[2009] UKFTT 353 (TC)

TC00291

Appeal number TC/2009/11988

Capital gains tax – roll-over relief on compulsory acquisition of land – section 247TCGA – whether disposal was to “an authority exercising or having compulsory powers” within the definition in s.243(5) TCGA – that definition including a person for whom another person could be authorised to acquire the land transferred compulsorily for the purposes for which it was acquired – whether the actual purchaser was a person for whom the Commission for New Towns could have been authorised to acquire the land disposed of compulsorily for the purposes for which it was acquired – held that the Commission for New Towns could not have been so authorised – ss. 36 and 37 and Schedule 10 New Towns Act 1981 considered – appeal dismissed

FIRST-TIER TRIBUNAL
TAX CHAMBER

	ABDUL AHAD	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (Capital Gains Tax)	Respondents

				TRIBUNAL: 	JOHN WALTERS QC
						MICHAEL TEMPLEMAN

Sitting in public in Bedford on 20 October 2009

David Smith LLB, FTII, Accountax Consulting, for the Appellant
Jane Hodge, one of HM Inspectors of Taxes, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

Introductory and facts
1.	This is an appeal by Mr. Ahad (“the Appellant”) against an assessment to capital gains tax for the year 1995/1996.  The notice of assessment with the Tribunal’s papers is dated 3 October 1996. Chargeable gains of £360,000 were assessed, but this was an estimate, and the correct figure, if the Respondents (“HMRC”) are successful in this appeal, is agreed to be £101,646 giving rise to a liability to capital gains tax of £38,258.40.
2.	The disposal of assets by the Appellant which is in issue is a disposal of an interest in 0.74 acres of land at Bradwell Common, Bradwell, Milton Keynes (“the Land”).   The Land was disposed of by a sale to Abbeygate Developments (Bradwell Common) Limited (“Abbeygate”) for a consideration of £360,000, which took place on 29 March 1996.
3.	The point at issue in the appeal is whether or not the Appellant may claim rollover relief under section 247 Taxation of Chargeable Gains Act 1992 (“TCGA”) in respect of the disposal.  The heading above section 247 TCGA is “Roll-over relief on compulsory acquisition”. 
4.	No oral evidence was heard at the hearing of the appeal, and the Tribunal’s papers contained an agreed “Statement of facts not in dispute” from which we have extracted the details of the disposal.
5.	The other relevant facts contained in the agreed Statement are as follows:  	
6.	The Appellant acquired the right to build a restaurant on the Land by a grant from the Milton Keynes Development Corporation (“MKDC”) at some time before MKDC was dissolved in 1992.
7.	The Appellant’s plans for the construction of the restaurant were approved by the Commission for the New Towns (“CNT”), which had succeeded to at least some of the functions of MKDC.
8.	On 13 August 1992, the CNT granted to the Appellant and a Mr. Degun a 125 year lease (“the Lease”) of the Land for a purchase price of £160,000 payable by instalments, and agreed to transfer the freehold of the Land to them for a consideration of £1, once the development of the restaurant was complete. The terms of the Lease included a restrictive covenant, the effect of which was that the Appellant and Mr. Degun were prevented from assigning, underletting or transferring the Lease.
9.	The Appellant obtained planning permission to build the restaurant, and subsequently local residents became aware of the proposed development and objected to it.  As a result of the objections the CNT approached the Appellant with a view to him ceasing or abandoning the development (the Statement refers to MKDC, but the parties must mean the CNT).  
10.	Following negotiations with the CNT the Appellant accepted the CNT’s proposal that he give up his interest in the Land on the basis that he would be granted an alternative site in Milton Keynes.
11.	 The Appellant agreed to sell his interest in the Land to Abbeygate, it being proposed that before the sale he should acquire Mr. Degun’s share.  Abbeygate’s purpose in acquiring the Land was to build a supermarket there.
12.	Consequently, on 29 March 1996, the Appellant paid £50,000 to the CNT to remove the restrictive covenant from the Lease.  On the same day he bought Mr. Dugan’s interest in the Lease for £102,000 and sold his resultant interest in the Land to Abbeygate for £360,000.
13.	The Appellant ran a restaurant in central Milton Keynes, called the Jaipur restaurant, until 31 March 2002, when the business was incorporated.  He purchased a new site for the Jaipur Restaurant in Minton Keynes in May 1998 and the new restaurant premises were fully operational by January 2003.
