T. & E. Homes Ltd v Robinson (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 31 January 1979 |
| Date | 31 January 1979 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income tax, Schedule D, Case VI-Excess rents-Whether royalty payments made under licences constituted "rent"-Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c 10), s 175.
On 31 December 1957 the Appellant Company granted a lease to W Ltd. (an associated company) for 21 years from 1 March 1957 of 231/2 acres of land containing sand and gravel, at a rent of £60 per annum. The lease specifically excluded any authority to extract sand or gravel. By a licence of even date, and for the same period, the Appellant Company authorised W Ltd. to extract sand, gravel and ballast on payment to the Appellant Company of royalties. The Appellant Company, appealing to the Special Commissioners against excess rents assessments made under Case VI of Schedule D for the years 1957-58 to 1959-60 on the basis that the payments made under the licences were "rent payable under a lease" within s 175, Income Tax Act 1952, contended (i) that the payments were royalties paid by virtue of a licence as compensation, and not rent payable under a lease within s 175, or, alternatively, (ii) that if the payments were to be regarded as rent payable under a lease of an incorporeal hereditament, such hereditament could not comprise, or form part of a "unit of assessment" for the purpose of s 175. The Commissioners, accepting that in each case lease and licence together formed one transaction, decided that the payments were rent payable under a lease within s 175 and rejected the Appellant Company's alternative contention.
The Chancery Division, allowing the appeal and discharging the assessments, held (1) that the word "rent" in s 175 should be given its technical legal meaning of a payment issuing out of land and recoverable by distress. Duke of Westminster v. Store Properties, Ltd. [1944] Ch 129 and Associated London Properties, Ltd. v. Williams 30 TC 57followed; and (2) that, as the right of distress had been effectively excluded so that the royalty payments contracted for in the licences did not fall within the technical legal meaning which had to be given to the word "rent" in s 175, Cox v. Harper [1910] 1 Ch 480 applied.
The Court of Appeal, unanimously allowing the appeal, held that the royalties (as well as the fixed rent under the lease) were payments made in consideration of the enjoyment by the tenant of the land and, whether the landlord had power to distrain or not, the royalties were rent under a lease within s 175.
Reg. v. Westbrook (1847) 10 QB 178, at page 205; Tollemache Settled Estates Trustees v. Coughtrie 39 TC 454; [1961] AC 880 applied.
Stated under the Taxes Management Act 1970, s 56, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 13 and 14 July 1972, T. & E. Homes Ltd., (hereinafter called
"the company") appealed against the following assessments made upon it income tax, Schedule D, Case VI, (excess rents):£ |
||
1957-58 |
14,045 |
|
1958-59 |
10,608 |
|
1959-60 |
6279 |
(Tillingham) |
1959-60 |
6865 |
(Brockhall). |
The two assessments for 1959-60 were separate assessments, made in respect of two separate properties, and no question was raised concerning their form.
2. Shortly stated, the question for our determination was whether certain payments received by the company from Welford Gravels Ltd. constitute "rent payable under a lease" within s 175 of the Income Tax Act 1952.
(2) The following witnesses gave evidence before us: Mr. E.K. Martel who was at the material times solicitor to the company, Mr. K.E. Partridge who was at the material times secretary to the company.
(3) The following documents were admitted or proved: lease dated 3 December 1957 between the company and Welford Gravels Ltd., relating to land at Tillingham, exhibit A; licence dated 31 December 1957 between the same parties relating to the same land at Tillingham, exhibit B; lease dated 30 April 1960 between the company and Welford Gravels Ltd., relating to land at Brockhall, exhibit C; licence dated 2 May 1960 between the same parties relating to the same land at Brockhall.
-
(4) From the evidence, oral and documentary, we found the facts set out in paras 4 to 7 below.
(2) On 22 February 1957 the company (which was then named Besbuilt Ltd.) purchased 231/2 acres of land at Tillingham, Essex; this land contained sand and gravel and development permission had been given for its extraction and for the erection of plant and machinery for the purpose. The company bought the land so that one of its associated companies, Welford Gravels Ltd., could extract sand and gravel for commercial purposes.
-
(3) Immediately after the purchase, the company allowed Welford Gravels Ltd. to enter into occupation, and Welford Gravels Ltd. (before the execution of the lease and licence referred to in para 5 below) extracted some 56,000 cubic yards of sand and gravel.
