Murnaghan Brothers Ltd v S O’Maoldhomhnaigh
| Judge | Sheehy J. |
| Judgment Date | 01 April 1987 |
| Court | High Court |
Whether lands the subject matter of a contract for sale entered into during an accounting period constitute trading stock for the year ending in that accounting period - trading stock and trade as defined in the Finance Acts - appellant company carrying on trade of building contractors - whether absence of possession, conveyance of legal estate and planning permission fatal to taxpayer’s claim for relief - whether inclusion of the lands in the accounts by accountant in accordance with good accounting procedure was the best evidence of the commercial reality of the transaction.
The Circuit Court Judge stated a case for the opinion of the High Court as to whether he had been correct in law in holding that the appellant was not entitled to include the sum of £3000,000 representing the purchase price of certain land in computation for relief in respect of trading stock for the year ending 31 March 1983, pursuant to FA 1975 s 31(2).
Held, by Murphy J in answering the case stated in the negative:
- 1. That the appellant had a beneficial interest in the land the subject of the contract for sale only to the extent to which the purchase monies had been paid.
- 2. That the failure to acquire actual possession of trading stock brought during the accounting period did not if itself disentitle the appellant to claim relief in respect of thereof.
- 3. That it was not necessary for the appellant to be the owner in law of the trading stock in respect of which relief was claimed.
- 4. That the definition of trading stock under the Act of 1967 included property, which at the time of its acquisition, was not adapted for use as stock in trade of a particular business. Accordingly agricultural land without planning permission could form part of the trading stock of the appellant as a property developer.
- 5. That the court was entitled to accept the evidence of an accountant that the inclusion of the full purchase price of the land in accounts for the year ending 31 March 1983 was in accordance with correct principles of commercial accountancy.
ITA 1967 s 62(2), FA 1975 s 31(1), FA 1970 s 17.
Cases referred to in judgmentTempany v Hynes [1976] IR 101.
J W Green & Co Ltd v the Revenue Commissioners [1927] IR 240, [1927] ILTR 145.
Fraser (Inspector of Taxes) v London Sportscar Centre Ltd [1985] STC 688, [1985] 59 TC 63.
Carroll Industries v O’Culachain [1989] ILRM 552 [1988] IR 705.
Odeon Associated Theatres Ltd v Jones 48 TC 257, [1971] 1 WLR 422, [1972] 2 AER 407.
Case stated for the opinion of the High Court under and by virtue of the provisions of ITA 1967 ss 428 and 430 as applied to corporation tax by CTA 1976 s 146, by his Honour Judge David Sheehy, Judge of the Northern Circuit Court.
1. At the hearing before me at Castleblayney Circuit Court on Monday 19 January 1987 the appellant company appealed against an assessment to corporation tax in the sum of £265,388,.00 for the accounting period ending 31 March 1983.
2. The question for my determination, shortly stated, was whether the appellants were entitled to include in the computation for stock relief for the accounting period ended 31 March 1983 a sum of £300,000.00 being the purchase price of a holding consisting of 103 acres of agricultural lands the subject of a contract in writing dated 14 March 1983 made between Desmond and Michael Babe as vendors of the one part and the appellants as purchasers of the other part.
3. I delivered a written judgment in the matter dated 1 April 1987 which is appended in the Schedule hereto and forms part of this case stated [not included in this print].
4. The law applicable to the question, the facts found by me on the evidence presented before me and the arguments presented by and on behalf of the parties hereto are set out in the said judgment.
5. Having considered the facts and the submissions made on behalf of the respondent and the appellants herein I was of the opinion that the said amount of £300,000.00 or any part thereof should not be included as part of the appellants’ stock on 31 March 1983 for the purposes of computing its entitlement to stock relief. Accordingly, I give judgment in favour of the respondent.
6. Immediately on the determination of the appeal dissatisfaction with such judgment was expressed on behalf of the appellants as being erroneous in point of law and I was requested to state a case for the opinion of the High Court pursuant to ITA 1967 s 430 as amended.
7. The question of law for the opinion of the High Court is whether having regard to the provisions of FA 1975 s 31(2) I was correct in law on the facts recited in holding that the appellants were not entitled to include the said amount of £300,000.00 as trading stock on 31 March 1983.
Sheehy J. The appellants appeal to this court from the determination of the Appeal Commissioners that the sum of £282,320.00 is the amount of corporation tax assessment by the appellants for the accounting period ending 31 March 1983.
The hearing of this appeal upon oral evidence took place before me at Castleblayney Circuit Court on Monday 19 January 1987. At the conclusion of the evidence and the submissions made on behalf of the parties, I reserved judgment upon the issue raised.
ITA 1967 s 62(2) defines the term “trading stock” as property of any description whether real or personal, which is:
- (a) property such as is sold in the ordinary course of the trade in relation to which the expression is used....
FA 1975 s 31(1) adopts the definition of “trading stock” in s 62 of the Act of 1967 for the purposes of the Act of 1975.
The word “trade” is defined in the Act of 1975 as meaning a trade carried on in the state and which during an accounting period consists wholly or mainly of any of the following classes of trading operations:
- (a) the manufacture of goods,
- (b) the carrying out of or construction operations within the meaning of FA 1970 s 17,
- (c) farming, or
- (d) the sale of machinery or plant or goods.
Section 31(2) provides that if:
- (a) a company carries on in an accounting period a trade in...
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