1992 (5) TMI 192 - HC - Income Tax

Summary

Issues Involved:
1. Whether the lb50m payment by the taxpayer company was a capital or revenue expenditure.
2. Whether the payment was laid out wholly and exclusively for the purposes of the taxpayer company's trade.

Detailed Analysis:

1. Nature of the lb50m Payment: Capital or Revenue Expenditure

General Commissioners' Decision:
The general commissioners found that the lb50m payment was made to preserve the trade of the taxpayer company from collapse and was of a revenue nature. They further found that the payment was not converted into a payment of a capital nature by the circumstance that it was associated with the disposal of the J.M.B. shares.

Vinelott J. and Court of Appeal:
Vinelott J. concluded that the lb50m was paid to get rid of the shares, stating that the purpose of the taxpayer company's board was to preserve its business. However, the means to achieve this was to transfer the shares of J.M.B. to the Bank of England and pay lb50m to J.M.B. These elements could not be severed. The Court of Appeal affirmed this decision, with Fox L.J. stating that the payment was to enable the taxpayer company to get rid of a capital asset.

House of Lords:
The House of Lords disagreed with Vinelott J. and the Court of Appeal. They reasoned that the payment was made to preserve the taxpayer company's trade and not to dispose of a capital asset. Lord Keith of Kinkel emphasized that the payment was a contribution required by the Bank of England towards its planned rescue operation and not the price for getting rid of a burdensome asset. Lord Templeman and Lord Goff of Chieveley supported this view, stating that the payment was made to enable the taxpayer company to continue trading and was not for the disposal of the shares. The payment was therefore characterized as a revenue expenditure.

2. Purpose of the Payment: Wholly and Exclusively for Trade

General Commissioners' Decision:
The general commissioners found that the taxpayer company's disbursement of lb50m to J.M.B. was wholly and exclusively laid out for the purposes of the taxpayer company's platinum trade. The disbursement was made for the purpose of preserving that trade and for no other purpose.

House of Lords:
The House of Lords agreed with the general commissioners' finding. They emphasized that the payment was made to preserve the taxpayer company's existing business from collapse, which is a revenue nature expenditure. The payment was not made to acquire or dispose of a capital asset but to remove an obstacle to successful trading.

Conclusion:
The House of Lords allowed the appeal and restored the decision of the general commissioners. They concluded that the lb50m payment was a revenue expenditure laid out wholly and exclusively for the purposes of the taxpayer company's trade. The payment was made to preserve the taxpayer company's business and not to dispose of a capital asset. The appeal was allowed with costs, and the determination of the general commissioners was restored.