Belvedere Estates Ltd v O'Connlain (Inspector of Taxes)

• Jurisdiction: Ireland
• Judge: FINLAY C.J.
• Judgment Date: 01 January 1990
• Neutral Citation: 1988 WJSC-SC 894
• Date: 01 January 1990
• Court: Supreme Court
• Docket Number: 151/85

BELVEDERE ESTATES LTD v. O CONNLAIN

(Revenue)

BETWEEN

BELVEDERE ESTATES LIMITED

Appellants

and

S. S. O CONNLAIN, INSPECTOR OF TAXES

Respondent

1988 WJSC-SC 894

151/85

THE SUPREME COURT

Synopsis:

REAL PROPERTY

Estates

Merger - Fee simple estate - Demise of part - Assignment of demised part - Conveyance of reversion of demised part to assignee in fee simple - Declaration of merger - ~See~ Revenue, corporation tax - (151/85 - Supreme Court - 28/7/88) 1990 ILRM 100

|O'Connlain v. Belvedere Estates Ltd.|

REVENUE

Corporation tax

Assessment - Profits or gains - Trade - Dealing in land - Trading stock - Valuation - Leasehold interest acquired within accounting period - Merger on subsequent acquisition of fee simple estate within same period - Section 18, sub-s. 1, of the Act of 1968 provided:- "Where a business of dealing in or developing land is, or is to be regarded as, a trade within Schedule D or a part of such a trade, the provisions applicable to Case I of that Schedule shall, as respects the computation of the profits or gains of the business, have effect subject to the provisions of subsection 2" - Sub-section 2(b) provided: - "Any interest (hereafter in this subsection referred to as the superior interest) in any land held by the trader which has become trading stock of the trade shall thereafter, until the discontinuance of the trade, continue to be such trading stock and the value thereof at any time prior to the discontinuance shall be taken to be an amount equal to the cost to the trader of its acquisition diminished by an amount equal to the cost to the trader of creating any interest (hereinafter in this subsection referred to as an inferior interest) to which the superior interest has become subject" - Sub-section 2(c) provided:- "For the purposes of paragraph (b) the cost of the acquisition of the superior interest shall, subject to paragraphs (e) and (f), be taken to be the aggregate of the following amounts, that is to say: (i) where the interest is a leasehold interest, the amount of any fine, premium or other like sum paid by the trader in consideration for the grant of the lease, or, if he has obtained the lease by assignment, the amount paid by him in consideration of the assignment; (ii) where the interest is a leasehold interest, an amount equal to the market value at the time of the acquisition of any rent reserved under the lease; (iii) where the interest is not a leasehold interest, the amount paid by the trader for the acquisition of the interest ..." - On 20/12/74 the Corporation of Dublin conveyed 22 acres of land to Crosspan Developments Ltd. and on the following 23/5 Crossplan demised portion of those lands to one of its subsidiary companies for a term of 99 years subject to the yearly rent of #30,000 thereby reserved - On 28/5 that subsidiary assigned to Belvedere Estates Ltd (another subsidiary) the lands so demised for the residue of the said term on payment of #1,000 by Belvedere Estates - On 30/5/75 Crossplan, in consideration of the payment of #75,000 by Belvedere Estates, conveyed to that company in fee simple the reversion of the lands comprised in the lease; the conveyance contained a declaration of the merger of the leasehold interest - The accounting year of Belvedere Estates ended on 31/5/75 and the Appeal Commissioners found that the value of Belvedere's trading stock on that date was #326,000 being the aggregate of the #1,000 paid by Belvedere for the leasehold interest, the sum of #250,000 being the value of the rent reserved by the lease, and the sum of #75,000 which Belvedere had paid for the fee simple reversion of the leasehold interest - The Appeal Commissioners stated a Case for the opinion of the High Court on the question whether, by including the sum of #250,000, they had acted in accordance with s. 18 of the Act of 1968 - The High Court (Carroll J. - 19/4/85) held that the leasehold interest had merged on 29/5/75 in the fee simple reversion thereof by the conveyance of that date; that the only estate held by Belvedere Estates at the end of the accounting year was a fee simple estate in the lands formerly comprised in the lease; and that the value of Belvedere's trading stock at the end of that year within the meaning of s. 18 of the Act of 1968, was #76,000 (being the price paid for the fee simple estate and the price paid for the leasehold interest) - Belvedere Estates appealed against the order of the High Court - Held, in disallowing the appeal, that s. 18 of the Act of 1968 provided a method whereby stock in trade consisting of land was valued as distinct from a method of ascertaining the cost of such land: ~Cronin v. Cork and County Properties Ltd.~ (Supreme Court - 18/12/86) applied - Held that the legal effect of the conveyance of the fee simple estate to Belvedere Estates was the merger of the leasehold interest in that estate and that, in applying s. 18 of the Act, effect must be given to that consequence:~ McGrath v. McDermott~ (Supreme Court - 7/7/88) applied - Held that the only estate vested in Belvedere Estates on 31/5/75 was a fee simple estate which fell to be valued in accordance with the provisions of s. 18, sub-s. 2(c)(iii), of the Act - Finance (Miscellaneous Provisions) Act, 1968, s. 18 - (151/85 - Supreme Court - 28/7/88) 1990 ILRM 100

|O Connlain v. Belvedere Estates Ltd.|

Citations:

CRONIN V CORK & COUNTY PROPERTIES LTD 3 ITR 252

FINANCE (MISCELLANEOUS PROVISIONS) ACT 1968 S18

O CONNLAIN INSPECTOR OF TAXES V BELVEDERE ESTATES LTD 1985 IR 22

FINANCE (MISCELLANEOUS PROVISIONS) ACT 1968 S18(2)(b)

FINANCE (MISCELLANEOUS PROVISIONS) ACT 1968 S18(2)(c)

MCDERMOTT V MCGRATH 1988 ILRM 181

1 JUDGMENT delivered on the 28th day of July 1988 by FINLAY C.J. [NEM DISS]

2 This is an appeal brought by Belvedere Estates Limited ("the taxpayer") against the Order of the High Court made by Carroll J. on the 19th April 1985, whereby she answered in the negative a question of law stated with regard to the taxation affairs of the taxpayer to the High Court.

3 The taxpayer is a limited liability company who trades in dealing in and developing land, and the issue between it and the Inspector arises out of a series of transactions entered into by the taxpayer and certain associated companies in 1975 as a scheme to reduce the burden of taxation in regard to the development of certain lands. The form of that scheme may thus be summarised.

4 1. On the 20th December 1974 Dublin Corporation sold to Crosspan Developments Limited, one of the associated companies, an area of land in fee simple for a price of £88,000 together with levies in the total sum of...