Mara v Hummingbird Ltd

JurisdictionIreland
JudgeKENNYJ.,MR. JUSTICE McWILLIAM
Judgment Date01 January 1982
Neutral Citation1977 WJSC-HC 1021
Date01 January 1982
CourtHigh Court
MARA v. HUMMINGBIRD
JAMES MARA
v.
HUMMINGBIRD LIMITED

1977 WJSC-HC 1021

THE HIGH COURT

1

JUDGMENT OF MR. JUSTICE McWILLIAMDELIVERED THE 7th MARCH 1977

2

This matter comes before me by way of a case stated by the Appeal Commissioner at the request of the Inspector of Taxes for the opinion of the High Court as to whether the Appeal Commissioner was entitled to hold that certain activities of the Respondent, Hummingbird Limited, in relation to the purchase, partial development and sale of certain premises at Baggot Street, Dublin, did not constitute a business of dealing in or developing land which was, or was deemed by Section 17 of the Finance ( Miscellaneous Provisions) Act, 1968, to be a trade within Case I of Schedule D of the Income Tax Act, 1967.

3

Schedule D is contained in Part IV of the 1967 Act and, in so far as relevant to these proceedings, provides that tax shall be charged in respect of the annual profits or gains arising or accruing to any person residing in the State from any trade whether carried on in the State orelsewhere.

4

Case 1 of Schedule D, in so far as relevant to these proceedings, relates to any trade not contained in any other Schedule.

5

The Respondent was incorporated on 25th August, 1965,with a share capital of £100 of which only two shares of £1each have been issued. It appears to have been incorporated for the purposes of transport and, in particular, with hovercraft, a project which never got under way.

6

Amongst a comprehensive list contained in twentynine clauses in the memorandum, were wide clauses with regard to purchasing, acquiring, leasing, selling, investing in, managing, developing and turning to account land and buildings and with regard to pulling down and constructing buildings.

7

The Respondent is one of a group of English and Irish companies known as the Guinness Mahon Group and is a wholly-owned subsidiary of a company which is a wholly-owned sub-sidiary of Guiness Mahon Limited (hereinafter called the Bankers) which is incorporated in Ireland and carries on the business of merchant bankers.

8

In 1965, premises of Lincoln & Nolan Limited in Baggot Street, Dublin, came on the market and the Bankers entered into negotiations to purchase them. According to the evidence given on their behalf, this was with a view to making an investment from which an annual income would be derived. An agreement was reached giving the Bankers an option to purchase and they then proceeded to have plans prepared for the construction of an office block, to obtain planning permission and to appoint a firm of estate agentsto act in connection with the making of lettings and the collection of rents. These arrangements having been completed, the option was exercised, a conveyance of the property to the Respondent was taken by deed of 31st December, 1967, and builders commenced work in January,1968.

9

At this time, one of the directors of the Bankers was also a director of the Bank of Ireland and, in this capacity, he became aware that the Bank of Ireland was looking for headquarters accommodation. This resulted in the suggestion that the Bank of Ireland might lease accommodation there. Negotiations ensued during which it appeared that the Bank of Ireland was interested in taking the entire of the premises. The evidence is that the Bankers were only interested in leasing the premises when developed, whereas the Bank of Ireland was only interested in buying. This led to increasing offers by the Bank of Ireland until the Bankers, on behalf of the Respondent, agreed to sell for the sum of£1,000,000, which showed a very handsome profit on the out-lay to that date of about £370,000.

10

This is the only transaction which the Respondent has ever conducted. The Respondent had no assets and the entire finance was provided by the Bankers. It is not clear on what terms it was provided, if, indeed, any terms had ever been decided upon.

11

The question in issue is as to whether the very substantial profit arose or accrued from a trade within the meaning of the Income Tax Act.

12

Substantially, the case made on behalf of the Inspector of Taxes fell under two headings. First, that the whole circumstances of the Respondent and of the transaction are only consistent with the conclusion that the Respondent was carrying on a business with all the indicia of trade. Emphasis was laid particularly on the following aspects:- The Respondents were in the market to deal in accommodation and this is a trade; the transaction was a dealing in land in a manner expressed in the Memorandum of Association to be one of the objects of the Respondents; the Respondent had to borrow all the money required and must be assumed to have contemplated having to repay it and that there could be no reasonable hope of repaying it out of the rents; that the Respondent had given some consideration to the marketability of the premises when completed prior to the negotiations with the Bank of Ireland; that no further investment of a similar nature was made by the Respondent with the profits or, indeed, at all; and, generally, that, as the Respondent and its parent companies were in business to make money, it must be assumed that the property was bought with the object of turning it to account in the most profitable way.

