Sarsfield (Inspector of Taxes) v Dixons Group Plc and related appeals (No.1)
| Jurisdiction | England & Wales |
| Judgment Date | 30 January 1997 |
| Date | 30 January 1997 |
| Court | Chancery Division |
Chancery Division.
Lightman J.
Michael Furness (instructed by the Solicitor of Inland Revenue) for the Crown.
Rex Bretten QC and Stephen Brandon QC (instructed by Titmuss Sainer Dechert) for the Dixons Group.
The following case was referred to in the judgment:
Kilmarnock Equitable Co-operative Society Ltd v IR CommrsTAX(1966) 42 TC 675
Corporation tax - Capital allowances - Industrial buildings and structures - Warehouse - Group member occupying warehouse provided warehousing facilities for chain of retail shops belonging to another group member - Whether construction expenditure on warehouse by a third group member qualified for industrial building allowances - Whether warehousing by one group member "ancillary" to purposes of retail shops of another group member - Capital Allowances Act 1968, s. 7(3)(Capital Allowances Act 1990 section 18 subsec-or-para (4)Capital Allowances Act 1990, s. 18(4),Capital Allowances Act 1990 section 18 subsec-or-para (5)(5)).
These were appeals by the Revenue against the decision of the general commissioners for Finsbury that construction expenditure on warehouse accommodation by the Dixons Group of companies qualified for capital allowances for industrial buildings.
Dixons Group plc was the parent company of a group of companies comprising DL (which operated a chain of retail shops), DIL (a property investment company) and DGDL, which became a member of the group in 1978.
Between 1974 and 1980, DIL incurred expenditure in building and extending warehouse accommodation for the group, and in 1974 DL took up occupation of the warehouse as its storage and distribution depot from which goods were delivered to its shops.
On 3 May 1981 DL transferred the business carried on at the warehouse to DGDL and from that date DGDL carried out warehousing and distribution functions for DL. In 1982 DIL incurred construction expenditure on the warehouse amounting to nearly £1m.
The question of principle for decision was whether expenditure on the warehouse by DIL and DGDL qualified for initial and writing down allowances pursuant to Capital Allowances Act 1990 section 1 section 3ss. 1 and 2 of the Capital Allowances Act 1968 as expenditure on an industrial building or structure.
It was common ground that the use of the warehouse by DL before 3 May 1981 was for the purposes of its retail trade so that expenditure fell outside the definition of an "industrial building" in Capital Allowances Act 1990 section 18 subsec-or-para (1)s. 7(1) of the 1968 Act and did not qualify for any allowance. Accordingly DIL could not claim any allowances during that period. It was also common ground that since 3 May 1981 the use was for the purposes of DGDL's transport undertaking and that the warehouse did then qualify as an industrial building.
The only issue was whether the companies were disqualified from obtaining allowances by reason of Capital Allowances Act 1990 section 18 subsec-or-para (4)s. 7(3) of the 1968 Act, whether the warehouse was in use for a purpose "ancillary" to the purposes of any retail shop.
The Revenue contended that Capital Allowances Act 1990 section 18 subsec-or-para (4)s. 7(3) should be construed as a free standing provision so that it extended to all buildings used for any purpose ancillary to the purposes of any retail shop or shops.
It was the companies' case that the function of Capital Allowances Act 1990 section 18 subsec-or-para (4)s. 7(3) was to exclude from the definition of an industrial building only such buildings of a kind specified in the subsection as would otherwise, as a component part of a trader's enterprise, be subsumed within the definition in Capital Allowances Act 1990 section 1s. (1).
Held, dismissing the Revenue's appeals:
1. The structure and language of Capital Allowances Act 1990 section 18s. 7 of the 1968 Act showed thatCapital Allowances Act 1990 section 18 subsec-or-para (4)s. 7(3) was only concerned with excluding from the definition of industrial buildings and structures in Capital Allowances Act 1990 section 18 subsec-or-para (1)s. 7(1)certain uses of buildings which would otherwise fall within it. In this case it was common ground that the use of the retail shops of the Dixons group did not qualify for allowances. Accordingly even if the use of the warehouse was for a purposes ancillary to the use of the retail shops which were not within the definition, on its true construction, Capital Allowances Act 1990 section 18 subsec-or-para (4)s. 7(3) had no application.
2. From 3 May 1981 DGDL used the warehouse for the purpose of its own profitable transport undertaking and, although the services provided by the warehouse were necessary for the retail shops, that did not mean that the warehouse was used for a purpose ancillary to the retail shops. The warehouse was used by DGDL for the purpose of carrying on a separate undertaking in its own right which was the antithesis of an ancillary activity; and the use of the warehouse for such purpose was not rendered "ancillary to use for the purposes of a retail shop" merely by reason of the fact that it was a preliminary operation which preceded some other trading operation by the Dixons Group retail shops or that the services were provided exclusively to one or more customers. The corporate relationship between the user of the warehouse and the customers was irrelevant.
