Pennine Raceway Ltd v Kirklees Metropolitan Borough Council (No. 2)
| Jurisdiction | England & Wales |
| Judgment Date | 02 December 1988 |
| Date | 02 December 1988 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal.
Croom-Johnson, Ralph Gibson and Stuart-Smith L. JJ.
Mr. William Massey (instructed by Penningtons, agents for Booth & Co., Leeds) for the company.
Mr. Robin Mathew (instructed by Sharpe Pritchard, agents for the Chief Legal Officer, Kirklees Metropolitan Borough Council) for the compensating authority.
The following cases were referred to in the judgments:
British Transport Commission v. Gourley ELR[1956] A.C. 185
Davenport (H.M.I.T.) v. Chilver TAX[1983] BTC 223
Davis (H.M.I.T.) v. Powell TAX(1976) 51 T.C. 492
Drummond (H.M.I.T.) v. Brown TAXTAX[1983] BTC 248; [1984] BTC 142 (C.A.)
Glenboig Union Fireclay Co. Ltd. v. I.R. Commrs. TAX(1922) 12 T.C. 427
Lang (H.M.I.T.) v. Rice TAX[1984] BTC 84
London and Thames Haven Oil Wharves Ltd. v. Attwooll (H.M.I.T.)ELR[1967] Ch. 772
Marren (H.M.I.T.) v. Ingles WLR[1980] 1 W.L.R. 983
Pennine Raceway Ltd. v. Kirklees Metropolitan Borough CouncilELR[1983] 1 Q.B. 382
Raja's Commercial College v. Gian Singh & Co. Ltd. ELR[1977] A.C. 312
Stoke-on-Trent City Council v. Wood Mitchell & Co. Ltd.WLR[1980] 1 W.L.R. 254
West Suffolk County Council v. W. Rought Ltd. ELR[1957] A.C. 403
Zim Properties Ltd. v. Procter (H.M.I.T.) TAX[1985] BTC 42
Corporation tax - Lands Tribunal - Award of compensation for loss of profits consequent on revocation of planning permission - Tribunal deducted amount from sum awarded to take account of corporation tax which would have been payable if profits were earned - Whether sum awarded was itself chargeable to tax either as income or capital - Whether deduction should have been made - Capital Gains Tax Act 1979 section 20 subsec-or-para (1)Capital Gains Tax Act 1979, sec. 20(1).
This was an appeal by way of case stated from a decision of the Lands Tribunal by Pennine Raceway Ltd. ("the company") awarding compensation for loss of profits consequent on the revocation of planning permission. The company's appeal was against a deduction from the sum awarded to take account of tax which would have been payable had the profits been earned.
A landowner granted a licence to the company permitting it to organise drag racing on an airfield. Initially the council granted planning permission for two-day meetings covering 14 days during the year. Meetings were held in July and August 1974. In November 1974 planning permission was withdrawn and in June 1976 the company's appeal to the Secretary of State was finally dismissed.
A claim by the company against the council for compensation under the section 164 subsec-or-para (1)Town and Country Planning Act 1971, sec. 164(1) was heard by the Lands Tribunal in 1983. The principal item of claim was for loss of income consequent on the withdrawal of planning permission in the years 1975 to 1979. The claim was limited to those years because since 1980 drag racing had been affected by the recession and rising costs. Alternatively it was proposed that an award of a capital sum should be made based on a multiplier applied to the estimated loss for 1979. The Tribunal awarded a sum based on the loss of the profits as assessed for each year from 1975 to 1979. Without hearing argument on the subject the Tribunal deducted an amount "to reflect the corporation income tax" which would have been payable by the company if those profits had in fact been earned in the relevant years.
In 1986 the Revenue informed the company that the compensation would be chargeable to tax either as trading profit or under schedule ASch. A as a receipt from the exploitation of the company's interest in land, but they eventually reached the conclusion that it was chargeable to corporation tax on capital gains as a sum derived from the company's assets, i.e. the licence. The Revenue were not party to the appeal and it was not certain that their view that the compensation was taxable as a capital sum was a final decision as no assessment had been made.
The company appealed contending that the Tribunal had erred in law in reducing the compensation to take account of a potential tax liability as the sum awarded would be taxable either as trading profits or as a capital sum derived from an asset under the Capital Gains Tax Act 1979 section 20 subsec-or-para (1)Capital Gains Tax Act 1979, sec. 20(1).
