Inland Revenue Commissioners v John Lewis Properties Plc

JurisdictionEngland & Wales
Judgment Date13 June 2001
Neutral Citation[2001] EWHC 409 (Ch)
Date13 June 2001
CourtChancery Division

special commissioners decision

MR T H K Everett

John Lewis Properties plc
and
Commissioners of Inland Revenue
DECISION

MR T H K EVERETT: John Lewis Properties Plc ("JLP") appeals against an assessment to corporation tax for its accounting period ended 31 January 1996 in the sum of £31 million.

The evidence before me consisted of a statement of agreed facts and a bundle of agreed documents. In addition I received brief expert evidence from Mr Richard William Asher FRICS and Mr Philip Haberman FCA.

I admitted in evidence a Deed of Assignment of rents ("the Deed of Assignment") made between JLP and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. ("Rabobank") and dated 20 November 1995 although unstamped, on receiving an undertaking from the Appellant's solicitors Messrs Lovells, to cause the Deed of Assignment to be brought into the jurisdiction and to arrange for it to be duly stamped ad valorem.

The facts

There is no dispute as to the facts in this appeal. They are the subject of a statement of agreed facts, the relevant parts of which read as follows:

  1. (2) JLP is the property holding company for the John Lewis Partnership Group of Companies. JLP owns the freehold or long leasehold interest in the Properties set out below (the "Properties"). The trading company of the John Lewis Partnership, John Lewis Plc ("JL") has for a number of years occupied the Properties for the purposes of its trade. For such occupation, JL has been required to pay the amount set out beside each Property as follows (such amounts being hereinafter referred to as the "rents"):

    1. (A) 278-306 Oxford Street (even), 1 to 10 Old Cavendish Street, 22 to 27 Cavendish Square and 16 to 28 (even) Hollis Street, London - JLP owns the freehold; JL pays £3,500,000 per annum

    2. (B) 22a Cavendish Square, London - JLP owns the freehold; JL pays £15,000 per annum

    3. (C) 11/12 Old Cavendish Street, London - JLP owns the freehold; JLP pays £100,000 per annum

    4. (D) [A, B and C above together comprise the JL Oxford Street store London]

    5. (E) Jessop & Son Department Store, Victoria Centre, Nottingham - JLP owns a long leasehold interest (under a lease from Capital and Counties Property Co); JL pays £525,000 per annum

    6. (F) John Lewis Department Store, Brent Cross, London - JLP owns a long leasehold interest (under a lease from Standard Life Assurance Co); JL pays £1 million per annum

(3) On 20 November 1995, JLP entered into a transaction with the UK branch of the Dutch Bank Rabobank, pursuant to which JLP assigned to Rabobank the right to receive the rents payable by JL in respect of the Properties for a five year period. In consideration of the assignment, JLP received a lump sum payment from Rabobank. This assignment is hereinafter referred to as the "rental assignment".

(4) The rental assignment

(5) The rental assignment was effected by JLP and Rabobank entering into a Deed of Assignment of rents dated 20 November 1995 ("the Deed of Assignment") (Document 1 of the bundle of agreed documents). Pursuant to the Deed of Assignment, JLP assigned to Rabobank its right to receive the rents from JL in the period from 23 January 1996 up to and including 23 January 2001 in respect of the Properties (as referred to in Schedule 1 to the Deed of Assignment). The amount paid by Rabobank to JLP for the rental assignment was £25,556,762.55.

(6) Notice of the rental assignment was given by JLP to JL on 20 November 1995 (the "Notice of Assignment") (Document 2 of the bundle of agreed documents). By the Notice of Assignment, JLP authorised and requested JL to pay the rents which were the subject of the rental assignment directly to the appointed UK agent for Rabobank. JL acknowledged receipt of the Notice of Assignment and undertook to pay the rents to the agent of Rabobank by service on Rabobank of an acknowledgement also dated 20 November 1995 (the "Acknowledgement")(Document 3 of the bundle of agreed documents). The UK agent subsequently appointed by Rabobank to receive the rents on its behalf from JL was Rabo Nominees Ltd.

