The taxpayers relied on a literal interpretation of provisions to rely on proposition that it had avoided tax on a capital gain on the sale of their domestic private company for foreign-currency denominated loan notes through a partial conversion of some of the loan notes into qualifying corporate bonds (“QCBs”) and with the QCBs and the unconverted loan notes then being converted into one series of secured discounted loan notes (“SLNs”), with such notes then being sold on an exempt basis.
The taxpayers’ interpretation rested on considering that the conversion into SLNs was to be treated as a single conversion of both the QCBs and loan notes rather than as two distinct conversions. This interpretation was supported by the relevant statutory wording which referred to a conversion which would consist of “or include” a QCB.
Lady Arden noted that the fact that such provision contemplated the possibility of such a single transaction and the use of such phrase were “powerful arguments” in favour of the taxpayers’ construction. However, she then stated (at paras. 21, 23-24, 26):
[T]he appellants’ interpretation result would be inexplicable in terms of the policy expressed in these provisions. …
Floyd and Lewison LJJ [below] did not give any meaning to the words “or include” in section 116(1)(b), but as I see it this was appropriate because … it is clear that the intention of Parliament was that each security converted into a QCB should be viewed as a separate conversion … .
Floyd and Lewison LJJ also relied on the principle in Luke v Inland Revenue Comrs [1963] AC 557. This enables the court, when interpreting a statute, to adopt (my words) a strained interpretation in place of one which would be contrary to the clear intention of Parliament. …
Nothing in this judgment detracts from the principle in Luke but in my judgment, it is unnecessary to consider its application in this case because … the construction of the relevant provisions is clear without resort to it.