Mac Giollariogh v Irish Bloodstock Agency Ltd

Judgment Date01 January 1959
Date01 January 1959
CourtHigh Court
Mac Giollariogh v. Irish Bloodstock Agency Ltd.
PEADAR Mac GIOLLARIOGH, Inspector of Taxes

Revenue - Income tax - Stud farm - Stallion - Service of owners' mares and visiting mares - Sale of stallion - Basis of assessment to tax of profit realised on sale - Whether tax to be computed under Schedule B or Schedule D - Income Tax Act, 1918 (8 & 9 Geo. 5, c. 40), Sch. B; Schedule D, ss. 1 and 2; Case V - Finance Act, 1939 (No. 18 of 1939) s. 7.

Case Stated under s. 149 of the Income Tax Act, 1918, as amended by s. 10 of the Finance Act, 1924, by the Circuit Court Judge for the City and County of Dublin (Judge McCarthy).

The Case Stated was as follows:—

"1. This matter came before me on the 24th day of May, 1955, and, upon adjournment thereof, on the 21st day of October, 1955, and, upon further adjournment thereof, on the 11th day of November, 1955, by way of re-hearing, pursuant to s. 196 of the Income Tax Act, 1918, of an appeal against an assessment to income tax made upon the Irish Bloodstock Agency Limited (hereinafter called 'the Company') for the year ending the 5th day of April, 1951, under Case I of Schedule D of the Income Tax Act, 1918, in the sum of £50,000 0s. 0d.

2. The following facts were proved or admitted:—

(a) The Company is a private Company incorporated in Ireland and registered under the Companies (Consolidation) Act, 1908. One of the objects of the Company as set out in Clause 3 of its Memorandum of Association is 'to purchase, acquire, sell, dispose of Irish bloodstock in Ireland and elsewhere, and any interest therein, and the doing of all such other things as are incidental or conducive to the attainment of the above object.' A copy of the Memorandum of Association of the Company is annexed to and forms part of this Case.

(b) The Company carries on the trade of dealing in Irish bloodstock (including the purchase, training, racing, disposition and sale thereof). The bloodstock so purchased by the Company is, after being trained and raced, usually sold but if an animal is considered to be useful for breeding purposes it may, instead of being sold during or at the end of its racing career, be retained by the Company and sent to stud. Some of the bloodstock so purchased by the Company is sold before it has been trained or raced.

(c) During the year preceding the year of assessment and previously the Company was the occupier of (inter alia) certain lands at Clonard in the County of Dublin, of certain other lands known as the Blackhall Stud Farm in the County of Kildare, and of lands at Ballykisteen in the County of Tipperary. The Blackhall Stud Farm was sold by the Company in April, 1951. The Company has, on the said lands or some of them, maintained brood mares and also stallions other than the stallion 'The Phoenix' which is more particularly referred to in (inter alia) sub-para. (d) of this paragraph.

(d) In the year 1941, the Company, in the normal course of its business, purchased for the sum of 290 guineas an animal called 'The Phoenix' which the Company after training, raced in 1942, as a two-year-old, and in 1943 as a three-year-old. 'The Phoenix' was most successful on the turf being unbeaten as a two-year-old and, as a three-year-old, it won the Irish 2,000 guineas and the Irish Derby and was second in the Irish St. Leger.

(e) The Company formed the opinion that 'The Phoenix' was likely to be very successful as a sire. At the end of 1943 the Company decided, as neither the Clonard lands nor the Blackhall Stud Farm mentioned in sub-para. (c)of this paragraph was considered suitable, to send 'The Phoenix' to the Ballykisteen Stud Farm in County Tipperary. On the 31st October, 1944, 'The Phoenix' was transferred to Ballykisteen. At that time he was insured for £20,000.

(f) By a verbal agreement of the 31st October, 1944, portion of the Ballykisteen lands were let to the Company on a yearly letting by the Ballykisteen Stud. The portion of Ballykisteen so let contained 27 acres and included adequate stabling and a covering ring and thereupon the Company became the occupier of the said portion of the Ballykisteen lands. The said verbal agreement was, on the 22nd December, 1947, reduced to writing. A copy of the said agreement of the 22nd December, 1947, is annexed to and forms part of this Case.

