Larner v Warrington
| Jurisdiction | England & Wales |
| Judgment Date | 22 April 1985 |
| Date | 22 April 1985 |
| Court | Chancery Division |
Chancery Division.
The taxpayer appeared in person.
Mr. A.G. Moses (instructed by the Solicitor of Inland Revenue for the Crown).
Before: Nicholls J.
Capital gains tax - Chargeable gains - Allowable losses - Value of asset becoming negligible - Taxpayer making chargeable gain and allowable loss in 1973-74 - Taxpayer making no claim for allowable loss until 1978 - Successful claim for relief in 1979 - Hearing adjourned for determination of share values - Appeal restored and reopened in 1984 - Appeal determined in favour of Crown after further argument - Whether Commissioners correct to reopen appeal - Finance Act 1965 section 23 subsec-or-para (4)Finance Act 1965, sec. 23(4) (nowCapital Gains Tax Act 1979 section 22 subsec-or-para (2)Capital Gains Tax Act 1979, sec. 22(2)).
This was an appeal by the taxpayer against a decision of the General Commissioners whereby they assessed the taxpayer to capital gains tax of £78,012 for 1973-74.
The taxpayer sold shares he owned in 1973, making a capital gain of £78,012. He reinvested £45,000 of the proceeds of sale in a company, most of the shares in which were registered in his own name. Part of the proceeds of sale were made available to the company as interest-free loans, with no terms as to their repayment. By 5 April 1974, as a result of the crash in the secondary banking world and in property values, the taxpayer's investments had become of negligible value. The taxpayer completed his tax return for the year ended 5 April 1974 by stating that his chargeable disposals were nil. In 1978 the inspector raised an assessment of approximately £50,000 for 1973-74 and the taxpayer appealed, claiming relief under Finance Act 1965 section 23 subsec-or-para (4)sec. 23(4) of the Finance Act 1965 on the ground that the shares and loans had become of negligible value by 5 April 1974. The appeal went before the General Commissioners, who decided that in principle the taxpayer's claim under Finance Act 1965 section 23 subsec-or-para (4)sec. 23(4) could as a matter of law operate to reduce the total amount of chargeable gains which had accrued to him in 1973-74. The appeal was adjourned for share values to be agreed or determined by the Special Commissioners.
The values were agreed in 1983. Meanwhile, in 1982 the case ofWilliams v. Bullivant TAX[1982] BTC 384 had been decided and Vinelott J. held that the notional sale and reacquisition provided for by Finance Act 1965 section 23 subsec-or-para (4)sec. 23(4) took place on a date not earlier than the date of the claim by the owner of the asset. In the light of that decision, when the taxpayer's appeal was restored for hearing in 1984, the Crown successfully sought to make further argument. Consequently, having considered the evidence and law, the Commissioners refused the taxpayer's appeal. The taxpayer appealed to the High Court. He submitted that the Commissioners should not have allowed the decision in principle in his favour in 1979 to be reopened and reargued in 1984 because he had relied on that decision and had been prejudiced by the delay. He sought to distinguish Williams v. Bullivant contending that in that case the taxpayer had been continuously dealing in shares. He further contended that since the shares and loans had ceased to be of any value, they were assets which were dissipated within Finance Act 1965 section 23 subsec-or-para (3)sec. 23(3) and he was entitled to an allowable loss in 1973-74 arising from the deemed disposal on the date of dissipation.
Held, dismissing the taxpayer's appeal:
1. The appeal to the Commissioners had not been finally decided in 1979 since share values were still to be agreed or determined by the Special Commissioners.
2. The Commissioners were entitled to alter their decision in the same way as a judge had jurisdiction to alter his decision before the order he had made was formally drawn up and entered.
3. The Commissioners were bound by the decision in Williams v. Bullivant and there were no grounds for distinguishing it from the present case.
4. The shares and debts remained in existence after 5 April 1974 although they had become valueless. Loss in value of an asset, as distinct from the loss, destruction, dissipation or extinction of the asset itself, fell under Finance Act 1965 section 23 subsec-or-para (4)sec. 23(4) and not Finance Act 1965 section 23 subsec-or-para (3)sec. 23(3).
5. The debts due to the taxpayer were simple unsecured interest free loans, with no agreed terms for repayment and not debts on a security. Therefore, the taxpayer could not be regarded as having made an allowable loss on the notional sale of the debts under Finance Act 1965 schedule 7 subsec-or-para 11para. 11(1) of Sch. 7 to the Finance Act 1965.
