Regent Oil Co Ltd v. Strick (Inspector of Taxes); Regent Oil Co Ltd v Inland Revenue Commissioners
[1965] 3 All ER 174(Judgment by: Lord Pearce)
Between:
And:
Judges:
Lord Reid
Lord Morris of Borth-Y-Gest
Lord PearceLord Upjohn
Lord Wilberforce
Subject References:
TAXATION
Deduction in computing profits
INCOME TAX
Deduction in computing profits
Capital expenditure
Premiums on grant of leases
Oil company
Tied service stations
Lease of premises to oil company for premium
Sub-lease back to proprietor at nominal rent
Covenants binding proprietor to use company's oil
Deductibility of premium in computing company's profits
PROFITS TAX
Computation of profits
Deduction
Capital expenditure
Premiums on grant of leases
Oil company
Tied service stations
Lease of premises to oil company for premium
Sub-lease back to proprietor at nominal rent
Covenants binding proprietor to use company's oil
Deductibility of premium in computing company's profits
Legislative References:
Income Tax Act, 1952 (15 & 16 Geo 6 & 1 Eliz 2. c 10) - s 137(f)
Case References:
Addie (Robert) & Sons' Collieries Ltd v Inland Revenue Comrs - [1924] SC 231; 8 Tax Cas 671; 28 Digest (Repl) 125, 348
Anglo-Persian Oil Co v Dale - [1931] All ER Rep 725; [1932] 1 KB 124; 100 LJKB 504; 145 LT 529; 16 Tax Cas 253; 28 Digest (Repl) 117, 449
Bolam (Inspector of Taxes) v Regent Oil Co Ltd - (1956) 37 Tax Cas 56; 28 Digest (Repl) 124, 479
British Insulated and Helsby Cables v Atherton - [1925] All ER Rep 623; [1926] AC 205; 95 LJKB 336; 134 LT 289; 28 Digest (Repl) 133, 499
Collins v Adamson (Joseph) & Co Adamson (Joseph) & Co v Collins - [1937] 4 All ER 236; [1938] 1 KB 477; 107 LJKB 121; 21 Tax Cas 400; 28 Digest (Repl) 120 463
Comr of Taxes v Nchanga Consolidated Copper Mines Ltd - [1964] 1 All ER 208; [1964] AC 948; [1964] 2 WLR 339
Inland Revenue Comrs v British Salmson Aero Engines Ltd, British Salmson Aero Engines v Inland Revenue Comrs - [1938] 3 All ER 283; [1938] 2 KB 482; 107 LJKB 648; 159 LT 147; 22 Tax Cas 29; 28 Digest (Repl) 120, 461
Inland Revenue Comrs v Coia - [1959] SC 89; 38 Tax Cas 334; 3rd Digest Supp
Kauri Timber Co Ltd v Taxes Comr - [1913] AC 771; 109 LT 22; 28 Digest (Repl) 114, 330
Knight (Inspector of Taxes) v Calder Grove Estates - (1954) 35 Tax Cas 447; 28 Digest (Repl) 58, 225
MacTaggart (Inspector of Taxes) v Strump - [1925] SC 599; 10 Tax Cas 17; 28 Digest (Repl) 126, 367
Hallstroms Proprietary v Federal Comr of Taxation - (1946) 72 CLR 634
Henriksen v Grafton Hotel Ltd - [1942] 1 All ER 678; [1942] 2 KB 184; 111 LJKB 497; 167 LT 39; 24 Tax Cas 453; 28 Digest (Repl) 116, 437
Hinton v Maden & Ireland Ltd - [1959] 3 All ER 356; [1959] 1 WLR 875; 38 Tax Cas 391; 52 R & IT 688
Inland Revenue Comrs v Adam - [1928] SC 738; 14 Tax Cas 34; 28 Digest (Repl) 126, 370
New State Areas v Comr for Inland Revenue - [1946] SALR 610
Ounsworth v Vickers Ltd - [1915] 3 KB 267; 84 LJKB 2036; 113 LT 865; 6 Tax Cas 671; 28 Digest (Repl) 118, 454
Rhodesia Railways v Bechuanaland Protectorate, Resident Comr & Treasurer - [1933] AC 362; 102 LJPC 62; 149 LT 1; 28 Digest (Repl) 405, 907
Roke (HJ) Ltd v Inland Revenue Comrs, Inland Revenue Comrs v Rorke (HJ) Ltd - [1960] 3 All ER 359; [1960] 1 WLR 1132; 39 Tax Cas 194
Smith (John) & Son v Moore - [1921] 2 AC 13; 90 LJPC 149; 125 LT 481; 12 Tax Cas 266; 28 Digest (Repl) 421, 1860
Stow Bardolph Gravel Co v Poole - [1954] 3 All ER 637; [1954] 1 WLR 1503; 35 Tax Cas 459; 28 Digest (Repl) 123, 476
