1995 (10) TMI 228 - HC - Income Tax

Summary

Issues Involved:
1. Capital allowances for fixtures in finance leasing.
2. Ownership and legal status of fixtures.
3. Interpretation of Section 44 of the Finance Act 1971.
4. Application of Section 59 and Schedule 17 of the Finance Act 1985.
5. Timing of liability incurrence.
6. Use of parliamentary materials in statutory interpretation (Pepper v. Hart).

Issue-Wise Detailed Analysis:

1. Capital Allowances for Fixtures in Finance Leasing:
The appeals raised questions about capital allowances for taxpayers engaged in finance leasing, particularly when the plant purchased (e.g., central heating) became fixtures in buildings owned by lessees. The court had to determine if such fixtures "belong" to the taxpayers for capital allowance purposes.

2. Ownership and Legal Status of Fixtures:
The primary issue was whether plant and machinery, once affixed to land owned by local authorities, continued to "belong" to the taxpayer companies. The court concluded that, under general law, fixtures become part of the land and are owned by the landowner. The contractual rights under the master lease did not alter this legal ownership.

3. Interpretation of Section 44 of the Finance Act 1971:
Section 44(1) requires that the plant "belongs" to the taxpayer for capital allowances. The court agreed with the Court of Appeal that fixtures, once affixed, are owned by the landowner and do not "belong" to the taxpayer companies, despite contractual provisions suggesting otherwise. The taxpayer companies' rights were contingent and did not constitute ownership.

4. Application of Section 59 and Schedule 17 of the Finance Act 1985:
The court examined whether Section 59 and Schedule 17 provided an exclusive code for determining entitlement to capital allowances for fixtures. It was concluded that Schedule 17 is a comprehensive code regulating allowances for fixtures in the UK, and if a case does not fall within its provisions, no allowance is payable.

5. Timing of Liability Incurrence:
The court addressed whether the expenditure was incurred before or after 11 July 1984, which affects the applicability of Schedule 17. The special commissioners' decision that no agency existed until the lease schedule was executed was found erroneous. The true determination requires a factual finding for each case, considering if approval and agreement on lease terms existed before the lease schedule execution.

6. Use of Parliamentary Materials in Statutory Interpretation (Pepper v. Hart):
The court discussed the use of parliamentary materials under Pepper v. Hart. It was emphasized that only clear ministerial statements directly addressing the specific statutory provision in question are admissible. The revenue's attempt to introduce irrelevant parliamentary materials was deemed improper.

Conclusion:
The court dismissed the appeals, except for the issue of when liability was incurred, which was remitted to the special commissioners for determination. The taxpayer companies were ordered to pay half of the Crown's costs, with specific provisions for costs related to further arguments in the House of Lords.