Moore v R J. Mackenzie & Sons Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 20 December 1971 |
| Date | 20 December 1971 |
| Court | Chancery Division |
Revenue - Income tax - Discontinuance of trade - Valuation of trading stock - Discontinuance and sale of stock simultaneous - Whether “trading stock belonging to the trade at the discontinuance” -
The taxpayer company were builders and estate developers. RM and WM were the sole shareholders. In May 1958 the company agreed, subject to contract, to sell flats having a book value of £27,686 to IT Ltd. for £95,000. No contract was, however, made between the taxpayer and IT Ltd. Instead, a contract was prepared whereby S Ltd. was to sell the flats to IT Ltd for £95,000 with completion on October 1, 1958, and IT Ltd signed that contract on September 24. On September 26, S, a director of S Ltd., was appointed a director of the taxpayer company in place of RM and WM and they sold their shares in that company to S Ltd. for £87,250. A directors' meeting was then held at which H was appointed a director, it was resolved that all trading activities be discontinued forthwith and H was authorised to sign the contract for the sale of the flats to S Ltd. for £27,686. This contract was then signed. Later on the same day S Ltd. signed the contract to sell the flats to IT Ltd. for £95,000.
The company was assessed to income tax and profits tax on the footing that section 143 of the Income Tax Act 1952 did not apply and that the flats fell to be brought into account at their market value, namely, £95,000. The special commissioners decided in favour of the company, holding that the discontinuance and the sale of the properties were simultaneous.
On appeal by the Crown:—
Held, dismissing the appeal, that the flats were “trading stock belonging to the trade at the discontinuance” within section 143 notwithstanding that the discontinuance and the sale were simultaneous.
The following cases are referred to in the judgment:
Anson v. Commissioner of Taxes [
Commissioner of Taxation for Western Australia v. Newman (
Craig (J. & M.) (kilmarnock) Ltd. v. Cowperthwaite.
Dalgety v. Commissioner of Taxes (
Doughty v. Commissioner of Taxes [
Hickman v. Federal Commissioner of Taxation (
Hollebone's Agreement, In re [
Inland Revenue Commissioners v. Nelson (
Inland Revenue Commissioners v. Reid (
Kirkaldy Linoleum Market Ltd. v. Duncan (
North Central Wagon and Finance Co. Ltd. v. Fifeld [
O'Kane (J. & R.) & Co. v. Inland Revenue Commissioners (
Sharkey v. Wernher [
The following additional cases were cited in argument:
Bennett v. Rowse (
Commissioner of Taxes v. Miramar Land Co. Ltd. (
Inland Revenue Commissioners v. Barr (No. 2),
Skinner v. Berry Head Lands Ltd. [
1. At a meeting of the special commissioners held on June 16 and 17, 1969, R. J. Mackenzie & Sons Ltd. (hereinafter called “the company”) appealed against an assessment to income tax for the year 1958–59 in the amount of £70,000. At the same time an appeal was heard relating to a profits tax assessment on the company. A separate case has been demanded and stated upon the profits tax assessment.
2. Shortly stated the question for the commissioners was whether in computing its profits for the year 1958–59 the company should bring into account the price at which the company sold the properties, namely, £27,686 8s. 7d., or the market value of the properties at the date of the sale, namely, £95,000 …
3. The following witnesses gave evidence before the commissioners: (a) Brian Henry Sandelson (“Mr. Sandelson”), solicitor and partner in the firm of Brian Sandelson & Co.; (b) Patrick Hugh Coghlan Hamilton, chartered accountant and partner in the firm of Barton Mayhew & Co ….
5. ….The following facts were proved or admitted before the commissioners. (1) The company was incorporated in 1926 as a private company limited by shares, all of which were immediately prior to the events hereinafter described held by its two directors, Robert Charles Mackenzie and William Matthews Mackenzie (hereinafter called “the Mackenzies”). (2) The business of the company was at all material times that of builders and estate developers. (3) On September 26, 1958, the following events took place. (a) At 3.15 p.m. at an adjourned meeting of directors of the company, Mr. Sandelson was appointed a director of the company, and the Mackenzies resigned their directorships. Mr. Sandelson was a director of Salvil Securities Ltd. (hereinafter called “Salvil”). (b) At 3.25 p.m. at a meeting of directors of Salvil, the following resolution was passed:
“Purchase of company:
The purchase of the share capital in R. J. Mackenzie & Sons Ltd. was considered and Mr. Reginald A. Hare was authorised to sign the contract for the purchase thereof from Mr. R. C. Mackenzie and Mr. W. M. Mackenzie in the terms of the form of contract produced.”
