Major (Inspector of Taxes) v Brodie and Another
| Jurisdiction | England & Wales |
| Judgment Date | 13 March 1998 |
| Date | 13 March 1998 |
| Court | Chancery Division |
Chancery Division.
Park J.
Launcelot Henderson QC (instructed by the Solicitor of Inland Revenue) for the Crown.
Rex Bretten QC and Amanda Hardy (instructed by Payne Hicks Beach) for the taxpayers.
The following cases were referred to in the judgment:
Dreyfus v IR CommrsTAX (1929) 14 TC 560
General Commrs for the City of London v GibbsELR [1942] AC 402
MacKinlay (HMIT) v Arthur Young McClelland Moores & CoTAXELR[1989] BTC 587; [1990] 2 AC 239
Memec plc v IR CommrsTAX [1996] BTC 590
Income tax - Relief for interest paid on bank loan - Loan made by English bank to two taxpayers resident in England - Taxpayers in partnership together in Scotland and carrying on trade of farmers in partnership with a third party in Scotland - Whether loan wholly used for the purposes of the trade carried on by the farming partnership - Whether interest deductible - Income and Corporation Taxes Act 1988 section 362 subsec-or-para (1)Income and Corporation Taxes Act 1988, s. 362(1).
This was an appeal by the Revenue against a decision of a special commissioner that interest paid on money borrowed by the taxpayers and contributed to a Scottish partnership, which in turn carried on a farming business in partnership with a third party in Scotland, was deductible by the taxpayers under the Income and Corporation Taxes Act 1988 section 353 subsec-or-para (1) section 362 subsec-or-para (1)Income and Corporation Taxes Act 1988, s. 353(1) and s. 362(1)(b).
The taxpayers owned an estate in Scotland and traded in partnership in Scotland ("the Skeldon Partnership") as proprietors of the estate. The Skeldon Partnership farmed in partnership with a third party, Mr Murdoch ("the Murdoch Partnership"). That was possible under Scottish law which regarded a partnership as a legal person capable of entering into partnership with a third party. The Skeldon Partnership also managed grazing licences, holiday lettings, woodlands, fishing and shooting rights.
The taxpayers borrowed a total of some £700,000 from a bank which they contributed to the Murdoch Partnership to purchase further land, to construct farm buildings and to provide working capital.
The inspector refused to allow deduction of interest paid on the bank loan on the ground that the money lent was not "used wholly for the purposes of the trade … carried on by the partnership" within the meaning of Income and Corporation Taxes Act 1988 section 362 subsec-or-para (1)s. 362(1)(b) of the 1988 Act.
The Revenue contended that, because two partnerships were involved rather than one, Income and Corporation Taxes Act 1988 section 362 subsec-or-para (1)s. 362(1)(b) was not satisfied. The paragraph required that the money borrowed should be used wholly for the purposes of "the trade … carried on by the partnership". Since the money was contributed to the Skeldon Partnership but was used wholly for the purposes of the trade carried on by the Murdoch Partnership, the taxpayers did not qualify for relief.
The Revenue also contended that the position in England, where a partnership was not regarded as a legal person, might have been different. If the taxpayers could not have qualified for interest relief if the Skeldon Partnership had been an English partnership, to achieve uniformity of application of the tax code north and south of the border, relief should not be available to a Scottish partnership.
The Revenue's third contention was that the Skeldon Partnership's venture with Mr Murdoch was a separate business from its other activities. The Skeldon Partnership had two businesses: its proprietorship business, which it carried on alone, and its farming trade, which it carried on in partnership with Mr Murdoch. Thus, the money which the taxpayers had contributed to the Skeldon Partnership must have been used partly for the purposes of its proprietorship business. The money was not "used wholly for the purposes of the trade carried on by" the farming partnership with Mr Murdoch withinIncome and Corporation Taxes Act 1988 section 362 subsec-or-para (1)s. 362(1)(b).
Held, dismissing the Revenue's appeal:
1. A trade carried on by a partnership was a trade carried on by its members and by each of them. By s. 1(1) of the Partnership Act 1890, applying both in England and Scotland, a partnership was the relation between persons carrying on business in common with a view of profit. The money was used wholly for the purposes of the trade carried on by the partners in the Murdoch Partnership and, because it was a Scottish partnership, those partners were the Skeldon Partnership and Mr Murdoch. The conditions of Income and Corporation Taxes Act 1988 section 362 subsec-or-para (1)s. 362(1)(b) were thereby satisfied. There was no justification for tacitly interpolating the word "alone". If the trade was carried on by the partnership, and the farming trade was carried on by the Skeldon Partnership (as it was also carried on by Mr Murdoch), it made no difference whether it was carried on by the partnership alone or in common with any other person or persons. The word "wholly" in Income and Corporation Taxes Act 1988 section 362 subsec-or-para (1)s. 362(1)(b) qualified "used". It described how the money was to be used, not who it was to be used by.
2. Notwithstanding the general desirability that the Taxes Acts should work in the same way in England and Scotland, it would not be right to deny the relief on the ground that deduction might not have been available if the Skeldon Partnership had been an English partnership. However, the tax result would be the same in the case of an English partnership. When Income and Corporation Taxes Act 1988 section 362 subsec-or-para (1)s. 362(1)(b) referred to "the trade … carried on by the partnership" its strict meaning in relation to an English partnership was the trade carried on by the partners in their capacities as members of the partnership, because under English law a partnership was not a legal person. However, it was possible for the partners in one partnership to possess the same capacities as partners in another.