(g) The Company was assessed to income tax under Schedule B in respect of its occupation of the said portion of the lands of Ballykisteen and paid such tax under Schedule B yearly in-respect of its occupation of the said lands from the 1st November, 1944. The notices of such assessments for 1949/50 and 1950/51 are annexed to this Case.

(h) It was decided by the Special Commissioner in February, 1949, that the fees received by the Company in respect of 'The Phoenix' from the 1st November, 1944, were covered by the Schedule B assessments.

(i) The Company's accounts are made up for successive periods of twelve months ending on the 31st May in each year. Copies of the Company's accounts for the years 1941/42 to 1948/49 inclusive, and of the Company's balance sheets as at the respective closing dates in each of the said years are annexed to and form part of this Case. The Company is assessed to income tax under Schedule D in respect of its trading activities at Clonard and elsewhere.

(j) From the time 'The Phoenix' was transferred to Ballykisteen down to and including the period of twelve months which ended on the 31st May, 1949, and afterwards he has been kept exclusively on the portion of the Ballykisteen lands in the Company's occupation and has there served mares belonging to the Company and the mares of other owners brought to Ballykisteen for that purpose. Mares are brought on to the lands while in foal to another stallion and have to remain on the lands until there has elapsed, after the birth of such foal, a period sufficient to render further mating suitable. In order to keep the relevant portion of the Ballykisteen lands in good heart the Company keeps and has, since it entered into occupation thereof, kept a certain number of cattle thereon. The cattle in question are and have always been owned by the Company.

(k) Some time prior to the beginning of August, 1948, a proposal was made on behalf of the members of a syndicate (intended to be formed for that purpose) to the Company for the purchase by the syndicate of 'The Phoenix' for a sum of £160,000 in forty shares of £4,000 each. On the 1st August, 1948, an agreement for the sale and syndication of 'The Phoenix' was entered into. A copy of the said agreement or 'Syndicate Terms' is annexed to and forms part of this Case. Certain of the subscribers to the syndicate failed to take up the shares for which they had contracted. One share was given as a present to the Honourable Mrs. Wellesley who had bred 'The Phoenix.' Fourteen shares were taken up by 11 of the subscribers to the syndicate who paid £56,000 to the Company therefor. Ten shares were taken by the late Mr. Myerscough as a nominee for the Company and four shares were taken by the Blackhall Stud Company. Eleven of the shares were not taken up or disposed of.

3. The sole question in dispute was as to whether or not the said sum of £56,000 (mentioned in sub-para. (k)of para. 2 of this Case) was a proper item to be taken into account by the Inspector of Taxes in estimating the profits or gains of the Company's trade for the purposes of the assessment mentioned in para. 1 of this Case.

4. It was contended by counsel on behalf of the Company:—

(a) That the payment of the income tax under Schedule B 'franked' all liability for income tax in respect of 'The Phoenix' from the date when he was placed on and kept at Ballykisteen.

(b) That the increase in the value of 'The Phoenix' which occurred between the date he was sent to Ballykisteen and the date of his syndication was entirely due to the success of his progeny and therefore exclusively attributable to his activities as farm stock on the Ballykisteen Stud Farm.

(c) When 'The Phoenix' was transferred to Ballykisteen he became as much part of the farming stock of those lands as a bull or a cow thereon and consequently the Schedule B assessment exhausted any liability to income tax in respect of any profits made out of him quite apart from the provisions of s. 7 of the Finance Act, 1939.

(d) That the form of the Company's accounts is irrelevant for the purposes of income tax.

(e) That s. 7 of the Finance Act, 1939, does not alter the position of an animal which is farm stock.

(f) The following cases were cited by counsel on behalf of the Company: Malcolm v. Lockhart(1); McLaughlin v.Bailey(2); Lord Glanely v. Wightman(3); Cloghran Stud Farm Co. v. Birch(4); Watson Bros. v. Hornby(5); Laycockv. Freeman, Hardy and Willis, Ltd. (6); Briton Ferry Steel Co. v. Barry(7); Sharkey v. Wernher...

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