Tax Cases Flashcards
Heather v PE Consulting Group Ltd
Though accountancy practice is given weight, the courts are not bound by it; the issue of capital and revenue is a question of law.
Herbert Smith v Honour
Listed the circumstances where GAAP is not determinative for tax purposes:
- accounts based on factual analysis which is wrong in law
- factual assumptions insufficiently reliable
- factual assumptions actually inconsistent with the true facts
Listed the circumstances where GAAP is not determinative for tax purposes:
- accounts based on factual analysis which is wrong in law
- factual assumptions insufficiently reliable
- factual assumptions actually inconsistent with the true facts
Herbert Smith v Honour
Though accountancy practice is given weight, the courts are not bound by it; the issue of capital and revenue is a question of law.
Heather v PE Consulting Group Ltd
John Smith and Son v Moore
Used the Adam Smith definitions of fixed and circulating capital
- Fixed capital - that which the owner turns to profit by keeping in his own possession
- Circulating capital - that which the owner makes a profit of by parting with it and letting it change masters
Used the Adam Smith definitions of fixed and circulating capital
- Fixed capital - that which the owner turns to profit by keeping in his own possession
- Circulating capital - that which the owner makes a profit of by parting with it and letting it change masters
John Smith and Son v Moore
JandR O’Kane v CIR
Gave an alternative definition of fixed and circulating capital:
- Fixed - property acquired and intended for retention and employment with a view to profit
- Circulating - property acquired or produced with a view to resale or sale at a profit
Gave an alternative definition of fixed and circulating capital:
- Fixed - property acquired and intended for retention and employment with a view to profit
- Circulating - property acquired or produced with a view to resale or sale at a profit
JandR O’Kane v CIR
Gloucester Railway Carriage and Wagon Company Ltd v CIR
Company manufactured, sold and hired out wagons. The ‘hire’ wagons were shown as fixed capital assets in the accounts. Upon their sale, the courts held that the profit was revenue, not capital, arising out of a single trade of making profit from wagons
Company manufactured, sold and hired out wagons. The ‘hire’ wagons were shown as fixed capital assets in the accounts. Upon their sale, the courts held that the profit was revenue, not capital, arising out of a single trade of making profit from wagons
Gloucester Railway Carriage and Wagon Company Ltd v CIR
Vodafone Cellular Ltd v Shaw
In the judge’s summary he noted two things are important in determining capital/revenue - the nature of the payment and the nature of the advantage obtained by the payment. If a payment is made to extinguish an obligation to make revenue payments, then it is revenue. (Unless the obligation extinguished by the modification or disposal of an identifiable capital asset)
In the judge’s summary he noted two things are important in determining capital/revenue - the nature of the payment and the nature of the advantage obtained by the payment. If a payment is made to extinguish an obligation to make revenue payments, then it is revenue. (Unless the obligation extinguished by the modification or disposal of an identifiable capital asset)
Vodafone Cellular Ltd v Shaw
Mallett v Staveley Coal and Iron Co Ltd
Colliery company paid to get out of 2 loss-making leases early. Claimed the costs as revenue as not asset/advantage gained, and only a revenue charge was replaced. Courts held that the expense was incurred in disposing of a capital asset (not dealing in leases) therefore the expense was capital. The company id have an advantage as they had an improved asset (no undesirable leases)
Colliery company paid to get out of 2 loss-making leases early. Claimed the costs as revenue as not asset/advantage gained, and only a revenue charge was replaced. Courts held that the expense was incurred in disposing of a capital asset (not dealing in leases) therefore the expense was capital. The company id have an advantage as they had an improved asset (no undesirable leases)
Mallett v Staveley Coal and Iron Co Ltd
Tucker v Granada Motorway Services Ltd
Substituted part of turnover-based rent for a lump sum payment. Claimed it was a revenue payment as it replaced a revenue obligation. Courts held it was capital as it improved the value of the asset (the lease) to the company
* KIV - Lord Wilberforce - “once and for all expenditure”
Substituted part of turnover-based rent for a lump sum payment. Claimed it was a revenue payment as it replaced a revenue obligation. Courts held it was capital as it improved the value of the asset (the lease) to the company
* KIV - Lord Wilberforce - “once and for all expenditure”
Tucker v Granada Motorway Services Ltd
Texas Land and Mortgage v Holtham
Raised money by issuing debentures, company argued that costs related to debentures were revenue but court found it was expenditure incidental to fixed capital (the debentures) and therefore capital.
Raised money by issuing debentures, company argued that costs related to debentures were revenue but court found it was expenditure incidental to fixed capital (the debentures) and therefore capital.
