Scottish Court of Session Decisions

COMMISSIONERS OF INLAND REVENUE v. ANCHOR INTERNATIONAL LIMITED

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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Kirkwood Lord MacLean Lord Osborne

XA29/03 OPINION OF THE COURT delivered by LORD KIRKWOOD in APPEAL TO THE COURT OF SESSION as THE COURT OF EXCHEQUER IN SCOTLAND under Section 56A(1) of the Taxes Management Act 1970 from a decision of the Special Commissioners of Income Tax dated 30 January 2003 and communicated to the appellants on 30 January 2003 by THE COMMISSIONERS OF INLAND REVENUE Appellants; against ANCHOR INTERNATIONAL LIMITED Respondents; _______

Act: Hodge, Q.C., Paterson; Solicitor for Inland Revenue (Appellants)

Alt: Ghosh; Dundas & Wilson (Respondents)

22 October 2004

[1]This is an appeal by the Commissioners of Inland Revenue against a decision of the Special Commissioner, [2003] UKSC SPC00354, allowing an appeal by Anchor International Limited (the respondents) against assessments to corporation tax for the accounting periods ending 30 April 1995 to 30 April 1998. The issue is whether capital expenditure incurred by the respondents in respect of the construction of five-a-side football pitches on the excavation, in-filling, draining, terram and synthetic grass was expenditure on the provision of plant and machinery for capital allowance purposes. It was agreed that the expenditure was capital and that it was incurred wholly and exclusively for the purposes of the trade.

[2]Section 24(1) of the Capital Allowances Act 1990 provided that -

"(1)Subject to the provisions of this Part, where -

(a)a person carrying on a trade has incurred capital expenditure on the provision of machinery or plant wholly and exclusively for the purposes of the trade, and

(b)in consequence of his incurring that expenditure, the machinery or plant belongs or has belonged to him,

allowances and charges shall be made to and on him in accordance with the following provisions of this section."

[3]The main contention of the appellants was that the expenditure was excluded from capital allowances for plant and machinery by Schedule AA1, which was introduced by the Finance Act 1994. Paragraph 2 of that Schedule provided inter alia as follows:

"2.-(1) For the purposes of this Act expenditure on the provision of machinery or plant does not include any expenditure on-

(a)the provision of structures or other assets to which this

paragraph applies, or

(b)any works involving the alteration of land.

(2)This paragraph applies to any structure or other asset which falls within column 1 of the following Table ('Table2').

(3)Sub-paragraph (1) above does not affect the question whether-

(a)any expenditure falling within column 2 or Table 2, or

(b)any expenditure on the provision of any asset of a description

within any of the items in column 2 of Table 1,

is for the purposes of this Act expenditure on the provision of machinery or plant ... ".

[4]Table 2 of Schedule AA1 was in the following terms:

" (1) Structures and assets A Any tunnel, bridge, viaduct, aqueduct, embankment or cutting B Any way or hard standing, such as a pavement, road, railway or tramway, a park for vehicles or containers, or an airstrip or runway. C Any inland navigation, including a canal or basin or a navigable river. D Any dam, reservoir or barrage (including any sluices, gates, generators and other equipment associated with it). E Any dock. F Any dike, sea wall, weir or drainage ditch. G Any structure not within any other item in this column.

(2) Expenditure which is unaffected by the Schedule 1 Expenditure on the alteration of land for the purpose only of installing machinery or plant. 2 Expenditure on the provision of dry docks. 3 Expenditure on the provision of any jetty or similar structure provided mainly to carry machinery or plan. 4 Expenditure on the provision of pipelines, or underground ducts or tunnels with a primary purpose of carrying utility conduits. 5 Expenditure on the provision of towers provided to support floodlights. 6 Expenditure on the provision of any reservoir incorporated into a water treatment works or on the provision of any service reservoir of treated water for supply within any housing estate or other particular locality. 7 Expenditure on the provision of silos provided for temporary storage or on the provision of storage tanks. 8 Expenditure on the provision of slurry pits or silage clamps. 9 Expenditure on the provision of fish tanks or fish ponds. 10 Expenditure on the provision of rails, sleepers and ballast for a railway or tramway. 11 Expenditure on the provision of structures and other assets for providing the setting for any ride at an amusement park or exhibition. 12 Expenditure on the provision of fixed zoo cages."

[5]Paragraph 5 provides that "'structure' means a fixed structure of any kind, other than a building".

[6]At the hearing before the Special Commissioner the parties lodged an agreed Statement of Facts in the following terms:

"The Appellant and the nature of the trade

(1)The appellant company is Anchor International Limited ('the Appellant'). The Appellant was incorporated in Scotland in February 1987 with company registration number SC103260. The Company commenced trading on 15 June 1988.

(2)The Appellant was established with widely drawn objectives which are described in the Memorandum of Association. Since the commencement of trading the actual trading activity carried on by the Appellant assessable to corporation tax under Schedule D Case I has comprised the provision of leisure facilities at various sites throughout the UK. As at 30 April 1998 the Appellant provided both outdoor and indoor leisure facilities at five sites in Scotland and four sites in England.

(3)As at 30 April 1998 the outdoor facilities comprised between 8 and 12 pitches specifically designed for five-a-side football matches. There was also a clubhouse building on each site providing all or a combination of indoor facilities, including shower and changing rooms, snooker and pool tables, coin-operated gaming machines, function rooms and bars. These facilities are available to persons using the pitches.

