1992 P T D 1234

(1991)1 W L R 863

[Court of Appeal]

Before Lloyd Nourse and Ralph Gibson, L. JJ

KIRKHAM

versus

WILLIAMS (INSPECTOR OF TAXES)

Income-tax---

----Schedule D, Case I---Purchase, development and sale of land---Isolated transaction---Land acquired mainly for business purposes of taxpayer-- Subsidiary indefinite purpose to develop if planning permission obtained -- Whether land acquired as trading stock---Whether profit from sale assessable as taxpayer's income.

In 1977 the taxpayer a general dealer and contractor, acquired 10 acres of land together with an old mill building for 17,000 Sterling. His principal purpose in so doing was to provide himself with office and storage space for his business. After the purchase he applied unsuccessfully for planning permission to build an agricultural worker's house on the land. In 1980 he submitted a further planning application that was granted. Thereafter the taxpayer himself built a four-bed roomed house on the land and in 1982 he sold it without having lived in it realizing a profit of some 90,000 Sterling. Subsequently he purchased a farm property from where he continued to run his business. He was assessed to income-tax under Case I of Schedule D for 1982-83 on the basis that the gain from the sale of the property was a trading profit within the meaning of section 109 of the Income and Corporation Taxes Act, 1970. The taxpayer appealed to general commissioners, who found that although the property was acquired by the taxpayer principally in order to provide office and storage space for his business he did not intend to use the whole of the land for that purpose or to live there, but that he did intend to carry on some limited farming activities on the land. They concluded that the profits arising on the sale of the land was assessable under Case I of Schedule D and they confirmed the assessment in principle. Vinelott, J, dismissed an appeal by the taxpayer by way of case stated, holding that the commissioners, on the facts found, were entitled to conclude that the transaction was an adventure in the nature of trade.

On appeal by the taxpayer---

Held, allowing the appeal (Ralph Gibson, L.J. dissenting), that whether the transaction was an adventure in the nature of trade depended in part on the purpose or purposes of the taxpayer at the time of the acquisition; that (per Nourse, L.J.) in a dual purpose case where the transaction was equivocal both purposes had to be taken into account to ascertain whether the transaction constituted trading and that as the taxpayer's principal purpose for the acquisition was use for business purposes and his subsidiary purpose of developing and selling the land was at the relevant time severely circumscribed and indefinite in point of time, there was no basis in law on which the commissioners could hold that the land was acquired as trading stock; that (per Lloyd, L.J.) on the facts found by the commissioners none of the taxpayer's purposes was a trading purpose; and that, accordingly, the only true and reasonable conclusion was that the land was not acquired as trading stock but as a capital asset of the taxpayer's business.

Simmons (as liquidator of Lionel Simmons Properties Ltd.) v. Inland Revenue Commissioners (1980) 1 WLR 1196, 1199, H.L. (E.) applied.

Iswera v. Inland Revenue Commissioners (1965) 1 WLR 663, P.C. and Ensign Tankers (Leasing) Ltd. v. Stokes (1991) 1 WLR 341, C.A. considered.

(1989) T.C. Leaflet No.3173 reversed.

Cunliffe v. Goodman (1950) 2 K.B. 237; (1950) 1 All ER 720, CA.; Edwards v. Bairstow (1956) A.C. 14; (1955) 3 WLR 410; (1955) 3 All ER 48; 36 TC 207, H.L. (E); Ensign Tankers (Leasing) Ltd. v. Stokes (1991) 1 WLR 341, CA. Iswera v. Inland Revenue Commissioners (1963) 1 WLR 663, P.C. Royal Choral Society v. Inland Revenue Commissioners (1943) 2 All ER 101; 25 T.C. 263, C.A.; Simmons (as liquidator of Lionel Simmons Properties Ltd.) v. Inland Revenue Commissioners (1980) 1 WLR-1196; (1980) 2 All ER 798; 53 TC 461, H.L. (E.); Taylor v. Good (1973) 1 WLR 1249; (1973) 2 All ER 785; 49 TC 277; (1974) 1 WLR 556; (1974) 1 All ER 1137; 49 TC 277, CA. ref.

Bromilow and Edwards Ltd. v. Inland Revenue Commissioners (1970) 1 WLR 128; (1970) 1 All ER 174; 46 TC 128, CA.; Cooksey and Bibbey v. Rednal (1949) 30 TC 514; Golder v. Great Boulder Proprietary Gold Mines Ltd. (1952) 33 TC 75. cited.

Appeal from Vinelott, J.

The taxpayer, William Brian Kirkham, appealed to general commissioners for the division of Macclesfield against an estimated assessment under Schedule D to income tax for 1982-83 in an amount of 91,000 Sterling. The question for the commissioners was whether the profit on the sale of Havannah Mills, Eaton, Congleton, Cheshire was assessable under Case I of Schedule D as the profits of a trade within the meaning of section 109 of the Income and Corporation Taxes Act, 1970. The commissioners dismissed the appeal and their determination was upheld by Vinelott, J. on 13th February 1989 on the ground that there was ample evidence on which they could decide that the taxpayer had embarked on a transaction that had all the characteristics of trading.

