Wimpy International Ltd v Warland
| Jurisdiction | England & Wales |
| Judgment Date | 23 November 1987 |
| Date | 23 November 1987 |
| Court | Chancery Division |
Chancery Division.
Mr. Graham Aaronson Q.C. (instructed by Messrs. Slaughter & May) for the companies.
Mr. Alan Moses (instructed by the Solicitor of Inland Revenue) for the Crown.
Before: Hoffmann J.
The following cases were referred to in the judgment:
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
Dixon (H.M.I.T.) v. Fitch's Garage Ltd. TAX(1975) 50 T.C. 509
Hampton (H.M.I.T.) v. Fortes Autogrill Ltd. TAX(1979) 53 T.C. 691
Ilkiw v. Samuels WLR[1963] 1 W.L.R. 991
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
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 - Plant - Expenditure on the provision of machinery or plant - Decorative fixtures and light fittings in fast food restaurants - Whether "plant" - Finance Act 1971 section 41 subsec-or-para (1)Finance Act 1971, sec. 41(1).
This was an appeal against the determination of the Special Commissioners that decorative fixtures installed in fast food restaurants were not "plant" for the purposes of capital allowances.
The two companies operated in the field of "fast food" catering, running respectively Wimpy and Pizzaland restaurants. During the 1970s both chains were affected by increased competition from similar chains, and the parent company decided that they should be improved and redesigned to reach a wider market. To that end such items as new lighting, shop fronts, floor and wall tiles, suspended ceilings, wall panels and mirrors, raised floor areas, balustrading and stairs were installed.
The inspector of taxes disallowed claims by the companies that the expenditure on all those items qualified for first-year allowance under the Finance Act 1971 section 41 subsec-or-para (1)Finance Act 1971, sec. 41(1)(a) as expenditure on the provision of machinery or plant for the purposes of their trade.
The Special Commissioners considered the various items and concluded that, in the light of the authorities, they were not plant qualifying for capital allowances.
The company appealed to the High Court contending what was being marketed was the serving of food in a particular ambience, that all the items in dispute were installed to improve the ambience of the restaurants and to attract customers and that they were thus used in the business even if some of the fixtures became part of the building.
Held, dismissing the appeal of Wimpy International Ltd. in relation to all the items except the lighting fixtures, and dismissing the appeal of Associated Restaurants in its entirety:
1. If an item is not part of the premises in which the business is carried on (the "premises" test), and is used in the business (the "business use" test), then, so long as it is not stock-in-trade, it will be regarded as plant. (Dicta of Lindley L.J. in Yarmouth v. FranceELR(1887) 19 Q.B.D. 647, at p. 658, and of Lord Lowry in I.R. Commrs. v. Scottish & Newcastle Breweries Ltd. TAXTAX(1982) 55 T.C. 252, at p. 277; [1982] BTC 187, at p. 195, applied. I.R. Commrs. v. Scottish & Newcastle Breweries Ltd., distinguished.)
2. Even if an item satisfies the premises test it may nevertheless be merely part of the setting in which the business is carried on, and thus not used in the business.
3. Whether an item satisfied the premises test was a question of fact. It involved consideration of whether the item appeared visually to retain a separate identity, the degree of permanence with which it was attached, the incompleteness of the structure without it, and whether it was likely to be replaced within a relatively short period. However, the fact that frequent redecoration might be necessary would not prevent the decorations being part of the premises.
4. In deciding that the light fittings were not plant, the Commissioners had held that they failed the business use test because they provided general illumination which would have been necessary irrespective of the trade carried on. However, that conclusion was inconsistent with their finding of fact that the volume of light was important to create an atmosphere attractive to customers. The only reasonable conclusion was that the light fittings were plant. (J. Lyons & Co. Ltd. v. A.-G. ELR[1944] Ch. 281, distinguished.)
5. The Commissioners were justified in concluding that all the other items failed either the "premises" test or the "business use" test.
