Tucker v Granada Motorway Services Ltd

JurisdictionUK Non-devolved
JudgeLord Wilberforce,Lord Salmon,Lord Edmund-Davies,Lord Fraser of Tullybelton,Lord Keith of Kinkel
Judgment Date23 May 1979
Judgment citation (vLex)[1979] UKHL J0523-1
Date23 May 1979
CourtHouse of Lords
Tucker (Inspector of taxes)
Granada Motorway Services Limited

[1979] UKHL J0523-1

Lord Wilberforce

Lord Salmon

Lord Edmund-Davies

Lord Fraser of Tullybelton

Lord Keith of Kinkel

House of Lords

Upon Report from the Appellate Committee to whom was referred the Cause Tucker (Inspector of Taxes) against Granada Motorway Services Limited, That the Committee had heard Counsel as well on Tuesday the 27th as on Wednesday the 28th days of March last upon the Petition and Appeal of Granada Motorway Services Limited of 36 Golden Square, London W1R 4AH praying that the matter of the Order set forth in the Schedule thereto, namely an Order of Her Majesty's Court of Appeal of the 14th day of June 1978 might be reviewed before Her Majesty the Queen in Her Court of Parliament and that the said Order might be reversed, varied or altered or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen in Her Court of Parliament might seem meet; as also upon the Case of Kenneth Victor Tucker lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal (Civil Division) of the 14th day of June 1978 complained of in the said Appeal be, and the same is hereby, Affirmed and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay or cause to be paid to the said Respondent the Costs incurred by him in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments if not agreed between the parties.

Lord Wilberforce

My Lords,


The question in this case is whether a sum of £122,220 paid by the appellant in order to secure a reduction in rent paid by it under a lease is deductible in computing its profits for corporation tax purposes. Although this states the essence of the problem, it is probably desirable to clothe it with some particulars.


The lease in question was granted by the Minister of Transport in 1965 and was of a service area near a motorway. The term was fifty years. The rent payable consisted of two elements: there was a fixed rent of £15,000 per annum, and there was an additional rent of a variable character. The additional rent varied in proportion to the appellant's gross takings from business conducted at the area. It was provided that, in calculating the variable element, the appellant should be entitled to exclude petrol duty but no such exclusion was allowed as to tobacco duty. The lease was expressly made non-assignable.


The appellant company soon realised that the part of the variable rent calculated by reference to tobacco duty (which of course could be raised unilaterally by the Government) exceeded the gross profit margin on sales of tobacco. So it entered into negotiation with a view to having the amount of tobacco duty excluded from gross takings. It was appreciated that some payment would have to be made in order to secure this concession, and negotiations proceeded on the line of taking a number of years' purchase of the tobacco duty element in the additional rent. After some hard bargaining, agreement was reached on a basis representing six years' purchase, described as a lump sum which produced the figure of £122,220.


The correspondence between the appellant and the Department of the Environment (in which the Ministry of Transport had been merged) was exhibited to the stated case. It makes two things clear: first it was accepted that the purpose of the additional rent was to introduce an element of profit-sharing (as between the ministry and the appellant) into the lease—indeed this was used as a negotiating counter. Secondly, it is clear that what the negotiation was about was rent under the lease, and that, when settlement was reached, the lease would be amended.


So how is the £122,220 to be regarded? On the one hand the payment was designed to enable the appellant to earn more profits: from this point of view it might be thought that the payment should have a revenue character.


On the other hand, the payment produced a modification in the lease, which could be regarded as an identifiable asset, making the lease less disadvantageous: from this point of view it might be thought that the payment should be regarded as a capital payment.


It is common in cases which raise the question whether a payment is to be treated as a revenue or as a capital payment for indicia to point different ways. In the end the courts can do little better than form an opinion which way the balance lies. There are a number of tests which have been stated in reported cases which it is useful to apply, but we have been warned more than once not to seek automatically to apply to one case words or formulae which have been found useful in another (see Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. [1964] A.C. 948 [1964] A.C. 948). Nevertheless reported cases are the best tools that we have, even if they may sometimes be blunt instruments.


I think that the key to the present case is to be found in those cases which have sought to identify an asset. In them it seems reasonably logical to start with the assumption that money spent on the acquisition of the asset should be regarded as capital expenditure. Extensions from this are, first, to regard money spent on getting rid of a disadvantageous asset as capital expenditure and, secondly, to regard money spent on improving the asset, or making it more advantageous, as capital expenditure. In the latter type of case it will have to be considered whether the expenditure has the result stated or whether it should be regarded as expenditure on maintenance or upkeep, and some cases may pose difficult problems.


It is in this connection that so many discussions start from the well-known phrase of Viscount Cave L.C. in British Insulated & Helsby Cables Ltd. v. Atherton [1926] A.C. 205 [1926] A.C. 205, 213,

"when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade.".


These words were regarded as having quasi-statutory force until, in a later case, it was revealed that they might cover an advance more of a revenue character. So Rowlatt J. in Anglo-Persian Oil Co. v. Dale explained the phrase as meaning,

"a benefit which endures, in the way that fixed capital endures; not a benefit that endures in the sense that for a good number of years it relieves you of a revenue payment. It means a thing which endures in the way that fixed capital endures. It is not always an actual asset, but it endures in the way that getting rid of a lease or getting rid of onerous capital assets … endures." ( 16 T.C. 253, 262.)


So here we obtain an indication that, while the fact that the benefit obtained was enduring, in the sense that it might last for over 40 years, is not sufficient to make the payment a capital payment, a payment to get rid of a lease might be so sufficient. What then if the payment is to get rid of a disadvantage in a lease?


We obtain further guidance from Mallett v. Staveley Coal & Iron Co. Ltd. [1928] 2 K.B. 405. In that case there were two payments—one to persuade the landlord under a mining lease to accept a surrender of it—and so to free the lessee from possible liabilities; the other to persuade the landlord to modify a (different) lease. Of the latter, Sargant L.J. used these words:—

"It is a payment made for the purpose of modifying the conditions of an existing asset so as to make the resultant term more advantageous or less disadvantageous for the enduring benefit of the trade." 1.c. p. 420.


These words—as words—admirably fit the present case, but we must beware of the formula trap. He was speaking there of a modification which involved the release of a parcel of land from the lease—something in other words within the classic case of disposal of an asset. Nevertheless we are asymptotaiclly approaching the present case.


Other instances are provided by cases concerned with petrol filling stations: Strick v. Regent Oil Co. Ltd. [1966] A.C. 295, and B.P. Australia Ltd. v. Commissioners of Taxation [1966] A.C. 224. The test there accepted and applied was whether a capital asset could be identified for which the relevant payments were made.


I pass to the other side of the narrow, dividing line. Nearest to this line is the case in this House of C.I.R. v. Carron Co. [1968] 45 T.C. 18. There the expenditure was incurred in order to procure a modification of the company's charter in such a way as to enable it to trade more properly and to facilitate day to day operations. This House held that the payment had a revenue character. Unless indeed it could be said that the charter was a capital asset, it is difficult to see what other decision could have been given. In the course of my opinion I used these words:

"… the disposition of a source of liability may be equivalent to the acquisition of a source of profit—an extension perhaps, but not an exception, to the principle that in some sense or other an asset of a capital nature, tangible or intangible, positive or negative, must be shown to be acquired. If this is correct—and until a case arises which constitutes a true exception I shall continue to think that it is—the present expenditure cannot be brought within the capital class."


With due caution against using these words as if they were statutory, I adhere to them. They were, of course, directed to excluding cases where no capital asset could be "seen" or identified, which was that case; I had not intended to narrow the conception...

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