Parkin v Cattell
| Jurisdiction | England & Wales |
| Judgment Date | 05 May 1971 |
| Date | 05 May 1971 |
| Court | Court of Appeal (Civil Division) |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income tax - Additional assessment - Discovery - Facts already known to Inspector of Taxes - Change of mind constitutes discovery - Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), s. 41(1); Income Tax Management Act 1964 (c. 37), s. 5(3).
The Appellant was at all material times a director of a building company. Between the years 1954 and 1962, at the instigation of his father, who was short of liquid resources, he bought from him a number of houses including those to which this case related. When purchased those houses were occupied by sitting tenants at controlled rents. As they became vacant the Appellant sold them. They were not regarded as capable of being relet so as to give an economic yield. The Appellant did not set up any selling organisation and did not employ estate agents to exploit the houses which became vacant.
On examining the Appellant's income tax returns, which disclosed the material transactions, the Inspector of Taxes considered that they did not give rise to liability to income tax. Subsequently, being of opinion that each of the acquisitions and sales had the characteristics of a venture in the nature of trade and that taken together they amounted to the carrying on of a trade, another Inspector raised assessments to income tax under Case I of Schedule D for the years 1958-59 to 1960-61 and 1963-64 in respect of the relevant profits. On appeal, the Appellant contended (a) that the transactions were not of a trading nature, and (b) that there was no evidence of the discovery by the Inspector of any new fact which justified the raising of the assessments. The General Commissioners found that the acquisition and sale of the properties in question constituted a trade and the profits therefrom were taxable.
In the High Court the Appellant contended further that the Crown could not rely on discovery unless the Inspector concerned gave evidence before the Commissioners to shew what had been discovered.
Held, (1) that there was evidence to justify the Commissioners' conclusion that the Appellant was trading;
(2) that the Inspector had made the requisite discovery that income which ought to have been assessed had not been assessed.
Stated under the Income Tax Act 1952, s. 64, by the Commissioners for the General Purposes of the Income Tax for the Don Division of Sheffield in the County of York.
1. At a meeting of the Commissioners held at 10 Figtree Lane, Sheffield, on 8th February 1968 Mr. J.H. Parkin (hereinafter called "the Appellant") appealed against the undermentioned asesssments:
Schedule |
Year for |
Source of income assessed |
Amount of |
|
which |
assessment |
|||
assessed |
||||
£ |
||||
D |
1958-59 |
Sale of property |
… |
1800 |
1959-60 |
Dealer in land and property |
… |
1500 |
|
1960-61 |
Dealer in land and property |
… |
800 |
|
1962-63 |
Sale of property |
… |
4500 |
|
1963-64 |
Sale of property |
… |
4500 |
The question for our decision was whether the profits accruing on the sale of properties by the Appellant arose from a trade within Case I of Schedule D. The assessments for 1958-59, 1962-63 and 1963-64 were additional first assessments made under the provisions of s. 41(1) (ii), Income Tax Act 1952; those for 1959-60 and 1960-61 were made under s. 5(3), Income Tax Management Act 1964. No assessment had been made on the Appellant previously in respect of the source of income thereby assessed in the case of any of the five years of assessment concerned.
2. The following facts were admitted or proved before us.
(i) The Appellant was born on 9th January 1932, the son of Oswald and Edith Parkin.
(ii) The Appellant's father started working as a jobbing builder, and in 1927 began to build houses for sale.
(iii) In 1946 the Appellant's father formed a company called Parkin (Rotherham) Ltd. (hereinafter referred to as "the company") to take over his business, but he retained as investments in his own hands a number of houses which he had built before the company was formed. After the formation of the company (in which to begin with Mr. Oswald Parkin and his wife Edith held all the shares) the company built houses for Mr. Oswald Parkin on land owned by him, and the houses so built were treated as income-yielding investments of Mr. Oswald Parkin.
(iv) The Appellant was appointed a director of the company on his 21st birthday (9th January 1953), has remained a working director of the company ever since and was appointed managing director on 9th January 1968.
(v) The Appellant married first on 6th September 1956. In 1961 he divorced his first wife and married again.
(vi) The annexed schedule, marked "Exhibit A", which forms part of this Case(1), and contains facts which were not in dispute, shows the purchases and sales of property in which the Appellant was involved either solely or jointly in the period between 5th April 1953 and 6th April 1964.
