Reeves v Evans, Boyce and Northcott Syndicate
| Jurisdiction | England & Wales |
| Judgment Date | 08 December 1971 |
| Date | 08 December 1971 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income tax, Schedule D - Property dealing - Partnership - Contrived succession and cessation - Accounts submitted on footing that trade carried on - Contention subsequently advanced that no trade carried on - Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c.10), ss. 128 to 130; Finance Act 1953 (1 & 2 Eliz. 2, c.34), s.19.
The Respondent Syndicate consisted of E, an architect, B, a solicitor, and N, the controlling shareholder in a building company. In January 1957 E acquired part of a derelict bombed site for £5, as a favour to the vendor, who was anxious to get rid of it. On 7th April 1957 he instructed a company to clear the site, and on 16th April he put it into the hands of auctioneers for disposal; it had not, however, been sold by the end of the material period. In 1960 E heard of a property for sale which he thought might be a valuable long-term investment. Not having the resources to buy it, he mentioned the matter to B, who mentioned it to his client N. N procured his company to buy the property on 6th May 1960 for £26,500. At that time there was no immediate prospect of development rights attaching to the property, but shortly afterwards it was unexpectedly included in additions to the Exmouth town map, and enquiries were received showing that it was worth £80,000. N, desiring that E and B should share in the resulting profit, arranged for his company to sell the property to the Syndicate for £28,000 on 23rd December 1960. On 9th January 1961 the Syndicate sold it to an outside purchaser for £81,000.
The Syndicate was formed on 8th December 1960 on the advice of an accountant, who considered that the Inspector of Taxes was likely to regard the purchase of the property from N's company and its resale as trading transactions, but that, if it could be established that the Syndicate had succeeded to a trade commenced by E on 7th April 1957 of which the bombed site was and remained stock-in-trade, a cessation could be arranged through the retirement of one partner which would take the period in which the profit arose out of the tax computations. The syndicate agreement recited that E, N and B should be deemed to trade in partnership for the purpose of property development and speculation and that the bombed site should form part of the partnership assets; it did not specify any other assets. On 13th December 1960 B wrote to the Inspector of Taxes saying that E had purchased the bombed site for £5 in 1957, had had it partially cleared and had been offered over £500 for it, and asking whether that would be regarded as a trading receipt or as a capital profit. He did not disclose the existence of the partnership. After further enquiries the Inspector expressed the view that the profit would be taxable under Case I of Schedule D. In October 1961 the partners sent the Inspector a written election for their succession to E's trade not to be treated as a cessation and commencement, and on 6th April 1962 N resigned from the partnership. On 27th July 1962 the accountant sent the Inspector accounts of the trade from 5th April 1957 to 6th April 1962, showing a profit of over £50,000 in the year to 6th April 1961. The accounts were not signed by the accountant nor approved by E, B and N prior to their submission to the Inspector. The accountant later sought to withdraw the accounts for the period prior to 7th April 1957.
Assessments to income tax under Case I of Schedule D were raised on the Syndicate as property developers for the years 1960-61 and 1961-62. At an appeal hearing on 10th November 1969, at which the said accounts were produced, the General Commissioners found, contrary to the Syndicate's contention and upholding a contention for the Crown, that E was not engaged in a trade of property development on or before 7th April 1957. The appeal was then adjourned for further evidence and figures. At the resumed hearing on 9th February 1970 counsel for the Syndicate (who had not represented it at the first day's hearing) submitted new accounts prepared by a different firm of accountants, and contended that it had not engaged in the trade of property development, that the original accounts falsified the state of its finances, and that on 8th December 1960 N had made a gift to it of equitable rights worth £52,000 (viz. the difference between £28,000 and £80,000, the then estimated realisable value of the property). The General Commissioners found that the Syndicate was not carrying on the trade of property development between 8th December 1960 and 5th April 1962, and discharged the assessments.
Held, that the Syndicate was trading, and that there was no gift to it of any such equitable asset as alleged.
Stated pursuant to s. 56 of the Taxes Management Act 1970 by the Commissioners for the General Purposes of Income Tax for the Haytor Division in the County of Devon for the opinion of the High Court of Justice.
