Re McMeekin, a bankrupt
| Jurisdiction | Northern Ireland |
| Judgment Date | 12 June 1973 |
| Date | 12 June 1973 |
| Court | Queen's Bench Division (Northern Ireland) |
HIGH COURT OF JUSTICE, NORTHERN IRELAND (QUEEN'S BENCH DIVISION) (BANKRUPTCY)-
Capital gains tax - Bankruptcy - Mortgaged properties - Gains on sale by assignee in bankruptcy - Incidence of capital gains tax - Whether payable by the assignee - Whether a cost of administration -Finance Act 1966 (c. 18), Sch. 10, para. 10(1); R.S.C. (N.I.), Ord. 88, rr. 151 and 202; S.R. & O. (N.I.) 1970 No. 163, Sch.
The properties of a bankrupt vesting in the Official Assignee in Bankruptcy in Northern Ireland included some which were subject to mortgages at the date of the bankruptcy adjudication. The properties were sold by the assignees in bankruptcy in the year 1969-70 and a chargeable gain for that year was realised after deducting allowable losses. In the case of one property the proceeds of sale were sufficient to cover the first mortgagee's claim but not also to cover in full both the second mortgagee's claim and the capital gains tax in respect of the gain realised on the sale. The Official Assignee therefore applied to the Court for directions on the following questions: (a) whether capital gains tax was payable in respect of the gains relating to (i) any of the properties, (ii) the mortgaged properties; (b) in the latter case, whether the liability fell on the Official Asignee or on the mortgagee or partly on each; (c) if and so far as the liability for the tax fell on the Official Assignee, whether the debt was part of the costs of administration, or a preferred or an unsecured debt, or a debt personal to the Official Assignee, or what was otherwise the nature of the liability.
The Official Assignee contended that the person assessable to capital gains tax under para. 10 of Sch. 10, Finance Act 1966, was the bankrupt and not the Official Assignee. The second mortgagee contended that he had no liability for the tax and that the proceeds of sale of the mortgaged property must be applied first of all in payment of the incumbrances. For the Crown it was contended that capital gains tax in respect of the gains was payable by the Official Assignee out of the estate account as part of his costs of administration and therefore in priority to all debts.
Held, (1) that the Official Assignee was assessable to capital gains tax in respect of the gains on the sales of all the properties, whether mortgaged or not;
(2) that the mortgagees were strangers to the liability to tax, their position was not affected by the mortgagor's bankruptcy, and under the relevant provision of the Rules of the Supreme Court (Northern Ireland) the proceeds of sale of a mortgaged property were applicable first of all in discharge of incumbrances;
(3) that the debt for capital gains tax was part of the costs of administration of the bankruptcy.
I, Arthur Kenneth Pryde, Official Assignee in Bankruptcy, Royal Courts of Justice (Ulster), Belfast, aged 21 years and upwards, make oath and say as follows:-
1. I am the Official Assignee in the matter of Frederick Stanley McMeekin, who was adjudicated bankrupt by Order of this Honourable Court dated 24th March 1969, on a copy of which, exhibited hereto and marked with the letters "A.K.P.1"(1), I have signed my name prior to the swearing hereof. Mr. John McDowell was appointed Creditors' Assignee with me in this bankruptcy.
2. At the date of the said adjudication the said bankrupt owned a number of properties in Northern Ireland which were subsequently sold by the Assignees as hereinbefore set forth. In respect of some of these sales a claim is being made by Her Majesty's Inspector of Taxes, Belfast 6 District, for Capital Gains Tax in relation to the sales.
3. At the date of his adjudication the said bankrupt owned property known as 69 Church Street, Antrim, Co. Antrim, which was sold by myself and the said John McDowell, acting as his Assignees, for the sum of £5,050.00. The property had been valued on 6th April 1965 at £5,800.00, and certain incidental expenses amounting to £352 had been incurred since then in respect of the said property. The property was sold in the tax year 1969-70, and I have agreed with the said Her Majesty's Inspector of Taxes that there was a capital loss in respect of this sale amounting to £1,102.00.
4. The said bankrupt at the date of his adjudication also owned factory premises known as Shanksbridge Factory, Ballymena, Co. Antrim, which were sold by myself and the said John McDowell, acting as his Assignees, by Order of this Honourable Court dated 16th May 1969, on a copy of which, exhibited hereto and marked with the letters "A.K.P.2"(1), I have signed my name prior to the swearing hereof, for the sum of £19,277.50 in the tax year 1969-70. I have agreed with the said Her Majesty's Inspector of Taxes that there was a capital gain on this sale amounting to £8,916, which would give rise to a liability for Capital Gains Tax in respect of this transaction in the sum of £2,674.80. This property was mortgaged firstly to Auckland Finance & Investment Co. Ltd., who were owed at the date of sale a sum of £6,918.90, which included interest on foot of their mortgage at the date of payment. I have paid the sum due to the said Auckland Finance & Investment Co. Ltd. in full. The property was secondly mortgaged to Auckland Securities Ltd., who were owed at the date when I paid the said first mortgagee a sum of £11,128.76. On 24th March 1970 I paid to the said Auckland...
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