14.	On these facts the Appellant originally claimed roll-over relief on the disposal of the Land under section 152 TCGA (roll-over relief on the replacement of business assets) but this claim was dropped when the Appellant accepted that the Land had not been used for the purposes of his trade.
15.	The claim for roll-over relief under section 247 TCGA was made on 14 January 2003.
The legislation
16.	The legislative provisions to which we have been referred are relevantly as follows: 
Section 247 TCGA
(1)	This section applies where–
(a)	Land (“the old land”) is disposed of by any person (“the landowner”) to an authority exercising or having compulsory powers; and
(b)	The landowner did not take any steps, by advertising or otherwise, to dispose of the old land or to make his willingness to dispose of it known to the authority or others; and
(c)	The consideration for the disposal is applied by the landowner in acquiring other land (“the new land”) not being land excluded from this paragraph by section 248.
(8) In this section–
“land” includes any interest in or right over land; and
“authority exercising or having compulsory powers” shall be construed in accordance with section 243(5).
Section 243 TCGA
(5) In this section “authority exercising or having compulsory powers” means, in relation to the land transferred, a person or body of persons acquiring it compulsorily or who has or have been, or could be, authorised to acquire it compulsorily for the purposes for which it is acquired, or for whom another person or body of persons has or have been, or could be, authorised so to acquire it. 
      The submissions
17.	Both sides provided the Tribunal with written Skeleton Arguments together with jointly agreed bundles of documents and authorities.  They are agreed that the Appellant satisfies the conditions in paragraphs (b) and (c) of s.247(1) TCGA, and that the only issue to be decided by the Tribunal is whether the condition in paragraph (a) of the sub-section is satisfied.
18.	Mr. Smith, for the Appellant, submitted that roll-over relief under s.247 TCGA is available “where a compulsory purchase could be authorised”.  
19.	Specifically, he accepted that the actual person to whom the Appellant disposed of the Land, namely Abbeygate, was not a person who acquired or could have acquired the Land compulsorily within the meaning of applicable definition (in s.243(5) TCGA) of “authority exercising or having compulsory powers”. But he submitted that the definition in s.243(5) TCGA should be construed to enable s.247 relief to be given in a case where, as here, a disposal is to some extent involuntary, because of the existence of actual or possible compulsory purchase powers.  
20.	He contended that such was the purpose of s.247.  He relied on that part of the definition in s.243(5) of “authority exercising or having compulsory powers” which includes not only an acquirer using compulsory acquisition powers but also an acquirer who “could be authorised to acquire” the Land compulsorily.  His case was that the CNT was such a person, and it could have been authorised to acquire the Land compulsorily on its own behalf, or on behalf of Abbeygate, if the Appellant had not agreed to cease developing the Land for his restaurant. He submitted that the facts demonstrated that the CNT “effectively controlled the whole situation”.
21.	He stated, correctly, that much of the argument between the Appellant and HMRC had been on the point of whether the CNT was a person or body of persons who “could be authorised to acquire” the Land compulsorily.
22.	  His case on this point was principally that the CNT had the relevant powers under section 36 and 37 of the New Towns Act 1981 (“NTA”).  He stressed that the CNT had, by statute (s.36(2)(a) NTA), to have regard to the convenience and welfare of persons residing, working or carrying on business in a new town, and that, on the facts, the CNT’s involvement had been in response to objections to the Appellant’s proposed restaurant which had been raised by local residents. 
23.	His alternative submission was that the CNT had succeeded to the functions of the MKDC.  The MKDC had had the requisite compulsory purchase powers, and the CNT must be taken to have acquired them on the succession.  This was the effect of paragraph 1 of Schedule 10 to the NTA.
24.	Ms. Hodge, for HMRC, submitted that the CNT did not have compulsory powers to purchase land and that even if it did, the Land was not disposed of by the Appellant to an authority exercising or having compulsory powers to acquire it for the purposes for which it was acquired.
