Stow Bardolph Gravel Company Ltd v Poole
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE JENKINS,LORD JUSTICE BIRKETT |
| Judgment Date | 16 November 1954 |
| Judgment citation (vLex) | [1954] EWCA Civ J1116-1 |
| Date | 16 November 1954 |
| Court | Court of Appeal |
Appeal of Respondent
[1954] EWCA Civ J1116-1
The Master of the Rolls
Lord Justice Jenkins
Lord Justice Birkett
In the Supreme Court of Judicature
Court of Appeal
MR HILARY HAGNUS (instructed by Messrs Metcalfe, Copeman & Pettefar: 3/4, Clement's Inn, Strand, W.C.2) appeared as Counsel for the Stow Bardolph Gravel Company, Limited.
SIR LYNN UNGOED-THOMAS, Q.C., and SIR REGINALD HILLS (instructed by the Solicitor of Inland Revenue, Somerset House, Strand, W.C.2) appeared as Counsel for H.N. Inspector of Taxes.
The question raised in this appeal is whether the Stow Bardolph Gravel Company, Limited, to whom I will hereafter refer as the taxpayers, were entitled to bring into their Trading and Profit and Loss Accounts for the two years ended 31st march, 1949 and 1950, by way of expenses and in reduction of the profits or gains in respect of which they were being assessed, an item representing the purchase of gravel made during the year in question less any stock of gravel so purchased at the end of that year. It is necessary to say at the beginning of my judgment and to make it clear that the taxpayers are admittedly bein charged for tax in respect of the gainful occupation or business of sand and gravel merchants. Therefore, prima facie it seems reasonable enough that in arriving at the taxable gains at the end of any given year the taxpayers should be entitled to deduct and to bring into account as an expense any sums laid out by them during the year in buying the stock in trade, namely, sand or gravel, in which they dealt; but in fact the matter when examined is not quite so simple as that; for the alleged purcha of gravel represents what the taxpayers obtained under an Agreement, made not in fact with them but with a predecessor in title in October, 1947, an Agreement to the terms of which I must more particularly refer in a moment.
The Commissioners for the General Purposes of the Income Tax were of opinion that these claims on the part of the taxpayers to make deductions were not admissible. But upon the Case Stated before Mr Justice Harman that learned Judge was of opinion that these deductions were admissible. I have myself reached a different conclusion from chat reached by Mr Justice Harman, and I have reached it, I confess, with some slight feelings of regret and misgiving on two grounds: first, I think the result bears a little hardly upon the taxpayers for reasons which will, I think, emerge without anynecessity for emphasis as I recite the facts; second, I am not for my own part quite satisfied that if close investigation were made of the method whereby the taxpayers and others in the same line of bussiness as the taxpayers carry on their businesses, it might not - I say no more than that - it might not emerge that the Commissioners would find as a fact that, notwithstanding the apparent legal consequences of the Agreement to which I have referred, there was hero in truth such a taking possession of the deposit of gravel in question that it could sensibly for tax purposes and rightly and fairly be said that once the consideration money had been paid under the Agreement the deposit was in truth the stock in trade of the taxpayer.
But in the present case I have myself felt compelled to say that there is no finding of fact to support such a conclusion, nor indeed is there before us any evidence sufficient to warrant it. It is in that respect, I apprehend, that I find myself at variance with my brother Harman.
First of all, it is proper that I should read the necessary paragraphs from the Income Tax Statute. Having regard to the dates which I have mentioned, the Act relevant is that of 1918. The taxpayers having been assessed under Schedule D, their case admittedly, as I follow it, falls within the first two Cases. I therefore refer to Rule 3 of the Rules applicable to Cases I and II of Schedule II of the Income Tax Act, 1918: "In computing the amount of the profits or gains to be charged, "no sum shall be deducted in respect of - (a) any disbursements "or expenses, not being money wholly and exclusively laid out "or expended for the purposes of the trade, profession, employment, or vocation". A later sub-paragraph in the same paragraph also prohibits deduction in respect of "(f) any capital " withdrawn from, or any sum employed or intended to be "employed as capital in such trade, profession, employment or"vocation".
