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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> HMRC v SSE Generation Ltd [2021] EWCA Civ 105 (01 February 2021) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2021/105.html Cite as: [2021] EWCA Civ 105, [2021] STI 690, [2021] STC 369, [2021] BTC 6 |
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ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
(Judge Herrington and Judge Brannan)
[2019] UKUT 332 (TCC)
Strand, London, WC2A 2LL |
||
B e f o r e :
LADY JUSTICE ROSE
and
LORD JUSTICE POPPLEWELL
____________________
| THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS |
Appellants |
|
- and – |
||
SSE GENERATION LIMITED |
Respondent |
____________________
Jonathan Peacock QC and Michael Ripley for the Respondent
Hearing dates: 8 and 9 December 2020
____________________
VERSION
OF APPROVED JUDGMENT
Crown Copyright ©
Lady Justice Rose:
1. Introduction and outline of the issues
SSE
Generation Ltd ('
SSE'),
is entitled to claim capital allowances for the expenditure that it incurred on plant when constructing the Glendoe Hydro Electric Power Scheme near Fort Augustus above Loch Ness in the Highlands of Scotland ('the Scheme'). The Scheme was opened by Her Majesty the Queen in June 2009, less than three years after the construction work first broke ground. The arguments about the tax treatment of
various
components that make up the project, however, still remain to be resolved over ten years after the project was completed.
SSE
for the tax years ending 31 March 2006 to 31 March 2012. They concluded that
SSE's
profits had been understated in those years as a result of claims made by
SSE
to excessive capital allowances, contrary to the provisions in Part 2 of the Capital Allowances Act 2001.
SSE
appealed against the notices to the First-tier Tribunal (Tax Chamber) ('the FTT'). The FTT (Judge Kevin Poole) released its decision on 31 July 2018: [2018] UKFTT 416 (TC). The FTT decided that
SSE
was entitled to claim allowances for some of the disputed items but upheld HMRC's
view
on others. HMRC lodged an appeal before the Upper Tribunal in respect of some of the items which the FTT had found did give rise to allowable expenditure. The Upper Tribunal disagreed with the FTT's analysis in certain respects and remade the decision largely in
SSE's
favour. The Upper Tribunal granted permission to appeal to this court on 23 December 2019.
SSE
is carrying on a qualifying activity.
various
exceptions. The general rule is set out in section 11(4). Expenditure is 'qualifying expenditure' if it is spent on plant or machinery wholly or partly incurred for the purpose of a qualifying activity. It is now also common ground that all of the items in dispute in this appeal count as 'plant' for this purpose and that they all fall within the general rule. The issue is whether they are taken out of the general rule because they fall into one of the exceptions, largely contained in Chapter 3 of Part 2. The sections in Chapter 3 that are particularly relevant for our purposes are sections 22 and 23. Section 22 contains two exceptions to the general rule. The first limb, in section 22(1)(a), excepts expenditure "on the provision of a structure or other asset in List B". Section 22(2) clarifies that the 'provision' of a structure includes its construction or acquisition. List B sets out seven groups of items and List B Item 1 includes tunnels and aqueducts. The FTT and the UT had to consider whether some elements of the Scheme are properly described as tunnels or aqueducts for this purpose. That issue is also before us. If so, the plant falls outside the general rule, meaning that no capital allowance can be claimed for the expenditure incurred in providing it. Item 7 of List B is a sweep-up item that brings within List B all structures not covered by Items 1 to 6. However, there are some structures carved out of Item 7, including structures which count as "industrial buildings". So if a structure does not fall within any of Items 1 to 6 of List B and it is an industrial building, it does not fall within List B at all and so is not excluded from the general rule by section 22(1)(a). It is common ground in the appeal that if all the items of plant in dispute are properly described as structures, then they do all fall within the definition of 'industrial buildings', so that if the plant does not constitute a 'tunnel' or an 'aqueduct' then it is not excluded from the general rule by section 22(1)(a) because it is not swept up by List B Item 7.
via
that route.
SSE
was represented by Jonathan Peacock QC and Michael Ripley.
