Munby v Furlong (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 25 January 1977 |
| Date | 25 January 1977 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income tax, Schedule D, Case II - Profession - Capital allowances - Whether barrister's books are plant - Finance Act 1971 (c. 68), Part III, Chapter I.
The Appellant was a practising barrister, who commenced practice in September 1972. During the first year of his practice he purchased certain law reports and textbooks (none of them being renewals) for the purpose of carrying on his profession. Most of the textbooks purchased were likely to be replaced at varying times in the future by new editions. The Inspector assessed the Appellant to income tax under Case II of Schedule D and refused to regard the books purchased as plant with the result that expenditure thereon did not qualify for capital allowances. The Appellant appealed to the General Commissioners claiming that he was entitled to allowances under Finance Act 1971, ss. 41(1) and 47(1), because, in acquiring the books, he had incurred capital expenditure on the provision of plant. The Commissioners dismissed the Appellant's appeal and decided that the books were not plant (following the decision in Daphne v. Shaw (1926) 11 T.C. 256), with the reservation that they could not see why, if a barrister had to buy a new edition of a textbook in order to help him write his opinions, the book should not be regarded as a tool of his trade just as much as the typewriter on which his opinions were typed.
The Chancery Division held that the books were not plant. Daphne v. Shaw followed.
Held, in the Court of Appeal, that the books were plant. Daphne v. Shaw overruled; Yarmouth v. France (1887) 19 Q.B.D. 647 applied.
Stated by the Commissioners for the General Purposes of the Income Tax for the Division of Lincoln's Inn.
1. At a meeting of the General Commissioners held on 9th December 1974 the taxpayer James Lawrence Munby appealed against assessments under Schedule D, Case II, of £407 (less capital allowances £80) and £762 made on him for the income tax years 1972-73 and 1973-74 respectively.
2. For the purposes of s. 5(1) of the Taxes Management Act 1970 both the Inspector and the taxpayer expressly consented to our hearing the appeal notwithstanding such personal interest (if any) as we in our capacity as practising barristers may have in relation to the subject matter of the appeal.
3. The following facts were agreed:
(2) The taxpayer is a barrister in practice at the Chancery Bar with chambers at 1 New Square, Lincoln's Inn, London, W.C.2. He started practice on 1st September 1972 having previously been in pupillage since 1st October 1971.
(3) The taxpayer's professional accounts are prepared to 31st August each year. The accounts for the first year of his practice were prepared in two parts: (i) 1st September 1972 to 5th April 1973; (ii) 6th April 1973 to 31st August 1973.
(4) The relevant professional accounts for the income tax year 1972-73 are those for the period 1st September 1972 to 5th April 1973 (opening year basis); for the income tax year 1973-74 the combined accounts for the period 1st September 1972 to 31st August 1973 (second year basis).
(5) During the period 1st September 1972 to 31st August 1973 it was necessary for the taxpayer to purchase certain law reports and books for the purpose of his practice as a barrister. Some of these were purchased as replacements of earlier (out of date) editions; some of the law reports consisted of the current weekly and monthly issues which were paid for by means of an annual subscription. The Inspector allowed the appropriate deductions in respect of these two categories in making the assessments and accordingly these appeals are not concerned with them. At the hearing before us he also agreed to allow as a deduction the cost of the County Court Practice which is an annual publication.
(6) Details of the other law reports and books purchased are set out in the schedule to this Case. The majority of the books are likely to be replaced by new editions in the future. The frequency of new editions varies with the different books. However, it appears that none of these books would normally be replaced by a new edition in less than four years and in many cases an average period of about six to nine years seems to be normal.
(7) The Inspector in making the assessments has refused to allow any deduction in respect of the expenditure on the books listed in the said schedule whether as a deduction in computing profits or as qualifying for a capital allowance. Consequently the taxpayer gave notice of appeal in writing so that the matter might be considered by the Commissioners.
4. The questions originally raised for determination by the Commissioners were whether any or all of the said expenditure incurred in the purchase by the taxpayer of law reports and books for the purpose of his practice as a barrister qualifies for deduction or allowance under Schedule D, Case II, either (a) as revenue expenditure to be deducted when computing the profits of that practice; or (b)as capital expenditure qualifying for a capital allowance under Chapter I of Part III of the Finance Act 1971. The taxpayer did not, however, pursue question (a).
5. The following agreed documents were put in:
(a) The schedule hereto.
(b) The said assessments.
(c) The notice of appeal.
The said assessments and notice of appeal are not exhibited hereto but are available for the Court if required.