The council contended that, since the company had lost its only business as a result of the revocation of permission, the award was a capital sum not taxable as trading profits although it was calculated by reference to a potential loss of profits in the five years from 1975 to 1979. Neither was the award taxable as a capital sum derived from an asset of the company within Capital Gains Tax Act 1979 section 20 subsec-or-para (1)sec. 20(1) of the 1979 Act. It was statutory compensation which the authorities showed was simply a sum which Parliament had said should be paid if the local authority exercised its powers in a certain manner.
Held, allowing the company's appeal:
1. Assuming that the compensation was a capital payment, the authorities did not support a general proposition that the mere fact that a right to such compensation arose from the statute prevented its being derived from an asset within Capital Gains Tax Act 1979 section 20 subsec-or-para (1)sec. 20(1). Each case must be looked at to see if the capital sum was derived from the asset or from something else. Here, the company's asset (the licence) depreciated in value when planning permission was revoked and for that depreciation the company was entitled to statutory compensation because the asset had sustained loss or damage directly attributable to the revocation of the permission. The capital sum was therefore "derived" from the asset. (Dictum of Warner J. in Zim Properties Ltd. v. Procter (H.M.I.T.)TAX[1985] BTC 42 at p. 59, applied.)
2. A deduction should be made from the compensation only if it was certain that no tax would be payable. Here, the tax position was not clear. Accordingly the council should pay the sum of compensation gross, leaving the tax liability to be resolved by the Revenue and the company. (British Transport Commission v. Gourley ELR[1956] A.C. 185 andWest Suffolk County Council v. W. Rought Ltd. ELR[1957] A.C. 403, distinguished; dictum of Roskill L.J. in Stoke-on-Trent City Council v. Wood Mitchell & Co. Ltd. WLR[1980] 1 W.L.R. 254 at p. 259, followed.)
3. (Per Ralph Gibson L.J.): The court should express no final view whether the compensation was a capital or a revenue receipt.
Pennine Raceway Ltd. ("the company") appealed by way of case stated against the amount of compensation awarded by Mr. V.G. Wellings Q.C., a member of the Lands Tribunal, to the company as a person interested in the land under the section 164 subsec-or-para (1)Town and Country Planning Act 1971, sec. 164(1) for loss of profits resulting from the withdrawal of planning permission.
The questions on which the opinion of the Court of Appeal was sought were, as stated by Mr. Wellings, whether:
(i) I erred in holding…that the adjusted net profits must be further adjusted to reflect the corporation income tax which would have been payable by the company…if those profits had in fact been earned in the relevant years;
(ii) I erred in law in stating that I was not satisfied that the compensation for loss of profits would be assessed to corporation income tax in the hands of the recipients…
Croom-Johnson L.J.: This is an appeal by way of case stated by Pennine Raceway Ltd., from the decision of the Lands Tribunal given on 22 March 1984.
There is an airfield at Crosland Moor, Huddersfield owned by Mr. Whitham. In September 1974 Pennine were incorporated, but before that Mr. Whitham had granted to its promoters an oral licence to use the airfield for the purpose of drag motor racing. Drag racing is a race between two motor vehicles over a furlong from a standing start. A speed up to 165 miles an hour may be reached. The cars have parachute brakes. It is a sport recognised by the governing bodies of motor sports, and is supervised by the Royal Automobile Club. Two-day meetings covering 14 days a year were covered by the permission contained in art. 3 of theTown and Country Planning General Development Order 1973, and Class IV, para. 2 of the First Schedule thereto. Meetings were held on this airfield in July and August 1974. After Pennine was incorporated the licence was put into the form of a deed between Mr. Whitham and the company. There were mutual covenants in the deed, which need not be recited. The company was to pay Mr. Whitham £500 per meeting except for the first full year.
On 8 November 1974 the Kirklees Council made a direction under theTown and Country Planning General Development Order 1973, art. 4, that the previous permission should not apply to the use of the airfield for the purpose of motor car or motorcycle racing. The direction was confirmed by the Secretary of State for the Environment on 13 December 1974. The company made an application for appropriate planning permission which was refused.
An appeal to the Secretary of State was dismissed on 9 June 1976.
The company made a claim for compensation, under the section 164 subsec-or-para (1)Town and Country Planning Act 1971, sec. 164(1), which reads:
…where planning permission is revoked or modified by an order under section 45section 45 of this Act…then if, on a claim made to the local planning authority…it is shown that a person interested in the land…
(a) has incurred expenditure in carrying out work which is rendered abortive by the revocation or modification; or
(b) has otherwise sustained loss or damage which is directly attributable to the revocation or modification,
the local planning authority shall pay to that person compensation in respect of that expenditure, loss or damage.
The council took the view that the company was not "a person interested in the land" within the meaning of the...
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