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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Sema Group Pension Scheme v Inland Revenue [2002] EWCA Civ 1857 (19 December 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/1857.html Cite as: [2003] STC 95, [2003] Pens LR 29, [2003] STI 27, [2003] BTC 106, [2002] EWCA Civ 1857, 74 TC 593

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT
CHANCERY DIVISION (Mr Justice Lightman)

		Royal Courts of Justice Strand, London, WC2A 2LL
		Thursday 19 December 2002

Lord Justice Jonathan Parker :

INTRODUCTION

1. This is an appeal by the trustees of The SEMA Group Pension Scheme ("the Scheme") from an order made by Lightman J on 7 February 2002 allowing an appeal by the Revenue from a decision of the Special Commissioners dated 22 June 2001. By their decision, the Special Commissioners cancelled a notice dated 18 November 1999 given by the Revenue to the appellants under s.703(3) of the Income and Corporation Taxes Act 1988 ("the 1988 Act") and a subsequent assessment to income tax under Schedule F for the fiscal year 1996/7 in the sum of £484, 563. Permission for a second appeal was granted by Chadwick LJ on 15 March 2002, limited to two of the three grounds of appeal set out in the Appellant's Notice. The application for permission to appeal on the third ground is renewed at this hearing.
2. The Scheme is an occupational pension scheme. It is an approved scheme for the purposes of section 592 of the 1988 Act, and as such it is exempt from income tax on income derived from its investments (see s.592(2)). The appeal raises questions as to the true meaning and effect of the anti-avoidance provisions contained in ss.703(1), 704A and 709 in Part XVII of the 1988 Act, as they apply to sums received by an approved scheme under a "buyback" by a quoted company of its own shares.
3. It is common ground that, by virtue of ss.209 and 254 of the 1988 Act, where a UK resident company buys back its own shares that part of the purchase price which exceeds the nominal value of the shares the subject of the buyback is treated as a 'qualifying distribution' for the purposes of s.231 of the 1988 Act. As a consequence, the recipient of the purchase price, being a UK resident and not being a company, was (prior to the removal of such entitlement by the Finance Act 1997 with effect from 8 October 1996) entitled to a tax credit equal to such proportion of the amount or value of the distribution as corresponded to the rate of advance corporation tax in force for the financial year in which the distribution was made (see s.231(1)). Hence buybacks were particularly attractive to approved schemes and other persons or bodies exempt from income tax, since a substantial part (usually the greater part) of the purchase price would represent income for tax purposes, in respect of which the recipient could claim a payment of an amount equal to the tax credit.
4. The two buybacks with which this appeal is concerned took place in May and June 1996; prior, that is to say, to the removal of the entitlement to payment of an amount equal to the tax credits. Following the buybacks, the Scheme claimed tax credits in respect of them. The claim was accepted by the Revenue, and (since the Scheme had no liability to income tax against which the credits could be set off) the amount of the tax credits was duly paid to the trustees. Subsequently, the Revenue has sought, in effect, to reverse this payment by recourse to the anti-avoidance provisions in Part XVII of the 1988 Act.
5. The Special Commissioners' Decision ("the Decision") and the judgment of Lightman J ("the Judgment") are both reported in full in [2002] STC 276. For the purposes of this judgment I shall take them as read, referring to them only so far as is necessary to render this judgment intelligible.

THE RELEVANT ANTI-AVOIDANCE PROVISIONS

6. Before turning to the detailed facts, it is convenient at this point to set out the relevant anti-avoidance provisions, and to identify the issues which arise in relation to them.
7. The relevant provisions are all to be found in Chapter I of Part XVII of the 1988 Act. Part XVII is headed 'Tax Avoidance', and Chapter I is headed 'Cancellation of tax advantages from certain transactions in securities'. The provisions in question are set out in full in the Decision and in the Judgment but for convenience of reference I set them out again below, with the critical words in italics.

"703 Cancellation of tax advantage

(1) Where –

(a) in any such circumstances as are mentioned in section 704, and

(b) in consequence of a transaction or transactions in securities or of the combined effect of two or more such transactions,

a person is in a position to obtain, or has obtained, a tax advantage, then unless he shows that the transaction of transactions were carried out either for bona fide commercial reasons or in the ordinary course of making or managing investments, and that none of them had as their main object, or one of their main objects, to enable tax advantages to be obtained, this section shall apply to him in respect of that transaction or transactions.

(2) ….

(3) Where this section applies to a person in respect of any transaction or transactions, the tax advantage obtained or obtainable by him in consequence thereof shall be counteracted by such of the following adjustments, that is to say an assessment …. on such basis as the Board may specify by notice served on him as being requisite for counteracting the tax advantage so obtained or obtainable.

[(4) to (12) ….]

704 The prescribed circumstances

The circumstances mentioned in section 703(1) are –

A. That in connection with the distribution of profits of a company …. the person in question receives an abnormal amount by way of dividend and the amount so received is taken into account for any of the following purposes –

(a) any exemption from tax, …

[(b) to (f) ….]

….

[705 – 708]

709 Meaning of "tax advantage" and other expressions

(1) In this Chapter "tax advantage" means a relief or increased relief from, or repayment or increased repayment of, tax, or the avoidance or reduction of a charge to tax or an assessment to tax or the avoidance of a possible assessment thereto, whether the avoidance or reduction is effected by receipts accruing in such a way that the recipient does not pay or bear tax on them, or by a deduction in computing profits or gains.

(2) In this Chapter –

….

"transaction in securities" includes transactions, of whatever description, relating to securities ….

and references to dividends include references to other qualifying distributions ….

(3) In section 704 –

(a) references to profits include references to income, reserves or other assets;

(b) references to distribution include references to transfer …

(c) ….

(4) For the purposes of section 704 an amount received by way of dividend shall be treated as abnormal if the Board …. are satisfied –

(a) ….; or

(b) in any case, that it substantially exceeds a normal return on the consideration provided by the recipient for the relevant securities, that is to say, the securities in respect of which the dividend was received ….

(5) ….

(6) For the purposes of subsection (4)(b) above –

(a) ….; and

(b) in determining whether an amount received by way of dividend exceeds a normal return, regard shall be had to the length of time previous to the receipt of that amount that the recipient first acquired any of the relevant securities and to any dividends and other distributions made in respect of them during that time."

