Cronin (Inspector of Taxes) v Cork and County Property Company Ltd

• Jurisdiction: Ireland
• Judgment Date: 18 December 1986
• Date: 18 December 1986
• Docket Number: [1983 No. 701R]
• Court: Supreme Court

High Court

Supreme Court

[1983 No. 701R]

Cronin (Inspector of Taxes) v. Cork and County Property Co. Ltd.

M. Cronin (Inspector of Taxes)

Appellant

and

Cork and County Property Company Limited

Respondent

Cases mentioned in this report:—

Whimster and Co. v. Commissioners of Inland Revenue (1925) 12 T.C. 813; 1926 s.c. 20 1925 S.L.T. 623.

Odeon Assoc. Theatres v. Jones [1971] 1 W.L.R. 442; [1971] 2 All E.R. 407; (1970) 48 T.C. 257.

Ó Connlain ó connlain (Inspector of Taxes) v. Belvedere Estates Ltd. [1985] I.R. 22.

Birch v. Delaney [1936] I.R. 517; (1936) 70 I.L.T.R. 175; 2 I.T.C. 127.

Swaine v. C. [1964] I.R. 423; (1964) 100 I.L.T.R. 31; 3 I.T.C. 389.

Inspector of Taxes v. Kiernan [1981] I.R. 117; [1982] I.L.R.M. 13.

Mangin v. I.R.C. [1971] A.C. 739; [1971] 2 W.L.R. 39; [1971] 1 All E.R. 179.

B.S.C. Footwear Ltd. v. Ridgway [1972] A.C. 544; [1971] 2 W.L.R. 1313; (1971) 47 T.C. 495.

Sharkey v. Wernher [1956] A.C. 58; [1955] 3 W.L.R. 671; [1955] 3 All E.R. 493; (1955) 36 T.C. 275.

Heather v. A. Redfern & Sons (1944) 26 T.C. 119.

The Minister of National Revenue v. Anaconda American Brass Ltd.[1956] A.C. 85; [1956] 2 W.L.R. 31; [1956] 1 All E.R. 20.

Ostime v. Duple Motor Bodies Ltd. [1961] 1 W.L.R. 739; [1961] 2 All E.R. 167; (1961) 39 T.C. 537.

Usher's Wiltshire Brewery Ltd. v. Bruce [1915] A.C. 433; (1914) 112 L.T. 651; 31 T.L.R. 104; 6 T.C. 399.

Revenue - Corporation tax - Profits or gains - Trade of dealing in or developing land - Leasehold interest acquired without payment of fine - Interest assigned during accounting period - Calculation of profit or loss - Ordinary principles of commercial accounting - Whether ordinary principles superseded by statutory provisions - Finance (Miscellaneous Provisions) Act, 1968 (No. 7), s. 18.

Case stated.

On 8th August, 1983, the Circuit Court judge for the County and City of Cork, His Honour Judge Fawsitt, stated a case for the opinion of the High Court under the provisions of ss. 428-430 of the Income Tax Act, 1967 (as applied to corporation tax by the Corporation Tax Act, 1976, section 146).

The question for the opinion of the High Court was whether the Circuit Court judge was correct in applying the valuation method provided for in s. 18 of the Finance (Miscellaneous Provisions) Act, 1968, to the transactions carried out by the company and thereby calculating the cost of the asset to the company at £25,000.

The facts of the case and the relevant legislative provisions are fully set out in the judgments of both Finlay P. and Griffin J. infra.

The case was heard by the High Court (Finlay P.) on the 11th May, 1984.

The respondent appealed to the Supreme Court against the decision of the High Court. The appeal was heard on 24th April, 1986.

Section 18 of the Finance (Miscellaneous Provisions) Act, 1968, provides for the calculation of profits or gains for the purpose of Case 1 of Schedule D for a trade of dealing in or developing land.

The respondent was engaged in a trade of dealing in or developing land. During the accounting period for the 12 months ended 31st December, 1975, the respondent acquired a 34 year lease of certain property which it then assigned for £100. No fine was payable on the acquisition of the lease. The rent reserved under the lease was the sum of £2,500 per annum.

Purporting to rely on the provisions of s. 18 of the Act of 1968, the respondent valued the cost of acquisition of the lease at £25,000 (being ten times the rent reserved) and, having deducted the assignment proceeds of £100, claimed to have suffered a loss of £24,900.

