Stokes v Costain Property Investments Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE FOX,LORD JUSTICE GOFF,LORD JUSTICE WALLER |
| Judgment Date | 17 February 1984 |
| Judgment citation (vLex) | [1984] EWCA Civ J0217-1 |
| Docket Number | 84/0065 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 February 1984 |
[1984] EWCA Civ J0217-1
Lord Justice Waller
Lord Justice Fox
Lord Justice Robert Goff
84/0065
1982 No. 11
IN THE SUPREME COURT 0F JUDICATURE
COURT OF APPEAL
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (REVENUE PAPER)
(MR JUSTICE HARMAN)
Royal Courts of Justice
MR D.C. POTTER, Q.C., and MR A. THORNHILL (instructed by Paul Sherren, Esq., Solicitor) appeared on behalf of the Appellants.
MR R. J. A. CARNWATH (instructed by the Solicitor to the Inland Revenue) appeared on behalf of the Respondents.
This is an appeal by the taxpayer Costain Property Investments Ltd. from a decision of Harman J. reversing determinations of the General Commissioners that the taxpayer is entitled to capital allowances in respect of certain plant and machinery. Put very shortly, the issue arises in this way. The allowances are not available if the plant and machinery did not "belong" to the taxpayer at the relevant time. At that time the plant and machinery were landlord's fixtures in buildings leased to the taxpayer on long leases. The question is whether, upon the true construction of the Finance Act, 1971, it can be said that the items did "belong" to the taxpayer at the time.
The case is concerned with two pieces of land. The first is at Maidenhead. By an Agreement of 19th April 1973 between the Borough of Maidenhead, Richard Costain Ltd. ("Costain") and the taxpayer (which was at all times the wholly owned subsidiary of Costain) the taxpayer agreed to develop the site as shops, offices and flats in accordance with agreed plans. Upon satisfactory completion of the development, the Corporation agreed to grant the taxpayer a lease of the development for 99 years at a specified rent.
In December 1973, as part of the financing arrangements, Costain and the taxpayer entered into an Agreement with a bank (Fleming) under which the taxpayer undertook to complete the development and Fleming undertook to pay the cost to a specified sum. The taxpayer undertook to procure the grant of the lease of the development to Fleming and Fleming agreed to grant an Underlease of the development to the taxpayer for 99 years less 10 days.
The development was duly completed and on 15th September 1975 the Corporation granted the Head Lease of 99 years to Fleming. Fleming, in turn, on 16th September 1975 granted the underlease to the taxpayer. On 10th October 1975 the taxpayer sublet part of the development to Costain and subsequently sublet the remainder to various tenants.
Included in the cost of the development was expenditure of about £465,000 on plant and machinery consisting principally of lifts and central heating equipment. A question whether the cost of these items was "incurred" by the taxpayer having regard to the financing arrangements with Fleming was determined by the Judge in favour of the taxpayer and there is no appeal from that.
It is not in dispute that the lifts and other items of plant and machinery form part of the freehold (i.e. are landlord's fixtures).
The other piece of land is at Kennington. By an agreement in February 1974 a charity agreed to grant to the taxpayer a 99 year lease of this land on terms that the taxpayer would first, at its own expense, erect an office block and church hall on the land according to approved plans.
The construction was completed on 30th October 1975. The cost included expenditure of £50,905 upon plant and machinery.
On 29th December 1975 the charity granted the head lease to the taxpayer in pursuance of the agreement. On the same day the taxpayer underlet the whole development for a term of 25 years.
On 30th December 1976 the taxpayer assigned the head lease to a Friendly Society for £388,600. The Society was, by the assignment, required to grant an underlease back to the taxpayer for a term of 99 years less 3 days. This was done on 30th December 1976.
At this point it will be convenient if I refer to the legislative history of the relevant statutes.