8. Thus in the instant case a counteracting adjustment may be made under s.703(3) if the following three conditions are fulfilled, that is to say:

1. In relation to the two buybacks in question the circumstances prescribed in s.704A were present, viz: (1) that in connection with the distribution of profits of a company the Scheme 'receive[d] an abnormal amount by way of dividend', and (2) that 'the amount so received [was] taken into account [for the purposes of] any exemption from tax'. It is common ground that circumstance (2) was present. There is, however, an issue (Issue 1) as to whether circumstance (1) was present. The trustees contend on the facts that it was not; the Revenue contend that it was, on the footing that in each case the amount 'received [by the Scheme] by way of dividend' (see s. 704A) 'substantially exceed[ed] a normal return on the consideration provided by the [Scheme] for the relevant securities' (see s.709(4)(b)), and having regard to the matters set out in s.709(6)(b).

2. In consequence of the buybacks the Scheme obtained 'a tax advantage' (see s.703(1)). There is an issue (Issue 2) as to whether this requirement was met. The Revenue contend that the advantage which undoubtedly accrued to the Scheme in consequence of the buybacks by reason of its exemption from income tax falls within the definition of 'tax advantage' in s.709(1); the trustees contend that it does not. And

3. The "escape route" provided by s.703(1) is not available to the trustees; that is to say, the trustees do not succeed in showing (1) that they participated in the two buybacks 'either for bona fide commercial reasons or in the ordinary course of making or managing investments' and (2) that '[neither] of [the buybacks] had as their main object, or one of their main objects, to enable tax advantages to be obtained'. There is no longer an issue as to the first element of the escape route. The Special Commissioners held that in participating in the buybacks the trustees were acting in the ordinary course of managing investments, and there was no appeal against that finding. There is, however, an issue (Issue 3) as to the second element in that the Revenue contend, and the trustees deny, that one of the main objects of the buybacks was to obtain a 'tax advantage'.

THE FACTS

9. The facts are not in dispute, and can be shortly stated.

The Scheme

10. The Scheme was set up in about 1949 to provide a funded pension scheme for employees of a company which subsequently became SEMA Group Ltd.
11. At the material time (1996) Merrill Lynch Investment Managers Ltd, formerly Mercury Asset Management Ltd ("MAM"), acted as discretionary fund manager for the Scheme. The individual at MAM with responsibility for the Scheme was Mr Mullins. The value of the fund at that time was in the region of £60M to £66M.

The PowerGen bid

12. PowerGen was at the material time one of the two main generators of electrical power in the United Kingdom.
13. On 18 September 1995 PowerGen launched a bid to acquire Midlands Electricity plc ("Midlands"). On 23 November 1995 the bid was referred to the Monopolies and Mergers Commission.
14. On 26 February 1996 MAM purchased on the Stock Exchange for the appellants' account 100,000 fully paid 50p ordinary shares in PowerGen at the price of £5.39 per share. On 7 March 1996 MAM purchased a further 20,000 such shares for the appellants' account, at a price of £5.35 per share. The Special Commissioners found that Mr Mullins made these purchases because he took the view that the shares would increase in value if PowerGen's bid for Midlands went ahead. In paragraph 29 of the Decision, the Special Commissioners described the purchases as "normal purchases of quoted shares in the open market at prevailing prices".
15. On 24 April 1996 the President of the Board of Trade blocked the bid.
16. On 14 May 1996 it was announced that PowerGen had disposed of its shares in Midlands, thereby effectively abandoning the bid. At that time MAM held, for all its clients, a total of 31,635,820 50p ordinary shares in PowerGen.
17. In paragraph 33 of the Decision, the Special Commissioners found as follows:

"The signalling of the abandonment of the bid …. led Mr Mullins to conclude that Powergen was a less attractive investment. However, he did not want to "dump" the PowerGen shares in the market as it was difficult to shift so many shares at once."

The buybacks

18. On the following day, 15 May 1996, PowerGen announced that it intended to repurchase around 10 per cent of its issued share capital. The announcement was accompanied by a "health warning", to the effect that advantages which might otherwise accrue to exempt persons or bodies accepting the offer by virtue of the treatment of part of the sale price as distribution income giving rise to an associated tax credit might, in certain circumstances, be counteracted by the Revenue under s.703.
19. By an announcement made at 2.41 pm on 16 May 1996 PowerGen offered to repurchase 4.8 per cent of its fully paid issued capital. By 5.22 pm on that day the offer was fully subscribed. The price offered by PowerGen for its 50p ordinary shares was £5.25. The Special Commissioners found (in paragraph 35 of the Decision) that the price was "close to the prevailing market price at that time". They further found (in paragraph 36 of the Decision) that when the buyback offer was announced, Mr Mullins:

"…. appreciated that the purchase price announced by Powergen together with the associated tax credit provided an opportunity to achieve a sale of the shares held for the [S]cheme at a price which was considerably in excess of his targets."

20. The Special Commissioners continued:

"He was aware of the intentions of the Inland Revenue as stated in the [health warning] but he wanted to sell the shares for good investment reasons and considered that the buyback was a good opportunity to do that. Accordingly the [S]cheme participated in the …. buyback and tendered the whole of its holding."

21. However, since the offer was oversubscribed MAM was only able to sell 45,000 of the appellants' holding of ordinary shares back to PowerGen (at the stated price of £5.25 the total consideration for the buyback amounted to £236,250).
22. On 5 June 1996 PowerGen made a further buyback offer, in order to bring the total nominal value of the shares purchased up to 10 per cent of its issued share capital. Mr Mullins participated in this second buyback for the same reasons as those which had led him to participate in the first buyback. On the second buyback, 40,162 of the trustees' holding of ordinary shares were sold back to PowerGen at £4.83 per share (a total consideration of £193,982).
23. On 3 July 1996 S. G. Warburg Ltd, the administrators of the Scheme, submitted to the Revenue a claim on behalf of the trustees for payment of tax credits totalling £292,247.56 for the period ending 30 June 1996. Included in this sum were a tax credit of £53,437 in respect of the first buyback and a tax credit of £43,475 in respect of the second buyback.
24. The claim for the tax credits was accepted by the Revenue, and on 12 August 1996 the amount of the tax credits was paid to the trustees. Bringing this payment into account, the total amounts received by the trustees on the respective buybacks were £267,187 (on the first buyback) and £217,376 (on the second buyback).
25. On 18 November 1999 the Revenue served on the appellants a notice under s.703(3), followed, on 15 December 1999, by the assessment to which I referred earlier.
26. On 10 January 2000 the appellants appealed against the notice and the assessment.