(7) Pursuant to a further agreement dated 20 November 1995 and made between JLP, JL and Rabobank (the "Guarantee and Indemnity"), (Document 4 of the bundle of agreed documents). JL (inter alia) gave certain warranties and undertakings to Rabobank in relation to its and JLP's financial position, guaranteed to Rabobank that JLP would duly perform its obligations under the Deed of Assignment and agreed to indemnify Rabobank against various matters including the non-payment of the rents.

(8) Economics of the rental assignment

(9) As noted above, the rental assignment comprised the assignment by JLP to Rabobank of its right to receive the rents in respect of the Properties from JL during the period from 23 January 1996 up to and including 23 January 2001. During that period, there fall six rental payment days and on each of those days, JL was (and is) required to pay total rents in respect of the Properties of £5,140,000. In consideration of the right to receive those rents, Rabobank paid to JLP the sum of £25,526,762.55. That amount was calculated as being the value of those rents on the date of the rental assignment using a discount rate of 7.56804534 per cent. A copy of a Schedule produced by Rabobank prior to the rental assignment detailing this calculation is to be found as Document 6 of the bundle of agreed documents.

(10) On the day of the rental assignment, Rabobank and JLP also entered into a swap arrangement pursuant to which JLP would pay to, or receive from, Rabobank the amount by which a notional commercial floating rate of interest on an amount equal to the consideration for the rental assignment exceeded or was less than the fixed rate applied in arriving at the value of the future rents at the date of the rental assignment. Copies of the swap documentation are included as Documents 7 and 8 of the bundle of agreed documents.

(11) Pursuant to the accounting standard, Financial Reporting Standard 5 ("FRS 5"), JLP has been required to show the rental assignment transaction in its statutory accounts as a loan and accordingly to show the rents the subject of the rental assignment as continuing to be receivable. However, it is agreed that the Deed of Assignment did effect a valid assignment to Rabobank of at least a contractual right of JLP to receive the rents and that in the events which have happened no part of the consideration received by JLP for the rental assignment has been returned (or required to be returned) by JLP to Rabobank. Copies of statements signed on behalf of Rabobank dated 22 June 2000 and 7 July 2000 confirming that no part of the consideration has so been returned to it are produced as Documents 9 and 25 of the bundle of agreed documents.

(12) Following the rental assignment, JL claims that expenditure equal to the bulk of the consideration received from Rabobank on the rental assignment has been incurred by it in opening new stores and upgrading its existing stores. This expenditure is the subject of claims for "roll over relief" made by JLP and JL; these claims were made pursuant to section 175 Taxation of Chargeable Gains Act 1992 as JLP and JL were at all relevant times members of a group for the purposes of taxation of chargeable gains.

(13) Taxation of the rental assignment

(14) In JLP's tax return for its accounting period to 27 January 1996, JLP provided for the receipt of the rental assignment from Rabobank to be treated as consideration for the part disposal by it of its interests in the Properties. As noted at paragraph 9 above, claims for "roll over relief" in respect of that consideration (pursuant to section 152 Taxation of Chargeable Gains Act 1992) have been made by JLP and JL.

(15) The Inland Revenue has contested JLP's treatment of the rental assignment for taxation purposes. In this regard, on 1 September 1998, the Inland Revenue raised an assessment on JLP showing chargeable income from UK land and buildings arising to JLP for the period to 31 January 1996 of £33 million less capital allowances of £2 million, leaving taxable income of £31 million (the "Assessment")(Document 10 of the bundle of agreed documents). The Inland Revenue has since confirmed that the basis of the assessment was other Schedule A income of £4,748,085 (net of audit fees of £10,500 and capital allowances of £2,247,084) plus the amount of the consideration from Rabobank of £25,556,762.55. The resultant figure of £30,304,847 of taxable income was rounded up to £31 million.

(16) JLP has appealed against the assessment and has paid the corporation tax charged pursuant to it.

(17) It is agreed between JLP and the Inland Revenue that the rents payable by JL are as specified by the Deed of Assignment (and as noted in paragraph 1 above) and that those rents are correctly to be treated as payments for the occupation by JL of the Properties for the purposes of its trade.