This authorises the Commissioners to allow such deductions as they think just and reasonable: "as representing the diminished value by reason of wear and tear during the year of any machinery or plant used for the purposes of the concern and belonging to the person or company by whom the concern is carried on; and for the purposes of this provision where machinery or plant is let to the person or company by whom the concern is carried on upon such terms that the person or company is bound to maintain the machinery or plant and deliver over the same in good condition at the end of the term of the lease such machinery or plant shall be deemed to belong to such person or company". And there is a further provision in the section giving relief to the lessor where the machinery or plant is let upon terms that the burden of maintenance and restoration falls upon him; this provision contains no requirement as to "belonging".
The 1878 provisions were substantially re-enacted in Schedule D, Case I and II, Rule 6(1), (2) and (5).
S. 15 This introduced the initial allowances where "a person carrying on a trade incurs capital expenditure on the provision of machinery or plant for the purposes of the trade". There is no requirement about "belonging".
S. 20 This re-casts the relief to lessors in respect of wear and tear originally granted by the 1878 Act but, again, did not introduce any requirement as to "belonging".
Sections 279 (initial allowances), 280 (wear and tear or annual allowance) and 298 (lessors) consolidate the previous provisions.
In 1952 the First Division of the Court of Session decided C .I.R. v. George Guthrie & Sons 33 T.C. 326. It was held that the initial allowance could be claimed by a trader who had paid for machinery but never received delivery because the vendor sold it to another customer. That decision, in effect, was reversed by:
Section 16 provided that the initial allowance should not be made in respect of expenditure on plant or machinery unless in consequence of the trader incurring it the the machinery or plant "belongs to him at some time during the basis period for that year of assessment".
This is a consolidation as follows: (1) Initial Allowance. Section 18 consolidates the 1945 and 1952 provisions as amended by the 1957 Act. Thus the "belonging" requirement was retained. (2) Wear and tear allowance. Section 19 re-enacts the 1952 provisions (which derive from the Act of 1878.) The "belonging" requirement is retained. (3) Lessors. Section 42 re-enacts section 298 of the 1952 Act. There is no requirement about "belonging".
That brings me to the Finance Act 1971, with which this case is concerned. It introduces new provisions in respect of machinery and plant allowance.
The "first year allowances" (the initial allowances) are dealt with by section 41 subsection (l) in the following terms: "Subject to the provisions of this Chapter, where—(a) a person carrying on a trade incurs capital expenditure on the provision of machinery or plant for the purposes of the trade, and (b) in consequence of incurring the expenditure, the machinery or plant belongs to him at some time during the chargeable period related to the incurring of the expenditure, there shall be made to him for that period an allowance (in this Chapter referred to as 'a first-year allowance') which shall be of an amount determined in accordance with section 42 below".
Section 44 authorises writing down allowances. Section 44(1) provides: "Subject to the provisions of this Chapter, where—(a) a person carrying on a trade has incurred capital expenditure on the provision of machinery or plant for the purposes of the trade, and (b) in consequence of his incurring the expenditure, the machinery or plant belongs, or has belonged, to him, and (c) the machinery or plant is or has been in use for the purposes of the trade, allowances and charges shall be made to and on him in accordance with the following provisions of this section".
Section 46 forms, with sections 44 and 47, a group of sections which are cross-headed "Application to machinery and plant on hire-purchase etc or lease and to activities other than trades".
Section 46 provides as follows: "(1) Where machinery or plant is first let by any person otherwise than in the course of a trade, then, whether or not it is used for the purposes of a trade carried on by the lessee—(a) the capital expenditure incurred by the lessor in providing the machinery or plant shall be treated for the purposes of this Chapter as having been incurred in providing it for the purposes of a trade begun to be carried on by him, separately from any other trade which he may carry on, at the commencement of the letting, and (b) the machinery or plant shall be treated for the purposes of this Chapter as being used for the purposes of the trade from the time when the trade is treated as begun until the time when the lessor permanently ceases to let it otherwise than in the course of a trade, and then as permanently ceasing to be so used:
Provided that this subsection shall not apply to machinery or plant let for use in a dwelling house.
(2) Where a lessee incurs capital expenditure on the provision for the purposes of a trade carried on by him of machinery or plant which he is required to provide under the terms of the lease, the machinery or plant shall be treated for the purposes of this Chapter as belonging to him for...
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