Sun Newspapers Ltd v Federal Comr of Taxation - (1938) 61 CLR 337
United Steel Companies Ltd v Cullington (Inspector of Taxes) (No 1) - (1939) 162 LT 23; 23 Tax Cas 71; 28 Digest (Repl) 29, 129
Usher's Wiltshire Brewery Ltd v Bruce - [1915] AC 433; 84 LJKB 417; 112 LT 651; 6 Tax Cas 399; 28 Digest (Repl) 77, 293
Vallambrosa Rubber Co Ltd v Farmer (Surveyor of Taxes) - [1910] SC 519; 5 Tax Cas 529; 28 Digest (Repl) 105, 281
Van den Berghs v Clark - [1935] All ER Rep 874; [1935] AC 431; 104 LJKB 345; 153 LT 171; 19 Tax Cas 390; 28 Digest (Repl) 117, 450
Whimster & Co v Inland Revenue Comrs - [1926] SC 20; 12 Tax Cas 813; 28 Digest (Repl) 424, 944
Yarmouth v France - (1887) 19 QBD 647; 57 LJQB 7; 34 Digest (Repl) 299, 2159
Judgment date: 27 July 1965
Judgment by:
Lord Pearce
My Lords, it is contended that the transactions here in question can be equated to the payment by a wholesaler to a retailer of a lump sum in advance to secure his entire custom for a period. If that were possible, the considerations pointing towards a revenue expenditure would, in my opinion, have prevailed on balance in the transaction where only a five year period is involved. They would probably have failed to do so, however, in the two transactions which relate to periods of twenty-one years and which thereby acquire a more enduring and structural quality. No such equation is, however, possible. A lease-sub-lease transaction is materially different both in form and in substance. By it the wholesalers obtain for a premium an interest in the land from which their goods are retailed to the public. Admittedly they have bound themselves to sublet and therefore their right to possession, like that of any leaseholder who subjects for all save three days of his lease, will probably be minimal. Breaches of covenant, however, might put them into possession; and in that case they would be in possession of land which they could sublet. Moreover, throughout the period of the lease, although not in possession, they have, not merely a personal covenant by a retailer, but an interest in land through which they can enforce its use in a way beneficial to themselves.
The acquisition of such an interest in land points strongly to a capital expenditure and, on the facts of these cases, dominates other indications. This indication of a capital expenditure is not diminished by the argument that the wholesalers might have obtained the substance of what they wanted by a revenue payment and without purchasing an interest in the land. They did not do so. Instead they chose to enter into these particular arrangements, which were not shams but genuine commercial transactions. They entered into them in order to satisfy insistent customers who were anxious to produce genuine transactions which would render the sums paid to them capital receipts in their hands. There seems no justification for regarding these transactions as other than what in fact they were, or for treating them as anything but acquisitions of leases for premiums with the object of obtaining trade ties. The fact that they were acquisitions of leases tilts the balance in favour of regarding the premiums as capital payments.
I agree, therefore, with your lordships and with the courts below that the sums in question could not be deducted from the taxpayers' assessable income for tax purposes and I would dismiss the appeals.