Lyon v Pettigrew
| Jurisdiction | England & Wales |
| Judgment Date | 15 March 1985 |
| Date | 15 March 1985 |
| Court | Chancery Division |
Chancery Division.
Mr. R. Carnwath (instructed by the Solicitor of Inland Revenue) for the Crown.
The taxpayer did not appear and was not represented.
Before: Walton J.
Capital gains tax - Disposal - Agreement in 1979 to sell vehicles together with their hackney carriage licences - Payment by instalments over 150 weeks - Whether vehicles and licences passed together or separately - Whether conditional contracts - Whether disposal in 1979 or when payment of moneys completed - Capital Gains Tax Act 1979 section 20 section 24 section 27 section 40Capital Gains Tax Act 1979, sec. 20, sec. 24, sec. 27, sec. 40.
This was an appeal by the Crown against a decision of the Special Commissioners discharging an assessment to capital gains tax on the taxpayer. The matter was concerned with the time of a disposal for capital gains tax purposes of property transferred under certain agreements entered into by the taxpayer in 1979.
The taxpayer was a taxi-cab proprietor. In 1979 he made agreements to sell seven of his vehicles together with their hackney licences for £6,000 each. One of the sales was completed immediately. The other six contracts provided for the sale by instalments of £40 per week over 150 weeks. Inter alia the agreements provided that the licence to the vehicle was not to become the property of the purchaser until all the payments were completed. Should a purchaser default in his payments the ownership of the vehicle was to transfer back to the taxpayer.
The issue for decision was whether the vehicles, together with their licences, were disposed of in the financial year 1979/80, or at some later date. The Special Commissioners had found that the contracts were conditional upon payment of all the instalments and that they therefore fell within Capital Gains Tax Act 1979 section 27 subsec-or-para (2)sec. 27(2) of the Capital Gains Tax Act 1979 with the result that it was only when all the instalments had been paid that the liability to capital gains tax arose.
The Crown contended that the whole consideration under each agreement, namely £6,000, should be brought into account for the purposes of computing the chargeable gain, in the year in which the disposal took place; the disposal being made on the date that the agreement was entered into. It was also argued that the agreements were of such a nature as to come within Capital Gains Tax Act 1979 section 24sec. 24 of the 1979 Act, which dealt with hire-purchase transactions, and therefore were to be treated as a disposal of the asset at the beginning of the period for which the use and enjoyment of the asset was obtained.
Held, allowing the Crown's appeal:
1. As a matter of law it was impossible to divorce the licence from the vehicle; both must go together. The agreement could not be construed as one under which the vehicle was transferred immediately, but the licence was not to be transferred until a future date, namely when all the moneys under the agreement had been paid.
2. The agreements fell within Capital Gains Tax Act 1979 section 24sec. 24, the words of that section exactly fitting the facts in the case. For the purposes of capital gains tax therefore, the matter was to construed as if the vehicles together with the licences had been disposed of in 1979/80 and as if the consideration for such disposal at that time had been the full extent of the purchase price.
1. At a meeting of the Commissioners for the special purposes of the Income Tax Act held on 28 March 1984 William Gordon Pettigrew (hereinafter called "Mr. Pettigrew" appealed against an assessment to capital gains tax for the year 1979/80 in the sum of £15,000.
2. Shortly stated the question for our decision was the time of disposal for capital gains tax purposes of the property transferred by certain agreements entered into by Mr. Pettigrew in September 1979.
3. No oral evidence was adduced before us.
4. The following documents were proved or admitted before us:
(2) Agreement dated 1 September 1979 between Mr. Pettigrew and one Luigi Marino.
(3) Schedule of annual payments made by taxi-drivers.
(4) Schedule of particulars of sale of taxi licences.
(5) Capital gains computation 1979/80.
(6) Bundle of documents issued by Rugby Borough Council under the general heading "Hackney Carriage Operational Policy".
None of the above is annexed hereto as an exhibit. They are available for inspection by the court if required.
5. The following facts were admitted between the parties:
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(2) Mr. Pettigrew was, for 37 years, a taxi proprietor in Rugby and during the period he was in business he acquired eleven hackney carriage licence plates (hereafter "Plates"). namely:
Licence number
Date of acquisition
Cost
39
1945
Nil
20
1950
£600
17
1956
500
37
1960
650
33
1962
800
28
8.1.1966
600
16
1966
750
26
21.2.1967
700
30
1969
900
36
1969
600
38
1969
800
(3)
(4) In 1979 Mr. Pettigrew decided to dispose of the business and during the period 1 September to 21 September 1979 seven plates were offered for sale. One - No. 20 - was sold outright to a Mr. Davies on 21 September 1979 for £5000. The gain on this is not in dispute.
