Powlson v Welbeck Securities Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 24 July 1986 |
| Date | 24 July 1986 |
| Court | Chancery Division |
Chancery Division.
Mr. E.G. Nugee Q.C. and Mr. C.H. McCall (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr. C.N. Beattie Q.C. and Mr. G.R.A. Argles (instructed by Messrs. Courts & Co.) for the taxpayer company.
Before: Hoffmann J.
The following cases were referred to in the judgment:
Amherst v. James Walker Goldsmith & Silversmith Ltd. ELR[1983] Ch. 305
Golding v. Kaufman TAX[1985] BTC 92
Corporation tax - Chargeable gains - Option - Option extinguished by consent order - Payment made on compromise of action - Whether cause of action separate asset from option claimed in relation to property development - Whether sum paid for abandonment of option capital sum derived from asset - Finance Act 1965 section 22 subsec-or-para (3) section 23 subsec-or-para (3) schedule 7 subsec-or-para 14Finance Act 1965, sec. 22(3), 23(3), Sch. 7, para. 14(3) (nowCapital Gains Tax Act 1979 section 20 subsec-or-para (1) section 22 subsec-or-para (1)Capital Gains Tax Act 1979, sec. 20(1), 22(1),Capital Gains Tax Act 1979 section 137 subsec-or-para (3)137(3) respectively).
This was an appeal by the Crown against a decision of the Special Commissioners that the surrender of an option was not a disposal of assets giving rise to a chargeable gain.
The taxpayer acquired an option to participate in a property development. On 31 May 1974 as a result of a consent order the taxpayer was paid the sum of £2m. by two property development companies. In consideration for that payment, the taxpayer company agreed to "release and abandon the option claimed by it…" in a particular development site. The taxpayer company was assessed to corporation tax in respect of the receipt by it of the £2m. An appeal against that assessment was allowed by the Special Commissioners on 2 August 1984. They held that the capital sum of £2m. was not assessable as a chargeable gain under Finance Act 1965 section 22 subsec-or-para (3)sec. 22(3)of the Finance Act 1965 as the company's cause of action against the two other companies was not an asset separate from the option. The taxpayer had abandoned the option with the result that para. 14(3) of Sch. 7 (which provided that the abandonment of an option did not constitute a disposal) prevented the liability to tax arising which would otherwise be chargeable underFinance Act 1965 section 22 subsec-or-para (3)sec. 22(3).
The Crown appealed against that decision contending that the decision of Vinelott J. in Golding v. Kaufman (TAX[1985] BTC 92), which had been decided after the decision of the Special Commissioners, was indistinguishable on the facts and should be followed. In that case it was held that para. 14(3) did not operate to exempt from the liability arising under Finance Act 1965 section 22 subsec-or-para (3)sec. 22(3) a gain realised on the abandonment of an option.
The taxpayer argued that the decision in the Golding case was wrong and should not be followed. An asset, the option, had been disposed of by the taxpayer company under Finance Act 1965 section 22 subsec-or-para (3)sec. 22(3) and para. 14(3) was an exception to both Finance Act 1965 section 22 subsec-or-para (3) section 23 subsec-or-para (3)sec. 22(3) and sec. 23(3).
Held, allowing the Crown's appeal:
1. The decision of Vinelott J. in Golding v. Kaufman was both correct and founded upon sound reasoning. Paragraph 14(3) created an exception to Finance Act 1965 section 23 subsec-or-para (3)sec. 23(3) but not to Finance Act 1965 section 22 subsec-or-para (3)sec. 22(3). Consequently, the transaction whereby a capital sum was paid in consideration for the taxpayer company's agreement to "release and abandon" an option gave rise to liability to corporation tax in respect of a chargeable gain.
2. Properly construed, para. 14(3) did not provide that a transaction could not in any circumstances constitute the disposal of an asset for capital gains tax purposes merely because that transaction included the abandonment of an option. Paragraph 14(3) provided that the abandonment of an option did not by itself constitute a disposal but where the abandonment was only one element of a transaction the sub-paragraph did not preclude the transaction as a whole from constituting a disposal. In the present case the abandonment of the option was accompanied by the receipt of a capital sum. Therefore, para. 14(3) did not cover enough ground to prevent the transaction from being a disposal under Finance Act 1965 section 22 subsec-or-para (3)sec. 22(3).
Stated under the Taxes Management Act 1970 section 56Taxes Management Act 1970, sec. 56 by the Commissioners for the special purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. On 16 and 17 April 1984 the Commissioners for the special purposes of the Income Tax Acts heard an appeal by Welbeck Securities Ltd. (hereinafter called "Welbeck") against an assessment to corporation tax for the chargeable accounting period of 12 months ended on 31 March 1975 in the sum of £2,461,229.
