St. John's School v Ward

JurisdictionEngland & Wales
Judgment Date01 November 1974
CourtCourt of Appeal (Civil Division)
Date01 November 1974

HIGH COURT OF JUSTICE (CHANCERY DIVISION)-

COURT OF APPEAL-

(1) St. John's School (Mountford and Another)
and
Ward (H.M. Inspector of Taxes)

Income tax, Schedule D-Capital allowances-Machinery or plant- School-Gymnasium and laboratory-Constructed of prefabricated moveable panels-Whether structures plant-Whether expenditure apportionable between structures and equipment contained therein-Apportionment impossible without evidence-Capital Allowances Act 1968 (c. 3), ss. 18, 19 and 77(1).

The Appellants carried on in partnership on leasehold premises a school for the education of boys and girls between 5 and 18. In the years ended 1968 and 1969 respectively, with the landlord's consent, they erected in the grounds a chemical laboratory at a cost of £4,311 and a gymnasium at a cost of £4,926. Both were constructed of prefabricated timber-framed asbestos-lined panels bolted together, which were supplied separately and erected on the site, and each had a gable roof covered with roof felt on laths. Neither structure was affixed to the ground or to the concrete base on which it stood. The layout of either of them could be changed by rearrangement of the panels; e.g., the laboratory could be divided into two separate laboratories. Both structures had mains electricity service and the laboratory had a mains service of gas and water. Benches, incorporating sinks, were attached to the four walls of the laboratory, and a blackboard also to one wall. The gymnasium had a special floor of glossed beech, its panels at one end were strengthened to carry a serpentine (viz., a heavy frame of bars for climbing exercises) and an area of the roof was specially designed to carry climbing ropes. The expenditure on the gymnasium could be broken down item by item for the purposes of an apportionment between the structure and the equipment contained in it, but no such breakdown could be made of the expenditure on the laboratory. An apportionment by the suppliers of 75 per cent. of the cost of each structure to "equipment" and elements required to hold the equipment in position, which was not supported by documentary evidence, was not accepted by the Commissioners.

On appeal against assessments to income tax under Case I of Schedule D for the years 1968-69 and 1969-70 the Appellants contended that the whole of the expenditure on the provision of the laboratory and the gymnasium was expenditure on the provision of plant and machinery qualifying for capital allowances; alternatively, that a just apportionment should be made of such part of the expenditure as related to chattels on the footing that that part qualified for capital allowances. The General Commissioners rejected the contention that the component prefabricated parts of the structures were plant and found that the structures were buildings and the installations of gas, water and electricity were an integral part of them. They found that the cost of the serpentine and the mounting of it and the cost of moveable heaters in the gymnasium were capital expenditure on the provision of plant, and, in the absence of evidence to justify division of the expenditure on the laboratory, they disallowed the rest of the claim.

In the High Court and above the Appellants contended additionally that on the footing that the laboratory was not plant but contained plant (viz. the benches and

sinks) the Commissioners should have made an apportionment based on inferences from the apportionment in respect of the gymnasium

Held, (1) that the gymnasium and the laboratory must each be considered as an entity, and so considered consisted of a building or premises, and not plant; (2) that, whether the Commissioners considered that the benches and sinks were an integral part of the laboratory or that if not integral parts the expenditure thereon could not be apportioned in the absence of evidence, their refusal to apportion the expenditure on the laboratory was justified, and, in particular, that it would not have been proper for them to make an apportionment on the basis of inferences from the apportionment in respect of the gymnasium.

Jarrold v. John Good & Sons Ltd. 40 T.C. 681;[1963] 1 W.L.R. 214 and Commissioners of Inland Revenue v. Barclay, Curle & Co. Ltd. 45 T.C. 221; [1969] 1 W.L.R. 675 distinguished.

CASE

Stated under s. 56 of the Taxes Management Act 1970 by the Commissioners for the General Purposes of the Income Tax for the Division of Bromley in the County of Kent for the opinion of the High Court of Justice.

1. At meetings of the said Commissioners held on 15th and 16th May 1972 and 22nd February 1973 Frederick William Mountford and Mrs. Olive Catherine Knibbs, trading as St. John's School ("the Appellants"), appealed against the following assessments to income tax under Case I of Schedule D:

1968-69

Private school

£6,000

1969-70

Private school

£6,000

2. The question for our determination was whether expenditures incurred in the accounting years ended on 3rd January 1968 and 3rd January 1969 respectively on structures for use in the trade were in whole or part expenditures on the provision of machinery or plant within the meaning of ss. 18 and 19 of the Capital Allowances Act 1968.