THE DECISION

27. On Issue 1 (abnormal amount) the Special Commissioners concluded in favour of the trustees that (and I quote from paragraph 82 of the Decision):

".... the [trustees] did not receive an abnormal amount by way of qualifying distribution and that the amount of the qualifying distribution did not exceed a normal return on the consideration provided by the [taxpayers] for the shares having regard to the length of time that the [trustees] held those shares."

28. That conclusion was sufficient to determine the appeal in the trustees' favour, but the Special Commissioners nevertheless went on to consider the remaining issues.
29. On Issue 2 (tax advantage) the Special Commissioners concluded in favour of the Revenue (in paragraph 91 of the Decision) that the trustees:

".... did obtain a tax advantage within the meaning of s.709(1)."

30. On Issue 3 (main object) the Special Commissioners concluded in favour of the Revenue (in paragraph 118 of the Decision) that:

".... the [buybacks] did have as one of their main objects to enable tax advantages to be obtained within the meaning of s.703(1)."

31. In the result, therefore, the Special Commissioners allowed the trustees' appeal.

THE JUDGMENT

32. On Issue 1 the judge differed from the Special Commissioners. He concluded, as a matter of construction of s.704A, that (as he put it in paragraph 41 of the Judgment):

"[t]he criterion of normality is the normality of return to be expected to be paid on securities of the type in question."

33. The Judgment continues (in paragraph 41):

"In this case the securities are ordinary shares in a major limited company. As Mr Henderson [counsel for the Revenue] submitted, the normal dividends on such shares with which investors are familiar are interim or final dividends which have the quality of recurrence and presuppose the continued existence and ownership by the taxpayer of the shares on which the dividends are paid. A dividend paid as part of the consideration on a buy-back cannot qualify as normal; it represents the return to the investor of part of the capital value of his shares; it is a one-off transaction which extinguishes the shares and the taxpayer's ownership of them and depends, not on some right inherent in the shares themselves, but a supervening consensual agreement between the company and the shareholder."

34. The judge found support for his construction of s.704A in the provision in s.709(6)(b) that in determining whether an amount received by way of dividend exceeds a normal return, regard shall be had to the length of time the shares were held and to any dividends or other distributions made in respect of them during that time; and in what the judge described (in paragraph 42 of the Judgment) as:

"....the methodology envisaged by Sir John Vinelott in IRC v. Universities Superannuation Scheme Ltd [1997] STC 1 of calculating an average income yield over the period of ownership, and evaluating that return in the light of the degree of risk attaching to the investment, and paying no attention to the fact that the capital value of the shares is lost to the taxpayer on the buy-back."

35. In paragraphs 28 to 34 of the Judgment the judge went on to address the question whether, for the purposes of s.704A, the amount of the tax credit was to be treated as part of the amount received by way of dividend. The Special Commissioners had also addressed this question and concluded that it was. However, as the judge observed in paragraph 29 of the Judgment, that question was not decisive of the instant case, since it has throughout been common ground that the answer to it cannot affect the outcome. However, as the question had been fully argued before him, he decided it. In the result, the judge differed from the Special Commissioners on this question. His decision (in paragraph 34 of the Judgment) was that:

".... for the purpose of determining the normality of the return the tax credit is to be ignored."

36. We did not hear full argument on this question in this court, since it seemed to us undesirable that we should attempt to answer it in circumstances where our answer would inevitably be obiter. We considered it preferable that the question should be addressed by this court in a case in which it arises directly for decision. Accordingly we express no view as to whether the judge's answer to the question was correct.
37. On Issue 2 the judge agreed with the Special Commissioners, concluding (in favour of the Revenue) that as a matter of construction of the definition of 'tax advantage' in s.709(1) the exemption from income tax conferred on the Scheme by s.592 is a 'relief .... from .... tax' within the meaning of the definition; and hence that in consequence of the buybacks the trustees obtained a 'tax advantage' for the purposes of s.703(1).
38. In addressing this issue, the judge was faced with two conflicting decisions at first instance: Sheppard & Anor. (Trustees of the Woodlands Trust) v. IRC (No 2) [1993] STC 240 and the later decision in IRC v. Universities Superannuation Scheme TC 193. In Sheppard, Aldous J held that exemption from tax was not a 'relief' within the meaning of the definition of 'tax advantage' in s.709(1); in USS, Sir John Vinelott held that it was. The judge, applying the general rule stated by Nourse J in Colchester Estates (Cardiff) v. Carlton Industries plc [1986] Ch 80 at 85, found himself constrained to follow USS, as being the later decision. He continued (in paragraph 47 of the Judgment):

"In the circumstances I do not think it right to say more on this issue than that I hold (following [USS]) that the trustees' exemption is a relief within the section [sc. s.703(1)] and its exploitation by the Trustees brings into play the anti-avoidance provisions."

39. The judge accordingly upheld the decision of the Special Commissioners on this issue.
40. On Issue 3 the judge concluded that the Commissioners had correctly addressed themselves in law on this issue, and that their decision on this issue could not be challenged. As he put it (in paragraph 53 of the Judgment):

"It is plain that the Commissioners correctly directed themselves in law in this case and that their decision was one which they could reasonably reach."

41. In the result, therefore, the judge allowed the Revenue's appeal and upheld the notice and the assessment.

THE TRUSTEES' GROUNDS OF APPEAL

42. The trustees' Appellant's Notice contains three grounds of appeal, as follows:

1. that the judge was wrong in law in reversing the finding of the Special Commissioners that the trustees did not receive an 'abnormal amount by way of dividend' within section 704A (Issue 1);

2. that the judge was wrong in law in deciding that an entitlement to a tax credit constituted a 'relief from tax' within the meaning of s.709(1) (Issue 2); and

3. that the judge was wrong in law in not reversing the finding of the Special Commissioners that a main object of the trustees was the obtaining of a tax advantage, since on the facts found by the Special Commissioners no such conclusion was open to them as a matter of law (Issue 3).

PERMISSION TO APPEAL

43. As stated earlier, Chadwick LJ granted permission to appeal on grounds 1 and 2 (Issue 1 and Issue 2). However, he refused permission on ground 3 (Issue 3), stating his reason for such refusal in the following terms:

"Issue (3) is a challenge to the Commissioners' finding of fact as to the 'main object' of the transactions. The principle has been established by the House of Lords in IRC v. Brebner [1967] 2 AC 18 and is not in doubt. I am not persuaded that the threshold conditions prescribed by CPR 52.13 are satisfied."

44. The application for permission in relation to Issue 3 is renewed on this hearing. At the start of the argument, we indicated to Mr Gardiner QC (for the trustees) that he should argue Issue 3 on the assumption that he already had permission to appeal on that issue, and that we would consider in our judgments whether such permission should be granted.

