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Author:	JD [ Mon Jan 16, 2006 11:18 pm ]
Post subject:	capitol gains (legal) long doc
Someone was enquiring about Capitol gains Tax in another thread. Here's a case concerning that very subject that might yield some added information. Lyon (Inspector of Taxes) v Pettigrew CHANCERY DIVISION WALTON J 15 MARCH 1985 Capital gains tax – Disposal of assets – Time of disposal – Consideration under contract for disposal of capital assets payable by 150 weekly instalments – Capital assets consisting of taxis and their licences to ply for hire – Contract providing that property in the vehicles was to pass immediately but that property in the licences was to pass only after all instalments had been paid – Whether conditional contract – Whether time of contract time of disposal – Whether contract of hire-purchase or other transaction – Town Police Clauses Act 1847, s 37 – Capital Gains Tax Act 1979, ss 24, 27(2). The taxpayer was a proprietor of 11 taxis and their licences to ply for hire. In the year 1979–80 he signed contracts for the sale of six taxis together with their licences. The consideration for each of these sales was £6,000 to be paid in instalments of £40 per week over a period of 150 weeks. The contracts of sale provided, inter alia, that the consideration for the licence was to be severed from that for the vehicle, that the property in the vehicle was to pass to the purchaser immediately, but that the property in the licence was to pass only when all the instalments had been paid. The taxpayer was assessed to capital gains tax for the year 1979–80 in the sum of £15,000 in respect of these sales. The taxpayer appealed contending that the contracts were conditional contracts and that, by virtue of s 27(2)a of the Capital Gains Tax Act 1979, the time of disposal was the time when the condition was satisfied, namely when all moneys payable under each agreement had been paid. The Revenue contended that the contracts were not conditional, that the disposal of the licence was in fact the disposal of a form of incorporeal property within s 19(1)(a) of the Act, being the disposal of the goodwill attached to the right to ply for hire in the area covered by the licence, that under s 27(1) each disposal was made on the date when the agreement was entered into, and, under s 40(2), no discount was to be given for the postponement of the right to receive the moneys payable. The Special Commissioners determined that the licence was a form of incorporeal property within s 19(1)(a) but that it was severed from the vehicle and upheld the taxpayer's claim. The Crown appealed contending that, under the Town Police Clauses Act 1847, s 37b, as amended by the Local Government (Miscellaneous Provisions) Act 1976, s 49, it was impossible to sever the licences from the vehicles and that the contracts were not conditional contracts within s 27(2), but fell within the provisions of s 24c of the Act as contracts of 'hire-purchase or other transactions' and that the disposals were, therefore, by virtue of s 27(1), made in the year 1979–80 with the result that, allowing for the exemption from capital gains tax for cars under s 130, the consideration under the contract was deemed by s 40(2) to be the whole of the moneys payable thereunder. ________________________________________ a Section 27, so far as material, is set out at pp 379 e g, j to 380 a, post b Section 37 is set out at p 378 a b, post c Section 24 is set out at p 381 a–c, post ¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯ Held – The appeal would be allowed for the following reasons. (1) It was not possible to sever the licences from the taxicabs under the provisions of the Town Police Clauses Act 1847, as supplemented by s 49 of the Local Government (Miscellaneous Provisions) Act 1976 and accordingly the transfer of one must involve the transfer of the other (see p 379 b, post). Dicta of Lord Goddard CJ in R v Weymouth Borough Council, ex p Teletax (Weymouth) Ltd [1947] 1 KB 583 at 588, 591 applied. [1985] STC 369 at 370 (2) Both on principle and on authority, the contracts of sale were not conditional contracts within s 27(2) of the 1979 Act (see p 380 j, post). Eastham (Inspector of Taxes) v Leigh London and Provincial Properties Ltd (1971) 46 TC 687 followed. (3) The contracts were 'other transactions' within s 24 and, under s 40(2), the consideration was deemed to be the full extent of the price payable under the contract, after deducting the price attributable to the vehicles which was exempt under s 130 (see pp 381 a c, 382 a, post). Accordingly the full taxable consideration under the contract fell to be taxed in the year 1979–80. The Crown's appeal would therefore be allowed. Notes For the meaning of disposal, see Simon's Taxes C1.152. For exempt assets, see ibid C1.402. For the Capital Gains Tax Act 1979, ss 24, 27, 40, see ibid Part G3. Cases referred to in judgment Eastham (Inspector of Taxes) v Leigh London and Provincial Properties Ltd [1971] 1 Ch 871, [1971] 2 All ER 887, 46 TC 687, CA. R v Weymouth Borough Council, ex parte Teletax (Weymouth) Ltd [1947] 1 KB 583, [1947] 1 All ER 779, DC. Case stated 1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 28 March 1984 William Gordon Pettigrew (the taxpayer) appealed against an assessment to capital gains tax for the year 1979–80 in the sum of £15,000. 2. Shortly stated the question for decision was the time of disposal for capital gains tax purposes of the property transferred by certain agreements entered into by the taxpayer in September 1979. 3. No oral evidence was adduced before the commissioners. [Paragraph 4 listed the documents proved or admitted before the commissioners.] 5. The following facts were admitted between the parties: (1) The taxpayer was, for 37 years, a taxi proprietor in Rugby and during the period he was in business he acquired 11 hackney carriage licence plates (plates), namely: Licence Number Date of Acquisition Cost £ 39 1945 Nil 20 1960 600 17 1956 500 37 1960 650 33 1962 800 28 1966 600 16 1966 750 26 1967 700 30 1969 900 36 1969 600 38 1969 800 (2) In 1979 the taxpayer decided to dispose of the business and during the period 1 September to 21 September 1979 seven plates were offered for sale. One, no 20, was sold outright to a Mr Davies on 21 September 1979 for £5,000 The gain on this is not in dispute. Six plates were sold under the terms of formal written agreements, the purchase price being paid in instalments of £40 per week for 150 weeks. (3) The dates and selling prices of those sold under agreement were as follows [1985] STC 369 at 371 Plate Number Purchaser Date of Agreement Selling price £ 17 L Marino 1 September 1979 6,000 26 K Ranu 1 September 1979 6,000 28 J Allinson 1 September 1979 6,000 39 W Hunt 1 September 1979 6,000 16 R Poppitt 10 September 1979 6,000 30 C Dando 10 September 1979 6,000 In the event, payments in respect of three (nos 26, 38 and 39) were completed early; two (nos 17 and 30) were completed in time and the remaining one (no 16) was completed sometime in the year ended 5 April 1984. The selling price on one (no 26 to K Ranu) was reduced by oral agreement to £5,280. The agent's schedule sets out the payments made by the purchasers. The values of the cars included in the selling price were agreed. 