The appellant rejected the respondent's calculation of profits and argued that the ordinary principles of commercial accounting applied and, accordingly, that no loss had been suffered in the transaction. The matter came before the Circuit Court and the court adopted the respondent's calculation and held that the loss claimed was provided for by s. 18 of the Act of 1968. On the application of the appellant the Circuit Court judge stated a ease for the opinion of the High Court as to whether he was correct in his finding.

Held by Finlay P. in answering the ease stated and reversing the finding of the Circuit Court, 1, that the ordinary principles of commercial accounting demanded that the profits of an accounting period consisted of the difference between the receipts of the accounting period and the expenditure laid out to earn those receipts. These principles were applicable to calculate the profits of a trade for tax purposes subject to the express prohibitions contained in the relevant statutes.

Dicta of Lord President Clyde in Whimster and Co. v. Commissioners of Inland Revenue(1925) 12 T.C. 813 and Pennycuick V.C. in Odeon Assoc. Theatres v. Jones[1971] 1 W.L.R. 442 applied.

2. That the valuation method laid down in s. 18 of the Act of 1968 only applied to circumstances specified in the section. Those circumstances did not arise in relation to the dealings of the taxpayer, and, accordingly, the ordinary principles of commercial accounting applied.

On appeal by the respondent it was

Held by the Supreme Court, in dismissing the appeal, 1, that the profits of a trade or business for tax purposes are those calculated by means of ordinary methods of commercial accounting as modified by legislation.

Dicta of Lord President Clyde in Whimster and Co. v. Commissioners of Inland Revenue(1925) 12 T.C. 813 and of Pennycuick V.C. in Odeon Assoc. Threatres v. Jones[1971] 1 W.L.R. 442 applied.

2. That where stock is bought and sold within an accounting period there is no question of valuing the stock within the period. In order to arrive at a true assessment of the profits gamed by the trading in land it is therefore not necessary to have regard to the method of valuation provided for by section 18.

Per curiam the court cannot construe a statute in the light of amendments subsequently made. Such amendments can, at best, only be neutral as they may have been made for any one of a variety of reasons. It is for the courts to construe a statute and that construction cannot be influenced by the subsequent interpretation by the Oireachtas.

Cur. adv. vult.

Finlay P.

This is a case stated by His Honour Judge Sean MacD. Fawsitt S.C. Circuit Court judge for the county and city of Cork under the provisions of s. 430 of the Income Tax Act, 1967, as applied to corporation tax by s. 146 of the Corporation Tax Act, 1976.

The matter came before the learned Circuit Court judge on appeal by way of re-hearing by the respondent herein against a decision of the Appeal Commissioner in relation to an appeal against an assessment to corporation tax for the accounting period of 12 months ended on 31st December, 1975, consisting of profit £10,000, tax £5,000.

The following facts were admitted or found by the learned Circuit Court judge:—

• (a) The company was incorporated in 1969 and went into voluntary liquidation on 16th February, 1979. It carried on the trade of dealing in property. A declaration of solvency has been filed on the liquidation.

• (b) On 1st December, 1975, the company was granted a 34 year lease of certain property in Cork by Mr. Leo O'Brien, who at the material time was a director of and shareholder in the company.

• (c) No fine or premium was payable under the terms of the lease and the rent reserved was £2,500.00 per annum.

• (d) The company sold its interest in the property on 29th December, 1975, to Mrs. Mary O'Brien for the sum of £100.00.

• (e) The shareholdings in the company at the relevant dates were Leo O'Brien, 83 ordinary £1.00 shares; Mary O'Brien 17, ordinary £1.00 shares; total shares, 100 ordinary £1.00.

The sole point for decision by the learned Circuit Court judge was whether the company was entitled to a claimed loss of £24,900.00 computed as follows:—

Cost price computed in accordance with the provisions of s. 18 of the Finance (Miscellaneous Provisions) Act, 1968 £25,000.00

Sale price under indenture of assignment £100.00

Loss £24,900.00

The learned Circuit Court judge having heard the facts and arguments submitted to him found as a fact that the market value of the company's interest in the property at the date of the assignment, 29th December, 1975, was £100.00 and accordingly held that s. 19 of the Act of 1968 did not apply to the case. He further held that s. 18 of the Act of 1968 provided a formula for computing the cost of the asset for tax purposes and accepted the company's figure of £25,000.00, which I am informed consisted of a ten year capitalisation of the rent of £2,500.00, and accordingly allowed the company's claim and reduced the assessment to nil...