(4)In view of the popularity of the football facilities the Appellant operates an advance booking system for the five-a-side pitches. Block bookings are made by clubs which form together and play each other on pre-arranged dates as part of regular five-a-side football leagues. Clubs enter into formal block booking agreements for a series of at least 10 bookings. Under these agreements the Appellant reserves pitches for the relevant dates and times and the club undertakes to pay the appropriate charges for the use of the pitches on each occasion during the booking period.

(5) ...

The nature of each five-a-side football pitch

(6)At all the sites operated by the Appellant the game of five-a-side football involves the use of rebound boards on all four sides. Hard nets are mounted along the top of these boards behind each set of goals. Wire mesh fencing is mounted along the top of these boards at both ends of the outside perimeter of the pitches. Soft nets are hung above the rebound boards at the sides between individual pitches and are also hung above the hard nets and the wire mesh fencing. In addition each pitch has separately dedicated floodlights.

(7)In order that the pitches might be used for 364 days each year the Appellant provides a playing surface of a sand-filled synthetic grass 'carpet'. This synthetic grass carpet is laid on top of a semi-permeable terram which overlays a loose stone drainage system. This playing surface provides good bounce and also both spring and slide for the players. The synthetic grass carpet is laid in strips which can be lifted by a specialist contractor and replaced when they become worn out.

(8)The standard dimensions of each five-a-side football pitch are approximately 32.1m x 23.1m.

The capital expenditure

(9)It is agreed that the cost of construction of the clubhouse building is not eligible for capital allowances.

(10)It is also agreed that the cost of the land underlying the five-a-side pitches is not eligible for capital allowances.

(11)The capital expenditure on the construction of the actual five-a-side pitches has been analysed into separately identified elements as shown in Appendix A. This analysis relates to the expenditure at Sighthill, Edinburgh. The Sighthill premises were largely constructed during the accounting periods ended 30 April 1996 and 1997. It is believed that the Sighthill premises are broadly typical of the locations constructed by the Appellant in the four accounting periods to 30 April 1998. It is further agreed that the decision of the Special Commissioners in relation to the capital expenditure at Sighthill, as referred to in paragraph 4(12) will be applied to any identical capital expenditure incurred by the Appellant at other locations during the four accounting periods through to 30 April 1998. The decision of the Special Commissioners, subject to any appeal, will also be applicable to any identical capital expenditure incurred by the Appellant in subsequent accounting periods, provided that there is no material change in the law as regards such capital expenditure.

(12)The first category of expenditure relates to the football pitches. The Inspector of Taxes agreed claims for capital allowances in respect of similar expenditure for periods up to 30 April 1994. A subsequent Inspector of Taxes formed a different view on the application of the law for later periods. It is the view of the Inland Revenue that the original decision to grant allowances was incorrect but that it is precluded from re-opening the assessments for those periods by virtue of the decision in Scorer v. Olin Energy Systems Ltd [58 TC 592].

(13)It is agreed that the second category of expenditure comprising the goal posts, rebound boards and floodlights is all expenditure on the provision of plant which is eligible for capital allowances.

Description of qualifying expenditure under appeal

Preliminary and investigative works

(14)In order for the design of the five-a-side pitches to be finalised it is necessary to undertake some preliminary investigative research into the site. This will usually involve two separate studies. A ground investigation report will be required to establish the soil conditions, nature and depth of topsoil, water-table level, the stability of the ground and make up of the formation the pitch base will be laid upon. A topographical survey is required to establish levels over the site to determine the extent of any cut and fill exercise required. In addition this may determine the design of the pitch drainage to utilise any natural fall in the site levels.

Excavation works

(15)The ground investigation report will highlight the expected extent of excavation but it is likely that a vegetation and topsoil strip reducing levels by approx 200-300 mm will be required to expose the formation. Depending on how uneven the site is a cut and fill exercise may be required to bring the pitch area to a maximum gradient of 1:100. The eventual gradient of the pitch area will determine the drainage design and at this point a series of lateral stone filled drainage trenches will be cut into the formation. Once the formation has been trimmed and proof rolled the pitch build up process can begin.

Pitch build up

(16)First, the prepared and rolled formation will have a layer of terram geotextile laid upon it. This is to prevent the stone pitch base from being contaminated by the formation and keep the stone base clean whilst allowing it to drain freely. A layer of stone will be laid upon the terram. The thickness of the stone layer will be dictated by the ground conditions and the stability of the formation. Between 200mm and 300mm of stone is usual for most conditions. The stone to be used must satisfy a very tight specification. M.O.T. Type 1 with a limited amount of fines and which is not frost susceptible must be used. Certificates must be provided to ensure that all loads supplied comply with the specification. The stone base is laid in layers of not more than 100mm, rolled and compacted to give a firm but porous base. The final layer is laid by a laser controlled paving machine to ensure that the base is within the tolerances required for playing surfaces. Low spots are levelled with a blinding layer of 6mm to dust Type 1 material with the same limited amount of fines to ensure porosity. Once the stone base has been prepared, rolled and levelled it receives a further layer of terram geotextile material. This is used to provide a porous barrier over the stone, to protect the underside of the synthetic grass carpet and to keep it clean. The formation of all of the pitches at Sighthill was built up as one single section prior to the installation of the synthetic grass carpet on each of the ten separate pitches.

