Commissioners of Inland Revenue v Scottish & Newcastle Breweries Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Wilberforce,Lord Salmon,Lord Fraser of Tullybelton,Lord Lowry,Lord Bridge of Harwich |
| Judgment Date | 04 March 1982 |
| Judgment citation (vLex) | [1982] UKHL J0304-2 |
| Court | House of Lords |
| Docket Number | No. 6. |
| Date | 04 March 1982 |
[1982] UKHL J0304-2
Lord Wilberforce
Lord Salmon
Lord Fraser of Tullybelton
Lord Lowry
Lord Bridge of Harwich
House of Lords
My Lords,
The respondents own and manage a large number of hotels and licensed premises in Scotland and England. In 1972–73 they decided that if they were to increase or even maintain their turnover they ought to brighten and modernise the facilities offered to the public. They therefore spent money on electrical rewiring, installation of new electric light fittings and of various categories of decor and murals, such as plaques, tapestries, and pictures. In one hotel they set up two elaborate metal sculptures said to represent seagulls in flight. The question of law for us is whether all or part of this expenditure attracts a first-year capital allowance which would entitle them to deduct from their trading income the whole of the expenditure in the first year.
The Finance Act 1971 states as the condition for obtaining the allowance that the claimant must be carrying on a trade (as the respondents undoubtedly were) and incur capital expenditure on the provision of machinery or plant for the purposes of the trade (Finance Act 1971, s.41).
The question for decision, which both courts below have answered in the respondents' favour is whether the expenditure, undoubtedly capital expenditure, was on the provision of "plant".
Of the claimed items of expenditure the Special Commissioners disallowed that upon electrical wiring and against that decision there is no appeal. The remaining items totalled some £105,000 of which about £44,000 was on decor and murals, and the rest on electric light fittings. The case stated contains a detailed description and prices of the various items but I do not think it is necessary to reproduce it, because both sides were agreed to treat them as falling within a broad category which can be described as decor and to have the question of law answered as regards the category as a whole. It is, however, necessary to draw attention to some of the findings of the Commissioners as to the respondents' business and the purpose for which the money was spent. These findings are as follows.
The respondents' hotels and licensed premises are either purpose-built or acquired as a shell and completed according to their special requirements for lighting and decor. The respondents consider on commercial principles what type of clientele they wish to attract and on that basis instruct architects and interior designers. They may make changes in interior design from time to time with a view to attracting a different class of customer. The type, design, and layout of the lighting arrangements, particularly in the common living areas, are selected with the aims of producing the atmosphere appropriate to attract the type of customers sought. This is regarded by the respondents as an important factor in the commercial success of their premises, a view supported by market research and which the Commissioners said that they accepted. Examples were given, and accepted by the Commissioners of cases where this was proved by results. The same appears to be true of the decor and murals.
Was, then, this expenditure incurred in the provision of plant?
The word "plant" has frequently been used in fiscal and other legislation. It is one of a fairly large category of words as to which no statutory definition is provided ("trade", "office", even "income" are others), so that it is left to the court to interpret them. It naturally happens that as case follows case, and one extension leads to another, the meaning of the word gradually diverges from its natural or dictionary meaning. This is certainly true of "plant". No ordinary man, literate or semi-literate, would think that a horse, a swimming pool, moveable partitions, or even a dry dock was plant—yet each of these has been held to be so: so why not such equally improbable items as murals, or tapestries, or chandeliers? The courts have, over the years, provided themselves with some guidance in principle, starting with Lindley L.J. in Yarmouth v. France (1887) 19 Q.B.D., 647 (1887) 19 Q.B.D., 647, 658. Plant, he said:
"in its ordinary sense … includes whatever apparatus is used by a business man for carrying on his business—not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in his business."
