Bradley (HM Inspector of Taxes) v London Electricity Plc (No. 2)
| Jurisdiction | England & Wales |
| Judgment Date | 24 July 1996 |
| Date | 24 July 1996 |
| Court | Chancery Division |
Chancery Division.
Blackburne J.
Michael Furness (instructed by the Solicitor of Inland Revenue) for the Crown.
Peter Whiteman QC (instructed by Denton Hall) for London Electricity.
The following cases were referred to in the judgment:
Attwood (HMIT) v Anduff Car Wash Ltd TAX[1996] BTC 44
Carr (HMIT) v Sayer TAX[1992] BTC 286
Cole Bros Ltd v Phillips (HMIT) TAXTAX(1982) 55 TC 188; [1982] BTC 208 (HL)
Cooke (HMIT) v Beach Station Caravans Ltd TAX(1974) 49 TC 514
Edwards (HMIT) v Bairstow ELR[1956] AC 14
Gray (HMIT) v Seymours Garden Centre (Horticulture) TAX[1995] BTC 320
IR Commrs v Barclay, Curle & Co Ltd TAX(1969) 45 TC 221
IR Commrs v Scottish & Newcastle Breweries Ltd TAXTAX(1982) 55 TC 252; [1982] BTC 187
Schofield (HMIT) v R & H Hall Ltd TAX(1974) 49 TC 538
Wimpy International Ltd v Warland (HMIT) TAXTAXTAX(1988) 61 TC 51; [1987] BTC 591; [1989] BTC 58
Corporation tax - Capital allowances - London Electricity built power substation - Capital allowance claimed for whole of capital expenditure - Whether whole of substation was plant - Whether structure of substation was premises - Finance Act 1971 section 44Finance Act 1971, s. 44 - Capital Allowances Act 1990 section 24Capital Allowances Act 1990, s. 24.
This was an appeal by the Revenue from the decision of a special commissioner that London Electricity plc, the taxpayer, was entitled to capital allowances on the whole of the capital expenditure incurred by it on the provision of a substation.
The taxpayer carried on the business of receiving, transforming and distributing electricity. It had built an electrical substation which was interred two metres below the paved surface of the south side of Leicester Square.
The taxpayer claimed that the whole of the capital expenditure incurred by it on the provision of the substation qualified for writing-down allowances under the Finance Act 1971 section 44Finance Act 1971, s. 44 (from 1 April 1989 to 5 April 1990) and under theCapital Allowances Act 1990 section 24Capital Allowances Act 1990, s. 24 (from 6 April 1990 onwards). The Revenue allowed expenditure on what it was willing to accept as plant, and disallowed expenditure on the structure of the substation and its component parts which it regarded as premises.
The taxpayer appealed to a special commissioner and contended that the whole of the substation, namely the structure and the equipment within, was a single functioning entity and as such was a single unit of plant for capital allowances purposes.
Held, allowing the appeal:
1. The essential question was whether the structure of the substation could reasonably be called apparatus with which that business was carried on, as opposed to the premises in which it was carried on.
2. The special commissioner had failed to ask himself what plant-like function the structure as an entity performed in London Electricity's trading activity. The true and only reasonable conclusion was that the structure functioned as the premises in which the taxpayer's trading activity was carried on rather than the apparatus with which it was carried on.
Wimpy International Ltd v Warland (HMIT)TAX [1987] BTC 591 at p. 615 per Hoffman J applied.
1. At a hearing before a single commissioner for the special purposes of the income tax Acts (Mr DA Shirley), London Electricity plc ("the taxpayer") appealed against assessments to corporation tax for the periods 1 April 1989 to 31 March 1990, 1 April 1990 to 31 March 1991 and 1 April 1991 to 31 March 1992.
2. The issue was whether the entire capital expenditure incurred by the taxpayer in the said three periods on the provision underground in Leicester Square, London, W1, of an electricity substation qualified for writing down allowances under Finance Act 1971 section 44s. 44 of the Finance Act 1971 (from 1 April 1989 to 5 April 1990) and Capital Allowances Act 1990 section 24s. 24 of the Capital Allowances Act 1990 (from 6 April 1990 onwards).
[Paragraphs 3-5 listed the witnesses who gave evidence and the documents before the commissioner.]
6. At the conclusion of the hearing the decision was reserved which the commissioner gave in principle in writing on 28 November 1994.
7. In addition to the cases referred to in my decision there were cited:
Ben-Odeco Ltd v Powlson (HMIT) (1978) 52 TC 459. Brown (HMIT) v Burnley Football & Athletic Co Ltd (1980) 53 TC 357.Carr (HMIT) v SayerTAX [1992] BTC 286. Commr of Inland Revenue v Waitaki International Ltd (1990) 3 NZLR 27. Cooke (HMIT) v Beach Station Caravans Ltd (1974) 49 TC 514. Hampton (HMIT) v Fortes Autogrill Ltd (1979) 53 TC 691. IR Commrs v Scottish & Newcastle Breweries LtdTAXTAX (1982) 55 TC 252; [1982] BTC 187.Jarrold (HMIT) v John Good & Sons Ltd (1962) 40 TC 681.Lyons (J) & Co Ltd v AG (1944) 60 TLR 313. StJohn's School v Ward (HMIT) (1974) 49 TC 514. Warngaratta Woollen Mills Ltd v Commr of Taxation (1969) 43 ALJR 324.