The synthetic grass carpet

(17)A photocopy of a brochure issued by the manufacturer who supplied the synthetic grass carpet which is installed at Sighthill was available to the Tribunal (not reproduced).

Installation of the synthetic grass carpet

(18)The synthetic grass carpet is laid onto the terram layer. It is laid in strips of varying widths of up to approximately 3-4 metres wide. The strips are joined in a similar method to the way domestic carpets are joined. The two edges of each strip are butted together and then folded back. A piece of backing material is laid underneath the join to which adhesive is applied. The edges are then folded back onto the backing material to form the joint. The sand in-fill used on this type of synthetic grass carpet serves two purposes. First, the weight of the sand anchors the synthetic grass carpet to the base and stops it from moving. Secondly, the sand fills the spaces between the tufts of the synthetic grass carpet to keep the pile upright giving the surface its durability and playing characteristics. The depth of the synthetic grass carpet is 25mm. Approximately 25kg to 30 kg of sand is applied per square metre, depending on sand type and grade.

Life expectancy and replacement of the synthetic grass carpet

(19)The life expectancy of a newly installed surface will be determined mainly by the level of use. Experience has shown that the most intensively used pitches will require replacement after approximately five to six years whilst lesser used pitches can last up to eight or nine years. The manufacturers provide a guarantee for a period of seven years. The nature of five-a-side football dictates that the strip of turf up the centre of each playing area is subject to more use and wear than those up the sides of each pitch. It is often possible when a pitch is completely resurfaced to salvage the turf from the sides to replace worn turf up the centre of other pitches showing signs of wear. In addition this material can be used to patch and repair areas of turf which are damaged.

The capital allowances under appeal

(20)The aggregate amount of the expenditure which is claimed as eligible for writing down capital allowances at Sighthill is set out in Appendix A. The aggregate amount of capital expenditure on the Sighthill pitches on which capital allowances is claimed aggregates to £297,863. The qualifying expenditure under appeal on the excavation, infilling, drainage, the terram and the synthetic grass carpet included in this amount is £195, 456.

(21)The appeals relate to the four accounting periods up to and including the year ended 30 April 1998. Similar amounts of capital expenditure have been incurred at other locations in the succeeding accounting periods.

Appendix A

Accounting period ended 30 April 1996 1997 1998

Total £ 13,361 271,396 13,106 297,863

[Para 4(12)] Excavation, infilling, drainage, terram and carpet £ 13,361 168,989 13,106 195,456

[Para 4(13)] Goal posts, rebound boards and floodlights £ - 102,407 - 102,407"

[7]Paragraph (5) set out the respondents' turnover during the four accounting periods in question.

[8]On the basis of the oral evidence led, the Special Commissioner found that when the carpet wore out it was either rolled up in strips or cut into squares with the sand on it. If some of it was to be re-used the sand could be sucked out of the carpet and the original strips would be cut into two for taking up. Re-carpeting would take five days, weather permitting, of which two days would be spent taking up the old carpet and three days laying the new one. It was common to re-use part of the carpet as used carpet fitted in better with the existing carpet than new carpet. It was possible to purchase replacement carpet from a different contractor. It was possible to play all the time on the artificial carpet so that bookings could be made in advance. With real turf the maximum use would be one game per evening in the summer or one game per week in the winter which would not be economic. The use of the carpet was not restricted to five-a-side football; it would be possible to play other sports.

[9]As we have said, the main contention of the Revenue was that the expenditure in question was excluded from capital allowances for plant and machinery by Schedule AA1. Before the Special Commissioner, counsel for Anchor International formulated the respondents' claim as being for allowances on the carpet which was not fixed and was not a structure, and was therefore unaffected by Table 2. The expenditure on the site, described in agreed findings (15) and (16) as "excavation works" and "pitch build up" respectively, was covered by item 1 of column 2. It was submitted that the carpet was an asset in its own right, being replaceable without affecting the pitch as a whole. The issue was whether the carpet retained its separate identity, not whether it was useable without the works underneath. In any event, the carpet was not fixed, it simply rested on the prepared base, weighed down by sand without any connection to what was underneath.

[10]Counsel for the present appellants, on the other hand, submitted that the proper approach was to look at the whole expenditure on the pitch and contended that the pitch was excluded from being plant by item G in column 1 of the Schedule as a structure. It had to be looked at as a whole and not artificially dissected. The pitch had been built as a single unit. The carpet could not function without the works underneath, and it was not readily moveable. It remained until it was replaced and could not be moved as a whole, or even in the same strips in which it was laid; it had to be scrapped by cutting it up. The item in question was the pitch as a whole, not the carpet. It was submitted that the pitch had been constructed and was a structure. It was clearly fixed and, even if the carpet was looked at on its own, it was fixed as it had 22 metric tons of sand resting on it. It could not be taken up and used elsewhere.

[11]The Special Commissioner observed that, although logically the first question was whether the expenditure qualified as expenditure on machinery or plant, he would deal first with the Revenue's main contention that the expenditure was excluded from capital allowances for plant and machinery by Schedule AA1.