By a notice dated 10th March, 1989 the taxpayer appealed on the grounds that (1) the Judge erred in law in holding that the finding of fact that the site was acquired principally to provide office and storage space for the taxpayer's demolition an plant hire business referred only to a part and not the whole of the property; (2) the Judge erred in law in imputing to the commissioners a finding that the taxpayer had acquired the property with the intention of developing the land not required for office and storage purposes, using the materials to hand for the construction of the house and to improve the landscape and surrounding areas with a view to reselling at a profit without any such finding to that effect and contrary to the commissioner s express findings concerning the reason for the acquisition; (3) the judge erred in law in holding that there was ample foundation for the conclusion that the taxpayer in order to acquire a site for office and storage purposes had embarked on a Transaction which had all the characteristics of trading. There was no finding of fact nor could such a finding be inferred that in order to complete his purchase of the whole property the taxpayer intended or needed to develop the whole or part of such property for the purposes or resale at a profit. In consequence the judge erred in law in drawing any analogy with the facts and reasoning of the Privy Council in Iswera v. Inland Revenue Commissioners (1965) 1 WLR 663; (4) alternatively, the Judge erred in law in failing to remit the case to the commissioners on the grounds that the taxpayer had failed to establish the part of the property required for use in connection with the demolition and plant hire business, and (5) the commissioners' confirmation of the assessment could only be upheld in full on the basis that the acquisition and sale of the whole property constituted an adventure in the nature of trade. Such a conclusion was inconsistent with the facts found in the case stated.

The facts are stated in the judgment of Nourse, L.J.

Giles Goodfellow for the Taxpayer.

Launcelot Henderson for the Crown:

Date of hearing: 24th and 25th April, 1991:

JUDGMENT

NOURSE, L.J.---The question here is whether it was open to the general commissioners for the division of Macclesfield to decide that the purchase, development and sale of a piece of land was an adventure in the nature of trade giving rise to a charge for income-tax under Case I of Schedule D. On an appeal by the taxpayer to the High Court by way of case stated Vinelott, J. held that it was. The taxpayer now brings a further appeal to this Court. In both Courts he has contended that the true and only reasonable conclusion from the facts found by the commissioners is that the transaction was not an adventure in the nature of trade.

The facts are fully stated or referred to in the judgment of Vinelott, J. (1989) STC 333, where the case stated is also set out in full. I will restate the facts so far as the arguments advanced on this appeal make it necessary to do so.

From June, 1974 to November 1982 the taxpayer, Mr. William Brian Kirkham, worked on his own account as a general dealer and demolition contractor doing a limited amount of farming as well. His work included plant hire subcontract work, leveling, draining and ditching. During that period he and his family lived at Purdy House, 81, Rudyard Road, Biddulph Moor, Stoke-on-Trent. The facts on which the outcome of this appeal mainly depend are stated in paragraph 5(ii), (iii) and (iv) of the case stated. I will restate them in the commissioners' own words, although I have rearranged the sentences in paragraph 5(iii) so that they conform with what both sides agree is their chronological sequence:

"(ii) Whilst living at Purdy House the (taxpayer) experienced difficulties with the local authority over the storage of demolition materials at his mother's address at Fairview, Biddulph Moor, Staffordshire. (iii) An opportunity presented itself to the (taxpayer) to carry out demolition works at Havannah Mills, Congleton Cheshire for Mr. Radivan. The contract involved the demolition of one of the two mills which were on site, together with five cottages and some outbuildings. After the contract had been concluded the owner of Havannah Mills offered to sell the (taxpayer) what was left, which by that 'time comprised of (sic) one remaining mill and ten acres of adjoining land. The site was acquired principally to provide office and storage space for the (taxpayer's) demolition and plant hire business. Havannah Mills was purchased in the (taxpayer's) sole name for the sum of 17,000 Sterling by a conveyance, dated 9th May, 1978. Of the purchase price 8,000 Sterling was left outstanding under a private mortgage with the vendor, Mr. Radivan. Subsequently the (taxpayer) used the site for the storage of materials for use in connection with his business. He used part of the mill as his office. He grew a few crops on the land and bought a few calves for fattening up for resale; but the level of his farming activities in this regard were very limited to the extent that they were never recorded in his books of account. The site continued to be used in these various ways until its sale in October 1982. (iv) Subsequently in or about October 1978 the (taxpayer) applied for planning permission for the erection of an agricultural workers dwelling at Havannah Mills. That application was refused. A further application was submitted to the local planning authority and outline planning permission was granted on 22nd August 1980 for the erection of an industrial/agricultural dwelling house for the (taxpayer) at The Old Mill, Havannah Lane, Eaton..."

Before the Judge an additional fact was agreed, namely that the contract to purchase Havaynah Mills was entered into by the taxpayer in the summer of 1977 at the' latest. It is also agreed that the reference in paragraph 5(iv) to October 1978 as being the month-when the taxpayer first made an application for planning permission is an error for October 1977. It is, therefore, agreed that the taxpayer entered into the contract before making any application for planning permission.

Following the grant of outline planning permission on 22nd August 1980 the taxpayer instructed a local builder to draw up plans for the construction of a dwelling house on the property and thereafter, with some assistance from his brother-in-law and over a period of about nine months, he erected a dwelling house on the property. In paragraph 5(vii) of the case stated we find: "It was never the (taxpayer's) intention at any time to purchase Havannah Mills as a residence for himself and his family...." In about November 1980, before he erected the dwelling house at Havannah Mills, the taxpayer first became interested in another property, Sandy Lane Farm, Giants Wood Lane, Hulme Walfield, Congleton, Cheshire. On 6th October 1982 Havannah Mills was sold by the taxpayer for 110,000 Sterling, realising a net profit of 90,971 Sterling. Completion of the sale took place on 29th October, 1982. On 3rd June, 1982 contracts had been exchanged for the purpose of Sandy Lane Farm in the joint names of the taxpayer and his wife at a price of 176,000 Sterling. Completion of the purchase took place on 9th November, 1982. In the same month the taxpayer and his family moved into Sandy Lane Farm as their home. Purdy House was sold in September 1983 for 13,000 Sterling. The Commissioners found that the taxpayer did not entirely cease in business as a general dealer and demolition contractor when he moved into Sandy Lane Farm, but that thereafter he increased his interest in business as a farmer.