The expert evidence

Mr Asher was asked by the Appellant to explain the effect of the assignment by a landlord of its right to receive rentals from a tenant in respect of any Property would have on the value of the landlord's reversionary interest in the Property. In Mr Asher's opinion following the sale by a landlord of its right to receive rentals from a tenant for a fixed period the value of the landlord's reversionary interest would be reduced. The reduction would take place immediately and the value of the Properties should gradually increase again over the five year rental assignment period as the period of the rental assignment outstanding reduces over time.

Mr Henderson's cross-examination consisted of putting to the witness that his conclusions depended ultimately on a question of law. As a non-lawyer, the witness found it difficult to give a meaningful reply.

In re-examination Mr Asher confirmed that the value of the Properties would be reduced if the rents were pre-sold.

Mr...

To continue reading

Request your trial
8 cases
  • Commissioners of Inland Revenue v John Lewis Properties Ltd
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 20 December 2002
    ...as consideration for an assignment of rents constituted a capital, and not an income, receipt. The judge's judgment is now reported at [2002] 1 WLR 35 [2001] STC 1118. Receipts are chargeable to corporation tax whether they are income or capital, but only if they are capital does the taxpa......
  • The Commissioners for Her Majesty's Revenue and Customs v Julian Blackwell
    • United Kingdom
    • Upper Tribunal (Tax and Chancery Chamber)
    • 13 August 2015
    ...hands”. 56. 30 35 40 Mr Prosser relies on the approach taken by Lightman J in Inland Revenue Commissioners v John Lewis Properties plc [2001] STC 1118. There the taxpayer sold future rentals arising from leases granted out of land owned by it. Lightman J held that the interest disposed of w......
  • Scribes West Ltd v Relsa Anstalt and Others (No 3)
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 20 December 2004
    ...in point appears to be a passage in the judgment of Lightman J, in Commissioners of Inland Revenue v John Lewis Properties Limited [2002] 1 WLR 35, supra) . This concerned a complex tax avoidance scheme, one aspect of which was an assignment of rental income. An issue considered by the judg......
  • Blackwell v Revenue and Customs Commissioners
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 6 April 2017
    ...separately, their self-cancelling nature displaced any attempt to treat them separately for tax purposes. 18 In Inland Revenue Commissioners v John Lewis Properties PLC [2002] 1 WLR 35, the taxpayer assigned for five years its right to a rental stream from a number of properties to a bank i......
  • Request a trial to view additional results
3 books & journal articles
  • Table of Cases
    • United Kingdom
    • Wildy Simmonds & Hill Positive Covenants and Freehold Land Contents
    • 30 August 2019
    ...v John Lewis Properties plc [2002] EWCA Civ 1869, [2003] Ch 513, [2003] 2 WLR 1196, [2003] STC 117, CA; [2001] EWHC 408 (Ch), [2002] 1 WLR 35, [2001] STC 1118, [2001] BTC 213 166 Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896, [1998] 1 All ER 98, ......
  • Assignment of Benefit
    • United Kingdom
    • Wildy Simmonds & Hill Positive Covenants and Freehold Land Contents
    • 30 August 2019
    ...includes receipt of rents and profits or the right to receive the same … 30 Grant v Edmondson [1931] 1 Ch 1. 31 [2001] EWHC 408 (Ch), [2002] 1 WLR 35. This aspect was not appealed; see [2002] EWCA Civ 1869, [2003] 2 WLR 1196. 32 [2001] EWHC 408 (Ch), [2002] 1 WLR 35 at [8]. (xxiii) ‘Rent’ i......
  • The historical significance of the High Court's decision in Federal Commissioner of Taxation v. The Myer Emporium Ltd.
    • Australia
    • Melbourne University Law Review Vol. 31 No. 1, April 2007
    • 1 April 2007
    ...omitted). (138) Ibid. (139) Ibid. (140) Ibid. (141) Ibid 296. (142) Ibid 297. (143) Ibid. (144) Ibid. (145) Ibid. (146) Ibid. (147) [2002] 1 WLR 35. (148) Ibid 45 (Lightman (149) Ibid. (150) Ibid. (151) [1938] 2 KB 25. (152) [1997] 3 All ER 817. (153) [2003] 1 AC 311. (154) John Lewis 2002 ......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT