Carr (Inspector of Taxes) v Sayer and Another ; Sayer and Another v Carr (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 02 April 1992 |
| Date | 02 April 1992 |
| Court | Chancery Division |
Chancery Division.
Nicholls V-C.
Launcelot Henderson (instructed by the Solicitor of Inland Revenue) for the Crown.
The taxpayers did not appear.
The following cases were referred to in the judgment:
Copol Clothing Ltd v Hindmarch (HMIT) WLRTAX[1984] 1 WLR 411; [1984] BTC 35
IR Commrs v Barclay Curle & Co Ltd WLR[1969] 1 WLR 675
Schofield (HMIT) v R & H Hall Ltd TAX(1974) 49 TC 538
Wangaratta Woollen Mills Ltd v Federal Commr of Taxation (1969) 1 ATR 329
Income tax - Capital allowances - Quarantine kennels - Expenditure on construction to Ministry standards - Whether expenditure on provision of plant - Whether expenditure on construction of industrial building -Finance Act 1971 section 41 subsec-or-para (1) section 44Finance Act 1971, sec. 41(1), 44; Capital Allowances Act 1968 section 7 subsec-or-para (1)Capital Allowances Act 1968, sec. 7(1)(f) (replaced by Capital Allowances Act 1990 section 22 section 24 section 18 subsec-or-para (1)Capital Allowances Act 1990, sec. 22, 24, 18(1)(f)).
This was an appeal by the Crown against part of a decision of the general commissioners for East Grinstead that first-year allowances under the Finance Act 1971 section 41Finance Act 1971, sec. 41 were available in respect of part of the expenditure incurred in the construction of quarantine kennels built to statutory requirements to provide accommodation for cats and dogs entering the UK. The taxpayer appealed against the commissioners' decision that dogs and cats were not "goods" for the purposes of claiming an industrial buildings allowance.
The taxpayers were licensed by the Ministry of Agriculture to carry on a business in partnership providing quarantine facilities for dogs and cats brought into the UK.
They used two types of kennel: movable outdoor kennels and specially constructed permanent kennels built in terrace blocks, comprising part of a single-storey building or series of buildings. The kennels were constructed at extra expense to comply with statutory requirements governing the accommodation of animals in quarantine.
The taxpayers claimed capital allowances under the Finance Act 1971 section 41 subsec-or-para (1) section 44Finance Act 1971, sec. 41(1) and 44 in respect of expenditure incurred in providing both types of kennel on the ground that the kennels were "plant". Alternatively, they claimed under the Capital Allowances Act 1968 section 7 subsec-or-para (1)Capital Allowances Act 1968, sec. 7(1)(f)(iv), in respect of the permanent structures, allowance for industrial buildings used for storage of goods or materials on arrival in the UK.
The general commissioners decided first that the movable kennels were plant attracting the allowances claimed. They went on to distinguish between normal and quarantine kennelling and allowed relief for the amount of expenditure in excess of what normal kennelling would have cost. They rejected the claim for industrial building allowance.
On appeal the Crown accepted that the movable kennels were plant but argued that the permanent kennelling did not attract any capital allowances. The commissioners should not have apportioned the expenditure incurred in providing the permanent kennels as they did.
Held, allowing the Crown's appeal:
1. "Plant" carried with it a connotation of equipment or apparatus either fixed or unfixed. It did not convey a meaning wide enough to include buildings in general. Size was not a consideration so that equipment did not cease to be plant because it was so substantial that, when fixed, it could be labelled a building or structure. Neither did equipment cease to be plant merely because it also provided the place where the business was carried on. Conversely, buildings not normally regarded as plant did not cease to be buildings and become plant simply because they were purpose built for a particular trading activity.
Those principles led to the conclusion that the permanent kennels were not plant. They were the premises at which and in which the business was conducted and could not be regarded as anything but buildings, not having the character of equipment or apparatus.
2. There could be no distinction between normal kennelling and quarantine kennelling. If purpose-built normal kennelling was not plant, nor was quarantine kennelling. Both were structures built for a particular trading purpose and must attract a similar treatment for capital allowance purposes. The commissioners' apportionment approach was wrong in principle.
3. An industrial building allowance was not available. The facility provided for the owners of animals complying with the statutory quarantine requirements could not be described as the storage of goods on their arrival by sea or air within Capital Allowances Act 1968 section 7 subsec-or-para (1)sec. 7(1)(f)(iv) of the 1968 Act.