In due course the inspector of taxes assessed the taxpayer to income tax for the year 1982-83 under Case I of Schedule D on a sum of 91,000. Sterling, being the approximate amount of the net profit on the sale of Havannah Mills. The business of the taxpayer not having included dealings in land, the assessment can only be supported if the purchase, development and sale of Havannah Mills was an adventure in the nature of trade, for which purpose it must, inter alia, have been acquired as trading stock, that is to say with the intention of disposing of it at a profit. The taxpayer has throughout contended that Havannah Mills was acquired not as trading stock but as a capital asset of his business, on whose disposal at a profit capital gains tax was chargeable, subject to roll-over relief allowable by virtue of his purchase of Sandy Lane Farm. It is not appropriate to determine the taxpayer's liability for capital gains tax unless and until he succeeds in defeating the claim for income tax and no such determination has been made. Before the commissioners the Crown raised an alternative claim for income-tax under Case VI of Schedule D pursuant to section 488 of the Income and Corporation Taxes Act, 1970, which relates to artificial transactions in land. That claim was rejected by the commissioners and there has been no attempt to revive it.

The commissioners expressed their decision as follows:

"We the commissioners, having carefully considered all the evidence put before us were of the opinion that the profits of 90,971 Sterling arising on the sale of Havannah Mills were assessable under Case I of Schedule D:"

In other words, it must be assumed that they were of the opinion, inter alia, that Havannah Mills was acquired as trading stock and not as a capital asset of the taxpayer's business. The commissioners gave no reasons for their decision. In that state of affairs the taxpayer, in order to succeed on an appeal to the Court, must show that the facts which they found are such that no person acting judicially and properly instructed as to the relevant law could come to the same conclusion or, if you prefer, that the true and only reasonable conclusion from the facts found contradicts the decision: see Edwards v. Bairstow (1956) AC 14, 36, per Lord Radcliff.

The convenient course is for me to start with the facts found by the commissioners, including inferences which they could properly draw from the primary facts found. It cannot be doubted that their most significant finding was that "the site" was acquired principally to provide office and storage space for the taxpayer's demolition and plant hire business, being one which followed their earlier finding that the taxpayer had experienced difficulties with the local authority over the storage of demolition materials at his mother's address. The first question which arises out of this finding is what did the commissioners mean by "the site?" Although the case stated, especially perhaps in paragraph 5(iii), is not artistically drawn, I am in no doubt that, in referring to the site, they intended throughout to refer to the whole of the site, that being the area of land whose purchase, development and sale had given rise to the assessment.

And so the commissioners found that the taxpayer's principal purpose in acquiring the site as a whole was the provision of office and storage space for his business. I see no reason why that purpose should have had any the less substance because there was; a probability, even a certainty, that at any given time large areas of the site could not and would not be used as office or storage space. But the finding of a principal purpose presupposes the co existence with it of one or more subsidiary purposes, as to which the commissioners have not enlightened us. What might those purposes have been? One possibility was agricultural use of the whole or some part or parts of the land available for such use; another was development and sale of some part or parts of the site; a third was development and sale of the whole of the site.

Notwithstanding Mr. Good fellow's arguments for the taxpayer to the contrary, I am in no doubt that it was open to the commissioners to infer from the primary facts found that the taxpayer's subsidiary purpose in acquiring the site was development and sale either of some part or parts of it or of the whole. It necessarily follows from their determination that they inferred that the purpose extended to the whole, an inference which was entirely consistent with the taxpayer's subsequent actions. That is a point of some importance. But simply to say that the taxpayer's subsidiary purpose in acquiring the site was development and sale of it as a whole does not go far enough to enable us to answer the question raised by this appeal. In order to define the limits of the inference which the commissioners could properly draw, we must look more closely at the other primary facts as found or agreed.

The taxpayer entered into the contract to purchase Havannah Mills before making any application for planning permission. He could not have developed the site without permission and at the date of the contract he did not know whether he would be able to obtain it or not. Moreover, if the principal purpose of the acquisition was the provision of office and storage space for his business, he must have intended to retain the site for the immediate future, perhaps for longer, and certainly not to dispose of it unless and until he had made such provision elsewhere. This view of the mater is rather confirmed by his erection of the dwelling house at Havannah Mills after he first became interested in Sandy Lane Farm. None of this, I may add, is inconsistent with the commissioner's finding that it was never the taxpayer's intention at any time to purchase Havannah Mills as a residence for himself and his family a finding on which Mr. Henderson, for the Crown, naturally relied.

Viewing the primary facts found by the commissioners and the inferences which they could properly draw from them in the light least favourable to the taxpayer, I would state the position thus. The taxpayer acquired Havannah Mills in order to provide the office and storage space which .he needed for his business as a result of the difficulties he had had with the local authority over storage at his mother's address. He also intended to develop and sell the site as a whole if he could obtain planning permission to do so and if and when he had been able to provide himself with suitable office and storage space elsewhere, an event which would not occur in the immediate future and might not occur for some time.

Was that state of facts a sufficient basis in law for the conclusion that Havannah Mills was acquired as trading stock and not as a capital asset of the taxpayer's business? In order that question may be answered, an examination of some of the authorities is necessary.

It was established by the decision of this Court in Taylor v. Good (1974) 1 WLR 556 that where a taxpayer, not being a dealer in land, acquires a property, enhances its value and disposes of it at a profit, there is no adventure in the nature of trade unless he had the intention" of so disposing of it at the time of its acquisition. In Simmons as liquidator of Lionel Simmons Properties Ltd. v. Inland Revenue Commissioners (1980) 1 WLR 1196, in a passage which both sides accept as a correct statement of the law, Lord Wilberforce said, at p. 1199:

"Trading requires an intention to trade: normally the question to be asked is whether this intention existed at the time of the acquisition of the asset. Was it acquired with the intention of disposing of it at a profit, or was it acquired as a permanent investment? Often it is necessary to ask further questions: a permanent investment may be sold in order to acquire another investment thought to be more satisfactory; that does not involve an operation of trade, whether the first investment is sold at a profit or at a loss. Intentions may be changed. What was first an investment may be put into the trading stock and, I suppose, vice versa. If findings of this kind are to be made precision is required, since a shift of an asset from one category to another will involve changes in the company's accounts, and, possibly, a liability to tax see Sharkey v. Wernher (1956) A.C. 58. What I think is not possible is for an asset to be both trading stock and permanent investment at the same time nor to possess an indeterminate status neither trading stock nor permanent asset. It must be one or other, even though, and this seems to me legitimate and intelligible, the company, in whatever character it acquires the asset, may reserve an intention to change its character. To do so would, in fact, amount to little more than making explicit what is necessarily implicit in all commercial operations, namely that situations are open to review."