3. The borrowings were used, and were used only, in the farming trade which the Skeldon Partnership carried on as a partner in the Murdoch Partnership. The farms and the working capital were not used in the proprietorship business which the Skeldon Partnership also carried on.
By originating motion pursuant to the Taxes Management Act 1970 section 56ATaxes Management Act 1970, s. 56A (as amended by SI 1994/1813 with effect from 1 September 1994), the Revenue appealed to the High Court against the following decision of a special commissioner (Mr DA Shirley) sitting in private (Sp C 128Badger & Anor v Inspector of Taxes) released on 8 June 1997.
1. I have before me for decision in principle appeals by Mr S E Brodie and Mrs E Brodie against assessments to income tax following the rejection by HM inspector of taxes of their claims to set off against their income bank interest paid by them in the years 1987-88 to 1992-93 inclusive.
2. The question for determination is whether, for the purposes ofIncome and Corporation Taxes Act 1988 section 362 subsec-or-para (1)para. 11(1)(b) of Sch. 1 to the Finance Act 1974 and Income and Corporation Taxes Act 1988 section 362 subsec-or-para (1)subs. 1(b) of s. 362 of the Income and Corporation Taxes Act 1988, the farming business carried on since 1 June 1987 under the firm name "W Murdoch & Son", pursuant to a partnership agreement executed on 27 June 1987 and made between Mr S E Brodie and Mrs E Brodie (1) and Mr H Murdoch (2), has been carried on by, inter alia, the Skeldon Estates Partnership.
3. Mr Rex Bretten QC and Mr Grierson appeared on behalf of the taxpayers. Mr Alun Williams of the Solicitor's office, Inland Revenue, represented the inspector of taxes. Two bundles of documents were put in evidence. Expert evidence on Scots law was given by Professor John Murray QC on behalf of the taxpayers and by Professor George Gretton on behalf of the inspector of taxes. Each expert provided a written opinion. Both gave oral evidence. An agreed statement of facts was produced.
4. For convenience throughout the hearing, reference was made to theIncome and Corporation Taxes Act 1988Income and Corporation Taxes Act 1988 which contains the statutory provisions relevant to 1988-89 and the succeeding years of assessment. There is no difference between those provisions and corresponding provisions in the Finance Act 1974 which were in force for the year 1987-88. I shall adopt the same course.
5. The statutory provisions
Income and Corporation Taxes Act 1988 section 353 subsec-or-para (1)Section 353(1) of the Taxes Act reads as follows:
-
353(1) Where a person pays in any year of assessment-
(a) annual interest chargeable to tax under Income and Corporation Taxes Act 1988Case III of Schedule D; or
(b) interest payable in the United Kingdom or the Republic of Ireland on an advance from a bank carrying on a bona fide banking business in the United Kingdom or the Republic of Ireland or from a person bona fide carrying on a business as a member of the Stock Exchange or bona fide carrying on the business of a discount house in the United Kingdom or the Republic of Ireland;
and the interest is stated in Income and Corporation Taxes Act 1988 section 354sections 354 to 365 to be eligible for relief under this section, then, if he makes a claim to the relief and subject to the following provisions of this section, Income and Corporation Taxes Act 1988 section 354 section 237 subsec-or-para (5)sections 354 to 368 and section 237(5)(b), the amount of the interest shall be deducted from or set off against his income for that year of assessment, and income tax shall be discharged or repaid accordingly.
It is agreed that the interest paid by the taxpayers falls within eitherIncome and Corporation Taxes Act 1988 section 353 subsec-or-para (1)para. (a) or Income and...
To continue reading
Request your trial
-
Quigley v Harris
...OF TAXES) v ARCHER-SHEE 15 TC 693 DREYFUS v THE COMMISSIONERS OF INLAND REVENUE 14 TC 560 MAJOR (INSPECTOR OF TAXES) v BRODIE & ANOR 1998 STC 491 Abstract: Taxation - Income tax - Reliefs - Restrictions - Statutory interpretation - Principles governing interpretation of taxation statutes - ......
-
BCM Cayman LP and Others
...is well recognised. [105] A footnote to this passage from Lindley & Banks refers to a decision of the High Court, Major (HMIT) v Brodie [1998] BTC 141. In that case Park J referred to the facts as stated in the decision of the Special Commissioner and, having observed that Mr and Mrs Brodie......
-
Bloomberg Inc. (UK Permanent Establishment) and Another
...[2017] TC 06121 – ICTA 1988, s. 788 – IR Commrs v Gray (executor of Lady Fox (deceased)) [1994] BTC 8,034 – Major (HMIT) v Brodie [1998] BTC 141 – R & C Commrs v Vaines [2016] BTC 502. The First-tier Tribunal (FTT) found that the acquisition of intangible fixed assets was that of an investm......
-
BCM Cayman LP and Another v R & C Commissioners
...its ability to enter into the partnership relation is well recognised. [23] The FTT then discussed the decision in Major (HMIT) v Brodie [1998] BTC 141 (which we must consider in relation to both the Profit Allocation Issue and the Interest Deductibility Issue) and summarised HMRC's analysi......
-
The Long Strange Trip to a Certainty of Hopelessness: The Legislative and Political History of the Nondischarge of Student Loans in Bankruptcy.
...(308) Richard W. Stevenson, G.O P. Fiscal Plan Rejects Programs Sought by Clinton, N.Y. TIMES (Mar. 18, 1998), at A1, (309) Id. The transportation bill, H.R. 2400, was introduced by Representative Bud Schuster (R-PA) and had passed the Senate on April 2, 1998, in lieu of S. 1173, which Sena......