[12]The Special Commissioner stated that counsel had approached the question before him from different ends, counsel for Anchor International, from the point of view of the carpet alone, the works to the site underneath being treated as the alteration of land for the sole purpose of installing the plant (item 1 of column 2), and counsel for the appellants from the point of view of the pitch as a whole, on the basis that it was constructed as an entity, the carpet being no use on its own for the purpose of playing football without the works underneath. The Special Commissioner observed that the pitch was fixed and accordingly could be a structure, whereas the carpet was not fixed and was certainly not a structure. He preferred the approach of counsel for Anchor International. It seemed to him that the carpet had a separate identity. It would wear out in five to six years with frequent use, or eight to nine years with less use. If part of the carpet wore out earlier, that part could be patched. When it was completely worn out, the works underneath were retained and another carpet laid on top. This appeared to the Special Commissioner to be analogous to a heavy machine standing on a concrete base. The relevant item of plant was the machine which retained its separate identity. In the present case the relevant item of plant was the carpet, not the pitch, even though the carpet could not be used without the preparatory works to the ground on which it was laid, just as the machine could not be used without the base. Having decided that the relevant item of plant was the carpet, the Special Commissioner found that it was not fixed, as it simply rested on the ground, albeit that it was weighed down with sand. Further, the carpet was clearly not a "structure" within the meaning of head G in column 1 of Table 2. The Special Commissioner stated that it was not necessary for him to decide whether the pitch was a structure, but that he would have decided that it was not a "fixed structure of any kind, other than a building". In his view the pitch was not like any of the examples of structures in column 1 and was not constructed in the way one would expect a structure to be constructed. The Special Commissioner therefore concluded that the expenditure on the carpet was not excluded by item G, and that the allowances for expenditure on the land were preserved by item 1 of column 2.

[13]Before us, counsel for the appellants began by pointing out that there was no statutory definition of "plant" and that, while there were numerous authorities on that matter, some of them were difficult to reconcile. He referred us to a number of authorities which, he said, illustrated the boundary between buildings and structures on the one hand, and plant on the other, although that boundary had been eroded in recent years. Counsel referred to Inland Revenue v. Barclay Curle & Co. 1969 S.C. (H.L.) 30; Cooke v. Beach Station Caravans Limited (1974) 49 T.C. 514; Schofield v. R. & H. Hall Limited (1974) 49 T.C. 538; Cole Bros. Ltd. v. Phillips 55 TC 188; Inland Revenue v. Scottish & Newcastle Breweries Limited 1982 SC (HL) 133 and 55 TC 252 and Anduff Carwash Limited v. Attwood 69 T.C. 575. It was clear from the statutory provisions that Parliament had intended that buildings and structures were not to be treated as plant, and column 2 of Schedule AA1 contained exceptions to the general rule, most of which reflected previous court decisions. Counsel submitted that the all-weather pitch fell to be regarded as a structure. After the excavation works had been completed, five or six different layers had to be laid down, and all the layers were necessary to allow play in all weathers. Reference was made to paragraphs 15 to 18 of the agreed facts. The layers all had to be porous and, if some part of the in-fill became non-porous, it would require to be dug up and replaced. The Special Commissioner had erred in holding that the carpet had a separate identity. He should have considered the pitch as a whole. Each layer was a necessary part of the pitch. The fact that the carpet could be removed and replaced did not make the carpet plant. On a normal football pitch the turf could be replaced but it was still part of the pitch (cf. Wimpy International Limited v. Warland (1988) 61 T.C. 51). The fact that a layer could be removed did not mean that that layer was not part of the whole. The Special Commissioner had erred when he had found that the build-up of the pitch below the carpet had amounted to the alteration of land for the purpose only of installing plant, namely the carpet (cf. Inland Revenue v. Barclay Curle & Co., supra). There had admittedly been an alteration of land in the present case, in that the original excavation and cut and fill had been carried out, but thereafter the pitch had been built up and it constituted a structure, in much the same way as a hard standing or a road was a structure. The alteration of land had been for the purpose of installing a fixed structure. The Special Commissioner had been in error when he had regarded the carpet as plant and the installation underneath as an alteration of land for that sole purpose. Counsel referred to Black v. Shaw (1913) 13 N.Z.L.R. 194; Inland Revenue Commissioners v. Smyth [1914] 3 KB 406 and Family Golf Centres Limited v. Thorne [1998] S.T.C. 106. Counsel submitted that, having regard to the agreed findings in relation to the build-up of the pitch, and the relevant case law, the only reasonable conclusion that the Special Commissioner could have reached was that the proper object of consideration was the pitch as a whole, and not just the layer of artificial grass on the top. The pitch fell to be regarded as comprising all of its layers, and they were all necessary to make it operate as an all-weather football pitch. As the synthetic grass carpet could not function separately from its substructure, it was part of the whole pitch. The whole pitch was a "structure" within the meaning of item G in Table 2 of Schedule AA1. Further, it was a fixed structure even though it was effectively held in place by its own weight (D'Eyncourt v. Gregory (1866) L.R. 3 Eq. 382). The Special Commissioner had wrongly adopted a piecemeal approach (cf. Inland Revenue v. Barclay Curle & Co., supra), and had thereby fallen into error. As the pitch, including the carpet, was a fixed structure, expenditure on its provision did not qualify as expenditure on the provision of machinery or plant having regard to the terms of paragraph 2(1)(a).

