Texaco Ireland Ltd v Murphy, Inspector of Taxes

• Jurisdiction: Ireland
• Judgment Date: 01 January 1992
• Date: 01 January 1992
• Docket Number: [S.C. No. 256 of 1988]
• Court: Supreme Court

Supreme Court

[S.C. No. 256 of 1988]

Texaco (Ireland) Ltd. v. Murphy (Insp. of Taxes)

Texaco (Ireland) Ltd.

Appellant

and

Seán Murphy, Inspector of Taxes

Respondent

Cases mentioned in this report:—

Cape Brandy Syndicate v. I.R.C. [1921] 1 K.B. 64.

Inspector of Taxes v. Kiernan [1981] I.R. 117; [1982] I.L.R.M. 13.

Mangin v. I.R.C. [1971] A.C. 739; [1971] 2 W.L.R. 39; [1971] 1 All E.R. 179.

McGrath v. McDermott [1988] I.R. 258; [1988] I.L.R.M. 647.

Odeon Associated Theatre Limited v. Jones [1972] 2 W.L.R. 331; [1972] 1 All E.R. 681; 48 T.C. 257.

Revenue Commissioners v. Doorley [1937] I.R. 750.

Southwell v. Savill Brothers Limited [1901] 2 K.B. 349; [1901] W.N. 120.

Texaco (Ireland) Ltd. v. Murphy, Inspector of Taxes [1989] I.R. 496.

Revenue - Corporation tax - Relief - Scientific research - Expenditure incurred in exploring for petroleum - Geophysical and geographical studies undertaken - Results of tests recorded - Comprehensive scientific reports prepared on the areas explored - Test wells drilled - Whether activities amounted to"scientific research" - Income Tax Act, 1967 (No. 6), ss. 244, 245 - Finance (Taxation of Profits of Certain Mines) Act, 1974 (No. 17) - Corporation Tax Act, 1976 (No. 7), s. 21.

Statute - Construction - Revenue statute - Plain meaning of proviso - Whether proximate sections relevant to interpretation where meaning is plain.

Appeal from the High Court.

The appellant appealed from the order and judgment of the High Court (Carroll J.) of the 19th May, 1988, (reported at [1989] I.R. 496) answering in the affirmative the case stated by the Appeal Commissioners pursuant to s. 428 of the Income Tax Act, 1967, as applied to corporation tax by s. 146 of the Corporation Tax Act, 1976.

The facts have been summarised in the headnote and are set out in the judgment of McCarthy J., post.

The appeal was heard before the Supreme Court (Finlay C.J., Hederman and McCarthy JJ.) on the 20th and 21st June, 1991.

Section 244, sub-s. 3 of the Income Tax Act, 1967, as amended by s. 21 of the Corporation Tax Act, 1976, provides inter alia that:—

". . . where . . . a person carrying on a trade incurs capital expenditure on scientific research . . . there shall be made in taxing that person's trade for the chargeable period in which the expenditure was incurred an allowance equal to the amount of the expenditure."

Sub-section 1 of s. 244 defines "scientific research" as "any activities in the fields of natural or applied science for the extension of knowledge".

Section 245 of the Act of 1967 provides relief for capital expenditure incurred inter alia for mineral exploration but this relief is effectively confined to a case where a workable mine is discovered and to persons working such a mine and the estimated value of assets, including information obtained, at the end of the life of the mine.

The Finance (Taxation of Profits of Certain Mines) Act, 1974, gives tax relief for exploring for and developing certain minerals whether or not a deposit of minerals is found but this relief does not extend to petroleum.

The appellant expended considerable sums of money in exploring for oil in two off shore blocks pursuant to an exclusive petroleum exploration licence granted by the Minister for Industry and Commerce. Various geological and scientific studies were undertaken with a view to identifying and selecting potential sites for drilling. The results of the studies were carefully and comprehensively recorded and regular reports were made to the Minister. Two wells were drilled but both were dry.

The appellant claimed that the expenditure had been incurred for the purpose of "scientific research" and that it was entitled to an allowance pursuant to s. 244 of the Act of 1967. The respondent argued that the expenditure had been incurred in oil exploration and not for the extension of knowledge and that it did not qualify for relief.

The Appeal Commissioners decided that, although the appellant had carried out tests scientifically the work was not scientific research within the meaning of s. 244 but they stated a case to the High Court as to whether they had been correct in their decision.

The High Court (Carroll J.) upheld the decision of the Appeal Commissioners in answering the case stated in the affirmative (see [1989] I.R. 496).

The appellant appealed the judgment and order of the High Court.

Held by the Supreme Court (Finlay C.J., Hederman and McCarthy JJ.) in allowing the appeal, 1, that it was an established rule of law that a citizen was not to be taxed unless the language of the statute clearly imposed the obligation and that it was a clear legal principle that if a claim for an allowance fell within the express wording of the permitting section it must be upheld.

Cape Brandy Syndicate v. I.R.C. [1921] 1 K.B. 64 approved.

2. That on the plain meaning of the proviso to sub-s. 3 of s. 244 the appellant was entitled in the taxing of its trade to an allowance equal to the amount of the capital expenditure incurred on scientific research.

3. That where expenditure fell within the relevant allowance provision arguments based upon the application or otherwise of other sections, proximate or not, were unsound in law; therefore it was not relevant to examine what might have been the application of s. 245 in the event of the exploration work which was the scientific research proving fruitful.

Per curiam: Whilst the Court must if necessary seek to identify the intent of the legislature, the first rule of statutory construction remains that words be given their ordinary literal meaning. The principle that one should seek to construe a statute as a whole is perhaps less relevant to the construction of revenue legislation than, for instance, that with a social purpose.

Cur. adv. vult.

Finlay C.J.

I agree with the judgment which is about to be delivered by Mr. Justice McCarthy.

McCarthy J.

This appeal concerns the...