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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Steibelt v Paling [1999] EWHC 845 (Ch) (28 April 1999) URL: http://www.bailii.org/ew/cases/EWHC/Ch/1999/845.html Cite as: [1999] BTC 184, 71 TC 376, [1999] EWHC 845 (Ch), [1999] STC 594

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(REVENUE LIST)

		Royal Courts of Justice
		28 April 1999

THE VICE-CHANCELLOR: This is an appeal by the Revenue from the decision of the General Commissioners for the purposes of the Income Tax given on 15 April 1997. The General Commissioners allowed the appeal of the respondent taxpayer, Mr Thomas Paling, who had appealed against a refusal by the Revenue of his claim for rollover relief under s 152 of the Taxation of Chargeable Gains Act 1992.

The material facts under which the issue arises can be shortly stated. From 1980 until October 1986 the taxpayer traded as a publican at The George Inn, Rotherfield. No details are given as to the nature of the trade other than that the premises constituted a pub. There may have been some element of food provision at the premises but it was not, as I understand it, a restaurant.

On 22 October 1986 the taxpayer sold The George Inn for the sum of £130,416. That sale price gave rise to a chargeable gain for the purposes of the 1992 Act of £59,219. It can be assumed that the taxpayer had the intention at the time he sold The George Inn of purchasing other premises from which to carry on an analogous, though not the same, trade. On 10 February 1988, about a year and a half after he sold the pub, the taxpayer purchased a barge, the name of which was Tollesbury. The purchase price was £20,000.

But the barge was in no state to be used for the purpose that he had in mind, which was to conduct from it the business of a restaurant and wine bar. Considerable improvements to it were necessary before that business from the barge could commence. From December 1988 until November 1994 the taxpayer carried out improvements to the barge. The total cost of those improvements was £160,441-odd.

The Case Stated sets out the amounts spent in each of the calendar years in question. In 1989 two sums are shown as having been spent: £59,872-odd and £41,432-odd. In 1992 another sum of nearly £40,000 was spent. In 1991 for whatever reason expenditure was fairly moderate. Only £4,571-odd was spent. In 1992 the expenditure was £7,061 and in 1993 to 1994 there was further expenditure of £7,534. The total expenditure was £160,441.

The completion of the expenditure on improvements to the barge did not lead immediately to the opening of the barge as a wine bar and restaurant. First, such matters as the obtaining of a liquor licence had to be attended to. The taxpayer applied for the licence in February 1995 and eventually obtained it on 15 May 1995. He also needed to satisfy various requirements of the fire authorities. These he had satisfied by mid-May 1995. Thereafter, there was a fairly short delay of three or four months until finally, on 15 August 1995, the business opened and the floating wine bar and restaurant received its first customers.

It seems from the evidence submitted on behalf of the taxpayer that the final delay was attributable to financial problems encountered by him. He needed to obtain a loan in order to reach appropriate terms with brewers for the supply of liquor that he proposed to sell from the bar.

I turn back to the events that occurred regarding the tax liability of the taxpayer resulting from the chargeable gain of £59,219 which arose when he sold his pub. On 3 May 1988 he was assessed to capital gains tax in respect of that sum, but in July he entered an appeal and made an application for a postponement of the assessment. On 8 December 1992 the General Commissioners confirmed the amount of the assessment but, on 27 February 1995 at the end of the expenditure on improvements to the barge, the taxpayer made a formal claim for rollover relief under s 152.

The Revenue rejected the claim for rollover relief. It took the view that the expenditure had occurred too late to enable the taxpayer to qualify for rollover relief under s 152(3). It also took the view that the gap between his cesser of the original business carried on at the pub, The George Inn, and the commencement of the new business carried on from the floating barge was too great to permit rollover relief to be obtained.

The respondent appealed against the rejection of the claim. That appeal was heard by the General Commissioners on 15 April 1997. They allowed the appeal and from that decision the Revenue has appealed to this court.

I must now refer to the relevant statutory provisions which govern the question whether or not rollover relief is available to the taxpayer and to some of the extra-statutory documents that play a part in the case. S 152(1) provides as follows:

"If the consideration which a person carrying on a trade obtains for the disposal of, or of his interest in, assets ('the old assets') used, and used only, for the purposes of the trade throughout the period of ownership is applied by him in acquiring other assets, or an interest in other assets ('the new assets') which on the acquisition are taken into use, and used only, for the purposes of the trade, and the old assets and new assets are within the classes of assets listed in section 155, then the person carrying on the trade shall, on making a claim as respects the consideration which has been so applied, be treated for the purposes of this Act. . ."