1. The appeal by the Appellant ("Mr. Larner") against an assessment to capital gains tax for the year of assessment 1973-74 in the amount of £50,000 began at a meeting of the said Commissioners (Messrs. J.N. Barrett, J. Henderson and C.B. Jewson) held in Norwich on 31 July 1979.
2. The only question which those Commissioners were then asked to determine was whether a claim made by Mr. Larner on 1 July 1978 underFinance Act 1965 section 23 subsec-or-para (4)sec. 23(4) of the Finance Act 1965, that certain shares held by him and by his wife had by 5 April 1974 become of negligible value, could as a matter of law operate to reduce the total amount of chargeable gains which had accrued to him in 1973-74. Those Commissioners decided in principle that it could and adjourned the appeal for the values of the shares to be agreed or, in default of agreement, determined by the Special Commissioners under Taxes Management Act 1970 section 47 subsec-or-para (3)sec. 47(3) of the Taxes Management Act 1970 (as amended).
3. Such values were agreed in October and December 1983.
4. On 7 February 1984 the appeal was restored for hearing before a panel of General Commissioners consisting of Mr. J. Henderson (who had sat on 31 July 1979). Mrs. M. Chadwick and Mr. P.M. Merttens. At that hearing Mr. A.P. Sainer of the office of the Solicitor of Inland Revenue, for the inspector of taxes, applied for leave to adduce further argument on the point of principle which had been decided in Mr. Larner's favour on 31 July 1979.
5. Mr. Sainer's submissions, in summary, were as follows:
(2) In spite of the agreement recorded in para. 3 above that the shares which had formed the subject matter of Mr. Larner's claim had become of negligible value by 5 April 1974, the appeal itself had not yet been determined.
(3) Between the date of the hearing on 31 July 1979 and the present hearing Vinelott J. had given judgment in Williams (H.M.I.T.) v. Bullivant TAX[1982] BTC 384. That decision, the ratio of which was binding on the Commissioners, indicated that the decision which the Commissioners had reached in 1979 was based on an erroneous construction of Finance Act 1965 section 23 subsec-or-para (4)sec. 23(4) of the Finance Act 1965. Were the Commissioners now to determine the appeal in accordance with the decision reached on 31 July 1979, they would be making an error of law which could be the subject of an appeal to the High Court. It would be proper therefore for the Commissioners to hear further argument on the point.
(4) Since, of the three General Commissioners who had heard the appeal in 1979, only Mr. Henderson was still able to sit (Mr. Jewson having died and Mr. Barrett having retired from office), the appeal should be entirely reheard.
Mr. Sainer referred to Taxes Management Act 1970 section 46 section 50 subsec-or-para (1) section 50 subsec-or-para (6) section 50 subsec-or-para (7) section 54 subsec-or-para (1)sec. 46, 50(1), (6) and (7) and 54(1) of the Taxes Management Act 1970 and to passages from the judgments given in the Court of Appeal in R. v. St. Marylebone General Commissioners, Ex parte Hay TAXUNK[1983] BTC 73; [1983] STC 346 and from the judgment of Vinelott J. inFurniss (H.M.I.T.) v. Dawson UNK82 BTC 90; [1982] STC 267 at p. 282e.
6. In reply Mr. Larner submitted:
(2) The appeal had been determined in 1979.
(3) There had been changes in his personal circumstances in 1981 and 1982. He had relied on the decision which the Commissioners had given in 1979 and would be prejudiced if that decision were now to be reversed.
(4) This was not a proper case for reopening the appeal.
7. After consideration, those Commissioners decided that the appeal should be reheard in full and adjourned the appeal in order to allow both parties properly to present their cases.
8. The appeal accordingly came on for hearing before us on 10 April 1984. Mr. Larner gave evidence and presented his own case; Mr. Sainer again represented the inspector of taxes.
9. Shortly stated, the questions for our consideration were as follows:
(2) whether a claim made by Mr. Larner on 1 July 1978 that certain shares owned by him and by his wife had become of no value by 5 April 1974 operated, by virtue of Finance Act 1965 section 23 subsec-or-para (4)sec. 23(4) of the Finance Act 1965, to reduce the total amount of chargeable gains which had accrued to him in the year of assessment 1973-74 and in particular whether a claim made underFinance Act 1965 section 23 subsec-or-para (4)sec. 23(4) of the Finance Act 1965 dated from the time it was made as...
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