MacAonghusa v Ringmahon Company
| Jurisdiction | Ireland |
| Judge | Mr. Justice Declan Budd |
| Judgment Date | 26 November 1999 |
| Neutral Citation | [1999] IEHC 48 |
| Court | High Court |
| Date | 26 November 1999 |
[1999] IEHC 48
THE HIGH COURT
AND
Citations:
TAXES CONSOLIDATION ACT 1997 S943
TAXES CONSOLIDATION ACT 1997 S81(1)
TAXES CONSOLIDATION ACT 1997 S81(2)
TAXES CONSOLIDATION ACT 1997 S81(2)(a)
INCOME TAX ACT 1967 S61
INCOME & CORPORATION TAXES ACT 1988 S74(1) (UK)
TAXES CONSOLIDATION ACT 1997 S941
TAXES CONSOLIDATION ACT 1997 S942
BROSNAN, INSPECTOR OF TAXES V MUTUAL ENTERPRISES LTD 1997 3 IR 257
INCOME TAX ACT 1967 S61(e)
MARA, INSPECTOR OF TAXES V HUMMINGBIRD 1982 ILRM 421
EDWARDS, INSPECTOR OF TAXES V BAIRSTOW 1956 AC 14
MCGARRY, INSPECTOR OF TAXES V LIMERICK GAS COMMITTEE 1932 IR 125
LORD IVEAGH V REVENUE COMMISSIONERS 1930 IR 386
LORD SUMMER IN LEVENE V INLAND REVENUE COMMISSIONERS 1928 AC 217
MITCHELL V BW NOBLE LTD 1927 1 KB 719
MCGRATH V MCDERMOTT (INSPECTOR OF TAXES) 3 ITR 683
RAMSAY (WT) LTD V INLAND REVENUE COMMISSIONERS; EILBECK V RAWLING 1982 AC 300
FURNISS V DAWSON; MURDOCH V DAWSON 1984 AC 474
INLAND REVENUE COMMISSIONERS V DUKE OF WESTMINSTER 1936 AC 1
O'SULLIVAN V P LTD 3 ITC 255
REVENUE COMMISSIONERS V DOORLEY, BISHOP OF ELPHIN 1933 IR 750
PARTINGTON V AG LR 4 HL 100
MALLALIEU V DRUMMOND (INSPECTOR OF TAXES) 1983 STC 655
INCOME & CORPORATION TAXES ACT 1970 S130(a) (UK)
STRONG & CO OF ROMSEY LTD V WOODIFIELD (SURVEYOR OF TAXES) 1906 AC 448, 5 TC 215
PRINCE V MAPP (INSPECTOR OF TAXES) 1970 1 WLR 260
MORGAN V TATE & LYLE LTD 1955 AC 21, 35 TC 367
MACKINLAY, INSPECTOR OF TAXES V ARTHUR YOUNG MCCLELLAND MOORES & CO 1989 STC 898
VODAFONE CELLULAR LTD V SHAW (INSPECTOR OF TAXES) 1997 STC 734
ODHAMS PRESS LTD V COOK (INSPECTOR OF TAXES) 1938 23 TC 233
TRANS-PRAIRIE PIPELINES LTD V MIN OF NATIONAL REVENUE 70 DTC 6351 (CAN)
DWS CORP V MIN OF NATIONAL REVENUE 1968 2 EX CR 44
WARD & CO LTD V COMMISSIONER OF TAXES 1923 AC 145
ARCHIBALD THOMSON BLACK & CO LTD V BATTY 7 TC 158
MONTREAL COKE & MANUFACTURING CO V MIN OF NATIONAL REVENUE 1944 1 REO 743 (CAN)
COMMISSIONERS OF INLAND REVENUE V CARRON CO 45 TC 18
COMMISSIONERS OF INLAND REVENUE V PULLMAN CAR CO LTD 35 TC 221
Synopsis
Taxation
Corporation tax; deductible expenses; Schedule D Case I; case stated; respondent redeemed £6 million of redeemable preference shares and borrowed £6 million from a bank; Circuit Court had allowed the expenditure as a deduction; whether interest on the loan a deductible expense; whether interest paid wholly and exclusively for the purposes of the trade; s.81, Taxes Consolidation Act, 1997.
Held: Interest was the cost of obtaining finance to keep the trade going; Circuit Court judge entitled to come to the conclusion he reached.
MacAonghusa (Inspector of Taxes) v. Ringmahon Company - High Court: Budd J. - 26/11/1999
The redemption of preference shares by the respondent had left a gap in its finances, and it had to borrow funds in order to continue trading, and the funds so borrowed were used for trading. In those circumstances it was reasonable for the Circuit Court Judge to hold that the respondent was entitled to a deduction in respect of the calculation of its profits under Schedule D Case 1 in the amount expended in its interest payments on the sum borrowed. So held by the High Court in upholding the findings of the Circuit Court.