25.	 Noting that Abbeygate’s purpose in acquiring the Land was to build a supermarket on it, she submitted that the issue was whether or not the CNT was, or could have been, authorised to acquire the Land compulsorily for the purposes of building a supermarket, or whether or not the CNT was or could have been authorised to acquire the Land on Abbeygate’s behalf for those purposes.
26.	She submitted that the CNT did not have compulsory purchase powers at the relevant time.  In particular, she submitted that the powers under s.36(3)(a) NTA “to acquire (otherwise than by transfer under this Act) land” with the authority of the Secretary of State (as to which, see s.37 NTA) were not powers to purchase land compulsorily, but simply powers to acquire land if authorised to do so by the Secretary of State.
27.	She further submitted that MKDC’s power to purchase land compulsorily was not transferred to the CNT in 1992.
28.	  She submitted that the definition in s.243(5) TCGA should be construed so that an “authority exercising or having compulsory powers”, where it is not a person or body of persons actually exercising compulsory purchase powers, is a person or body of persons who is not only theoretically capable of being authorised to use such powers but would also have used such powers if necessary to acquire the land in question for the purposes for which it was actually acquired. 
29.	She submitted that even if the CNT did have the relevant compulsory purchase powers, the Appellant had produced no evidence to show that it could have, or would have, used them on behalf of Abbeygate.
30.	 She submitted that s.247 TCGA should be construed according to its purpose which was that it is confined to situations where land has been acquired compulsorily, or by agreement in circumstances where it would otherwise have been acquired compulsorily.  
31.	She submitted that the limb of s.245(3) which includes in the definition of an “authority exercising or having compulsory powers” a person or body of persons for whom another person or body of persons could be authorised to acquire the land compulsorily for the purposes for which it is acquired, applies only in situations where there is a clear statutory authority under which one body has power to acquire on behalf of another.
32.	She makes the general point that the Appellant’s argument, if correct, would have the result that roll-over relief under s.247 was available to virtually all sales of land in the United Kingdom.  This alone, she submitted, suggests that the Appellant’s proposed construction of the definition in s.253(7) is too wide.
Discussion
33.	The roll-over relief provided for by s.247 TCGA applies only in a case where land is disposed of to an “authority exercising or having compulsory powers” (s.247(1)(a)).  In this case the Appellant disposed of the Land to Abbeygate.  The relief can therefore only apply to the disposal if Abbeygate is an “authority exercising or having compulsory powers” within the applicable definition, that is, within the definition in s.243(5) TCGA – see: s.247(8) TCGA.
34.	 Since Abbeygate itself had no compulsory powers, it can, as a matter of language, only come within the definition of “authority exercising or having compulsory powers” if it was in March 1996 a person for whom another person or body of persons (the CNT) “has or have been, or could be, authorised so to acquire it” – see: the tailpiece of the definition.  In this context the phrase “authorised so to acquire it” means authorised to acquire the land, which has been transferred, compulsorily for the purposes for which it was (actually) acquired.
35.	The Land was acquired by Abbeygate for the purpose of constructing a supermarket on it.  The Appellant has not shown (and Mr. Smith accepts that the burden of proof is on the Appellant) that the CNT was actually authorised to acquire the Land on Abbeygate’s behalf.
36.	Therefore Abbeygate can only come within the definition of “authority exercising or having compulsory powers”, in relation to the disposal by the Appellant, if Abbeygate was a person for whom the CNT could in March 1996 have been authorised to acquire the Land compulsorily for the purposes of constructing a supermarket on it.
37.	Mr. Smith has attempted to show that as a matter of law the CNT could (in March 1996) have been authorised to acquire the Land compulsorily.  In our view, in order to succeed, he has also to show that Abbeygate was a person for whom the CNT could have been authorised to acquire the Land compulsorily, and that the CNT could have been so authorised for the purposes of (Abbeyfield) constructing a supermarket on the Land.
38.	 We do not accept that the CNT could under sections 36 and 37 NTA have been authorised to acquire the Land compulsorily.  
39.	We do accept that at the relevant time one of the functions of the CNT was (subject to the provisions of the NTA and to any direction given to them by the Secretary of State under section 37 NTA) to acquire land situated in or near a new town – see: section 36(3)(a) NTA. Such an acquisition would have had to have been “under the general or special authority of the Secretary of State (section 37(3) NTA).  We also accept that the function of acquiring land was required to be performed with a view to the better performance of the purposes for which the CNT exists (see: section 36(3) NTA) and those purposes (including the holding of property) must have had due regard to considerations including the convenience and welfare of persons residing in the new town (see: section 36(2)(a) NTA).  We also accept that in giving a direction under section 37 NTA, the Secretary of State would have been required to have had regard to the CNT’s obligation to have regard to the convenience and welfare of persons residing in the new town (see: section 37(2) NTA).  On this basis we accept that the Secretary of State could have directed the CNT to acquire the Land and the CNT could have acquired it pursuant to such direction.
40.	However, we do not read sections 36 and 37 as contemplating compulsory (as opposed to voluntary) acquisitions of land.  In this regard we compare section 10 NTA which clearly provides for a development corporation to acquire land compulsorily by means of an order made by the corporation and submitted to and confirmed by the Secretary of State.  In such a case the procedure for authorising compulsory acquisitions laid down in Schedule 4, NTA was required to be observed.  There is no reference to Schedule 4 in section 36 or section 37.
41.	Turning now to Mr. Smith’s alternative submission, that the CNT could (in March 1996) have been authorised to acquire the Land compulsorily because it had succeeded to the functions of the MKDC, and its compulsory purchase powers, we consider Schedule 10 NTA which contains additional provisions as to the transfer to the CNT of the property of a development corporation, such as the MKDC.
42.	Paragraph 1 of Schedule 10, NTA provides that an order vesting the property of a development corporation in the CNT transfers without more “all property, rights, liabilities and obligations which immediately before the transfer date” were the corporation’s.
43.	Mr. Smith argued that one of the “rights” of the MKDC transferred to the CNT was the power of compulsory purchase and that HMRC’s insistence in distinguishing between “rights” and “powers” is hair-splitting.
44.	Ms. Hodge, besides maintaining that distinction also referred us to paragraph 3(1) of Schedule 10, NTA which provides that “subject to the following provisions of this Schedule, nothing in paragraph 1 shall be construed as conferring on the [CNT] any rights, liabilities or obligations of a development corporation under any enactment”.  
45.	We notice that one of the “following provisions” is paragraph 3(4) which preserves the application of section 11, NTA in relation to a new town.  Section 11 provides powers for a local highway authority to acquire land compulsorily “by means of an order made by the authority and submitted to and confirmed by the Secretary of State in accordance with Parts I and II of Schedule 4”.
46.	We consider that it is clear that other compulsory purchase powers were not transferred from the MKDC to the CNT by Schedule 10, NTA.  We regard the reference to “rights” in paragraph 1(1) of Schedule 10 as meaning rights in the nature of property, and excluding the statutory right, or power, in a development corporation, with the Secretary of State’s consent, to acquire land compulsorily pursuant to section 10 NTA.
47.	It follows that we have concluded that the CNT could not, in March 1996, have been authorised to acquire the Land compulsorily for the purposes of constructing a supermarket on it. This is enough to enable us to decide the appeal, but we add, for completeness, that the Appellant has also failed to show that Abbeygate was a person for whom the CNT could have been authorised to acquire the Land compulsorily or that the CNT could have been so authorised for the purpose of assisting Abbeygate to construct a supermarket on the Land.
Decision
48.	For these reasons we decide that Abbeygate was not an “authority exercising or having compulsory powers” within the definition in section 243(5) TCGA, and, in consequence that the Appellant did not dispose of the Land to such an authority and that therefore the condition in paragraph (a) of section 247(1) TCGA was not fulfilled in relation to the disposal in issue.  We allow the appeal and determine the assessment in the sum of £101,646 of chargeable gains, giving rise to a liability to capital gains tax of £38,258.40

JOHN WALTERS QC

JUDGE OF THE FIRST-TIER TRIBUNAL
RELEASE DATE: 9 December 2009