O'Connlain Inspector of Taxes v Belvedere Estates Ltd

• Jurisdiction: Ireland
• Judge: Miss Justice Carroll
• Judgment Date: 19 April 1985
• Neutral Citation: 1985 WJSC-HC 1432
• Docket Number: No. 205R./1983,[1983 No. 205R]
• Court: High Court
• Date: 19 April 1985

1985 WJSC-HC 1432

The High Court

No. 205R./1983

O'CONNLAIN INSPECTOR OF TAXES v. BELVEDERE ESTATES LTD

(Revenue)

Between:-

S.S. O'Connlain

Inspector of Taxes

Appellant

and

Belvedere Estates Limited

Respondent

Citations:

CORPORATION TAX ACT 1976 S146

FINANCE (MISCELLANEOUS PROVISIONS) ACT 1968 S18

FINANCE (MISCELLANEOUS PROVISIONS) ACT 1968 S18(2)(B)

FINANCE (MISCELLANEOUS PROVISIONS) ACT 1968 S18(2)(C)

INCOME TAX ACT 1967 S428

INCOME TAX ACT 1967 S83

Synopsis:

REVENUE

Corporation tax

Assessment - Business - Dealing in or development of land - Profits or gains - Land as trading stock - Value of interest held by company at end of accounting period - Acquisition of leasehold interest - Acquisition of fee simple reversion, with declaration of merger, two days before end of period - Fee simple estate held on relevant date - Value of interest being value of fee simple plus consideration for assignment of leasehold - Finance (Miscellaneous Provisions) Act, 1968, s. 18 - (1983 No. 205R - Carroll J. - 19/4/85).

O'Connlain v. Belvedere Estates

WORDS & PHRASES

"Held"

Revenue - Corporation tax - Assessment - Land as trading stock - Interest in land held by the trader - Valuation of interest held by trader at end of accounting period - Recent acquisition of fee simple with declaration of merger of former leasehold interest - Finance (Miscellaneous Provisions) Act, 1968, s. 18 - (1983 No. 205R - Carroll J. - 19/4/85).

O'Connlain v. Belvedere Estates

1 Judgment of Miss Justice Carroll delivered on the 19th day of April, 1985

2 This is a case stated under Section 428 of the Income Tax Act 1967 (as applied to Corporation Tax by Section 146 of the Corporation Tax Act 1967) by the Appeal Commissioners for the opinion of the High Court.

3 The facts of this case are set out fully in the case stated.

4 Briefly summarised, three companies, Crosspan Developments Limited and its two subsidiaries, the Respondent, Belvedere Estates Limited (referred to as "Belvedere") and Moyville Investments Limited entered into a scheme to reduce liability to tax relying on the provisions of Section 18 of the Finance (Miscellaneous Provisions) Act 1968 ("The Act"). Crosspan Developments Limited acquired 22 acres of land in fee simple from Dublin Corporation for £88,000.00 plus a levy of £33,000.00 by Deed dated the 20th December, 1974. It granted a ninety-nine year lease of portion of the lands to Moyville Investments Limited at a yearly rent of £30,000.00 by Lease dated the 23rd May, 1975. No fine was paid. Moyville Investments Limited assigned the lands comprised in the lease to Belvedere by Deed dated the 28th May, 1975 for "1,000.00. Crosspan Developments Limited transferred the fee simple reversion to Belvedere on the 29th May, 1975 for £75,000.00 with a declaration of merger.

5 Belvedere's annual accounts are made up to the 31st May in every year. In the accounts ending the 31st May, 1975, Belvedere, relying on the provisions of Section 18 of the Act, showed the value of the lands acquired as opening trading stock at £326,000.00 made up as follows

1.	Amount paid to Moyville Investments Limited for the lease	£ 1,000.00
2.	Market value as at May 28th, 1975 of the rent reserved under the lease	£250,000.00
3.	Amount paid to Crosspan Developments Limited for the fee simple	£ 75,000.00
Total	£326,000.00

6 The relevant parts of Section 18 of the Act provide as follows:

"(1) Where a business of dealing in or developing land is, or is to be regarded as, a trade within Schedule D or a part of such a trade, the provisions applicable to Case I of that Schedule shall, as respects the computation of the profits or gains of the business, have effect subject to the provisions of subsection (2)."

7 (2) (a) Any consideration, other than rent or an amount treated as rent under section 83 of the Income Tax Act, 1967, for the disposal of an interest in any land, or in a part of any land, shall be treated as a consideration for the disposal of trading stock and shall accordingly be taken into account as a trading receipt.

8 (b) Any interest (hereafter in this subsection referred to as the superior interest) in any land held by the trader which has become trading stock of the trade shall thereafter, until the discontinuance of the trade, continue to be such trading stock and the value thereof at any time prior to the discontinuance shall be taken to be an amount equal to the cost to the trader of its acquisition diminished by an amount equal to the cost to the trader of creating any interest (hereafter in this subsection referred to as an inferior interest) to which the superior interest has become subject.

9 (c) For the purposes of paragraph (b) the cost of the acquisition of the superior interest shall, subject to paragraphs (e) and (f), be taken to be the aggregate of the following amounts, that is to say:

10 (i) where the interest is a leasehold interest, the amount of any fine, premium or other like sum paid by the trader in consideration for the grant of the lease, or, if he has obtained the lease by assignment, the amount paid by him in consideration of the assignment;

11 (ii) where the interest is a leasehold interest, an amount equal to the market value at the time of the acquisition of any rent reserved under the lease;

12 (iii) where the interest is not a leasehold interest, the amount paid by the trader for the acquisition of the interest together with an amount equal to the market value at the time of the acquisition of any fee farm rent, rentcharge, annuity or other annual payment reserved or charged upon the land;

13 (iv) the amount paid by the trader by way of legal and other expenses incidental to the acquisition of the interest;

14 (v) where the trader has developed the land, the amount of the expenditure incurred by him on the development;

15 but where the trader has more than one interest in the land, no amount shall be taken into account under sub-paragraph (v) except in relation to that interest to which the other or all the others are subject."

16 The Appeal Commissioners held that Belvedere was entitled to include the total of £326,000.00 as outlay on the cost of acquiring...