Brosnan v Mutual Enterprises Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice Francis D. Murphy
• Judgment Date: 07 April 1995
• Neutral Citation: 1995 WJSC-HC 277
• Court: High Court
• Docket Number: No 80R/1994
• Date: 07 April 1995

BROSNAN v. MUTUAL ENTERPRISES

BETWEEN

T. G. BROSNAN (INSPECTOR OF TAXES)

APPELLANT

AND

MUTUAL ENTERPRISES LIMITED

RESPONDENT

1995 WJSC-HC 277

No 80R/1994

THE HIGH COURT

Synopsis:

CASE STATED

Circuit Court

Judge - Facts - Findings - Appeal - High Court - Question of Law - Determination of appeal - Acceptance of facts found by Circuit Court judge - Company's liability for payment of corporation tax - (1994/80 R - Murphy J. - 7/4/95) [1997] 3 IR 257 - [1995] 2 ILRM 304

|Brosnan v. Mutual Enterprises Ltd.|

REVENUE

Corporation tax

Assessment - Company - Trade - Profits - Calculation - Deductions - Bank loan repayable over five years - Interest repayable in various foreign currencies - Losses incurred by taxpayer due to fluctuating rates of exchange - Whether losses deductible when calculating profits - Whether losses attributable to capital transactions or to revenue transactions - Money borrowed to purchase leasehold interest in taxpayer's business premises - Circuit Court decision - Case Stated - Principles applicable - Income tax Act, 1967, s. 61 - (1994/80 R - Murphy J. - 7/4/95) - [1997] 3 IR 257- [1995] 2 ILRM 304

|Brosnan v. Mutual Enterprises Ltd.|

WORDS AND PHRASES

"Revenue transaction"

Corporation tax - Company - Liability - Loan - Repayment - Losses incurred - Whether losses deductible in calculating profits or gains of trade - (1994/80 R - Murphy J. - 7/4/95) - [1997] 3 IR 257- [1995] 2 ILRM 304

|Brosnan v. Mutual Enterprises Ltd.|

Citations:

BEAUCHAMP V F W WOOLWORTH 1989 STC 718, 1989 STC 510

INCOME TAX ACT 1967 S61(e)

INCOME TAX ACT 1967 S61(f)

INCOME & CORPORATION TAXES ACT 1970 S130(f) UK

REGENT OIL CO LTD V STRICK 1966 AC 295

EDWARDS V BAIRSTOW 1956 AC 14

MARA V HUMMINGBIRD LTD 1982 ILRM 421

BROWNE V BANK OF IRELAND FINANCE LTD 1991 1 IR 431

PATTERSON V MARINE MIDLAND LTD 1981 STC 540

1 Judgment of Mr. Justice Francis D. Murphy delivered the 7th day of April, 1995.

2 The issue which arises on the Revenue Case Stated herein may be summarised by the contention of Counsel on behalf of the Respondent to the effect that I should prefer and apply the principles of law enunciated by Nourse L.J. in delivering the unanimous decision of the Court of Appeal in England in Beauchamp and F.W. Woolworth to the opinion of Lord Templeman expressing the unanimous view of the House of Lords in the same case. That daunting proposition arises in this way.

3 The Respondent, Mutual Enterprises Limited, is a company which was incorporated on the 25th June, 1979 and carries on as its only business the trade of licensed victualler and restaurateur at 74 Oliver Plunkett Street, Cork. On the 3rd September, 1979 the company purchased the leasehold interest in the premises at Oliver Plunkett Street at a cost of £300,000. The company obtained a loan of £280,000 sterling from Allied Irish Investment Bank Limited in January 1980 for the purpose of acquiring the said premises and obtained a further loan of £25,000, again in sterling, from Ulster Bank Limited in the accounting period ended the 6th January, 1981. The loan of £280,000 was expressly made for the purpose of purchasing the Oliver Plunkett Street premises and was duly applied for that purpose. The business of the company is and has been carried on from those premises.

