Casey (Inspector of Taxes) v The Monteagle Estate Co

• Judge: Teevan J.
• Judgment Date: 08 April 1960
• Court: High Court

Income tax - estate company - claim for relief in respect of expenses of management - “company whose business consists mainly in the making of investments and the principal part of whose income is derived therefrom” - ITA 1918 s 33(1).

The respondent company was formed with the object, inter alia, of acquiring the Monteagle Estate. The other objects as set out in the memorandum of association are such as are usual in an estate company. The Monteagle Estate consisted of a mansion house and a demesne near Foynes, village houses in Foynes and elsewhere, various parcels of land, stock exchange securities and some other assets. The landed estate stood limited to the fourth Lord Monteagle for life with remainder in tail male. Shortly prior to the acquisition by the company the entail was barred and all properties were transferred to the company for £17,050, which was satisfied by the allotment of 10,050 fully paid shares of £1 in the company and 22 debentures for a sum of £7,000. The mansion house and demesne were both sold before 30 November 1948, at which date lands and hereditaments which remained on hands included properties out of which ground and other small leasehold rents arose, agricultural lands for which the company made grazing and conacre lettings, woodlands, houses in Foynes and elsewhere let to tenants, and a farm of 89 acres in Co Kerry. The company also had investments in stock exchange securities. For the year 1948/49 the income of the company was assessed to income tax under Scheduless A, B and D except for certain rents which were received under deduction of income tax.

The company preferred a claim under ITA 1918 s 33, for repayment of tax for the year 1948/49 in respect of expenses of management. The inspector of taxes contended that the company was not one “whose business consists mainly in the making of investments” and that the profits arising out of lands and hereditaments substantially exceeded its income from stock exchange securities. The company contended that as it had only acquired unsettled property (unlike, as alleged, the appellant company in Howth Estate Co v W J Davis, Inspector of Taxes [1936] ILTR 79, 2 ITC 74), such acquisition was on investment and that, having regard to the manner in which it had disposed of certain lands and hereditaments, and to the fact that most of its time was devoted to the making of investments either by purchasing stock exchange securities or by creating rents under long-term leases, its main business was the making of investments. It was further contended by the company that the principal part of its income was derived from investments as it consisted mainly of dividends and rents from long term leases. The Special Commissioner decided that the company was an investment company within ITA 1918 s 33 and that the principal part of its income was derived from investments, the proper measure of the income from lands and buildings being the Schedule A and B assessments for 1948/48 and not the actual income arising therefrom. The inspector of taxes expressed dissatisfaction with this decision and required a case to be stated for the opinion of the High Court.

Held, in the High Court, that the making and granting of lettings and leases out of the Monteagle Estate lands was not “the making of investments”, that the income to be taken into account, in deciding whether the principal part of the income of the company was derived from the making of investments, was the actual income from lands and buildings and not the Schedule A and B assessments, and that the company was not one whose business consisted mainly in the making of investments and the principal part of whose income was derived therefrom.

Legislation

ITA 1918 s 33(1), CTA 1976 s 15.

Cases referred to in judgment

Birch v Delaney 2 ITC 127, [1936] IR 517, 531.

Bourne and Hollingsworth v the Commissioners of Inland Revenue 12 TC 483.

Fry v Salisbury House Estate Ltd [1930] 1 KB 304, 143 LT 77, [1930] AC 432.

Howth Estate Co v Davis 2 ITC 74, 70 ILTR 16, [1936] ILTR 79.

Simpson v The Grange Trust Ltd 19 TC 231, 51 TLR 320, [1934] 2 KB 317.

Southern v Aldwych Property Trust Ltd 23 TC 707, [1940] 2 KB 266, 56 TLR 808.

The Lincoln Wagon and Engine Co Ltd v CIR 12 TC 494.

Cases also cited

Costa Rica Railway Co Ltd v CIR 29 TC 34.

D. and G. R. Rankine v CIR 32 TC 520, [1952] SLT 153.

John Emery and Sons v CIR 20 TC 213, 156 LT 87, [1935] SC 802.

London and Northern Estates Co v Harris 21 TC 197, [1937] 3 AER 252, 106 LJKB 823.

London County Freehold and Leasehold Properties Ltd v Sweet 24 TC 412, [1942] 2 AER 212, 58 TLR 281.

Ormond Investment Co Ltd v Betts 13 TC 400, [1927] 2 KB 326, 138 LT 600.

Case stated

Case stated pursuant to the provisions of ITA s 149 1918, by a Commissioner for the Special Purposes of the Income Tax Acts for the opinion of the High Court.