2. The items of plant in dispute
void
excavated from the solid rock some 600 metres below the reservoir and some 250 metres below the local ground level. It includes not only the chamber for housing the generating plant and machinery but also staff accommodation, toilets, showers and rest rooms. After the pressurised water from the headrace has served its purpose in the turbine, it runs away through the tailrace which takes the water out into Loch Ness. The tailrace also includes a short stretch of conduit that joins the outflow of the turbine to the tailrace as well as drainage and dewatering tunnels that enable the water to pass from the headrace to the tailrace without passing through the turbine, in case the turbine needs repair or maintenance.
visit
which had assisted his understanding greatly.
various
separate items of plant. Three of the items of plant in dispute in this appeal are conduits which are upstream of the main reservoir. The first kind is referred to as a drill and blast conduit. There are about 6 km of drilled and blasted conduit through the rock of the mountains above Loch Ness. The walls of these conduits are lined with steel mesh to reinforce them and concrete is then sprayed on to cover the steel mesh and to dry into a smoother, interior concrete wall. These conduits have an internal diameter of between 2 and 3 metres with a flat base,
vertical
walls up to about 1.5 metres and a semi-circular 'roof'. The second kind of conduit is described as a 'cut and cover' conduit. These are made by digging a trench in the ground, lining the trench with reinforced concrete, making semi-circular sections of concrete to form a roof over the trench so that the cross section of the conduit is roughly hexagonal with the lower half of the cross section below ground level and the upper half above ground level. Then the conduit is completely covered over with earth so that it blends into the landscape and is no longer
visible
from the surface of the land. There is about 1 km of 'cut and cover' conduit in the Scheme. Thirdly, there are about 800 metres of uncovered channels comprising a trench into the ground surface and lined with rocks or concrete.
vertical
drop along its length. It is entirely underground, created by boring through the rock. The FTT stated at [11(5)] that the choice of using a subterranean shaft rather than running the headrace along the surface of the ground was driven partly by engineering considerations and partly to minimise the environmental impact of the Scheme. At the foot of the headrace, the last 85 metres is substantially narrower and contains a tapering steel lining which attaches directly to the inlet
valve
adjacent to the turbine. The 220 metres of headrace above that part was constructed with a reinforced concrete lining inside the shaft. The main section of the headrace above that was partly stabilised with rock bolts and lined with shotcrete (concrete sprayed onto the rock surface at high pressure to strengthen the rock walls), where geological conditions require it. At the foot of the headrace, the water is under a pressure of approximately 900lb/in2 and the steel-lined and reinforced concrete-lined sections prevent the water pressure from bursting through the rock and flooding the power cavern. During August 2009 it was discovered that there had been a major rockfall within the headrace about 2 km downstream from the reservoir. A bypass was constructed to take the headrace round the obstructed area and the Scheme was brought back into full operation in August 2012. It was agreed by the parties before the FTT that the expenditure on this remedial work should be treated in the same way for capital allowance purposes as the initial expenditure on the construction of the headrace: see [18] of the FTT's decision.
3. The legislation in more detail
"11 General conditions as to availability of plant and machinery allowances
(1) Allowances are available under this Part if a person carries on a qualifying activity and incurs qualifying expenditure.
(2) "Qualifying activity" has the meaning given by Chapter 2.
(3) Allowances under this Part must be calculated separately for each qualifying activity which a person carries on.
(4) The general rule is that expenditure is qualifying expenditure if –
(a) it is capital expenditure on the provision of plant or machinery wholly or partly for the purposes of the qualifying activity carried on by the person incurring the expenditure, and
(b) the person incurring the expenditure owns the plant or machinery as a result of incurring it.
(5) But the general rule is affected by other provisions of this Act, and in particular by Chapter 3."
"21 Buildings
(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include expenditure on the provision of a building.
(2) The provision of a building includes its construction or acquisition.
(3) In this section, 'building' includes an asset which –
(a) is incorporated in the building,
(b) although not incorporated in the building (whether because the asset is moveable or for any other reason), is in the building and is of a kind normally incorporated in a building, or
(c) is in, or connected with the building and is in list A.
List A
Assets treated as buildings
1. Walls, floors, ceilings, doors, gates, shutters, windows and stairs.
2. Mains services, and systems, for water, electricity and gas.
3. Waste disposal systems.
4. Sewerage and drainage systems.
5. Shafts or other structures in which lifts, hoists, escalators and moving walkways are installed.
6. Fire safety systems."
"22 Structures, assets and works
(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include expenditure on –
(a) the provision of a structure or other asset in list B, or
(b) any works involving the alteration of land.