6. As a result of the documentary evidence adduced before the commissioners they found the following further facts: (1) Before entering into the agreements referred to in para 5.2 above, the vehicles to which the agreements related were rented by the taxpayer to taxi drivers at £20 per week. (2) All the agreements were in similar form to the specimen produced before the commissioners. That agreement recited that the taxpayer (the vendor) was the absolute owner of the motor car (the vehicle) described in the schedule (namely a Ford Cortina 1300 Registration Number OGG 886M) and of the hackney carriage licence no 17 issued in respect of it (the licence). Clause 1 provided that 'the Vendor sells and the Purchaser will purchase' the vehicle together with the licence issued in respect of it for the sum of £6,000 'upon the terms and conditions hereinafter contained'. Clause 2 provided that the taxpayer 'shall forthwith secure the transfer of the registration documents relating to the [vehicle] to the Purchaser' and that the taxpayer 'shall on the payment of all monies due under this Agreement take all such steps as shall be necessary to enable [the licence] to be issued in the name of the Purchaser'. A final sentence added in manuscript read: 'For the avoidance of doubt it is hereby agreed that [the licence] shall not be transferred or become the property of the Purchaser until payment of all monies hereunder.' Clause 3 provided that the selling price of £6,000 was to be paid by 150 weekly instalments of £40, the first such payment to be made on the signing of the agreement and subsequent instalments on the Monday of each week succeeding the signing of the agreement until the sum of £6,000 should have been paid and satisfied. Clause 4 contained covenants by the purchaser that so long as any moneys should be owing under the terms of the agreement he would keep the vehicle properly insured; pay the vehicle excise duties; produce for inspection the insurance policy, the last premium receipt, the current excise licence and the MOT certificate; keep the vehicle properly maintained and repaired; discharge any liabilities arising out of the use of the vehicle for which the owner was responsible and keep the taxpayer fully indemnified in respect of the vehicle or its use and operation as a hackney carriage, notwithstanding that he was not driving or in charge of it at the time. If the purchaser should make default in paying any of the weekly payments of £40, or in performing or observing any of the covenants then the taxpayer might by written notice require the purchaser to take the steps necessary to transfer the ownership of the vehicle back to the taxpayer. In such event the taxpayer was to be under no obligation to refund all or any part of the sums of £40 already paid under the agreement, and the purchaser irrevocably appointed the taxpayer his attorney with a view to enabling the ownership of the vehicle to be revested in the taxpayer's name. Clause 5 provided that so long as any moneys remained unpaid by the purchaser he should not part with the possession of the vehicle. The last payment under Mr Marino's agreement was made on 26 July 1982. (3) Four further agreements besides the six mentioned in para 5.3 above were entered into, two in the year ended 5 April 1981, one in the year ended 5 April 1982 and one prior to 31 [1985] STC 369 at 372 January 1984 in the following year. Before the hearing it had been agreed between the parties that the commissioners' decision in respect of the sales in 1979–80 would be applied by them to similar sales in subsequent years. (4) The selling price agreed in respect of each vehicle included a value for the vehicle itself. For the six agreements with which this appeal is immediately concerned the values agreed between the inspector and the taxpayer are set out in col (2) of the table below. Column (3) shows the year in which the licence to which the agreement related was transferred. (1) (2) (3) Licence transferred Name of purchaser Value of vehicle in year ended 5 April £ L Marino 500 1983 K Ranu 300 1982 J Allinson 400 1982 W Hunt 300 1982 R Poppitt 500 1984 C Dando 400 1983 (5) Ten of the eleven transactions have been completed and the plates transferred. An agreement with one H Dyke entered into in the year ended 5 April 1982 for the payment of £4,900 (the value of the vehicle being £100) remained uncompleted at 31 January 1984, only £3,600 having been paid. This plate was bought by the taxpayer for £600. (6) A bundle of documents issued by Rugby BC headed 'Hackney Carriage Operational Policy' comprises sixteen pages. It sets out the council's operational policy in relation to hackney carriages, the conditions upon which hackney carriage vehicle licences and drivers' licences are issued, the council's private hire operational policy and conditions for private hire operators' licences and for private hire vehicle licences. (The commissioners were not here concerned with private hire vehicles.) [The commissioners heard no evidence about this document, which was undated and was produced, in response to an enquiry from them, at a late stage of the hearing, and the commissioners were told that it came into the Revenue's possession in connection with another matter with which the commissioners were not concerned. No objection to its production was made on behalf of the taxpayer and in the absence of better evidence, eg a copy of a licence, the commissioners admitted it.] The relevant provisions in relation to hackney carriages are summarised below: (1) Proprietors of Hackney Carriages are to retain the licences of drivers so long as they remain in the proprietor's employ. (2) Vehicle Licences are issued for a period of twelve