In the present case the Crown has never suggested that there was any change in the character of the asset between its acquisition in 1977 and its disposal in 1982. Mr. Henderson submitted that Havannah Mills was acquired as trading stock, for which purpose he accepted that the date of acquisition was the date of the contract and not the date of its completion. In an argument which at no point sought to discount the difficulties with which the commissioners' finding as to the taxpayer's principal purpose had confronted him, he nevertheless submitted that the property was acquired with a sufficient intention to dispose of it at a profit to give it the character of trading stock. In regard to dual purpose cases generally, he placed special reliance on the decisions of the Privy Council in Iswera v. Inland Revenue Commissioners (1965) 1 WLR 663 and of this Court in Ensign Tankers (Leasing) Ltd. v. Stokes (1991) 1 WLR 341.

In the Iswera's case (1965) 1 WLR 663 the taxpayer, in order to finance the acquisition of two lots on a building site in Colombo for a house of her own, had to buy the whole of, the site and sell off nine of the other ten lots to sub-purchasers, each of whom took a direct conveyance from the vendor. The sub sales having been effected on terms favourable to the taxpayer, she only had to find Rs.15,275 in order to acquire two lots worth Rs.87,040. She was assessed to income tax on the difference of Rs.71,765, on the footing that the whole transaction was an adventure in the nature of trade. The Board of Review in Ceylon, the equivalent of the special or general commissioners in England, confirmed the assessment on the ground that the taxpayer's dominant motivation in the transaction had been to sell the property in lots so as to make a profit on the transaction and obtain two lots for herself below the market value. The Privy Council, affirming the judgment of the Supreme Court of Ceylon, held that the decision of the Board of Revenue could not be interfered with. In delivering the judgment of the Board Lord Reid said at p. 668:

"Before their Lordships, counsel for the appellant came near to submitting that, if it is a purpose of the taxpayer to acquire something for his own use and enjoyment, that is sufficient to show that the steps which he takes in order to acquire it cannot be an adventure in the nature of trade. In their Lordships's judgment that is going much too far. If, in order to get what he wants, the taxpayer has to embark on an adventure which has all the characteristics of trading, his purpose or object alone cannot prevail over what he in fact does. But if his acts are equivocal his purpose or object may be a very material factor when weighing the total effect of all the circumstances.

In the present case not only has it been held that the appellant's dominant motive was to make a profit, but her actions are suggestive of trading as regards the greater part of the site which she bought. She had to and did make arrangements for its sub-division and immediate sale to the nine sub-purchasers before she could carry out her contract with the vendor of the site."

In the Ensign Tanker's case (1991) 1 WLR 341 the taxpayer company, having become a partner in two limited partnerships set up to finance the production and exploitation of two films, claimed that it was "a person carrying on a trade" which had incurred capital expenditure on the provision of plant for the purposes of the trade, so as to entitle it to first-year allowance under section 41(1) of the Finance Act, 1971. The special commissioners rejected the claim, holding that the partnerships were entered into with fiscal motives as their paramount object and could not therefore have been trading transactions. An appeal by the company was allowed by Millett, J., who held that the purpose of the transactions had to be determined objectively solely by reference to their nature, not subjectively by reference to the motives of the parties. On an appeal by the Crown to this Court it was held that if a transaction was equivocal in nature the subjective intention of the parties was relevant; on the other hand, a paramount fiscal purpose was not decisive because it postulated the existence or some other purpose which might be commercial. The case was accordingly remitted to the commissioners for reconsideration. The leading judgment in this Court was delivered by Sir Nicolas Browne-Wilkinson V.C. Having considered a number of earlier decisions, including the Iswera case, he said at pp. 353-354:

"In my judgment, these authorities demonstrate that, at least where the transaction is equivocal and the purpose may or may not have been commercial, the commissioners are entitled to look at evidence of the subjective intention or motives of the relevant party. That is not because the legally relevant question is `with what motive did the parties enter into the transaction', but because such motive is evidence, sometimes compelling, on which to decide the legally relevant question, viz. was the purpose of the transaction a trading purpose?"

And, at p. 355:

"It will be remembered that the commissioners expressed their conclusion by holding that, as a matter of law, this was not a trading transaction since the paramount intention was to obtain a fiscal advantage. In my judgment, this constitutes an error of law: Overseas Containers (Finance) Ltd. v. Stoker (1989) 1 WLR 606. In the summary, that case decides: (1) trade involves not only the badges of trade but a commercial purpose; (2) the question whether a transaction is a trading transaction is a question of fact for the commissioners, not a question of law; (3) if the commissioners find as a fact that the sole object of the transaction was fiscal advantage, that finding can in law only lead to one conclusion, viz. that it was not a trading transaction. Since a fiscal advantage was the sole purpose there is no place for there being any commercial purpose; (4) if the commissioners find as a fact only that the paramount intention was fiscal advantage, as a matter of law that is not decisive since it postulates the existence of some other purpose, albeit not paramount, which may be commercial. In such a case, the commissioners have to weigh the paramount fiscal intention against the non-fiscal elements and decide, as a question of fact whether in essence the transaction constitutes trading for commercial purposes."