If the question were asked as a matter of what I might call business common sense, Were the sums which were paid under this October, 1947, Agreement, sums wholly and exclusively laid out or expended for the purposes of the trade as sand and gravel merchants, I think the answer would be the they were. But it is only when their true nature is more closely examined in the light of the authorities we have had cited before us, and bearing also in mind the prohibition in sub-paragraph (f), that, as I think, one comes in this case to the conclusion contrary to that which, as I have said, commended itself to Mr Justice Harman.
I turn first to the Agreement itself, which is expressed to be made between a company called Luddington Estates Limite who may be takenas owners of all the land which is relevant, and two persons then carrying on a partnership business. I think I have already said that the interest of the second party to this Agreement admittedly is now vested in the taxpayers. The first clause is this: "The Company" - that is Luddington Estates Limited - "shall sell and the Purchaser" - that is the taxpayers - "shall purchase the deposit of Gravel "and Sand Ballast contained in and upon the land coloured "pink on the plan annexed hereto being an area of 3 acres" - or rather more - "forming part of the field numbered 102 on "the Ordnance Survey Sheet Norfolk LVII 10", etc., "the "property of the Company, at the price of £2,000 to be paid of "the signing hereof."
The second clause provides that "The Company" - Luddington Estates Limited - "shall allow the Purchaser … free "access to the said land, with or without carts lorries or "other vehicles, for the purpose of removing the said Gravel "and Sand Ballast through" a specified gateway. It is provided that the purchaser shall erect and maintain a propergate. I can leave out Clauses 3.
Clause 4 is: "The Purchaser" - that is the taxpayers - "shall have the right to take upon the said land any portable "machinery and haulage equipment which may be required for "the purpose of excavating and carrying away the said Gravel "and Sand Ballast but no structures of dwcllinghouses of a "permanent nature shall be erected thereon, and no refuse "rubbish or spoil other than the excavated top soil shall be "deposited on the land."
The purchaser is made responsible for the rates, charges and so forth, and then Clause 6 provides: "For the period of "5 years from the date hereof the Purchaser shall have the "option to purchase the additional deposit of Gravel and Sand "Ballast in and upon the adjoining 5 acres of land coloured "blue on the plan annexed hereto at the price of £1,000 per "acre where the deposit shall be of a depth of 9 feet or more, "provided that where the deposit shall be found to be of a "lesser depth than 9 feet the purchase price shall be lessened "by a proportionate amount as shall be agreed between the "Company and the Purchaser and in default of agreement to be "settled by arbitration in the usual manner." Then there is a proviso giving a further period for a further option.
I think I can pass over Clause 7, and the last clause is: "No legal estate in the lands hereinbefore referred to shall "be created or conveyed by virtue of this Agreement and no "interests casements licences or rights of way sporting or "otherwise whatseover except as herein oxpressly agreed and "declcleared shall be created or conferred or deemed to be "created or conferred hereby."
Certain matters may be mentioned, although they are perhaps obvious and clementary. The first is that this deposit which is "purchased" according to the terms of Clause 1 is, of course, in truth part of the land itself. The gravel in situis the land. So I think there is a real, if narrow, distinction between what is expressed to be a purchase of gravel on the one hand anda purchase of something which may be growing on the land or be lying on the land, such as potatoes, truffles, a crop of apples, or the leaves of a tree, on the other hand. It is also to be noted that ones the purchaser has paid the £2,000, ho is under no particular obligation to work this gravel. Allowing for the option period the term of this Agreement might extend for ten years or so. But on the face of the document there is no doubt that what it purports to be is a sale of the gravel and sand as such, and the terms of the final clause, 3, can be said to serve as emphasis of the fact that no other interests are created than such as are essential for the main purpose of the sale of gravel and sand.
Before I comment further upon the Agreement, I must make one or two references to the Case in which the facts are stnted. I have already said that the practice of businesses of this kind is not really discussed. All that, as a matter of fact, seems to be found is that in paragraph 3, sub-paragraph (c), the Commissioners state that "On acquiring the benefit of the "said agreement in writing, the Appellant Company" - that is the taxpayers - "proceeded to excavato the deposit of sand and "gravel hereinbefore referred to, and sold the same in the "course of trade." In view of what follows, I have emphasised in reading the word "excavate".
The contentions wore then sot out, of the taxpayers and of the Crown; and the Commissioners stated their conclusion that "We … after hearing and considering the...
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