Lawrie v Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 19 June 1952 |
| Docket Number | No. 39. |
| Date | 19 June 1952 |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION.
RevenueIncome taxMode of assessmentDeductionsCapital or revenue expenditureNotional repairsReconstruction of whole premises superseding necessity of specific repairWhether proportion of expenditure allowable as deductionIncome Tax Act, 1918 (8 and 9 Geo. V, cap. 40), Sched. D, Cases I and II, Rule 3 (d) and (g)Finance Act, 1926 (16 and 17 Geo. V, cap. 22), sec. 36 (1) and Fourth Sched.
Rule 3 of the Rules applicable to Cases I and II of Sched. D of the Income ax Act, 1918, as amended by the Finance Act, 1926, sec. 36 (1) and Fourth Sched., provides that, in computing the amount of the profits or gains to be charged, no sum shall be deducted in respect of"(d) any sum expended for repairs of premises occupied for the purposes of the trade beyond the sum actually expended for those purposes (g) any capital employed in improvements of premises occupied for the purposes of the trade"
A firm whose premises had fallen into disrepair during wartime obtained an estimate for the repair of the roof, but, after taking further advice, they decided that it would be better to reconstruct the premises, rather than repair the roof alone, and a reconstruction was carried out which involved the lengthening and heightening of the building and the provision of an entirely new roof to fit the enlarged building. They claimed that five-sixths of the expenditure on the roof of the new building should be allowed as a deduction from their taxable profits in name of repairs, five-sixths being the ratio of the floorage area in the old building to the floorage area after reconstruction.
Held that, once it had been determined, on the facts of the case, that the total sum expended represented a renewal or improvement of the premises, it was not competent to dissect or disintegrate the items of expenditure so as to attribute part to notional repairs and the balance to renewal or improvement; and that therefore no part of the expenditure was allowable as a deduction from the taxable profits.
Observed that the "entirety" to be considered was the building as a whole.
At a Meeting of the Commissioners for the Special Purposes of the Income Tax Acts Messrs William P. Lawrie appealed against an estimated assessment to income tax made upon them for the year 1950-1951 under Case I of Schedule D of the Income Tax Act, 1918,1 in respect of the profits of their trade. The sole question raised by the appeal was whether, in computing their profits, the appellants were entitled to deduct as an expense on revenue account a sum of 2891, being part of a larger sum of 3469 expended by them on the construction of a new roof at their premises.
The Special Commissioners pronounced a decision adverse to the appellants, and, at their request, stated a case for appeal to the Court of Session.
The stated case set forth that the following facts were proved:"(a) The appellant firm was constituted in 1928, in which year they took over, and have since carried on, a trade of concrete slab and block manufacturers at Prestwick. The works premises taken over by the appellants when they commenced business consisted of a small wooden building, 60 feet by 40 feet, which had been constructed in 1924. Between 1930 and 1937 the appellants made various extensions, alterations and additions to these premises, but no further extensions, alterations or additions were made after 1937 until 1949, in which year the alterations which are the subject of the present appeal were carried out. (b) Between 1937 and 1949 the appellants carried out no repairs to the roof, owing to the difficulty of obtaining licences. The result was that the roof began to fall into disrepair. But for the difficulty aforesaid, repairs would have been carried out year by year, as, and when, necessity arose. (c) By the end of the war (i.e., 1945), owing to the absence of repairs, the roof had deteriorated to such an extent that it was not watertight. Between approximately one-half and one-third of the whole area was leaking, and the brick pillars supporting the roof were defective. About the same time there was a great increase in building activity, and the appellants had to meet a greatly increased demand for their concrete products. The entry of water from the roof was highly detrimental to the manufacture of concrete slabs and blocks, and it became essential for the appellants to take steps to deal with the situation. (d) The appellants first obtained an estimate for repairing the existing roof, involving, inter alia, the replacement of certain of the roofing sheets. The amount of this estimate was 5750. Having obtained this estimate, they consulted their architect, Mr M'Culloch, in 1947. He did not, however, favour the acceptance of this estimate. The building was an old one which had been extended on previous occasions; the supports for the roof had moved slightly because of the thrust of the roof, and some of the brick piers supporting the valleys between the four spans into which the roof was divided had cracked and were leaning over. In Mr M'Culloch's opinion it might have been possible to repair the roof, though he was unable to express any opinion as to the said estimate of 5750. But his advice was that in all the circumstances it would be simpler and better to reconstruct the whole roof, rather than attempt to repair it. The appellants accepted Mr M'Culloch's advice, but decided upon a larger operation involving the lengthening and heightening of the whole building and the construction of an entirely new roof. (e) This larger operation was carried out in 1949 for the appellants under the direction of Mr M'Culloch. Mr M'Culloch produced and explained to us a plan and blue print of the work done. Shortly stated, the two end walls of the building, which were about 9 feet 6 inches in height, were de molished...
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