1. At a meeting of the commissioners for the general purposes of the income tax for the division of Finsbury held on 9 and 10 March 1994 we heard appeals by the following taxpayers:
1.1 Dixons Group plc: appeal dated 2 March 1994 against the inspector's decision dated 21 February 1994 refusing the company's claim to group relief from Dixons Photographic (Investments) Ltd for the accounting period ended 1 May 1982 in the sum of £540,027.
1.2 1.2 Dixons Ltd (Now Dixons Stores Group Ltd): appeal dated 2 March 1994 against the inspector's decision dated 21 February 1994 refusing the company's claim to group relief from Dixons Photographic (Investments) Ltd for the accounting period ended I May 1982 in the sum of £224,249.
1.3 Dixons Group Distribution Ltd: appeal dated 2 March 1994 against the inspector's decision dated 21 February 1994 refusing the company's claim to group relief from Dixons Photographic (Investments) Ltd for the accounting period ended 1 May 1982 in the sum of £22,575.
1.4 Dixons Group Ltd: appeal dated 29 May 1984 against an assessment for the accounting period to 30 April 1982 in the sum of £20,000.
1.5 Dixons Photographic Investments Ltd (now Dixons Investments Ltd): appeal dated 2 March 1994 against the inspector's decision dated 21 February 1994 to refuse the company's claim that effect be given to allowances for the accounting period ended 1 May 1982 under s. 74(3) of the Capital Allowances Act 1968 (nowCapital Allowances Act 1990 section 145 subsec-or-para (3)s. 145(3) of the Capital Allowances Act 1990).
1.6 Dixons Photographic Investments Ltd (now Dixons Investments Ltd): appeal dated 29 May 1984 against an assessment for the accounting period to 30 April 1984 in the sum of £801,000.
1.7 Dixons Group plc: appeal dated 25 February 1983 against an assessment for the accounting period to 30 April 1982 in the sum of £1.5m.
1.8 Dixons Ltd (now Dixons Stores Group Ltd): appeal dated 25 February 1983 against an assessment for the accounting period to 30 April 1982 in the sum of £2m.
2. It was agreed between the parties that the question for our determination which would resolve all the appeals was whether, by reason of Capital Allowances Act 1990 section 18 subsec-or-para (4)s. 7(3) of the Capital Allowances Act 1968, the Phase I and Phase II warehouse buildings were disqualified from being industrial buildings for the purposes of Capital Allowances Act 1990Ch. I of Pt. I of the Capital Allowances Act 1968, so that neither Dixons Investments Ltd ("DIL") nor Dixons Group Distribution Ltd ("DGDL") (being two companies within the Dixon Group) were entitled to claim any capital allowance under the said Ch. I for their accounting periods ending 1 May 1982 in respect of the expenditure incurred by those companies on the construction of any of those buildings.
3. A statement of agreed facts was put in evidence and no additional oral evidence was called.
[There followed a list of documents to which the commissioners were referred.]
4. Mr GR Bretten QC, with Mr S Brandon, appeared on behalf of the taxpayer companies. Mr Donagh MacDonagh of the Solicitor's Office, Inland Revenue, appeared on behalf of the inspector of taxes.
5. Contentions of the companies:
5.1 Mr Bretten QC contended on behalf of the companies that, on the basis of the statement of agreed facts:
5.1.1 In the period between 28 April 1974 and 29 April 1978, when DIL incurred capital expenditure on the Phase I site, within theCapital Allowances Act 1990 section 1Capital Allowances Act 1968, s. 1 and (Capital Allowances Act 1990 section 32(1), in the sum of £17,312, DIL as the head lessee, owned the relevant interest in that site in relation to that expenditure.
5.1.2 In the accounting period ended 30 April 1982, when DIL incurred capital expenditure, in the sum of £940,132, on the Phase II site, DIL owned the relevant interest in that site in relation to that expenditure. This is because, by virtue of Capital Allowances Act 1990 section 21 subsec-or-para (1)s. 17(2) of the 1968 Act, DIL fell to be treated as owning the head leasehold interest which was subsequently granted to it.
5.1.3 The warehouse comprising the Phase I and Phase 11 developments was, at all material times, occupied by DGDL for the purposes of its trade.
5.1.4 At the time in its accounting period ended 1 May 1982, when it incurred capital expenditure of £2,215 on Phase II site, DGDL also held a relevant interest within Capital Allowances Act 1990 section 20s. 11(1) in relation to that...
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Table of Cases
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