Belville Holdings Ltd v Revenue Commissioners

• Jurisdiction: Ireland
• Judge: FINLAY C.J.
• Judgment Date: 01 January 1994
• Neutral Citation: 1993 WJSC-SC 69
• Court: Supreme Court
• Date: 01 January 1994

1993 WJSC-SC 69

THE SUPREME COURT

Finlay C.J.

Blayney J.

Denham J.

139/88

BELVILLE HOLDINGS LTD v. REVENUE COMMRS

BELVILLE HOLDINGS LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION)

Appellant

and

THE REVENUE COMMISSIONERS AND BY ORDER OF THE SUPREME COURT M.C. CRONIN, INSPECTOR OF TAXES

Respondent

Citations:

INCOME TAX ACT 1967 S428

CORPORATION TAX ACT 1976 S146

CORPORATION TAX ACT 1976 S16(2)

CORPORATION TAX ACT 1976 S25

BELVILLE HOLDINGS LTD V CRONIN (INSPECTOR OF TAXES) 1985 IR 465

PETROTIM SECURITIES LTD V AYRES 41 TC 389

SHARKEY V WERNHER 36 TC 275

INCOME TAX ACT 1967 S428(6)

RSC O.28 r11

AINSWORTH V WILDING 1896 1 CH 673

SWIRE, IN RE 30 CH D 239

YUILL V WILSON 1980 STC 460, 1980 1 WLR 910

TAXES MANAGEMENT ACT 1970 (UK) S56(6)

Synopsis:

HIGH COURT

Jurisdiction

Order - Perfection - Entry - Amendment - Principles applicable - Whether order expressed the decision of the court - Whether court ~functus officio~ - (139/88 - Supreme Court - 8/2/93)1994 1 ILRM 29

|Belville Holdings Ltd. v. The Revenue Commissioners|

ORDER

Amendment

High Court - Powers - Exercise - Failure - Entry of perfected order - Slip rule inapplicable - Order of court amended after its entry - Court ~functus officio~ - Whether order expressed decision of the court - Income Tax Act, 1967, s. 428 - (139/88 - Supreme Court - 8/2/93) - [1994] 1 ILRM 29 - [1993] I.T.R. 528

|Belville Holdings Ltd. v. The Revenue Commissioners|

PRACTICE

Order

Perfection - Entry - Amendment - Application - Principles applicable - Whether order expressed the decision of the court - Whether court ~functus officio~ - (139/88 - Supreme Court - 8/2/93) - [1994] 1 ILRM 29 - [1993] I.T.R. 528 - [1994] ILT 176

|Belville Holdings Ltd. v. The Revenue Commissioners|

1 JUDGMENT delivered on the 8th day of February 1993 by FINLAY C.J. [NEM DISS].

2 This is an appeal by Belville Holdings Limited (the taxpayer) against two orders made in the High Court by Carroll J., the first of them being on the 14th May 1985 and the second of them being on the 25th February 1988.

3 Both orders arose out of a case stated for the opinion of the High Court by one of the Special Commissioners pursuant to section 428 of the Income Tax Act 1967, as applied for the purpose of corporation tax by section 146 of the Corporation Tax Act 1976. The order of May 1985 is entitled in those proceedings, which were between the taxpayer and the second named Respondent, but the order of the 25th February 1988 is entitled in the matter of a summary summons issued by the taxpayer, naming as Defendant the first named Respondent, and claiming a sum alleged by the taxpayer to be due to it as the result of the order of the 14th May 1985 on the case stated.

4 This rather complicated situation has arisen in the following way. On the 24th April 1984 the Special Commissioners, at the request of the taxpayer, stated a case for the opinion of the High Court pursuant to section 428 upon the conclusion of an appeal determined by him, brought by the taxpayer against two assessments of corporation tax, one being for a period of eight months ended on the 30th June 1979 in the sum of £52,000 and the second being for the year ended on the 30th June 1980 for £52,000.

5 The question for decision on that appeal is stated at paragraph 2 of the case stated to have been as to "whether for the above accounting periods the losses shown by the Company's accounts should be allowed for the purpose of a claim to payment of tax credits under the provisions of section 16(2) and 25 of the Corporation Tax Act 1976in respect of dividends received from subsidiary companies". The facts admitted or proved before the Special Commissioner and recited in detail in the case stated may thus, for the purpose of this appeal, be very briefly summarised.

