MacCarthaigh v D

• Jurisdiction: Ireland
• Judge: O'Hanlon J.
• Judgment Date: 01 January 1986
• Neutral Citation: 1985 WJSC-HC 1355
• Court: High Court
• Docket Number: 570R/84,[1984 No. 570R]
• Date: 01 January 1986

1985 WJSC-HC 1355

The High Court

570R/84

MACCARTHAIGH v. DALY

Between

Donnacha Antoin MacCarthaigh

Appellant

And

Francis Daly

Respondent

Citations:

CORPORATION TAX ACT 1977 S98

INCOME TAX ACT 1967 S241(5)

INCOME TAX ACT 1967 S252

INCOME TAX ACT 1967 S282

INCOME TAX ACT 1967 S296

INCOME TAX ACT 1967 S307

INCOME TAX ACT 1967 S428

LIMITED PARTNERSHIPS ACT 1907 S4

LIMITED PARTNERSHIPS ACT 1907 S4(2)

LIMITED PARTNERSHIPS ACT 1907 S5

LIMITED PARTNERSHIPS ACT 1907 S8

LUPTON V CADOGAN GARDENS DEVELOPMENTS 1971 3 AER 460

LUPTON V R A & A B LTD 1968 2 AER 1042 1969 3 AER 1034 1971 3 AER 948

MARA V HUMMINGBIRD LTD 1982 ILRM 421

PARTNERSHIP ACT 1890 S1

PETROTIM SECURITIES V AYRES 1964 1 AER 269 41 TC 389, 1964 1 WLR 190

SHARKEY V WERNHER 1955 3 AER 493 36 TC 275

Synopsis:

REVENUE

Income tax

Taxable income - Allowances - Initial or wear and tear allowance - Hiring of plant and equipment - Scheme not shown to be bogus commercial transaction - Taxpayer entitled to allowance claimed - Income Tax Act, 1967, ss. 241, 252, 282, 296, 307 - (570R/84 - O'Hanlon J. - 22/2/85).

MacCarthaigh v. Daly

1 Judgment delivered the 22nd day of February, 1985, by O'Hanlon J.

2 This is a case stated by Patrick Russell, Appeal Commissioner for the opinion of the High Court, in accordance with the provisions of the Income Tax Act, 1967, Section 428.

3 The Respondent, hereinafter referred to as "the tax-payer" is a solicitor in practice in Cork, and he was at all material times a director of, and shareholder in, the limited company, southern Metropole Hotels Company Limited, which at all material times owned and operated the Metropole Hotel in the City of Cork.

4 In the year 1977 an arrangement was proposed by the company's accountants, and agreed to by the tax-payer, the company, and six other persons, whereby a limited partnership was to be formed in the manner and subject to the conditions provided by the Limited Partnerships Act, 1907, in which the company would be the sole general partner, within the meaning of Section 4 of the Act, and the tax-payer and the other six persons involved would be limited partners, each contributing a sum of £50 as capital of the limited partnership. Five of the seven persons who were to be limited partners were also directors of the company, Southern Metropole hotels Company Limited.

5 The agreement to form the limited partnership is contained in a document dated the 23rd December, 1977. Paragraph 4 provides as follows:

"The partnership business shall consist of the leasing and providing of plant and equipment of all sorts and the provision of management services of all descriptions."

6 The name of the partnership was to be "Metropole I" (although in the copy agreement annexed to the Case Stated it is given as "Metropole II"). By a written agreement entitled "Master Leasing Agreement" and dated the 28th December, 1977, "Metropole I" purported to enter into a five-year letting agreement (terminable at any time by mutual consent) whereby Metropole I would let and Southern Metropole Hotels Limited would take on hire, plant and machinery subject to and upon the terms and conditions set out in the said agreement.

7 Southern Metropole Hotels Limited then proceeded to advance a sum of £30,000 to enable Metropole I to purchase various goods and chattels which were suitable for use in the hotel business and these were made available for the use of the hotel company. It is claimed on behalf of the tax-payer that this was a transaction covered by the terms of the Master Leasing Agreement, and that Metropole I thereby became entitled to receive an annual rent equal to 10% of the cost price of the goods and chattels so provided. It is further claimed on behalf of the tax-payer that when all these steps had been taken the outcome was that for the tax year 1977/78 the leasing income enuring for the benefit of Metropole I amounted to £222, whereas the sum which could be claimed as an initial allowance or under the heading of "Wear and Tear" exceeded £13,000. The tax-payer, on this basis, could claim a 15% share of the loss or initial allowance for the purpose of computing his own personal liability for tax and claimed to have a sum of £1920 or £1924 set against his income as solicitor, having regard to the provisions of the Income Tax Act, 1967, as amended, and particularly Sections 241(5), 252, 282, 296 and 307 thereof.

8 This claim is contested by the Appellant on a number of grounds. The limited partnership contemplated by the Agreement of the 23rd December 1977 was not registered until the 16th February, 1978, whereas transactions involving the supply of plant and equipment to the hotel company commenced in the month of December, 1977. Section 4 of the Limited Partnerships Act, 1907, requires that the limited partners shall "at the time of entering into such partnership contribute thereto a sum or sums as capital or property valued at a stated amount". The stated amount in the present case was a sum of £50 in respect of each of the limited partners but this sum was not contributed by them or any of them until the 14th July, 1978. Consequently, it was contended on behalf of the Appellant that notwithstanding the registration of the limited partnership on the 16th February, 1978, the requirements of the Act of 1907 had not been complied with and no limited partnership known as "Metropole I" came into existence until the requirements of Section 4 (2) of the Act were complied with some months after the relevant tax year had expired (if at all). I am of opinion that this submission is correct, and it was not seriously contested by the tax-payer in the proceedings on the Case Stated.

9 The tax-payer suggests, however, that this apparent break-down in the scheme which had been devised by the hotel company's accountants was not really material; that moneys were advanced, in any event, to the named persons, and plant and equipment were acquired therewith, and were subsequently leased to the hotel company in accordance with the provisions of the Master Leasing Agreement.

10 Section 8 of the Limited Partnership Act, 1907, deals with the registration of a limited partnership and provides that there must be furnished to the registrar a statement signed by the partners containing certain particulars, including (inter alia), -

"(g)The sum contributed by each limited partner, and whether paid in cash or how otherwise."

11 It must be assumed that registration of the limited partnership in the present case was achieved by submitting to the registrar, prior to the 16th February, 1978, a statement which omitted, or stated incorrectly, the amount contributed by each limited partner, as, by some oversight, their contributions were not made for some months after registration. Section 5 of the Act provides as follows:- "5. Every limited partnership must be registered as such in accordance with the provisions of this Act, or in default thereof it shall be deemed to be a general partnership, and every limited partner shall be deemed to be a general partner."

12 As the registration effected in the present case does not appear to have been effected in accordance with the provisions of the Act, having regard to the irregularity already referred to, it appears to me that the transactions carried out by the parties to the so-called Partnership Agreement during the tax year 1977/78 must, prima facie, be regarded as having been carried out by them as general partners.

13 I would have some reservations, however, in coming to a conclusion that the arrangement entered into between them should properly be regarded as a partnership at all, since the Partnership Act, 1890, which was largely declaratory of the common law, commenced by defining partnership in Section 1 of the Act as "the relation which subsists between persons carrying on a business in common with a view of profit."...