Wimpy International Ltd v Warland
| Jurisdiction | England & Wales |
| Judgment Date | 07 December 1988 |
| Date | 07 December 1988 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal.
Fox, Lloyd and Glidewell L.JJ.
Mr. Graham Aaronson Q.C. (instructed by Slaughter and May) for the taxpayer companies.
Mr. Alan Moses (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgments:
Benson (H.M.I.T.) v. Yard Arm Club Ltd. TAX(1979) 53 T.C. 67
Cole Bros. Ltd. v. Phillips (H.M.I.T.) TAXTAX(1982) 55 T.C. 188; [1982] BTC 208
Cooke (H.M.I.T.) v. Beach Station Caravans Ltd. TAX(1974) 49 T.C. 514
Edwards (H.M.I.T.) v. Bairstow & Anor. ELR[1956] A.C. 14
Hampton (H.M.I.T.) v. Fortes Autogrill Ltd. TAX(1979) 53 T.C. 691
I.R. Commrs. v. Barclay, Curle & Co. Ltd. TAX(1969) 45 T.C. 221
I.R. Commrs. v. Scottish & Newcastle Breweries Ltd. TAXTAX(1982) 55 T.C. 252; [1982] BTC 187
Jarrold (H.M.I.T.) v. John Good & Sons Ltd. TAX(1962) 40 T.C. 681
Lyons (J.) & Co. Ltd. v. A.-G. ELR[1944] Ch. 281
Schofield (H.M.I.T.) v. R. & H. Hall Ltd. TAX(1974) 49 T.C. 22
St. John's School v. Ward (H.M.I.T.) TAX(1974) 49 T.C. 524
Yarmouth v. France ELR(1887) 19 Q.B.D. 647
Capital allowances - First-year allowance - Plant - Expenditure on the provision of machinery or plant - Fixtures such as wall and floor tiles, raised floors, staircases, shop fronts, etc. in restaurants designed to attract customers and create a particular atmosphere - Whether plant -Finance Act 1971 section 41 subsec-or-para (1)Finance Act 1971, sec. 41(1).
These were appeals by the two taxpayer companies against the decision of Hoffmann J. ([1987] BTC 591) that the Special Commissioners were entitled to hold that items such as floor and wall tiles, raised floors, staircases and shop fronts were not plant for the purposes of first-year allowances under the Finance Act 1971 section 41 subsec-or-para (1)Finance Act 1971, sec. 41(1).
Wimpy International Ltd. owned and franchised hamburger restaurants while Associated Restaurants Ltd. owned restaurants trading under the name Pizzaland.
Both companies installed shop fronts, wall and floor tiles, a suspended ceiling, mezzanine and raised floors, balustrades, staircases and light fittings. Those fixtures were designed to attract potential customers and to provide a particular atmosphere which was considered conducive to the enjoyment of the type of meals which they served.
The Special Commissioners, having considered the authorities, determined that the various items were not plant qualifying for first-year allowance under the Finance Act 1971 section 41 subsec-or-para (1)Finance Act 1971, sec. 41(1).
Hoffmann J. dismissed the companies' appeals except in relation to special lighting which he allowed.
The companies appealed contending that, in relation to anything which formed part of a building in which the business was carried on, the question was whether it was merely part of the building or whether it performed some additional function in relation to the business, such as the provision of a particular atmosphere in a restaurant. If it did perform such a function then it would be plant even though in ordinary terms it was part of the premises.
Held, dismissing the companies' appeal:
1. Something which became part of the premises, instead of merely embellishing them, was not to be regarded as plant, except in the rare cases where the premises themselves were plant such as the dry dock in I.R. Commrs. v. Barclay, Curle & Co. Ltd. TAX(1969) 45 T.C. 221. (Dictum of Lord Lowry inI.R. Commrs. v. Scottish & Newcastle Breweries Ltd.TAX[1982] BTC 187 at p. 195, applied.)
2. An item's function had to be considered: if it functioned as premises it was not plant. Items whose only function was to make the premises attractive to potential customers were plant, while others such as floor tiles, although chosen to be attractive to customers, provided a floor for the premises and were not plant. The fact that different things might perform the same function of creating atmosphere was not relevant: one thing might function as part of the premises and the other as part of the plant. It was therefore not sufficient to say that an item was part of the real property. The question was whether it would be more appropriate to describe it as part of the premises rather than as having retained its own identity. The Commissioners were justified in coming to the conclusion that the items in dispute were part of the premises.
