Lupton v Cadogan Gardens Developments Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 03 March 1971 |
| Date | 03 March 1971 |
| Court | Court of Appeal (Civil Division) |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income tax - Profits tax - Capital allowances - Leased machinery and plant - Burden of wear and tear - Covenants by lessee to keep in good and substantial repair and for replacement of worn-out items - Replacement likely to be necessary during currency of lease - Whether lessor or lessee entitled to capital allowances - Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), ss. 298 and 299.
Hotel premises containing lifts, boilers and other machinery and plant were leased by the Respondent in the first case (hereinafter called "the lessors") to the Appellant in the second and third cases (hereinafter called "the lessees") by two leases for a term of 90 years from 29th September 1960. The leases contained covenants by the lessees to maintain the premises, including the machinery and plant, and keep them in good and substantial repair and to deliver them up so maintained and well and substantially repaired at the end of the lease, and furthermore as often as necessary to replace worn-out machinery or plant with other items of similar quality. Having regard to its expected useful life the machinery and plant would probably have to be replaced once or more often during the full term of the lease. At the material times the lessees carried on in the premises the business of hotel keeper and restaurant keeper.
Both the lessors and the lessees claimed capital allowances for the year 1961-62 in respect of the machinery or plant. On appeal, the Special Commissioners held that the lessors were entitled to the allowances under s.298. Income Tax Act 1952, and that the lessees were not entitled to them under s.299 of that Act, on the grounds that "the burden of wear and tear" in those section mean diminution in value occurring with effluxion of time notwithstanding adequate expenditure on maintenance and repair and that the Commissioners must deal with the machinery and plant in use at the relevant time regardless of possible future replacements. Cases were demanded by the Crown in the first case and by the lessees in the second and third cases.
Held, that the lessees and not the lessors were entitled to capital allowances.
(1) Lupton (H.M. Inspector of Taxes) v. Cadogan Gardens Developments Ltd.
CASE
Stated under the Income Tax Management Act 1964, s. 12(5), and the Income Tax Act 1952, s. 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 2nd December 1968, Cadogan Gardens Developments Ltd. (hereinafter referred to as "the Respondent") appealed against the refusal of the Inspector of Taxes to make an allowance for wear and tear under the provisions of the Income Tax Act 1952, s. 298, in respect of machinery or plant owned by the Respondent as hereinafter appeareth.
2. The following documents were produced and admitted at the hearing of the appeal:
(i) a statement of facts agreed between the parties;
(ii) a lease (hereinafter referred to as "the Carlton Tower lease") made on 24th October 1962 between the Respondent, The Carlton Tower Ltd. (hereinafter referred to as "the lessee"), and Hotel Corporation of America (hereinafter referred to as "the guarantor");
(iii) a lease (hereinafter referred to as "the Rib Room lease") made 24th October 1962 between the Respondent, the lessee and the guarantor;
(iv) a schedule of machinery or plant in respect of which allowances are claimed by the Respondent.
The provisions of the above documents so far as relevant to this appeal are incorporated herein, but copies of the said documents are not attached to and do not form part of this Case for reasons of economy.
3. The facts found by us, the Commissioners who heard the appeal, are set out in the following paragraphs.
4. By a lease dated 26th April 1961 a site in London W.1 was leased for 99 years from 25th December 1959 by the Viscount Chelsea to the Respondent.
5. The Respondent constructed an hotel and restaurant (hereinafter referred to collectively as "the premises") on this site, and on completing them leased them, together with certain new service installations and landlord's fixtures which had been installed at the Respondent's expense, to the lessee. The lease was effected by two separate deeds, the Carlton Tower lease and the Rib Room lease, both dated 24th October 1962 and both for a term of 90 years from 29th September 1960. The guarantor, of which the lessee is a subsidiary, was a party to both leases as a guarantor of the lessee.