3. The following facts were admitted or proved:

  1. (2) On 4th January 1966 a lease (which is not attached but is available to the Court) for 21 years in respect of St. John's School, Stock Road, Billericay, in the County of Essex, was granted to the Appellants, and on 5th January 1966 they succeeded to, and from that date carried on in partnership, the long-established trade of providing therein general education for boys and girls between the ages of 5 and 18.

  2. (3) The demised premises consist of a "dwelling house with the outbuildings and appurtenances thereto belonging", which had previously been adapted or erected for the purposes of the trade, situated on land which comprised also a tennis court and playing fields.

  3. (4) In the year ended 3rd January 1968, in order to extend and improve the school facilities, the Appellants, with the consent of the lessor, caused to be erected in the grounds a structure purpose-built for use as a chemical laboratory (hereinafter referred to as "the laboratory") at a cost of £4,311; and in the year ended 3rd January 1969, for similar reasons, and with consent, caused to be erected in the grounds a structure for use mainly as a gymnasium (hereinafter referred to as "the gymnasium") at a cost of £4,926.

  4. (5) The laboratory is a one-storey structure of outside dimensions 60 ft. 6 in. by 24 ft. 6 in., which comprises: (a) a chemical laboratory; (b) a preparation room; and (c) a classroom available for the general purposes of the school. A plan and elevations are on exhibit A, which is attached to and forms part of this Case(1).

  5. (6) The gymnasium is a one-storey structure of outside dimensions 68 ft. 7 in. by 31 ft. which comprises: (a) a main hall, which is used primarily as a gymnasium and from time to time as an assembly hall, or for music and dance activities; (b) a classroom available for the general purposes of the school; and (c) a store room. A plan and elevations are on exhibit B, which is attached to and forms part of this Case(1)

  6. (7) The elements in the structures common to both are that: (a)each is constructed of a number of prefabricated, timber-framed, asbestos-lined panels bolted together, supplied separately and erected on the site; the appropriate windows and doors form part of the panels; (b) the outside surfaces of the panels are cedar strip cladding; (c) each has a gable roof covered with roof felt on laths, and a ridge and guttering; (d) both have mains electricity service; and (e) neither structure is affixed to the ground or the concrete base on which it stands.

  7. (8) The elements particular to the laboratory are that: (a) it has a pine board floor supported by brick piers on a concrete base; (b) benches, incorporating sinks (eight in all) are attached to three of the walls, and a chalk board (which runs the full length) and a bench and sink for a teacher are attached to the fourth wall; (c) it has a mains service of gas and water, carried between the base and the floor to each of the benches and sinks, and a waste disposal pipe passing from each sink through a wall into a main duct.

  8. (9) The elements particular to the gymnasium are that: (a) it has a highly "specific" floor (which extends also to the classroom) of glossed, narrow-strip, junkers beech supported by pads on timber joists resting on a concrete base; (b) panels at one end are specially strengthened to carry a folding "serpentine", which is a heavy frame of parallel bars for climbing exercises; (c) an area of the roof is specially designed to carry a climbing rope or ropes.

  9. (10) As a result of the erections the gross rateable value of the school and grounds was raised from £1,500 to £1,850 and the net rateable value from £1,200 to £1,513.

  10. (11) Under clause B(11) of the lease the lessees jointly and severally covenanted with the lessor:

To yield up unto the Lessor at the expiration or sooner determination of the said term so painted repaired cleansed maintained amended and kept as aforesaid the demised premises and all new buildings erected thereon other than buildings of a portable nature and all additions and improvements made thereto in the meantime and all fixtures of every kind in or upon the demised premises or which during the same term may be affixed or fastened to or upon the same except tenant's or trade fixtures.

4. Evidence was given by Mr. Lionel Wernick B.Sc.(Hons.), managing director of S. Wernick & Sons Ltd., the designers, suppliers and erectors of the structures. He said that: (1) The layout of the space of either structure could be changed by rearrangement of the panels. For example, division of the "laboratory" space so as to produce two separate laboratories might be carried

out by three inexperienced persons in four days; one day for dismantling and three for...

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