[14]Counsel for the appellants presented a further argument to the effect that if the whole pitch did not fall within the definition of "structure", or if the synthetic grass carpet was considered as a separate component, then in either event the carpet/pitch was ineligible for capital allowances as it did not meet the "premises test" articulated in Anduff Carwash Limited v. Attwood, supra. It was properly categorised as premises and not plant. It was submitted that the widening of the law in Barclay Curle & Co. had created the risk that any purpose-built premises might conceivably be treated as plant (Inland Revenue v. Barclay Curle & Co., supra, per Lord Hodson at page 56). That mischief had been controlled, but not avoided completely, by judges setting two separate tests, namely, whether the item was in business use and, even if it was, whether the item was properly categorised as premises (Wimpy International Limited v. Warland, supra, per Hoffmann J. at pages 81-82 and 83G-84). Another test that has been used to restrict the scope of operation of reasoning by analogy was to ask whether an item was an adjunct of, or the essential site or core of, the business (Benson v. Yard Arm Club Limited (1979) 53 T.C. 67 and Inland Revenue v. Scottish and Newcastle Breweries Limited 1982 S.C. 133 and 55 TC 252, per Lord Stott at page 268 and Lord Lowry at pages 276-8). Premises that are treated as plant are the exception rather than the rule. The fact that a pitch is hired out does not mean that it is plant. Further, plant can be an adjunct to premises, but not premises themselves. Reference was also made to St. John's School v. Ward (1974) 49 T.C. 524; Anduff Carwash Limited v. Attwood, supra; Family Golf Centres Limited v. Thorne, supra and Shove v. Lingfield Park (1991) Limited [2003] S.T.C. 1003 and [2004] STC 805. In the present case any of the respondents' individual pitches functioned as part of the premises of the taxpayer. The pitches constituted the premises where the taxpayer carried on his business. It was the core of, and an essential part of, his business, not simply an adjunct of it. 70% of the turnover came from the football pitches. It was only in very rare cases that premises constituted plant, and this was not one of them. On the whole matter the appeal should be allowed.

[15]Counsel for the respondents accepted that he must satisfy the court on two matters, namely (1) that the playing surface (namely, the carpet) was not a "fixed structure" and (2) that it did not fail the judicial "premises test".

[16]In relation to the first of these issues, counsel submitted that the item under scrutiny was the carpet, and not the layers underneath it. The carpet was clearly not a structure within the meaning of paragraph 2 of Schedule AA1. Even if regard was had to the carpet and the five layers underneath, taken together, it was not a structure. Neither the carpet, nor the pitch looked at as a whole, was a fixed structure. These matters were all found as facts by the Special Commissioner and should not be interfered with. Even if the carpet, or the pitch as a whole, could be regarded as a structure, and was fixed, it was not a structure within the meaning of item G of Schedule AA1.

[17]Counsel for the respondents submitted that the playing surface, namely the synthetic carpet, was not a "fixed structure" within the meaning of paragraph 2. The item on which relief was claimed was the carpet, not the amalgam of the carpet together with the underlying materials. All the expenditure on the ancillary work, involving the terram and the other materials involved in the pitch build-up, was claimed as expenditure on the provision of plant, namely the carpet. The works underneath the carpet constituted the alteration of land for the sole purpose of installing plant, namely the carpet. It followed that the item to be scrutinised as to whether or not it was a "structure" was the carpet alone, and that was what the Special Commissioner had done (cf. Wimpy International Limited v. Warland, supra). Whether an item was a "structure" was a question of fact. Although the construction of section 24 was a question of law, that construction was based on findings of fact which could only be disturbed if the wrong legal test had been applied or there was a perverse finding of fact. The carpet, in isolation, was certainly not a "structure", as a structure was something that had been constructed. Even if the carpet and the terram and the other underlying materials were considered together, the amalgam did not constitute a "structure". The fact that two items had a mutuality of function did not make them parts of the same structure. Effectively, what had happened had been that a hole had been dug and filled mainly with stones, and then the carpet had been laid on top. Here, the underbuilding was separate from the carpet, which had a separate identity. The analogy of a road was not helpful as the surface of a road cannot be rolled up and removed. Further, even if the carpet and the underlying materials were viewed as a "structure", that structure was not "fixed". It was a question of fact whether a thing was fixed or not. "Fixed" did not mean stationary, it meant fixed to land, or fixed to a building that was fixed to land. The Special Commissioner had applied the correct test and, in any event, the court should be very slow to interfere (Cole Brothers Limited v. Phillips 55 TC 188 per Lord Wilberforce at page 227). In the circumstances it would be necessary for the court, if it found for the appellants on this issue, to take the view that no reasonable Special Commissioner could have reached the conclusion which he had reached. As the carpet could be taken away and replaced, it was clear that part of the so-called "structure" was not fixed. Item G required the "structure", which meant the entire "structure", to be fixed. A structure, part of which is not fixed, cannot by definition be a "fixed" structure. Even if the carpet, or the pitch, was a "fixed structure", it did not fall within the definition contained in item G. All the items A-F in column (1) were items of heavy engineering which depreciated slowly. Item G, construed eiusdem generis, would not encompass the carpet, even if it was considered along with the underlying materials. A carpet was a depreciating asset which required to be replaced every few years. On the whole matter it was clear, as the Special Commissioner had found, that the carpet was the item to be considered, that it had a separate identity, and that it was not a "fixed structure". It followed that the expenditure on the carpet was not excluded by item G, and the allowances for expenditure on the land were preserved by item 1 of column 2 of Table 2 of Schedule AA1.