These two authorities show that the first question to be answered is whether the transaction is equivocal or unequivocal. If it has all the characteristics of trading, that is to say, if it is unequivocal, then in the words o Lord Reid in Iswera v. Inland Revenue Commissioners (1965) 1 WLR 663, 668:

"(the taxpayer's) purpose or object alone cannot prevail over what he in fact does. But, if his acts are equivocal his purpose or object may be a very material factor when weighing the total effect of all the circumstances."

Similarly, if an equivocal transaction is entered into for two different purposes, both must be taken into account when weighing the total effect of all the circumstances. In the words of Sir Nicolas Browne-Wilkinson V.C,. in the Ensign Tanker's case (1991) 1 WLR 341, 355:

"In such a case, the commissioners have to weigh the paramount fiscal intention against the non-fiscal elements and decide as a question o fact whether in essence the transaction constitutes trading for commercial purpose".

The taxpayer's acquisition of Havannah Mills was an equivocal transaction. If viewed on its own, it does not tell you whether the property acquired was trading stock or a capital asset of the taxpayer's business. It might have been either. So account must be taken of the two purposes which the commissioners have attributed to the taxpayer, in the one case by express finding and in the other by presumed inference. At this point Mr. Henderson, relying on the judgment of Sri Nicolas Browne-Wilkinson V.C. in the Ensign Tanker's case, submitted that, just as it was there held to be open to the commissioners to find that a paramount fiscal purpose did not prevent the activities of the partnerships from being trading transactions, so it was open to the commissioners here to find that the taxpayer's principal purpose of providing office and storage space for his business did not prevent the acquisition of Havannah Mills from being an acquisition of trading stock. That submission, although superficially persuasive, is one, which on reflection I feel bound to reject.

It is important to bear in mind that the activities of the partnerships in the Ensign Tanker's case were continuing transactions, whose fiscal and commercial purposes, if both there were, would necessarily have been implemented concurrently. In such a case, it is easy to understand that the commissioners, looking at the two purposes, the nature of the activities and all the circumstances of the case, might reasonably conclude, despite the paramount fiscal purpose, that there had been trading for commercial purposes. But here we have a different state of affairs.

I have already expressed my view, in the light least favourable to the taxpayer, of the primary facts found by the commissioners and the inferences, which they could properly draw from them. From that it is clear that the taxpayer's subsidiary purpose of developing and selling Havannah Mills could not have been implemented concurrently with his principal purpose of providing office and storage space for his business. To begin with, there was no certainty that he would be able to obtain planning permission. True, if he had obtained it straightaway, he could no doubt have got on with part at least of the development. But he would not have been able to sell the site unless and until he had been able to provide himself with suitable office and storage space elsewhere, an event which might not have occurred for some time.

And so the taxpayer's "purpose" or "object" or "intention" in regard to the development and sale of the property was severely circumscribed, its implementation indefinite in point of time. The question is whether it was capable of amounting in law to an intention sufficient to give the property the character of trading stock. If it was, it was open to the commissioners to come to the conclusion to which they came. If it was not, their determination cannot stand. It is not an easy question. In the end I have formed a clear opinion that it must be answered in the negative. It was not open to the commissioners, having made a finding, which was apt to characterise the transaction as an acquisition of a capital asset, to deny it that character by reason of an intention thus circumscribed and indefinite. In my judgment no body of commissioners acting judicially and properly instructed as to the relevant law could have come to the conclusion that the property was acquired as trading stock. On that view of the matter the assessment must be discharged and it becomes unnecessary to consider an alternative argument, which was advanced by Mr. Good fellow both here and in the Court below.

On one view of the case it is unfortunate that the commissioners did not make a finding as to the taxpayer's subsidiary purpose in the acquisition of Havannah Mills. The absence of such a finding, coupled with the bare determination of liability to income tax under Case I of Schedule D, has forced us, under the principles of Edwards v. Bairstow (1956) A.C. 14 as I understand them, to attribute to the commissioners a process of thought which I suspect is not only artificial but contrary to what they in fact thought. The other view is that the commissioners did not make a finding as to the taxpayer's subsidiary purpose because they thought that such a purpose was irrelevant; and that they thought that it was irrelevant because they did not realise that there could not have been an adventure in the nature of trade if the taxpayer did not, at the time of its acquisition, have the intention of disposing of the property at a profit. Indeed, if they had realised that and had thought that the taxpayer had a subsidiary, but nevertheless decisive, purpose of development and sale, it is almost inconceivable that they would not have made a finding to that effect. It may be of real significance that the authorities to which the commissioners were referred did not include either Taylor v. Good (1973) 1 WLR 1249 or Simmons v. Inland Revenue Commissioners (1973) 1 WLR 1196.

Accordingly, while I have sought to apply the principles of Edwards v. Bairstow (1956) A.C. 14 in their full rigour, I am gratified to find that their application leads to the same result as that which would have followed if the commissioners had stated their process of throught in the form which I suspect that it actually took.

Vinelott, J. thought that the question which must have presented itself to the commissioners was what use the taxpayer intended to make of the parties of the property which he did not need for office and storage space: see (1989) STC 333, 341. He said, at p.342:

"He intended to use part of the land to provide storage for his demolition and plant hire business and part of the mill as an office. But it is, I think plan in these circumstances that he would only require a very small part of the land for that purpose. The commissioners must I think have taken the view that he intended to develop the land not so required using the materials to hand for the construction of a house and to improve and landscape the surrounding area with a view to selling it at a profit. That is what he in fact did. As I have pointed out the first application for planning consent (for the erection of a dwelling which the commissioners found he never intended to occupy himself) was made before the contract for the purchase of the Havannah Mills site had been completed:'

I respectfully think that that was an incomplete, and therefore an incorrect, approach. Although, as I have said, if the taxpayer had obtained planning permission straightaway he could no doubt have got on with part at least of the development, there was no certainty that he would obtain it. Moreover, the Judge did not consider the inevitably consequence of the Commissioners' finding as to the taxpayer's principal purpose in the acquisition. Whatever the position in regard to the development might have been he could not sell the property unless and until he had been able to provide himself with suitable- office and storage space elsewhere.

