1991 (1) TMI 456 - Other - Income Tax

Summary

Issues Involved:
1. Whether the partnership was "a person carrying on a trade".
2. Whether the film "belonged" to the partnership.
3. Whether the partnership incurred expenditure in the purchase of the film.
4. Whether the transactions were trading transactions or primarily tax avoidance schemes.
5. Whether the plant "belonged" to Victory Partnership.
6. Whether Victory Partnership had "incurred" the expense of purchasing 100% of the plant.

Detailed Analysis:

1. Whether the partnership was "a person carrying on a trade"
The commissioners concluded that neither Victory Partnership nor Outland Productions was trading, primarily because the transactions were entered into with fiscal motives as their paramount object. The judge disagreed, stating that the commissioners were wrong in holding that transactions entered into "with fiscal motives as their paramount object" are not trading transactions. The judge emphasized that the relevant question is whether Victory Partnership entered into the arrangements as commercial transactions, not the taxpayer company's motives.

2. Whether the film "belonged" to the partnership
The judge held that the plant "belonged" to Victory Partnership. The Crown did not appeal against this decision, and the Court of Appeal found no reason to disagree with the judge's conclusion.

3. Whether the partnership incurred expenditure in the purchase of the film
The judge held that despite the non-recourse loan from L.P.I., Victory Partnership had "incurred" the expense of purchasing 100% of the plant. The Crown appealed against this decision, but the Court of Appeal chose not to express a concluded view on this point as it was not necessary for the decision.

4. Whether the transactions were trading transactions or primarily tax avoidance schemes
The commissioners found that the transactions were so molded by fiscal considerations that they ceased to be commercial. The judge criticized this approach, stating that the commissioners should have concentrated on the terms of the deal made between Victory Partnership and L.P.I. and whether the transactions were on commercial terms with a view to profit. The judge found that the commissioners had misdirected themselves and held that on the primary facts found by the commissioners, there was only one possible conclusion in law: that they were trading transactions.

5. Whether the plant "belonged" to Victory Partnership
The judge held that the plant "belonged" to Victory Partnership, and the Crown did not appeal against this decision. The Court of Appeal also found no reason to disagree with the judge's conclusion.

6. Whether Victory Partnership had "incurred" the expense of purchasing 100% of the plant
The judge held that Victory Partnership had "incurred" the expense of purchasing 100% of the plant, despite the non-recourse loan from L.P.I. The Crown appealed against this decision, but the Court of Appeal chose not to express a concluded view on this point as it was not necessary for the decision.

Conclusion:
The Court of Appeal allowed the appeal and remitted the case to the commissioners to reconsider their decision in light of the judgments. The Court provided guidance on how the commissioners should approach the case, emphasizing that the ultimate question is whether the transaction was a trading transaction, considering both commercial features and fiscal advantages. The Court also highlighted that the subjective intentions of the parties, particularly the Victory Partnership, are relevant and may be decisive in determining the purpose of the transaction.