Swaine v C

• Jurisdiction: Ireland
• Judgment Date: 21 May 1964
• Date: 21 May 1964
• Court: Supreme Court

Supreme Court.

Swaine v. "C."

RICHARD D. SWAINE, Inspector of Taxes

and

"C."

Revenue - Income tax - Case stated - Builder - Retirement from building - House purchased as residence and farm - Trade of builder resumed ten years later - Shops and houses built on farm and sold in consideration of fines and ground rents - Fines included in builder's accounts - Capitalised value of ground rents not included in accounts - Whether such capitalised value should be included in account - Intention of taxpayer at time lands were acquired - Finance Act, 1935 (No. 28 of 1935), s. 6.

Case Stated for the opinion of the High Court, pursuant to s. 149 of the Income Tax Act, 1918, and s. 10 of the Finance Act, 1924, by His Honour, Judge Conroy, a Circuit Court Judge assigned to the Dublin Circuit.

The Case Stated was as follows:—

"1. The appeal of 'C.' (hereinafter called 'the respondent') against the following assessments to income tax under Case I of Schedule D of the Income Tax Act, 1918, was re-heard by me as Circuit Court Judge under the provisions of s. 196 of the Income Tax Act, 1918, at Dublin on the 18th July, 1956, the 12th February, 1957, the 26th February, 1957, the 15th May, 1958, and the 9th July, 1958:—

Year of Assessment	Description of Trade or Profession	Amount of Assessment
1951/52	Profits as builder Wife's profits from rest home	£500 200
1952/53	Profits as builder Wife's profits from rest home	1,800 200
1953/54	Profits as builder Wife's profits from rest home	4,000 200
1954/55	Profits as builder Wife's profits from rest home	4,000 200
1955/56	Profits as builder Wife's profits from rest home Garage proprietor.	4,000 200 500

2. There is no dispute as to my determination of the assessments on

• (a) Profits as builder for years 1954/55 and 1955/56;

• (b) Wife's profits from rest home for years 1951/52 to 1955/56 (inclusive);

• (c) Garage proprietor

3. The following facts have been proved or admitted:—

(a) The respondent commenced the trade of builder in 1933 and between then and 1937 he built and sold 19 houses in 'L.' area, taking sites and building on speculation. In the same period he built, by contract, schools at 'H.' and 'B.'

(b) In 1937 when the last of the houses were being completed the respondent purchased for £1,150 the tenant's interest in 'K.' House, 'K.', Co. Dublin, which included 37 statute acres, 32 of which were arable. Here he carried on mixed farming, and his wife, a nurse by profession, used portion of the house, a large Georgian structure, as a rest home for elderly people.

(c) The lands acquired by the respondent at 'K.' formed part of the 'D.' Estate to which a lease rent of £149 per annum was payable. At the time of purchase the lease had still about 40 years to run and it contained a covenant against building. Following the completion of the schools, the respondent retired from building and settled down to farm his lands. In 1942 the lands became vested under the Land Acts, the annual rent was reduced to £58 and the covenant against building ceased to operate. The respondent had obtained expert advice about 1939 on long-term agricultural projects, such as the preparation of a six-year rotational tillage scheme. In 1944, when the Department of Industry and Commerce wrote to the respondent about his intentions as regards building, he replied that he was doing no more building.

(d) In 1947 the respondent learned that the Dublin Corporation had come to a decision to develop the area and, in consequence of learning of this decision, he thereupon decided to develop the lands himself and began development operations in January, 1948.

(e) In the period from the 1st January, 1948, to the 31st January, 1952, the respondent built on the lands at 'K.' six houses and six shops and developed 51 sites. In the same period he sold the six houses, five of the shops and 39 of the sites, the sales in each case being effected by way of subdemise for a long term in consideration of the payment of a fine and a ground rent.

4. The respondent's trading accounts for the period, 1st January, 1948, to the 31st January, 1952, show a profit (adjusted for income tax purposes) of £5,356. This amount includes fines from the sales of the houses, shops and sites referred to in 3(e) above, but does not include the capitalised value of the rents reserved on such sales. It is not disputed that the said sum of £5,356 is an accurate computation of the profits (exclusive of the capitalised values of the said ground rents) derived during the said period from the sales of the said houses, shops and sites, but the Inspector claimed that there should be added thereto the capitalised values of the respective ground rents created on the sale of the said houses, shops and sites. Without prejudice to any decision I might make as to whether such capitalised value should be included in the assessments, it was agreed on behalf of the respondent that the capitalised value of the ground rents created in the period from the 1st January, 1948, to the 31st January, 1952, was £10,972 as follows:—

6 houses, St. 'B's.' Avenue, 'K.,' at £12 each	£72
5 shops, at £25 each	125
39 sites, at £12 each	468
	_____
	£665
	_____

Capitalised at 16¹/₂ years' purchase 16¹/₂ X £665 £10,972.

5. The respondent's trading accounts for each of the two years ending the 31st January, 1954, show losses of £2,087 and £1,222 respectively. In this period of two years the remaining shop and the remaining 12 sites were sold, the sales in each case being effected by way of subdemise for a long term in consideration of the payment of a fine and a ground rent. The above-mentioned figures of losses are exclusive of the capitalised value of ground rents created in these two years but are inclusive of all fines received therein. The building business was discontinued in March, 1954, but the accounts described as 'for the year to 31st January, 1954' include operations from the 1st February, 1953, to the date of discontinuance.

6. It was contended on behalf of the respondent:—

(a) That it was his intention at the time he acquired the lands at 'K.' to retire from building;

(b) That he bought the lands as a farmer to use the same for agricultural purposes and not with a view to their development for building;

(c) That he had in fact farmed the lands from 1937 to 1947 and had spent substantial sums on stock, farm implements and farm buildings;

(d) That the profits to be assessed should not include the capitalised value of the ground rents created by him on the subdemise of the lands at 'K.'

7. It was contended by the Inspector of Taxes:—

(a) That the respondent's intention at the time of acquiring the lands is immaterial, since at the relevant times he was carrying on the trade of builder;

(b) That if the question of intention is material, the respondent acquired the lands with the intention of selling or demising them, or with a view to their development within the meaning of sub-s. 1 of s. 6 of the Finance Act, 1935;

(c) That the latter part of sub-s. 1 of s. 6 of the Finance Act, 1935 (which deals with 'intention'), has no relevance or application where the person is carrying on the trade of builder;

(d) That under sub-s. 1 of s. 6 of the Finance Act, 1935, the profits of the trade of builder shall include the profits from 'any building operation';

(e) That profits from 'any building operation' include profits from contract building, sale of fee simple and leasehold interest, and profits from demise of lands or hereditaments;

(f) That under sub-s. 2 (b) of s. 6 of the Finance Act, 1935, the profits from the demise of lands or hereditaments include the capitalised value of the rents reserved on such demise.

8. In my judgment, I held that when the respondent bought the lands he had retired from building and bought with the intention of farming and that the respondent should succeed in his contention that the capitalised values of the ground rents created by him should be excluded from the computation of profits. On the basis that my judgment is correct, I accordingly increased the assessment for 1951/52 on profits as builder to £1,312, less wear and tear, £88, reduced the assessment for 1952/53 to £1,312, less wear and tear, £71, and the assessment for 1953/54 to nil.

9. Immediately after my determination of the appeal the Inspector of Taxes expressed his dissatisfaction with my decision as being erroneous in point of law and, in due course, requested me to state a case for the opinion of the High Court, pursuant to s. 149 of the Income Tax Act, 1918, as amended by s. 10 of...