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Cite as: [2005] UKSPC SPC00508, [2006] STC (SCD) 1, [2005] STI 1996, [2005] UKSPC SPC508

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Maco Door & Window Hardware (Uk) Ltd v Her Majesty's Revenue and Customs [2005] UKSPC SPC00508 (25 October 2005)

Spc 00508

CAPITAL ALLOWANCES – industrial buildings allowances – building used to house goods manufactured by the Appellant's Austrian parent company for sale to wholesalers in the UK to be used in manufacture – whether there was storage – yes – whether part of the Appellant's trade consists in storage – yes – appeal allowed

THE SPECIAL COMMISSIONERS

MACO DOOR &WINDOW HARDWARE (UK) LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Special Commissioner: DR JOHN F. AVERY JONES CBE

Sitting in public in London and Sittingbourne on 10 to 12 October 2005

Giles Goodfellow QC, counsel, instructed by Davis Bonley, chartered accountants, for the Appellant

Philip Jones, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2005

DECISION

This is an appeal by Maco Door & Window Hardware (UK) Limited against amendments to its corporation tax self-assessment for the accounting periods ended 31 December 1999 and 2000 denying the Appellant's claim for industrial buildings allowances on a warehouse with office and lecture room facilities at Eurolink Business Centre, Sittingbourne, Kent ("the Building"). The Appellant was represented by Mr Giles Goodfellow QC and the Revenue by Mr Philip Jones.

There were 3 bundles of documents. I heard evidence from Mr R A Lawrence, the managing director, and Mr P R Rhodes who is primarily concerned with the buying side. I visited the Building and I find the following facts:

(1) The Building comprises 4,445 square metres of which 855 square metres is a high-bay warehouse allowing storage of products on 15 levels, and 1,497 square metres is a distribution building also containing storage for items too large to fit on standard size pallets. The Building can hold 5,500 pallets. In addition there are offices and a lecture theatre, and an area with equipment for testing products.

(2) The Appellant's business is that of importing products manufactured by its Austrian parent company, Mayer & Co Beschlage GmbH ("Mayer"), promoting and selling them in the UK. The products are hardware for the PVC window and door market, such as locks, handles, espagnolettes, hinges and strikers. There is a substantial number of different shapes, sizes and styles for each product required to fit a large number of different sized and styled windows and doors. The products are compatible with 70 different types of window extrusions. For example, the sales literature showed four different types of door lock and 9 colours of handles. There are regular changes in design necessitated by changes in design by the window and door fabricators. The Appellant currently holds 2,300 different items of stock.

(3) Mayer mainly manufactures for the mainland European market for which the products are standard. The UK market, on the other hand, has different products because tilt and turn window fittings are different in the UK. Normally in the rest of Europe, at the first position of the handle (at right angles to the closed position) the window opens inwards, and at the second position (opposite the closed position) it tilts. In the UK, in the first position the window tilts and in the second it opens but outward, which reduces the risk if a child opens the window to the first position. A tilt and turn window requires about 21 different fittings sold by the Appellant and completely different designs of most of these are required for the UK market. Of the products held by the Appellant 85 to 90 per cent are made solely for the UK market. The UK market represents 13 to 14 per cent of Mayer's total market.

