Taxpayer companies entitled to writing down allowances for machinery on local authority land; not for central heating in council houses.

The court held that the taxpayer companies were entitled to writing down allowances under section 44(1) of the Finance Act 1971 for machinery and plant installed on land belonging to local authorities, despite the equipment becoming part of the local authority's land. However, the companies were not entitled to allowances under section 59 of the Finance Act 1985 for central heating installed in council houses, as the tenants had legal rights over the equipment. The appeal succeeded partially, with the companies ordered to pay three-quarters of the Crown's costs and their application for a certificate to appeal to the House of Lords refused.

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Issues Involved:
1. Entitlement to writing down allowances under section 44(1) of the Finance Act 1971.
2. Entitlement to allowances under section 59 of, and Schedule 17 to, the Finance Act 1985.

Issue-Wise Detailed Analysis:

1. Entitlement to Writing Down Allowances under Section 44(1) of the Finance Act 1971:

The first issue is whether the taxpayer companies are entitled to writing down allowances under section 44(1) of the Finance Act 1971 for capital expenditure on the provision of machinery and plant on land belonging to local authorities. The relevant provision states that allowances and charges shall be made to a person carrying on a trade who has incurred capital expenditure on the provision of machinery or plant for the purposes of the trade, and in consequence of incurring the expenditure, the machinery belongs, or has belonged, to them.

The court examined numerous transactions involving leases to local authorities for plant and equipment, including central heating in council houses and other plant installations. The distinction was made between plant installed on land occupied by a local authority and central heating installed in council houses.

For plant installed on land occupied by a local authority, the court found that the equipment became part of the local authority's land, and the taxpayer companies could not claim that the equipment "belonged" to them merely by agreement. The equipment, once installed, became fixtures and part of the land, and any agreement that it should remain personal or removable property could not contradict this legal consequence.

However, the court held that the equipment could still be considered as "belonging" to the taxpayer companies in a broader sense. The taxpayer companies paid for the equipment and installation, had the right to remove it upon lease termination, received rent, and could assign their rights. The local authority had no right to retain the equipment beyond the lease term without paying rent.

In contrast, for central heating installed in council houses, the court found that tenants had a legal estate in the land, and the taxpayer companies had no right to enter and remove the equipment. The tenants, as bona fide purchasers for value without notice of the leasing agreements, enjoyed their tenancies free from any rights of the taxpayer companies to repossess the equipment. The court concluded that the provisions of the master equipment lease were inapt for central heating in council houses, and the taxpayer companies ceased to have any proprietary interest in the equipment once installed.

2. Entitlement to Allowances under Section 59 of, and Schedule 17 to, the Finance Act 1985:

The second issue concerns whether the taxpayer companies are entitled to allowances under section 59 of, and Schedule 17 to, the Finance Act 1985 for expenditure incurred after 11 July 1984. Schedule 17 applies to determine entitlement to allowances for plant and machinery fixed to land as fixtures.

The court examined the relevant provisions of Schedule 17, including paragraphs 2, 3, and 4. Paragraph 2(1) treats fixtures as belonging to the person incurring the expenditure if they have an interest in the relevant land when the machinery or plant becomes a fixture. Paragraph 3(1) allows for an election that the fixture belongs to the equipment lessor for material purposes if certain conditions are met.

The court found that the taxpayer companies had no proprietary interest in the equipment covered by the central heating leases, and therefore, paragraphs 2 and 3 did not apply. The court also noted that a local authority, being exempt from income tax and corporation tax, could not benefit from the allowances under Chapter 1 of Part III of the Finance Act 1971.

The court concluded that the appeal succeeded to the extent of the expenditure on central heating in council houses but failed regarding the miscellaneous items. The taxpayer companies were ordered to pay three-quarters of the Crown's costs, and their application for a certificate to appeal directly to the House of Lords was refused.

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