Commissioners of Inland Revenue v Anchor International Ltd [Court ofSession Inner House Extra Division]
| Jurisdiction | Scotland |
| Judgment Date | 22 October 2004 |
| Date | 22 October 2004 |
| Docket Number | No 9 |
| Court | Court of Session (Inner House - Extra Division) |
Extra Division
Commissioners of Inland Revenue
Revenue - Corporation tax - Capital allowances - Football pitches comprising synthetic carpet over prepared ground - Whether eligible for capital allowances - Capital Allowances Act 1990 (cap 1), sch AA1, para 2
Schedule AA1 of the Capital Allowances Act 1990 excludes certain expenditure from capital allowances for plant and machinery. Paragraph 2 of that schedule provides: "(1) For the purposes of this Act expenditure on the provision of machinery or plant does not include any expenditure on:- (a) the provision of structures or other assets to which this paragraph applies, or (b) any works involving the alteration of land. (2) This paragraph applies to any structure or other asset which falls within column 1 of the following Table ("Table2'). (3) Sub-paragraph (1) above does not affect the question whether- (a) any expenditure falling within column 2 or Table 2, or (b) any expenditure on the provision of any asset of a description within any of the items in column 2 of Table 1, is for the purposes of this Act expenditure on the provision of machinery or plant". Item G in column 1 of Table 2 was "Any structure not within any other item in this column". Item 1 in col 2 was "Expenditure on the alteration of land for the purpose only of installing machinery or plant".
A company whose trading activity was the provision of leisure activities operated five-a-side football pitches comprising of a synthetic grass carpet laid over the top of a semi-permeable terram which overlayed a loose stone drainage system. The company incurred expenditure in relation to excavation, drainage, terram and carpet. The special commissioner held that expenditure on the carpet was not excluded by item G, and that the allowances for expenditure on the land were preserved by item 1 of col 2. The Revenue appealed and argued that the pitch as a whole (including the carpet) fell to be regarded as a structure, and that in any event the pitch was ineligible for capital allowances as it was premises and not plant. The company argued that the carpet was not a fixed structure within the meaning of para 2 and that it did not fail the premises test.
Held that: (1) it was open to the special commissioner on the basis of the facts established to hold that the relevant item was the carpet which had a separate identity from the works underneath and was not fixed to these works (para 26); (2) there was authority for the propositions that (a) the terms "setting" and "plant" were not mutually exclusive (b) an apparatus which was part of the setting would be regarded as plant if it is something with which the business was carried on (c) an apparatus might constitute "plant" even though it played a passive role in the trader's operations; further it was of great importance in considering whether an item constituted plant, to consider the function which it performed in the taxpayer's business activity (para 30); and (3) in the circumstances, the carpet was the means by which the respondents generated profits rather than the setting, and the carpet constituted plant (para 31); and appeal refused.
Observed that the pitch, comprising both the carpets and the works underneath, did not constitute a "fixed structure" (para 27).
Shove v Lingfield Park (1991) LtdUNKUNK [2004] STC 805; [2003] STC 1003 distinguished.
Anchor International ltd appealed to the special commissioner for HM Inland Revenue in respect of assessments to corporation tax for the accounting periods ending 30 April 1995 to 30 April 1998.
The special commissioner allowed the appeal.
The Inland Revenue thereafter appealed to the Court of Session sitting as the Court of Exchequer.
The cause called before an Extra Division, comprising Lord Kirkwood, Lord MacLean and Lord Osborne for a hearing on the summar roll.