6. The lessee carried on the business of hotel keeper and restaurant keeper in the premises since late 1960.
7. The Carlton Tower lease provided, inter alia, as follows:
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1. The Lessors in consideration of the rents hereinafter mentioned and the Lessees' and Guarantors' covenants hereinafter contained Hereby Demise unto the Lessees All Those hotel premises and other accommodation for the purpose of identification delineated and outlined in red on the floor
plans marked "A" and signed by or on behalf of the parties hereto and annexed hereto situate on the basement sub-basement ground and first to twelfth and fourteenth to nineteenth floors of the building (hereinafter called "the Building") erected on over and under parts of the piece of land at Sloane Street and Cadogan Place in the County of London delineated with a blue boundary line on the plan marked "B" and signed by or on behalf of the parties hereto and annexed hereto (which said piece of land is together with the Building hereinafter called "the Property" which expression shall so far as the context admits include any adjacent land of which the Lessors now are or hereafter become the owners or tenants and all buildings now or hereafter erected on over or under the said piece of land or any such adjacent land and all parts of any such buildings) And Also All Those parts of the surface of the Property at ground level so delineated as aforesaid on the ground floor plan included among the said plans marked "A" Together With And Including in this demise the roofs and foundations of the Building and all parts now vested in the Lessors of any party wall (as defined in Section 4 of the London Building Acts (Amendment) Act 1939) at any boundary of the Property immediately adjacent to the said Building and the pavement lights over any part of the basement floor of the Building and all service installations and other landlord's fixtures within or at the boundary of the Building (including service installations used in common in connexion with the Building and any other part of the Property but excluding the service installations hereinafter mentioned) Excluding Nevertheless from this demise all spaces and parts of the Property above or below the parts thereof expressly included in this demise and also any service installations within or at the boundary of the Building not adapted for use in connexion with the Building (all of which parts of the Building and premises and service installations and other landlord's fixtures so included in this demise are hereinafter collectively called "the demised premises" which expresion shall so far as the context admits include all parts thereof and all future alterations and additions thereto and all landlord's fixtures hereafter installed in or annexed to or at the boundary of the same) Together with the rights specified in the First Schedule hereto exercisable by the lessees and all persons claiming through or under or authorised by them in common with the Lessors and all other persons having the like rights (but subject to the rights hereinafter reserved to the Lessors) And Together with the right only for such persons as from time to time shall be residents in the hotel carried on upon the demised premises of access to and use for the purposes of recreation and exercise of the ornamental garden known as North Garden Cadogan Place subject to such rules and regulations as shall from time to time be approved by Cadogan Settled Estates Company or their successors in title or the Garden Committee in relation to the said garden Excepting Nevertheless out of this demise And Reserving unto the Lessors and all persons claiming through or under or authorised by them as owners tenants or occupiers of any other parts of the Property the rights specified in the Second Schedule hereto To Hold the same unto the Lessees (excepting and reserving as aforesaid) from the date hereof for the term of Ninety Years calculated from the Twenty ninth day of September One thousand nine hundred and sixty (and so that any reference herein to any year of the said term shall be construed as referring to the year calculated from that date) Subject to the exceptions and reservations contained or referred to in a Lease (hereinafter called "the Head Lease") dated the Twenty Sixth day of April One thousand nine hundred and Sixty One and made between The Honourable Charles Gerald John Cadogan of the first part Coutts and Company of the second part and the Lessors of the third part (being the Lease under which the Lessors hold the property) And Subject to any such rights as those specified in the Second Schedule hereto which may have been granted before the date hereof in any lease of any other part of the Property And Subject Also to any public rights of way over or affecting any parts of the surface of the Property at ground level included in this demise Yielding And Paying therefor during the said term the following annual rents during the following periods namely an annual rent at the annual rate of £12,500 from the 30th day of November One thousand nine hundred and sixty and thereafter during the whole of the said term and also...
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...[1971] 3 W.L.R. 670; [1971] 3 All E.R. 948; 47 T.L. 580, H.L.(E). Lupton v. Cadogan Gardens Developments Ltd. [1971] 1 All E.R. 717; [1971] 3 All E.R. 460; 47 T.C. 1, C.A. Revenue - Income tax - Lease by partnership of plant to hotel - Burden of wear and tear falling upon lessor - Allowance......
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