Lang v Rice
| Jurisdiction | Northern Ireland |
| Judgment Date | 14 April 1983 |
| Date | 14 April 1983 |
| Court | Court of Appeal (Northern Ireland) |
Court of Appeal, Northern Ireland.
Mr. D.P. Fee (instructed by Messrs. Elliot, Duffy and Garrett) for the taxpayer.
Mr. F.P. Girvan (instructed by the Crown Solicitor) for the Crown.
Before: Lord Lowry L.C.J., Jones L.J., Gibson L.J.
Capital gains tax - Compensation for loss of profits - Whether payment of capital or revenue nature - Finance Act 1965 section 22 subsec-or-para (3)Finance Act 1965, sec. 22(3)(a).
This was an appeal by the Crown from a decision of the Special Commissioners that compensation for the loss of profits on premises destroyed by bombing awarded for the period it would take to rebuild the premises was of a revenue nature for the purposes of capital gains tax.
The taxpayer carried on business at two premises, held in each case as lessee. Both premises were in Belfast and each was destroyed by bombing, one in October 1971 and the other in June 1973, as a result of which trading ceased. The circumstances relating to compensation were identical in respect of both premises.
The taxpayer claimed and received compensation from the Northern Ireland Office under four heads, namely stock, contents, tenant's improvements and consequential loss. The first three were unquestionably of a capital nature. A dispute arose as to whether the consequential loss was a payment of a capital or revenue nature.
The consequential loss payment was described as being for "loss of profit i.e. goodwill, 11/2 years' purchase of net profit". The taxpayer sought, and received, confirmation from the Northern Ireland Office that the payments were in respect of temporary loss of profits for the length of time it would take to rebuild the premises.
The Special Commissioners held that the payment for consequential loss was of a revenue nature. The Crown appealed.
For the Crown it was submitted that the payment was a once and for all capital payment since the premises were totally destroyed and trade therefore ceased on the date of the bombing, not at an artificial date months hence by which time the premises could have been rebuilt. The claim was for the permanent loss of the business which had not been reinstated. Payment for complete destruction was a capital payment, unless clearly a revenue item. Goodwill existed and was quantified by the Northern Ireland Office, but the method of calculating it did not give it a revenue quality. In reality the payment was of a capital nature within Finance Act 1965 section 22 subsec-or-para (3)sec. 22(3)(a) of the Finance Act 1965.
It was argued for the taxpayer that the consequential loss was clearly of a revenue nature. The payment was not made in relation to a loss of goodwill but to help the taxpayer to get over the loss of earnings resulting from the damage and to give him a chance to reinstate the business. Even if rightly compensated on the basis of reinstatement the taxpayer was not obliged to begin trading again, and the mere fact that he did not resume trading did not convert a revenue payment into a capital gain.
Held, dismissing the Crown's appeal:
1. The business necessarily ceased on the date that the premises were destroyed. There was no deeming that the business ceased at a later date but a calculation of the compensation for consequential loss based on the length of time allowed by the loss adjusters for the taxpayer's business to resume normal trading following the incident.
2. The compensation was neither calculated nor paid on the basis of the permanent loss of the business but on the loss of profits for a reasonable period pending reinstatement of the business. The Northern Ireland Office did not quantify the goodwill of the taxpayer's business. Accordingly, the payment was of a revenue nature for the purposes of capital gains tax.
3. The fact that the taxpayer chose not to recommence trading did not convert a revenue payment into a capital gain.
Jones L.J.: This is an appeal by way of case stated from a decision of the Commissioners for the special purposes of the Income Tax Acts (hereinafter called "the Special Commissioners") pronounced on 10 June 1982 whereby it was held that certain elements in a claim for compensation for destruction of two sets of premises by bombing were payments of a revenue nature as distinct from being of a capital nature. The background of the case is that one Daniel Rice (hereinafter called "the respondent") was the proprietor of two businesses, one being known as the Intercontinental Cabaret Club (hereinafter called the "the Intercontinental") and the other as the Piccadilly Line Cabaret (hereinafter called "the Piccadilly"). The premises in which the businesses were carried on were held by the respondent in each case under a lease from a landlord. The Intercontinental commenced business on 13 October 1969 and continued till 9 June 1973 when the premises were destroyed by a bomb whereafter trade at these premises ceased. The Piccadilly commenced business on 22 December 1969 and continued to operate till 8 October 1971 when its premises too were bombed whereafter the trade ceased therein. Both premises were situated in Belfast, the Intercontinental in Chichester Street and the Piccadilly in York Street.
It was agreed by the parties before the Special Commissioners, and has at no time been questioned, that the circumstances relating to the compensation paid in respect of the business carried on under the name of the Intercontinental are similar to the circumstances of the business known as the Piccadilly. There were four heads of claim as finally agreed in respect of the Intercontinental. These were as follows:
Stock |
£1,210.00 |
Contents |
£6,340.35 |
Consequential Loss |
£5,113.00 |
Tenant's Improvements |
£4,000.00 |
Of those four heads of claim, and finally of compensation, no question arose about Stock, Contents or Tenant's Improvements. Those three were all accepted as unquestionably being of a capital nature. The item for Consequential Loss, however, raised an issue between the inspector of taxes (hereinafter called "the appellant") and the respondent and it was that issue which fell to be determined by the Special Commissioners. The Special Commissioners heard the matter on 10 June 1982 and, having heard the parties - in the case of the present appellant the inspector of taxes in person and in the case of the present respondent a Mr. Sheridan, the representative of the respondent's accountants Messrs. H.F. O'Hare & Co. - they gave judgment verbally the same day allowing the respondent's appeal from the appellant's assessments and discharging the same on the basis that the element in the compensation of £5,113.00 (£11,514 in the case of the Piccadilly) for Consequential Loss was an item in the nature of revenue contrary to the contention of the appellant. Thereafter the appellant declared his dissatisfaction with the decision as being erroneous in point of law and on 25 June 1982 he required the Special Commissioners to state a case for the opinion of this court pursuant to the Taxes Management Act 1970, which they duly did.
The question which arises for our determination is a nett one, namely whether this particular element of the claims was of a capital or revenue nature. Of course we are to a certain extent dealing in a world of make believe because the business as...
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