List B
Excluded structures and other assets
1. A tunnel, bridge,viaduct,
aqueduct, embankment or cutting.
2. A way, hard standing (such as a pavement), road, railway, tramway, a park forvehicles
or containers, or an airstrip or runway.
3. An inland navigation, including a canal or basin or a navigable river.
4. A dam, reservoir or barrage, including any sluices, gates, generators and other equipment associated with the dam, reservoir or barrage.
5. A dock, harbour, wharf, pier, marina or jetty or any other structure in or at whichvessels
may be kept, or merchandise or passengers may be shipped or unshipped.
6. A dike, sea wall, weir or drainage ditch.
7. Any structure not within items 1 to 6 other than –
(a) a structure (but not a building) within Chapter 2 of Part 3 (meaning of 'industrial building'),
(b) a structure in use for the purposes of an undertaking for the extraction, production, processing or distribution of gas, and
(c) a structure in use for the purposes of a trade which consists in the provision of telecommunication, television or radio services.
(2) The provision of a structure or other asset includes its construction or acquisition.
(3) In this section –
(a) 'structure' means a fixed structure of any kind, other than a building (as defined by section 21(3)), and
(b) 'land' does not include buildings or other structures, but otherwise has the meaning given in Schedule 1 to the Interpretation Act 1978."
Revenue
Commissioners
v
Barclay, Curle & Co Ltd [1969] 1 WLR 675. In that case it was held that the cost of excavating a new basin to create a dry dock for use in the taxpayer's shipbuilding trade was expenditure on the provision of the plant which comprised the dry dock.
"(3) Sections 21 and 22 also do not affect the question whether expenditure on any item described in list C is, for the purposes of this Act, expenditure on the provision of plant or machinery."
Revenue.
These provisions had been intended 'to draw a line in the sand' and entrench the understanding of the different classifications. Some items in List C were readily referable to particular cases: for example List C Item 16 covering swimming pools and diving boards reflects the decision of Megarry J in Cooke (Inspector of Taxes)
v
Beach Station Caravans Ltd [1973] 3 All ER 159 and Item 14 covering decorative assets provided for the enjoyment of the public in a hotel or restaurant was a response to the decision of the House of Lords in Commissioners of Inland
Revenue
v
Scottish & Newcastle Breweries Ltd [1982] 1 WLR 322. That said, neither of the parties took us to any earlier case law dealing with items of expenditure similar to the components of the Scheme which might indicate whether a broad or narrow meaning should be given to the words in issue.
"22. The alteration of land for the purpose only of installing plant or machinery.
…
25. The provision of pipelines or underground ducts or tunnels with a primary purpose of carrying utility conduits."
4. The relationship between section 22(1)(a) and section 22(1)(b)
SSE's
approach in principle, holding that section 22(1)(a) and (b) were alternatives and did not overlap: "the "works" referred to in section 22(1)(b) must be works where the alteration of land is the objective in its own right, not including works whose objective is the creation of some other asset or structure identified in List B."
"Parliament must have known that the term "provision" when used in relation to a structure did, because of the way the term had been interpreted in case law, include any alterations of land which were necessary for the construction of the structure in question and because Parliament must have intended to ensure that the specific exceptions it provided in Item 7 in List B were effective. That intention would be thwarted were the structure in question to be excluded on the basis that its construction entailed works which involved the alteration of land."
Discussion
view,
section 22(1)(b) is there because Parliament foresaw that taxpayers might argue that the earthworks described in all these examples function as plant, given the nature of the taxpayer's trade. Section 22(1)(b) is included to forestall that because it was precisely that line between plant and premises or buildings that the provision was intended to firm up.