THE REVENUE'S RESPONDENT'S NOTICE

45. By their Respondent's Notice, the Revenue invite this court to uphold the Judgment on Issue 1 and Issue 2 on a number of additional grounds, as follows:

Issue 1:

It is contended that in assessing the normality or otherwise of an amount received by way of dividend, the fact that the capital value of the shares is reduced (or even eliminated) by the payment of the dividend is a factor which tends to establish the abnormality of the dividend, not the converse; and that the statutory test is concerned with the normality of the dividend as a dividend, and not with the overall economic return to the shareholder. In support of this contention the Revenue points to the approach of the courts to the classic forms of forward dividend stripping which were prevalent when the relevant statutory provisions were first enacted. The Revenue relies in particular on the speech of Lord Reid in Greenberg v. IRC [1972] AC 109 at 135E-136C.

Issue 2:

The Revenue rely on the positive case which they advanced to the judge to the effect that the trustees' exemption from income tax under s.592 is a 'relief from tax' within the meaning of the definition of 'tax advantage' in s.709(1).

THE ARGUMENTS ON THIS APPEAL

The general approach

46. Both Mr Gardiner QC and Mr Launcelot Henderson QC (for the Revenue) made submissions as to the general approach to be adopted in construing the anti-avoidance provisions with which we are concerned on this appeal.
47. Mr Gardiner set the historical context for his detailed submissions by reviewing the legislative origins of the anti-avoidance provisions now to be found in Part XVII of the 1988 Act, submitting that the particular provisions with which this appeal is concerned were introduced in the Finance Act 1960 primarily (albeit not exclusively) to counter the practice of forward dividend-stripping, which, until given its quietus by the House of Lords in Lupton v. F.A. & A. B. Ltd [1972] AC 634, had become increasingly prevalent. The primary target of the provisions in question, he submits, was a contrived transaction whereby the owner of a company sought to extract the capital value of the company in the form of income, so as to give rise to a trading loss entitling him to a repayment of tax. He submits that the provisions in question ought to be approached in that light. By contrast, he submits, there is nothing contrived about the transactions in the instant case, which were carried out on the open market at market prices.
48. Mr Henderson, on the other hand, submits that the anti-avoidance provisions in Part XVII of the 1988 Act represented a wide-ranging attack on tax avoidance generally, and were not directed at any particular forms of tax avoidance (e.g. forward dividend stripping). It follows, he submits, that the provisions with which we are concerned on this appeal should be given a wide interpretation, and should be approached with a degree of flexibility which might not be appropriate in relation to other provisions of the 1988 Act.
49. In support of these submissions Mr Henderson relies on a passage from the speech of Lord Wilberforce in IRC v. Joiner [1975] 1 WLR 1701 at 1705G-1706C, pointing out that Lord Edmund-Davies agreed with the reasoning of Lord Wilberforce and that none of the other three law lords (Viscount Dilhorne, Lord Diplock and Lord Kilbrandon) indicated any disagreement with the principles as stated by Lord Wilberforce. Mr Henderson also relies on IRC v. Parker [1966] AC 141, esp. at 160B-D and 161C-E (per Viscount Dilhorne) and 176C-F (per Lord Wilberforce) and on a passage in the speech of Lord Reid in Greenberg at 136G-137F, which Lord Wilberforce expressly endorsed and followed in Joiner. Mr Henderson submits that Parker demonstrates that s.703 can apply to very simple transactions (in that case, the redemption at par in 1961 of debentures issued in 1953) as well as to complex ones.
50. Mr Henderson reminds us that since their original enactment in the Finance Act 1960 the relevant provisions have twice been re-enacted in consolidating Acts; first by the Income and Corporation Taxes Act 1970 (see ss.460-468) and most recently by the 1988 Act. Whilst accepting that recourse may be had to earlier enactments where the language of the consolidated provision is overtly ambiguous, or where its purpose can only be understood by examining the context in which it was originally used (see R. v. Environment Secretary, ex p. Spath Holme Ltd [2001] 2 AC 349 at 388C-E per Lord Bingham), Mr Henderson submits that the provisions in question should so far as possible be construed in the context of the 1988 Act, without reference to their statutory antecedents.

The specific issues

Issue 1

51. Mr Gardiner submits that in addressing the question of "normality of return" the judge was not comparing like with like. He reminds us that the judge compared the distribution in question with one which (as the judge put it in paragraph 41 of the Judgment, quoted earlier):

".... presuppose[s] the continued existence and ownership by the taxpayer of the shares on which the dividends are paid."

