Browne (Inspector of Taxes) v Bank of Ireland Finance Ltd

JurisdictionIreland
JudgeGRIFFIN J.,McCarthy, J.
Judgment Date08 February 1991
Neutral Citation1991 WJSC-SC 131
CourtSupreme Court
Docket Number[S.C. No. 142 of 1987],(142/87)
Date08 February 1991

1991 WJSC-SC 131

THE SUPREME COURT

Griffin J.

Hederman J.

McCarthy J.

(142/87)
BROWNE v. BANK OF IRELAND FINANCE LTD
REVENUE

BETWEEN

J.A. BROWNE (INSPECTOR OF TAXES)
Appellant

and

BANK OF IRELAND FINANCE LIMITED
Respondent
J.A. BROWNE (INSPECTOR OF TAXES)
Appellant

and

BANK OF IRELAND
Respondent

Citations:

CENTRAL BANK ACT 1971 PART II

CENTRAL BANK ACT 1971 S7(1)

CENTRAL BANK ACT 1971 S9

CENTRAL BANK ACT 1971 S13

CENTRAL BANK ACT 1971 S2

CENTRAL BANK ACT 1971 S7(2)

CENTRAL BANK ACT 1971 S10

CENTRAL BANK ACT 1971 S58

INTERPRETATION ACT 1937 S11

INCOME TAX ACT 1967 S53(1)

INCOME TAX ACT 1967 S1

INCOME TAX ACT 1967 S429

INCOME TAX ACT 1967 S430

CORPORATION TAX ACT 1976 S146

INCOME TAX ACT 1967 S496

MARA V HUMMINGBIRD LTD 1982 ILRM 421

INCOME TAX ACT 1967 S428

EDWARDS (INSPECTOR OF TAXES) V BAIRSTOW 1956 AC 14

INCOME TAX ACT 1967 SCHED D CASE 1

CAPITAL GAINS TAX ACT 1975 S19

Synopsis:

REVENUE

Corporation tax

Assessment - Company - Trade - Banking - Profits - Acceptance of deposits - Investment in Government stock - Investment directed by Central Bank - Gains realised on maturity of stock - Assessment to tax - Validity - Circuit Court - Case Stated - Findings of fact - Erroneous inferences drawn - Function of appellate court - Income Tax Act, 1967, ss. 1, 53 - Central Bank Act, 1971, ss. 2, 7, 9, 23, 58 - (142/87 - Supreme Court - 8/2/91) - [1991] 1 I.R. 431 - [1991] ILRM 421

|Browne v. Bank of Ireland Finance Ltd.|

CASE STATED

Circuit Court

Judge - Facts - Findings - Appeal - High Court - Question of law - Determination of appeal - Treatment of facts found by Circuit Court judge - Inferences to be drawn from facts - Company's liability for payment of corporation tax - (142/87 - Supreme Court - 8/2/91) - [1991] 1 I.R. 431 - [1991] ILRM 421

|Browne v. Bank of Ireland Finance Ltd.|

TRADE

Restriction

Company - Business - Finance - Supply - Acceptance of deposits - Investment in Government stock - Investment pursuant to direction of Central Bank - Gains realised on maturity of stock - Assessment to tax - (142/87 - Supreme Court - 8/2/91) 1991 1 IR 431

|Browne v. Bank of Ireland Finance Ltd.|

WORDS AND PHRASES

"Trade"

Company - Business - Finance - Supply - Acceptance of deposits - Investment in Government stock - Investment pursuant to direction of Central Bank - Gains realised on maturity of stock - Assessment to tax - (142/87 - Supreme Court - 8/2/91) 1991 1 IR 431

|Browne v. Bank of Ireland Finance Ltd.|

1

JUDGMENT delivered on the 8th day of February 1991by GRIFFIN J. [Hederman J. Conc]

2

Part II of the Central Bank Act, 1971(whichincludes sections 7 to 31 inclusive) makes provision for the licensing and supervision of banks by the Central Bank. Pursuant to s. 7(1) of that Act a person (which includes a body corporate - see s. 11 of the Interpretation Act, 1937) shall not, on his own behalf or on behalf of any other person, (inter alia) carry on or hold himself out as carrying on, banking business unless he is the holder of a licence granted by the Central Bank under s. 9 of the Act authorizing him to carry on such business, and maintains in the Central Bank a deposit of the amount required by s. 13 of theAct.

3

"Banking business" is defined in s. 2 of the Act as meaning (not, to be noted, as including) business which consists of "the business of accepting deposits payable on demand or on notice or at a fixed or determinable future date" (certain deposits not material hereto being excluded) or "the business aforesaid and any other business normally carried on by a bank" (emphasis added).

4

Under s. 7(2), for the purposes of the Act a person shall be deemed to hold himself out as a banker if, being a body corporate carrying on any business, the name of the body (in so far as is relevant to this case) includes the word "bank".

5

S. 10 of the Act provides that a licence granted under s. 9 shall be subject to such conditions, if any, as the Central Bank may from time to time impose, being conditions which in the opinion of the Central Bank are calculated to promote the orderly and proper regulation ofbanking.

6

Under s. 58, any person who (inter alia) carries on banking business without a licence, or who, being the holder of a licence, commits a breach of a condition attached to a licence, shall be guilty of anoffence.

7

Bank of Ireland Finance Limited (formerly Foster Finance Limited) (hereinafter called "the Respondent") was incorporated on the 31st December, 1973. It therefore became exposed to the legalrequirementsof the Act of 1971. The principal activity of the group of which the Respondent was the parent company was banking, and included the provision of instalment credit finance and the leasing to customers of consumerable durables and capital goods. The business of the Respondent consisted of hire purchase, credit finance, and leasing. It did not operate current accounts or issue cheque books to customers. In the Memorandum of Association the objects of the company included:

"(b) To place or receive money on deposit on such terms as may seem expedient and to advance, deposit or lend money to or with such persons and on such terms as may be expedient...and to carry on business as bankers...

(d) To carry on the business of ... dealers in stocks, shares, loans, annuities and other securities ..."

8

Once the Respondents accept deposits payable on demand or on notice or at a fixed or determinable future date - deposits being the life-blood of bankingbusiness - it required, and obtained from the Central Bank a licence to carry on banking business under s. 9 of the Act of 1971 and in due course became the holder of very substantial amounts as deposits.

9

On the 20th June, 1974 the Central Bank wrote to the Respondent stating that, for the reasons therein set out including the fact that bank lending was growing too rapidly), the Central Bank was obliged to take certain control measures. The letter stated that this involved, for the Respondent, as for all Industrial and other Banks, the introduction of a secondary liquidity ratio of 10 per cent of its Relevant Resources and required that the respondent should accordingly effect purchases of Irish Government securities, which might include Exchequer Bonds, so that the ratio of Irish Government paper should be raised to a level of 10 per cent by the 19th November, 1974, this ratio to be observed on a continuing basis thereafter.

10

A further letter was written by the Central Bankto the Respondent on the 15th November, 1979, the effect of which was to increase the Respondent's secondary liquidity ratio from 10 per cent to 13 per cent of the Respondent's relevant resources. Relevant resources is not defined or explained in either letter, but I presume that it related to the total deposits held by the Respondent.

11

Because of the low yield on Government stocks the Respondent would not ordinarily have bought Government stocks in the course of business. The yield on such stocks was only marginally in excess of its cost of funds, and was 5% to 6% less than the yield of its normal business activities. In carrying out the requirements of the Central Bank the Respondent adopted a policy of buying low interest rate short-dated Government stocks and held all such stocks so acquired to maturity. It at no time had to dispose of such stocks to meet depositors' demands. Apart from these purchases of Government stocks the Respondent never dealt in securities or investments.

12

For the years 1977 and 1978 realised gains of £213,375 and£922,300 respectively arose on the maturity of Government Stock in those years. The Inspector of Taxes raised an assessment to corporation tax in respect of these gains for the accounting period ending the 31st December, 1978. The assessment was made pursuant to s. 53(1) of the Income Tax Act, 1967under Case 1 of Schedule D whereby tax shall be charged in respect of "any trade not contained in any other schedule". "Trade" is defined in s. 1 of that Act as including "every trade, manufacture, adventure or concern in the nature of trade". The Respondent being aggrieved by the assessment, its appeal to the Circuit Court by way of rehearing pursuant to s. 429 of the Act of 1967 was reheard and determined by Circuit Court Judge Martin. In paragraph 8 of the case stated the learned Circuit Judge found on the facts and the evidence of Mr. T.S. O'Neill (Financial Director of the Respondent) (a) that the Respondent was not dealing in investments and (b) that it should succeed in its contention that therealisedgains arising to it on maturity of Government stocks should not be included as trading receipts in computing that company's trading profits or losses for corporation tax purposes, and determined the appeal accordingly. As the Inspector of Taxes expressed dissatisfaction with that determination as being erroneous in point of law, the Circuit Court Judge, pursuant to s. 430 of the Act of 1967 and s. 146 of the Corporation Tax Act, 1976, stated a case for the opinion of the High Court, the question of law being: whether on the facts as proved or admitted he was correct in law in holding that the said realised gains of the respondent were not part of that company's trading profits and were not chargeable to corporationtax.

13

The case was heard by Blayney J. who reserved judgment and delivered a judgment in writing, in which he held that the learned Circuit Court Judge was correct in law in holding that the realised gains of the Respondent were not part of that company's trading profits and were not chargeable to corporation tax,and answered the question accordingly. In his judgment he stated in full the facts proved or admitted and the conclusions of the Circuit Court Judge as set out in the case stated. With the exception of paragraphs 3(d) and (j) I have already summarised the facts in this judgment. Paragraph 3(d) stated that the Respondent was not recognised by the Revenue...

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