(4) Because UK products have to be manufactured separately by Mayer, the standard ordering time is six weeks. Mayer's factory is set up to produce products in large batches. Products can be ordered and supplied in a shorter time than 6 weeks if Mayer can fit the order into their production, but Mayer might say this is not possible for a particular order. Manufacturing products for the UK market alone requires the machines to be re-tooled, a process that takes three hours and therefore interrupts the larger production for the mainland European market, which is uneconomic to do for small orders. Accordingly Mayer requires the Appellant to place orders for minimum quantities. The Appellant cannot obtain products for the UK market from any of Mayer's other subsidiaries because they will not hold products manufactured for the UK market. By way of example of the time taken, a purchase order made on 21 February 2005 was for three items with a required delivery date of 25 February 2005, a further three items for 14 March 2005 and 35 items for despatch on 4 April 2005 (6 weeks). Despatch was on 31 dates between 23 February 2005 and 1 June 2005 (more than 14 weeks) with arrival about 3 days later, 19 of which were up to 4 April 2005 and 12 after that date. The largest item ordered for 4 April 2005 was despatched in 8 parts between 15 March and 29 March 2005. I infer from this that the 6 weeks is a standard time requested by Mayer and production is fitted into Mayer's schedule resulting in some products being despatched more quickly and some more slowly than the 6 weeks, so that the Appellant cannot rely on despatch within 6 weeks. Mayer does not store any products manufactured for the UK market. If it produces more than is ordered for the UK market the excess is sent to the Appellant.

(5) The Appellant's customers are primarily wholesalers ("distributors") who sell the products in smaller quantities to window and door fabricators. A few large fabricators are direct customers. Customers, whether distributors or fabricators, do not hold large stocks and expect orders to be delivered within 7 to 10 working days. The Appellant can deliver in 3 to 5 working days, or overnight in emergencies. In some cases customers make forward orders roughly corresponding to the Appellant's six weeks ordering time from Mayer. During January to June 2005 these forward orders amounted to 11 per cent of items, 17 per cent of quantity, 18 per cent of value and 7 per cent of order quantities, which is considered to be representative of the period under appeal. Even when customers have ordered in advance it may be commercially necessary to use part of a delivery to satisfy short-term orders.

(6) It is important to the Appellant's business that it holds sufficient stock to satisfy orders otherwise fabricators will be forced to use the Appellant's competitors' products completely; parts of different manufacturers are not interchangeable. I saw letters from two of the largest customers saying that since the Building opened problems of obtaining supplies of Maco products had greatly reduced which had resulted in increased ordering of them. The Appellant's speed of delivery and stock levels are understood to be better than many of its competitors.

(7) Products are sold by the Appellant with a ten-year guarantee corresponding to the guarantee that fabricators offer to their customers. This requires the holding of products that are no longer manufactured (and for which further manufacture by Mayer is not possible as the tooling is not retained when manufacturing ceases) in case the Appellant needs to replace these, which is more cost-effective than repairing them. About 2.5 per cent of the stock held in the Building is of obsolete products. Such stock is available for sale.

(8) The high-bay part of the Building contains the most hi tech equipment available enabling orders to be picked, packed and despatched quickly. A crane is moved on rails automatically to the place where the product is found and takes a pallet which is then automatically loaded onto a conveyor belt for despatch. Many of the customers' orders are for a whole pallet of a particular product, but smaller quantities can be retrieved easily. The equipment can move quickly from one product area to another enabling the processing of smaller quantity orders of a range of items.

(9) Eight employees work on the receiving, breaking down bulk deliveries, storing, retrieving, packaging and despatching products.

(10) In the year to 31 December 1998 before the Building was opened the closing stock was £1.1m with a turnover of £12.1m corresponding to 5 weeks of sales. In the year to 31 December 2000, the first full year with the Building closing stock was £2.2m and turnover £14.3m, corresponding to 11.9 weeks of sales.

(11) Sales and ordering are dealt with in the office part of the Building. Customers do not visit the Building in connection with ordering. Eight salesmen are working away from the Building virtually all the time, visiting customers and potential customers, such as architects and local authorities to encourage them to specify Maco products. The salesmen do not take orders.

Section 18 of the Capital Allowances Act 1990 provides:

"(1) Subject to the provisions of this section, in this Part "industrial building or structure" means a building or structure in use—

…

(e) for the purpose of a trade which consists in the manufacture of goods or materials or the subjection of goods or materials to any process; or

(f) for the purposes of a trade which consists in the storage—

(i) of goods or materials which are to be used in the manufacture of other goods or materials; or

(ii) of goods or materials which are to be subjected, in the course of a trade, to any process; or

(iii) of goods or materials, which, having been manufactured or produced or subjected, in the course of a trade, to any process, have not yet been delivered to any purchaser; or ….

