Bestway (Holdings) Ltd v Luff (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 20 February 1998 |
| Date | 20 February 1998 |
| Court | Chancery Division |
Chancery Division.
Lightman J.
David Goy QC and Aparna Nathan (instructed by Anthony Oberman & Co) for the taxpayer.
Timothy Brennan (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Buckingham (HMIT) v Securitas Properties LtdTAX (1980) 53 TC 292
Carr (HMIT) v Sayer TAXTAX[1992] BTC 286; 65 TC 15
Cole Brothers Ltd v Phillips (HMIT) TAXWLR[1982] BTC 208[1982] 1 WLR 1450.
Copol Clothing Ltd v Hindmarch (HMIT) TAXTAX[1984] BTC 35; 57 TC 575
Crusabridge Investments Ltd v Casings International LtdTAX (1979) 54 TC 246
Girobank plc v Clarke (HMIT) TAXTAX[1996] BTC 241; [1998] BTC 24 (CA)
Graham v Green (HMIT)ELR [1925] 2 KB 37
Ingram (JG) & Son Ltd v Callaghan (HMIT)WLR [1969] 1 WLR 456
IR Commrs v Scottish & Newcastle Breweries Ltd TAXTAX[1982] BTC 187; 55 TC 252
Kaye v BurrowsELR [1931] AC 454
Kilmarnock Equitable Co-operative Society Ltd v IR CommrsTAX(1966) 42 TC 675
Rolls-Royce Motors Ltd v Bamford (HMIT)TAX (1976) 51 TC 319
Sarsfield (HMIT) v Dixons Group plc TAX[1997] BTC 127
Saxone Lilley & Skinner (Holdings) Ltd v IR CommrsTAX (1967) 44 TC 122
Schmidt v Spar- und Leihkasse der früheren Ämter Bordeshom, Kiel und Cronshagen (Case C-392/92) [1994] ECR I-1311; [1994] 2 CEC 87
Vibroplant Ltd v Holland (HMIT)TAX (1981) 54 TC 658
Capital allowances - Industrial buildings - Wholesale supermarkets - Goods prepared for sale in the buildings by packaging, labelling etc. - Whether trade consisted in "subjection of goods to any process" or storage of goods which were to be or had been subjected to any process -Capital Allowances Act 1990 section 18 subsec-or-para (1)Capital Allowances Act 1968, s. 7(1)(e),Capital Allowances Act 1990 section 18 subsec-or-para (1)(f)(Capital Allowances Act 1990 section 18 subsec-or-para (1)Capital Allowances Act 1990, s. 18(1).
This was an appeal by the taxpayer against the decision of a special commissioner that wholesale supermarkets did not qualify as industrial buildings for the purpose of claiming capital allowances under theCapital Allowances Act 1990 section 18 subsec-or-para (1)Capital Allowances Act 1968, s. 7(1).
The taxpayer was the holding company of a group which operated cash and carry supermarkets at various locations in the UK selling goods to retail traders and caterers. The supermarkets were not retail shops as they were not open to the public. Some items were displayed on shelves as in a retail supermarket but most were stored on steel racking, or refrigerated where appropriate.
The taxpayer claimed that part of its trade consisted in the following operations which constituted the subjection of goods to a process withinCapital Allowances Act 1990 section 18 subsec-or-para (1)s. 7(1)(e): checking and sorting of goods; repackaging of goods on arrival; labelling of goods; unpacking of goods; and reading product codes on goods. The taxpayer further claimed that the buildings were used for "storage" within the meaning of Capital Allowances Act 1990 section 18 subsec-or-para (1)s. 7(1)(f).
The special commissioner, giving a decision in principle, found that goods and materials were not "subjected to any process" and that the buildings were not used for "storage" in the sense attributed to that word by the section.
Held, dismissing the taxpayer's appeal:
1. A building could only be said to be used for storage if that was an end in itself. There was no such use if the goods were kept for some other purpose. Since all the stock kept by the taxpayer was kept for sale at the earliest opportunity, it was not "stored" in the sense required by Capital Allowances Act 1990 section 18 subsec-or-para (1)s. 7(1)(f).
2. It was not every process that amounted to the "subjection of goods to any process" within Capital Allowances Act 1990 section 18 subsec-or-para (1)s. 7(1)(f). There had to be a substantial measure of uniformity of treatment, or system of treatment which was lacking in the taxpayer's preparation of goods for sale.
By originating motion pursuant to the Taxes Management Act 1970 section 56aTaxes Management Act 1970, s.56A (as substituted by SI 1994/1813 with effect from 1 September 1994), the taxpayer appealed to the High Court against the following decision of a special commissioner (Mr DA Shirley) released on 9 June 1997.