void
bored through the rock. When pressed with the point that concerned the FTT and Upper Tribunal that most if not all plant intended by Parliament to benefit from the carve outs in List B Item 7 would be disallowed by section 22(1)(b), he gave two answers, using as an example the construction of a telephone mast that required substantial concrete foundations to be dug into the ground to anchor it. One answer was that the expenditure on digging the foundations might be works involving the alteration of land but would be saved by List C Item 22. The other was that those foundation works would be ancillary to the provision of the telephone mast and that would, in some way, result in them being caught only by section 22(1)(a) and not by section 22(1)(b). He contrasted this with the position of plant where the bulk of the expenditure would be on the works altering the land and only a small amount relate to the provision of some ancillary structure. What remained unclear to me was whether in putting forward these arguments he was departing from the position that the Upper Tribunal recorded at [81] that HMRC were not arguing that expenditure on items such as a mobile phone mast could be split, so that the works involving the alteration of land caught by section 22(1)(b) would be disqualified but the remaining expenditure would be saved by List B Item 7 and so allowable. In his submissions in reply, Mr Brennan appeared to accept the FTT's conclusion that section 22(1)(b) applied only where the alteration of the land was an objective in its own right and at certain points it appeared that there was no difference between him and Mr Peacock except for the debate about whether the headrace was a structure or not.
view,
the difficulties that Mr Brennan encountered in trying to express HMRC's submission on the relationship between the two limbs so as to avoid the pitfall identified by the FTT and the Upper Tribunal indicate strongly that
SSE's
alternative interpretation is the correct one.
v
Montila [2004] UKHL 50, [2005] 1 All ER 113 at [34]. A heading is part of an Act and may be considered in construing any provision of the Act, provided due account is taken of the fact that its function is merely to serve as a brief guide to the material to which it relates and that it may not be entirely accurate. I agree that to that limited extent, the heading assists
SSE's
argument rather than HMRC's.
very
broad if interpreted as covering expenditure on alterations to buildings and structures. That does not, in my
view,
help in deciding whether expenditure on works involving the alteration of land in the sense of the ground or earth are covered by section 22(1)(b) even if the plant they give rise to is a structure.
5. The meaning of 'tunnel' in List B Item 1
viaduct,
aqueduct, embankment or cutting". The grouping was significant:
"the assumption being that structures and assets which are specifically grouped together are likely to share some basic common theme and should be interpreted in accordance with that theme unless none can in fact be found."
"I would add that in common parlance, the word "tunnel" would normally refer to a passage bored through ground which permits people or forms of transport to pass to and fro. "Embankment" is defined in the OED as "a mound, bank, or other structure for confining a river, etc. within fixed limits" or, more familiarly, as "a long earthen bank or mound, esp. one raised for the purpose of carrying a road or a railway across avalley.".
"Cutting" is relevantly defined as "an open, trench-like excavation through a piece of ground that rises above the level of a canal, railway, or road which has to be taken across it". On this basis, there does seem to be a clear theme emerging in Item 1 of structures related to transportation infrastructure."
" … in ourview
the words immediately surrounding "tunnel" in Item 1 of List B are "bridge,
viaduct,
aqueduct, embankment or cutting" all of which are the product of civil engineering works related to the construction of transportation ways and routes, that is the types of ways and routes which the draftsman subsequently lists in Item 2 and 3 of List B. It follows therefore that the context requires that the word "tunnel" should be given a narrower meaning than its ordinary dictionary meaning."
Discussion
vehicles
are intended to travel and not simply any subterranean passage. That limits the term to a subterranean conduit of a diameter and gradient which enables it to operate as a 'passageway' as indicated by even the broadest OED definition. The reference to gradient is prompted by a point made by Popplewell LJ during the hearing that one would not normally describe a
vertical
shaft drilled through rock, for example a mine shaft, as a tunnel. I agree with Judge Poole's comment at [38] that some of the words used in List B have an elastic meaning and that they can take on the colour of the words surrounding them. Determining the scope of such a chameleon word is not simply a binary choice between the widest possible dictionary meaning on the one hand and a narrowed meaning, specific to a particular statutory provision derived from the noscitur a sociis interpretative tool on the other - it is a more nuanced exercise than that. Many English words have a number of ordinary meanings in common usage and the statutory meaning is not necessarily the broadest one.