1. At a meeting of the commissioners for the general purposes of the income tax for the division of East Grinstead held on 6 October 1989 and on 2 March 1990 Michael J Sayer and Angela Sayer ("the taxpayers") appealed against assessments to income tax in respect of their business of providing quarantine kennels and transport services for dogs and cats as follows:
£ |
||
1984-85 |
income tax |
10,800 |
1985-86 |
income tax |
14,400 |
class 4 NIC profit |
12,472 |
|
1986-87 |
income tax |
14,400 |
class 4 NIC profit |
13,142 |
2. The questions for our determination were as follows:
(a) Whether expenditure of £10,000 incurred by the taxpayers on movable outdoor kennels qualified for capital allowances as expenditure on plant and machinery within the meaning of Finance Act 1971 section 41 section 44sec. 41 and 44 of the Finance Act 1971.
(b) Whether expenditure of £77,611 incurred by the taxpayers on the provision of fixed quarantine kennel buildings qualified for capital allowances as expenditure on plant and machinery under the foregoing statutory provisions.
(c) In the alternative, whether the expenditure under (a) and (b) above qualified for relief under Capital Allowances Act 1968 section 7 subsec-or-para (1)sec. 7(1)(f)(iv) of the Capital Allowances Act 1968 as industrial buildings used for storage of goods or materials on arrival in the UK.
3. Mr Sayer gave evidence on behalf of the taxpayers who were represented by Mr J Langridge, accountant. The Revenue was represented by Mr IR Bagshaw, inspector of taxes.
4. [Paragraph 4 listed the documents admitted in evidence.]
5. From the oral and documentary evidence including an agreed statement of facts, we found the following facts:
(a) The taxpayers who operated in partnership as husband and wife, have since 1 July 1984 carried on the business at Hunting Grove, Lowfield Heath, West Sussex, of providing quarantine facilities and transport services for dogs and cats brought into the UK.
(b) The Ministry of Agriculture and Fisheries granted them a licence in November 1984 to operate quarantine kennels.
(c) Movable outdoor quarantine kennels
(d) These are temporary, movable kennels which are of wooden construction with mesh runs. They are moved about the premises as the need arises.
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(e) Immovable outdoor quarantine kennels
(i) These kennels were specifically constructed as quarantine kennels and are permanently fixed to the premises.
(ii) The pens are constructed in terrace blocks to ensure the isolation of animals from each other. Most of the pens are intended to contain one animal although larger kennels are available for customers with more than one animal.
(iii) Each kennel has concrete flooring with built-in drainage for the discharge of waste products.
(iv) The kennels are divided by walls of impervious brick and mortar to prevent absorption of urine.
(v) The front of each kennel is fitted with heavy gauge metal mesh.
(vi) Each pen has a trap through which attendants provide food and water without having to enter it.
(vii) The roof is made of steel and is edged with wire meshing.
(viii) A fence runs along the rear of the kennels.
(f) Capital allowance claims
(i) The taxpayers claimed that expenditure of £18,287 including £10,000 on movable kennels qualified for a capital allowance. The Revenue accepted the claim as to expenditure of £8,287 but rejected the claim as to the balance of £10,000.
(ii) The taxpayers claimed that expenditure of £97,014 on immovable quarantine buildings (comprising vet's office; kitchen; walled borders; groundworks; perimeter fence and wall; general electrical services; water drainage services; gas services; and immovable quarantine kennels) qualified for a capital allowance. Following the inspector's rejection of this claim the taxpayers only pursued this appeal in so far as it related to the immovable quarantine kennels (£77,611).
6. It was contended on behalf of the taxpayers that:
(a) The movable outdoor kennels were of a temporary nature and should be distinguished from normal fixed permanent kennels. The movable kennels had been transferred from the taxpayers' previous business and capital allowances had been granted in respect of them on the basis that they were plant (Jarrold (HMIT) v John Good & Sons Ltd WLR[1962] 1 WLR 1101.
(b) The quarantine kennels had to conform with strict regulations as respects siting and construction. Complete isolation was essential. They were not merely a shelter and their size was not of itself sufficient to exclude them from the definition of plant (Jarrold v John Goodand IR Commrs v Barclay Curle & Co Ltd WLR...
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