(5) Six plates were sold under the terms of formal written agreements, the purchase price being paid in installments of £40 per week for 150 weeks.
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(6) The dates and selling prices of those sold under agreement are as follows -
Plate number
Purchaser
Date of agreement
Selling price
£
17
L.Marino
1.9.1979
6000
26
K.Ranu
1.9.1979
6000
28
J.Allinson
1.9.1979
6000
39
W.Hunt
1.9.1979
6000
16
R.Poppitt
10.9.1979
6000
30
C.Dando
10.9.1979
6000
In the event, payments in respect of three (Nos. 26, 38 and 39) were completed early; (Nos. 17 and 30) were completed in time and the remaining one (No. 16) was completed sometime in the year ended 5 April 1984. The selling price on one (No. 26 to K. Ranu) was reduced by oral agreement to £5,280.
The agent's schedule (document 2) sets out the payments made by the purchasers. The values of the cars included in the selling price are agreed.
6. As a result of the documentary evidence adduced before us we find the following further facts:
(2) Before entering into the agreements referred to in para. 5 (2) above, the vehicles to which the agreements related were rented by Mr. Pettigrew to taxi drivers at £20 per week.
(3) All the agreements were in similar form to the specimen (document 1) produced before us. That agreement recited that Mr. Pettigrew (the vendor) was the absolute owner of the motor car (hereafter "the vehicle") described in the schedule (namely a Ford Cortina 1300 registration number OGG 886M) and of the hackney carriage licence number 17 issued in respect of it (hereafter "the licence").
(4) Clause 1 provided that "the Vendor sells and the Purchaser will purchase" the vehicle together with the licence issued in respect of it for the sum of £6,000 "upon the terms and conditions hereinafter contained".
(5) Clause 2 provided that Mr. Pettigrew "shall forthwith secure the transfer of the registration documents relating to the [vehicle] to the Purchaser" and that Mr. Pettigrew "shall on the payment of all monies due under this Agreement take all such steps as shall be necessary to enable [the licence] to be issued in the name of the Purchaser". A final sentence added in manuscript read: "For the avoidance of doubt it is hereby agreed that [the licence] shall not be transferred or become the property of the Purchaser until payment of all monies hereunder."
(6) Clause 3 provided that the selling price of £6,000 was to be paid by one hundred and fifty weekly instalments of £40, the first such payment to be made on the signing of the agreement and subsequent instalments on the Monday of each week succeeding the signing of the agreement until the sum of £6,000 should have been paid and satisfied.
(7) Clause 4 contained covenants by the purchaser that so long as any moneys should be owing under the terms of the agreement he would keep the vehicle properly insured; pay the vehicle excise duties; produce for inspection the insurance policy, the last premium receipt, the current excise licence and the MOT certificate; keep the vehicle properly maintained and repaired; discharge any liabilities arising out of the use of the vehicle for which the owner was responsible and keep Mr. Pettigrew fully indemnified in respect of the vehicle or its use and operation as a hackney carriage, notwithstanding that he was not driving or in charge of it at the time. If the purchaser should make default in paying any of the weekly payments of £40, or in performing or observing any of the covenants then Mr. Pettigrew might by written notice require the purchaser to take the steps necessary to transfer the ownership of the vehicle back to Mr. Pettigrew. In such event Mr. Pettigrew was to be under no obligation to refund all or any part of the sums of £40 already paid under the agreement, and the purchaser irrevocably appointed Mr. Pettigrew his attorney with a view to enabling the ownership of the vehicle to be revested in Mr. Pettigrew's name.
(8) Clause 5 provided that so long as any moneys remained unpaid by the purchaser he should not part with the possession of the vehicle.
(9) The last payment under Mr. Marino's agreement was made on 26 July 1982.
(10) Four further agreements besides the six mentioned in para. 5(3) above were entered into, two in the year ended 5 April 1981, one in the year ended 5 April 1982 and one prior to 31 January 1984 in the following year. Before the hearing it had been agreed between the parties that our decision in respect of the sales in 1979/80 would be applied by them to similar sales in subsequent years.
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(11) The selling price agreed in respect of each vehicle included a value for the vehicle itself. For the six agreements with which this appeal is immediately concerned the values agreed...
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