6. The following reported cases were referred to:-
Yarmouth v. France ELR(1887) 19 Q.B.D. 647
Daphne v. Shaw TAX(1927) 11 T.C. 256
J. Lyons & Co. Ltd. v. Attorney-General ELR[1944] Ch. 281
Hinton v. Maden & Ireland, Ltd. TAXWLR38 T.C. 391; [1959] 1 W.L.R. 875
Jarrold v. John Good & Sons, Ltd. TAXWLR40 T.C. 681; [1963] 1 W.L.R. 214
Rose & Co. (Wallpaper and Paints) Ltd. v. Campbell TAXWLR44 T.C. 500; [1968] 1 W.L.R. 346
Commissioners of Inland Revenue v. Barclay, Curle & Co. Ltd.TAXWLR45 T.C. 221; [1969] 1 W.L.R. 675
McVeigh v. Arthur Sanderson & Sons Ltd. TAXWLR45 T.C. 273; [1969] 1 W.L.R. 1143
Cooke v. Beach Station Caravans Ltd. TAXWLR49 T.C. 514; [1974] 1 W.L.R. 1398
7. It was contended by the taxpayer that:
(a) if the books in question are both "capital" and "plant" they qualify for capital allowances under Chapter I of Part III of the Finance Act 1971;
(b) the Crown admits that the books are "capital" and accordingly the only question is whether they are "plant";
(c) in the course of his judgment in Yarmouth v.France 19 Q.B.D. 647, at page 658, Lindley L.J. defined "plant" as including
whatever apparatus is used by a business man for carrying on his business,-not his stock-in-trade which he buys or makes for sale; but all goods and chattels fixed or moveable, live or dead, which he keeps for permanent employment in his business.
(c) This passage has been subsequently approved by the House of Lords and cited with approval in the Court of Appeal (see Hinton v.Maden & Ireland, Ltd. 38, T.C. 391 and Jarrold v.John Good & Sons, Ltd. 40 T.C. 681, at pages 691 and 695, 4th para.);
(d) it is sufficient for the taxpayer to show that (i) the books are "plant" within Lindley L.J.'s definition and (ii) they are not within any relevant exception;
(e) the books are clearly "plant" within Lindley L.J.'s definition and they are not excepted (see Hinton v. Maden & Ireland, Ltd. 38 T.C. 391, at pages 417 and 424 andMcVeigh v. Arthur Sanderson & Sons, Ltd. 45 T.C. 273, at page 285);
(f) the Crown relied on Daphne v. Shaw 11 T.C. 256, but that case should not be followed because it was inconsistent with the subsequent decision of the House of Lords in Hinton v.Maden & Ireland, Ltd. and was impliedly overruled;
(g) the case of Rose & Co. (Wallpaper & Paints) Ltd. v.Campbell 44 T.C. 500 (see page 505) is to be distinguished because it was decided on the ground of the duration of the life of the property alleged to be "plant" and not by reference to the character of such property;
(h) there is no relevant distinction in law between plant used for physical purposes and plant used for intellectual purposes.
8. It was contended by the Inspector that:
(a) the books in the schedule are not plant, so that expenditure incurred on their purchase does not qualify for capital allowances under Chapter I of Part III of the Finance Act 1971;
(b) the books contain information to which the taxpayer may have recourse when he sees fit but they do not fall within the common or ordinary meaning of the phrase "machinery or plant", which is necessarily limited to some physical, movable or immovable, apparatus or implement which has some physical or mechanical function in an industrial or business process;
(c) Daphne v. Shaw, which was decided afterYarmouth v. France and followed in McVeigh v.Arthur Sanderson & Sons Ltd. has not been overruled and concludes the question against the taxpayer;
(d) the appeal should be dismissed.
9. We, the Commissioners, considered that the limitation placed by the Inspector on the meaning of machinery or plant referred to in para. 8(b) above was unjustified; it would, for instance, be difficult to apply to a computer. Like Cross J. in McVeigh v.Arthur Sanderson and Sons Ltd. (45 T.C., at page 285) we also felt unable to see as a matter of principle why,
if a barrister has to buy a new edition of a textbook in order to help him write his opinions, …the book should not be regarded as a tool of his trade just as much as the typewriter on which his opinions are typed.
Except, therefore, for the decision in Daphne v.Shaw(1) we would have held that the books were "plant". Nevertheless we, like Cross J., came to the conclusion that, having regard to that decision, if any extension of the meaning of the word "plant" beyond a purely physical object is to be made, it ought to be made by a higher Court. Accordingly we dismissed the appeal.
10. Figures having been agreed between the parties on the basis of this decision, we determined the...
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