[18]Counsel for the respondent then proceeded to deal with the "premises test". He accepted that it was not enough for the respondents to show that the carpet was not a "structure": it must also be demonstrated that the carpet was "plant" and did not fail the premises test. It was submitted that "premises" had a precise meaning, synonymous with housing, shelter and access. The carpet did none of these things. Capital allowances confer allowances for depreciation, namely wear and tear. Buildings which merely house a trading activity, or provide shelter or access, depreciate at a slower rate and therefore receive a much lower rate of allowances. "Plant" was a synonym for tools or apparatus, which meant equipment (Carr v. Sayer (1992) S.T.C. 396 and 65 T.C. 15) and "plant" was dictated by the specific nature of the taxpayer's trade (J. Lyons & Co. Ltd. v. Attorney General [1944] Ch. 281 and Benson v. Yard Arm Club Limited, supra, at page 89B). Plant fell to be contrasted with premises which were merely (and only) housing (Wimpy International Limited v. Warland, supra; Cole Bros. Limited v. Phillips, supra; St. John's School v. Ward, supra; Inland Revenue v. Scottish and Newcastle Breweries, supra at pages 272F and 278G and Anduff Carwash Limited v. Attwood, supra at pages 596-7 and 608). Accordingly, the "premises test" was merely a negative formulation of the functional test. In the case of duality of function, the item in question must demonstrate a plant function. If an item is both plant and premises, it will depreciate faster and be in need of allowances. It was only if an item was exclusively premises that it would not be entitled to allowances. Even if the carpet could, as matter of language, be described as part of the respondents' premises, duality of function (in the sense of functioning as both plant and premises) would not result in capital allowances being unavailable. Such an item would still be plant and entitled to capital allowances. It was only if an item was exclusively premises that capital allowances would not be available. Two authorities demonstrated the dichotomy between housing and tools of the trade, namely, Schofield v. R. & H. Hall Limited, supra, and J. Lyons & Co. v. Attorney General, supra. The test to be applied was the same as it was in the Wimpy case. In the present case the carpets were clearly the tools of the respondents' trade, as the Special Commissioner found in paragraph 23 of his decision. That trade was the hiring out of the football pitches and it was that trade which generated the profits. The football pitches did not house any other activity or give access to it (cf. Brown v. Burnley Football and Athletic Co. Limited (1980) 53 T.C. 357). If the Special Commissioner had applied the correct test, the court could not interfere with his conclusion that the carpet was plant. It was submitted that the Special Commissioner did apply the correct test, and he had taken the view that the football pitch was the means whereby the profit was generated, not just the setting. There was no demonstrable error of law.

[19]Counsel for the respondents went on to submit that the "adjunct test" was misconceived. The appellants had argued that the test of whether or not an item was plant was that it had to be ancillary to, or an adjunct to, the trade. If it was essential to the trade, then it could not be plant. However, this argument was wrong in principle, authority and common sense. Counsel referred to the cases of Barclay Curle, Schofield, Benson and Scottish & Newcastle. Plant did not require to be an adjunct to a business.

[20]Counsel further submitted that the case of Shove v. Lingfield Park (1991) Limited, supra, was not of any assistance to the appellants as it dealt with a different question. That case concerned the question of whether or not the racetrack was part of the trader's specific trade, which was operating a track for horse racing, not specifically an artificial racetrack. The nature of the artificial race track had not been dictated by the taxpayer's specific trade. The racetrack could have been on natural land. However, the trade of the present respondents was that of exploiting only artificial football pitches by hiring them out to customers, and was the means by which the company generated its profits. In any event, it was submitted that the observations made both by Hart J. in the Chancery Division and by the Court of Appeal were misconceived in principle.

Decision

[21]The Special Commissioner approached the issues before him by first considering (in paragraph 7) the principal contention advanced by the present appellants which was to the effect that the expenditure in question was excluded from capital allowances for plant and machinery by Schedule AA1. The Special Commissioner adopted that approach because if the expenditure was so excluded then it would be unnecessary to decide if it would have qualified as expenditure on plant. He concluded that the carpet had a separate identity and that, as the relevant item was the carpet, it was clearly not a structure. The works carried out under the carpet constituted expenditure on the alteration of land for the purpose only of installing the plant. The Special Commissioner rejected the appellants' contention that the pitch, comprising the carpet and the works underneath, fell to be regarded as a whole and that, so regarded, it constituted a fixed structure.

[22]There is no statutory definition of "plant" and the courts have relied on the principles expounded in a very large number of decided cases, not all of which can be regarded as consistent. In Yarmouth v. France (1887) 19 Q.B.D. 647 Lindley L.J. made observations as to the meaning of "plant" which have since been regarded as authoritative. He stated (at page 658) as follows:

"There is no definition of plant in the Act: but, in its ordinary sense, it 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."

[23]In Inland Revenue v. Scottish & Newcastle Breweries Limited Lord Lowry set out (at page 272) what he described as "ground rules" in the following terms:

"1. It is a question of law what meaning is to be given to the word 'plant,' and it is for the courts to interpret its meaning, having regard to the context in which it occurs. 2. The law does not supply a definition of plant or prescribe a detailed or exhaustive set of rules for application to any particular set of circumstances, and there are cases which, on the facts found, are capable of decision either way. 3. A decision in such a case is a decision on a question of fact and degree and cannot be upset as being erroneous in point of law unless the commissioners show by some reason they give or statement they make in the case stated that they have misunderstood or misapplied the law in some relevant particular. 4. The commissioners err in point of law when they make a finding which there is no evidence to support. 5. The commissioners may also err by reaching a conclusion which is inconsistent with the facts which they have found. I would also refer to the classic statement of Lord Radcliffe in Edwards (Inspector of Taxes) v. Bairstow."