v
Bell Punch Co Ltd [1964] 2 ALL ER 945, an employee was injured when reaching past large reels of paper stored on the floor of a factory to get to smaller reels stored on racks above. He alleged that by placing the large reels on the floor, his employer was in breach of an obligation imposed by the Factories Act 1961 to keep floors, steps, stairs, passages and gangways free from any obstruction. Diplock LJ observed that the last four locations were places used for the purpose of passage. The reference to 'floors' in that context and in the light of the word 'obstruction', meant that the obligation was limited to keep clear those parts of the factory floor on which workmen were likely to pass and repass. Where a part of the factory floor was properly used for storing as it was in this case, the articles stored were not obstructions on the floor for this purpose. In Shamoon
v
Chief Constable of the Royal Ulster Constabulary [2003] UKHL 11, [2003] 2 ALL ER 26, the issue was the meaning of the word 'detriment' in an anti-discrimination provision which made it unlawful for a person to discriminate against a female employee (a) in the way he afforded her access to opportunities for promotion, transfer or training, or to any other benefits, facilities or services, or by refusing or deliberately omitting to afford her access to them, or (b) by dismissing her, "or subjecting her to any other detriment". The placing of the word 'detriment' showed that the disadvantage complained of by the employee had to arise in the employment field: see [34] per Lord Hope of Craighead. Finally, in Tektrol Ltd (formerly Atto Power Controls Ltd)
v
International Insurance Co of Hanover Ltd and another [2005] EWCA Civ 845, [2006] 1 All ER 780, a clause in an insurance policy excluded the insurer's liability for damage caused by erasure, loss, distortion or corruption of information on computer systems caused deliberately by rioters, strikers, locked-out workers, persons taking part in labour disturbances or civil commotion or malicious persons. The insured's software code had been lost partly because of a
virus
sent by an unknown person under the guise of an emailed Christmas card and partly because burglars had broken into the premises and stolen the computers. Buxton LJ held at [11] and [12] that although the author of the emailed
virus
was certainly a "malicious person" in the ordinary sense, the exclusion was limited by the previous references to rioters and locked-out workers etc to people who destroyed the computer systems on or near the insured's premises: "suddenly to tag on at the end of the excepting clause a reference to remote hackers, a completely different category of person making a completely different kind of attack, significantly changes the thrust of the exception, in a way that one would expect to be done only by much more specific wording". Carnwath LJ agreed with Buxton LJ on this point, as did Sir Martin Nourse. Sir Martin referred expressly to the noscitur a sociis principle when construing the word 'loss' in the phrase "other erasure loss distortion or corruption of information". He held at [29] that the word 'loss' there meant only loss by means of electronic interference and not loss by theft of the computers.
vehicles
and is intended to do so, it may be better described as a tunnel than a duct. In either event it will be covered by List C Item 25 only if its primary purpose is the purpose specified even though its secondary purpose may be to provide passage for people and
vehicles.
v
Trigg [2016] UKUT 165 (TCC), [2016] STC 1310, [35].
6. The meaning of 'aqueduct' in List B Item 1
"the betterview
to be that in the context of List B, the word "aqueduct" is apt to describe an asset of the type we are here concerned with – an artificial underground conduit whose function is solely to transport water from one place to another through the ground under the force of gravity; I consider the transportation of water itself is enough to be consistent with the overall "transportation" theme of Item 1, rather than requiring the water to be the means of transportation of other things (as in the case of a canal)."
Discussion
valley
in order to carry either a general water supply from a distant source to a centre of population or a canal. The definition used by the Upper Tribunal would exclude many spectacular and elegant structures that have been left to us from ancient times and are commonly thought of and referred to as aqueducts. It would include only those structures of which there are a number across the country which carry canals. However, I am satisfied that that is right and that the transportation theme of Item B List 1 limits the scope of the word here to canal-carrying aqueducts. Interesting though it might be to wonder whether the builders of the Pont du Gard in France or the Gadara Aqueduct in modern day Syria would have been able to claim capital allowances for the costs incurred, had the Roman Empire's legal system included a provision similar to section 22(1)(a), that is not likely to be a question to which Parliament was addressing its mind in putting together List B Item 1. This is a provision where the noscitur a sociis principle of interpretation comes into play to limit the ordinary meaning of the word to a particular kind of aqueduct, namely that with a transportation theme. I therefore agree with the Upper Tribunal that in its context here, an aqueduct is a bridge or
viaduct-like
structure which carries a canal.
viaduct
is a particular kind of bridge but is included, in addition to bridges, in Item 1 even though the railway or road which is carried by the
viaduct
is then separately included in List B Item 2.