Cases referred to:
Anduff Carwash Ltd v AttwoodTAX (1997) 69 TC 575
Benson v Yard Arm Club LtdWLRUNK [1979] 1 WLR 347; [1979] 2 All ER 336; 53 TCC 67
Black v Shaw (1913) 13 NZLR 194
Brown v Burnley Football and Athletic Co LtdUNKUNKTAX [1980] 3 All ER 244; [1980] STC 424; 53 TC 357
Carr v SayerUNKTAX (1992) STC 396; 65 TC 15
Cooke v Beach Station Caravans LtdWLRUNKTAX [1974] 1 WLR 1398; [1974] 3 All ER 159; 49 TC 514
Cole Bros Ltd v PhillipsWLRUNKTAX [1982] 1 WLR 1450; [1982] 2 All ER 247; 55 TC 188
D'Eyncourt v GregoryELR (1866) LR 3 Eq 382
Dixon v Fitch's Garage LtdWLRUNKTAX [1976] 1 WLR 215; [1975] 3 All ER 455; 50 TC 509
Family Golf Centres Ltd v ThorneUNK [1998] STC 106
Gray v Seymours Garden Centre (Horticulture)UNKTAX [1995] STC 706; 67 TC 401
Inland Revenue v Barclay Curle & CoSCWLRUNK 1969 SC (HL) 30; 1969 SLT 122; [1969] 1 WLR 675; [1969] 1 All ER 732
Inland Revenue v Scottish & Newcastle Breweries LtdSCWLRUNKTAX 1982 SC (HL) 133; 1982 SLT 407; [1982] 1 WLR 322; [1982] 2 All ER 230; (1982) 55 TC 252
Inland Revenue v SmythELR [1914] 3 KB 406
Jarrold v John Good & Sons LtdTAX (1963) 40 TC 681
Lyons (J) & Co Ltd v Attorney-GeneralELR [1944] Ch 281
Schofield v R & H Hall LtdUNKTAX [1975] STC 353; (1974) 49 TC 538
Shove v Lingfield Park (1991) LtdUNKUNK [2004] STC 805; [2003] STC 1003
St John's School v WardUNKTAX [1975] STC 7; (1974) 49 TC 524
Wimpy International Ltd v WarlandTAX (1988) 61 TC 51
Yarmouth v FranceELR (1887) LR 19 QBD 647
At advising, on 22 October 2004, the opinion of the Court was delivered by Lord Kirkwood-
Opinion of the Court- [1] This is an appeal by the Commissioners of Inland Revenue against a decision of the special commissioner allowing an appeal by Anchor International Ltd ("the respondents') against assessments to corporation tax for the accounting periods ending 30 April 1995 to 30 April 1998. The issue is whether capital expenditure incurred by the respondents in respect of the construction of five-a-side football pitches on the excavation, in-filling, draining, terram and synthetic grass was expenditure on the provision of plant and machinery for capital allowance purposes. It was agreed that the expenditure was capital and that it was incurred wholly and exclusively for the purposes of the trade.
[2] Section 24(1) of the Capital Allowances Act 1990 provided that:
"(1) Subject to the provisions of this Part, where- "
(a) a person carrying on a trade has incurred capital expenditure on the provision of machinery or plant wholly and exclusively for the purposes of the trade, and
(b) in consequence of his incurring that expenditure, the machinery or plant belongs or has belonged to him,
allowances and charges shall be made to and on him in accordance with the following provisions of this section.'
[3] The main contention of the appellants was that the expenditure was excluded from capital allowances for plant and machinery by sch AA1, which was introduced by the Finance Act 1994 (cap 9). Paragraph 2 of that schedule provided, inter alia, as follows:
"(1) For the purposes of this Act expenditure on the provision of machinery or plant does not include any expenditure on- "
(a) the provision of structures or other assets to which this paragraph applies, or
-
(b) any works involving the alteration of land.
(2) This paragraph applies to any structure or other asset which falls within column 1 of the following Table ("Table 2").
-
(3) Sub-paragraph (1) above does not affect the question whether-
(a) any expenditure falling within column 2 or Table 2, or
(b) any expenditure on the provision of any asset of a description within any of the items in column 2 of Table 1,
is for the purposes of this Act expenditure on the provision of machinery or plant'.
[4] Table 2 of sch AA1 was in the following terms:
" |
(1) |
(2) |
|
Structures and assets |
Expenditure which is unaffected by the Schedule |
||
A |
Any tunnel, bridge, viaduct, aqueduct, embankment or cutting. |
1 |
Expenditure on the alteration of land for the purpose only of installing machinery or plant. |
B |
Any way or hard standing, such as a pavement, road, railway or tramway, a park for vehicles or containers, or an airstrip or runway. |
2 |
Expenditure on the provision of dry docks. |
C |
Any inland navigation, including a canal or basin or a navigable river. |
3 |
Expenditure on the provision of any jetty or similar structure provided mainly to carry machinery or plan. |
D |
Any dam, reservoir or barrage (including any sluices, gates, generators and other equipment associated with it). |
4 |
Expenditure on the provision of pipelines, or underground ducts or tunnels with a primary purpose of carrying utility conduits. |
E |
Any dock. |
5 |
Expenditure on the provision of towers provided to support floodlights. |
F |
Any dike, sea wall, weir or drainage ditch. |
6 |
Expenditure on the provision of any reservoir incorporated into a water treatment works or on the provision of any service reservoir of treated water for supply within any housing estate or other particular locality |
G |
Any structure not within any other item in this column. |
7 |
Expenditure on the provision of silos provided for temporary storage or on the provision of storage tanks. |
8 |
Expenditure on the provision of slurry pits or silage clamps. |
||
9 |
Expenditure on the provision of fish tanks or fish ponds. |
||
10 |
Expenditure on the provision of rails, sleepers and ballast for a railway or tramway. |
||
11 |
Expenditure on the provision of structures and other assets for providing the setting for any ride at an amusement park or exhibition. |
||
12 |
Expenditure on the provision of fixed zoo cages.' |
[5] Paragraph 5 provides that ""structure" means a fixed structure of any kind, other than a building'.
[6] At the hearing before the special commissioner the parties lodged an agreed statement of facts in the following terms:
"The Appellant and the nature of the trade"
(1) The appellant company is Anchor International Ltd ("the Appellant"). The Appellant was incorporated in Scotland in February 1987 with company registration number...
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