4 The terms of the loan by Allied Irish Investment Bank Limited provided that the same was to be by way of "loan repayable on demand" and then went on to provide for repayment in the following terms:-

"While the loan is repayable on demand it is A.I.I.B's present intention that the facility will be repaid as follows:-

31st January, 1981:	10%
31st January, 1982:	15%
31st January, 1983:	20%
31st January, 1984:	25%
31st January, 1985:	30%

(The percentage will relate to the original amount of the facility").

5 The facility letter expressly provided that the Bank should have the benefit of various charges both on the Oliver Plunkett Street premises and certain other properties together with guarantees from the directors of the company and other corporate bodies. In fact the sterling indebtedness was converted from time to time into various European currencies. Dutch guilders in 1980. Swiss francs in 1983: Irish punts in November 1983 and Deutschmarks in 1986. The purpose of these various conversions was to achieve the best possible rate of interest payable from time to time. As a result of these currency dealings the company incurred losses during the period of the loan as follows:-

Accounting period ended 31st December, 1981 -	£ 8,454.00
Accounting period ended 31st December, 1982 -	£26,496.00
Accounting period ended 31st December, 1983 -	£35,000.05
Accounting period ended 31st December, 1984 -	NIL

6 In those circumstances a dispute arose between the Appellant, the Inspector of Taxes, and Mutual Enterprises Limited as to whether the company was entitled to include the losses on foreign currency transactions in computing the trading profits/allowable losses for corporation tax purposes. That issue was determined in the first instance by the Appeal Commissioner and on appeal by Circuit Court Judge, Anthony Murphy who, having found the facts hereinbefore recited and set out the contentions of the parties in relation thereto, formed the opinion that the losses were not capital withdrawn from or sums employed or intended to be employed as capital in the company's trade and that the losses were connected with the trade and allowable under Section 61(e) of the Income Tax Act, 1967.The Inspector having expressed dissatisfaction with the determination, the learned Circuit Judge stated the present case for the opinion of this Court in the following terms:-

"The question of law for the opinion of the High Court is whether upon the facts proved or admitted as above I was correct in law in holding that the Respondent was entitled to bring into account in computing his trading profits and allowable losses for the purpose of corporation tax, the amount of the said losses incurred on foreign currency exchange rates applicable to its said borrowings notwithstanding the provision of Section 61(e) and (f) of the Income Tax Act, 1967".

7 The facts of Beecham and F.W. Woolworth are sufficiently similar to those of the instant case as to make the judgments therein of very considerable importance in elucidating the principles to be applied herein. The facts as set out in the headnote to the report of the decision of the House of Lords as contained in Simon's Tax Cases, (1989 STC 510) are as follows:-

"In 1971 the taxpayer company, a retailer with an annual turnover in excess of £300 million raised a loan of 50 million Swiss Francs at 7% interest repayable at par after five years. This was converted at once to sterling. A second such loan at 6% interest was raised in 1972. The loan was also converted into sterling. With consent of the Bank of England the first loan was repaid six months early at a loss (due to a fall in the value of sterling) of £4,392,092; the second loan was repaid on the due date, again at a loss of £7,007,726. The company claimed that in computing its profits for accounting periods ended 31st January, 1976 and 31st January, 1978 the losses were allowable deductions. The Special Commissioners found that the purpose of the loan was to tide the taxpayer company over a short term cashflow problem; that the loans represented temporary facilities rather than capital and that the exchange losses were allowable deductions under Section 130(f) of the Income and Corporation Taxes Act, 1970. Hoffman J. allowed the Crown's appeal holding that the Commissioners had misdirected themselves in law in attaching importance to what the taxpayer company had sought to do rather than what it had actually done; and that as the two loans were substantial and for fixed terms, they constituted additions to the capital employed by the taxpayer company. The Court of Appeal restored the Commissioners"...