Brown (HM Inspector of Taxes) v Burnley Football and Athletic Company Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 03 March 1980 |
| Date | 03 March 1980 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Corporation tax - Schedule D - Trade expenditure - Erection of new stand at a football ground - Whether a "repair" chargeable to revenue -Income and Corporation Taxes Act 1970, s 130(d) and (g) - Whether expenditure on "plant".
Late in 1974 the Club built a new stand for seated spectators on one side of its ground at Turf Moor. Towards the end of 1969 an old covered stand on that side of the ground had been demolished as unsafe and in 1972 the concrete terraces in front of the old stand had been removed to make space for the new stand.
The Special Commissioners upheld the Club's appeal and decided that the new stand, which was not an improvement upon the old save that it was of modern design and construction, was simply a replacement of what was physically, commercially and functionally an inseparable part of the stadium and therefore a "repair" the cost of which was deductible as a revenue expense. The Commissioners would have rejected the Club's alternative contention that the new stand was plant, holding that the stand did not function in the actual processes which constituted the Club's trade.
The Chancery Division, allowing the Crown's appeal, held that (1) whether work was a mere replacement of part of a whole and so a repair depended upon the correct identification of the whole which is said to have been repaired; (2) no one approach to that problem was exclusively correct; (3) the Commissioners had erred in taking as their test whether there was a single profit-earning entity; (4) the premises occupied by the Club comprised a number of distinct structures each with its own distinct function; (5) the erection of the new stand was not a "repair" of any larger entity; dicta in Samuel Jones & Co. (Devonvale) Ltd. v. Commissioners of Inland Revenue 32 TC 513; 1952 SC 94 and Hodgins v. Plunder & Pollak (Ireland) Ltd. [1957] IR 58 explained; (6)the Commissioners were correct in deciding that the stand was not plant.
Stated under s 56 of the Taxes Management Act 1970 by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a hearing by the Commissioners for the Special Purposes of the Income Tax Acts which took place in Manchester on 24 and 25 July 1978, the Burnley Football and Athletic Co. Ltd. (hereinafter called "the Club"), appealed against an assessment to corporation tax for the accounting period to 31 March 1974 in the sum of £100. It was however, agreed between the parties that, in any event the assessment fell to be discharged, and that the question in issue
was the amount of the loss which the Club was entitled to carry forward on a claim made under s 177(1) of the Income and Corporation Taxes Act 1970. The hearing proceeded on that basis.2. Shortly put, the question for our decision was whether expenditure on replacing a stand on the Club's football ground was allowable expenditure in computing the Club's taxable profits or allowable losses or must be regarded as non-deductible capital expenditure.
3. The following witnesses gave evidence before us: Dr. R.D. Iven, a director of the Club for 15 years and Club doctor for 30 years; Mr. J. Parker, a chartered architect; Mr. A.D. Jenkins, a chartered architect.
4. The following documents were proved or admitted before us:
(a) A series of photographs (nos 1 to 6) of the old Brunshaw Road stand.
(b) Plans of the old and of the new Brunshaw Road stand.
(c) The Club's memorandum and articles of association.
(d) The directors' report and the accounts of the Club for the year ended 31 March 1974.
The plans referred to at (b) are annexed to and form part of this Case(1). The other documents are available for the use of the Court if required.
(i) The relevant facts as found by us on the basis of the evidence agreed or adduced before us are set out in 9(1) to (5) below.
(ii) By way of assistance to the Court, we add the following observations on the facts as so set out, including observations advanced by the parties:- (a) Paragraph 9(2). To the comment that the new stand was designed to take seats and seats were fitted, may be added the comment that the stand would have been unsuitable for use by standing spectators. The seats would have been useless without the stand. (b) Paragraph 9(3). To the description of the different parts of the stadium, may be added the comment that, normally spectators are not permitted to move from one part of the ground to another, but there are means of access for officials. (c) Paragraph 9(13). With regard to the reference under (a) to the cost of the stadium it may be noted that in the accounts referred to in para 4 (d) the "Pavilions, Stands and Property" are included in the balance sheet at cost £414,938 plus additions during the year of £75,120, £490,058 in total. This figure would not include the cost of the new stand which was shown as "Replacement of Brunshaw Road Stand £209,365" in the income and expenditure account. The report of the directors includes a note to the effect that: "In view of the specialised nature of the Land and Buildings at Turf Moor, Burnley, [and elsewhere] the Directors are not able to place a market value on these assets."
