Quigley -v- Harris, [2008] IEHC 403 (2008)

Docket Number:2006 572 R
Party Name:Quigley, Harris
Judge:Laffoy J.
 
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THE HIGH COURT REVENUE2006 No. 572 RBETWEENJ.J. QUIGLEY(INSPECTOR OF TAXES)APPELLANTANDROBERT HARRISRESPONDENTJudgment of Miss Justice Laffoy delivered on 28th day of November, 2008.The proceedingsThese proceedings are by way of case stated under s. 941 of the Taxes Consolidation Act 1997 (the Act of 1997) by Ronan Kelly, Appeal Commissioner (the Commissioner), at the request of the appellant inspector of taxes (the appellant) following the Commissioner's finding for the respondent taxpayer (the taxpayer) on his appeal against assessments for income tax for the following periods and in the following amounts:(a) for the year ended 5th April, 2001, 3,166,025.87;(b) for the period ended 31st December, 2001, 3,408,336.72; and(c) for the year ended 31st December, 2002, 2,552,384.00.In broad terms, the appeal concerned a claim by the Irish resident taxpayer to be entitled to set off against his general liability for income tax in this jurisdiction under Schedule E capital allowances and other reliefs (losses and interest incurred) in respect of expenditure incurred by him in his capacity as a partner in a limited partnership registered under the laws of Cook Islands, which was disallowed by the appellant. That partnership, which is known as the Christina Limited Partnership (the C.L. Partnership), carries on the business of the acquisition and operation of luxury yachts. A single net question is posed in the case stated for the opinion of the Court. Before identifying that question, I propose outlining the relevant taxation legislation which gives rise to the question.Taxation legislationThe question posed on the case stated concerns the construction of one provision of s. 1013 of the Act of 1997. The Court is concerned with s. 1013 as amended with effect from 29th February, 2000 by virtue of the provisions of the Finance Act 2000 but prior to its amendment by the Finance Act 2005.The substantive provision of s. 1013 for present purposes is subs. (2). The following truncated version of subs. (2), as applicable at the relevant time and material to the issue with which the Court is concerned, illustrates how the issue on the case stated arises:"(a) Where, in the case of an individual who is a limited partner in relation to a trade, an amount may apart from this section be given or allowed under any of the specified provisions - (i) in respect of a loss sustained by the individual in the trade … in a relevant year of assessment, or(ii) as an allowance to be made to the individual for the relevant year of assessment either in taxing the trade or by means of discharge or repayment of tax to which he or she is entitled by reason of his or her participation in the trade,such an amount may be given or allowed -(I) …(II) …(III) where the individual is a limited partner in relation to a trade by virtue of paragraph (d) of the definition of 'limited partner' and the relevant year of assessment is -(A) …(B) in any other case, the year of assessment 1999 - 2000 or any subsequent year of assessment …only against income consisting of profits or gains arising from the trade,and only to the extent that the amount given or allowed or, as the case may be, the aggregate amount in relation to that trade does not exceed the amount of his or her contribution to the trade at the relevant time."The effect of that provision, which is an anti-avoidance provision, in the case of an individual being a limited partner, as defined in s. 1013, is to "ring fence", as counsel for the appellant put it, capital allowances, losses and interest otherwise available under specified provisions, for example, s. 305 of the Act of 1997, so that they are only given or allowed against his or her income consisting of his or her share of the profits from the partnership trade and are subject to the limitation that the amount given or allowed should not exceed the amount of his or her contribution to the partnership trade at the relevant time.Subsection (1) of s. 1013 contains section-specific definitions of various expressions found in the section, including the expression "limited partner". That definition, as applicable at the relevant time, provided as follows:""Limited partner", in relation to a trade, means -(a) a person carrying on the trade as a limited partner in a limited partnership registered under the Limited Partnerships Act 1907,(b) a person carrying on the trade as a general partner in a partnership who is not entitled to take part in the management of the trade but is entitled to have the person's liabilities, or those liabilities beyond a certain limit, for debts or obligations incurred for the purposes of the trade, discharged or reimbursed by some other person,(c) a person who carries on trade jointly with others and, under the law of any territory outside the State, is not entitled to take part in the management of the trade and is not liable beyond a certain limit for debts or obligations