8. On 15 December 1994, the Revenue having expressed to us its dissatisfaction with the decision in principle as being erroneous in point of law, the solicitor's office of Inland Revenue with the concurrence of the taxpayer's solicitors (the taxpayer having no present intention of expressing dissatisfaction with regard to my decision on the £1.5m payment) a case to be stated for the opinion of the High Court pursuant to the Taxes Management Act 1970 section 56Taxes Management Act 1970 s. 56.
9. The question of law is whether the commissioner erred in holding that the entire capital expenditure (excepting a payment of £1.5m) incurred by the taxpayer on the provision underground in Leicester Square of an electricity substation qualified for writing down allowances in the years under appeal under Finance Act 1971 section 44s. 44 of the Finance Act 1971 and Capital Allowances Act 1990 section 24s. 24 of the Capital Allowances Act1990.
I have before me for decision in principle an appeal by London Electricity plc ("the taxpayer") against assessments to corporation tax for the periods 1 April 1989 to 31 March 1990, 1 April 1990 to 31 March 1991 and 1 April 1991 to 31 March 1992. The taxpayer claims capital allowances under Capital Allowances Act 1990 section 24s. 24 of the Capital Allowances Act 1990 ("the Act") (writing down allowances) as from 6 April 1990 and under the predecessor of that section, Finance Act 1971 section 44s. 44 of theFinance Act 1971, from 1 April 1989 to 5 April 1990 in relation to capital expenditure incurred by it on the provision of machinery or plant at its electricity substation at Leicester Square, London, W1, to a greater extent than the Revenue is prepared to allow.
2. Mr PG Whiteman QC appeared on behalf of the taxpayer. Mr Alan Moses QC and Mr M Furness appeared on behalf of the Revenue.
3. Three witnesses gave evidence, namely, John Roland Mathews and Graham Patrick Jackson on behalf of the taxpayer and Barry Albert Haseltine on behalf of the Revenue. Each witness submitted his proof of evidence prior to the commencement of the hearing.
Mr Mathews joined the taxpayer's predecessor, London Electricity Board (LEB) in 1964. For ten years he worked in the chief engineer's department which was responsible for the operation and maintenance of the primary distribution network (22,000 v to 132,000 v). For six years until 1979 he was seconded to Hong Kong Electric Ltd where after three years, having been head of the department responsible for Hong Kong's electricity supply, he became responsible for all new construction work on the electricity supply system of Hong Kong up to 132,000 v.
Mr Mathews returned to the UK in 1979. He was appointed successively senior construction engineer in LEB's northern area, principal engineer (1985) in the design section of the planning and design department at head office, principal engineer (1987) in the construction section of the construction and operation department and finally (1989) projects manager of the projects department created through the fusion of three departments (design, construction, building). He is in charge of about 100 members of staff of whom some 30 are electrical engineers, architects, structural engineers, quantity surveyors and building services engineers. He is a member of the Institution of Electrical Engineers and a chartered engineer but not a structural engineer.
On 7 October 1994, the day before he gave evidence in chief, Mr Mathews conducted a guided tour of the Leicester Square substation for the benefit of myself and counsel and instructing solicitors on both sides.
Mr Jackson, a chartered structural engineer (but not an electrical engineer), is one of six partners in Maurice Baguley and Partners, consulting engineers and building surveyors. The firm's activities comprise civil and structural engineering, mechanical, electrical and building services engineering. It was appointed by LEB in 1986 to provide structural engineering services in connection with the creation of the Leicester Square substation. Mr Jackson himself was not engaged on this project.
Mr Haseltine is joint senior partner of Jenkins and Potter consulting engineers. He is a Bsc (Engineering) having obtained a first class honours degree in civil engineering, Imperial College. He joined Jenkins & Potter consulting civil, structural and ceramic engineers in 1958 and became a partner in 1967.
4. Capital Allowances Act 1990 section 24 subsec-or-para (1)Section 24(1) of the 1988 Act reads as follows:
-
24.(1) Subject to the provisions of this Part, where-
(a) a person carrying on a trade has incurred capital expenditure on the provision of machinery or plant wholly and exclusively for the purposes of the trade, and
(b) in consequence of his incurring that expenditure, the machinery or plant belongs or has belonged to him,
allowances and charges shall be made to and on him in accordance with the following provisions of this section.
5. For all practical purposes...
To continue reading
Request your trial
-
(1) Urenco Chemplants Limited and (2) Urenco UK Limited v The Commissioners for HM Revenue and Customs [2022] UKUT 00022 (TCC)
...one might add, as a prison. Again, I say nothing about particular fixtures within such a building. 58. Bradley v London Electricity plc [1996] STC 1054 (“London concerned the structure for an underground electricity substation beneath Leicester Square. The structure was designed to include ......
-
Urenco Chemplants Ltd v R & C Commissioners
...as a prison. Again, I say nothing about particular fixtures within such a building. [58] Bradley (HMIT) v London Electricity plc (No 2) [1996] BTC 451 (“London Electricity”) concerned the structure for an underground electricity substation beneath Leicester Square. The structure was designe......
-
Urenco Chemplants Ltd and Another v R & C Commissioners
...[1995] STC 706 (CA), 67 TC 401, (a “planteria” at a garden centre); (b) Bradley (Inspector of Taxes) v London Electricity plc [1996] STC 1054 (Blackburne J), (an underground electricity substation); (c) Attwood (Inspector of Taxes) v Anduff Car Wash Ltd [1997] STC 1167 (CA), (a car wash hal......
-
Urenco Chemplants Ltd and Another
...in which the degree of affixation is a matter to be taken into consideration. [83] In Bradley (HMIT) v London Electricity plc (No 2) [1996] BTC 451, Blackburne J considered the structure for an underground electricity substation beneath Leicester Square. The structure was designed to includ......