Twomey (Inspector of Taxes) v Hennessy

JurisdictionIreland
JudgeMs. Justice Laffoy
Judgment Date08 May 2009
Neutral Citation[2009] IEHC 627
CourtHigh Court
Docket Number[2007 No. 491 R]
Date08 May 2009

[2009] IEHC 627

THE HIGH COURT

[No. 491R./2007]
Twomey (Inspector of Taxes) v Hennessy

BETWEEN

J. TWOMEY (INSPECTOR OF TAXES)
APPELLANT

AND

BERNARD HENNESSY
RESPONDENT

TAXES CONSOLIDATION ACT 1997 S943

INCOME TAX ACT 1967 S307

TAXES CONSOLIDATION ACT 1997 S381

INCOME TAX ACT 1967 S318

TAXES CONSOLIDATION ACT 1997 S392

FINANCE ACT 1986 S42

FINANCE ACT 1986 S42(2)

FINANCE ACT 1986 S42(1)

TAXES CONSOLIDATION ACT 19971997 SCHED 32 PARA 11

INCOME TAX ACT 1967 S255(1)

TAXES CONSOLIDATION ACT 1997 S268(1)

TAXES CONSOLIDATION ACT 1997 PART IX

INCOME TAX ACT 1967 S72

TAXES CONSOLIDATION ACT 1997 S1010

INCOME TAX ACT 1967 S1(1)

INCOME TAX ACT 1967 S53

TAXES CONSOLIDATION ACT 1997 S18

INCOME TAX ACT 1967 S53(2)

INCOME TAX ACT 1967 S53(1)

INCOME TAX ACT 1967 S81

TAXES CONSOLIDATION ACT 1997 S75

INCOME TAX ACT 1967 S81(1)

FINANCE ACT 1969 S22

INCOME TAX ACT 1967 S80

FINANCE ACT 1969 S27

FINANCE ACT 1969 CHAP V

FINANCE ACT 1986 S43

FINANCE ACT 1986 S44

FINANCE ACT 1981 S23

INCOME TAX ACT 1967 S255

TAXES CONSOLIDATION ACT 1997 S268

TAXES CONSOLIDATION ACT 1997 S268(1)(D)

TAXES CONSOLIDATION ACT 1997 S268(3)

TAXES CONSOLIDATION ACT 1997 S268(2C)

TAXES CONSOLIDATION ACT 1997 S268(7)(B)

LEACH v POGSON (HM INSPECTOR OF TAXES) 40 TC 585

O'CONNELL (INSPECTOR OF TAXES) v FYFFES BANANA PROCESSING LTD 2000 TC 235 2000/14/5389

REVENUE CMRS v DOORLEY & MCDERMOTT 1933 IR 750

INSPECTOR OF TAXES v KIERNAN 1981 IR 117 1982 ILRM 13 1981/10/1728

MARA (INSPECTOR OF TAXES) v HUMMINGBIRD LTD 1982 ILRM 421

O CULACHAIN (INSPECTOR OF TAXES) v MCMULLAN BROS LTD 1995 2 IR 217 1995 2 ILRM 498 1995/10/2953

COMAN v GOVERNORS OF ROTUNDA HOSPITAL DUBLIN 1921 1 AC 1 7 TC 517

DAVIS (INSPECTOR OF TAXES) v THE SUPERIORESS, MATER MISERICORDIAE HOSPITAL DUBLIN 1933 IR 480

FRY (INSPECTOR OF TAXES) v SALISBURY HOUSE ESTATE LTD 1930 AC 432 15 TC 266

BIRCH (INSPECTOR OF TAXES) v DELANEY 1936 IR 517

GITTOS v BARCLAY (INSPECTOR OF TAXES) 1982 STC 390 55 TC 633

REGISTRATION OF BUSINESS NAMES ACT 1916

GRIFFITHS (INSPECTOR OF TAXES) v JACKSON 1983 STC 184 56 TC 583

PAIRCEIR (INSPECTOR OF TAXES) v M (E) 1944-1977 2 ITR 596

FINANCE ACT 1963 S84

FINANCE ACT 1969 S22(1)

WISDOM v CHAMBERLAIN (INSPECTOR OF TAXES) 1969 1 WLR 275 1969 1 AER 332 45 TC 92

INCOME TAX ACT 1842

INCOME TAX ACT 1853

FINANCE ACT 1969 S33

FINANCE ACT 1963 PART IX

FINANCE ACT 1963 S83

FINANCE ACT 1963 S88

FINANCE ACT 1986 CHAP V

INCOME TAX ACT 1967 S255(4)(A)

FINANCE ACT 1969 S64

INCOME TAX ACT 1967 S255(1)(D)

KERRY CO COUNCIL v KERINS 1996 3 IR 493 1998/23/8828

TAXES CONSOLIDATION ACT 1997 S604(2)

TAXES CONSOLIDATION ACT 1997 S604

URATEMP VENTURES LTD v COLLINS 2002 1 AC 301 2001 3 WLR 806 2002 1 AER 46

1

Judgment of Ms. Justice Laffoy delivered on the 8th day of May, 2009.

The proceedings
2

These proceedings are by way of case stated pursuant to s. 943 of the Taxes Consolidation Act, 1997 (the Act of 1997) by His Honour Judge Michael O'Shea, a Judge of the Circuit Court. He seeks the opinion of the High Court on whether, on the facts as proved or admitted, his decision on an appeal by way of rehearing by the respondent taxpayer (the taxpayer) against a decision of the appellant Inspector of Taxes (the appellant) is correct in law.