1. On 2 and 3 December 1985 the Commissioners for the special purposes of the Income Tax Acts heard appeals by Wimpy International Ltd. ("Wimpy") and Associated Restaurants Ltd. ("AR") (Wimpy and AR were members of the same trading group and similar issues were involved) against assessments to corporation tax for its three chargeable accounting periods ended 31 December 1979, 31 December 1980 and 31 December 1981.
2. Shortly stated the question for decision was whether certain items of capital expenditure qualified for allowances under Finance Act 1971 section 41 subsec-or-para (1)sec. 41(1)(a) of theFinance Act 1971 as expenditure on the provision of machinery or plant for the purposes of AR's trade.
3. [Paragraph 3 listed the witnesses who gave evidence before the Commissioners.]
4. [Paragraph 4 listed the documents proved or admitted before the Commissioners.]
5. At the close of the hearing the Commissioners reserved their decision and gave a decision in both cases on 4 March 1986. In Pt. I of the decision they reviewed the principles of law applicable to both companies' appeals: in Pt. II they dealt with the disputed items in the appeals by Wimpy International Ltd.: and in Pt. III they set out the facts, the arguments and their conclusions in respect of AR's appeals.
6. A copy of the decision, into which at AR's request the Commissioners have inserted in square brackets some additional facts which were proved or admitted in evidence, was attached to and formed part of the case.
7. The decision was given in principle only and the Commissioners left it for the parties to agree the figures in which the assessments were to be determined. The companies' solicitors informed the Commissioners that the companies intended to appeal against the decision as being erroneous in point of law; and, in view of the time and expense which would be involved in applying the decision to the various items of expenditure incurred at all the restaurants, they requested the Commissioners to state a case for the opinion of the court without waiting for the agreement of figures and the final determination of the appeals. The inspector of taxes did not object to that proposal.
8. Subject to the approval of the court, in the circumstances of this case the Commissioners could properly accede to the request for a case to be stated at that stage although the decision was given in principle only.
9. The questions of law on which the companies require the Commissioners to obtain the opinion of the court were:
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(2) Whether, in the conclusions of law set out in Pt. I of the decision the Commissioners have correctly understood the principles laid down in the authorities and, in particular, whether they had correctly understood the scope of the decision in I.R. Commrs. v. Scottish & Newcastle Breweries Ltd. TAXTAX(1982) 55 T.C. 252; [1982] BTC 187; and
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(3) Whether, on applying the correct principles of law to the facts found, the decision in respect of each item held not to be plant could be sustained.
I. Introduction
These companies, both members at the material times of the United Biscuits group, appeal against refusals by inspectors of taxes to make allowances in taxing their trades for capital expenditure incurred, as the companies contend, "on the provision of machinery or plant" for the purpose of those trades under Finance Act 1971 section 41 subsec-or-para (1)sec. 41(1)(a) of the Finance Act1971. The appeals relate in each case to chargeable accounting periods ended on 31 December 1979 to 1981 inclusive. They were listed together and we heard them consecutively over a period of seven days. Mr. Aaronson Q.C. represented both companies and Mrs. Picard, of the Inland Revenue Solicitor's office, represented the inspectors.
Each company owned and operated a chain of restaurants throughout the UK: and the disputed expenditure in each case was incurred in relation to the restaurant premises. In view of those similarities we find it convenient first to consider, in the light of the authorities, the principles which should govern our approach to both cases.
Since we are concerned primarily with plant rather than machinery we start our review of the authorities from Yarmouth v. FranceELR(1887) 19 Q.B.D. 647 where Lindley L.J. said at p. 658 that plant:
in its ordinary sense [plant] includes whatever apparatus is used by a business man for 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.
And we note that the sense of "apparatus" or "goods and chattels" was further emphasised in J. Lyons & Co. Ltd. v. A.-G. ELR[1944] Ch. 281, a case under the War Damage Acts which also concerned a catering business. Having pointed out (at p. 287) that the term "plant" excludes not only stock-in-trade but also the place in which the business is carried on, Uthwatt J. continued:
In the present case, the question at issue may, I think, be...
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