I would allow this appeal.

RALPH GIBSON, L.J.---The facts on which the appeal turns have been restated by Nourse, L.J. in the words of the commissioners in rearranged sequence. The taxpayer entered into the contract for the acquisition of the site before making any application for planning permission for any development. He acquired the site and by that word I understand the commissioners to have been referring to the whole of the site "principally to provide office and storage space for his demolition and plant hire business." If that was the only effective or relevant purpose which he had, then the acquisition was not for the purpose of trade. The site was never trading stock. It was never suggested that the taxpayer changed his intention after acquisition so that the site became trading stock at a later date; and on that basis there was no adventure in the nature of trade.

The commissioners, however, having heard evidence from the taxpayer and his accountant, concluded that, notwithstanding the fact that the site was acquired principally to provide office and storage space for the business, the profits arising on the sale of the site were assessable under Case I of Schedule D. So to conclude the commissioners must have held that the purchase, development and sale of the site was an adventure in the nature of trade.

It was submitted for the taxpayer that such an inference was not open to the commissioners on the ground that the true and only reasonable conclusion from the facts found was that the site was acquired as a capital asset. It was pointed out by Mr. Good fellow that the commissioners did not expressly direct themselves as to the importance of the intentions of the taxpayer at the time of acquisition of the site. Particular reliance was placed on tithe facts that the taxpayer needed premises for storage of his demolition material because of difficulties over the use of his mother's home for that purpose; on the express finding of the taxpayer's principal purpose in acquiring the site; on his subsequent use of the site for storage and of part of the mill as his office and on his continued use of the site in various ways, including agricultural work, until the sale in October 1982. 1 was unconvinced by these submissions. The commissioners are not required to set out all the relevant principles of law. It seems clear to me that it was open to the commissioners to hold by inference upon the facts found by them, that, at the time of the acquisition of the site, the taxpayer had the intention of developing and/or of selling part or parts or the whole of the site as an adventure in the nature of trade, although such an intention must have been a subsidiary purpose or intention because, as they expressly found, the site was acquired principally to provide office and storage space for the business. I see no reason whatever why a general dealer and demolition contractor, who is in immediate need of premises for storage and office space for his demolition and plant hire business, should not decide to acquire a site for that purpose which is also seen to be suitable for and intended for development and resale in parts or as a whole. The implementation of a subsidiary purpose to develop and sell would necessarily take some time unless an opportunity to dispose of the site in its then condition should present itself on terms which the taxpayer might decide should be accepted. The making of such an inference was assisted by the fact that the site was much larger than was required for storage and office use and that it was obviously suitable for development, at least in part, in that all the buildings on it had been demolished or were intended to be demolished.

I have been troubled over the technicality and, indeed, unreality of much of the discussion conducted in this case on the issue of intention to trade. Before we get to any question as to the nature and quality of any such intention, and as to its sufficiency for the purposes of the conclusion reached by the commissioners, the existence or no-existence of an intention, present at the date of acquisition, on the part of the taxpayer to develop and sell the site by way of trade is decisive of this appeal. The commissioners could have put that issue out of contention by stating whether or not they did infer the existence of such a subsidiary purpose. Why must the Court deal with the issue by examination of what inference may be regarded as reasonably possible when the commissioners could have answered the question expressly? It has occurred to me that, since the suggested inference is an essential part of the Crown's case, it might not be unreasonable for the law to require that, if the inference is not expressly stated to have been drawn, the Crown should be held to be unable to argue that it be implied. The appeal, however, as I understood the submissions, was not argued on that ground. It was rightly acknowledged by Mr. Good fellow as I understood his submissions; and as I understand the law, that it was open to either side to have asked for further findings of fact to be added to the case stated; and that, as it seems to me would include a request to the commissioners to state expressly whether or not they had found by inference an intention of any sort on the part of the taxpayer at the date of acquisition of the site with reference to development and sale of part or parts or the whole of it and, if yes, what that intention was. Neither side made any such request. Having chosen not to ask for an express finding, it seems to me that both sides must be held to the established rules by which the Court considers an appeal from the commissioners by case stated: see Edwards v. Bairstow (1956) AC 14.

If I am right so far, and the commissioners are to be treated as having inferred the existence of a subsidiary intention on the part of the taxpayer held by him at the date of acquisition to develop and sell the site, the remaining question is whether that subsidiary intention, on the whole of the facts found, must be held to have been so contingent and uncertain of fulfillment, both as to means and as to date, that it is not a sufficient basis in law for the conclusion that the site was acquired as trading stock and not as a capital asset of the taxpayer's business; Nourse, L.J. has concluded, for the reasons set out in his judgment, that it was not open, to the commissioners to conclude that the site was acquired otherwise than as a capital asset, and he has stated the relevant principles of law to be derived from the authorities. I have, with difference and after much hesitation, reached a different conclusion on my understanding of the facts found.

It seems to me that the commissioners must have concluded that there was a single adventure in the nature of trade, commencing with the acquisition of the site, and that the taxpayer intended to and did use the site, in implementation of his principal purpose of providing office and storage space, pending the development and sale of the site. That conclusion seems to me to have been fairly open to them on the facts, which they found.

