Bridge House (Reigate Hill) Ltd v Hinder
| Jurisdiction | England & Wales |
| Judgment Date | 04 May 1971 |
| Date | 04 May 1971 |
| Court | Court of Appeal (Civil Division) |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income tax - Capital allowances - Machinery or plant - Restaurant - Contributions to capital expenditure - Extension of public sewer - Whether asset to be used in the treatment of trade effluents - Whether plant of restaurant business - Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), ss. 279, 280 and 332(3); Finance Act 1963 (c.25), s.40.
The Appellant Company carried on a licensed restaurant. In July 1964 it agreed with the sewerage authority to contribute to the cost of an extension connecting the drains at the restaurant premises with the public sewer. The extension consisted of salt-glazed or ceramic-glazed pipes with manholes. The net amount of the contribution was £2,844.
On appeal against an assessment to income tax under Case I of Schedule D for the year 1965-66 the Company claimed capital allowances in respect of the said sum on the ground that it was a contribution to expenditure incurred by the sewerage authority on the provision of machinery or plant which was an asset to be used in the treatment of trade effluents and for which it would have been entitled to capital allowances if it had itself provided the asset for the purposes of its trade. For the Crown it was contended (a) that the extension was not machinery or plant and (b) that it was not an asset to be used in the treatment of trade effluents. The General Commissioners held that the construction of drains was not machinery or plant.
Held, (1) that the extension was not an asset to be used in the treatment of trade effluents;
(2) that in relation to the Company's business the extension was not machinery or plant.
Stated pursuant to s. 64 of the Income Tax Act 1952 by the Commissioners for the General Purposes of the Income Tax for the Division of Reigate for the opinion of the High Court of Justice.
1. At meetings of the said Commissioners held at the Town Hall, Reigate, on 21st June 1968 and 1st August 1968 Bridge House (Reigate Hill) Ltd. (hereinafter called "the Appellant Company") appealed against an additional assessment to income tax under Case I of Schedule D for the fiscal year 1965-66 in the sum of £5,000, and in particular against a decision of H.M. Inspector of Taxes refusing to allow a claim for capital allowances in respect of a disbursement in the sum of £2,844.
2. The question for our determination was whether a contribution by the Appellant Company in the sum of £2,844 towards expenditure incurred by Reigate Corporation was deemed to constitute expenditure incurred by it on the provision of an asset for use in its trade and qualifying for capital allowances by virtue of s. 332(3) of the Income Tax Act 1952 as extended by s. 40 of the Finance Act 1963.
3. The following documents were admitted or proved(1):
(i) A drainage agreement (hereinafter called "the agreement") dated 10th July 1964 and made between Reigate Corporation and Arthur James Cressy (exhibit A).
(ii) Letter dated 2nd July 1964 from Reigate Corporation to A. J. Cressy (exhibit B).
(iii) Letter dated 13th January 1966 from Reigate Corporation to A. J. Cressy (exhibit C).
(iv) Letter dated 10th January 1968 from Messrs. Wilson Wright & Co., chartered accountants, to H.M. Inspector of Taxes (exhibit D).
4. The following facts were admitted or proved:
(i) At all material times the Appellant Company carried on the business of caterers, occupying a licensed restaurant at "The Bridge House", Reigate Hill, for the purposes of its trade. Arthur James Cressy was a director of the Appellant Company, and his obligations under the agreement (exhibit A) had been assumed and discharged by the Appellant Company.
(ii) At all material times Reigate Corporation was a sewerage authority for the purpose of s. 40(2) of the Finance Act 1963. In accordance with its statutory obligations it was responsible for a public sewerage system at Reigate Hill for the disposal of sewage.
(iii) Reigate Corporation proposed to extend the public sewer at Reigate Hill at an estimated cost of £4,800. On the basis of this estimate the Appellant Company made a contribution in July 1964 towards the project in the sum of £3,200. In the events which occurred the project was implemented at a cost of £4,266 9s.10d. and the Appellant Company received credit in the sum of £355 13s. 5d. Accordingly the ultimate contribution of the Appellant Company towards the project was in the sum of £2,844 6s. 7d.