Later cases have revealed that a permanent structure may be plant (I.R.C. v. Barclay Curle & Co. 1969 S.C. (H.L.) 30) and argument has ranged over the question whether, to constitute plant, an item of property must fulfil an active role or whether a passive role will suffice—a distinction which led to some agreeable casuistry in relation to a swimming pool (Cooke v. Beach Station Caravans Ltd. [1974] 1 W.L.R. 1398). Perhaps the most useful discrimen, for present purposes, where we are concerned with something done to premises, is to be found in that of "setting": to provide a setting for the conduct of a trade or business is not to provide plant— J. Lyons and Co. Ltd. v. Attorney-General [1944] Ch. 281, concerning electric lamps, sockets and cords for lighting a tea shop. But this, too, is not without difficulty. In the Lyons case itself Uthwatt J. thought that different considerations (so that they might qualify as apparatus) might apply to certain specific lamps because they might "be connected with the needs of the particular trade carried on upon the premises". In Jarrold v. John Good & Sons Ltd. [1963] 1 W.L.R. 214, some fixed but moveable partitions though in a sense "setting" were thought capable of being also "apparatus". And in Schofield v. R. & H. Hall Ltd. (1974) 49 T.C. 538, the same argument was applied to the external walls of grain silos, as well as to the connected machinery.
Another much used test word is "functional"—this is useful as expanding the notion of "apparatus"; it was used by Lord Reid in Barclay Curle (above). But this, too, must be considered, in itself, as inconclusive. Functional for what? Does the item serve a functional purpose in providing a setting? Or one for use in the trade?
It is easy, without excessive imagination, to devise perplexing cases. A false ceiling designed to hide unsightly pipes is not plant, though the pipes themselves may be (Hampton v. Fortes Autogrill [1980] S.T.C. 80): is a tapestry hung on an unsightly wall any different from a painted mural? And does it make a difference whether there was a damp patch underneath? What limit can be placed on attractions, interior or exterior, designed to make premises more pleasing, to the eye or other senses? There is no universal formula which can solve these puzzles.
In the end each case must be resolved, in my opinion, by considering carefully the nature of the particular trade being carried on, and the relation of the expenditure to the promotion of the trade. I do not think that the courts should shrink, as a backstop, from asking whether it can really be supposed that Parliament desired to encourage a particular expenditure out of, in effect, tax-payers' money, and perhaps ultimately, in extreme cases, to say that this is too much to stomach. It seems to me, on the Commissioners' findings, which are clear and emphatic, that the respondents' trade includes, and is intended to be furthered by, the provision of what may be called "atmosphere" or "ambience", which (rightly or wrongly) they think may attract customers. Such intangibles may in a very real and concrete sense be part of what the trader sets out, and spends money, to achieve. A good example might be a private clinic or hospital, where quiet and seclusion are provided, and charged for accordingly. One can well apply the "setting" test to these situations. The amenities and decoration in such a case as the present are not, by contrast with the Lyons case, the setting in which the trader carries on his business, but the setting which he offers to his customers for them to resort to and enjoy. That it is setting in the latter and not the former sense for which the money was spent is proved beyond doubt by the Commissioners' findings.
I do not find it impossible to attribute to Parliament an intention to encourage by fiscal inducement the improvement of hotel amenity. Like the Commissioners one may feel some doubt about individual items, for example, the seagull sculptures at the Atlantic Tower Hotel, Liverpool: decision cannot I think turn on whether they were moveable or fixed to the structure. But I would not differ from their hesitant conclusion that these artifacts have to be grouped with the other more prosaic objects and can, no less but no more artificially, be regarded as apparatus of the trade and so as plant.
The Commissioners' examination of the facts was exceedingly careful and helpful, and their decision was agreed in by all members of the Inner House. I am disposed to accept the conclusion as correct and would dismiss the appeal.
My Lords,
I entirely agree, for the reasons stated in the speeches of my noble and learned friends, Lord Wilberforce and Lord Lowry, that this appeal should be dismissed.
My Lords,
I have had the advantage of reading in draft the speeches prepared by my noble and learned friends, Lord Wilberforce and Lord Lowry. I entirely agree with them and I do not consider that I can usefully add anything to them. For the reasons stated in those speeches I would dismiss this appeal.
My Lords,
This is an appeal from an interlocutor of the Court of Session refusing an appeal by way of case stated under section 56 of the Taxes Management Act 1970 taken by the Commissioners...
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