Revenue Commissioners v O'Farrell
| Jurisdiction | Ireland |
| Judge | Ms. Justice Murphy |
| Judgment Date | 01 March 2018 |
| Neutral Citation | [2018] IEHC 171 |
| Docket Number | [2015 No. 272 R] |
| Court | High Court |
| Date | 01 March 2018 |
[2018] IEHC 171
THE HIGH COURT
Murphy Deirdre J.
[2015 No. 272 R]
IN THE MATTER OF A CASE STATED PURSUANT TO SECTION 941 TAXES CONSOLIDATION ACT 1997 AS AMENDED
Revenue – Practice & Procedure – Appeal by way of case stated – S. 941 of the Taxes Consolidation Act 1997 – Engagement in trade.
Facts: The opinion of the High Court was sought by way of a case stated by the Appeal Commissioner primarily on the question as to whether the Appeal Commissioner was correct in determining that the activity of the taxpayer was on the trading side rather than the capital side and in determining that the taxpayer commenced a trade of land development on a certain date, thereby being entitled to claim losses from that date. The respondent objected that the Court only had the jurisdiction to hear the appeal from the Appeal Commissioner by way of a case stated on the point of law and there was absence of evidence in support of the alleged trade.
Ms. Justice Murphy answered the questions raised by the Appeal Commissioner in the affirmative and upheld its decision. The Court found that the respondent was engaged in the trade of land development and had begun his trade of land development the day on which he had purchased the property with a clear development plan and the financing to develop the same. The Court noted that the purchase of the relevant piece of land by the respondent was an adventure in the nature of trade within the ambit of Taxes Consolidation Act 1997 as the respondent was engaged in the trade of land development in order to earn profit. The Court further noted that the case stated by the Appeal Commissioner had raised proper and legitimate questions of law upon which it sought the opinion of the Court.
This appeal comes before the Court by way of case stated pursuant to s. 941 of the Taxes Consolidation Act 1997. The Revenue Commissioners are appealing the decision of the Appeal Commissioner to allow the respondent's appeal against amended assessments for income tax. The matter was heard by this Court on 7th June, 2016. The questions posed by the Appeal Commissioner for the determination of the Court are as follows:-
'(i) Was I correct in determining that, insofar as concerns 28 Shrewsbury Road, the activity of the taxpayer was on the trading side (being land development) rather than the capital side?
(ii) Was I correct in determining that, insofar as concerns 28 Shrewsbury Road, the taxpayer commenced a trade of land development on 21 February 2005, thereby being entitled to claim losses from that date?'
The respondent in this case was the owner of the 'Black Tie' chain of formal wear shops. He also owned a substantial portfolio of investment properties and received more than €1 million per annum in rental income from those properties. On 21st February, 2005, the respondent entered into an agreement to purchase number 28 Shrewsbury Road, Ballsbridge, Dublin 4 for the sum of €7,600,000.
In his decision dated 4th December, 2015, the Appeal Commissioner set out the facts of the matter as determined by him. He found that the respondent's intention in purchasing this property was to redevelop the site by replacing the existing property with two houses; that the respondent never intended to live in the property and that the respondent rented the property for a short time to a neighbour. He also found that three loans totalling €11 million were secured by the respondent from Allied Irish Banks plc. in relation to the purchase and development of the property. The sanction letter from the bank dated 14th February, 2005 stated that the facilities were to be repaid out of the sale of the two properties within two years of the date of the loan. The Appeal Commissioner further found that the respondent made three attempts to obtain planning permission to develop the Shrewsbury Road site and that the only successful application was the final one in 2009 which was an application to build a single house on the site. Finally, the Appeal Commissioner found that no physical development works ever took place at the site from the date of its acquisition by the respondent.
The respondent claimed that he had incurred losses in his trade of land development in respect of the Shrewsbury Road property and claimed those losses against income from other sources between 2004 and 2009. The Revenue Commissioners claimed that his purchase of the property was an investment or capital matter and not a trade or revenue matter. Alternatively, the Revenue Commissioners claimed that if the respondent's activities were deemed to be on the trading side, then the respondent had never in fact commenced the trade of land development.