6 1. The taxpayer was a public unquoted company and had four wholly owned subsidiary companies and two other subsidiary companies, in each of which it owned 80 percent of the share capital. In addition, it had an associate company in which it held 44.8 per cent of the share capital.

7 2. In addition to being a holding company the taxpayer also carried on a trade of managing the subsidiary companies and providing them with necessary finance.

8 3. In the year ended the 30th October 1978, the total expenses incurred by the taxpayer were apportioned amongst the subsidiaries and charged to them, but in the period from the 1st November 1978 to the 30th June 1980 part only of the expenses incurred by the taxpayer was charged out to the subsidiaries and the remainder of the expenses was charged in the accounts as expenses of the taxpayer's trade. The expenses charged over that period to the subsidiaries were direct operating expenses which were specifically attributable to each individual subsidiary, and the other expenses not specifically attributable, including overhead expenses, were borne by the taxpayer.

9 4. For that period it was, accordingly, possible for two of the subsidiary companies to make profits, and each of them paid over the entire of its profits to the taxpayer as dividends, neither of them being liable to tax for that period due to group loss relief.

10 5. Having regard to the amount of the dividends so paid and to the tax credits attributable to them, the claim of the taxpayer pursuant to the sections of the Corporation Tax Act 1976which I have above referred to was for the period ended 30th June 1979 £56,109, and for the year ended the 30th June 1980, £198,018. The Special Commissioner in deciding the appeal came to the conclusion that in computing the taxable profits or losses of the taxpayer for the periods in question, notional management fees equivalent to the market value of the services provided should be taken into computation. He then stated in the case as follows:

"Normally, a management or services fee payable by a company is calculated as a percentage of the gross income of the payer. In this case, having regard to the trading and financial difficulties of the group, I estimated a reasonable service fee at 10 per cent of the income of the paying companies, and on this basis it was agreed that the appeals be determined in the following figures:"

Period ended 30th June 1979	£7,241
Year ended 30th June 1980	£38,614"

11 The question of law stated for the opinion of the High Court in the case stated was

"Whether I was entitled on the foregoing facts and evidence to hold that in computing taxable profits of the appellant for the periods ended the 30th June 1980 the notional fees in respect of the services afforded by the Appellant to its subsidiary companies should be taken into account."

12 The case stated, which was dated the 24th April 1984, came before Carroll J. in the High Court, and having heard submissions of counsel on both sides she reserved judgment. Judgment was delivered on the 14th May of 1985, and on that date an order was made which was perfected by the Registrar on the 20th May 1985 in which the following order was made:

"The Court doth answer the said question of law in the negative and the Court doth Order the Appellant do recover from the Respondent its costs of this case stated and of the argument thereon when taxed and ascertained."

13 No other order was then sought or obtained.

14 In the course of her judgment the learned trial Judge having referred to the decision in the case of Petrotim Securities Limited v. Avres 41 TC 389 and, in particular, to the acceptance in the judgment of Lord Denning Mr in that case of the decision in the case of Sharkey v. Wernher 36 TC 275, stated as follows:

"In my opinion the Appeal Commissioner was correct to apply the principles enunciated in the Petrotim case. Although that case concerned goods, services are also a marketable commodity and therefore the principle is the same. The Appeal Commissioner was entitled to find that the situation was similar and accordingly that the transaction was so outside the ordinary course of business of any trader that it was not done in the course of trade."

15 He then went on to write in what he must have considered to be the equivalent of the 'market realisable valus' of goods, that is the market value of the services provided. He calculated this at 10% of the subsidiaries" gross profits. In this he made a finding which was not based on evidence at all.

16 The market realisable value of goods is an objective valuation and does not take into account whether the supplier is going to make a profit or loss.

17 Services do not have a market realisable value in the same way as goods, but they do have a market value which can be established by evidence.

18 I do not wish to say that the appropriate figure should be the cost price to the parent company, or that there must be a notional profit-cost built in, or that no discount at all may be allowed to an associated company, or that the market value must be the price chargeable by a third party. All I would say is that in my opinion the accounts must be adjusted by the inclusion of some figure which brings the transaction within the realm...