months. (3) In considering applications for the grant or re-issue of Hackney Carriage licences each December the council will take into account the standard of service that has been offered by an existing licensee. All applicants including those holding licences acquired by transfer should be aware of the council's powers in certain circumstances to refuse to re-issue licences when not satisfied about such standards. (4) Licence plates may be transferred to replacement vehicles in prescribed circumstances. Licence plates must not be transferred for temporary use on unlicensed vehicles without the council's written consent. (5)'The present number of Hackney Carriage Licences is 40, and the situation is reviewed as necessary to ensure compatibility with local transportation characteristics and needs.' (6) The council may limit the number of licences held by any one proprietor. (7) While no objection will be made by the council to the leasing of a licensed hackney carriage the proprietor will continue to be responsible, either individually or jointly and severally with the driver, for compliance with (inter alia) licence conditions. There is a statutory requirement to inform the council of every additional person who becomes responsible for the keeping, letting for hire and employ of such vehicles. 8. A hackney carriage driving licence is issued for a period of up to 12 months. (9) A vehicle licence fee (at the time of issue of the document) was £60 per annum, and a driver's licence fee £15 per annum. (10) If the vehicle in respect of which the Licence is issued ceases to be used for hire as a hackney carriage the licence and licence plate must be returned forthwith and the plates shall not be transferred to another vehicle without prior written permission. 7. Mr W L Barber FCA contended on behalf of the taxpayer: (1) That each of the agreements entered into by the taxpayer was a conditional contract and by reason of s 27(2) of the Capital Gains Tax Act 1979 (the Act) the time at which the acquisition and disposal provided for in the agreement took place was the time when the condition was satisfied, namely in respect of each agreement when all moneys due under the agreement had been paid. (2) In the alternative, each disposal fell within s 20(1)(c) of the Act the consideration for the plate being a capital sum received in return for surrender of the right to the plate. 8. The Revenue contended: (1) The whole consideration, of £6,000 under each agreement, must be brought into account for the purpose of computing the chargeable gain, in the year in which the disposal took place; each disposal was made on the date when the agreement was entered into. (2) The agreements are evidence of a contract between the parties and fall within s 27(1); the contracts are not conditional contracts so as to come within s 27(2), but become effective on the date of signing. (3) The agreements are of such a nature as to come within the provisions relating to hire-purchase transactions in s 24 of the Act and therefore to be treated as a disposal of the asset at the beginning of the period for which the use and enjoyment of the asset was obtained. (4) The agreements come within the provisions of s 40(2) of the Act, so that the consideration for the disposal is to be brought into account without any discount for postponement of the right to receive any part of it. The discretion in s 40(1) is a matter entirely for the Board, so that the entire consideration is to be brought into account even though the right to receive part of it has been postponed week by week. (5) The use and benefit of the licence is a right within s 19(1)(a)of the Act, being a form of incorporeal property. What was disposed of was the goodwill attached to the right to ply for hire in the Rugby Borough Council area. 9. At the conclusion of the hearing the commissioners discharged the assessments under appeal. The commissioners' conclusions about the matters in issue in the appeal and the reasons for their determination may be summarised as follows: '1. The agreement put before us provides for the purchase by Mr Marino of a Ford Cortina then five or six years old and a hackney carriage licence for a total of £6,000. The property in the vehicle, the value of which has been agreed to be £600, was transferred immediately, although payment would not have been completed until 15 weekly instalments of £40 had been paid, namely on or about 10 December 1979, if the terms of the agreement were adhered to. That is on the assumption that the early payments were wholly made in respect of payment for the car, and only later ones related to the licence; in fact there is no provision in the agreement for apportionment of the payments between the vehicle and the licence. So far as the vehicle is concerned the transaction cannot be regarded as a hire-purchase transaction under s 24 because that is concerned with circumstances where property in the asset will or may pass at the end of a period. Property in the Ford Cortina 1300 was to pass to Mr Marino forthwith. The nature of the agreement in relation to the vehicle was that of a credit sale agreement within the definition in s 1(1) of the Hire-Purchase Act 1965. The Hire-Purchase Act 1965 is concerned with 'goods', namely tangible assets or chattels. The Revenue submitted that the plate itself was merely a piece of metal, in itself unimportant, and that the money attributable to the licence was paid to acquire a form of incorporeal property. We hold that s 24 of the Act has no bearing on the agreement. We reject the third submission of the Revenue. 