Casey v Monteagle Estate Company

• Jurisdiction: Ireland
• Judgment Date: 08 April 1962
• Date: 08 April 1962
• Court: High Court

Casey v. Monteagle Estate Co.

Between W. J. CASEY, Inspector of Taxes, Appellant, and The MONTEAGLE ESTATE COMPANY

Respondents.

Revenue - Income tax - Relief - Company - Expenses of management - Company formed to acquire family estate in consideration of issue of shares -"Company whose business consists mainly in the making of investments, and the principal part of whose income is derived therefrom" - Income Tax Act, 1918 (8 & 9 Geo. 5, c. 40), s. 33.

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

The Case Stated was as follows:—

"1. At meetings for the Special Purposes of the Income Tax Acts held at Arus Brugha, 9-10 Upper O'Connell Street, Dublin, on the 20th January, 1956, and the 23rd March, 1956, for the purpose of hearing appeals, the Monteagle Estate Company (hereinafter called 'the Company') made a claim for repayment of tax in respect of management expenses for the year 1948/49 under s. 33 of the Income Tax Act, 1918.

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

(a) The Company was incorporated on the 17th 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 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 Company. 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 damages 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 the 25th February, 1947. The proceeds of these sales were not received until the year ended on the 30th November, 1948, at which date the Company's assets, as shown by its accounts, consisted of:—

	£s.d.
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 of lands) .. ..	2,728 1 9
Loan to Reps. of fifth Lord Monteagle	1,700 0 0
Cash at bank*	11,128 17 2
	----------
	£24,476 1 4
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[^* 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 16s. 5d.) 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 the 30th 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 the 24th 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 on the 17th September, 1935.

(f) In 1948/49, in addition to managing its stock exchange securities, lands and hereditaments, the Company continued its practice of paying, on behalf of Lord Monteagle, expenses relating to his Kerry residence, 'Glenleam,' 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 the 30th November, 1954, showed that realisations of properties during the period, including approximately £7,000 from the sale of woodlands, had amounted to £8,667 1s. 10d., whilst only £4,265 15s. 9d. had been expended on its landed properties, mainly in redeeming Land Commission annuities. By the 30th November, 1954, the stock exchange securities held had increased to £16,594 5s. 8d. (at cost) and the residue of lands and hereditaments (revalued on the 1st January, 1954), stood at the figure of £18,350 19s. 0d.

(h) The Company's gross income for the year to the 5th April, 1949, was made up, approximately, as follows:—

		£s.d.
Dividends and interest		339 9 8
Gross rents,* viz., 103 leasehold rents on building and other long term leases:—
	£s.d.
From leases in existence on 17/9/1935 .. ..	522 14 2
From leases made since 17/9/1935 .. .. ..	706 13 0
	--------
Total leasehold rents..	1,229 7 2
23 Yearly rents	97 8 6
20 Grazing and conacre rents .. .. ..	254 8 9
55 Monthly rents	440 2 7
	--------
	2,021 7 0
Less adjustment ..	19 3 11	2,002 3 1
	--------	--------
		£2,341 12 9
		--------

[^* As particulars for the year to the 5th April, 1949, were not readily available, I, the Commissioner agreed to accept the figures for the year to the 30th November, 1948, which are shown here, as being approximately correct for the year to the 5th April, 1949].

(i) The Company's income from leasehold rents increased from £546 per annum from 81 rents in 1936 to £1,229 per annum from 103 rents in 1948, two large rents on building leases accounting for £550 per annum of the increase.

3. The contentions advanced on behalf of the Company were (a) that it was clear from sub-s. 3 of s. 33 of the Income Tax Act, 1918, that the section envisaged the acquisition of landed property as capable of being an investment and, from the tax cases decided on the section, it was evident that Companies owning only landed property had been regarded as investment companies to which the section applied.

(b) That the rents it received under building and other long-term leases were income from investments for the purposes of the section.

(c) That from its very formation, the Company, although it had acquired landed property, was not an estate company which would be debarred from relief under the decision in Howth Estate Co. v. Davis(1). The Howth Estate Company had acquired only settled property and its function was not to invest money but to manage an hereditary estate, whereas the Monteagle Estate Company had acquired only unsettled property as an investment.

(d) That, even if the decision in the Howth Estate Co. Case(1) would have precluded a claim by the Company under s. 33 in earlier years, its character had so changed by 1947 that for the year 1948/49 it was a company to which the section applied. By 1948/49 the Company had disposed of the mansion house and demesne and invested the proceeds in stock exchange securities and it had also, since 1935, substantially increased its income from long-term leasehold rents. Moreover, it continued, subsequent to 1948/49, to sell its land whenever possible and to invest the proceeds in stock exchange securities. On these facts, it was contended, that for 1948/49 at least, the main business of the Company and the business to which the most of its time was devoted, was the making of investments either by purchasing stock exchange securities or by creating rents under long-term leases.

(e) That for the year 1948/49 the principal part of the Company's income was derived from investments, as it

consisted mainly of dividends etc. from stock exchange securities and rents from long-term leases which were also claimed to be income from investments.

(f) That the acquisition by the Company of the property for which it had paid by the issue of its own shares and debentures was in fact an investment transaction as the result would have been precisely the same if, as was often done, there had been a mere exchange of cheques.

The Company's lands were revalued in 1954 at £18,000 and its total investments held in 1954 were £16,500 and in 1955 £19,722.

(g) In support of the contentions on behalf of the Company, counsel for the Company referred to the following decided cases regarding companies owning land:—London and Northern, Estates Co. Ltd. v. Harris(1); Southern v.Aldwych Property Trust Ltd.(2); London County Freehold and Leasehold Properties Ltd. v. Sweet(3); Simpson v. The Grange Trust Ltd.(4).

4. The Inspector of Taxes, on behalf of the...