(2) The provisions of subsection (1) above shall apply in relation to a part of a trade or undertaking as they apply in relation to a trade or undertaking except that where part only of a trade or undertaking complies with the conditions set out in subsection (1), a building or structure shall not by virtue of this subsection be an industrial building or structure unless it is in use for the purposes of that part of that trade or undertaking.

…

(4) Notwithstanding anything in subsections (1) to (3) above, but subject to subsections (5) and (7) below, 'industrial building or structure' does not include any building or structure in use as, or as part of, a dwelling-house, retail shop, showroom, hotel or office of for any purpose ancillary to the purposes of a dwelling-house, retail shop, showroom, hotel or office.

…

(7) Where part of the whole of a building or structure is, and part of it is not, an industrial building or structure, and the capital expenditure which has been incurred on the construction of the second mentioned part is not more than one-quarter of the total capital expenditure which has been incurred on the whole building or structure, the whole building or structure and every part of it shall be treated as an industrial building or structure.

It is common ground that the Appellant uses the Building for the purposes of its trade, that the products are goods or materials which are to be used in the manufacture of other goods or materials, and that the cost of the parts of the building consisting of offices and lecture theatre falls within subs (7). The issue in this appeal is whether the building is in use for the purposes of a trade (or part of a trade (see subs (2)) which consists in the storage of such goods.

Mr Goodfellow QC for the Appellant contends in outline:

(1) The Building is in use for storage of the products.

(2) The Appellant's trade requires it to hold substantial levels of stock because of the difference between the delivery time required by its customers of 7 to 10 days, and the order time from Mayer of 6 weeks, which can in practice be longer, and orders have to be in minimum sizes; regular orders in smaller quantities are not accepted by Mayer because the need to re-tool the machines makes manufacturing in smaller quantities uneconomic.

(3) Storage is part of its trade, which is carried on in the Building. Storage is not a transitory incident of its trade but a significant part of it.

(4) Picking and packing of orders is incidental to the storage and sale of the goods.

(5) The Building accordingly qualifies under s 18(1)(f)(i).

(6) In so far as it is relevant the Appellant differs from a normal wholesaler in that it sells only one manufacturer's products and cannot substitute other manufacturer's products. The facts in Bestway (Holdings) Ltd v Luff 70 TC 512 are entirely different; there, storage was a transitory incident of its activity of a wholesale supermarket.

Mr Jones, for the Revenue, contends in outline:

(1) The Appellant's trade is not that of storage but of buying and selling products wholesale.

(2) Storage is not part of the trade but something inherent in wholesaling.

(3) Picking and packing of products is part of wholesaling, but warehouses receive and send out goods in the same quantities.

(4) The facts are indistinguishable from those in Bestway. Buildings used by wholesalers cannot qualify for industrial buildings allowances.

Whether storage was carried on

Since Mr Jones relies heavily on Bestway I shall consider it first. The premises in question were a cash and carry wholesale supermarket selling groceries, tobacco, confectionery, alcohol and household goods, mostly having a "sell-by" date. The customers were other businesses such as retailers and caterers. Goods were displayed on steel shelves from which the customers took the goods they wanted to purchase. The steel racking was not designed to display goods to their best advantage but the object was to facilitate the speedy disposal of goods to educated purchasers. The building also contained tills and a check-out area. The taxpayer contended that the building qualified under what became s 18(1)(e) or s 18(1)(f)(ii) of the 1990 Act quoted above. Their argument was that the processes of checking and sorting, repackaging on arrival, labelling, unpacking, reading of product codes, refrigeration and freezing, and repackaging, amounted to the subjection of goods to a process. The Special Commissioners found as a fact that the goods were not subjected to a process within what became s 18(1)(e). They went on to consider whether the taxpayer could succeed under what became s 18(1)(f)(ii) and found as a fact that storage did not take place within the premises because the goods were on the racks for immediate sale and even the back-up stock on higher shelves was held at a minimum level in order to ensure that an adequate supply was available for purchase by customers. Since the taxpayer could not succeed under paragraph (ii) as there was no subjection of the goods to any process, the Special Commissioners presumably made findings on whether there was storage because the point had been argued.