2. The agreement does not in terms state what it is, apart from the vehicle with the plate attached, that Mr Marino was to acquire. It says only that the taxpayer 'shall on the payment of all monies due under this Agreement take all such steps as shall be necessary to enable the said Hackney Carriage Licence to be issued in the name of' Mr Marino. It was not in the taxpayer's power to ensure that the licence would eventually be issued to Mr Marino. Mr Barber told us, and the Revenue did not object to the statement, that the limitation on the number of licences issued by the council gives them a market value, and that the council agrees to their transfer on the prompting of the vendor. Before Mr Marino had completed payment of the instalments due under the agreement the licence which he was interested in would fall to be renewed three times, in December 1979, December 1980 and December 1981. It would have had to be renewed in the taxpayer's name on each occasion. Nothing was said about what was to happen if the vehicle had to be replaced in the meantime. All that the taxpayer had to dispose of when he entered into the agreement in September 1979 was the benefit of the then current licence due to expire at the end of the year. All that Mr Marino acquired was the right to require the taxpayer in due course to take the necessary steps to procure that a body over which the taxpayer had no control should issue a licence in Mr Marino's name, and an expectation that the taxpayer would do his best to keep the licence on foot in the meantime. It is difficult to see how such a right could be enforced. The Revenue submitted that the use and benefit of the licence was a form of incorporeal property. That use and benefit, like the right and expectation already mentioned, seem to us a rather tenuous form of incorporeal property, but it was not suggested that the use and benefit constituted a form of property coming within para (c) of s 19(1), and s 19(1)(a) appears to us to be the only relevant provision. The second suggestion in the fifth submission of the Revenue is that the taxpayer disposed of the goodwill attached to the right to ply for hire in the area. Mr Marino, and the others to whom the taxpayer sold vehicles, had as we understand it previously plied for hire, driving the same vehicles, before the taxpayer retired from business. They each paid him £20 a week for the right to do so. It seems to us that any goodwill attached to the right to ply for hire with the vehicle belonged at least as much to the individual driver as to the taxpayer, if it did not wholly belong to the driver. There is no mention of goodwill in the agreement, and to that extent we reject the fifth submission of the Revenue. If only £600 out of the £6,000 which Mr Marino paid the taxpayer was paid for the vehicle what was the remaining £5,400 paid for? If our interpretation of the agreement is correct it was paid for no added present benefit but for the hope of acquiring from the borough council at the end of three years a licence in Mr Marino's own name. Until the payments were completed no right against the taxpayer arose. What Mr Marino hoped to acquire in three years' time had not yet come into existence, nor was there any certainty that it would do so. It that is correct, it is difficult to see what was disposed of and acquired in 1979. 3. We proceed, however, on the assumption, common to both parties, that there was something which the drivers were willing to pay a substantial sum to acquire, namely a form of incorporeal property within s 19(1)(a), and we consider the submissions made by Mr Barber. The condition which Mr Barber pointed to for the purposes of s 27(2) was the payment of all moneys due under the agreement. Only when that had been done was the taxpayer obliged to take any steps in relation to the licence. Only then (subject to the council's continuing compliance) could it become the property of Mr Marino. No definition of a conditional contract appears in the Act. The Hire-Purchase Act 1965 distinguishes between a 'credit-sale agreement'—which we have suggested is a suitable description for the arrangements relating to the vehicle—and a 'conditional sale agreement' which is defined as—'an agreement for the sale of goods under which the purchase price or part of it is payable by instalments, and the property in the goods is to remain in the seller (notwithstanding that the buyer is to be in possession of the goods) until such conditions as to the payment of instalments or otherwise as may be specified in the agreement are to be fulfilled'. The Hire-Purchase Act 1965, as already mentioned, is concerned with the sale of goods, and for that reason as well as others it is inappropriate to adopt it for present purposes. What the definition does lend support to is the view (adapting the definition to present circumstances) that an agreement under which the purchase price is payable by instalments and the property in the subject matter is to remain in the seller (notwithstanding that the buyer is in possession) until such conditions as to the payment of instalments or otherwise as may be specified in the agreement are fulfilled is capable of being described as a conditional contract. On that view of the position, which assumes that there was a disposal and acquisition, the agreement falls within s 27(2) and the condition was not satisfied until the last payment was made. In Mr Marino's case that was on 26 July 1982, so that an assessment for 1979–80 is inappropriate. The same reasoning applies in the case of the other agreements. It was on that basis that we discharged the assessment. 4. For completeness we consider Mr Barber's alternative submission. The taxpayer did not, in 1979, forfeit or surrender any rights. The licence remained in his name, and had Mr Marino fallen behind in his payments, the taxpayer could have taken possession of the vehicle and retained the payments already made. In those circumstances no further payments would have been made and the obligation to take steps to have the licence issued in Mr Marino's name would never have arisen. Nor, in 1979, did the taxpayer refrain from exercising any rights. The Ford Cortina continued to be driven by Mr Marino after as before the agreement was entered into. The most that the taxpayer might be said to have done in 1979 was to fetter his rights under the licence. We do not consider that the agreement falls within s 20(1)(c). 5. Finally, we consider s 40. If we are right in holding that no disposal arose until the last payment was made, s 40, which applies where the consideration is due after the time of disposal, is not relevant. But we are not satisfied that s 40 is helpful in relation to the point at issue. It appears in Chapter II of Part II, which is concerned with computation, whereas Chapter I in which the other provisions we have been considering occur is concerned with disposals. Section 40 is designed, as we read it, to alleviate possible hardship to the disponor, in sub-s (1), and to exclude the right to any discount for late payment. It does not throw any light on the point here in issue, namely when any disposal took place. 6. Finally we considered the possibility, suggested to us in discussion during the course of the hearing, that the weekly payments of £40 might be regarded as rent. We do not think they are so to be regarded. The ownership of the vehicle was transferred immediately, so the payments were not capable of being rent for use of the vehicle. Nor are they to be regarded as rent for the use of the licence. They must be regarded, as stated in the agreement, as weekly instalments of the total sum due. We find no warrant for regarding them differently. 