Shadbolt (HM Inspector of Taxes) v Salmon Estate (Kingsbury)Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 08 January 1943 |
| Date | 08 January 1943 |
| Court | King's Bench Division |
No. 1237-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
Income Tax, Schedule D - Profits of trade - Lump sum paid in consideration of variation of agreement between company building and selling houses and land-owning body - Whether assessable as trading receipt.
The Respondent Company, which carried on the business of building and selling houses, entered into a building agreement, dated 8th November, 1934, with an Oxford College, to build houses on 405 plots of land owned by the College as shown on a scheduled plan, and to pay to the College certain increasing annual rents. The agreement provided that, as and when houses were completed, the College would grant to the Company or its nominees leases of such houses for 99 years at yearly rents to be approved by the College, and that the amount of any such rents would be deducted from the rents payable by the Company; in practice, however, the Company, which proceeded to erect houses in accordance with the agreement, granted a lease to each purchaser of a house.
The agreement did not give the Company any legal interest in the land, beyond creating a tenancy at will. The College reserved the right to vary the scheme of development shown on the plan, but if such variations reduced the original number of plots, an appropriate reduction was to be made in the rents payable by the Company.
In December, 1936, the College served a notice on the Company which varied the scheme of development (inter alia) by withdrawing 87 plots from the scheme (with an appropriate reduction in the rents payable); to that extent it purported to terminate the tenancy at will and notified the College's intention to resume possession of the land. The College offered to make an ex gratia payment to the Company, but the Company objected that the notice was not a valid one, and negotiations followed as a result of which, in consideration of the Company accepting the notice as valid, the College paid on 1st December, 1937, a sum of £5,000 to the Company and in addition reduced the rents payable by it. The sum of £5,000 was not credited to the Company's profit and loss account, but was taken to reserve and ultimately used to repay some of the moneys borrowed on the security of the said agreement and uncompleted houses.
The Company appealed to the General Commissioners against an assessment to Income Tax made upon it for the year 1939-40 under Case I of Schedule D which included this sum of £5,000, contending that the variation in the terms of the agreement had taken away part of the basic structure of the Company's business, and that the sum was a capital receipt paid by way of compensation for the sterilisation of a capital asset. Evidence given on behalf of the Company was accepted that the withdrawal of the 87 plots from the agreement materially altered the Company's scheme of development. The General Commissioners held that, following the decision in the case of Glenboig Union Fireclay Co., Ltd. v. Commissioners of Inland Revenue, 12 T.C. 427, the sum of £5,000 did not form a part of the trading profits of the Company and allowed the appeal.
Held, that the right to build on the plots in question was a trading asset, and that the said sum of £5,000 was a trading receipt of the Company for the purposes of assessment to Income Tax.
Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the General Purposes of the Income Tax for the Division of the Duchy of Lancaster in the County of London for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax for the Division of the Duchy of Lancaster in the County of London held at Brettenham House, Lancaster Place, London, on 8th April, 1941, Salmon Estate (Kingsbury), Ltd., the registered office of which is at Essex House, Essex Street, London, W.C.2, (hereinafter referred to as "the Company") appealed against an assessment to Income Tax in respect of the profits as builders and estate developers. The assessment was as follows:- For the year ending 5th April, 1940, the sum of £10,000 under Schedule D.
2. The Company is registered under the Companies Acts, 1908 to 1917, and was incorporated on 2nd May, 1929; a copy of the memorandum and articles of association is attached hereto, marked "A", and forms part of this Case(1).
3. The...
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