Lightman J approached it differently on appeal. He first considered whether there was storage, then whether the goods were subjected to a process, and finally whether any such process was part of their trade. His decision was that there was no storage; that the activities were limited, mundane and of no substantial significance and so did not amount to the subjection of goods to a process; and thirdly (the question not having been decided by the Commissioners), that the activities claimed to be a process were not sufficiently significant to amount to part of their trade. Strictly the decision, agreeing with the Special Commissioners, on the second point that there was no process, was sufficient to decide the case and so all other parts of the decision are obiter. I must, however, pay careful attention to his approach.

His conclusion on the storage point at p 537B was:

"But the length of time during which goods are kept or held can only be one, and not the decisive factor or the factor of first importance, in determining whether they are stored: the determining factor must be the purpose for which the goods are kept or held. If goods are delivered for safe keeping to a depository (e.g. a bank providing a safe deposit), so long as the goods remain in the possession of the depository they may be described, as 'stored'; but this would not be the apt description of goods handed over in the course of his business to a repairer or pawnbroker.

In this case what is critical is the nature of the enterprise intended to be carried on and actually carried on by Bestway at the buildings and the role played by the stock in that enterprise. For a building is only used for storage if the purpose of keeping goods there is their storage as an end in itself: there is no such use for storage if the goods are kept there for some other purpose: consider Kay v. Burrows & Others [1931] AC 454. All the stock in the present case is kept in the buildings, not for storage, but for sale. No goods are reserved or withheld for future use: they are all likewise available for sale and intended to be sold as soon as the turnover allows. For practical reasons only part of the stock can be made physically available for self-service by customers; but that does not alter the fact that the back-up stock is intended to be made immediately available as soon as required to meet demand. In short, as it seems to me, 'storage' in s 7(1)(f) means keeping in storage as a purpose and end in itself, and does not extend to such storage as is merely a necessary and transitory incident of the conduct of the business of a wholesale supermarket. The goods enter the buildings upon their final journey to the customers. The 6–8 weeks of stock at any time in the buildings may be likened to stock on an extension to the open shelves or on a conveyor belt to the open shelves. Far from being kept in reserve, the stock is in the process or in the course of being made available to purchasers at the buildings."

He therefore approached the question by determining the purpose for which the premises were used (which was the test adopted in Kilmarnock Equitable Co-operative Society Ltd v IRC 42 TC 675), on the basis that storage had to be an end in itself. It was not, because any storage was merely an incident of running a wholesale supermarket.

Mr Jones also cited Dale v Johnson Brothers 32 TC 487, 494:

"That section [the equivalent to s 18(1)(f)(iii)], so far as it is invoked here, contemplates that the use of the building must be for a trade and that trade, so far as the use in concerned, must be a storage trade. It will not do that the trade is storage plus something else or something else plus storage. It must be simply a keeping or custody."

Mr Goodfellow pointed out that the equivalent to s 18(2) relating to part of a trade had not been referred to, and that this statement was inconsistent with Kilmarnock.