There follow the provisions which enable rollover relief to be calculated.

A particular point arises on the wording of subsection (1) to which I should draw attention. That provision applies where the taxpayer is carrying on "a trade" and assets used for that trade are sold and new assets that are purchased are used for the purposes of "the trade". That language suggests that the two trades must be the same. So if assets used in the original trade were sold and invested in a different trade, the rollover relief would not be available. But that is dealt with by subsection (8) of s 152, which provides as follows:

"This section shall apply in relation to a person who, either successively or at the same time, carries on two or more trades as if both or all of them were a single trade."

The effect of subsection (8) is that if the new trade is carried on "successively" in relation to the original trade it does not matter for the purposes of rollover relief under subsection (1) that it is not the same trade; subsection (8) requires it to be treated as if it were. The wine bar and restaurant business carried on by the taxpayer from the barge would not, I think, be regarded as the same trade as the publican's trade carried on from The George Inn. So he would not qualify for rollover relief unless it were possible to say that the trade carried on from The George Inn and the trade carried on from the barge were carried on "successively".

Subsection (3) of s 152 is also important:

"Subject to subsection (4) below",

on which nothing turns in this case,

"this section shall only apply if the acquisition of, or of the interest in, the new assets takes places, or an unconditional contract for the acquisition is entered into, in the period beginning 12 months before and ending three years after the disposal of, or of the interest in, the old assets, or at such earlier or later time as the Board may by notice allow."

Leaving aside for the moment the question of the Board's discretion to extend the time stipulated in subsection (3), the expenditure on improvements to the barge took place in the period between December 1989 and November 1994. December 1989 is more than three years after the date on which the taxpayer sold The George Inn. Unless, therefore, the Board exercises its discretionary power under subsection (3) and extends the stipulated three years, the taxpayer's expenditure on the improvements to the barge cannot qualify for rollover relief.

The taxpayer's claim to the Revenue for rollover relief was combined with a request that time be extended under subsection (3). The Revenue declined to extend the time. One of the conclusions to which the General Commissioners came was that a discretionary extension under subsection (3) should be allowed. They purported to exercise in favour of the taxpayer the discretion which the Board of Inland Revenue had declined to exercise. That is one of the grounds of appeal raised by the Revenue before me this morning.

The extra-statutory documents which are relevant to this case include a number of publications by the Inland Revenue indicating the manner in which it will apply various provisions to be found in s 152. The first of these relates to the exercise by the Revenue of its discretion to extend time under subsection (3). One document shown to me, which appears to be identified by the number 60640 and, I am told, comes from an Inland Revenue publication called "Capital Gains Tax Manual", reads:

"Extension of time limit in s 152(3) is permitted where the claimant can demonstrate that

they had a firm intention to acquire replacement assets within the time limit but

they were prevented by some fact or circumstance beyond their control from acquiring the replacement assets, or any assets, within the time limit and

acted as soon as they reasonably could after ceasing to be so prevented.

It is a question of fact and degree and each case is considered on its own merits. Examples of circumstances outside the claimant's control might include death or serious illness of a vital party at a crucial time, unsettled disputes or litigation, genuine difficulty in establishing good title or in finding suitable replacement assets or delay in receipt of disposal consideration.

A mere change of intention at a late stage or a shortage of funds arising out of application of disposal consideration to some purpose other than the acquisition of new qualifying assets will not normally be regarded as circumstances beyond the claimant's control."

That sets out some guidance from the Revenue as to how it will proceed in deciding whether or not to exercise its discretion to extend time under subsection (3).

More important perhaps is the publication under the identification number D24 entitled "Relief for the replacement of business assets: assets not brought immediately into trading use." By way of context, it will be recalled that s 152(1) requires that the new assets must be assets

"which on the acquisition are taken into use, and used only, for the purposes of the trade."

The text of D24 is as follows:

"Where a 'new asset' is not, on acquisition, immediately taken into use for the purposes of a trade, it will nevertheless qualify for relief under sections 152-158. . .provided:-

(a) the owner proposes to incur capital expenditure for the purposes of enhancing its value;

(b) any work arising from such capital expenditure begins as soon as possible after acquisition, and is completed within a reasonable time.