52. The correct comparison, submits Mr Gardiner, is with an investment profile which gives rise to a redemption of the shares at par (in the instant case, 50p per share). Such a share would inevitably yield a substantial return, in recognition of the prospective loss of capital. He submits that there is nothing in the legislation which requires the Special Commissioners, or the court, when considering the normality of the return, to ignore the fact that on the effective redemption of the shares only a nominal amount of capital was returned.
53. Mr Gardiner submits that the principle of like for like lies at the heart of the statutory test of normality of return. In support of this submission, Mr Gardiner relies on the approach adopted by Lord Greene MR in Lomax v. Peter Dixon & Sons Ltd [1943] 1 KB 671. The essential point of Lord Greene's judgment in Lomax, Mr Gardiner submits, over and above the obvious point of comparing like with like, is that the measure of a return will be dependent, among other things, on the terms of the security and in particular the prospects of recovering the capital. If the capital return is substantially less than the capital outlaid in acquiring the security, that of itself (he submits) justifies a correspondingly higher return in the form of dividend or interest.
54. Mr Gardiner points out that, under the terms of s.709(4)(b), it is the normality of the 'return' – not the normality of the dividend – which falls to be examined. He illustrates the distinction by taking the example of a company which pays no dividends, or only low dividends, for a number of years, followed in a particular year by a very large dividend. The large dividend would, he submits, be self-evidently abnormal as a dividend, but it by no means follows that it would also be an abnormal return for a shareholder who held his shares throughout the period.
55. Turning to the two matters which the judge regarded (in paragraph 42 of the Judgment) as providing support for his construction (viz. the language of s.709(6)(b) and the decision in USS), Mr Gardiner submits firstly that s.709(6)(b) does not provide that regard is to be had only to the two matters there specified. Indeed, he submits, in referring to the fact that the shares in question were "ordinary shares in a major limited company" (see paragraph 41 of the Judgment) the judge plainly had regard to other matters other than those specified in s.709(6)(b).
56. As to the judge's reliance on USS, Mr Gardiner submits that there is no "methodology" in Sir John Vinelott's judgment which supports the judge's construction. He submits that Sir John Vinelott's judgment is entirely silent on the point.
57. Mr Henderson submits that on the true construction of s.704A it is the normality or otherwise of the dividend as such that is in issue, not the normality or otherwise of the overall return that the recipient receives on his investment. He submits that s.709(4)(b) does not lay down an exhaustive test, but merely provides guidance as to what is to be regarded as abnormal in this context. But if that be wrong, he submits that the test of abnormality in s.709(4)(b) is met in the instant case. He relies in support of this submission on s.709(6)(b). He submits that the judge was right (in paragraph 42 of the Judgment) in treating s.704A as postulating a recurrent yield of an income nature and not the extraction and return of capital value to the shareholder.
58. He submits that, on that approach, it follows that the only normal return by way of dividend on money spent on the purchase of shares in a major pubic limited company would consist of interim or final dividends declared and paid in the ordinary course of the company's business. By that standard, what he describes as "the dividend element of the price" paid by PowerGen on the two buybacks was, he submits, thoroughly abnormal qua dividend for the reasons which the judge gave in paragraph 41 of his judgment. That is to say, it (i.e. "the dividend element of the price") represented the return to the investor of most of the capital value of the shares; it was paid as part of a transaction which extinguished the shares; and it depended not on any right attaching to the shares themselves, but on a supervening agreement between the company and the shareholder for the repurchase of the shares. As foreshadowed in the Respondent's Notice, Mr Henderson relies in support of these submissions on a passage in the speech of Lord Reid in Greenberg at 135E-136B.
59. Mr Henderson further submits that the judge was right to find support for his construction of s.704A in the judgment of Sir John Vinelott in USS, where the amount of the distribution fell to be averaged over the period of ownership of the shares in question without reference to the fact that the shares had been bought back by the company and had accordingly ceased to exist.
60. Mr Henderson submits that the basic fallacy in the reasoning of the Special Commissioners on this issue is that they substituted a test based on market considerations, such as whether the trustees had made an overall gain on the transaction, in place of the statutory test of normality qua dividend.
61. Mr Henderson submits that it is the trustees, not the judge, who are guilty of making a false comparison by seeking to equate the 50p ordinary shares in PowerGen, having no special redemption rights, with redeemable shares issued at a premium of some 900 per cent and due to be redeemed at par some two or three months later. Only by recourse to such a false analogy, he submits, can the distribution element in the purchase price be made to look normal as a dividend.
62. Accordingly Mr Henderson submits that the judge was right to reverse the Special Commissioners on Issue 1, for the reasons he gave.

Issue 2

63. Mr Gardiner submits that the relevant advantage obtained by the trustees in consequence of the buybacks was the tax credit to which the trustees were entitled in respect of them pursuant to s.231(1), and that the entitlement to a tax credit is not a 'tax advantage' within the meaning of the definition of that expression in s.709(1) since it is neither a 'relief' from tax nor a 'repayment' of tax.
64. As to 'relief', he submits that exemption from tax is a different concept from relief from tax, in that whereas relief from tax predicates a liability to tax which would have existed but for the relief, exemption from tax by definition precludes the existence of any such liability.
65. He further submits that there is nothing in the authorities to indicate that 'relief' in s.709(1) is to be given anything other than its normal and natural meaning, and that to construe it as including an entitlement to a tax credit would be to distort that meaning. Indeed, he submits, Aldous J's reasoning in Sheppard affords a clear indication to the contrary. He submits that Sir John Vinelott was wrong not to follow that reasoning in USS.
66. Mr Gardiner accordingly submits that receipt of a tax credit is not a 'relief from tax' within the meaning of s.709(1).
67. As to 'repayment', he submits that given the disjunctive 'or' immediately before the word 'repayment' in s.709(1), 'repayment' can only apply to a person who is entitled to repayment otherwise than in consequence of a relief, and that such a person can only be a person with no liability to (i.e. who is exempt from) tax. Hence the word 'repayment' applies where tax has been deducted at source (e.g. on payments of interest to exempt funds). But since 1973 dividends have not been paid under deduction of tax. It follows, he submits, that payment of the tax credit in the instant case cannot be characterised as a repayment of tax, since no tax had been paid.
68. The Revenue's primary contention (pursuant to its Respondent's Notice) is that exemption from tax under s.592 is a 'relief' from tax within the ordinary and natural meaning of that word. In support of that contention, Mr Henderson submits that the concept of exemption from tax presupposes a liability to tax, which the exemption removes. He submits that support for that submission is to be found in the speech of Lord Devlin in the Privy Council case of Australian Mutual Provident Society v. IRC [1962] AC 135 at 149. Hence, he submits, both exemptions and reliefs operate conceptually at the same stage, the only difference between them being the extent to which the underlying liability is removed. Viewed in that way, exemption is (he submits) a subset of relief.
69. Mr Henderson submits that in the instant case it is the exemption of the Scheme from tax, and not the consequential entitlement of the trustees to a tax credit, which is the relevant 'relief'.
70. He submits that it is in any event an entirely natural use of language to refer to an exemption as "relieving" a taxpayer from tax which he would otherwise be liable to pay, especially where the exemption has to be claimed (as it does here: see s.592(2)). Mr Henderson also reminds us that charities need to claim exemption (see s.505(1)), and that whilst s.505(1) refers to 'exemptions', subsections (2) and (3) refer to 'relief' under subsection (1). He also points out that s.592 is the first of a group of sections headed 'Tax reliefs', and that s.592(11) provides that nothing in s.592 shall be construed as affording 'relief' in respect of any sums to be brought into account under s.438 (exemption for pension business carried on by a life office).
71. He further submits that Sir John Vinelott in USS adopted essentially the same reasoning, which he rightly found "compelling" (see ibid. at 213H-214C). In contrast, Mr Henderson submits that the reasoning which led Aldous J to a contrary conclusion in Sheppard was wrong.
72. In the alternative to the Revenue's primary contention, Mr Henderson submits that if, contrary to his earlier submissions, relief and exemption are mutually exclusive concepts, nevertheless in the context of ss.703-709 'relief' should be given a wide meaning so as to include exemption. He submits that not only would such a construction accord with the approach approved by the House of Lords in Parker, Greenberg and Joiner; it would also avoid the extraordinary and irrational result that exempt bodies could obtain a 'tax advantage' (and so be at risk of a counteracting adjustment under s.703(3)) in respect of income paid to them under deduction of tax (since 1973, only interest is so paid), but could not obtain a 'tax advantage' (and so would not be at risk of a counteracting adjustment) in respect of income received by them in the form of dividends and other distributions (which, since 1973, are not paid under deduction of tax).
73. Mr Henderson further submits that, in the context of the change made in 1973, Parliament cannot sensibly have intended exempt bodies to enjoy immunity from counteraction under s.703 in respect of dividend income when they enjoyed no such immunity pre-1973.

