Cyril Lord Carpets, Ltd v Schofield (HM Inspector of Taxes)
| Jurisdiction | Northern Ireland |
| Judgment Date | 31 January 1966 |
| Date | 31 January 1966 |
| Court | Queen's Bench Division (Northern Ireland) |
QUEEN'S BENCH DIVISION (NORTHERN IRELAND)-
COURT OF APPEAL (NORTHERN IRELAND)-
Income Tax, Schedule D - Profits Tax - Capital allowances - Expenditure reimbursed by Government grant - Whether "met directly or indirectly by the Crown" - Income Tax Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 10), Section 332(1).
The Appellant Company, which traded as textile and carpet manufacturers, applied for and received grants from the Government of Northern Ireland under the Capital Grants to Industry Acts (Northern Ireland) in respect of capital expenditure on plant or machinery which had already been incurred and paid by the Company. The Company was assessed to Income Tax under Schedule D for the years 1960-61 and 1961-62 and to Profits Tax for the corresponding chargeable accounting periods on the footing that in computing capital allowances the expenditure reimbursed by the grants was to be treated under Section 332(1), Income Tax Act, 1952, as not incurred by the Company.
On appeal, the Company contended (inter alia) that the expenditure had been met by the Company and that to reimburse by a discretionary grant expenditure already met was not to meet it directly or indirectly, within the meaning of Section 332(1). For the Crown it was contended (inter alia) that the expression "met directly or indirectly" included reimbursement. The Special Commissioners held that to the extent of the grants the expenditure was met indirectly by the Government of Northern Ireland and was not to be regarded as incurred by the Company for any of the purposes of Part X of the Income Tax Act, 1952.
Held, that the expenditure was met by the grants either directly or indirectly.
(1) Cyril Lord Carpets, Ltd. v. Schofield (H.M. Inspector of Taxes)
CASE
Stated under the Income Tax Act, 1952, Section 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 20th March, 1963, Cyril Lord Carpets, Ltd. (hereinafter called "the Company"), appealed against the following assessments to Income Tax:
1960-61 |
… |
… |
£20,000 |
1961-62 |
… |
… |
£160,000 less £70,000 capital allowances |
2. The question for our decision was whether, by virtue of Section 332 of the Income Tax Act, 1952, there should be deducted in computing the Company's capital expenditure on the provision of machinery or plant for the purpose of claiming capital allowances under Part X of that Act the amount of certain grants made under the Capital Grants to Industry Act (Northern Ireland), 1954, as amended from time to time.
3. The following documents are annexed to and form part of this Case(1):
A. Capital Grants to Industry Act (Northern Ireland), 1954;
B. Capital Grants to Industry (Amendment) Act (Northern Ireland), 1956;
C. Capital Grants to Industry (Amendment) Act (Northern Ireland), 1959;
D. Capital Grants to Industry Regulations (Northern Ireland), 1957 (S.R. & O. (N.I.) 1957 No. 199).
4. The Company was incorporated in Northern Ireland on 29th April, 1955, as a private company limited by shares, to carry on, and in fact it carries on, the trade and business of textile manufacturers and warehousemen, in respect of which it is assessable to Income Tax under Case I of Schedule D and to Profits Tax.
5. The Company commenced trading from a pilot plant as textile and carpet manufacturers on 1st May, 1957, and subsequently transferred this plant to a new factory at Donaghadee in Northern Ireland, involving (inter alia) the purchase of textile and other machinery and plant.
6. Under the provisions of the Capital Grants to Industry Act (Northern Ireland), 1954, as from time to time amended (hereinafter called "the Capital Grants Acts"), applications were made by the Company to the Northern Ireland Government for industrial plant and machinery grants payable under those Acts to persons carrying on or proposing to carry on in Northern Ireland an industrial undertaking of any one or more of the kinds set out in the Schedule to the 1954 Capital Grants Act, that is to say, in this case an undertaking carrying on a trade in a mill, factory or similar premises or, alternatively, an undertaking carrying on a trade which consists in the manufacture of goods or materials or the subjection of goods or materials to any process. These applications were made after the approved capital expenditure referred to in paragraph 7 below had been incurred and paid by the Company.