(c) on completion of the work the asset is taken into use for the purposes of trade and for no other purpose; and

(d) the asset is not let or used for any non-trading purpose in the period between acquisition and the time it is taken into use for the purpose of the trade."

There is a further passage relating to land with a building on it, but I do not need to read it because nothing turns on it in this case.

The General Commissioners in the Case Stated set out the relevant facts and their findings. In addition to the facts I have already mentioned the General Commissioners found the following:

"5(6) We accepted that it was always the intention of the taxpayer to use the barge for the purposes of a trade, and to operate the barge Tollesbury as a floating Wine Bar and Restaurant once it had been fully restored."

They then set out the respective contentions for the taxpayer and Crown and expressed their conclusion in the following paragraph:

"9. We the Commissioners who heard the appeal hold:-

(1) That taxpayer qualified for relief under s 152(1) and we considered the expenditure on improvements fell within that section.

(2) Under s 152(3) the time limit should be extended to six years from the date of acquisition of the barge.

(3) The taxpayer complied with the conditions of extra statutory concession D24.

(4) The taxpayer's trades were successive as required by s 152(8)."

Those conclusions involve a number of findings of fact. The conclusion that the taxpayer's trades were successive as required by s 152(8) involves a finding of fact. It is a question of fact and degree whether the wine bar and restaurant trade on the barge, which commenced on 15 August 1995, can be regarded as successive in relation to the pub business carried on at The George Inn, Rotherfield, which ceased on 27 October 1986. That is a gap of somewhat over nine years.

In expressing the conclusion that the taxpayer complied with the conditions of extra-statutory concession D24, the General Commissioners must be taken to have found as a fact that the improvement work to the barge put in hand by the taxpayer began "as soon as possible after acquisition of the barge" and was completed "within a reasonable time". The barge was purchased in February 1988 and the work commenced in December 1989. The General Commissioners seem to have found that that work commenced as soon as possible after acquisition. The work continued until November 1994 - a period of five years - and the General Commissioners appear to have found that the work was completed within a reasonable time.

As far as the barge is concerned, on completion of the work the assets must be taken into use for the purpose of the trade. I think that the General Commissioners must be taken to have found that the gap between completion of the work in November 1994 and the opening of the barge in August 1995 did not prevent the taxpayer from complying with that requirement of D24.

I believe that on this appeal three separate issues arise. The first is whether it is open to the General Commissioners to sit in judgment on the Revenue's decision and themselves to exercise discretion under s 152(3). Mr Rabinder Singh, counsel for the Revenue, has submitted to me that it is not open to the General Commissioners to do so, the statutory discretion having been conferred by Parliament on the Board of Inland Revenue. The Board's exercise of the discretion may be challenged and set aside in judicial review proceedings, but not on the hearing by General Commissioners of an appeal, nor on the hearing by this court of an appeal from the decision of the Commissioners. Before the General Commissioners and before this court the language of the Act must be applied. The Act confers discretion on the Inland Revenue and on no one else and in this case the Inland Revenue has declined to exercise it.

The second issue is whether it is open to the General Commissioners to substitute their view for the Revenue's view on the question whether the requirements of the extra-statutory document D24 have been complied with. As to this, Mr Rabinder Singh said that the same arguments applied to the second as to the first issue. This was simply a matter for the Revenue. The Revenue's extra-statutory document indicated what approach it would take to the application of the taxing provisions and it was not for the General Commissioners, or any other appellate tribunal except in judicial review proceedings, to sit in judgment on the Revenue's decision in that regard.

The third issue relates to the findings of fact of the General Commissioners. In general, findings of fact reached by Commissioners on tax appeals cannot be challenged. They are the tribunal entrusted by Parliament with the decisions on issues of fact. But if decisions of Commissioners on issues of fact go outside what on any footing can be justified as reasonable then they can be challenged. At that point the challenge becomes based on a point of law. If conclusions on issues of fact are ones to which no reasonable body of Commissioners, properly directing themselves to the matters in question, can come then their conclusions of fact can be upset on appeal. Edwards v Bairstow is the long-standing authority for that proposition. As Mr Rabinder Singh put it, could any body of Commissioners, reasonably directing themselves, have come to the conclusions to which they purported to come? On that footing he challenges the conclusion by the General Commissioners that the two businesses were carried on successively. If he had to do so he would also challenge the apparent conclusion of the General Commissioners that the work on the barge was begun as soon as possible and was completed within a reasonable time.

I take the three issues in turn. The first relates to the exercise of discretion. The discretionary power in question is that conferred on the Revenue to extend the time stipulated in subsection (3). Mr Rabinder Singh referred me to a judgment of Arden J in Kelsall (H M Inspector of Taxes) v Investment Chartwork Ltd 65 TC 750. The case did not involve the same discretion as in the present case but did raise the question whether the exercise by the Revenue of a statutory discretion could be reviewed and upset by the General Commissioners on an appeal. Arden J held that it could not. She referred to the decision of the House of Lords in Customs and Excise Commissioners v J H Corbitt (Numismatists) Ltd [1980] STC 231 in which Lord Lane, with whose speech the majority of the House agreed, approved the following passage from the judgment of Neill J:

"Once it is conceded, as I think rightly, that the commissioners are empowered, subject to the control of the Treasury, to lay down the conditions in a general notice such as Notice No.712 in such a form as they consider proper and that that power is not subject to appeal, it seems to me impossible to contend that the discretion given by the final words of article 3(5) 'or may recognise as sufficient for those purposes' is a different kind of discretion which is subject to appeal."

Arden J referred also to Slater v Richardson 53 TC 155 in which Oliver J had said:

"There is nothing in those words, I think, which can possibly enable the General Commissioners to discharge an assessment on the ground that the circumstances were such that the Collector of Taxes ought to have exercised a discretion which is placed upon him to remit tax which is clearly payable under the provisions of the section."

Following the statements of principle expressed in those cases, Arden J held that the Commissioners on an appeal against a decision of the Revenue did not have power to substitute their own discretion for the statutory discretion to be exercised by the Revenue.

In my judgment, the same applies to the present case. Subsection (3) of s 152 clearly gives power to the Revenue at its discretion to allow an extended period within which the acquisition of the new assets may take place. No criteria are expressed in the subsection as to when the power should or should not be exercised. The matter is left entirely to the discretion of the Revenue. The exercise of that power by the Revenue would be susceptible to challenge by judicial review on the grounds of unreasonableness or any other suitable ground, but it is not a power that can be exercised by the General Commissioners. In my judgment, the decision of the Revenue as to whether or how to exercise its subsection (3) discretion is not reviewable by the General Commissioners on an appeal.

It follows that, in my view, it was not open to the General Commissioners to extend the three-year period within which the new assets had to be acquired, or expenditure on improvements had to be incurred, in order to allow a claim for rollover relief to be made.

That disposes of the whole appeal, but I ought to express my opinion on the other issues raised by Mr Rabinder Singh. The second issue was whether it was open to the General Commissioners to review the conclusions arrived at by the Revenue as to whether the extra-statutory document D24 applied. I have tried to avoid calling it an extra-statutory concession notwithstanding that it is contained in a booklet entitled "Extra-Statutory Concessions". The reason is that I am not clear from reading it that it is a concession at all. S 152(1) sets out the basic framework in which rollover relief is available. In order for the relief to be available the new asset must, on the acquisition, be taken into use and used only for the purposes of the trade. But the subsection is silent as to how the statutory provision is to be applied where there is some gap in time between the acquisition of the new assets and the commencement of the trade in the new assets.

I put to Mr Rabinder Singh a case in which new premises were acquired and needed some refitting. In the case of a restaurant it might be that new kitchen equipment was necessary, or it might simply be no more than new decoration. But whatever it might be would involve some delay, perhaps a matter of weeks or months. Mr Rabinder Singh took an understandable, but in my judgment excessively rigid, approach in response to these difficulties. He submitted that unless the trade in the newly-acquired premises commenced immediately on acquisition rollover relief could not, on the language of the subsection, be claimed. I am not prepared to accept that Parliament can have intended such an unreasonably rigid application of what is plainly intended to be an ameliorating provision enacted in order to relieve a taxpayer of what would otherwise be a tax liability. To say that relief would be available only on an immediate commencement of trade in the newly-acquired assets, which is the sense in which Mr Rabinder Singh interprets the qualifying words, is not, in my judgment, the correct construction of the Act.