incurred for the purposes of the trade, or(d) a person who carries on the trade as a general partner in a partnership otherwise than as an active partner;" Section 1013 was originally enacted in s. 46 of the Finance Act, 1986, where it was captioned "Limited partnerships: relief restrictions". As originally enacted the definition of limited partnership did not include paragraph (d). Paragraph (d) as quoted above was a substituted provision enacted by the Finance Act, 2000, with effect from 29th February, 2000, the earlier version of para. (d) introduced in the Finance Act, 1998 being limited to partnerships where the activities of the trade included film and video tape production and exploration for oil and gas.Subsequent to the decision of the Commissioner, which was given on 29th October, 2004, the definition of "limited partner" was amended by s. 37 of the Finance Act 2005. By virtue of the amendment the following two paragraphs were inserted after paragraph (d) in the definition of "limited partnership":"(e) a person who carries on the trade as a partner in a partnership registered under the law of any territory outside the State, otherwise than as an active partner, or(f) a person who carries on the trade jointly with others under any agreement, arrangement, scheme or understanding which is governed by the law of any territory outside the State, otherwise than as a person who works for the greater part of his or her time on the day-to-day management or conduct of that trade;" It was submitted by counsel for the appellant that the fact that s. 1013 of the Act of 1997 has been amended by the insertion of paragraphs (e) and (f) in the definition of "limited partnership" is of no assistance to the taxpayer in construing the effect of the section in the years of assessment at issue here, citing the following passage from the judgment of Griffin J., speaking for the Supreme Court, in Cronin(Inspector of Taxes) v. Cork and County Property Company Limited [1986] I.R. 59 (at p. 572):"With regard to the submission of counsel for the company that the amendment of s. 18 by s. 29 of the Finance Act, 1981, was an implied acceptance by the Oireachtas of the construction of s. 18 for which they contended, the court cannot in my view construe a statute in the light of amendments that may thereafter have been made to it. An amendment to a statute can, at best, only be neutral - it may have been made for any one of a variety of reasons. It is however for the courts to say what the true construction of a statute is, and that construction cannot be influenced by what the Oireachtas may subsequently have believed it to be."In subs. (1) of s. 1013 there is a definition of "active partner", which was introduced in the Finance Act, 1998, which provides that, in relation to a partnership trade, the expression means "a partner who works for the greater part of his or her time on the day-to-day management or conduct of the partnership trade".Significantly, there is no definition of the expression "general partner" in s. 1013.Question posed in case statedIt is common case that the participation of the taxpayer in the C. L. Partnership was not captured by either paragraphs (a), (b) or (c) of the definition of limited partner in s. 1013(1). It being accepted by the taxpayer that he is not an "active partner" within the meaning of s. 1013(1), the issue is whether he was a "general partner" within the meaning of that expression in paragraph (d) of the definition at the material time. The question on which the Commissioner has sought the opinion of this Court is "whether the taxpayer falls within paragraph (d) of the definition of limited partner in s. 1013(1) of the Act of 1997 as amended."Apart from that issue, there were two other issues before the Commissioner: whether or not the C.L. Partnership carried on trade with a view to a profit; and whether the m/y Christina O. had been put to use for the purposes of the trade by 5th April, 2001. The Court is not concerned with those two issues.Relevant facts as set out in the case statedHaving recorded that at the hearing of the appeal he was provided with a document entitled "Summary of Transaction Documents", the content of which was agreed by the parties and which is annexed to the case stated, the Commissioner went on to record in paragraph 4 that certain facts were either proved or admitted. Paragraph 4, which is set out in full although some of its content, notably paragraph 4.6, would appear to be relevant to matters with which the Court is not concerned, states:"4.1 The Christina Limited Partnership (the "Partnership") is a limited partnership registered under the laws of the Cook Islands. The partnership was established by a partnership agreement dated 12 April, 2000 made between Christina GP Limited, the general partner, and a limited partner. The business of the Partnership was acquiring and operating high-class luxury cruise yachts and conducting all types of business incidental thereto. The relevant terms of the partnership...

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