Another relevant authority is Crusabridge Investments Ltd v Casings International Ltd 54 TC 246 in which a company purchased used tyre casings from various sources, sometimes in small quantities and some in large quantities from large hauliers or tyre fitting companies. They inspected them and classified them according to the specifications of the prospective purchasers who were remoulders. A consignment of examined casings would be despatched in about 7 days, but for Goodyear tyres it could be one or two months as they only remoulded their own tyres and it took longer to collect them. A second part of the trade consisted of receiving remoulded tyres which were stored until sale on behalf of the remoulder on the sale of which they received a commission. The first part of the trade was held to be storage within what became s 18(1)(f)(ii), that the tyres were to be subjected (by someone else) to the process of remoulding; and the second was within paragraph (iii) as the tyres having been subjected to the process of remoulding had not yet been delivered to any purchaser. It seems to me that the essential facts were that in the first part of their trade they bought tyre casings sometimes in small quantities and had to keep them until they had sufficient of a particular type to send to a remoulder; and in the second part they had to keep remoulded casings pending sale. In both cases the goods were for sale but they necessarily had to be held somewhere until sale, which amounted to a trade consisting in their storage. The purpose of holding the goods was that they had to be kept somewhere until a sale could take place.

Mr Jones relies on Bestway to contend that in any case where the goods are for sale the building cannot be in use for the purposes of a trade which consists in the storage of goods of the requisite nature. This leads inevitably to the conclusion that no wholesaler can qualify (at least unless the goods are kept in a separate building by a separate subsidiary whose business is that of a warehouse; even then he contends that the picking and packing is not part of a warehouse trade, which I do not accept as it is contrary to Saxone). Mr Jones accepts that on his analysis Bestway is hard to reconcile with Crusabridge but he points out first, that the Revenue were not a party to Crusabridge, and secondly, the burden of proof was on the landlord to show that the tenant had been in breach of a covenant in a lease requiring that the building be used as an industrial building as defined for capital allowances (which the Inspector had refused), rather than, if it had been a tax appeal, for the tenant to show that the refusal to grant the relief was wrong. Lightman J said in Bestway "The decision in Crusabridge may be explained on its own facts, namely that there was in that case a finding that the collection and storage of tyres was 'an essential part' of the business." Mr Jones also contended that the Judge in Crusabridge at p 253C misstated the ratio of Dale, as being that the nature of the trade was the fulfilling of the requirement that the taxpayer should fulfil all orders obtained by the supplying company's travellers in the Province, to which the storing of the goods was merely ancillary to the fulfilling of that requirement, when the ratio was that the trade was not solely of storage.

The difficulty is how to apply these authorities to the facts of this appeal. Dealing first with whether storage is being carried on, while it may be easier for a warehousing subsidiary to show that it carries on a storage trade, it makes little sense to restrict the relief to such a case, which is in any case inconsistent with Crusabridge where the taxpayer was not just a warehouser. I consider that Mr Jones's is not a correct reading of Lightman J's approach in Bestway. Lightman J considered the purpose for which the goods were held in the building and concluded that it was for the purpose of selling them in a wholesale supermarket, which supermarket kept the minimum stock that was commercially necessary for such operation. It is in the nature of a supermarket that goods are kept there for selecting and taking away immediately by customers. In my view, Lightman J's conclusion cannot automatically be applied to all wholesalers to say that none can qualify because they hold goods for sale. Crusabridge supports this reading because the goods were clearly held for eventual sale but for commercial reasons they would not be sold immediately and in the meantime had to be kept somewhere. I see no conflict between the two cases. In Bestway the purpose of holding the goods on the shelves was so that customers could come in and buy them; in Crusabridge the purpose of holding the tyres was so that after inspection and categorisation they could be collected together pending sale in a suitable minimum quantity. In the former case it was not storage, and in the latter case it was.

The statute supports this approach as it envisages selling in connection with storage. Section 18(1)(f)(iii) applies where goods are stored pending delivery to a purchaser and so will be for sale. Section 18(4) excludes from the definition of industrial building, a building in use as a retail shop, or for any purpose ancillary thereto, suggesting that there are circumstances in which a retail shop might otherwise qualify, and it is notable that wholesale premises are not excluded.