1. At meetings of the said Commissioners on 10th November 1969 and 9th February 1970 Evans, Boyce and Northcott Syndicate (hereinafter referred to as "the Syndicate") appealed against the following assessments to income tax:
Fiscal |
Source of profits |
Amount of |
||
year |
assessment |
|||
1960-61 |
Profits of trade of property development |
… |
… |
£1,000 |
1961-62 |
Profits of trade of property development |
… |
… |
£1,000 |
2. At the meeting on 10th November 1969 it was agreed that the questions for our determination were whether or not Mr. Evans of the Syndicate was trading in land on his own, and if so on what date Mr. Evans commenced trading. At the meeting on 9th February 1970 the Syndicate's case was put in a different way, and it appeared that the questions for our determination were whether the Syndicate was carrying on the trade of property development during the fiscal years 1960-61 and 1961-62, and if so the amount of the taxable profits (if any) arising therefrom.
3. The following documents were admitted or proved and are available for inspection by the Court if required:
(i) Bundle of correspondence.
(ii) Planning application dated 21st January 1957.
(iii) Planning application dated 19th February 1957.
(iv) Conveyance of parcel of land at Stentiford Hill Road, Torquay, from J.C. Jessop to J. Evans on 6th March 1957.
(v) Letter of offer from Messrs. Thomas Sanders & Staff on behalf of J. Hawkins & Son Ltd. (there referred to as Hawkins & Sons Ltd.) dated 23rd December 1960.
(vi) Syndicate agreement dated 8th December 1960 (copy annexed hereto(1) ).
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(vii) Contract between W.G. Northcott & Co. Ltd. and Syndicate dated 23rd December 1960.
(viii) Conveyance between W.G. Northcott & Co. Ltd. and Syndicate on 30th December 1960.
(ix) Contract between Syndicate and J. Hawkins & Son Ltd. on 9th January 1961.
(x) Conveyance between Syndicate and J. Hawkins & Son Ltd. on 30th March 1961.
(xi) Accounts submitted to H.M. Inspector of Taxes by Messrs. Godfrey & Brand (copy annexed hereto(1) ).
(xii) Syndicate accounts prepared by Messrs. Blackburn, Robson, Coates & Co. (copy annexed hereto(1) ).
4. We heard evidence from the following witnesses:
John Evans, who was a member of the Syndicate and a chartered architect and surveyor, on 10th November 1969.
T.F. Shea, formerly Inspector of Taxes for the District of Torquay, on 10th November 1969.
Horace Lloyd Esq., managing director of Plant Hire (Torbay) Ltd., on 10th November 1969.
Richard Harry Passmore, chartered accountant, on 10th November 1969.
Peter Matthew Richardson, secretary of W. R. Northcott & Co. Ltd., on 9th February 1970.
Antony James Boyce, who was a member of the Syndicate and the senior partner of Messrs. Boyce, Hatton & Co., solicitors, on 10th November 1969 and 9th February 1970.
Halmer Hudson Esq. F.C.A., a partner of the firm of Messrs. Blackburn, Robson, Coates & Co., chartered accountants, on 9th Februray 1970.
Michael Thomas Huxtable, of Messrs. Fox & Sons, chartered auctioneers and surveyors, on 9th February 1970.
5. We found the following facts to be admitted or proved in connection with the matters which were agreed on 10th November 1969 to be the questions for our determination:
(i) Mr. John Evans became concerned with a parcel of land at Stentiford Hill Road, Torquay, as a result of a chance meeting with Mr. Joseph Cyril Jessop on the banks of the River Dart between 1st and 31st October 1956. At the time Mr. John Evans was in the company of a friend and neighbour, Mr. T. F. Shea, who was formerly H.M. Inspector of Taxes for the District of Torquay.
(ii) During this chance meeting Mr. Jessop informed Mr. Evans that he was the beneficial owner of a bombed site at Stentiford Hill Road, Torquay, littered with the remains of buildings which had been erected on the land many years ago. Mr. Jessop was anxious to erect a dwelling-house on part of the land for his occupation, and suggested that Mr. Evans should apply for planning permission to enable him to proceed. The land was in an untidy condition. Clearance of the site was necessary before development could be commenced.
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(iii) Mr. Jessop was a sick man and was anxious to rid himself of the responsibility of retaining such part of the land as was surplus to his requirements. It was against this background that Mr. Jessop offered to make a voluntary disposition of the surplus land to Mr. Evans on the understanding that he would fence it and tidy it up.
(iv) The initial reaction of Mr. Evans was to decline the proposal because of the considerable value of the surplus land. However, Mr. Jessop was persistent, and Mr. Evans ultimately agreed to the proposal. At the time he did not address his mind to the use to which he would put the land.
(v) By 21st January 1957 a draft contract relating to the surplus land had been drawn up. A token consideration of £5 was incorporated in the contract and was designed to cover nominal charges and to support a fencing covenant...
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