The Appeal Commissioner granted the respondent's appeal and determined that the respondent was a land developer and that the activity was on the trading side rather than the capital side. The Appeal Commissioner distinguished the instant case from that of Spa Estates Ltd. v. O hArgain (Unreported, High Court, Kenny J., 20th June, 1975) upon which the Revenue relied extensively. In his determination at para. 7.(vi) he stated as follows:-
'The decision in Spa Estates Ltd. v. O hArgain was given before the introduction of capital gains tax and the assessment concerned property dealing rather than building; furthermore the company, Spa Estates, never commenced to carry on the trade of developing land, building houses on them and selling the lands, nor did it commence the business of dealing in land. The decision in Spa Estates was focused on the particular trade that Moy Construction Company was involved in previously. In the Spa case the primary business was selling houses – that was the trade involved. The present appeal involved a different set of circumstances. The taxpayer in this case did intend from the beginning to develop 28 Shrewsbury Road.'
The Appeal Commissioner went on to state that each case turns on its own facts. He further held at para. 7.(vii) that:-
'One has to look at the entire venture in order to put the transactions into a proper perspective. In the present case the venture was to a large extent the property itself that was acquired. That was the essential material with which the activity was concerned. In financial terms, the most important part of the outlay had already been incurred on purchase of the property.'
He held that the respondent was engaged in the trade of land development and that the trade had commenced on the date of the agreement to purchase the property on 21st February, 2005 and that accordingly, losses arising from that date were allowable against income tax.
It is the Revenue's case that the Appeal Commissioner erred in law as he did not understand the legal principles relevant to the existence and commencement of the trade at issue in this case. The appellant contends that the Appeal Commissioner erred in deciding in favour of the respondent that there was a trade in land and in his decision that a simple purchase of the property was sufficient to show the necessary level of operational activity to constitute the commencement of trade.
The appellant submits that there is an important distinction to be made between the set up of a trade and the commencement of a trade as set out in Mansell v. Revenue and Customs Commissioners [2006] S.T.C. (S.C.D.) 605, where it was held at p. 621 that trade could be deemed to have commenced when:-
'the taxpayer, having a specific idea in mind of his intended profit making activities, and having set up his business, begins operational activities – and by operational activities I mean dealings with third parties immediately and directly related to the supplies to be made which it is hoped will give rise to the expected profits, and which involve the trader putting money at risk'.
The appellant relies almost exclusively on Spa Estates v. O hArgain (Unreported, High Court, Kenny J., 20th June, 1975), one of the few Irish decisions in this area. It is their case that the Appeal Commissioner did not correctly interpret or understand the principles established in that case, in which the taxpayer claimed that the company had not commenced trading, a proposition with which Kenny J. agreed. The Revenue position is that the Spa Estates case is on all fours with the instant case, that the material facts are the same and that there are no distinguishing features. It is submitted that if Spa Estates had been properly interpreted and applied to the facts of this case the conclusion that there was no trade was inescapable. The appellant submits that the Appeal Commissioner misunderstood the circumstances and relevance of the related company in Spa Estates and incorrectly attached some relevance to the broader taxation context. The appellant submits that it was precisely the lack of activity in relation to building works that persuaded Kenny J. that the company in that case, had not commenced trading. The appellant seeks to rely on the absence of building works in the present case as indicative of a trade not having commenced.
The appellant argues that the mere purchase of the property by the respondent and applications for planning permission are not sufficient to constitute trade. They rely on the statement of Kenny J. in Spa Estates at p.11:-
'The purchase of the lands and the applications for planning permission seem to me to have been acts preparatory to the carrying on of a trade and not to be evidence that a trade was being carried on.'
The appellant submits in addition to the foregoing that there was insufficient evidence of the alleged trade because the property was let from 2006 to 2008. It is the appellant's position that an application for planning...
To continue reading
Request your trial