Petrotim Securities Ltd v Ayres

JurisdictionEngland & Wales
Judgment Date13 November 1963
Judgment citation (vLex)[1963] EWCA Civ J1113-1
Date13 November 1963
CourtCourt of Appeal

[1963] EWCA Civ J1113-1

In The Suprene Court of Judicature

Court of Appeal

(Revenue Paper)


The Master of The Rolls

Lord Justice Donovan

Lord Justice Russell

Petrotim Securities, Limited
(Formerly Gresham Trust, Limited)
G.L. Ayres (H.M. Inspector of Taxes)

MR JOHN FOSTER, Q.C. and MR R. BUCHANAN-DUNLOP (instructed by Messrs. Coward, Chance & Co., St. Swithin's House, Walbrook, London, E.C.-4) appeared as Counsel on behalf of the Appellant.

MR H. MAGNUS. Q.C. MR ALAN S. ORR. Q.C. MR E. BLANSHARD STAMP, and MR RAYMOND PHILLIPS (instructed by the Solicitor of Inland Revenue. Somerset House, Strand, W.C.2) appeared as Counsel on behalf of the Respondent.


This caee shows a series of somewhat surprising transactions between some associated Companies. We are concerned with a company which was originally called Gresham Trust, Ltd, which for quite a number of years seems to have carried on the normal trade of dealing in securities, stocks and shares, but then towards the end of 1958 it seems to have come under the control of a company called Ridge Securities, Ltd. Than a series of transactions took place as a result of which the company ceased to carry on business on the 25th March, 1959. Now, having ceased trading, certain financial transactions come into question. It is not very difficult to see the reasons for the transactions. The company seeks to make a loss so as to be able to found a claim for repayment of tax under Section 341 of the Income Tax Act, 1952.


We have seen alittle while ago what can be done under Section 341. In Griffiths v. J.P. Harrison (Watford) Ltd. 40 A.T.C. 132 and (1962) W.L.R. 909, the dividend-stripping case, much money was recovered from the Revenue. If this case is successful, it would open an even wider door.


These are the facts. Ridge Securities, Ltd. acquired control of this company, Gresham Trust, Ltd., in December, 1958. There followed these transactions between the associated companies. Three Agreements were made dated the 5th and 19th January and the 2nd February, 1959. Under those Agreements the company (that is to say, Gresham Trust, Ltd.) gold to Ridge Securities, Ltd. securities which had a total realisable market value at that time of £835,505, and they only got £205,000 for them: is other words, they sold them for one-quarter of their realisable market value, thus showing an apparent loss of £630,505. Those are all called the 'X' transactions.


The other transaction was oven more remarkable. On the 16th March, 1959, the company bought £105,000 worth of 3 per cent War Loan. They paid £104,769. 2s. 7d. for it. But four days later they sold that War Loan to the Blackheath Credit Co., Ltd., another of these associated companies, for £10,000. At the date of the sale its value admittedly was £105,525. In short, they sold it for one-tenth of its value. So that in the 'X' transactions Gresham Trust, Ltd. sold securities worth £800,000 odd for one-quarter of their value to an associated company; and in the 'Y' transactions it sold £105,000 worth of War Loan for one-tenth of its value. The total loss to the company on the two transactions was some £726,030.


The company proceeded to take advantage of this 'loss'. They said it was a loss in the course of their trading. If they were right in that contention, they would be able to claim repayment under Section 341 of £212,000. The question depends on whether these transactions which I have described were transactions in the course of their trade.


The Commissioners pointed out that no explanation wss given of these transactioas and they said"… it appears, in the absence of "evidence to the contrary, that the Company deliberately set out to "nafcea very substantial loss." And, that being so, they say, an examination of the circumstances of the case "leads us, in the absence "frebutting evidence, to the conclusion that they were not made "in the course of trade." That is the finding of the Commissioners. The question is, whether that finding can or should be upset. That depends on whether it is a conclusion to which the Commissioners could reasonably have come.


In Griffiths v. Harrison, the dividend-stripping case, the Commissioners held that the transaction was not in the nature of trade.


But that decision was held to be unreasonable. The majority of the House of Lords held that it could not be supported. But I must say that Griffiths v. Harrison is very different from this case. There was not a sale at a deliberate loss, such as there is here.


It seems to me that when there is a sale at a gross under-value by one associated company to another, the Commissioners are entitled to find that it is not a transaction made in the course of trade. Whoever would suppose that any trader in his right senses would enter into transactions of this kind? That he would sell at a gross under-value, were it not that he had in mind some benefit out of making a loss? It is Just on a par with a case where a company gives its money away. You might indeed say here that £630, 000 was given away by the company in the "X" transactions. They could have realised the securities for £835,000 but they chose to sell them far £205,000. Such a transaction is so outside the ordinary course of business of any trader that the Commissioners were entitled to find that it was not done in the course of trade.


Then the next question is this. If that be so, what is to be done? There has been an assignment of the shares. There has been a transfer. The sale at a loss has gone through the books of each of the companies, both of Gresham Trust, Ltd. and of Ridge Securities, Ltd. What is to be done? It seems to me clearly that in the 'X' transactions the figures of the individual entries have got to come out, so far at any rate as tax is included. Then what is to be put in their ctead? The case of Sharkey (H.M. Inspector of Taxes) v. Wernher, 36 T.C, 275, points the answer. It is not confined to cases where a person is a "self-supplier". It applies to any case where...

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