13

Secondly, it was argued that the transaction fell within the provisions of section 17 of the Act of 1968. Sub-section (1) of section 17 provides as follows:- Where, apart from this section, all or some of the activities of a business of dealing in or developing land would not be regarded as activities carried on in the course of a trade within Schedule D but would be so regarded if every disposal of an interest in land included among those activities was a disposal of the full interest therein which the person carrying on the business had acquired and that interest had been acquired by him in the course of the business, the business shall be deemed to be wholly a trade within Schedule D or, as the case may be, part of such a trade and the profits or gains thereof shall be charged under Case I of Schedule D accordingly.

14

On behalf of the Respondent it was argued that I was not entitled to review any finding of fact by the Appeal Commissioner provided there was evidence on which he could make such a finding; that the Appeal Commissioner had found that the premises had been acquired by the Respondent with the intention of developing them and holding them as a long term investment and not with a view to sale; that, in any event, this was the only reasonable conclusion from the evidence; that the Respondent did not carry on the tradeof dealing in land or property and that this sale was an isolated transaction due solely to the exceptional offer made by the Bank of Ireland; and that section 17 of the 1968 Act had no application to the present transaction as it was only intended to apply and only applies to transactions in which there has been a dispoal of less than the full interest in the land, and as it only applies where there has been a business of dealing in or developing land established.

I was referred to the following authorities:-

Comm. of I. R. v. Livingston & Ors. 11 Tax Cases 538.

Balgownis Land Trust Ltd. v. Comm. I. R. 14 Tax Cases 684.

Rellim Ltd. v. Vise 32 Tax Cases 254.

Comm. of I.R. v. Toll Property Co. Ltd. 34 Tax Cases 13.

Comm. of I.R. v. Reinhold. 34 Tax Cases 389.

Agricultural Credit Corporation v. Vale (1935) I.R. 681

Granville Building Co. Ltd. v. Oxby 35 Tax Cases 245.

Shadford v. H. Fairweather & Co. Ltd. 43 Tax Cases 291.

Birch v. Delaney. (1936) I.R. 517.

Swaine v. "C" (1964) I.R. 423.

Comm. of I.R. v. Hyndland Investment Co. Ltd. 14 Tax Cases 694.

Turner v. Last 42 Tax Cases 517.

Gray & Gillitt v. Tiley 26 Tax Cases 80.

West v. Phillips 38 Tax Cases 203.

Harvey v. Caulcott 33 Tax Cases 159.

McLellan, Rawson & Co. Ltd. v. Newell 36 Tax Cases 117.

Spa Estates Ltd. v. O hArgain Judgment of Kenny J., of 20/6/75.

Wilson Box (Foreign Rights) Ltd. v. Brics 20 Tax Cases 736

15

From this comprehensive list of authorities, the following principles appear to be applicable to this case.

16

1. If the property was purchased in the way of trade, the transaction is subject to tax under Case 1.

17

2. If the property was purchased as an investment for the purpose of producing an annual or other periodic income, it was not purchased in the way of trade and is not subject to tax under Case I.

18

3. A sole venture can be made in the way of trade if carried on in the same way as a person regularly in such trade would carry it on.

19

4. The fact that objects of a company are available and powers of a company are used for a transaction is relevant to consider but does not necessarily mean that these powers are used for the purpose oftrading.

20

5. The fact that, at the time of purchase as an investment, the possibility has been considered that a time may come when a sale may be necessary or desirable does not, of itself, constitute the transaction a trading transaction.

21

6. In so far as any finding of fact by the Commissioner isconcerned, I am only entitled to disturb it if I find that there was no evidence which could reasonably support it.

22

This brings me to the point as to whether the finding of no trading by the Commissioner is a finding of fact or a decision in law or a combination of both. With regard to a finding by the Special Commissioners that the purchase and sale of investments formed part of the trade of a corporation, Sullivan, P., in AgriculturalCorporation v. Vale (1935) I.R. 681, stated at p. 698 "That is a finding of fact with which this Court cannot interfere if there was evidence to support it, unless in arriving at their conclusion the Special Commissioners misdirected themselves in any matter of Law". In Rellim v. Vise 32 Tax Cases 254 the same view is...

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