Wilcock v Frigate Investments Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 11 November 1981 |
| Date | 11 November 1981 |
| Court | Chancery Division |
Chancery Division.
Mr. R. Carnwath (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr. B. Speller (instructed by Messrs. Armstrong & Co.) for the taxpayer company.
Before: Nourse J.
Corporation tax - Deduction of bank interest - Property dealing company - Loan obtained to purchase property for dealing - Property rented in the meantime - Whether interest to be deducted from dealing profits under Income and Corporation Taxes Act 1970 schedule DCase I of Sch. D or from total profits - Carry forward of losses from dealing activities - Income and Corporation Taxes Act 1970 section 248Income and Corporation Taxes Act 1970 - sec. 248;Income and Corporation Taxes Act 1970 section 250250;Income and Corporation Taxes Act 1970 section 251251;Income and Corporation Taxes Act 1970 schedule A schedule DSchs. A and D, Case I.
This was an appeal by the Crown against the decision of the General Commissioners.
The taxpayer is a property company whose activities consist solely of dealing in and letting real property. During the year to which the case relates (the year ended 30 June 1975) rental income of £3,514 had been derived from renting a property acquired in the 1972/3 year and bank interest of £6,176 had been paid in respect of that property. Also in that year profits of £6,983 had been derived from the company's dealing activities. It was agreed that the rental income was assessable underIncome and Corporation Taxes Act 1970 schedule ASch. Aand that the dealing profits were liable to tax under Income and Corporation Taxes Act 1970 schedule DCase I of Sch. D. It was also agreed that trading losses of £5,570 were available for set-off against the trading profits for the year.
The taxpayer company's contention, as upheld by the General Commissioners, was that the bank interest could be set off against the total profits of the company after the deduction of the losses brought forward. That treatment resulted in assessable profits of nil.
The Crown argued that the bank interest was, according to the ordinary principles of commercial trading, deductible against the company's dealing profits under Income and Corporation Taxes Act 1970 schedule DCase I of Sch. D. That treatment would leave a net dealing profit of £809 to be set off by the losses, with the rental income to be taxed in full under Income and Corporation Taxes Act 1970 schedule ASch. A.
Held, appeal allowed.
1. The General Commissioners' decision that a payment is not deductible in computing profits or any description of profits if no claim to deduct it is actually made cannot be upheld where the payment is one which ought to be deducted according to ordinary principles, for the purposes of Income and Corporation Taxes Act 1970 schedule DCase I of Sch. D. The natural meaning of the word "deductible" in Income and Corporation Taxes Act 1970 section 248 subsec-or-para (2)sec. 248(2) when used in relation to profits under Income and Corporation Taxes Act 1970 schedule DCase I of Sch. D is that the payments must, under ordinary commercial principles, be deductible from the profits and gains of the trade. Here the trade was dealing in land and interest on a loan to purchase land is deductible from the profits made on sales of other land.
2. A further argument raised for the company, to the effect that the interest, or part of it, should be deducted from the rental income cannot be decided by this Court, as proper evidence on the point was not put before the Commissioners. Request for remission to the Commissioners on this point refused.
Nourse J.: This is an appeal by way of Case Stated from a decision of the General Commissioners for the Hackney Division given on 12th December, 1978. The question for decision is whether a sum of £6,176 bank interest paid by the Respondent, Frigate Investments Ltd., in the accounting year ending 30th June, 1975 was a charge on income within Income and Corporation Taxes Act 1970 section 248 subsec-or-para (1)sec. 248(1) of the Income and Corporation Taxes Act, 1970, and accordingly allowable as a deduction against its total profits for the purposes of corporation tax. The Commissioners answered that question in the affirmative, and the Inspector of Taxes now appeals to this Court.
The Respondent is a property company whose activities consist solely in the purchase, ownership, letting and sale of real property. In the year 1972/73 it acquired a property No. 40 The Grove, Isleworth, at a price of £31,000. That purchase was financed by a loan from a bank, the loan being entirely separate from previous and existing loans to the Respondent which were from other banks. Number 40 The Grove was acquired in the course of the Respondent's dealing activity, but it was still retained by it at 30th June, 1975. In the meantime, it had been let. On 30th June, 1975 £6,176 interest was paid on the loan to the bank, and it is the treatment of that sum...
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