3

The appeal arose in the following circumstances. The taxpayer is a member of a partnership known as S.T.C. Partnership No. 1 (the Partnership). For the year of assessment 1994/1995 he claimed relief for loss under s. 307 of the Income Tax Act, 1967 (the Act of 1967) (now s. 381 of the Act of 1997), as augmented by capital allowances under s. 318 of the Act of 1967 (now s. 392 of the Act of 1997), in respect of his share of the losses of the partnership. The relief claimed was refused by the appellant.

4

The decision on the appeal, which was at hearing for four days in the Circuit Court, was given on 13 th June, 2002 and was in favour of the taxpayer. The appellant was dissatisfied with the decision on the appeal and sought the case stated. It would appear that there was some delay in agreeing the terms of the case stated, which was eventually settled on 25 th July, 2007.

5

I propose setting out the relevant statutory framework before outlining the facts found and the decision made on the appeal, as set out in the case stated.

The statutory framework
6

The principal provision at issue on the taxpayer's appeal was s. 42 of the Finance Act, 1986 (section 42). The substantive provision of that section was subs. (2) which, insofar as is material for present purposes, provided as follows:-

"Subject to the modifications provided for in subsections (3) to (7), all the provisions of the Tax Acts relating to the making of allowances or charges in respect of capital expenditure on the construction of an industrial building or structure shall, notwithstanding anything to the contrary therein, apply-"

(a) as if a qualifying premises were, at all times at which it is a qualifying premises, a building or structure in respect of which an allowance falls to be made for the purposes of income tax or corporation tax, as the case may be, under Chapter II of Part XV or under Chapter I of Part XVI of the [Act of 1967], by reason of its use for a purpose specified in section 255 (1) (a) of that Act, ..."

7

It is the definition of "qualifying premises" which is at the core of the issues between the parties. It was contained in subs. (1) of Section 42 and, insofar as is material for present purposes, defined that expression as meaning:-

"... a building or structure the site of which is wholly within a designated area and which -"

(a) apart from this section is not an industrial building or structure within the meaning of section 255 (1) of the [Act of 1967], and

(b) (i) is in use for the purposes of a trade or profession, or

(ii) ...,

8

but does not include any building or structure in use as, or as part of, a dwelling-house".

9

Section 42 is now para. 11 of schedule 32 of the Act of 1997. Section 255(1) of the Act of 1967 is now s. 268(1) of the Act of 1997 and has undergone very considerable amendment and expansion since its enactment. Section 268(1) is contained in Part 9 of the Act of 1997, which contains the principal provisions in relation to relief for capital expenditure.

10

Two questions were identified in the case stated as having arisen for determination on the appeal to the Circuit Court. The first was whether the Partnership was carrying on a trade so that, in accordance with s. 72 of the Act of 1967 (now s. 1010 of the Act of 1997), the partners were entitled to loss relief as augmented by capital allowances. The application of s. 72 was not in issue. What was in issue was whether the Partnership was carrying on a trade so as to bring s. 72 into play. The second was whether the Partnership was entitled to capital allowances under section 42 in respect of the apartments units (the units) owned by it on the basis that they were qualifying premises within the meaning of section 42. No issue arose in relation to two elements of the definition of "qualifying premises", in that it was common case that the units were wholly within a designated area and, apart from section 42, they were not an industrial building or structure within the meaning of s. 255(1). Accordingly, the issues which arose on the appeal in the Circuit Court were whether, as the taxpayer contended, the units were -

11

(i) in use for the purposes of a trade, and

12

(ii) not in use as, or as part of, a dwelling house.

13

Although the core provision at issue on the case stated is section 42, some other provisions of the tax code are relevant to understanding the submissions made by the parties.

14

First, the Act of 1967, in s. 1(1), contained a definition of "trade" as including "every trade, manufacture, adventure or concern in the nature of trade". As counsel for the taxpayer pointed out, that definition is not helpful, and it is necessary to have recourse to authorities to ascertain when trade is being carried on.

15

Secondly, central to the appellant's submissions was the question of identifying under which Case of Schedule D the activity of the Partnership was chargeable to tax by virtue of section 53 of the Act of 1967 (now s. 18 of the Act of 1997) and, in particular, whether it was under-

16

(a) Case I, which covers tax in respect of "any trade", or,

17

(b) Case IV, which relates to tax "in respect of any annual profits or gains not falling under any other Case of Schedule D and not charged by virtue of any other Schedule"; or,

18

(c) Case V, which relates to tax "in respect of any rent in respect of any premises or any receipts in respect of any easement".

19

Sub-section (2) of section 53 provides that the provisions of subs. (1), which sets out the Cases (including Cases I, IV and V) under which Schedule D tax is chargeable, are-

"...without prejudice to any other provision of this Act directing tax to be charged under one or other of the said Cases, and the tax so directed to be charged shall be charged accordingly."

20

In the context of the question as to within which Case of Schedule D the activity of the Partnership was chargeable to tax, the appellant laid particular emphasis on section 81 of the Act of 1967 (now s. 75 of the Act of 1997) (section 81), subs. (1) of which, after the enactment of s. 22 of the Finance Act 1969 (the Act of 1969), provided (in part) as follows:-

"Without prejudice to any other provision of the Income Tax Acts, the profits or gains arising from -"

(a) any rent in respect of any premises, and,

(b) any receipts in respect of any easement,

21

shall, subject to and in accordance with the provisions of the Income Tax Acts, be deemed for all purposes of those Acts to be annual profits or gains within...

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