1988/2225P
THE HIGH COURT
BETWEEN
BANK OF IRELAND FINANCE LIMITED
PLAINTIFFS
AND
THE REVENUE COMMISSIONERS
DEFENDANTS
Judgment of Mr. Justice Costello delivered the 13th day of October, 1989.
The validity of the plaintiffs' claim herein (for £15,000) turns on the construction of certain of the provisions of the legislation imposing liability for tax on capital gains. Before considering them I will outline the facts on which the claim is based. These are:
(1) A company called Hyperion Properties Ltd. acquired Nos. 55, 56 and 57 Mountjoy Square in 1973. From time to time the plaintiffs, who are bankers, lent various sums of money to Hyperion and obtained an equitable mortgage over its property by way of security. On the 7th February, 1977 they obtained a well charging order in respect of the monies then due to them (£82,124.95) and an order for sale in the event of non-payment. On the 1st February 1982 an order sanctioning the sale of the property to a company called Buttress Properties Ltd. for the sums of £100,000 was made and the plaintiffs were authorised to retain the purchase money and from it discharge their debt. The plaintiffs then set about conveying the property. It is important to bear in mind that the plaintiffs were dealing with the property for the purpose of enforcing their security.
(2) Very shortly after the sale was sanctioned an application was made to the Inspector of Taxes for a certificate which if granted would have absolved the purchaser from making a deduction from the purchase price in respect of the capital gains tax liability which Hyperion faced under the Capital Gains Act, 1975. The application was made on the 17th February, 1982 by the plaintiffs. It is now agreed that this was made in error - under the Act the application should have been made by the Hyperion and this was pointed out to the plaintiffs by letter of 24th February 1982. A fresh application for a certificate was made on 12th July, 1982. This was correctly made on Hyperion's behalf. On the 14th July the Inspector raised a number of queries about the application, requested further information about it, and pointed out that the application should have been made by the Secretary of the company.
(3) Neither Hyperion or the plaintiffs replied to the letter of the 14th July. The plaintiffs closed the sale 27th August, 1982 without having obtained the tax clearance certificate and the property was conveyed to the purchaser. On closing, the purchaser paid the purchase price
of £100,000 to the plaintiffs but deducted from it the sum of £15,000 in respect of the liability of Hyperion to capital gains tax on the transaction. In accordance with the Act they forwarded this sum to the Revenue Commissioners. It is this sum which the plaintiffs claim in these proceedings. They say that they (as distinct from Hyperion) are under no obligation to pay Capital Gains Tax on this transaction, that they are beneficially entitled to this sum (which is part of the agreed purchase price of the property), and that it should be returned to them by the Revenue Commissioners.
(4) On the 30th November 1987 an assessment to Gains Tax arising from the disposal of the property was raised against Hyperion in the sum of £28,165.50. This was not appealed. The Revenue Commissioners claim to be entitled to retain the sum of £15,000 they received from the purchaser in part discharge of this liability and say that there is a balance due to them of £13,165.50 by Hyperion which has not been discharged.
(5) It is not contended on the plaintiffs' behalf that the Inspector was in breach of statutory duty in failing to give the tax clearance certificate before the sale was closed on 27th August, 1982.

THE LAW:
(1) Capital Gains Tax arises on the "disposal" of an asset to which Capital Gains Tax Act, 1975 applies. Section 8 of that Act made special provision as to liability arising when property was sold by a mortgagee (as happened in this case). Subsection (5) provided:

"Where a person entitled to an asset by way of security or to the benefit of a charge or incumbrance on an asset deals with the asset for the purpose of enforcing or giving effect to the security, charge or incumbrance, his dealings with it shall be treated for the purposes of this Act as if they were done through him as nominee by the person entitled to it subject to the security, charge or incumbrance..."

The legal position when the disposal of the property in this case took place (a position which, incidentally, was subsequently altered by the Finance Act, 1983) was that the "disposal" of the property was made by Hyperion, that the plaintiffs were deemed to be merely its nominees, that the liability to bear any capital gains tax arising rested on Hyperion, that the plaintiffs when enforcing their power of sale were neither liable to pay the tax or to account to the Revenue Commissioners in respect of it.
(2) Although Hyperion were liable to bear the tax, arising on the "disposal" of this property, special provision was made for its payment by the purchaser of any asset to which the Act applied. Sub-paragraph 11(2) of Schedule 4 of the 1975 Act provided:

"Upon payment of the consideration for acquiring an asset to which this paragraph applies, the person by or through whom any such payment is made shall deduct thereout a sum representing an amount of capital gains tax equal to 15 per cent of the said payment and the person to whom the payment is made shall allow such deduction upon receipt of the residue of the payment and the person making the deduction shall, on proof of payment to the Revenue Commissioners of the amount so deducted, be acquitted and discharged of so much money as is represented by the deduction as if that sum had been actually paid to the person making the disposal".

This sub-paragraph was operated in the present case. When closing the sale, the purchaser deducted 15 per cent of payment to be made under the contract for sale (that is, £15,000), and they were then discharged of any liability to pay other than the sum of £85,000 to the plaintiffs (which was the sum they in fact paid).
(3) Sub-paragraph 11(4) placed a clear statutory obligation on the purchaser to make the 15% deduction. This liability, however, could have been avoided if the
certificate to which reference has already been made had been obtained from the Inspector. Sub-paragraph (6) of the same paragraph provides:
"A person chargeable to capital gains tax on the disposal of an asset to which this paragraph applies may apply to the inspector for a certificate that tax should not be deducted from the consideration for the disposal of the asset and that the person acquiring the asset should not be required to give notice to the Revenue Commissioners in accordance with sub-paragraph (7) (a), and, if the inspector is satisfied that the person making the application is the person making the disposal and that
(a)	he is ordinarily resident in the State,…  the inspector shall issue the certificate to the person making the application and shall issue a copy of the certificate to the person acquiring the asset".

And a proviso to sub-paragraph (2) made clear that when a certificate issued under sub-paragraph (6) is produced then the 15% deduction by the purchaser of the asset was not to be made.

CONCLUSION:

The conclusions arising from the facts and the provisions of the 1975 Act to which I have referred are, to my mind, inescapable. In the absence of the sub-paragraph (4) certificate an obligation to make the 15 per cent deduction was imposed on the purchasers. The payment of
£15,000 to the Revenue Commissioners was made pursuant to that obligation and they then as a matter of law discharged from any obligation to pay any more than £85,000 to the plaintiffs. These provisions were, in effect, a mechanism provided by law for the payment of the tax imposed on Hyperion. The Revenue Commissioners received it on account of Hyperion’s liability. They did not receive it in any circumstances which would impose a trust in the plaintiffs' favour. They are, in my view, entitled to retain it. It goes without saying that if the plaintiffs had obtained the certificate none of this would have happened the Revenue would have had to look (presumably in vain) to Hyperion for payment of the entire tax. Now the plaintiffs only remedy (and it, presumably is also a hollow one) is to seek reimbursement from Hyperion.