Bestway (Holdings) Ltd ("Bestway") is the holding company of a group of companies whose trade is the sale of goods by wholesale from various premises in England. Bestway appeals against corporation tax assessments covering the period 1 April 1984 - 30 June 1993 but the only outstanding difference between the parties to these appeals is the status of the buildings from which the group's trade is carried on. Bestway has claimed industrial buildings allowances in relation to those premises and those claims have been denied in whole or in part by the inspector. The agreed question for our determination is as follows:
Are the whole or any part or parts (and if so what part or parts) of the premises industrial buildings for the purposes of Capital Allowances Act 1990 section 18s. 7Capital Allowances Act 1968 (now Capital Allowances Act 1990 section 18s. 18Capital Allowances Act 1990), being occupied by a licensee for the purposes of its trade, or are the premises otherwise disqualified within Capital Allowances Act 1990 section 18 subsec-or-para (4)s. 7(3) being a showroom?
References hereafter in this decision are to the Capital Allowances Act 1968 unless otherwise stated, as that was the Act in force for a large part of the period covered by the appeals.
Capital Allowances Act 1990 section 18Section 7provides, where relevant:
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7. Definition of "industrial building or structure"
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(1) Subject to the provisions of this section, in this Chapter "industrial building or structure" means a building or structure in use …
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(a) for the purposes of a trade which consists in the manufacture of goods or materials or the subjection of goods or materials to any process, or
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(b) for the purposes of a trade which consists in the storage …
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(i) of goods or materials which are to be subjected, in the course of a trade, to any process, or
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(ii) of goods or materials which, having been manufactured or produced or subjected, in the course of a trade, to any process, or have not yet been delivered to any purchaser, or
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(iii) of goods or materials on their arrival by sea or air into any part of the United Kingdom …
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(2) The provisions of subsection (1) of this section shall apply in relation to a part of a trade or undertaking as they apply in relation to a trade or undertaking:
Provided that where part only of a trade or undertaking complies with the conditions set out in the said provisions, a building or structure shall not, by virtue of this subsection, be an industrial building or structure unless it is in use for the purposes of that part of that trade or undertaking.
(2A) The reference in paragraph (e) of subsection (1) above to the subjection of goods or materials to any process shall include a reference to the maintaining or repairing of any goods or materials but notwithstanding subsection (2) above, paragraph (e) shall not apply to the maintenance or repair by any person of goods or materials employed by that person in any trade or undertaking unless that trade or undertaking itself falls within any of the paragraph of that subsection (including paragraph (e)).
(3) Notwithstanding anything in the preceding provisions of this section, but subject to the provisions of subsection (4) of this section, "industrial building or structure" does not include any building or structure in use as, or as part of, a dwelling house, retail shop, showroom, hotel or office or for any purpose ancillary to the purposes of a dwelling house, retail shop, showroom, hotel or office.
(3A) Where a building or structure is used by more than one licensee of the same person, that building or structure shall not be an industrial building or structure unless each of the licensees uses the building or that part of it to which his licence relates for the purposes of a trade which falls within subsection (1) above.
(4) Where part of the whole of a building or structure is, and part thereof is not, an industrial building or structure, and the capital expenditure which has been incurred on the construction of the second mentioned part is not more than one quarter of the total capital expenditure which has been incurred on the construction of the whole building or structure, the whole building or structure and every part thereof shall be treated as an industrial building or structure.
The following witnesses gave evidence before us: Mr Zameer Mohammad Choudrey, finance director of Bestway; Mr Albert Edward Oliver, manager of the taxpayer's premises at Luton; Mr Rabinder Singh Toor, general manager of the taxpayer's premises at Abbey Road, Wembley.
We received in evidence witness statements made by Mr M A Khasru and Mr Hitten Parmer. Mr Khasru is the owner of the Thai Pavilion Restaurant situated at 11-15 Melbourne Grove, London and Mr Parmer is the owner of the Pizza Parlour Restaurant situated at 218 Ealing Road, Wembley. Various invoices were attached to these witness statements, which were admitted in evidence by consent.
The documentary evidence consisted of five bundles. Bundle 1 contained accounts. Bundle 2 contained various documents and includes the witness statements of Mr Khasru and Mr Parmer. Bundle 3 contained photographs and plans of the taxpayers' premises.
Although the taxpayers' appeals relate to several of their premises it was agreed between the parties for the purposes of these appeals that the evidence should be limited to the taxpayers' premises at Abbey Road, Wembley and Luton as an agreed sample. We visited and inspected each of those premises on 11 December 1996.
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