Simmons (as liquidator of Lionel Simmons Properties Ltd) v Inland Revenue Commissioners

[1980] 2 All ER 798

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Between: Simmons (as liquidator of Lionel Simmons Properties Ltd)
And: Inland Revenue Commissioners

Court:

Judges: Lord Wilberforce
Viscount Dilhorne
Lord Salmon
Lord Scarman
Lord 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

Hearing date: 29, 30 April 1980
Judgment date: 19 June 1980

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LSP was the parent company of a group of seven companies which had been formed by S, the liquidator of LSP, at different times between 1957 and 1964, with the object of acquiring and developing various properties and ultimately floating a public company. All the companies except one were formed as property investment companies. In 1962 an association was formed with B Ltd, a quoted investment holding company which specialised in backing unquoted property investment companies in order that they could be brought to the market and publicly quoted. Since then B Ltd, directly or through LSP, had an interest in each company. In October 1963 S entered into an agreement with B not to alter, inter alia, LSP's memorandum or articles of association or its business from that of property holding. In 1966 the group decided to go into liquidation because prospects in the field of property development and investment had become unfavourable. As a result between 1967 and 1969 various properties held by the group were sold and the companies were assessed to corporation tax in respect of the surpluses arising on the sales. S as liquidator of LSP and other companies appealed, contending that the surpluses were not trading profits but proceeds on the realisation of investments. The Special Commissioners found that the properties had initially been acquired primarily for the purposes of creating and retaining investments and not for the purposes of immediate sales after development, that the overall and eventual ambition or purpose of S had been the flotation of a public company when sufficient and suitable investments had been gathered together and that the composite intention to be attributed to the group was to build up a suitable portfolio of investments but to allow the final decision whether to retain to await events. The commissioners took the view that the decision to liquidate was not inconsistent with the original aim of the group, which was to create investments for retention where possible or, where not possible, for turning to account by way of trade, and determined that the surpluses on the sale of certain properties by LSP and two other companies were trading profits. The judge allowed the appeal by S, holding that the commissioners' determination was inconsistent with their primary findings of fact. The Court of Appeal reversed that decision, holding that until a decision had been taken to treat a property as an investment the surplus realised on its sale was assessable as a trading profit and that on the facts found the commissioners could properly have inferred that no such decision had been taken with regard to the properties in question. S appealed.

Held (Lord Scarman dissenting on the facts) - The commissioners' reference to the group's original aim, ie to create investments for retention where possible or, where not possible, for turning to account by way of trade, which was not itself a finding of fact, was inconsistent with the whole history of the group and with the commissioners' clear finding that the initial intention of the group had been primarily for the purpose of creating and retaining investments and not for the purpose of immediate sale after development. Nor was there any evidence of a trading intention on the part of the group at any stage of the transaction, and the commissioners had made no such finding. It followed, therefore, that on the facts the sale of the properties in question was not a sale in the course of trade but a realisation of capital. The appeal would accordingly be allowed (see p 802 c to p 803 c and f to p 804 a and d to f and p 806 b, post).

Notes

For disposals of assets treated as trading transactions, see 23 Halsbury's Laws (4th Edn) para 216 and for cases on the subject, see 28(1) Digest (Reissue) 83-96, 245-296.

Appeal

Lionel Simmons, as liquidator of Lionel Simmons Properties Ltd ('LSP'), the parent company of a group of companies, including Centre Town Developments (Twickenham) Ltd ('Twickenham') and Centre Town Developments (Barnet) Ltd ('Barnet'), appealed against the decision of the Court of Appeal (Orr, Bridge and Cumming-Bruce LJJ) ([1979] STC 471) dated 2 March 1979 allowing an appeal by the Crown from an order of Goulding J ([1978] STC 344) made on 14 February 1978 whereby he allowed, on a case stated, an appeal by Mr Simmons as liquidator of the three companies, LSP, Twickenham and Barnet, against the determination of the Special Commissioners that sums received by the three companies were, for the purposes of corporation tax and shortfall arising under s 77 of the Finance Act 1965, trading receipts and not surpluses attributable to capital account, and were, accordingly, liable to corporation tax. The facts are set out in the opinion of Lord Wilberforce.

Their Lordships took time for consideration.