Issue 3

74. Mr Gardiner submits that Chadwick LJ was in error in saying, when refusing permission to appeal on this issue, that the relevant principle as stated in Brebner was not in doubt. Mr Gardiner submits that the conclusions reached by the Special Commissioners and by the judge as to the relevant principle contradict the rationale of what Cross J said in IRC v. Kleinwort Benson Ltd [1969] 2 Ch 221 at 237-8. Mr Gardiner echoes the observation of counsel for the Revenue in that case (Mr Michael Nolan QC, as he then was) at p.233, that "any ordinary tax expert on the Clapham omnibus" would say that the transaction in question was a bona fide commercial transaction, and that the tax advantage was only incidental. Mr Gardiner submits that the instant case is a fortiori Kleinwort Benson.
75. The key to the resolution of this issue, submits Mr Gardiner, lies in a proper understanding of what constitutes a 'main object', for the purposes of s.703(1).
76. In normal parlance, the word 'object' means (he submits) the thing aimed at: the end to which effort is directed. In the context of a sale of securities for cash, the thing aimed at is the disposal of those securities and their realisation into cash. The particular features of the sale are simply the means to the end: they are not in themselves the object of the transaction. That, he submits, is what Cross J said in Kleinwort Benson, and what Lord Upjohn meant in Brebner (and, for that matter, what Cross J understood him to have meant).
77. Turning to the facts of the instant case, Mr Gardiner submits that the crucial point is that, having found that Mr Mullins had decided to sell the shares for good investment reasons prior to the announcement of any buyback offer, the Special Commissioners could not conclude that the transaction implementing that decision had as a main object the obtaining of a tax advantage. Given that on the facts found the decision to reduce the holding by selling some of the PowerGen shares was uninfluenced by tax credits, the tax credits could not have been a main object of the sales. The choice of the buybacks as the means of carrying into effect a decision already taken for good investment reasons cannot, he submits, have the effect of elevating the advantages incidental to that means of disposal of the shares into a main object of the transactions.
78. Mr Gardiner suggests that had Mr Mullins decided not to participate in the buybacks, that would have run contrary to the investment decision which he had previously taken. In the event, he submits, the buybacks were a golden opportunity to implement the decision already taken to reduce the trustees' holding.
79. In summary, therefore, Mr Gardiner submits that the Special Commissioners misunderstood the concept of an object, let alone a main object; and that on the facts found they could not, properly directing themselves, have reached the conclusion to which they came. Accordingly, he submits, the judge was in error in not reversing their conclusion.
80. Mr Henderson submits that the relevant principle was established in Brebner, and that the Special Commissioners correctly directed themselves by reference to it. He submits that the critical point is that, on the Special Commissioners' findings of fact, Mr Mullins was not an unconditional seller of PowerGen shares at the earliest opportunity, and it was only the availability of the tax credits which induced him to sell into the buybacks. On the facts, therefore, it was (he submits) clearly open to the Special Commissioners to conclude that, as a matter of subjective intention, the obtaining of the tax credits was at least one of the main objects of Mr Mullins' participation in the buybacks.
81. As to the observations of Lord Upjohn in Brebner, Mr Henderson submits that Lord Upjohn makes it clear that the question of main object is always one for the Special Commissioners to decide on the totality of the evidence before them, and that where there are two ways of carrying out a commercial transaction, one of which is more tax-efficient than the other, there is no necessary inference that the choice of the former has tax avoidance as one of its main objects. On the other hand, he submits, such an inference may be drawn in an appropriate case, and if it is it will be unchallengeable on appeal.
82. As to the observations of Cross J in Kleinwort Benson relied on by Mr Gardiner, Mr Henderson submits that such observations were obiter, and directed to a very different factual situation. In consequence, he submits, no general principle of relevance to the instant case can be extracted from them.
83. Mr Henderson accordingly submits that permission to appeal on this issue should be refused; alternatively, that if permission is granted the decision of the Special Commissioners (and hence of the judge) should be upheld.

CONCLUSIONS

The general approach

84. In my judgment any doubts that might previously have existed as to the approach to be adopted to the construction of the relevant statutory provisions were laid to rest by the House of Lords in Joiner. In Joiner, the expressions which fell to be construed were 'transactions in securities' and 'transactions …. relating to securities' in s.28 of the Finance Act 1960 (the forerunner of s.703 in the 1988 Act). At p.1705G Lord Wilberforce said this:

"Upon the enactment of the original section 28 of the Finance Act 1960 it was possible to contend, and it was contended, that this section (and its associated sections) was directed against a particular type of tax avoidance known generally under such descriptions as dividend stripping, asset stripping and bond washing and that the sections and particular expressions used in them, amongst others 'transactions in securities', should be interpreted in the light of this supposed purpose. But this line of argument became unmaintainable after decisions of this House in [Parker] and [Greenberg]. It is clear that all the members of this House who decided those cases were of opinion that a wide interpretation must be given to the sections and to the expressions used in them. More than this, it appeared from the opinion of Lord Reid in [Greenberg] that the sections called for a different method of interpretation from that traditionally used in taxing Acts. For whereas it is generally the rule that clear words are required to impose a tax, so that the taxpayer has the benefit of doubts or ambiguities, Lord Reid made it clear that the scheme of the sections, introducing as they did a wide and general attack on tax avoidance, required that expressions which might otherwise have been cut down in the interest of precision were given the wide meaning evidently intended, even though they led to a conclusion short of which judges would normally desire to stop …. If we are to follow this path, and I see no other open to us, we must continue to give to 'transactions in securities' the widest meaning: we can neither confine these expressions to the instances given in section 467(1) [the definition section], nor can we deduce from that enumeration any limitation upon their scope."

85. Lord Edmund-Davies expressly agreed with Lord Wilberforce, and Lords Dilhorne, Diplock and Kilbrandon concurred in the result and indicated no disagreement with Lord Wilberforce.
86. In Parker, Lord Dilhorne said this (at p.161):

"I do not agree that the general mischief which section 28 [of the Finance Act 1960] was designed to hit was dividend stripping……. I do not think that one should restrict the general and unambiguous words of the definition in the statute by regard to the mischief which it is thought that the section is aimed at. Nor do I think that it is right to seek to interpret the general words in the light of the particular instances given in the section. It is a familiar device of a draftsman to state expressly that certain matters are to be treated as coming within a definition to avoid argument on whether they did or not."