1. At meetings for the Special Purposes of the Income Tax Acts held at Aras Brugha 9/10, Upper O’Connell Street, Dublin, on 20 January 1956, and 23 March 1956, for the purpose of hearing appeals, The Monteagle Estate Co (hereinafter called “the company”) made a claim for repayment of tax in respect of management expenses for the year 1948/49, under ITA 1918 s 33.

2. At the hearing of the said management expenses claim the following facts were either admitted or proved:

• (a) The company was incorporated on 17 September 1935, the first mentioned object in its memorandum of association being to acquire the Monteagle Estate. The other objects set out in the memorandum were such as are usual for an estate company.
• (b) The Monteagle Estate, which consisted of a mansion house and demesne near Foynes, Village houses in Foynes and elsewhere, various parcels of land in the Counties of Limerick and Kerry, stock exchange securities and some other assets, had been settled on the third Lord Monteagle for life by will of the second Lord Monteagle who died in 1924. The third Lord Monteagle died in 1934 leaving the estate to the fourth Lord Monteagle (his uncle) as tenant for life with the remainder to the latter’s son, Charles Spring Rice (in tail male). Father and son disentailed the property in 1935 and the properties were then sold in fee simple to the Monteagle Estate Co. No settled property was taken over by the company.
• (c) The purchase consideration for the properties, stock exchange securities and certain other assets, taken over by the company from the fourth Lord Monteagle and his son, was £17,050, which was not paid in cash but was satisfied by the allotment of 10,050 £1 shares in the company, treated as fully paid and the issue of 22 debentures for a total sum of £7,000 to the vendors or their nominees.
• (d) The mansion house was requisitioned by the army in 1939 and as soon as it was evacuated after the emergency and the compensation for damage agreed, it was sold in August 1946 for £7,000. The demesne, which was being farmed by the company and was not considered valuable for development, was also sold for £2,000 on 25 February 1947. The proceeds of these sales were nor received until the year ended on 30 November 1948, at which date the company’s assets, as shown by its accounts, consisted of:

£
Residue of lands and hereditaments as originally valued in 1934 for estate duty purposes	4,047 14 3
Unpaid purchase money of lands	351 16 0
Household furniture	1,668 15 9
Stock exchange securities (9 holdings)*	2,357 16 5
Motor car	493 0 0
Debtors (including further unpaid purchase money on lands)	2,728 1 9
Loans to reps. of fifth Lord Monteagle	1,700 0 0
Cash at bank +	11,128 7 2
24,476 1 4
+	Of this sum, £9,521 was invested in stock exchange securities in the year of claim 1948/49.
*	None of the above stock exchange securities £2,357.16.5. had been amongst the securities taken over at the formation of the company but had been subsequently purchased for cash.

• (e) The lands and hereditaments which remained on hands at 30 November 1948, included properties out of which ground and other small leasehold rents arose, agricultural lands for which the company made grazing and conacre lettings, woodlands, houses in Foynes and elsewhere let to tenants and a small farm of 89 acres of poor land at Milltown, Co Kerry, which was sold on 24 July 1950. All the work done in connection with conacre and grazing and forestry was done through auctioneers and the company gave very little of its time to these lettings. Most of the company’s time was taken up with the investments (including creation of ground rents and of other rents on long-term leases at less than rack rents) which it made since its incorporation of 17 September 1935.
• (f) In 1948/49, in addition to managing its stock exchange securities, lands, and hereditaments, the company continued its practice to his Kerry residence “Glanleam” and some allowances by way of pension to former employees of the Monteagle family.
• (g) Since the year 1948/49, it has been the policy of the company to sell, whenever possible, lands which have not potential building value and to make additional investments in stock exchange securities. In the case of lands retained for their building value it has been the practice to make only long-term leasehold lettings in order to create ground rents. the company’s accounts for the seven years to 30 November 1954, showed that realisations of properties during the period, including approximately £7,000 from the sale of woodlands, had amounted to £8,667.1.10, whilst only £4,265.15.9 had been expended on its landed properties, mainly in redeeming land commission annuities. By 30 November 1954, the stock exchange securities held had increased to £16,594.5.8 (at cost) and the residue of lands and hereditaments (revalued on 1 January 1954) stood at the figure of £18,350.19.0.
• (h) the company’s gross income for the year to 5 April 1949, was made up, approximately, as follows:

£	£
Dividends and interest	338 9 8
Gross rents* videlicet, 103 leasehold rents on building and other long...