3. (Per Lloyd L.J.) There was no single test or universal formula which could solve every problem. The court should therefore be reluctant to upset the decision of the Commissioners unless it could be shown not only that they erred in law but also that their error was palpable. Here, all the items in dispute were items which could have fallen on either side of the line and the appeal should be dismissed on the simple ground that the taxpayers had failed to show any error of law on the part of the Commissioners.
By a notice dated 17 December 1987 the taxpayer companies appealed on the following grounds:
(2) That the judge erred in law in holding that there are two relevant tests to be applied when considering what items constitute plant for the purposes of Finance Act 1971 section 41 subsec-or-para (1)sec. 41(1)(a) of the Finance Act 1971, namely whether the item is part of the premises (the "premises test"); and secondly, if the answer to the first test is in the negative, whether the item has a use in the taxpayer's business (the "business use test"). The judge ought to have held that there is a single relevant test, namely whether the item, as its sole function or as an additional function, performs some distinct business function apart from merely housing the business (the "functional test").
(3) That the judge erred in law in holding that the Special Commissioners applied, and correctly applied, the "premises test". The judge ought to have held that they attempted to apply the "functional test", but failed to apply it correctly.
(4) That the judge, having correctly held that the Commissioners should have taken into account the extent to which the items were intended to be permanent and the likelihood of their being replaced within a relatively short period, erred in law in holding that they did in fact take these considerations into account.
(5) That the judge ought to have reversed the Commissioners' decision, as being erroneous in law and inconsistent with the primary facts, in relation to all the items which they found not to be plant.
Fox L.J.: These appeals from decisions of Hoffmann J. ([1987] BTC 591) raise again the question of the meaning of the word "plant" in relation to capital allowances for tax purposes. The relevant statutory provision is Finance Act 1971 section 41 subsec-or-para (1)sec. 41(1)(a) of the Finance Act1971 which grants allowances for expenditure incurred by a person carrying on a trade "on the provision of machinery or plant for the purposes of the trade".
There are two appellants. Wimpy International Ltd. ("Wimpy") and Associated Restaurants Ltd. ("AR").
Wimpy owns and franchises restaurants serving meals the main item in which is usually a hamburger. AR owns restaurants trading under the name Pizzaland serving meals the main item in which is usually a pizza. The dispute is concerned with expenditure which Wimpy and AR incurred on various fixtures added to the structural shells of their restaurants. It is not in doubt that these items were designed to attract potential customers to the restaurants and to provide a particular type of atmosphere which Wimpy and AR considered conducive to the enjoyment of the type of meals which they served. It was the intention at the time of their installation that most of the items should be renewed after five years or so though they would probably remain usable for a much longer period.
The items in question before Hoffmann J. were as follows:
Wimpy |
|
Reference Numbers used by Commissioners |
|
1 |
Shop fronts |
2 and 3 |
Floor and wall tiles |
Suspended ceilings (Victoria) |
|
7, 8, 9, 21 and 25 |
Mezzanine and raised floors, balustrades, stairs and accessory work |
10 |
Light fittings |
24 |
Trapdoor and ladder |
AR |
|
2 |
Artex on walls |
4 and 5 |
Floor and wall tiles |
6 |
Shop fronts |
7 |
Suspended ceilings |
8 |
Raised floors |
9 |
Flooring other than tiles |
11 and 22 |
Fire doors and fire proofing of walls |
19 |
Other wall finishes |
The Commissioners held that none of these items was plant.Hoffmann J. upheld the decision of the Commissioners on all the items except No. 10 (the light fittings) which he held to be plant. Wimpy and AR appeal from that decision, save in so far as it applied to the electric light fittings. There is no cross-appeal by the Revenue. Hoffmann J. approached the matter by reference to the familiar definition of "plant" byLindley L.J. a century ago in Yarmouth v. FranceELR(1887) 19 Q.B.D. 647 at p. 658 that:
…in its ordinary sense, it includes whatever apparatus is used by a business man in 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.
Hoffmann J. observed that it is implied in this description, first, that there is excluded anything that is not used in carrying on the business. Secondly, it excludes stock-in-trade. Thirdly, it excludes anything which is not:
…apparatus…goods and chattels fixed or moveable live or dead or not employed in the business: that excludes the premises or place in or upon which the business is carried on.
The judge's conclusion at p. 613 was that:
…although the three distinctions in Yarmouth v. Franceeach involves a test which can be called functional, they are subtly different from each other. If the item is neither stock-in-trade nor the premises upon which the business is conducted, the only question is whether it is used for...
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