87. In the passage in Lord Reid's speech in Greenberg to which Lord Wilberforce referred in Joiner, Lord Reid, having considered the separate elements of the definition of the expression 'transactions relating to securities' in section 467(1), said this (at p.137D-F):

"I must confess that I do not like being forced step by step to a conclusion of this kind. …. We seem to have travelled a long way from the general and salutary rule that the subject is not to be taxed except by plain words. But I must recognise that plain words are seldom adequate to anticipate and forestall the multiplicity of ingenious schemes which are constantly being devised to evade taxation. Parliament is very properly determined to prevent this kind of tax evasion and, if the courts find it impossible to give very wide meanings to general phrases, the only alternative may be for Parliament to do as some other countries have done, and introduce legislation of a more sweeping character which will put the ordinary well-intentioned person at much greater risk than is created by a wide interpretation of such provisions as those which we are now considering."

88. Later in his speech in Greenberg, Lord Reid said this (at p.138D-F):

"I am inclined to think that the real explanation of these verbal difficulties may be that, in legislation of such extreme complexity as we have here, it is not humanly possible for a draftsman to preserve that consistency in the use of language which we look for. Indeed I sometimes suspect that our normal meticulous methods of statutory construction tend to lead us astray by concentrating too much on verbal niceties and paying too little attention to the provisions read as a whole."

89. In the light of the above observations, and especially the observations of Lord Wilberforce in Joiner, it seems to me that there can be no force in Mr Gardiner's submission that (in effect) the prima facie wide meaning of the relevant provisions should be restricted by reference to the particular factual context in which they were originally enacted, where forward dividend stripping was becoming increasingly prevalent.
90. In any event, it would seem to me to be somewhat naïve to assume that, in introducing a "wide and general attack on tax avoidance" in 1960, Parliament failed to take proper account of the ingenuity and inventiveness of those engaged in tax avoidance, and hence of the prospect of new methods of tax avoidance being devised.
91. Accordingly I reject the submission that s.703 is primarily targeted at contrived transactions carried out otherwise than on the open market. It is targeted at all those forms of tax avoidance which fall within its scope. The issue in the instant case is whether that includes the buybacks.

The specific issues

Issue 1:

92. The question posed by s.704A is whether, on the buybacks, the trustees 'receive[d] an abnormal amount by way of dividend'. What the section requires to be considered, therefore, is the normality of the amount 'receive[d] [by the trustees] by way of dividend'. S.709(2) provides that 'references to dividends include references to other qualifying distributions'. The amounts received by the trustees in the instant case were received by way of a qualifying distribution other than a dividend. Hence what has to be considered in the instant case, in my judgment, is the normality of the amount received by the trustees by way of a qualifying distribution of the kind which in fact occurred.
93. It follows that, with respect to Mr Henderson, the Revenue's submission that what has to be considered is the normality of the dividend qua dividend is in my judgment misconceived, since what we are considering in the instant case is not a distribution by way of dividend but a qualifying distribution of a different kind. Section 704A does not say that the normality of the amount received is to be assessed as if it were a dividend and not some other form of qualifying distribution. On the contrary, read in conjunction with s.709(2) it says that what has to be assessed is the normality of the amount received by way of dividend or by way of some other qualifying distribution.
94. To put it crudely, if a statute defines references to a cow as including references to a horse, it does not follow that 'horse' in that context means a horse with horns.
95. The next step is to apply the test of normality laid down in s.709(4)(b). In my judgment s.709(4)(b) lays down an exhaustive test of abnormality. The words 'shall be treated as', when contrasted with the words 'regard shall be had to' in s.709(6)(b) seem to me to be consistent only with an exhaustive test.
96. On that footing, the question becomes whether the amount received by way of a qualifying distribution 'substantially exceeds a normal return on the consideration provided by the recipient for the relevant securities'. In answering that question regard must be had to the two matters specified in s.709(6)(b), viz. 'the length of time previous to the receipt of that amount that [the trustees] first acquired any of the relevant securities and to any dividends or other distributions made in respect of them during that time'.
97. As to 'normal return', the Special Commissioners noted (in paragraph 75 of the Decision) that the price paid by the trustees on acquiring the first 100,000 shares was £5.39 per share and the prices received by them on the buybacks were £5.25 on the first buyback and £4.83 on the second. They continued:

"Thus what the [trustees] received was a normal return on the consideration which they provided for the securities."

98. The Special Commissioners then turned to s.709(6)(b), saying this (in paragraph 76 of the Decision):

"Finally, under section 709(6)(b) we have to have regard to the length of time during which the [trustees] held the shares. This was three months for the shares sold in the first buyback and four months for the shares sold in the second buyback. Here it is also relevant that the market price of the shares rose to about £8.60 in April [1998]: an increase of 59 per cent or 78 per cent. Thus, having regard to the length of time for which the shares were held, the return did not substantially exceed a normal return."

99. In my judgment in addressing the questions posed by s.709(4)(b) and s.709(6)(b) the Special Commissioners correctly directed themselves as to the law, and their conclusions on those questions are conclusions which they were fully entitled to reach.
100. The error of the judge, if I may respectfully say so, was to ask himself the wrong question, viz. "whether the dividend was abnormal" (see, e.g., paragraph 29 of the Judgment). Thus, in paragraph 37 of the Judgment he said this:

"At the heart of the dispute is whether in determining the abnormality of the dividend regard may or should be had to the fact that its payment is part of the purchase consideration paid by Powergen for the redemption of the shares" (emphasis added).

101. For reasons given earlier, that is not the right approach; and it led the judge inevitably to what is in my judgment an erroneous conclusion. To ask in the instant case whether the amount received by the trustees was abnormal qua dividend involves a fundamental distortion of the transaction. Consistently with the approach of the Court of Appeal in Lomax, and subject to any statutory requirement to the contrary, in determining the fiscal effect of a particular transaction for the purposes of the relevant statutory provisions the transaction in question has to be seen for what it is. As pointed out earlier, there is nothing in the relevant statutory provisions in the instant case which requires the amounts in question to be treated as if they were dividends.
102. Had there been such a statutory requirement in the instant case, then I agree with the judge that it must have followed that the amounts in question were abnormal, for, as the judge said in paragraph 41 of the Judgment:

"A dividend paid as part of the consideration for a buy-back cannot qualify as normal."

