Johnston Publishing (North) Ltd v HM Revenue & Customs

For the exception in section 179(2) of the TCGA 1992, the companies concerned must have been associated with one another when the relevant acquisition occurred. It is insufficient that they became associated only when they later ceased to be members of the group.

The second use of “associated” in section 179(2) must be given substantive effect. It qualifies the acquisition as one made, at the relevant time, between associated companies. Arguments based on anomalies cannot displace the statutory language unless the anomaly is one which Parliament cannot have intended, particularly in the context of intra-group deeming provisions where some anomalies may be tolerated.

Johnston Publishing (North) Ltd appealed from a decision of the Special Commissioners dated 9 October 2006 concerning a deemed chargeable gain under section 179 of the TCGA 1992.

The taxpayer had acquired assets from a company within the same group, but the transferor and transferee were not associated companies at the time of that acquisition. They became associated later that day, before both companies left the group together. The issue was whether section 179(2) disapplied the charge under section 179(1), or whether association was required at the time of acquisition.

1. Appeal dismissed. The Special Commissioner had not erred in law.
2. Section 179(2) of the TCGA 1992 requires the relevant acquisition to have been made by one company from another while they were associated companies within section 179(10). Association at the time when the companies ceased to be members of the former group was not enough.
3. The second appearance of “associated” could not be treated as mere surplusage. The taxpayer’s construction gave that word no adequate additional meaning. The Commissioners’ construction involved only a modest inference from the statutory language, particularly since the legislation used a compressed drafting style.
4. The Court considered the general policy of intra-group provisions, namely that transactions which are disposals in legal theory but not in economic reality may be neutralised for tax purposes. That policy supported the statutory context but could not replace the wording enacted by Parliament.
5. Suggested anomalies did not justify the taxpayer’s construction. Anomalies cannot displace plain statutory language unless they are so unlikely to have been intended that the Court must reject the construction producing them. Intra-group deeming provisions may contain tolerable anomalies.

1. High Court (Chancery Division): appeal from the Special Commissioners dismissed.
2. Special Commissioners: decision released on 9 October 2006; the Commissioners’ construction was preferred.