7. Industrial plant and machinery grants under the Capital Grants Acts are quantified by reference to "approved capital expenditure" (as defined in the Acts) incurred by the grantee in the provision of industrial plant or machinery. The approved capital expenditure on industrial buildings, plant and machinery in the accounting periods to which the assessments under appeal relate were as follows:
Corresponding Income |
Approved capital |
|
Accounting period |
Tax year of assessment |
expenditure |
5th October, 1958 to 3rd October, 1959. |
1960-61 |
£131,577 |
4th October, 1959 to 28th May, 1960 |
1961-62 |
£140,842 |
The following industrial buildings and plant and machinery grants were made to the Company under the Capital Grants Acts on the dates shown against each payment:
Date when grants |
|
received by Company |
Amount of grants |
3rd February, 1961 |
£37,508 |
10th June, 1961 |
£46,947 |
At the dates when these payments were made the expenditure in respect of which they were made had been paid by the Company. The first payment related to the expenditure incurred within the accounting period ended 3rd October, 1959, and the second to expenditure within the accounting period ended 28th May, 1960.
8. It was contended on behalf of the Appellant Company:
(2) that the grants were discretionary, and there was no certainly that an application under the Acts would be successful;
(3) that under Section 1(1)(a) of the Capital Grants to Industry Act (Northern Ireland), 1954 (as amended), the grants were not for plant and machinery as such, but were merely grants of a fraction of the approved capital expenditure;
(4) that the capital expenditure involved had been met by the Company: it had not, therefore, been met directly or indirectly by the Government of Northern Ireland, within the meaning of Section 332(1) of the Income Tax Act, 1952;
(5) that the grants were reimbursements: to reimburse expenditure already met is not to meet it directly or indirectly, within the meaning of the said Section;
(6) that the grants should not be deducted in computing the Company's capital expenditure on the provision of machinery or plant for the purpose of its claim to capital allowances under Part X of the Income Tax Act, 1952;
(7) that the object of the Capital Grants Acts was to attract and develop industry to and in Northern Ireland by the inducement of grants of money, and this object would be defeated by setting the grants against capital expenditure by reference to which Income Tax relief is given.
9. It was contended on behalf of H.M. Inspector of Taxes:
(2) that the grants were payable under the Acts, and had in fact been paid, in respect of specific items of plant and machinery (S.R. & O. (N.I.) 1957 No. 199, Second Schedule, paragraph 4);
(3) that under Section 332(1) of the Income Tax Act, 1952, expenditure which has been incurred is not to be regarded as having been incurred "in so far as it has been met or is to be met directly or indirectly…". The Subsection applies to expenditure incurred and met by a person claiming capital allowances. The meaning of the words "met directly or indirectly" includes reimbursement of such expenditure;
(4) that under Section 332(1) of the Income Tax Act, 1952, the grants should be deducted in computing the Company's capital expenditure in the provision of machinery or plant for the purpose of its claim to capital allowances under Part X of the Income Tax Act, 1952.
10. We, the Commissioners who heard the appeal, gave our decision as follows:
In our view it is clear from the Second Schedule to S.R. & O. (N.I.) 1957 No. 199, that grants under the Acts are payable in respect of specific items of plant or machinery, and we find nothing in the Acts themselves to disturb this view. The grants are, therefore, related to the expenditure referred to in Section 332(1) of the Income Tax Act, 1952. That Section provides that "Expenditure shall not be regarded…as having been incurred…". It is accordingly a "deeming" provision, applying to cases where expenditure has in fact been incurred. We think that the phrase "expenditure…having been incurred" covers the case where the person claiming a capital allowance has made the capital payment. If this is so, reimbursement is meeting the expenditure indirectly. We hold that to the extent of the grants the Company's expenditure in question was met indirectly by the Government of Northern Ireland, and is not to be regarded as having been incurred for any of the purposes of Part X of the Income Tax Act, 1952.
The appeal fails, and we leave the figures to be agreed.
11. Figures subsequently were agreed between the parties and on 13th November, 1963, we adjusted the assessments accordingly, increasing the assessment for 1960-61 to £99,433 less capital allowances £99,433, and reducing the assessment for 1961-62 to £155,754 less capital...
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