(iv) The extension which connected the drains at the premises occupied by the Appellant Company with the public sewer was constructed of 9-in. salt-glazed or ceramic-glazed pipes together with the necessary manholes.
5. It was contended on behalf of the Appellant Company that:
(i) the sum of £2,844 was a contribution towards expenditure incurred by a sewerage authority on the provision of an asset falling within the ambit of s. 40(1) of the Finance Act 1963;
(ii) the extension was to be used for discharging trade effluents into a public sewer from premises occupied by the Appellant Company for the purposes of its trade;
(iii) the extension became part of the sewerage system in that it became ancillary to apparatus which was in use by the sewerage authority for the treatment and/or subsequent disposal of trade effluents;
(iv) the extension was comparable with a water main which qualified for capital allowances;
(v) the extension was in some respects comparable with air ventilation plant and/or machinery because it was designed for the purpose of removing foul matter from the premises occupied by the Appellant Company for the purposes of its trade for treatment and/or disposal;
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(vi) section 40 of the Finance Act 1963 was in pari materiawith Part X of the Income Tax Act 1952 and the section should be construed so as to be workable;
(vii) the decision of H.M. Inspector of Taxes should be overruled and the contribution should be treated as if it were expenditure on a similar asset for the purposes of the trade of the Appellant Company which qualified for capital allowances.
6. It was contended by H.M. Inspector of Taxes:
(i) that s. 332(3), Income Tax Act 1952, directed that capital allowances under Part X, Income Tax Act 1952, be made in respect of a contribution by one person to another who had incurred expenditure on the provision of an asset, provided inter alia that (a) the person incurring the expenditure would have been entitled, apart from s. 332(1), to capital allowances in respect thereof, and (b) the person contributing to such expenditure would, if he had himself incurred expenditure on the provision of a similar asset for the purposes of his trade, have been entitled to capital allowances in respect thereof;
(ii) that s. 332(3) was extended by s. 40, Finance Act 1963, which circumvented the condition in (i)(a) above by declaring that, for the purposes of s. 332(3), where a sewerage authority incurred expenditure on the provision of an asset for the treatment of trade effluents, it should be treated as if it was entitled to capital allowances in respect of such expenditure;
(iii) that s. 40, Finance Act 1963, was of no further effect, and, in particular, did not affect the condition in (i)(b) above;
(iv) that accordingly it remained for the Appellant Company to establish that the extension to the sewerage system was plant within Chapter II, Part X, Income Tax Act 1952, in respect of which it would have been entitled to capital allowances, if it had itself incurred the expenditure;
(v) that the extension was ancillary to premises from which sewage flowed and was not comparable with a water main, which was ancillary to plant and machinery for pumping water;
(vi) that the extension was not plant or machinery for the purposes of the Appellant Company's trade, and that accordingly the requirements of s. 332(3) were not satisfied;
(vii) that in any event s. 40, Finance Act 1963, was inapplicable to the present case, since the extension provided by the sewerage authority was not an asset to be used in the treatment of trade effluents;
(viii) that accordingly the decision of H.M. Inspector of Taxes should be upheld and the appeal dismissed.
7. Reference was made to the following cases during argument:
Hinton v. Maden & Ireland Ltd. TAXWLR38 T.C. 391; [1959] 1 W.L.R. 875
Jarrold v. John Good & Sons Ltd. TAXWLR40 T.C. 681; [1963] 1 W.L.R. 214
8. We, the Commissioners, having considered the evidence and the contentions of both parties gave our decision in the following words:
We do not find that s. 332(3) of the Income Tax Act 1952 applies, nor s. 40 of the Finance Act 1963. We are satisfied that the construction of drains is not machinery or plant.
We adjourned the appeal for the parties to agree...
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