7. The application of the provisions to the disputed plant
"85. It follows that no allowances are available for the expenditure on the fabrication in situ of the concrete conduit itself (excluded as an "aqueduct" by Item 1 in List B), but the expenditure incurred on the preparatory excavations and the subsequent re-covering of the conduit after it had been built is allowable. Whilst it might appear a somewhat counter-intuitive result that the method of construction should make a difference to the CAA treatment in this way, intuition is rarely a reliable guide to statutory interpretation, and the difference in treatment flows logically, in myview,
from the terms of the legislation."
very
different from those served by the conduits that he had concluded were aqueducts. He did not consider that the headrace was an aqueduct because its function was far more complex than simply transporting water from one place to another. It was designed to deliver the
volume
and pressure of water needed for the turbine without allowing it to escape or burst through to the power cavern. The headrace was also not a tunnel, applying the limited meaning Judge Poole had given to that term in List B Item 1. Having found that it was not within List B, he went on to consider whether it was covered by section 22(1)(b). He concluded that some of the expenditure on the headrace was incurred on "works involving the alteration of land": [94]. He held that the costs of drilling the headrace, reinforcing and lining it were expenditure caught by section 22(1)(b) and would be disallowed to that extent unless saved by List C. HMRC had accepted that the cost of the tapered steel pipe and of boring the length of the headrace which contained the steel pipe did qualify for allowances. Judge Poole held that the remainder of the expenditure also qualified for allowances as having been incurred for the purpose only of installing the headrace. It benefited from List C Item 22: [100]. He held that the provisions applied in the same way to the turbine outflow tunnel and the drainage and dewatering tunnels which were adjuncts to the tailrace.
Discussion
v
Perks [2001] STC 1254 to argue that the question whether the conduit was an aqueduct or not was a question of fact and not of law and could only be overturned on Edwards
v
Bairstow grounds (see Edwards (Inspector of Taxes)
v
Bairstow [1956] AC 14 at 36).
SSE
had not mounted any such challenge to the finding.
v
Perks at [54] onwards citing the passage from the speech of Lord Simon of Glaisdale in Ransom
v
Higgs [1974] STC 539 at 561:
"The meaning of a word or phrase in an Act of Parliament is a question of law not fact; even though the law may then declare that the word or phrase has no statutory meaning beyond its common acceptance and that it is a question of fact whether the circumstances fall within such meaning (Cozensv
Brutus). But many words and phrases in English have many shades of meaning and are capable of embracing a great diversity of circumstance. So the interpretation of the language of an Act of Parliament often involves declaring that certain conduct must as a matter of law fall within the statutory language (as was the actual decision in Edwards
v
Bairstow); that other conduct must as a matter of law fall outside the statutory language; but that whether yet a third category of conduct falls within the statutory language or outside it depends on the evaluation of such conduct by the tribunal of fact. This last question is often appropriately described as one of 'fact and degree'."
v
Perks the question was whether a mobile offshore drilling unit was a 'ship'. The General Commissioners had held that the rigs fell within the relevant definition of a ship. On the
Revenue's
appeal, Ferris J held that the meaning of the word 'ship' was a matter of law on which he was entitled to give effect to his own
view.
He held that the rigs were not ships. On further appeal the question arose whether the judge could only have interfered with the Commissioners' conclusion if it had been one that could not reasonably have been reached on the basis of the primary facts as found. Carnwath J (with whom Longmore and Robert Walker LJJ agreed) held that once the meaning of the term 'ship' had been established, the question whether the facts found brought the case within that meaning was not a question of law but a question of fact subject only to the conclusion falling within the limits of reasonableness: [29]. However, he then went on to consider whether the Commissioners' conclusion as to the meaning of the word 'ship' had been wrong in law. He held that the
Revenue
had not shown that the Commissioners had erred in law and allowed the taxpayers' appeal.
v
Perks assists HMRC in this appeal. The FTT's conclusion that some of the items were conduits was the result of an error of law in their construction of that word in List B Item 1. Mr Brennan accepted that if as a matter of law, aqueducts must look like bridges in this context, he could not maintain that finding of fact as regards the conduits. That is the case here.