I regard D24 as being a very sensible attempt by the Revenue to indicate how it believes the language of the Act in this regard should be applied. I think it highly likely that, as a matter of construction, a court would conclude that that was how the Act should be applied. I am not satisfied that in publishing D24 the Revenue was making any concession at all. It would be making a concession only if the true construction of the Act were stricter than the approach outlined in D24.

Accordingly, if that is a legitimate approach to the function of D24, and I believe that it is, the question whether, on the facts of the case, a particular taxpayer complies with the various requirements of D24 is the same as the question whether, on the facts, s 152(1) on its true construction applies. I am not prepared to accept that the General Commissioners had no jurisdiction to review the question whether or not the case fell within D24. It seems to me that it is open to a taxpayer to say, "I know that I did not start the new business immediately I acquired the premises. I had to carry out various works, but on the facts of the case and the true construction of s 152(1) I am within the section. Moreover, I comply with the Revenue's interpretation of the section as set out in D24."

Turning to the third issue, the findings of fact of the General Commissioners, I find it impossible to accept the proposition that, within the meaning of subsection (8), the new trade which opened in August 1995 should be regarded as carried on "successively" to the old trade which ceased to be carried on in 1986. It is a question of fact and degree whether, where there is a gap between cesser of old and commencement of new, the two can be regarded as being carried on successively.

Questions of fact and degree are for the Commissioners, but in this case the conclusion of the General Commissioners appears to me to come within the principle of Edwards v Bairstow. I believe that the conclusion was not one to which a body of Commissioners reasonably directing itself could have come.

The same can be said of the conclusions of fact in regard to the question whether D24 applies. The proposition that the works of improvement to the barge, which took some five years to complete, were completed as soon as possible, seems to me to be an impossible conclusion.

In the event, these considerations are not decisive of the case. My conclusion on the first point is the decisive point, but I would also have allowed the appeal on these other points if it had come to that.

For these reasons, the appeal is allowed.

MR SINGH: My Lord, perhaps I may make three observations. The first relates to the drafting of your Lordship's judgment. To assist with one or two factual matters, your Lordship read a document by reference to paragraph no.60640. I am instructed that it comes from a document headed "Capital Gains Tax Manual", which is a regular publication. In a similar context, we take on board your Lordship's point about how it would be helpful if the Revenue indicated whether it regarded documents as concessionary. All I can add is that D24 features in a booklet that I have just been handed entitled "Extra Statutory Concessions". The sub-heading is "Concessions as at 31.8.96."

THE VICE-CHANCELLOR: In that case I shall remove that phrase.

MR SINGH: In the contents at section D the heading is "Concessions relating to capital gains." D24 features in that publication.

As to the appeal itself, perhaps I may hand in a document. (Same handed in) Your Lordship sees that it refers to s 56(6) which provides that the High Court shall hear and determine any question of law, which your Lordship has done, and shall reverse, affirm or amend the determination in respect of which the case was stated. Your Lordship can also remit the matter.

THE VICE-CHANCELLOR: It does not need to be remitted.

MR SINGH: No. In my submission, in this case your Lordship should reverse the determination.

THE VICE-CHANCELLOR: I reverse the determination of the General Commissioners.

MR SINGH: In relation to costs, that matter now falls to be determined under the Civil Procedure Rules. If it assists, I have had copied what I take to be the relevant practice directions. Essentially, your Lordship makes a summary assessment of costs. I believe that a schedule has been put in. Your Lordship sees that under "attendance at hearing" the figure of five hours is given. It has not taken that long today.

THE VICE-CHANCELLOR: How long has it taken - three hours?

MR SINGH: Those instructing me have been here for about three hours.

THE VICE-CHANCELLOR: That brings it down to £360.

MR SINGH: Those are our suggested figures.

THE VICE-CHANCELLOR: The only figure that I question here - you will forgive me for doing so - is whether the figure for counsel's fee is proportionate to the case. Do you want to say anything about that?

MR SINGH: Perhaps I may take instructions. (There followed a short pause) This is a slightly invidious exercise. My instructions are that this matter raised some principles of public law as well as Revenue law which were not the subject of previous authority. That was why it was felt appropriate to instruct on this basis.

THE VICE-CHANCELLOR: It is a very short point.

MR SINGH: Yes, my Lord. In the end, the court must make that judgment.

THE VICE-CHANCELLOR: I make an order for costs against the respondent and assess them in the sum of £2,120.