Murnaghan Brothers Ltd v O'Maoldhomhnaigh

JurisdictionIreland
JudgeMr. Justice Murphy
Judgment Date01 January 1991
Neutral Citation1990 WJSC-HC 2783
CourtHigh Court
Docket Number[1989 No. 1647R.],No. 1647R/1989
Date01 January 1991

1990 WJSC-HC 2783

THE HIGH COURT

No. 1647R/1989
MURNAGHAN BROTHERS LTD v. O MAOLDHOMHNAIGH
REVENUE

BETWEEN

MURNAGHAN BROTHERS LIMITED
APPELLANTS

AND

S. O'MAOLDHOMHNAIGH
RESPONDENT

Citations:

INCOME TAX ACT 1967 S428

INCOME TAX ACT 1967 S430

CORPORATION TAX ACT 1976 S146

INCOME TAX ACT 1967 S62(2)

FINANCE ACT 1975 S31(1)

FINANCE ACT 1970 S17

TEMPANY V HYNES 1976 IR 101

GREEN, J W & CO LTD V REVENUE COMMISSIONERS 1927 IR 240

FRASER (INSPECTOR OF TAXES) V LONDON SPORTSCAR CENTRE LTD 1985 STC 688

CARROLL INDUSTRIES V O CULACHAIN 1989 ILRM 552

ODEON ASSOCIATED THEATRES LTD V JONES 48 TC 257

FINANCE ACT 1975 S31(2)

FINANCE ACT 1975 S31

Synopsis:

EVIDENCE

Expert

Accountant - Opinion - Weight - Issues - Determination - Function of court - (1989/1647 R - Murphy J. - 2/10/90) - [1991] 1 I.R. 455

|Murnaghan Brothers v. O Maoldhomhnaigh|

REVENUE

Corporation tax

Assessment - Profits or gains - Deduction - Trade - Stock - Valuation - Trading stock - Extent - Contract for purchase of land executed within accounting period - Price not paid and possession not taken within that period - Whether land was trading stock - Expert evidence - Accountant - Finance Act, 1975, s. 31 - (1989/1647 R - Murphy J. - 2/10/90) - [1991] 1 I.R. 455

|Murnaghan Brothers v. O Maoldhomhnaigh|

1

Judgment of Mr. Justice Murphy delivered the 2nd day of October 1990.

2

This matter comes before me by way of Case Stated under and by virtue of the provisions of Section 428 and 430 of the Income Tax Act 1967as applied to Corporation Tax by Section 146 of the Corporation Tax Act 1976.

3

In substance the Case Stated by his Honour Judge David Sheehy, Judge of the Northern Circuit Court, raises questions as to the meaning of the expression "trading stock" as defined by Section 62 (2) of the Income Tax Act 1967as applied by Section 31 (1) of the Finance Act 1975in giving relief against tax in respect of the increase in stock values.

4

Under Section 31 aforesaid stock relief is available only to a company carrying on a trade. The word "trade" is defined by that section so as to include the carrying out of construction operations within the meaning of Section 17 of the Finance Act 1970.The operations specified in that section include a comprehensive range of activities carried on by building contractors. There can be no doubt but that the Appellants in the present case carry on some or all of the specified operations and accordingly fell within Section 31.

5

The expression "trading stock" is defined (by reference to Section 62 (2) of the Income Tax Act 1967) as meaning:-

"property of any description, whether real or personal, which is either:-"

(a) property such as is sold in the ordinary course of the trade in relation to which the expression is used or would be so sold if it were mature or if its manufacture, preparation, or construction were complete, or

(b) materials such as are used in the manufacture, preparation, or construction of property such as is sold in the ordinary course of the said trade".

6

What happened in the instant case was that by a contract in writing dated the 14th day of March 1983 made between Desmond Babe and Michael Babe of the one part and the Appellants of the other part the Appellants agreed to purchase for the sum of £300,000 103 acres of land situate at Fair Hill, Ballybarrack, Dundalk, Co. Louth. It was a term of the contract that the vendors should be entitled to retain possession of the lands until completion of the sale on the 1st of November, 1983. Furthermore at the date of the contract the lands were occupied by one James Loughran on a tillage letting for eleven months expiring the 30th of November, 1983. The tillage rental was £5,000 and the letting was in fact renewed on the 30th of November, 1983 and for some years thereafter. On the signing of the contract a deposit of £100,000 was paid. No information is available as to when the balance was paid but there is an express finding that at the date of the purchase the lands were valued at a sum of £150,000 only.

7

At the time of the purchase the lands were used exclusively for agricultural purposes. Furthermore at that time they were "zoned" in the development plan as agricultural land. No application for planning permission was made at any time before the application came on for hearing before the learned Circuit Court Judge on the 19th of January, 1987 and no application was made on behalf of the Appellants for planning permission for the development of the lands for building purposes.

8

As the material accounting period ended on the 31st of March 1983 it was clear first that the Appellants did not in that period have possession of the lands, secondly that the lands had not been conveyed to them, thirdly that they did not have a beneficial interest in the lands save to the extent of the deposit paid by them and fourthly that the lands had not been adapted for use as building lands. In addition to those indisputable conclusions the learned Circuit Court Judge found the following facts. First that there was no intention on the part of the Appellants to farm or graze the lands. Secondly that it was the intention of the company to use the lands for building development, thirdly that the full purchase price of the lands, that is to say, the £300,000, was included in the accounts of the company for the year of accounts to the 31st of March, 1983.

9

Each of the parties felt it necessary to revise the arguments submitted by them to the learned Circuit Court Judge. In the first instance the Appellants had submitted (among other things) the following:-

"As the contract for sale was specifically enforceable at the suit of the company the beneficial ownership in the lands passed to the company at the date of the contract (and) in consequence of the foregoing the company was justified in treating the lands as assets of the company for the year of account and accordingly the lands became stock-in-trade for the purposes of Section 31 of the Act of 1975".

10

Mr. McCann on behalf of the Appellants properly and necessarily conceded that having regard to the decision of the Supreme Court in Tempany .v. Hynes 1976 I.R. 101 (which was in fact opened to the Circuit Court Judge) that it could not be contended that a specifically enforceable contract for the sale of lands was effective to pass the beneficial ownership therein. As Mr. Justice Kenny stated in delivering the majority decision of the Supreme Court in Tempany .v. Hynes (at page 115) the position is as follows:-

"When a contract for sale has been signed, the vendor becomes a trustee of the beneficial...

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