SSE
contended. That submission cannot be maintained, given Judge Poole's description of the headrace. It is not right to describe the headrace as simply a
void
bored through the rock, it is a much more complex item than that in its construction with the steel mesh, concrete and bolt reinforcement. The Upper Tribunal put the matter beyond doubt at [145]:
"145. Although the FTT did not say so in terms, in ourview
it is implicit in the Decision that the FTT proceeded on the basis that it had found that all the assets in dispute were "structures": see [43] of the Decision where the FTT referred to it being common ground that none of the "structures" involved in this case fall into List B by
virtue
of Item 7 because of the exception for industrial buildings referred to below. Alternatively, in so far as it is necessary to make an express finding of fact to that effect, we do so by the exercise of our powers under s 12(4)(b) TCEA on the basis of the evidence that we were shown as to the features of the
various
assets and their method of construction."
view
of their scope effectively in the abstract. List C Item 22 is intended to be applied in relation to expenditure on plant which would otherwise be caught by section 21 or 22. When one is considering an item of plant that does fall within section 21 or 22, it may be easy or difficult to determine whether there has been an alteration of the land for the purpose only of installing that item. I doubt that it is helpful to that future exercise to consider how the words would apply in relation to plant to which the words were not intended to apply.
8. The effect of
SSE's
Respondent's notice
SSE
raising this point because
SSE
had not applied for permission to appeal against the FTT's ruling. The Upper Tribunal rejected this submission and held at [46] that
SSE
did not in the circumstances of this appeal need permission. The Upper Tribunal said:
"In circumstances where a respondent is opposing an appeal but wishes to challenge a finding of the FTT on a point which it argued before the FTT but in respect of which it was unsuccessful, it can do so simply through the medium of the Respondent's Notice which it may (but need not) file pursuant to Rule 24 of The Tribunal Procedure (Upper Tribunal) Procedure Rules 2008. If a Respondent's Notice is filed, then Rule 24 (3) (f) requires the Respondent to set out the grounds on which the Respondent relies in the Upper Tribunal proceedings, which the rule states are to include "any grounds on which the respondent was unsuccessful in the proceedings which are the subject of the appeal, but intends to rely in the appeal".SSEG
clearly met the requirements of that rule in its Respondent's Notice, specifying a number of arguments which it ran before the FTT and which it wished to argue again. In our
view,
there is nothing in the rule that indicates that the rule is limited to arguments which simply seek to uphold the FTT's decision on different grounds. Therefore, provided the argument was one that was before the FTT it is open to a respondent to argue the point again in the Upper Tribunal provided it gives notice of that in its respondent's notice without needing to apply for permission to appeal."
SSE
to assert that, without having sought and obtained permission to appeal against the exclusion of the expenditure on fabricating the conduit.
"11 Right to appeal to Upper Tribunal
(1) For the purposes of subsection (2), the reference to a right of appeal is to a right to appeal to the Upper Tribunal on any point of law arising from a decision made by the First-tier Tribunal other than an excluded decision.
(2) Any party to a case has a right of appeal, subject to subsection (8).
(3) That right may be exercised only with permission (…)
(4) Permission … may be given by
(a) the First-tier Tribunal, or
(b) the Upper Tribunal,
on the application by the party."
"24(3) (f) the grounds on which the respondent relies, including (in the case of an appeal against the decision of another tribunal) any grounds on which the respondent was unsuccessful in the proceedings which are the subject of the appeal, but intends to rely in the appeal;"
SSE
did not seek permission to appeal from the FTT and Mr Peacock accepts that they could not have sought permission from the Upper Tribunal without first having made an unsuccessful application to the FTT. I agree with HMRC's submission that rule 24(3)(f) cannot obviate the need for permission set out in section 11 TCEA. The grounds referred to there are the grounds on which the party relies in its character as a respondent to appeal. Certainly if the respondent succeeded on an issue before the FTT because the FTT accepted one of a number of arguments while rejecting other arguments for the same result, the respondent can raise those unsuccessful arguments if its success is challenged on appeal by the opposing party. But the respondent cannot raise an issue which it lost before the FTT unless it obtains permission to appeal for itself.