2. Shortly stated the question for our decision in principle was whether the receipt by Welbeck on 31 May 1974 of the sum of £2 million under terms of settlement recorded in the Schedule to a Consent Order of the Chancery Division dated 17 January 1974 constituted a disposal of assets by virtue of Finance Act 1965 section 22 subsec-or-para (3)sec. 22(3) of the Finance Act 1965 (and thus gave rise to a chargeable gain) or whether, as Welbeck contended, the transaction was excluded from the ambit of Finance Act 1965 section 22 subsec-or-para (3)sec. 22(3) by virtue of para. 14(3) of Sch. 7 to the Finance Act 1965 as being the "abandonment of an option".
3. [Paragraph 3 set out the agreed documents put in evidence before the Special Commissioners.]
4. At the close of the hearing we reserved our decision and gave it in writing on 2 August 1984 allowing Welbeck's appeal in principle. A copy of that decision, which sets out the facts, the contentions of the parties and the reasons for our conclusion, is attached to and forms part of this case.
5. We subsequently determined the appeal by reducing the assessment to nil, that being the result agreed between the parties to give effect to our decision in principle and to other matters to which the assessment related.
6. The appellant immediately after the determination of the appeal declared to us his dissatisfaction therewith as being erroneous in point of law and on 31 October 1984 required us to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970 section 56Taxes Management Act 1970, sec. 56which Case we have stated and do sign accordingly.
7. The question of law for the opinion of the court is whether we erred in law in holding:
(a) that the sum of £2 million was received by Welbeck in consideration for the abandonment of an option within the meaning of para. 14(3) of Sch. 7 to the Finance Act 1965; and
(b) that the receipt of that sum did not therefore, constitute a disposal of assets for the purpose of Finance Act 1965 section 22 subsec-or-para (3)sec. 22(3) of that Act.
This company ("Welbeck") appeals against an assessment to corporation tax for the chargeable accounting period of twelve months ended 31 March 1975 comprising:
Case VI, Sch. D profits |
1499,000 |
Chargeable gains |
962,229 |
£2,461,229 |
The issue is whether that figure of £962,229 in respect of chargeable gains should be excluded from the assessment. Welbeck contends that it should because the event which gave rise to a capital gain was "the abandonment of an option" which is declared by para. 14(3) of Sch. 7 to the Finance Act 1965 not to be the disposal of an asset for the purposes of capital gains tax. The Revenue resist that contention and claim tax in respect of that gain.
The following facts are agreed between the parties:
(2) A company called Westminster Palace Gardens Limited ("Westminster") bought in August 1955 and continued to own at all relevant times a property in the City of London known as 3 St. Dunstan's Lane.
(3) One M.A. Bosman (commonly known as "John Bosman") was the managing director of Westminster at all relevant times until he resigned on 9 April 1968.
(4) Two brothers, Derrick Moss and Lewis Moss ("the Moss Brothers") were skilled in property investment and property development. Derrick Moss was (until his death on 20 April 1964) managing director of Welbeck and Lewis Moss was a director of Welbeck. They also carried on business in partnership as estate agents under the name of Moss & Partners.
(5) In 1956 the Moss Brothers became interested in the re-development of properties in the City of London known as 4/9 St. Dunstan's Hill. Those properties, together with 3 St. Dunstan's Lane owned by Westminster, and together with properties owned by third parties known as: 1 St. Dunstan's Lane 6, 7 and 8 St. Dunstan's Lane 27 St. Mary-at-Hill Property belonging to the Corporation of London fronting Lower Thames Street and St. Mary-at-Hill
(6) (all of which properties are together called "the Island Site"), were particularly well suited to development as a whole. John Bosman and the Moss Brothers were interested in carrying out such a re-development.
(7) Difficulties arose in regard to acquiring certain of the properties comprised in the Island Site, obtaining planning permission for their development, and other matters, which prevented the re-development of the Island Site as a whole for some time. Accordingly, the re-development of 4/9 St. Dunstan's Hill alone was carried out by Westminster pursuant to a building agreement dated 27 June 1957 and a lease dated 3 September 1959, the benefit of such building agreement and lease being held by Westminster in trust for itself and Welbeck in equal shares. The properties comprising the Island Site other than 4/9 St. Dunstan's Hill are hereinafter referred to as "the remainder of the Island...
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Powlson v Welbeck Securities Ltd
...section 20137Capital Gains Tax Act 1979, sec. 20(1), 137). This was an appeal by the taxpayer company from the decision of Hoffmann J. ([1986] BTC 362) that a chargeable gain arose under the Finance Act 1965, Finance Act 1965 section 22 subsec-or-para (3)sec. 22(3) on the surrender of an op......