7. The agreements other than Mr Marino's fall to be similarly regarded. The disposal under each of those agreements took place in the year when the last instalment was paid.' 10. The Crown immediately after the determination of the appeal declared dissatisfaction therewith as being erroneous in point of law and on 19 April 1984 required the commissioners to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970, s 56. 11. The question of law for the opinion of the court was whether the commissioners were right in holding that the agreements entered into by the taxpayer in 1979, and in subsequent years, were conditional contracts within the meaning of the Capital Gains Tax Act 1970 and accordingly within the provisions of s 27(2). Robert Carnwath for the Crown. The taxpayer did not appear and was not represented. 15 March 1985. The following judgment was delivered. WALTON J. This is an appeal by the Crown against a decision of the Special Commissioners whereby they discharged an assessment on the respondent, William Gordon Pettigrew (the taxpayer), to capital gains tax for the year 1979–80 in the sum of £15,000. It is an unusual case. The taxpayer was a taxi cab proprietor in Rugby, and at the relevant time, apparently, he was the proprietor of 11 hackney carriages, together with their licences. In the financial year 1979–80 he signed contracts for the sale of seven of those cabs. One of those sales was immediately completed, and that cab was sold together with its corresponding licence for the sum of £5,000. It is accepted that, in any event, in discharging the assessment completely the Special Commissioners went too far, because it is now agreed that there would be a gain of £2,012 chargeable in 1979–80, because that transaction was completed in that year. The other six contracts provided for the sale by way of instalments of £40 over the period of 150 weeks, and a question has accordingly arisen as to whether those carriages, together with their licences, were disposed of in the financial year 1979–80 or at some later time. The taxpayer in fact disposed of the remainder of his hackney carriages together with their licences some time later, and it has at all times been agreed between the parties that the ultimate outcome of these proceedings will determine the fate of the assessments in the other cases. The type of agreement which the taxpayer entered into is of this nature. It is, of course, between him, called 'the vendor', and a person called 'the purchaser'. It recites, first: 'The Vendor is the absolute owner of the motor car described in the Schedule hereto and of the Hackney Carriage Licence Number 17 issued in respect of the said motor car [It secondly recites:] The purchaser has agreed to purchase the said motor car and licence upon the terms hereinafter contained [The agreement provides:] 1. THE VENDOR sells and the Purchaser will purchase the motor car described in the Schedule hereto together with the Hackney Carriage Licence [number so-and-so] issued in respect of the said motor car for the sum of £6,000.00 upon the terms and conditions hereinafter contained 2. THE VENDOR shall forthwith secure the transfer of the registration documents relating to the said motor car to the Purchaser The Vendor shall on the payment of all monies due under this Agreement take all such steps as shall be necessary to enable the said Hackney Carriage Licence to be issued in the name of the Purchaser [Then there is a manuscript addition:] For the avoidance of doubt it is hereby agreed that the Hackney Carriage Licence shall not be transferred or become the property of the Purchaser until payment of all monies hereunder 3. THE SAID SUM of Six thousand pounds shall be paid by the purchaser by One hundred and fifty weekly instalments of £40.00 and the first of such payments to be made on the signing hereof and each instalment to be made on the Monday of week succeeding the signing of this Agreement until the said sum of £6,000 shall be paid and satisfied 4. THE PURCHASER hereby covenants and agrees with the Vendor that so long as any monies shall be owing to the Vendor under the terms of this Agreement the Purchaser will (a) keep the said motor car properly insured in respect of comprehensive risks with such insurance company as the Vendor shall from time to time approve and in the event of any accident or damage whatsoever lay out all insurance monies received in the reinstatement of the said motor car and make up any deficiency out of his own monies (b) pay all such vehicle excise duties as shall from time to time become payable in respect of the said motor car (c) produce to the Vendor on demand for inspection the insurance policy effected on the said motor car, the last receipt for the insurance premium, the current excise licence and M.O.T. Certificate for the said motor car (d) keep the said motor car properly maintained and repaired and so that the same shall always be capable of being operated as a Hackney Carriage in a legal and safe condition (e) discharge any liabilities whatsoever and howsoever arising out of the use or operation of the said motor car for which the owner of is legally or otherwise responsible notwithstanding that the Purchaser was not driving or in charge of the said motor car at the time such liabilities were incurred (f) keep the Vendor indemnified from and against all actions costs claims demands and liability whatsoever incurred in respect of the said motor car or its use and operation as a Hackney Carriage notwithstanding that the Purchaser was not driving or in charge of the said motor car at the time such incidents incurring the said actions costs claims demands and liability occurred (g) if the Purchaser shall make default in paying any of the aforesaid weekly payments of £40.00 or in performing or observing any of the covenants or agreements on his part herein contained then the Vendor may by notice in writing to the Purchaser require the Purchaser to take such steps as shall be necessary or proper and sign such documents as shall be needful for the purpose to transfer the ownership of the said motor car back to the Vendor and Provided further that if any case shall arise for the giving of such a notice by the Vendor under this Clause the