Here the products were held for sale in circumstances where sale was not expected to be immediate because the Appellant had to buy on a 6 week delivery cycle and sell on a 7 to 10 day delivery cycle. In theory, this problem could be overcome by ordering purchases every 7 to 10 days, so that there would be a steady state in which current sales were met from deliveries from Mayer corresponding to orders made six weeks earlier. This was not possible in practice because Mayer had to re-tool in order to manufacture products for the UK market and so required orders in minimum quantities that made their manufacture, and consequent interruption of manufacture for the rest of the European market, economic. This meant that it was inevitable that the Appellant had to order in larger quantities and consequently would hold a stock of goods in excess of its immediate needs. The stock levels had risen considerably on the Building coming into use, and this was deliberate for good commercial reasons.

Picking the products out of the correct part of the Building and packing them in different quantities seems to me to be incidental to storage of the products. They arrive in large quantities from Mayer and, having been stored, customers may buy in smaller quantities necessitating repacking, although in many cases customers do buy a whole pallet of products. The distributors, to which the Appellant primarily sells, split their orders into much smaller parcels.

If one excludes the office part of the Building which is to be ignored under s 18(7), the remainder of the Building is used for storage. Accordingly I find that the Building was in use for the purposes of storage of goods or materials which are to be used in the manufacture of other goods or materials.

Whether part of the Appellant's trade consists of storage

Whether the storage was part of the trade was also considered by Lightman J in Bestway. Mr Brennan for the Revenue had contended that there was a distinction between "part of a trade" and "an activity undertaken in the course of a trade," relying on Rowlatt J in Graham v Green [1925] 2 KB 37, 40 that "the conception of a trade…differs in its nature in my judgment from the individual acts which go to build it up, just as a bundle differs from odd sticks." Lightman J summarised his submission: "What is needed is (using the language of Rowlatt J) a bundle of sticks or activities which constitute a significant separate and identifiable 'part' of the building user's trade. His submission seeks to reflect the commercial reality that a trade may incorporate more than one separately identifiable 'part-trade'." Lightman J's conclusion at p 543G was:

"The choice between these two alternative constructions must depend on a consideration of the language used in s 7(2) in the context of the legislation as a whole with attention to the statutory purpose of the legislation. On such a consideration I am satisfied that Mr. Brennan's construction is correct. The trade of a company or an individual includes all its activities ultimately directed towards making profits: see Rolls-Royce Motors Ltd. v. Bamford5 (1976) 51 TC 319, at 346B–C. Its trade may be a composite one. Mr. Brennan gave an apt example of the trade of a person carrying on a garage business [consisting of two parts, a car showroom and a car repair shop]. The use of a building for the composite trade may not qualify for allowances under s 7(1): but, if use for one of the two or more component parts does qualify, s 7(2) extends qualification for allowances to the part or parts of the building used for this qualifying purpose. I think that the primary purpose of s 7(2), is to make provision in this way for use of a building for a composite trade; and on any basis, to constitute a part of a trade within the meaning of s 7(2) and to qualify for the allowances, the activities in question must be a significant, separate and identifiable part of the trade carried on. There is no inconsistency between this view and the dictum of Dillon J. in Vibroplant or the decision in Schmidt. This construction is, in my judgment, necessary to give effect to the statutory choice of the word 'part' and the purpose which the legislation is intended to achieve. It cannot sensibly have been intended that the allowance should be available wherever and to the extent that any activity of the type described in s 7 takes place, and the statutory language is not apposite for this purpose."

