings in land, the assessment can only be supported if the purchase, development and sale of Havannah Mills was an adventure in the nature of trade, for which purpose it must (inter alia) have been acquired as trading stock, that is to say with the intention of disposing of it at a profit. The taxpayer has throughout contended that Havannah Mills was acquired not as trading stock but as a capital asset of his business, on whose disposal at a profit capital gains tax was chargeable, subject to roll over relief allowable by virtue of his purchase of Sandy Lane Farm. It is not appropriate to determine the taxpayer's liability for capital gains tax unless and until he succeeds in defeating the claim for income tax, and no such determination has been made. Before the Commissioners the Crown raised an alternative claim for income tax under Case VI of Schedule D pursuant to section 488 of the Taxes Act 1970, which relates to artificial transactions in land. That claim was rejected by the Commissioners and there has been no attempt to revive it.
The Commissioners expressed their decision as follows:
"We the Commissioners, having carefully considered all the evidence put before us were of the opinion that the Profits of £90,971 arising on the sale of Havannah Mills were assessable under Case I of Schedule D."
In other words, it must be assumed that they were of the opinion (inter alia) that Havannah Mills was acquired as trading stock and not as a capital asset of the taxpayer's business. The Commissioners gave no reasons for their decision. In that state of affairs the taxpayer, in order to succeed on an appeal to the court, must show that the facts which they found are such that no person acting judicially and properly instructed as to the relevant law could come to the same conclusion or, if you prefer, that the true and only reasonable conclusion from the facts found contradicts the decision; see Edwards v. Bairstow [1956] A.C. 14 at 36, per Lord Radcliffe.
The convenient course is for me to start with the facts found by the Commissioners, including inferences which they could properly draw from the primary facts found. It cannot be doubted that their most significant finding was that "the site" was acquired principally to provide office and storage space for the taxpayer's demolition and plant hire business, being one which followed their earlier finding that the taxpayer had experienced difficulties with the local authority over the storage of demolition materials at his mother's address. The first question which arises out of this finding is what did the Commissioners mean by "the site"? Although the case stated, especially perhaps in paragraph 5(iii), is not artistically drawn, I am in no doubt that in referring to the site, they intended throughout to refer to the whole of the site, that being the area of land whose purchase, development and sale had given rise to the assessment.
And so the Commissioners found that the taxpayer's principal purpose in acquiring the site as a whole was the provision of office and storage space for his business. I see no reason why that purpose should have had any the less substance because there was a probability, even a certainty, that at any given time large areas of the site could not and would not be used as office or storage space. But the finding of a principal purpose presupposes the co-existence with it of...
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