I assume that the transaction is to be regarded as equivocal in the sense of the phrase used by Lord Reid in Iswera v. Inland Revenue Commissioners (1965) 1 WLR 63, 668. I understand that sense to be that, on analysing objectively what the taxpayer did at the time of the acquisition and in subsequent dealing with the land, his acts are consistent with the land having been acquired as a capital asset, which was subsequently sold to best advantage, and also consistent with the site having been acquired as a trading asset which was subsequently applied to that purpose. On that assumption the taxpayer's purpose or purposes at the time of acquisition may be a "very material factor when weighing the total effect of all the circumstances".

It was argued that the subsidiary purpose of development and sale must be regarded as having been from the outset in some way uncertain of fulfillment both as to means and as to date. The taxpayer had no planning permission. He did not know what sort of permission he would get, or when he would get it; and he did not know when an opportunity of sale, whether of part or of the whole, would present itself at a price which would make such sale or sales sufficiently attractive. In addition, the implementing of the principal purpose of providing office and storage space for his demolition and plant hire business would mean that some restriction on the marketing of the site, even when the planning position was clarified, would be imposed by the need for alternative space for office and storage purposes.

I acknowledge the force of these points but I am unable to accept that they cast any doubt on the propriety of the conclusions, which the commissioners reached. Nothing suggests that the taxpayer's requirements for office space for his demolition and plant hire business were elaborate or that if the benefit of an advantageous sale of the site was thought to be worth it, they could not be met by some temporary arrangements, even in his home. We may surely attribute to the commissioners' knowledge that sale of a site for development, in part or as a whole, could normally be arranged on terms that would give the taxpayer such time to make alternative arrangements to deal with his demolition and plant hire equipment as he judged to be necessary. I see nothing surprising or inconsistent with the primary facts found in the attribution to the taxpayer of an intention to use parts of the site for the principal purpose of office and storage space for his business until the site should be sold in parts or as a whole. Land taken into stock for development and sale can in my view sensibly be used, before sale for the principal purpose described. The process of marketing land for sale, including the making of plans for development and the waiting for the right buyer or buyers to appear would be implemented while the principal and immediate purpose of providing accommodation for the business is put into effect. The commissioners were in my judgment, entitled to hold that the whole site was acquired by the taxpayer as trading stock.

For my part, therefore, I would uphold the order of the Judge although not by precisely the same process of reasoning.

LLOYD, L.J.---At the outset of this appeal, I had every inclination to uphold the decision of the commissioners. We cannot disturb that decision unless it is erroneous in law. Vinelott, J., with his great experience in this field, has shown a way whereby, without any error of law, and consistently with the principles in Edwards v. Bairstow (1956) A.C. 14 the commissioners may have progressed from their findings of fact to their conclusion. So my instinctive reaction was- to dismiss the appeal. But as the hearing proceeded, I have been persuaded to change my mind.

Before one comes to apply the principles in Edwards v. Bairstow, one must first be clear what it is that, on a fair reading of the case, the commissioners have actually decided. The crucial finding is, of course, the finding in paragraph 5(iii) that the site was acquired principally to provide office and storage space. As I rea8 Vinelott, J's Judgment, he held (1989) S.T.C. 333, 341, that that finding, which I shall refer to as the primary finding, relates only to part of the site, and not to the whole site. This is certainly how the finding is understood by the taxpayer in paragraph 1 of the grounds of appeal and also by the Crown in Mr. Henderson's skeleton argument. Had the judge held otherwise, then as he says himself, he would have found difficulty in reconciling that finding with the commissioners' conclusion.

I have had the advantage of reading Nourse, L.J.'s judgment in advance. Though I feel great doubt than he does, I agree with him that the better construction of paragraph 5 (iii) of the case is that the commissioners were throughout intending to refer to the whole site, that is to say the whole of the land the purchase, development and sale of which has given rise to the assessment. So I respectfully part company from the judge at his very first step.

On the basis that the primary finding relates only to the area required for office and storage space (the first area) and not the adjoining land (the second area) it was easy enough for Mr. Henderson to argue in his skeleton that the second area at any rate was acquired as trading stock, and that such a finding is implicit not only in the express findings in the case, but also in the correspondence to which the judge referred. But if, as I think, the primary finding relates to the whole site, then that argument does not get off the ground.

Before us, the argument took a different turn. A principal purpose, said Mr. Henderson, implies a subsidiary purpose. If contrary to the view expressed in his skeleton argument, the principal purpose was to acquire the whole site for storage and office space, then it was open to the commissioners to find that the subsidiary purpose was to acquire the whole site as trading stock. That is, he says, the correct inference, to be drawn from the case as a whole; in other words this was a dual purpose transaction.

Mr. Henderson summarised the correct approach of the Court in dual purpose transactions in the following four propositions. (1) If, on objective analysis, the transaction has all the characteristics of trading, that analysis must prevail over the subjective intention of the taxpayer, (2) If, on objective analysis, the transaction is equivocal, the subjective intention of the taxpayer is relevant in weighing up the circumstances and concluding whether it is a trading transaction or not. (3), If in an equivocal case, the taxpayer's sole objective is non-commercial, then that is conclusive against the transaction being a trading transaction. In all other cases, including cases where the taxpayer's principal or paramount objective is non-commercial, it is a question of fact for the commissioners to determine what the overall nature of the transaction is.

I would be content to accept these propositions as accurate, although the expression "non-commercial" may need some refinement. On the assumption that this was a dual purpose transaction it seems to come within Mr.' Henderson's fourth proposition, in which case it would be difficult for us to hold, consistently with Edwards v. Bairstow, that the commissioners must have erred in law. But was it a dual, purpose transaction?

