Simmons (as liquidator of Lionel Simmons Properties Ltd) v Inland Revenue Commissioners
[1980] 2 All ER 798(Judgment by: Lord Scarman)
Between: Simmons (as liquidator of Lionel Simmons Properties Ltd)
And: Inland Revenue Commissioners
Judges:
Lord Wilberforce
Viscount Dilhorne
Lord Salmon
Lord ScarmanLord Roskill
Subject References:
Income tax
Profits
Trading receipts
Land
Disposal
Taxpayer acquiring land for development
Acquisition for building up a portfolio of investments sufficient for the flotation of a public company
Sale of land in view of deterioration of business prospects
Whether surplus on sale taxable as taxpayer's trading receipts
Case References:
Cunliffe v Goodman - [1950] 1 All ER 720; [1950] 2 KB 237, CA; 31(2) Digest (Reissue) 641, 5217
Edwards (Inspector of Taxes) v Bairstow - [1955] 3 All ER 48; [1956] AC 14; [1955] 3 WLR 410; 36 Tax Cas 207; 34 ATC 198; [1955] TR 209; 48 R & IT 534, HL; 28(1) Digest (Reissue) 566, 2089
Sharkey (Inspector of Taxes) v Wernher - [1955] 3 All ER 493; [1956] AC 58; [1955] 3 WLR 671; 36 Tax Cas 275; 34 ATC 263; [1955] TR 277; 48 R & IT 739, HL; 28(1) Digest (Reissue) 123, 363
Judgment date: 19 June 1980
Judgment by:
Lord Scarman
My Lords, I have the misfortune to differ from the majority of your Lordships in this appeal. I would dismiss it. But, since my difference of opinion arises not from any controversy of principle but only because I have formed a view of the facts found by the Special Commissioners and of the inferences to be drawn from them which differs from that of the majority, I shall be brief. There is no advantage to the parties and no good done to the law in developing a minority view of the facts at this stage of the case.
There is no error of law in the actual statement of the case by the commissioners. If they did err in law, the error must be inferred in this sense: that their determination of the case is explicable only on the basis of some misconception of the law. To use the formula preferred by Lord Radcliffe in Edwards v Bairstow [1955] 3 All ER 48 at 57, [1956] AC 14 at 36, an appellate court must be satisfied that 'the true and only reasonable conclusion [on the facts found] contradicts the determination,
The issue is whether certain property transactions of sale carried out by a number of separate companies under the control of Mr Simmons and his associates were trading transactions. Or were they sales negotiated reluctantly and under the pressure of financial difficulties by a property-investment business which was not engaging in trade or any adventure in the nature of trade? The appeal is that of one company only and relates to two transactions, both of which the commissioners found to be trading transactions. But four other appeals by four other 'Simmons companies' stand or fall by the decision in this case; and, rightly, the commissioners examined (with a thoroughness which deserves the highest commendation) ten transactions entered into by seven companies, all of which were controlled by Mr Simmons and his associates.
The essence of their findings is set out in three paragraphs, which I now quote ([1978] STC 344 at 355-356):
'We accept the evidence of Mr Simmons, Mr Phillips and Mr Spink, to the effect that the acquisitions with which they were respectively concerned were initially entered into primarily for the purposes of creating and retaining investment, and not primarily for the purposes of immediate sales after development. We also accept that the overall and eventual ambition or purpose of Mr Simmons personally was the flotation of a public company when sufficient and suitable investments had been gathered together. However, we do not think acceptance of that evidence is an end of the matter and automatically puts the eventual disposals into the category of non-trading.
'The pattern of Mr Simmons and his associates was to acquire and develop sites with a view to creating permanent investments, relying on short and long term loans for the various stages. From the early transactions of Polewin and Richhouse, and also from the latter transaction of Hampstead, it is evident that Mr Simmons was or had to be prepared to realise one development or part thereof before it became a completed investment, in order to find or conserve funds for another development which he thought had better prospects. It was not until at a late stage in the process, or until after completion of lettings, that he could be in a position to decide finally whether to retain or not. We find that the composite intention to be attributed to the group was to aim at building up a suitable portfolio of investments but to allow the final decision whether to retain to await on events.
'It was of the essence of [Mr Simmons'] case that the Minutes of LSP dated 27 October 1966 incorporating the decision to liquidate gave effect to change of intention, due to reversal of expectations which until then had been favourable. By that date the difficulties and problems facing the group were such that it had for some time appeared unlikely that the group could become suitable for public flotation, and the more advantageous course was to sell the group's properties. The decision to liquidate was in our view not inconsistent with the original aim-to create investments for retention where possible, or where not possible for turning to account by way of trade.'
Mr Simmons lacked capital. He entered the property business as a poor man. He had to borrow and on occasions he had to sell. He knew his own weakness, and the commissioners have found that he was prepared to sell in order to find or conserve funds for another development. They summed up the effect of their findings in words of recall at the end of the passage I have quoted. His aim was 'to create investments for retention where possible, or where not possible for turning to account by way of trade.
In other words, Mr Simmons and his companies, which were the creatures and the instruments of his will, traded when he thought it necessary in the interest of his long-term objective, which was 'to create investments for retention'. I find nothing very extraordinary in such attitude, purpose and conduct. Almost every trader looks to his profits to build up a capital position; the existence of Mr Simmons's long-term objective is not therefore inconsistent with an intention to trade as part of his business when he should judge it necessary.
Whether or not I would have reached the same conclusion as that of the commissioners is not, of course, the question. The House must be satisfied that the true and only reasonable conclusion on the facts is that the challenged transactions were not trading transactions, and is, therefore, contradictory of their determination. Notwithstandingthe skilled and detailed analysis of the transactions which have been presented to your Lordships by counsel at the bar of the House, I am not so satisfied.
I would, therefore, dismiss the appeal.