Conn (HM Inspector of Taxes) v Robins Bros. Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 21 March 1966 |
| Date | 21 March 1966 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income tax, Schedule D - Deduction - Expenditure on business premises - Whether on repairs or improvements.
The Respondent Company carried on a family retail business in premises held on a tenant's repairing lease for 21 years, expiring in 1966, from members of the family. The tenancy was expected to continue after the lease expired. Part of the premises was 400 years old and was scheduled as an ancient monument, so that the exterior could not be altered except for purposes of preservation; the remainder (which was contiguous) was under 200 years old. In 1962 it was clear that substantial expenditure on the property was needed, and, in order to protect the Company in the unlikely event of its having to vacate the property at the end of the lease, an "agreement as to capital improvements" was entered into between it and the lessors. Thereupon, in the year ended 30th June 1963, the Company spent £3,817 on repairs and alterations, of which £1,081 was admitted to be capital expenditure. The balance of £2,736 was spent, inter alia, on replacing the slate roof with one of corrugated asbestos; inserting steel joists at first floor level and building new walls above; replacing oak flooring with concrete in the main shop; replacing the shop front, eliminating a bow window; and replacing certain timbers with steel joists encased in oak. No additional space was created, but the inside appearance of the ground floor was somewhat changed.
On appeal against an assessment to income tax under Case I of Schedule D for the year 1964-65 the Company contended that the said sum of £2,736 should be deducted as a revenue payment on repairs to its premises. For the Crown it was contended that the expenditure was not of a revenue nature. The General Commissioners found that the expenditure was on essential repairs and not on improvements.
Held, that the Commissioners' decision was justified
Stated under the Income Tax Act 1952, s. 64, by the Commissioners for the General Purposes of the Income Tax for the Division of Banbury Borough in the County of Oxford.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax for the said Division held on 16th March 1965 Robins Bros. Ltd. appealed against an income tax assessment made on the Company under the provisions of Case I of Schedule D of the Income Tax Act 1952 for the year of assessment 1964-65, in the following amounts:
£ |
|
Profits |
2700 |
Balancing charges |
119 |
Capital allowances |
1208 |
The grounds of appeal were that, of a total of £3,817 charged as "Repairs and Alterations" in the Company's accounts for the year ended 30th June 1963,£2,736 should be allowed as a deduction in computing the Company's profits for income tax purposes.
2. Evidence was given at the hearing of the appeal by G.N. Robins, a director of the company, and H.R. Alcock, director of the contracting company which undertook the relevant work, and the following documents were produced and admitted in evidence and are annexed to and form part of this Case(1): (i) lease dated 21st November 1945 of 16 Market Place and 12 Butchers Row, Banbury, to Robins Bros. Ltd., for 21 years from 30th June 1945; (ii) agreement dated 10th November 1962 between the owners of these properties and the Company relating to capital improvements at the premises.
3. We found the following facts admitted or proved on the evidence at the hearing of the appeal:
(2) The profits assessable for 1964-65 are those of the Company's accounting year ended 30th June 1963.
(3) In that year there was expenditure totalling £3,817 charged against profits and described as "Repairs and Alterations" in the audited accounts. There was a further £4,800 or so charged in the 1964 accounts, affecting the income tax liability for 1965-66, and being the balance of the cost of the operations detailed in sub-para. (13) below.
-
(4) Of the £3,817 the following was admitted to be capital expenditure not allowable in computing profits for income tax purposes:
£
Cost of fixtures and fittings
639
Cost of under floor heating
200
Cost of new ladies' toilet, first floor
195
Cost of shop planning report
47
1081
(5) The balance, claimed to be allowable in computing profits for income tax purposes, was
£
2,736
3817
(6) The property concerned was let by J.L. Robins and G.F. Robins to the Company for 21 years from 30th June 1945. The lease therefore expires in June 1966. Prior to June 1945 the premises were occupied by the partnership. Robins Bros., consisting of J.L. Robins and G.F. Robins.
(7) The lease provides, inter alia, at para. 2, for the tenant:
…(3) To keep the outside and inside of the demised property and all additions thereto and the boundary walls and fences thereof and the drains soil and other pipes and sanitary and water apparatus thereof in good and tenantable repair and condition and in particular to paint grain varnish paper distemper limewash and whiten as to the outside in every third year of the said term and as to the inside in every seventh year of the said term all parts of the demised property now painted grained varnished papered distempered limewashed or whitened. (4) Within three months after receiving from the Landlords written notice of any wants of repair (including painting and decorative repairs) to execute such repairs in a
proper and workmanlike manner. (5) To replace with like fixtures or fittings of equal value all fixtures and fittings now in or about the demised premises which may become worn out lost or unfit for the purposes for which the same are now used…(11) To yield up the demised premises with the fixtures and additions thereto at the determination of the tenancy in good and tenantable repair and condition in accordance with the covenants hereinbefore contained.(8) 16 Market Place, Banbury, is scheduled as an ancient monument. It is at least 400 years old. The rest of the contiguous premises, whilst undated, is less than 200 years old.
(9) For the most part the building was original, and a great part of it was literally rotten.
(10) The exteriors of ancient monuments must not be interfered with except for preservation purposes, and this means that when it is necessary to effect overall repairs the best possible has to be done with the interior, often at otherwise unreasonably high cost.
(11) Alcock, the builder, had been advising the Company for years that parts of the building were unsafe and dangerous. The accuracy of this advice is instanced by an example of the chimney stack, originally 12-in. thick stone but through which it was found he could poke his finger. A photograph of this worn chimney stack was exhibited, and is attached(1).
(12) When the work to be done was under consideration the Company sought an estimate of the cost from the builder. He said that until the various parts were uncovered such an estimate was impossible. He was accordingly given a blank cheque, subject to the Company's approval, under G.N. Robins' constant supervision, to reinstate the property. The local building inspector also exercised supervision. Just as no estimates were given, no bills of the ordinary kind were submitted. The builder did whatever work his uncoverings showed to be necessary, and at intervals submitted bills based on cost of labour plus materials plus a profit percentage.
(13) The roof and roof timbers were in a bad state, the timbers being infested with woodworm and death-watch beetle.
(14) The...
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