Nourse, L.J. has held, accepting Mr. Henderson's argument, that it was open to the commissioners to infer from the primary facts found that the taxpayer's subsidiary purpose in acquiring the site was development and sale of the whole or some part of the site. Viewing the primary facts and the inferences which the commissioners could properly draw from them in the light least favourable to the taxpayer he has held that the taxpayer had two purposes in mind, namely, (1) providing himself with storage and office space, and (2) developing and selling the site as a whole. But the second purpose could not be implemented concurrently with the first purpose unlike the position in Iswera v. Inland Revenue Commissioners. (1965) 1 WLR 663, whereas Lord Reid pointed out, at p. 668, the sub-division and immediate sale of the bulk of the land was an essential part of the taxpayer's plan. In the present case, by contrast the second purpose was severely circumscribed, and its implementation indefinite in point of time. The taxpayer could not develop or sell the site until he had obtained planning permission and found an alternative site for office space and storage. Nourse, L.J. has held that such an intention is insufficient in law to give the property acquired by the taxpayer the character of trading stock.

I accept at once that an intention can be so vague and indefinite as not to amount to an intention in law, as where the taxpayer has not "moved out of the zone of contemplation out of the sphere of the tentative, the provisional and the exploratory into the valley of decision" see Cunliffe v. Goodman (1950) 2 K.B. 237, 254, per Asquith, L.J. But if there was here an intention to trade at all. I doubt whether the hurdles, which the taxpayer still had to surmount were such as to relegate that intention from the valley of decision to the zone of contemplation. I would hesitate before holding that there cannot in law be an intention to acquire land as trading stock merely because the carrying out of that intention is conditional on obtaining planning permission.

But was there an intention to Made? Was this in truth a dual purpose transaction at all? I agree with Nourse, L.J. that it was open to the commissioners to find that the subsidiary purpose in acquiring the site as a whole was a trading purpose. But is this consistent with what they have in fact found? The most conspicuous feature of the case is the absence of any finding as to the subsidiary purpose. If the commissioners had intended to find that the subsidiary purpose at the time of acquisition was a trading purpose, they would surely have made an express finding to that effect bearing in mind (i) their express finding as to the principal purpose and- (ii) their conclusion. If that is so, it is not open for us to draw an inference that the commissioners may have found that the subsidiary purpose was a trading purpose, in order to support their conclusion. There is no room for any such inference on a fair reading of the case.

What then was the subsidiary purpose which the commissioners had in mind? One is tempted to think that the subsidiary purpose must have been a purpose of substantial significance, and must have been relevant in some way to the commissioners conclusion. But why should it? Having read, and reread, paragraph 5 of the case, I am now convinced that the only subsidiary purpose which the commissioners can have had in mind was the farming purpose. It is true that the commissioners find that the level of farming was very limited. But the limited nature of the purpose is irrelevant. It is common ground that a principal purpose implies a subsidiary purpose. But it does not exclude a very subsidiary purpose. So on a fair reading of the case, I would hold that this is not a dual purpose case at all, since neither of the two purposes found, or implied, by the commissioners is a trading purpose.

There remains the question how, on a fair reading of the case, the commissioners can have reached their conclusion if they were not intending to find that the subsidiary purpose on acquisition was a trading purpose. The answer is clear. They must have held that the taxpayer was assessable because of a subsequent change of intention or in the words of Lord Wilberforce in Simmons v. Inland Revenue Commissioners (1980) 1 WLR 1196, 1199 because of "a shift of an asset from one category to another" There would have been nothing wrong in the commissioners so finding if there had been any evidence to support such a finding, or if it had been part of the case for the Crown. But it was not. So if, as I think, this is the explanation of the commissioners' conclusion, they have regrettably fallen into an error not of fact but of law.

I am conscious that I may have attributed to the commissioners a meaning which they did not intend. If so, I can only express my regret. But I console myself with the observations of du Parleq, L.J. in the Royal Choral Society v. Inland Revenue Commissioner (1943) 25 TC 263, 277:

"But in the case of Magistrates or commissioners or arbitrators who have to state a case it is necessary that they should show to the superior Court precisely what facts they have found. Nobody has been there to direct them as to the law. They may have gone wrong about ..the law. We can only tell whether they have gone wrong about the law by knowing what the facts are; and it is their province to tell us what the facts are. If they do that and then state their conclusion, it is possible for this Court to see whether they have accurately applied the law, or whether they have erred in point of law."

If I have wrongly attributed to the commissioners an error of law, it is because the facts found are incomplete on a crucial point.

For the reasons I have given, I am satisfied that the commissioners have erred in law. Their conclusion is inconsistent with their primary finding of fact. The case is covered by Simmons v. Inland Revenue Commissioners (1980) 1 WLR 1196. Like Nourse, L.J., though for somewhat different reasons, I would allow this appeal and discharge the assessment

I have two concluding observations. In the first place, I do not accept, as Mr. Goodfellow argued that the Judge can be criticised for looking at the correspondence, which was expressly incorported in and accompanied the case, in order to elucidate the commissioners' findings. In the second place, I found it intensely unsatisfactory that we should have had to spend so much time wracking our brains as to what the commissioners may or must have found. It was open to the parties to seek-to obtain from the commissioners the findings of fact they wanted. It is as I understand it, open to the Court to remit a case of its own motion in order to elucidate the facts, if it is necessary in the interests of justice, just as it is open to the Court to remit an award for further findings of-fact under section 22 of the Arbitration Act, 1950. Unfortunately that was not practicable in the present case since one of the commissioners had died and another has retired, or is at any rate too ill to resume the hearing. The comparison with arbitration, which du Parcq L.J. drew in the Royal Choral Society's case, 25 T.C. 263, and long experience of the old special case procedure of which I have been reminded during the hearing of the current appeal, has brought home to me how greatly superior is the new procedure for hearing appeals on questions of law under section 1 of the Arbitration Act, 1979. It may be that a similar procedure could be introduced with benefit into the hearing of tax appeals.

Appeal allowed with costs. Leave to appeal refused.

Solicitors: Poole Alcock & Co., Sandbach; Solicitor of Inland Revenue.

M.BA./1599/T