(vii) The assessments which were under appeal at the meeting related to the profits made by the Appellant in respect of the transactions which are numbered 1, 3, 4, 7 and 8 in the said schedule.
(viii) The houses concerned in the transactions numbered 1, 2, 3, 4, 6, 7, 8 and 9 in exhibit A had been investments in the hands of the Appellant's father. They were in one or other of the classes of houses mentioned in sub-para. (iii) of this paragraph.
3. Evidence was given before us by the Appellant and Mr. Jack Phipps, a legal executive and managing clerk employed by Messrs. Hickmott & Co., solicitors, Rotherham.
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(a) The Appellant in evidence stated:
(i) He had purchased the houses concerned in the transactions numbered 1, 2, 3, 4, 7 and 8 in exhibit A at the instigation of, and from, his father, whose estate was short of liquid resources. Two of the properties, numbered 6 and 9 in exhibit A, were purchased in the joint names of the Appellant and his mother because the Appellant was short of liquid resources at the time. Two of the properties were purchased from his father partly by cash and the balance by taking over existing long-term mortgages held by his father. All these houses, when purchased, were occupied by sitting tenants at controlled rents. The repairs thereto were done by the company and charged to him in the company's books. The houses, with the exception of 350 Herringthorpe Valley Road, became vacant without any inducements to any of the tenants to vacate them. On becoming vacant the houses were not regarded as being capable of being relet on terms which would give an economic yield equivalent to the prevailing bank rate. In the course of his evidence the Appellant referred to a schedule containing particulars of the yields from the houses, which is annexed hereto(1) and marked "Exhibit B". The Appellant also stated that there were occasions between 1956 and 1961 when he was in urgent need of funds owing to matrimonial disharmony with his first wife. He did not set up any selling organisation for the purpose of disposing of houses which became vacant and did not employ estate agents to exploit them.
(ii) He had purchased Morthen Lodge from a Mr. Williams when he first had marriage in view, as a residence for himself and his first wife to be. It had never been occupied by the Appellant. He had considerable alterations made to it, but when it came to the point his wife to be refused to live there because she thought it was too lonely. He therefore sold Morthen Lodge in June 1956, and his mother gave him a site on which she had intended to build a cottage for a farm labourer and his wife who were going to work for Mr. and Mrs. Oswald Parkin on their farm but failed to come. Shortly afterwards it was decided that the Appellant and his wife should occupy the cottage. The Appellant was still residing at the cottage at the date the appeals were heard. The site was some 300 yards from Morthen Lodge.
(iii) 350 Herringthorpe Valley Road was the first of the houses which he purchased from his father. It was conveyed to him about 18 weeks after he became 21 and was appointed a director of the company. It originally yielded £71 8s. 9d. per annum and later £174 per annum. Between 1958 and 1962 he had trouble with the tenants of 350 Herringthorpe Valley Road, whose rent he wanted to increase to £180 per annum but was compelled to agree at £174 per annum. Annexed to, and forming part of, this Case(1) is a bundle of correspondence marked "Exhibit C", which was put in as evidence by the Appellant to support his foregoing evidence concerning 350 Herringthorpe Valley Road. He had to apply to the Court for possession of that house, and he then sold it at a profit of £3,066.
(iv) He sold 40 Reresby Crescent (no. 2 in exhibit A) on 12th November 1956, approximately 9 weeks after he married for the first time, because his first wife went on a "spending spree" to the extent that he had to give notice to tradesmen to the effect that his wife had no authority to pledge his credit. The house became vacant at an opportune moment, which enabled him to sell it and raise the money he needed.
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(v) 136 East Bawtry Road was occupied by an employee of the company when it was purchased by the Appellant, and the Appellant was able to sell this house also with vacant possession on the employee vacating it. The
employee had received promotion in the company and had thereupon been offered a better house by the company. At the time of the sale of this house the Appellant had needed money to meet expenses connected with his matrimonial difficulties. (vi) 201 East Bawtry Road had also been occupied by an employee of the company when it was purchased by the Appellant. The employee had vacated the house on leaving the company. The Appellant then sold it also with vacant possession.
(vii) He had purchased 116 East Bawtry Road (no. 6 in exhibit A) and 205 East Bawtry Road (no. 9 in exhibit A) jointly with his mother from his father at the instigation of his father. There had...
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