(2) On 31 December 1957 the company executed a lease (exhibit A) of the land to Welford Gravels Ltd. for 21 years from 1 March 1957 at an annual rent of £60. Their lease was in a common form appropriate to a lease of agricultural land, and contained the following provision, in clause 5(3) thereof:
Nothing in this lease shall be taken to authorise the Tenant to get or carry away sand gravel ballast or other mineral from the said land whether or not from a pit or quarry which is now or was at the commencement of the term hereby granted already open.
(3) On the same day, viz. 31 December 1957, the company granted to Welford Gravels Ltd. a licence under seal in respect of the land comprised in the lease, (exhibit B). By this licence the company licenced Welford Gravels Ltd., during the continuance in force of the lease, to excavate for and carry away for the licencee's own use sand, gravel, ballast and other minerals, paying to the company during the continuance in force of the lease, on 1 January and 1 July in each year, 4s. for every cubic yard of sand, gravel, or ballast got by Welford Gravels Ltd. in the preceding half year; the licence contained further provisions for payment in respect of any minerals got other than sand, gravel or ballast. It also provided (in clause 5) that the company should accept a surrender of the lease if the sand and gravel should become wholly exhausted or should become unworkable, and (in clause 6) that if Welford Gravels Ltd. should assign the lease it should also assign the licence.
(4) The arrangement between the company and Welford Gravels Ltd. was embodied in two separate documents as above on legal advice in order to minimise taxation on receipts from exploiting gravel.
(2) On 30 April 1960 the company leased a parcel of land at Brockhall to Welford Gravels Ltd. for 21 years from 17 June 1958 at an annual rent of £50. This lease (exhibit C) is in similar terms to the Tillingham lease (exhibit A).
(3) On 2 May 1960 the company granted to Welford Gravels Ltd. a licence under seal in respect of the land comprised in the Brockhall lease. This is in similar terms to the Tillingham licence (exhibit B) except that the payment to be made per cubic yard of sand, gravel or ballast was 2s.
7. The assessments under appeal were made upon the basis that the payments received by the company from Welford Gravels Ltd. on the terms of the said two licences were (respectively) "rent payable under a lease" within s 175 of the Income Tax Act 1952. The parties agreed that it was not necessary for the determination of the question before us to furnish particulars of the amounts of the payments in question or of the other details requisite for a precise computation for the purpose of s 175.
8. It was contended on behalf of the company that:
(2) the sums in question were not "rent payable under a lease" within the said s 175, but were royalties paid by virtue of a licence as compensation;
(3) (in the alternative) if the said sums fall to be regarded as rent payable under a lease of an incorporeal hereditament, such hereditament could not comprise or form part of a "unit of assessment" for the purpose of the said s 175;
(4) the assessments be discharged.
9. It was contended on behalf of the Inspector of Taxes that:
(2) in order to determine the legal relationship between the parties to the lease and the licence, it was necessary to look at the two documents together;
(3) alternatively, even considered separately, the two documents entitled licences were, respectively, grants of an interest in land for a term of years;
(4) the payments provided for therein were rents and were "rent payable under a lease" within the said s 175;
(5) the said rents were rents in respect of units of assessment or parts thereof for the purposes of s 175;
(6) the assessments were correct in principle and (subject to adjustment of the figures) should be confirmed.
10. We were referred to the following authorities:
De Voil v. Welford Gravels Ltd. TAXELR41 TC 172; [1965] AC 34
Trustees of Tollemache Settled Estates v. Coughtrie TAXELR39 TC 454; [1961] AC 880
Duke of Westminster v. Commissioners of Inland Revenue TAXELR19 TC 490; [1936] AC 1
Mangin v. Commissioners of Inland Revenue ELR[1971] AC 739
General Assurance Society TAX30 TC 11
Henley v. Murray TAX(31 TC 351
Daniel v. Gracie ENR(1844) 6 QB 145
Reg. v. Williams [1852] 2 WR 410
Samrose Properties Ltd. v. Gibbard WLR[1958] 1 WLR 235
Facchini v. Bryson [1952] 1 TLR 1386
Alliance Property Co. Ltd. v. Shaffer ELR[1949] 1 KB 367
Mellows v. Buxton Palace Hotel Ltd. TAX25 TC 507
Duke of Sutherland v. Heathcote ELR[1892] 1 Ch 475
11. We, the Commissioners who heard the appeal, gave our decision in writing as under:
(2) In giving this decision we make particular reference to the Tillingham property; the circumstances regarding the other property are not identical but we find the slight...
To continue reading
Request your trial