[24]In the present case the question arises as to whether the Special Commissioner was entitled to regard the synthetic grass carpet as a separate entity. In Wimpy International Limited v. Warland, supra, Lloyd L.J. made the following observations (at page 109):

"That leaves only the question which perhaps is the most fundamental question of all, how do you decide whether you are dealing with one entity or two? Here I cannot do better than adopt the language of the Judge who was himself adopting the words of Lord Lowry:

'The question seems to me to be whether it would be more appropriate to describe the item as having become part of the premises than as having retained a separate identity. This is a question of fact and degree, to which some of the relevant considerations will be: whether the item appears visually to retain a separate identity, the degree of permanence with which it has been attached, the incompleteness of the structure without it, and the extent to which it was intended to be permanent or whether it was likely to be replaced within a relatively short period'.

Of course this leaves the matter imprecise. But it is the best that can be done in drawing a line which has troubled the steadiest of hands."

[25]In reaching his view that the item under consideration as plant was the carpet and not the pitch taken as a whole (namely, the carpet and the works underneath), the Special Commissioner pointed out that the carpet on each pitch would wear out in five or six years with frequent use, or eight or nine years with less use. Part of the carpet could, if necessary, be patched and when it was completely worn out, the works underneath would be retained (being simply rolled and filled in if there had been any subsidence) and the old carpet removed and replaced by a new carpet. The football games were played on the carpet, and the stone and terram base was necessary to provide the flat and porous base on which the carpet was laid. Counsel for the appellants submitted that the fact that the carpet could have a separate identity did not prevent it from being part of the structure. It was part of the fixed structure as it was held down by 22 tons of sand. In reaching the opposite conclusion the Special Commissioner had erred in law.

[26]We have regarded the issue as to whether the carpet can properly be regarded as a separate entity to be a narrow one. In Gray v. Seymours Garden Centre (Horticulture) (1995) 67 T.C. 401 at page 411 Nourse L.J. stated as follows:

"It is agreed that the question for this Court, as it was for the Judge, is whether the facts found by the Commissioners are such that no person acting judicially and properly instructed as to the relevant law could have come to the decision to which the Commissioners came or, if you prefer it in the other form, whether their decision is contradicted by the true and only reasonable conclusion from the facts found."

As Lord Lowry observed in Scottish & Newcastle Breweries, there are cases which, on the facts found, are capable of decision either way. In the particular circumstances of this case we have reached the conclusion that we are not satisfied that the approach of the Special Commissioner, and his decision to reject the appellants' submission that the pitch (including the carpet) had to be viewed as a whole, involved any error of law. In our opinion it was open to the Special Commissioner, on the basis of the facts established, to reach the conclusion that the relevant item was the carpet which had a separate identity from the works underneath and which was not "fixed" to those works. In our view, it has not been shown that the decision of the Special Commissioner was inconsistent with the facts or that there was no evidence to support it. If the decision of the Special Commissioner did not involve any error of law, and he was entitled to regard the synthetic carpet as a separate entity, it was common ground that the carpet by itself could not be regarded as a "structure" and, accordingly, that the expenditure on the carpet was not excluded by item G in Table 2 of Schedule AA1.

[27]On that basis it was not necessary for the Special Commissioner to decide whether the pitch (comprising the carpet and the works underneath), if viewed as a whole, constituted a "fixed structure" within the meaning of item G. However, he stated that, if he had had to determine that question, he would have decided that it was not a "fixed structure of any kind, other than a building". The reasons for the Special Commissioner's decision on that matter are set out in paragraph 18 of the stated case. He observed that the only "construction" was laying stones, terram sheeting and the carpet on the ground and weighing it down with sand. While, having regard to the decision which we have reached on the issue of separate identity, it is not necessary for us to determine whether the Special Commissioner erred in expressing the opinion that the pitch, if viewed as a whole, was not a "fixed structure". However, we had the benefit of submissions by counsel and we consider it appropriate to express a view on the matter. On the basis of the agreed facts the excavation works were such that it was likely that a vegetation and top-soil strip reducing levels by approximately 200-300 mm would be required to expose the formation. A layer of terram geotextile was laid on the prepared and rolled formation and on the terram was laid a layer of stone. Between 200 mm and 300 mm of stone (namely, about 8 or 12 inches) was usual for most conditions. Once the stone base had been prepared, rolled and levelled it received a further layer of terram geotextile material. The synthetic grass carpet, which was some 25 mm deep, was then laid on the terram layer and approximately 25 kg to 30 kg of sand was applied per square metre. Accordingly, it appears that the excavation was relatively shallow, the layers of terram and the layers of stone were placed in the excavation and the carpet was laid on top of the upper layer of terram, being effectively held down by the weight of the sand which was applied. If part of the carpet became worn, that part could be patched. After a period of between five to nine years it would be expected that the carpet would be removed and replaced by a new carpet. Two days would be spent taking up the new carpet. In the circumstances we tend to the view that the pitch, comprising both the carpet and the works underneath, did not constitute a "fixed structure" and that the Special Commissioner reached the correct conclusion on this matter. In the circumstances we do not consider it necessary to deal with the eiusdem generis submission urged on us by counsel for the respondents.