Mr Goodfellow contended that this approach was inconsistent with how the House of Lords had decided Saxone Lilley & Skinner (Holdings) Ltd v IRC 44 TC 122, which had been cited in Bestway but is not mentioned on this aspect. There the taxpayer was a warehousing subsidiary that stored first, shoes manufactured by other members of the group (which potentially qualified under what became s 18(1)(f)(iii)), and secondly shoes bought from other suppliers (which did not qualify under any of the subparagraphs). No part of the warehouse was devoted to holding either type. The Special Commissioners had decided (p 126H) that part of the taxpayer's trade was the storage of the manufactured shoes, but that the whole of the building was not used for that part of the trade, and so the building did not qualify. Lord Reid, while reversing the Commissioners on the second point on the basis that there was no "wholly or mainly" requirement, said that on the first point they were "clearly right." He continued at p 139G:

"I reject the argument that there is no sufficient distinction between the ways in which the two kinds of shoes are treated to enable one to say that storing the one kind is one part of the trade and storing the other kind is another part. If a trader stores or sells or otherwise deals with two kinds of goods, A and B, I think that it is the ordinary use of language to say that dealing with A is one part of his trade and dealing with B is another part, and I see nothing in the context here to justify giving any other interpretation to 'a part of a trade' in s. 271(2)."

Accordingly the decision was that storing the manufactured goods was part of the taxpayer's trade and that because there was no wholly or mainly requirement, the whole of the premises were used for that part of the trade.

A similar approach was adopted in Kilmarnock Equitable Co-operative Society Ltd v IRC 42 TC 675 where the issue was whether packing coal into paper bags, including separating the dross from the coal, constituted a part of a trade which consisted of the subjection of goods to a process within what became s 18(1)(e). The Lord President said at p 679:

"The Crown further argued that in any event the building in question was not in use for a trade or part of a trade which consisted in the subjecting of the goods to a process within the meaning of Section 271(2) of the Act.

It was therefore disqualified from being an industrial building or structure, so the argument runs, within the meaning of the Sub-section. This contention by the Crown is also not specifically dealt with by the Commissioners, if it was presented to them. The argument was that if the Society's only trade was screening and packing of coal in paper bags then the situation might have been different, but this Society operated a trade of general merchants, and only a small part of their total operations involved paper packaging of screened coal. But the relative proportions of the Society's various activities appear to me to be quite irrelevant. The building in question houses a definitely identifiable part of their industrial operations and a quite separate activity, and that separate activity alone. This is in my view enough to satisfy the requirements of Sub-section (2)."

None of the other judges in the Court of Session dealt specifically with this point but it is inherent in their decision.

I agree with Mr Goodfellow that the decision on the meaning of part of the trade is part of the ratio of Saxone, and it is similar to that in Kilmarnock on another part of the same section. I doubt whether Lord Reid would have described storing each kind of shoes as a "significant, separate and identifiable part of the trade," or a "separately identifiable 'part-trade'," or whether the Court of Session would have applied these descriptions to the packaging of screened coal. Their approaches seem to me to be much closer to "an activity undertaken in the course of a trade." They are clearly different from Lightman J's approach in the passage quoted, which is in any case obiter for the reasons I have set out, that part of a trade is construed in the same way as in the context of carrying forward losses. I am therefore bound to construe the words part of a trade according to the ordinary use of language so as to include Lord Reid's example of the storage or selling of each of two kinds of goods.

The Appellant's whole trade is that of importer and buyer from a single manufacturer, for sale mainly to the wholesale market of distributors who supplied products to window and door fabricators. On whether part of the Appellant's trade consists of storage of goods which are to be used in the manufacture of other goods, I apply Lord Reid's approach of the ordinary use of language consistently with his decision that storage of manufactured goods and bought-in goods are each separate parts of the trade. Here, because of the terms on which Mayer will supply the products, it is necessary to the Appellant's trade that products have to be stored. I find that the storage here is a separate part of the Appellant's trade.

Accordingly I find that the Building was in use for the purposes of that part of the Appellant's trade which consists in the storage of goods or materials which are to be used in the manufacture of other goods or materials, and is an industrial building within s 18(1)(f)(i). I allow the appeal in principle

JOHN F. AVERY JONES

SPECIAL COMMISSIONER

RELEASE DATE:25 October 2005

SC 3077/04

Authority referred to in skeletons and not referred to in the decision:

Copol Clothing Ltd v Hindmarch 57 TC 575