value
of the expenditure disallowed by the FTT in respect of the fabrication on site of the 'cut and cover' conduit was comparatively small. It would not have been worth
SSE's
while to appeal that point in isolation. However, once the appeal was mounted by HMRC,
SSE
wished to argue that the FTT erred in disallowing that part of the expenditure. It would be wrong, he submitted, to require a respondent in
SSE's
position to have to lodge its own appeal, without knowing whether the other party is going to bring an appeal first. There is no requirement in the FTT Rules that the opposing party is notified of an application for permission having been made by a party. By the time the respondent is made aware that a successful application has been made either to the FTT or to the Upper Tribunal, Mr Peacock pointed out, the time limit in rule 39 of the FTT Rules may well have passed. That would deprive the respondent of the opportunity then to lodge its own appeal. Mr Peacock submitted that HMRC's concern that a broad interpretation of rule 24(3)(f) of the UT Rules would entitle a respondent to re-run every issue on which it lost before the FTT without the filter of the permission stage was alleviated by the Upper Tribunal's case management powers conferred by rule 5 of the UT Rules. The Upper Tribunal must exercise those powers in a way which gives effect to the overriding objective in rule 2 of dealing with cases fairly and justly, including by dealing with the case in ways which are proportionate. In the present case, the Upper Tribunal expressly considered whether HMRC had been prejudiced by
SSE
being able to argue that all the expenditure incurred in the 'cut and cover' conduit and concluded that they had not. Mr Peacock referred to the '
venerable
principle' that the task of the FTT and the Upper Tribunal is to arrive at the collection of the correct amount of tax: see Investec Asset Finance plc and another
v
HMRC [2020] EWCA Civ 579 [60] and [100]. He argued that the Upper Tribunal was therefore entitled to give effect to the logic of its conclusion that the FTT had erred in finding that the conduit was an aqueduct.
SSE,
neither that argument based on practicalities nor the
venerable
principle can override the statutory requirement for permission to appeal. The procedure established by section 11 TCEA, the FTT Rules and the UT Rules is different from the procedure which operates under the Civil Procedure Rules as set out in CPR 52.13. In that rule, a respondent may serve a respondent's notice which seeks permission to appeal from the appeal court as well as asking the appeal court to uphold the decision of the lower court for reasons different from, or additional to, those given by the lower court. The respondent does not therefore have to seek permission first from the lower court within the time limit set for an initial appeal. According to the different procedure adopted under the tribunal rules, the respondent cannot seek permission to appeal in the response notice served under rule 24 of the UT Rules. A respondent in the position of
SSE
which, once an appeal is on foot, wants to reverse a point decided against it in the FTT must apply for permission to the FTT. If the time limit for doing so has expired, it must request an extension of time, giving the reasons why the application notice was not provided in time: see FTT Rule 39(4). At that stage the FTT will consider whether the proposed appeal meets the test for the grant of permission and whether time should be extended. The latter point will require consideration of how far the respondent's appeal will enlarge the scope of the appeal and whether it is consistent with the overriding objective to grant permission. The fact that the respondent's application would open up several new fronts in the appeal leading to a longer and more complicated hearing, does not rule out the grant of permission. The original appellant is not entitled to insist that the scope of the appeal remains within the limited compass of the grounds that it has raised. The fact that a late application for permission may widen the scope of the appeal is a risk that the appellant takes, if the respondent has properly arguable issues that could result in the appellant being worse off than if they had let the FTT's decision lie. A similar issue was considered by the Upper Tribunal (Nugee J and Judge Nowlan) in Price and others
v
HMRC [2015] UKUT 164 (TCC), [2015] STC 1975. I respectfully agree entirely with the analysis and reasoning set out there.
SSE
submitted that the FTT should have concluded that the conduits and tailraces were not aqueducts. The conclusion that the drill and blast conduits, the uncovered channel conduits and the headrace are not aqueducts leads to the same result as the FTT arrived at for other reasons - the expenditure on them is allowable in full. Applying the narrower definition of 'aqueduct' to the 'cut and cover' conduits leads to a different result because the FTT allowed only part of the costs. The decision challenged here is not as to the meaning of the word 'aqueduct' but as to whether HMRC's closure notice was correct in disallowing the capital expenditure incurred on the 'cut and cover' conduits. The Upper Tribunal's decision increased the amount of allowable expenditure but that result could only be achieved if
SSE had sought permission to do better than the partial allowance. No such permission had either been sought or granted and in my judgment HMRC are right to say that the Upper Tribunal erred in concluding at [161] that the expenditure was recoverable in full.
9. Conclusion
Lord Justice Popplewell:
Lord Justice David Richards: