Commissioners of Inland Revenue, Ex Parte Newfields Developments Limited, R v.

The House of Lords allowed the appeal and restored the order of the judge. The court held that section 416(6) of the Income and Corporation Taxes Act 1988 is not a discretionary provision to be exercised by the Revenue or any other body; the word "may" in subsection (6) is conditional rather than conferring an administrative discretion. An attribution of rights or powers under section 416(6) must be made when the conditions for such an attribution are satisfied so as to result in a person being treated as having control within the meaning of section 416(2) or (3).

The concluding words of section 416(6) which require that attributions be made to result in a company being treated as under the control of five or fewer participators are a specific qualification relevant only to the close company provisions (Part XI / section 414) and do not limit the application of subsection (6) when construing "control" for other statutory purposes such as section 13(4) (small companies' relief and associated companies). Applying those general principles to the facts, the court concluded that the general definition of control in section 416, as extended by subsection (6), was sufficient to determine the association question between Newfields and Lawrek.

Background and parties:

• Newfields Developments Ltd (the taxpayer) applied for small companies' relief under the statutory scheme originally introduced by the Finance Act 1972 and now reflected in section 13 of the Income and Corporation Taxes Act 1988.
• The Commissioners of Inland Revenue (the revenue) contended that Newfields had an associated company, Lawrek Properties Ltd, so that the specified amount for relief should be divided; the dispute turned on whether the definition of "control" in section 416 should be applied so as to attribute to Mrs Walker powers of trustees and thereby make both companies under the control of the same person.

Procedural posture: Newfields sought judicial review of the inspector's decision refusing small companies' relief and asked for a declaration that the Revenue had a discretion under section 416(6) and for mandamus to require exercise of that discretion. Moses J decided for the Revenue ([1999] STC 373). The Court of Appeal ([2000] STC 52) by majority upheld Moses J; one Lord Justice (Staughton) dissented. The taxpayer appealed to the House of Lords.

Issues before the House of Lords:

• Whether section 416(6) confers a discretion upon the Revenue (or any other decision-maker) to attribute rights and powers or whether the word "may" is conditional such that attributions must be made when the statutory conditions are met.
• Whether the concluding words of section 416(6) (which limit attributions so as to result in a company being treated as under the control of five or fewer participators) apply generally to the construction of "control" for all statutory purposes, or only to the close company provisions.

Court's reasoning and decision: The House of Lords held that the term "may" in subsection (6) is used in an impersonal, conditional sense and does not create an administrative discretion. The absence of any identified decision-maker or criteria for exercise of a discretion supported that conclusion. The concluding words of subsection (6) are a specific qualification intended for the close company rules (i.e. to determine whether the participators controlling a company number five or fewer) and do not limit the operation of the remainder of subsection (6) when construing "control" for other statutory purposes such as section 13(4). Applying the general definition in section 416(2)–(6) to the facts, the House of Lords restored the judge's order and allowed the appeal.

Appeal allowed. The House of Lords held that section 416(6) does not confer an administrative discretion; the word "may" is conditional and attributions under subsection (6) must be made when they result in a person being treated as in control under section 416(2) or (3). The concluding words of subsection (6) relate only to the close company test (five or fewer participators) and do not limit the use of subsection (6) for the purposes of section 13(4). The judge's order was restored.

Moses J (first instance) [1999] STC 373; Court of Appeal [2000] STC 52 (majority: Peter Gibson and Sedley LJJ; dissent: Sir Christopher Staughton); House of Lords [2001] UKHL 27 (appeal allowed).