Vendor shall be under no obligation to refund all or any part of any of the said sums of £40.00 paid pursuant to this Agreement which may at that time have been paid to the Vendor pursuant to the terms hereof and for the purposes of this Clause the Purchaser hereby irrevocably appoints the Vendor his attorney in his name and on his behalf to execute do or sign any such documents applications forms proceedings and other matters as shall be necessary or proper to enable the ownership of the said motor car to be revested in the Vendor in manner herein before provided 5. During the continuance of this Agreement and so long as any monies remain unpaid by the Purchaser the Purchaser shall not part with the possession of the said motor car.' and then there is the usual certificate of value. At first blush, having regard to the provisions of cl 4(g), using language quite clearly relevant, and relevant only, to a retransfer of property from the purchaser to the vendor, one would assume that the way in which the agreement was intended to operate was that at any rate the property in the motor car, leaving aside for one moment the licence, was immediately transferred to the purchaser. Indeed, the Special Commissioners were persuaded that that was the proper way of looking at the agreement. However, there is an unfortunate obstacle to reading the contract in those terms because it is provided—and this is the hand written portion of cl 2 to which I previously called attention—that 'for the avoidance of doubt it is hereby agreed that the Hackney Carriage licence shall not be transferred or become the property of the Purchaser until payment of all monies hereunder'. Uninstructed in the law applicable, it would be the easiest thing in the world—and again the Special Commissioners fell into this error—to treat the licence as being severable from the actual vehicle and therefore to construe the agreement as one under which the vehicle itself was transferred immediately but the licence was not to be transferred or become the property of the purchaser until a future time; namely the date when all moneys under the agreement had been paid. Unfortunately, the Special Commissioners were not referred to the relevant legislation, which in fact ensures that there can be no such divorce of the licence from the vehicle. The Town Police Clauses Act 1847 provides in s 37: 'The Commissioners may from time to time licence to ply for hire within the prescribed distance, or if no distance is prescribed, within five miles from the General Post Office of the city, town, or place to which the special Act refers, (which in that case shall be deemed the prescribed distance,) such number of hackney coaches or carriages of any kind or description adapted to the carriage of persons as they think fit.' Section 41 says: 'In every such licence shall be specified the name and surname and place of abode of every person who is a proprietor or part proprietor of the hackney carriage in respect of which such licence is granted …' Section 43 provides that the licence is to be in force for one year only; and s 46 provides that drivers are not to act without first obtaining a licence. Section 50 says: 'The Commissioners may, upon the conviction for the second time of the proprietor or driver of any such hackney carriage for any offence under the provisions of this or the special Act with respect to hackney carriages, … suspend or revoke, as they deem right, the licence of any such proprietor or driver.' In R v Weymouth Borough Council, ex p Teletax (Weymouth) Ltd [1947] 1 KB 583, the question arose whether on that legislation a person who acquired the property (that is to say, the legal ownership) in the vehicle was entitled to have the licence transferred to him. In fact Lord Goddard CJ had no hesitation in coming to the conclusion that that was exactly the effect of the legislation. He said (at 588–589): 'it is quite clear that the commissioners are to license a vehicle as a hackney carriage. It also seems reasonably clear that what Parliament had in mind was that it was desirable that the commissioners should be able to control the number of carriages which plied for hire in a given area, and should also be entitled to prescribe the kind and the description of the carriages. No doubt it would give the local authority power to refuse to grant a licence if they thought that the construction of the cab, to use the common expression, was not satisfactory.' He then goes through the legislation and says that it would have been perfectly simple to refer to the licensing of the proprietor to keep a particular carriage if Parliament had so intended; they seem to have emphasised, in the sections I have already read, that the licensing is the licensing of a carriage and not of any particular person. Then he says (at 591): 'We are not concerned here to consider whether or not Parliament might have made different provisions. Parliament seems to have said that a licence to a cab, if the commissioners grant it, is to be given for a year. I cannot think it was meant, and I think the necessary implication is the other way, that if that cab is sold during the year, the proprietor who buys the cab is never to be allowed to use the cab during the year. Of course, he takes his chance that he may not get his licence renewed, but that raises entirely different questions.' So the situation under the legislation of 1847 is as I have indicated; and that to some extent is supplemented by the Local Government (Miscellaneous Provisions) Act 1976, which in Part II deals with hackney carriages and private hire vehicles. I think it is sufficient to say that in s 49 of that Act, in that Part, the right to transfer the licence is recognised, because it is provided: 'If the proprietor of a hackney carriage … in respect of which a vehicle licence has been granted by a district council transfers his interest in the hackney carriage … to a person other than the proprietor whose name is specified in the licence, he shall within fourteen days after such transfer give notice in writing thereof to the district council specifying the name and address of the person to whom the hackney carriage … has been transferred.' and then there are penalties for default. So one arrives at the situation that it is not possible as a matter of law to divorce the licence from the vehicle: both must go together. Of course, it may be possible for there to be a lease of both by the proprietor. If there can be an assignment, there can be no