JUDGMENT of Mr. Justice Declan Budd delivered on the 26th day of November 1999
This is a case stated for the opinion of the High Court pursuant to the Taxes Consolidation Act 1997Section 943 from a decision of His Honour, Judge Dominic Lynch given in his judgment delivered on 1lth November, 1997 with which the Inspector immediately expressed dissatisfaction and required a case to be stated. The Inspector had initially raised an assessment for corporation tax on the Respondent, Ringmahon Company ( "the Company"). On appeal by the Company the matter went before the Appeal Commissioners. There was then an appeal to the Circuit Court which heard the matter as a full appeal on the facts and heard the evidence of Frank Bowen, Chartered Accountant, who had acted as advisor to the Company. The learned Circuit Court Judge held that the Company was entitled to a deduction of £435,764.00 in computing the amount of its profits under Case I of Schedule D. The relevant part of Section 81 of the Taxes Consolidation Act 1997reads as follows:-
2 S. 81 (1) The tax under Cases I and II of Schedule D shall be charged without any deduction other than is allowed by the Tax Acts.
(2) Subject to the Tax Acts, in computing the amount of the profits or gains to be charged to tax under Case I or II of Schedule D, no sum shall be deducted in respect of -
a a) "any disbursement or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade or profession;hillip;".
The provisions of Section 61 of the Income Tax Act 1967dealing with the general rule as to deductions is in similar terms:-
61. Subject to the provisions of this Act, in computing the amount of the profits or gains to be charged, no sum shall be deducted in respect of-
a) any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade or profession;..."
Since reference will be made to the similar provision in the UK Tax Codes it is helpful to note that the Income and Corporation Taxes Act 1988 Section 74 deals with general rules as to deductions not allowable:-.
(As inserted by virtue of Finance Act 1994S144[2] this provision now reads)
2 74(1) "Subject to the provisions of the Tax Acts, in computing the amount of the (profits) to be charged under Case I or Case II of Schedule D, no sum shall be deducted in respect of-
a) any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade, profession or vocation; ".
The facts of the matter as found by the learned Circuit Court Judge are vital. The essence of the matter is the purpose for which the Company took out a loan. If the cost of that loan, the interest paid thereon from year to year, is held to be money wholly and exclusively laid out or expended for the purpose of the Company's trade, then this interest is a deductible expense for the purposes of Corporation Tax and the Company would effect a tax saving at about 40%.
The Inspector's case is that the Company raised a loan from Allied Irish Banks for the purpose of redeeming six million redeemable preference shares held by Dunnes Stores Ireland Company (called "DSIC"). He argues that the loan was raised for the purpose of a share restructuring of the Company rather than for the trade of the Company, which is engaged in the trade of "Retailing of Food, Clothing and other Household Goods". He stresses the "wholly and exclusively" test in the Irish and UK legislation.
The actual findings of the learned Circuit Court Judge are important and accordingly I append the wording of the entire case stated. This gives the history of the transactions and also the findings made by the Circuit Court. These are significant because the case made on behalf of the Inspector is that the findings of the learned Circuit Court Judge and his conclusions based on primary facts were significantly influenced by a wrong view of the law. No criticism is made of the statements in the Case Stated up to paragraph 8 but the contention made on behalf of the Inspector is that the learned Circuit Court Judge fell into error in saying that he would have to add words to the phraseology in Section 81 2(a) in order to be able to find for the Inspector.
First, while the proceedings in this tax matter before the Appeal Commissioners and the Circuit Court were in private, this Case Stated is dealt with in open court. Secondly, charging sections are in general construed against the Revenue while relief sections are construed against the tax payer. Thirdly, a citizen is entitled to look at the wording of the tax statutes and to arrange his affairs so as to minimise the incidence of tax.
In T.G. Brosnan (Inspector of Taxes) -v- Mutual Enterprises Limited [1997] 3 IR 257, in 1979 the Respondent had obtained a loan of monies in sterling payable "on demand" from a bank to facilitate the purchase of a business premises from which it was intended to carry on its trade. The monies were used for the purchase of a premises but the sterling debt was converted from time to time in various European currencies to achieve the best possible rate of interest payable. As a result of these currency dealings the Company incurred substantial losses. The Respondent sought to include the losses incurred on the foreign currency transactions in computing the trading profits and allowable losses for Corporation Tax purposes. The Appellant argued that, as the monies were borrowed for the purpose of acquiring a capital asset, any losses incurred on foreign currency dealings with the monies were capital losses and were not allowable as trading losses. That issue was determined in favour of the Revenue by the Appeal Commissioner. On appeal to the Circuit Court, the Circuit Judge formed the opinion that the losses were not of a capital nature or intended to be employed as capital in the Company's trade and that they were connected with the trade and allowable under S 61(e) of the Income Tax Act 1967.The Applicant was dissatisfied with the determination and the Circuit Court Judge stated a case for the opinion of the High Court as to whether his decision was correct in law. Murphy J. in the High Court answered the Case Stated in the affirmative stating that, in deciding whether losses were of a revenue or capital nature, all relevant...
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