Texas Land and Mortgage v Holtham
ECC Quarries Ltd v Watkis
Company applied unsuccessfully for permission to extract sand and grave. Claimed the associated expense was revenue as no asset or enduring benefit was gained. Courts held it was capital; had it been successful it would have “radically and enduringly” altered the land, and so been capital. The fact that it was unsuccessful does not alter its character
Company applied unsuccessfully for permission to extract sand and grave. Claimed the associated expense was revenue as no asset or enduring benefit was gained. Courts held it was capital; had it been successful it would have “radically and enduringly” altered the land, and so been capital. The fact that it was unsuccessful does not alter its character
ECC Quarries Ltd v Watkis
Southern v Borax Consolidated Ltd
Incurred legal expenses defending their title to land in LA. Court agreed it was a revenue expense; it was essentially an exercise in maintenance as nothing was altered
Incurred legal expenses defending their title to land in LA. Court agreed it was a revenue expense; it was essentially an exercise in maintenance as nothing was altered
Southern v Borax Consolidated Ltd
Glenboig Union Fireclay Co Ltd v CIR
Company leased fireclay beds, some of which were under tracks of the Caledonian Railway. They prevented the company from using those beds, and paid compensation. Held to be a capital receipt as it was for the permanent loss of use (sterilisation) of a fixed capital asset. Fact that compensation was calculated by reference to lost profits was irrelevant
Company leased fireclay beds, some of which were under tracks of the Caledonian Railway. They prevented the company from using those beds, and paid compensation. Held to be a capital receipt as it was for the permanent loss of use (sterilisation) of a fixed capital asset. Fact that compensation was calculated by reference to lost profits was irrelevant
Glenboig Union Fireclay Co Ltd v CIR
Burmah Steam Ship Co Ltd v CIR
Sent a ship in for repairs, it was late being completed. Damages received to ‘fill the hole’ in their profits. Held to be revenue for that reason; no damage to a fixed capital asset, but rather to the trading opportunities it offered
Sent a ship in for repairs, it was late being completed. Damages received to ‘fill the hole’ in their profits. Held to be revenue for that reason; no damage to a fixed capital asset, but rather to the trading opportunities it offered
Burmah Steam Ship Co Ltd v CIR
London and Thames Haven Oil and Wharves v Attwooll
A tanker damaged one of the company’s jetties, paid compensation for the repairs and loss of use. Payment for the damage was capital, the loss of use was revenue and repair costs were not deductible in so far as they were covered by the capital compensation
- asset damaged, sold without repair - all compensation is CAPITAL
- asset damaged and repaired - EITHER a) treat all compensation as capital, and only allow deductions for repairs which cost more than the compensation received, OR b) allow all repairs but bring in same amount of compensation as a REVENUE receipt
A tanker damaged one of the company’s jetties, paid compensation for the repairs and loss of use. Payment for the damage was capital, the loss of use was revenue and repair costs were not deductible in so far as they were covered by the capital compensation
- asset damaged, sold without repair - all compensation is CAPITAL
- asset damaged and repaired - EITHER a) treat all compensation as capital, and only allow deductions for repairs which cost more than the compensation received, OR b) allow all repairs but bring in same amount of compensation as a REVENUE receipt
London and Thames Haven Oil and Wharves v Attwooll
Short Bros Ltd v CIR
Shipbuilders agreed to cancel 2 contracts in return for £100k compensation. Was found to be a revenue receipt and all chargeable in the receipt year as it could not be affected by the chronology of the contract which had been cancelled.
Shipbuilders agreed to cancel 2 contracts in return for £100k compensation. Was found to be a revenue receipt and all chargeable in the receipt year as it could not be affected by the chronology of the contract which had been cancelled.
Short Bros Ltd v CIR
George Thompson & Co Ltd v CIR
Shipping company had a contract to buy coal at fixed price, they sold this right for a premium. Court found that the premium was a revenue receipt as it was received in return for something used in its business, a circulating capital asset (the coal)
Shipping company had a contract to buy coal at fixed price, they sold this right for a premium. Court found that the premium was a revenue receipt as it was received in return for something used in its business, a circulating capital asset (the coal)
George Thompson & Co Ltd v CIR
Van den Berghs Ltd v Clark
Entered into a friendly alliance with a rival company involving agreements affecting the whole structure of the business. When the alliance ended, compensation received was held to be capital because it recognised a fundamental end/change to the structure of their business as they knew it - and the loss of the capital asset that was the rights under the various agreements
Entered into a friendly alliance with a rival company involving agreements affecting the whole structure of the business. When the alliance ended, compensation received was held to be capital because it recognised a fundamental end/change to the structure of their business as they knew it - and the loss of the capital asset that was the rights under the various agreements
Van den Berghs Ltd v Clark
Anglo-Persian Oil Co Ltd v Dale
Company cancelled contract with its Persian agents and set up their own sales organisation there. Sum paid to end the contracts, and ensure no future competition from those agents, was revenue as there was no enduring benefit to the trade, and the agreement did not form the whole framework within which the company operated.
Company cancelled contract with its Persian agents and set up their own sales organisation there. Sum paid to end the contracts, and ensure no future competition from those agents, was revenue as there was no enduring benefit to the trade, and the agreement did not form the whole framework within which the company operated.
Anglo-Persian Oil Co Ltd v Dale
Kelsall Parsons & Co v CIR
1 of 14 contracts terminated one year early. Compensation received found to be revenue as the cancellation didn’t affect whole structure and framework of business, and was no more of a disturbance than they might have expected in the ordinary course of their business
1 of 14 contracts terminated one year early. Compensation received found to be revenue as the cancellation didn’t affect whole structure and framework of business, and was no more of a disturbance than they might have expected in the ordinary course of their business
Kelsall Parsons & Co v CIR
Barr Crombie & Co v CIR
Managed ships for another company which went into liquidation. Compensation received was found to be capital as 98% of their trade had come from this company, and the whole structure of the business subsequently had to change.
Managed ships for another company which went into liquidation. Compensation received was found to be capital as 98% of their trade had come from this company, and the whole structure of the business subsequently had to change.
Barr Crombie & Co v CIR
