Commissioners of Customs and Excise v Morrison's Academy Boarding Houses Association

JurisdictionScotland
Judgment Date24 February 1977
Date24 February 1977
Docket NumberNo. 24.
CourtCourt of Session (Inner House - First Division)

FIRST DIVISION.

No. 24.
COMMISSIONERS OF CUSTOMS AND EXCISE
and
MORRISON'S ACADEMY BOARDING HOUSES ASSOCIATION

RevenueValue added taxTaxable supply in the course of a businessNon-profit-making associationProvision of boarding house accommodation for school pupilsWhether fees therefor taxableElements of a "business"Finance Act 1972 (cap. 41), secs. 2 (2), 5 (8) and 45 (1).

The Finance Act 1972, which introduced value added tax, provides by section 2 (2): "Tax on the supply of goods or services shall be charged only where(a) the supply is a taxable supply; and (b) the goods or services are supplied by a taxable person in the course of a business carried on by him; and shall be payable by the person supplying the goods or services." Section 5 (8) provides: "Subject to the preceding provisions of this section, anything which is not a supply of goods but is done for a consideration is a supply of services." In section 45 (1) "business" is defined as including any trade, profession or vocation. Schedule 5 provides for certain exemptions, including, in group 6, item 2, "the supply of any goods or services incidental to the provision of any education."

An association was formed to provide board and lodging facilities for pupils at a school. Although connected with the school informally, the association was a separately registered limited company. Its objects provided that it was non-profit-making and its officials received no remuneration. It charged parents for the facilities it provided.

The Commissioners of Custom and Excise assessed the association as liable to value added tax in respect of the services which it provided. The Commissioners determined that these services were provided "in the course of a business" within the meaning of section 2 (2). The association appealed to the value added tax tribunal. The tribunal allowed the appeal, holding that the association did not seek to make a profit and that its activities did not contain any commercial element, and accordingly the goods and services provided were not provided in in the course of a business. The Commissioners appealed to the Court of Session.

Held that there was no justification for holding that the activities deliberately and continuously pursued by the association in a business-like way were not "business" for value added tax purposes merely because the underlying motive was to assist the school, and that the necessity of a "commercial element," if any different from the pursuit of profit, was not required to bring the activities of the association within the scope of the tax.

Commissioners of Inland Revenue v. Marine Steam Turbine Co. Ltd.ELR [1920] 1 K.B. 193 and Commissioners of Inland Revenue v. Korean Syndicate Ltd.ELRELR [1920] 1 K.B. 598, [1921] 3 K.B. 258 considered.

Morrison's Academy Boarding Houses Association was formed in 1933 as a company limited by guarantee, to provide board and lodging for pupils at Morrison's Academy. Its objects provided for the pursuit of its function by providing and maintaining properly equipped boarding houses. The income of the association was to be applied solely towards this objective, and no bonus or dividend was permitted to be paid to any member. Provision was made for the payment of such part of income as was deemed to be expedient for the purpose of forming a fund for the establishment of foundation scholarships in connection with the academy. Upon the winding-up of the association, no property was to be permitted to be distributed among the members. The affairs of the association were to be managed by a council, the members of which were elected at ordinary general meetings, and no councillor was permitted to receive remuneration of any kind.

The Commissioners of Customs and Excise assessed the association as liable for value added tax by letter dated 12th February 1976 in the following terms:"The Commissioners of Customs and Excise consider Morrison's Academy Boarding Houses Association Ltd. to be making taxable supplies within the provisions of section 2 (2) of the Finance Act 1972 and in the course of their business to have made a specific supply to the parents of Mr A. S. Biggart, a boarder at Morrison's Academy. This supply comprises boarding and educational fees for the session 197576. The boarding fees included in this supply amounting to 140.25 are considered to be outside the exemption of Schedule 5, Group 6, Item 2 and to be chargeable at the standard rate of tax."

The association appealed to the value added tax tribunal sitting in Edinburgh. The grounds of appeal were that the association did not carry on business for value added tax purposes within the meaning of section 2 (2) (b) of the Finance Act 1972 and that supplies were therefore outwith the scope of the tax. On 25th June 1976 the tribunal allowed the appeal holding that the goods and services which were provided by the association were not supplied in the course of a business.

The Commissioners appealed to the Court of Session under section 13 of the Tribunal and Inquiries Act 1971. They stated the following grounds:

"(1) The tribunal erred in law in deciding that the services were not supplied in the course of a business because the Morrison's Academy Boarding Houses Association was not carried on for a commercial purpose. (2) The tribunal erred in law in taking into account for the purpose of section 2 (2) (b) of the Finance Act 1972 the fact that the association's activities did not have as their object the acquisition of gain. (3) For the purpose of determining if a business is being carried on within the meaning of the said section, it is not material that the activities have no commercial purpose. (4) The decision of the committee being incorrect and unsound in law should be reversed and the decision of the Commissioners contained in their letter of 12th February 1976 should be confirmed."

The answers for the association stated inter alia: "The tribunal's decision was correct in law, and was based upon a sound construction of the relevant statutory provisions. On the facts found by the tribunal the association carried on no active occupation of the nature of a business within the meaning of the statute. In particular, the association's activities lacked any commercial motivation such as was the characteristic of an active occupation or profession continuously carried on."

On 11th and 18th February 1977 the appeal was heard before the First Division (without Lord Avonside).

At advising on 24th February 1977,

LORD PRESIDENT (Emslie).This is an appeal under section 13 of the Tribunals and Inquiries Act 1971 against a decision of the value added tax tribunal at Edinburgh. The Commissioners of Customs and Excise had determined that Morrison's Academy Boarding Houses Association had, in a particular school term in the year 197576, made taxable supplies in the course of a business carried on by them within the meaning of section 2 (2) of the Finance Act 1972. The supplies in question were of a service, namely, board and lodging to a pupil named Biggart at Morrison's Academy, Crieff. Before the tribunal it was not in dispute that these supplies were "taxable supplies" (not being exempt supplies) and that the Association were "taxable persons" within the meaning of section 46 and section 5 (8) of the Act, and the sole question in dispute was whether the relevant service was supplied by the Association "in the course of a business carried on" by them. The decision of the tribunal was that it was not so supplied and the Commissioners challenge that decision before us.

The tax with which the appeal is concerned is value added tax which was introduced to replace purchase tax by the Finance Act 1972. This is a tax on the supply of goods and services in the United Kingdom (including anything treated as such a supply) and on the importation of goods into the United Kingdom [section 1 (1)]. The scope of the tax is defined by section 2 (2) [His Lordship quoted section 2 (2) and continued]. Section 5 contains provisions for determining for the purposes of V.A.T. what is a supply of goods or services [His Lordship quoted section 5 (8) and continued]. The expression "taxable supplies" is used to identify those supplies which are not exempt supplies under Schedule 5 to the Act as varied by...

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