Taxpayers incurring expenditure on warehouse – Group member occupying warehouse and providing warehouse facilities for chain of shops belonging to another group member – Whether warehouse “industrial building or structure” – Whether warehouse “for any purpose ancillary to the purposes of a . . . retail shop” – Capital Allowances Act 1968, section 7 – Claim for capital allowances dismissed
In 1978 DGDL became a wholly-owned subsidiary of Dixons Group plc. Dixons Ltd, which carried on, inter alia, the trade of selling goods from shops, transferred to DGDL the business which it had carried on at a warehouse at Carwright Road, Stevenage. Thereafter, from May 3 1981, DGDL carried on from the warehouse the trade of receiving, storing and delivering goods purchased by Dixons Ltd and certain other group companies for sale from their retail shops. A claim was made by the taxpayers for capital allowances in relation to expenditure incurred on the warehouse. By section 1(1) of the Capital Allowances Act 1986, a person who incurred capital expenditure on an “industrial building or structure” was entitled to capital allowances. By section 7(1) of the 1986 Act an “‘industrial building or structure’ means a building or structure in use . . . for the purposes of a transport, . . . undertaking . . .” and by section 7(3) “‘industrial building or structure’ does not include any building or structure .. for any purpose ancillary to the purposes of a .. retail shop”.
The claim was rejected by the inspector. The general commissioners allowed the taxpayers’ appeals and the revenue appealed. The High Court, dismissing the appeals, held that the issue of whether section 7(3) applied depended on, first, whether it was sufficient that the use of the warehouse was ancillary to the purposes of Dixon Ltd’s retail shops and, second, whether the use of the warehouse for the purposes of DGDL’s transport undertaking constituted use for a purpose ancillary to the purposes of the retail shops. In relation to the first question the judge concluded that since the use of the retail shops did not qualify those shops for allowances under section 7(1), accordingly, even if the use of the warehouse was for a purpose ancillary to the use of the retail shops, section 7(3) had no application. In relation to the second question it was held that section 7(3) required consideration of the purpose of the use, as well as the nature of the use, in order to decide whether it was ancillary to the purposes of a retail shop and, on that basis, the use of the warehouse was not ancillary since it was used by DGDL for the purpose of carrying on a separate undertaking in its own right. The revenue appealed to the Court of Appeal.
Held The appeals were allowed.
1. It could not be assumed that the exceptions provided for in subsection (3) were necessarily confined to the primary class of subject-matter included in subsection (1). The use of the warehouse for a purpose ancillary to the purposes of the retail shop owned and operated by Dixons Ltd would satisfy the requirements of subsection (3), notwithstanding that the shops did not come within subsection (1). Therefore, it was sufficient that the use of the warehouse was ancillary to the purposes of the retail shops.
2. The purpose of the retail shops was to enable members of the public to see and buy goods or materials shown there. The purpose of the warehouse was to receive, store and distribute to those shops the goods necessary to enable members of the public to do, see and buy them, and it served no other purpose. Therefore, the warehouse’s use was subservient and subordinate and, accordingly, ancillary to the purposes of the retail shops within section 7(3). The fact that the undertaking was separate and was preliminary to that of the retail shops was not inconsistent with the purposes of the use of the warehouse being ancillary to the purpose of the shops. Kilmarnock Equitable Co-operative Society Ltd v Commissioners of Inland Revenue (1996) 42 TC 675, considered.
Michael Furness (instructed by the solicitor to the Inland Revenue) appeared for the appellant; Rex Bretten QC and Stephen Brandon QC (instructed by Titmuss Sainer Dechert) appeared for the respondents.
