Pobjoy Mint Ltd v Lane
| Jurisdiction | England & Wales |
| Judgment Date | 25 February 1985 |
| Date | 25 February 1985 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal.
Mr. S. Oliver Q.C. and Mr. A. Wilson (instructed by Messrs. Lewis & Dick) for the taxpayer.
Mr. R. Carnwath (instructed by the Solicitor of Inland Revenue) for the Crown.
Before: O'Connor and Slade L.JJ. and Bristow J.
Corporation tax - Stock relief - Change in conduct of trade - Whether there was a major alteration in the conduct - Whether there was an exceptional increase in trading stock - Finance Act 1976 part II schedule 5 subsec-or-para 9 part II schedule 5 subsec-or-para 23Finance Act 1976, Sch. 5, Pt. II, para. 9, 23.
This was an appeal by the taxpayer company against a decision of Harman J. upholding a decision of the General Commissioners that there had been a major alteration in the conduct of the taxpayer's trade which had resulted in an exceptional increase in its trading stock. Consequently, it was held that it was correct to find that the value to be attributed to the company's trading stock at the start of the accounting year beginning 1 September 1975 should be equal to the value of its trading stock at the end of that accounting year.
The taxpayer, Pobjoy Mint Ltd., minted commemorative coins and medals. The business had been carried on without the taxpayer holding large stocks of precious metals. Opening stock for the relevant year was valued at only £26,751. Another company, entirely separate from the taxpayer, Ernest Pobjoy Ltd., had been granted a licence by the Bank of England permitting it to buy and hold gold. For this reason Ernest Pobjoy Ltd. bought all the gold required by the taxpayer in its business.
In 1975 the taxpayer came to understand that it was entitled to buy gold on its own account and needed no longer to rely on Ernest Pobjoy Ltd. as licence holders. As a result of this discovery the taxpayer purchased the entire gold stock held by Ernest Pobjoy Ltd. at a book value of £150,637. At the year end the trading stock of precious metals held by the taxpayer was valued at £352,018. This was the figure that the Commissioners concluded should be fixed as the opening stock. This sum also included a holding in platinum, a metal new to the taxpayer.
The issue raised concerned the taxpayer's entitlement to stock relief under the provisions of Finance Act 1976 schedule 5Sch. 5 to the Finance Act 1976, and whether the provisions ofFinance Act 1976 part II schedule 5 subsec-or-para 23para. 23 applied, and, if so, what was the correct figure to include in the accounts for the period ending 31 August 1976 as opening stock.
The taxpayer submitted that on a true construction of Finance Act 1976 schedule 5 subsec-or-para 23para. 23 of Sch. 5, where it was found that there had been a major alteration in the conduct of the trade which resulted in an exceptional increase in the trading stock, the taxpayer should be treated as having, at the start of that period of account, trading stock of such value as might be attributed in accordance with Finance Act 1976 part II schedule 5 subsec-or-para 23para. 23. It was further argued thatFinance Act 1976 part II schedule 5 subsec-or-para 23subpara. (3) of para. 23 required the Commissioners to identify the major alteration and to discover what exceptional increase in the trading stock resulted from that alteration, and to confine themselves to enter as an opening figure, a figure related solely to that concept. The taxpayer also submitted that when considering all the circumstances of the case, as directed by Finance Act 1976 part II schedule 5 subsec-or-para 23subpara. (3), the Commissioners should have confined themselves solely to considering increases arising from stocking gold, and nothing else.
Held, dismissing the taxpayer's appeal:
1. There was ample evidence to enable the Commissioners to conclude that the exceptional increase in the taxpayer's trading stock was wholly attributable to the major alteration in the conduct of the trade.
2. Finance Act 1976 part II schedule 5 subsec-or-para 23Sub-paragraph (3) of para. 23 entitled the Commissioners to look at the situation in general; they were not confined to looking solely at any increase flowing directly from some particular facet of the change in trade. Once a major alteration in the trade had been identified, the Commissioners were then entitled to consider what it was fair to attribute to that alteration in calculating a figure for opening stock.
The taxpayer, Pobjoy Mint Ltd., appealed against a decision ofHarman J. upholding a determination of the General Commissioners that there had been a major alteration in the conduct of the taxpayer's trade resulting in an exceptional increase in its trading stock.
By Notice of Appeal dated 23 May 1984 the taxpayer appealed on the grounds that:
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1. On the appeal of the taxpayer to the General Commissioners their duty was to decide:
(a) whether in its accounting period to 31 August 1976 a "major alteration in the conduct of the trade" of the taxpayer had occurred resulting in an exceptional increase in its trading stock within the meaning of Finance Act 1976 schedule 5 subsec-or-para 23para. 23(1)(b) of Sch. 5 to the Finance Act 1976; and
(b) if such a "major alteration" had occured in that period, what value it was just and reasonable to attribute to the figure of opening stock of the taxpayer in that accounting period, for the purposes ofFinance Act 1976 part II schedule 5 part IV schedule 5Pt. II and IV of Sch. 5 to the Finance Act 1976 and the provisions governing stock relief therein contained.
2. The judge erred in law in holding that there were no grounds upon which to reverse or to interfere with the decision of the General Commissioners since they purported to adjust the opening stock figure of the taxpayer for its accounting period to 31 August 1976 by reference to all trading stock held by the taxpayer in that period, notwithstanding that as appears from the Case Stated herein no evidence was tendered before those General Commissioners or argument addressed to them in respect of the holding of the taxpayer of any trading stock apart from raw gold, and accordingly those General Commissioners purported to make that adjustable by reference to factors not in issue before them.
3. The judge was wrong in law in holding that:
(a) the General Commissioners had not erred in failing to take account of the fact that the events found by those General Commissioners to have involved a "major alteration" in the conduct of the trade of the taxpayer also resulted in a charge to corporation tax by way of recovery of stock relief upon Ernest Pobjoy Limited, a company associated with the taxpayer;
(b) the charge to corporation tax by way of recovery of stock relief imposed upon Ernest Pobjoy Limited was not one of the "relevant circumstances of the case" within the meaning of Finance Act 1976 schedule 5 subsec-or-para 23paragraph 23(3) of Sch. 5 to the Finance Act 1976, to be taken into account in arriving at the appropriate adjustment to the opening stock figure of the taxpayer in its accounting period to 31 August 1976.
O'Connor L.J. This appeal raises a short question as to the entitlement of the appellant company for stock relief under the provisions of Finance Act 1976 schedule 5Sch. 5 to the Finance Act 1976. At all material times the appellant company were manufacturers of and dealers in commemorative coins and medals. Their accounting year ran from 1 September to 31 August. When the accounts for the year 1975/1976 were presented to the Revenue, they showed that the opening figure for stock as at 1 September 1975 was £26,751. The closing figure as at 31 August 1976 was £352,018. They claimed relief underFinance Act 1976 schedule 5 subsec-or-para 9para. 9 of the Fifth Schedule, which provides:
Where a company carries on a trade in respect of which it is within the charge to corporation tax under Case 1 of Schedule D and -
(a) the value of its trading stock at the end of a period of account (the "closing stock" value) exceeds
(b) the value of its trading stock at the beginning of that period (the "opening stock" value)
the company shall, subject to the provisions of this Schedule, be entitled to relief under this paragraph by reference to the amount of that excess … .
It is unnecessary to read further from Finance Act 1976 schedule 5 subsec-or-para 9para. 9.
What looked like an exceptional increase in the stock value during that year quite inevitably brought into possible play the provisions ofFinance Act 1976 schedule 5 subsec-or-para 23para. 23of the Schedule. The relevant part...
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