Stephen Court Ltd v Browne

• Jurisdiction: Ireland
• Judge: Mr. Justice McWilliam
• Judgment Date: 01 January 1984
• Neutral Citation: 1983 WJSC-HC 3579
• Court: High Court
• Date: 01 January 1984

1983 WJSC-HC 3579

THE HIGH COURT

No. 293 S.S./1982

STEPHEN COURT LTD. v. BROWNE (lNSPECTOR OF TAXES)

STEPHEN COURT LIMITED

v.

J.A. BROWNE (INSPECTOR OF TAXES)

Subject Headings:

REVENUE: income tax

1 Judgment of Mr. Justice McWilliam delivered on the 7th day of June 1983.

2 This matter comes before me by way of case stated for the opinion of the High Court as to whether the President of the Circuit Court was or was not correct in holding that auctioneer's commission and solicitor's costs incurred in negotiating leases did not constitute costs of management within the meaning of paragraph (d) of sub-section (5) of section 81 of the Income Tax Act, 1967, (as substituted by section 22 of the Finance Act, 1969) on the ground that they were expenses of a capital nature and, therefore, not authorised deductions in computing the Appellant's profits or gains in accordance with the provisions of the section.

3 Section 81 provides for the taxation of profits or gains arising from any rent in respect of premises by making such profits or gains chargeable under Case V of Schedule D. Subsection (5) of the section authorises certain deductions in the calculation of profits and gains and deductions so authorised include, at paragraph (d) "the cost of maintenance, repairs, insurance and management of the premises borne by the person chargeable and relating to and constituting an expense of the transaction or transactions under which the rents or receipts were received, not being an expense of a capital nature;"

4 Subsection (6) of the same section provides at paragraph (a), "The amount of the deductions authorised by subsection (5) shall be the amount which would fall to be deducted in computing profits or gains under the provisions of Case I of Schedule D if the receipt of rent were deemed to be a trade carried on -

5 (i) in the case of a rent under a lease, during the currency of the lease,

6 by the person chargeable and the premises comprised in the lease or to which the rent relates were deemed to be occupied for the purpose of that trade."

7 A modern building intended to be used as offices and other business premises was built by the Appellants at St. Stephen's Green Dublin, between 1968 and 1971. It was completed in February, 1971. In April, 1969, a firm of auctioneers had been appointed to be sole letting agents to negotiate and secure tenancies and leases of the various units in the building at the remuneration of ten per cent of the first year's rent payable by each tenant or lessee. Various lettings or leases were negotiated. These included a lease to the Electricity Supply Board (E.S.B.) for a term of 38 years from 8th November, 1971, at the yearly rent of £77,000.

8 The sequence of events leading up to the execution of this lease was as follows. On 14th January, 1971, the letting agents and the E.S.B. verbally agreed for a letting to the E.S.B. of the 4th, 5th and 6th floors of the premises and the Appellants thereupon instructed their solicitors to take the necessary steps to have the transaction completed. On 12th October, 1971, an agreement for a lease with a draft lease attached was executed by the parties and, on 14th July, 1972, the lease was executed. On 9th December, 1971, the letting agents had furnished their account in respect of, the letting and this was paid on 30th December, 1971. On 20th September, 1972, the solicitors furnished a bill of costs which were paid by the Appellant on 23rd October, 1972.

9 The Appellant claims that the commission paid to the letting agents and the costs paid to the solicitors were part of the management expenses of the premises and, therefore, are deductions authorised by subsections (4) and (5) to be made when calculating the amount of rent subject to tax. I was referred to the case of Southern v. Aldwych Property Trust, Ltd. (1940) 2 Z.B. 266 in support of this proposition.

10 The Respondent contests this claim principally on the ground that the commission and costs payable to the letting agents and the solicitors respectively are expenses of a capital nature in that they were incurred for the creation of a capital asset, that is to say, the lease, and that the trade, within the meaning of the section, consists in the collection and receipt of the rent. I was referred to the following cases:-

Fry v. Salisbury House Estate, Ltd., (1950) A.C. 452.

British Insulated & Helsby Cables, Ltd., v. Atherton (1926) A.C. 205.

E astmans, Ltd. v. Shaw 14 T.C. 218.

Commissioners of Inland Revenue v. Land Securities

Investment Trust, Ltd., 45 T.C. 495.

Sun Life Assurance Society v. Davidson 37 T.C. 361.

Capital & National Trust, Ltd., v. Golder 31 T.C. 265.

Hoechst Finance Ltd. v. Gumbrell (1985) Simon's T.C. 157.

11 This last report was not made available to me.

12 He also contests the claim of the Appellant on the ground that these expenses were not incurred during the currency of the lease so as to come within the provisions of section 81(6)(a)(i). This argument was not dealt with by the President of the Circuit Court or referred for my decision in the case stated, presumably because it was felt unnecessary to do so in view of the decision on the other submission. Certainly the main argument before me was concerned with the first submission.

13 The case of Southern v. Aldwych Property Trust, Ltd. was one in which Aldwych owned and managed a number of flats in London and the point in issue was whether the cost of advertising flats for letting came within the meaning of the expression "cost of management" or not. Although, on the sections involved, it was open to present an argument that there might be a difference between the expressions "cost of management" and "expenses of management", no such argument was presented and the judgment of Lawrence, J., proceeded on the basis that there was not any difference. He held that the cost of advertising was a necessary disbursement in managing the property and that these expenses came within the meaning of the expression "coat of management".

14 As presented on behalf of the Respondent, the main submission depended on the assumption that the capital asset of the Appellant is the lease, that the business of the Appellant for the purpose of the...