objection to a lease: but both must go together. So, that being decided as a matter of law, one then comes back to the agreement in this particular case, the agreement of 1 September 1979, which it is impossible to construe in the way in which the Special Commissioners construed it. Therefore, there are only two possibilities: either both the licence and the vehicle passed under that agreement immediately it was made, or the final transfer of both was deferred until payment by the purchaser of all moneys due under that agreement. I am by no means certain that if I was left to myself I should not construe the agreement as properly meaning the first and not the second, in spite of the hand written portion of it. But as that would conclude the matter completely against the taxpayer and without any further argument, the question must then I think properly be determined on the other hypothesis, which is the one more favourable to him; that is to say, that both the motor car and the licence passed only when all moneys had been paid. Now, what the Special Commissioners did was to rely on a provision in the Capital Gains Tax Act 1979 relating to conditional contracts. Section 27(1) of the Act provides: 'Where an asset is disposed of and acquired under a contract the time at which the disposal and acquisition is made is the time the contract is made (and not, if different, the time at which the asset is conveyed or transferred).' and it is that subsection, of course, which explains why I said that there would be nothing left to argue about if the construction which I would have been predisposed to give to the agreement was the correct one. Indeed, so far as I have read in s 27(1) the same result would follow in relation to the contract as construed in favour of the taxpayer but it goes on: 'This subsection has effect subject to section 20(2) above, and subsection (2) below.' If I may just get s 20(2) out of the way, s 20(1) deals with a disposal where capital sums are derived from assets whether or not an asset is acquired by the person paying the capital sum, and then various examples of that are given; for example, receipts under insurance policies, and so on. There is then a special provision in s 20(2) that in the case of a disposal within the paragraphs containing the special examples, 'the time of the disposal shall be the time when the capital sum is received as described in that subsection.' None of these special examples applies here: the moneys paid by the purchaser are not compensation for damage or injury, in respect of insurance, forfeiture or surrender of rights, or consideration for the use or exploitation of assets. In particular there is no question of forfeiture or surrender: it is transfer which is in issue in the present proceedings. Accordingly, s 20(2) need not concern us. Then we come to s 27(2) itself—this is the subsection on which the Special Commissioners relied—which provides: 'If the contract is conditional (and in particular if it is conditional on the exercise of an option) the time at which the disposal and acquisition is made is the time when the condition is satisfied.' The Special Commissioners said that the contract here was conditional on payment of the whole of the instalments of £40 over the 150 weeks; that therefore it fell within s 27(2); and, that being so, it was only when all the instalments were paid that the liability to capital gains tax arose. It seems to me, with very great respect to the Special Commissioners, that that is a wholly unmaintainable position. The words 'contract is conditional' have traditionally, I think, been used to cover really only two types of case. One is a 'subject to contract' contract, where there is clearly no contract at all anyway, and the other is where all the liabilities under the contract are conditional on a certain event. It would, for example, be possible for a hotelier to make a booking with a tour operator conditionally on the next Olympic Games being held in London. Then, until it had been decided that the next Olympic Games were going to be held in London, there would be no effective contract: the whole contract would be conditional, the whole liabilities and duties between the parties would only arise when the condition was fulfilled. But it is quite clear that the present contract is not in the slightest like that. I am indeed rather surprised that counsel for the Crown was able to find direct authority on the point, because for absolutely fundamental matters like that authority is usually lacking, but he has cited to me a case which is exactly in point. That is the case of Eastham (Inspector of Taxes) v Leigh London and Provincial Properties Ltd [1971] 1 Ch 871, 46 TC 687. What was being construed there was Sch 9 to the Finance Act 1962, which contained provisions as to what was to happen if the contract was conditional and what was to happen if it was not, there being a difference between the two. Russell LJ said ([1971] 1 Ch 871 at 886, 46 TC 687 at 701): 'We were referred, quite properly, to a number of authorities, some dealing with the question whether in any particular case the beneficial interest in property subject to a contract had passed and some dealing with cases in which the question was whether specific performance could properly be ordered. I for my part, with all respect, do not gain any guidance from those cases in the solution of this point. The answer, to my mind, is a short and simple one: I cannot accept that it is correct to say that because the grant of the lease was dependent upon the fulfilment by the tenant of those obligations which constituted the consideration for the grant of the lease, the contract to acquire can properly be described as a conditional contract at all. It is a contract for sale and purchase, or, rather, grant and acceptance of a lease; what is provided for in the contract is not a condition of the contract at all, it is simply a provision that the one party shall carry out certain works in consideration of a promise thereafter to grant a lease, and that the other party, in consideration of those works being carried out, shall thereafter grant the lease. Indeed, it appears to me that once it is accepted that it is one contract of acquisition and not two contracts the matter is completely answered. If there be one contract I cannot see, with respect, how the postponement of the carrying out of one part of one contract until the fulfilment of the consideration by the other party can in any way be properly described