[28]Having decided that the relevant item to be considered as plant was the carpet, the Special Commissioner then went on to consider whether the expenditure on the carpet was on plant. In this connection the issue in dispute was whether the carpet was plant or merely the setting. In J. Lyons & Co. Ltd. v. Attorney-General [1944] Ch. 281, in relation to the question whether electric lamps, sockets and wires contained in a restaurant were "plant", Uthwatt J. posed the following question (at page 287):

"Are the lamps and fitments properly to be regarded as part of the setting in which the business is carried on, or as part of the apparatus used for carrying on the business?",

[29]In Cole Bros. Limited v. Phillips 55 TC 188 Oliver L.J., referring to the observation made by Uthwatt J., stated (at page 210) as follows:

"The implication from this seems to be that if there had been present any such special feature or if the building had been served by its own generating equipment, the learned judge might have reached a different conclusion; but the real importance of the case is the distinction drawn between 'apparatus' on the one hand and 'setting' on the other - a distinction which permeates all the authorities up to the present day. That distinction is, however, not an easy one to apply."

[30]There is authority for the propositions (1) that the terms "setting" and "plant" are not mutually exclusive (Jarrold v. John Good & Sons Limited (1963) 40 T.C. 681 per Pennycuick J. at page 688 and Donovan L.J. at page 694); (2) that an apparatus which is part of the setting will be regarded as plant if it is something with which the business is carried on (I.R.C. v. Barclay Curle & Co. Limited, supra) and (3) that an apparatus may constitute "plant" even though it plays a passive, as opposed to an active, role in the trader's operations (Jarrold v. John Good & Sons Limited, supra, per Donovan L.J. at page 695, Dixon v. Fitch's Garage Limited (1975) 50 T.C. 509 per Brightman J. at page 514 and Inland Revenue v. Scottish & Newcastle Breweries Limited, supra, per Lord Cameron at page 267). It is also, in our opinion, of great importance, in considering whether an item constitutes plant, to consider the function which it performs in the taxpayer's business activity. In Inland Revenue v. Scottish & Newcastle Breweries Limited, supra, Lord Wilberforce made the following observation:

"In the end each case must be resolved, in my opinion, by considering carefully the nature of the particular trade being carried on, and the relation of the expenditure to the promotion of the trade."

(see also Cole Bros. Limited v. Phillips, supra, per Oliver L.J. at page 211).

[31]The Special Commissioner took the view that the pitch, if looked at as a whole, or the carpet, could be regarded as both the setting and the means by which the business was carried on. The trade of the respondents was the provision of synthetic football pitches, which generated 70% of the turnover. In one sense the trade was the provision of the setting, but in another sense the carpet was the plant with which the trade was carried on. The Special Commissioner observed that once the plant was used in the trade it did not matter that it was also the setting. In our opinion, on the basis of the established facts in this case, the Special Commissioner reached the correct conclusion on this issue and did not err in law. It was clear that the respondents' principal business activity was the provision of synthetic five-a-side football pitches which were hired out to clubs and members of the public. The other facilities, including the clubhouse, shower and changing rooms and bars, were available to persons using the football pitches. The use of the synthetic surface enabled the pitches to be used for 364 days each year whereas, in the case of a normal grass pitch, its maximum use would be limited to one game per evening in the summer or one game per week in the winter, which would not be economic. There was no suggestion that the respondents operated any normal grass pitches. While the football pitches were the setting, in respect that games were played on them, it seems to us that the carpet, having regard to the function which it performed in the respondents' trade, constituted plant with which the trade was carried on; it performed a function in the actual carrying on of the respondents' business. It was not merely part of the premises, but was the means whereby the operation of providing five-a-side football on a synthetic pitch was carried out. In the particular circumstances of this case we do not consider that the "adjunct test" advanced by the appellants was appropriate. In our opinion, this case falls to be distinguished from Shove v. Lingfield Park (1991) Limited, supra. At Lingfield Park Racecourse the taxpayer company carried on the trade of organising and promoting horse races. There was an existing grass racecourse which was part of a large leisure complex site consisting of access roads, squash courts, gymnasium, golf course, grandstand, restaurants, bars, car parks, horse walks, stabling, betting shops and waiting areas. The taxpayer company had installed, alongside the existing grass racecourse, an all-weather race track (AWT). It was found by the court (in paragraph 24) that the effect of the AWT was to enlarge the area of the racecourse space available to Lingfield to function as premises on which more frequent horse racing could take place. The court held that the AWT functioned as part of the premises on which the business was conducted, and that the supposed separate identity of the AWT was no more separate from the premises on which Lingfield's trade was conducted than the grass racecourse or the other parts of the premises at Lingfield Park. It seems to us, however, that that was quite a different situation on its facts from the football pitches with which we are concerned. In the present case we agree with the Special Commissioner that, on the facts of this case, the carpet was the means by which the respondents generated profits rather than merely the setting, and that the carpet constituted plant. As Sir Donald Nicholls V-C observed in Carr v. Sayer [1992] S.T.C. 396 (at page 402),

"equipment does not cease to be plant merely because it also discharges an additional function, such as providing the place in which the business is carried out".

On the whole matter we have not been persuaded that there was any error of law on the part of the Special Commissioner. The relevant item of plant was the carpet, and the works underneath constituted the alteration of land for the purpose only of installing the plant. It follows that the appeal is refused.