103. To my mind, however, that simply serves to demonstrate the degree of distortion involved in treating the amounts in question as if they were dividends. In my judgment it makes no sense to disregard the essential nature of the transactions in the instant case by leaving out of account the fact that the amounts in question represented part of the purchase consideration paid for the redemption of the shares; and there is nothing in the relevant statutory provisions which requires such a radical departure from reality.
104. Nor, in my judgment, does Sir John Vinelott's decision in USS assist the Revenue. As I read his judgment, Sir John was not envisaging any "methodology" of the kind referred to by the judge in paragraph 42 of the Judgment; and even if he was, it does not seem to me that such methodology could or should be transposed into the instant case.
105. Accordingly, in respectful disagreement with the judge I would resolve Issue 1 in favour of the trustees, holding that the first of the three conditions for a counteracting adjustment under s.703(3) (see paragraph 8 above) is not met in the instant case.
106. In the light of my conclusion on Issue 1, the further issues identified earlier do not strictly arise. However, since we heard full argument on those issues I address them briefly.

Issue 2:

107. Notwithstanding the elaborate arguments which were addressed to us on this issue, the point seems to me to be a short one, and one which is susceptible of a short answer.
108. In the first place, I reject Mr Gardiner's submissions based on the conceptual difference between exemption and relief. Such submissions seem to me to involve a degree of sophistication which runs entirely counter to the general approach to be adopted to the construction of the relevant statutory provisions, as finally laid down by the House of Lords in Joiner (see paragraphs 84-91 above).
109. In my judgment, what the draftsman was manifestly trying to do when defining 'tax advantage' in s.709(1) was to cover every situation in which the position of the taxpayer vis a vis the Revenue is improved in consequence of the particular transaction or transactions. As I read s.709(1) the distinction between 'relief' and 'repayment' is not based on any conceptual difference between the two; the true interpretation of s.709(1) is in my judgment much simpler than that. In my judgment, 'relief' in s.709(1) is intended to cover situations where the taxpayer's liability is reduced, leaving a smaller sum to be paid, and 'repayment' is intended to cover situations in which a payment is due from the Revenue. In the same way, the references to 'increased relief' and 'increased repayment' are directed at situations in which the taxpayer is otherwise entitled to a relief or repayment, with which the 'relief' or 'repayment' referred to in s.709(1) must be aggregated.
110. It follows that I respectfully agree with the observation of Aldous J in Sheppard (at p.253e) that the words 'tax advantage' in the relevant statutory provision (Aldous J was concerned with s.466(1) of the 1970 Act: the forerunner of s.709(1)) presuppose that a better position has been achieved. However, I respectfully differ from him when he goes on to answer the question "An advantage over whom or what?" by saying: "An advantage over persons of a similar class". In my judgment, the simple answer to that question is that a better position has been achieved vis a vis the Revenue.
111. On this issue, therefore, I would uphold the conclusions of the Special Commissioners and of the judge, holding that in consequence of the buybacks the trustees obtained a 'tax advantage' within the meaning of the definition of that expression in s.709(1).

Issue 3:

112. In Brebner, the transactions in question consisted of arrangements whereby cash was extracted from a company in the form of payments which were not liable to tax. The issue, which was raised by s.28(1) of the Finance Act 1960, was whether those transactions were entered into for bona fide commercial reasons and whether the resulting tax advantage was one of their main objects. The House of Lords held that the question was one of pure fact, and that there was ample evidence on which the Special Commissioners could reach the conclusions they did.
113. In the course of his speech in Brebner, Lord Upjohn said this (at p.30B):

"I agree that the question whether one of the main objects is to obtain a tax advantage is subjective, that is, a matter of the intention of the parties, and, as Lord Greene MR pointed out in Crown Bedding Co Ltd v. IRC, is essentially a task for the Special Commissioners unless the relevant Act has made it objective (and that is not suggested here)."

114. Later in his speech, Lord Upjohn said (at p.30E):

"…. when the question of carrying out a genuine commercial transaction, as this was, is reviewed, the fact that there are two ways of carrying it out – one by paying the maximum amount of tax, the other by paying no, or much less, tax – it would be quite wrong, as a necessary consequence, to draw the inference that, in adopting the latter course, one of the main objects is, for the purposes of the section, avoidance of tax. No commercial man in his senses is going to carry out a commercial transaction except upon the footing of paying the smallest amount of tax that he can. The question whether in fact one of the main objects was to avoid tax is one for the Special Commissioners to decide upon a consideration of all the relevant evidence before them and the proper inferences to be drawn from that evidence."

115. In the instant case, the Special Commissioners found the following facts (see paragraph 115 of the Decision):

"…. the sales were made when they were made only because Mr Mullins knew that he would receive the tax credits. When the buy-backs were announced, Mr Mullins appreciated that the purchase price announced by Powergen together with the associated tax credit provided an opportunity to achieve a sale of the shares held for the scheme at a price which was considerably in excess of his targets. The tax credits were crucial. A sale of the shares on the open market at the prevailing price would have resulted in a deficit. It was the tax credits which made the difference between a sale which resulted in a deficit and a sale which resulted in a credit balance."

116. In paragraph 116 of the Decision, the Special Commissioners accepted that Mr Mullins had other objects in participating in the buy-backs. They continued:

"However, we remain of the view that the tax credits were crucial to Mr Mullins' decisions to sell into the buy-backs and so one of the main objects of the sales was to enable tax advantages to be obtained."

117. In my judgment, applying the principle stated in Brebner, these were findings which the Special Commissioners were fully entitled to make on the evidence before them.
118. I accordingly agree with the judge that there is no basis on which an appellate court can interfere with those findings.
119. As to Mr Gardiner's reliance on the observations of Cross J in Kleinwort Benson, I respectfully agree with the comments of the judge in paragraph 53 of the Judgment. Cross J's observations must be read in the context of the particular transaction which was in issue in that case. So read, they do not in my judgment raise any doubts as to the application of the Brebner principle. In my judgment, the application of that principle in the instant case leads ineluctably to the conclusion that the Revenue succeeds on this issue.
120. In deference to Mr Gardiner's full and cogent submissions, I would grant permission to appeal on this issue; but, having done so, I would reject those submissions.

RESULT

121. In the result, for the reasons which I have given, I would allow this appeal.

Mr Justice Aikens :

122. I agree entirely with the judgment of Jonathan Parker LJ.

Lord Justice Aldous :

123. I also agree.
Order: Appeal allowed with costs here and below; permission to appeal to the House of Lords refused. (Order does not form part of the approved judgment)