6. The contentions advanced by Mr. Lomas on behalf of the Club are summarised in 9(6) and (7) below.
7. The contentions advanced by Mr. Brown on behalf of the Crown are summarised in 9(8), (9) and (10) below.
8. Cases cited to us in the course of argument included the following: Lurcott v. Wakely & Wheeler [1911] 1 KB 905; Samuel Jones & Co. (Devonvale),
Ltd. v. Commissioners of Inland Revenue 32 TC 513; 1952 SC 94; Yarmouth v. France (1887) 19 QBD 647;Commissioners of Inland Revenue v. Barclay, Curle & Co. Ltd. 45 TC 221; 1969 SC (HL) 30; Phillips v. Whieldon Sanitary Potteries, Ltd. 33 TC 213; St. John's School v. Ward 49 TC 524; Dixon v.Fitch's Garage Ltd. 50 TC 509; [1976] 1 WLR 215;Wynne-Jones v. Bedale Auction Ltd. 51 TC 426;Hodgins v. Plunder & Pollak (Ireland) Ltd. [1957] IR 58; Rhodesia Railways, Ltd. v. Collector of Income Tax, Bechuanaland Protectorate [1933] AC 368.9. We, the Commissioners, who heard the appeal, took time to consider our decision and gave it in writing on 14 August 1978 as follows:
(2) In 1969 the directors of the Burnley Football and Athletic Co. Ltd., (the Club), were advised by their architect, Mr. James Parker, that the Brunshaw Road stand on the Club's football ground at Turf Moor could no longer be regarded as safe. The stand which was a covered stand of traditional type, had been built in 1912. The roof was supported at the back by a brick wall, and at the front by steel stanchions. Mr. Parker had observed that the roof trusses were becoming distorted and that cracks were appearing in the brick wall. He suspected trouble at the base of the stanchions. Subsequent investigation showed his suspicions to be well founded: the stanchions were badly corroded. Mr. Parker's advice to the directors was that the only course to adopt with regard to the stand was to demolish it. In due course Mr. Parker supervised the demolition of the stand.
(3) In 1972 the directors engaged Mr. A.D. Jenkins' firm to design a replacement stand. Initially, the instructions were simply to design a stand to take the place of the Brunshaw Road stand which had been demolished. At a later stage, a building was designed to fit in at the back of and partly under the stand. Eventually this building housed a directors' suite, office accommodation and a social club. But the stand itself was described by Mr. Jenkins as a very simple, straightforward stand. It was of modern design. The stanchions supporting the roof were constructed of reinforced concrete and the terracing units, designed to take seats, of precast concrete. Under safety and fire regulations, a replacement stand constructed of steel and timber would not have been permitted. The old stand had been sited further back from the playing field and closer to Brunshaw Road. Between the stand and the field, there had been concrete terraces for standing spectators. These terraces went when the replacement stand was erected. A recent report had drawn attention to the need to provide a safety reservoir area, space in the open air where people could go in an emergency if it became necessary to empty the stand in a hurry. Accordingly the new stand was closer to the field leaving a space between the stand and Brunshaw Road. Because the stand was closer to the field and the pitch of the terracing within the stand steeper than in the old stand, the new stand was lower than the old but of approximately the same length. The old stand provided seats of a kind for 3455 spectators. The instruction given to Mr. Jenkins' firm was to produce a new stand with seats for approximately 3000 spectators. In fact, the new stand provided seats for 3162 spectators. The stand was designed to take seats and seats were fitted. It was a matter agreed between the parties to this appeal that for tax purposes these seats would in any event be regarded as "plant" qualifying for capital allowances.
(4) On the side of the playing field opposite to the Brunshaw Road stand are concreted terraces built on an embankment with a roof over. At one end of the playing field is the cricket field stand, providing seats for 4419 spectators, which was completed in 1969. At the other end, are open terraces for standing spectators. The covered terraces opposite the Brunshaw Road stand and the open terraces at the end of the playing field opposite the cricket field stand can accommodate approximately 28,000 to 30,000 standing spectators so that the capacity of the Turf Moor football ground is of the order of 37,000. Different charges are made for access to the different spectator areas, £1.20 to an adult for admission to the terraces, £2.20 to an adult for a seat in the...
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