The contract produced and then signed was an agreement of that date, whereby the Mackenzies agreed to sell all their shares in the company to Salvil for the sum of £87,250. The agreement was completed that same day by payment of the purchase price and delivery of transfers. (c) At 4 p.m. at a further meeting of the directors of Salvil the transfers referred to in (b) above were produced and it was agreed to affix Salvil's seal thereto. (d) At 4.10 p.m. at a further meeting of the directors of the company, the following resolutions, inter alia, were passed:
“Directors: |
Pursuant to article 89 of Table A to Companies Act 108 Mr. Brian Sandelson appointed Mr. R. A. Hare to be a director of the company and the latter thereupon attended the meeting in that capacity.” |
“Cessation of trading: sale of properties: |
It was resolved that all trading activities whatsoever of the company be discontinued forthwith The sale of the companies properties in Tabor Court and Scotsdale Close, Cheam, was considered and Mr. Hare was authorised to sign contract for sale to Salvil Securities Ltd. in the terms of the form of contract produced.” |
(The contract produced and then signed was an agreement of that date, whereby the company agreed to sell to Salvil the properties in Tabor Court and Scotsdale Close (hereinafter called “the properties”) for their book value of £27,686 8s. 7d. which sum was paid by Salvil to the company that same day.)
“Transfers: |
The following transfers of preferred shares in the company were produced. The transfers were approved for registration and the secretary was instructed to issue new certificates to the transferees.” |
(The transfers produced were those referred to in (b) and (c) above. (4) The only trading operation conducted by the company on September 26, 1958, was the sale of the properties. After that date, it neither conducted trading operations of any kind nor kept any staff. (5) The agreement for sale of the properties (which consisted of registered land) was completed by transfer dated September 30, 1958. (6) In or about May 1958 the company had agreed to sell the properties, subject to contract, to the Iron Trades Employers' Insurance Association Ltd., (hereinafter called “Iron Trades”) for £95,000. No contract was ever entered into between the company and Iron Trades. A contract was prepared for the sale of the properties by Salvil to Iron Trades for £95,000, (completion of the sale to be on October 1, 1958). One part of this contract was signed on behalf of Iron Trades on September 24, 1958, and was delivered (together with a cheque for £9,500) to Salvil's solicitors on the morning of September 26, 1958.
The other part of the contract was signed on behalf of Salvil at or shortly after 4.25 p.m. on September 26 and the contract was dated September 27, 1958. (7) The company's audited accounts for the year ended March 31, 1960, (which were signed by its directors) contained the following items material to this case:
Balance Sheet, March 31, 1960, (As at September 25, 1958) |
||
£10,200 |
Share Capital |
£10,300 |
Fixed assets |
||
£292 |
Plant and office furniture at cost less depreciation |
NIL |
Current assets |
||
£27,686 |
Houses and garages as valued by the directors |
NIL |
(These were the properties sold to Salvil) |
||
£4,637 |
Balance at bank |
£32,555 |
Profit and Loss Account, for the period September 26, 1958, to March 31, 1960 (Period April 1, 1958 to September 25, 1958)
NIL |
Loss on trading (As to computation of such loss, see sub-paragraph (12) below) |
£7 |
£2,396 |
Directors' remuneration |
NIL |
£37 |
Auditors' remuneration |
£31 |
---- |
||
£38 |
||
£2,679 |
Profit on trading |
NIL |
NIL |
Loss for the period |
£38 |
(8) The plant and office furniture referred to in the said balance sheet was sold to the Mackenzies on or shortly after September 26, 1958. (9) It was Mr. Sandelson's suggestion that the company should sell the properties to Salvil. Mr. Sandelson was aware that the price of £27,686 8s. 7d. was well below market value, and that the association were prepared to purchase for £95,000. (10) Although the transactions described in the foregoing paragraphs were in the contemplation of Mr. Sandelson throughout, the company was not committed to any one course of action and in particular was in no way bound to sell the properties to Salvil until it contracted to do so. (11) Salvil was carrying on a trade in the United Kingdom, and the cost of purchasing...
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