as a “condition” of the contract as distinct from a perfectly ordinary part of, or term of, the contract. I may not be doing justice to the difficulties which it is suggested exist and I may be over-simplifying the matter, but it seems to me that it is the short and the correct answer to this question.' And there was a judgment by Buckley LJ to precisely the same effect. So it seems to me that the view of the Special Commissioners that this was a conditional contract is one which is contrary both to clear principle and to express authority: this was in no sense a conditional contract as those words are used in s 27(2). In fact, the contract falls, perhaps rather surprisingly, under s 24 of the Act, which provides: 'A hire-purchase or other transaction [and note the words 'other transaction'] under which the use and enjoyment of an asset is obtained by a person for a period at the end of which the property in the asset will or may pass to that person shall be treated for the purposes of this Act, both in relation to that person and in relation to the person from whom he obtains the use and enjoyment of the asset, as if it amounted to an entire disposal of the asset to that person at the beginning of the period for which he obtains the use and enjoyment of the asset, but subject to such adjustments of tax, whether by way of repayment or discharge of tax or otherwise, as may be required where the period for which that person has the use and enjoyment of the asset terminates without the property in the asset passing to him.' I think that the Special Commissioners were rather too bemused by the definitions to be found in the Hire Purchase Act 1965 itself. In the Capital Gains Tax Act 1979 it is quite clear that, although s 24 is sidelined 'Hire-purchase' it deals with a good many other transactions quite distinct from hire purchase; and it seems to me that the words of that section exactly fit what has happened in the present case. I think I must for the sake of completeness have regard to the fact that under s 24 we get first of all the entire disposal of the asset at the beginning of the time, that is to say in the fiscal year 1979–80, but we get the receipt of the money running far beyond that fiscal year. Section 40(1) provides: 'If the consideration, or part of the consideration, taken into account in the computation under this Chapter is payable by instalments over a period beginning not earlier than the time when the disposal is made, being a period exceeding eighteen months, then, if the person making the disposal satisfies the Board that he would otherwise suffer undue hardship, the tax on a chargeable gain accruing on the disposal may, at his option, be paid by such instalments as the Board may allow over a period not exceeding eight years and ending not later than the time at which the last of the first-mentioned instalments is payable.' But then, more relevantly—because what I have just read is a power in the Board which has not been exercised—in s 40(2) it is provided: 'In the computation under this Chapter consideration for the disposal shall be brought into account without any discount for postponement of the right to receive any part of it and, in the first instance, without regard to a risk of any part of the consideration being irrecoverable or to the right to receive any part of the consideration being contingent; and if any part of the consideration so brought into account is subsequently shown to the satisfaction of the inspector to be irrecoverable, such adjustment, whether by way of discharge or repayment of tax or otherwise, shall be made as is required in consequence.' So, putting all those provisions together, the situation is that for the purpose of capital gains tax, at any rate in the first instance, because if for any reason the contract is not fulfilled according to the letter adjustments may hereafter fall to be made, the matter proceeds as if the cab together with the licence had been disposed of in the fiscal year 1979–80 and as if the consideration for such disposal at that time had been the full extent of the price to be paid therefor; namely the sum of £6,000. However, that requires a gloss, and it requires a gloss having regard to the provisions of s 130 of the Capital Gains Tax Act 1979. It was realised early on that most people nowadays have a motor car, that a motor car depreciates very much in value, and that if it was possible to claim the depreciation of a motor car as a loss the Revenue could whistle for a very large part of their expected capital gains tax haul. So it is provided in s 130: [1985] STC 369 at 382 'A mechanically propelled road vehicle constructed or adapted for the carriage of passengers, except for a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used, shall not be a chargeable asset; and accordingly no chargeable gain or allowable loss shall accrue on its disposal.' So in order to arrive at the proper figures in the present case one must strip out from the £6,000 or other sum for which the composite cab and licence were disposed of by the taxpayer the value of the cab, and it is somewhat astonishing that in the case of the particular sale of which I have been reading the particulars the value of the car itself was only £500 and the purchaser was prepared in substance to pay the sum of £5,500 for the 'fag-end' of the licence together with, of course, the hope value of having it renewed, and, of course, the enjoyment of the same, until the car and the licence became his, during the time they still continued to be owned by the taxpayer. So those values fall to be stripped out of the computation; but subject to those matters it appears to me that the Special Commissioners, I think partly (indeed, in large measure) through not having the relevant legislation regarding the licensing of taxi cabs called to their attention, have fallen into error and that I am bound to allow the Crown's appeal. I have in front of me from chartered accountants acting on behalf of the taxpayer what purports to be a letter from them saying that they have now obtained a copy of the calculation of £26,207 chargeable gain, 'which we have checked and, assuming that the submissions made by the Inland Revenue are accepted by the High Court, we agree that the chargeable gain will be £26,207.' And this result therefore, I think, must follow. Appeal allowed. Assessment for 1979–80 determined in the sum of £26,207. Solicitor: Solicitor of Inland Revenue.

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