Judgment - Trustees of the Nell Gwynn House Maintenance Fund v. Commissioners of Customs and Excise  continued

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    In CEC v. Wellington Hospital [1997] S.T.C. 445 at page 462 (d) to (f) Millett, L.J. said:

     "In determining whether what would otherwise be two supplies should be regarded as a single supply the court has to ask itself whether one element is an 'integral part' of the other, or is 'ancillary' or 'incidental' to the other; or (in the decisions of the Court of Justice) whether the two elements are 'physically and economically dissociable.' This, however, merely replaces one question with another. In order to answer this further question, the court must consider 'what is the true and substantial nature of the consideration given for the payment' (see the Bophuthatswana case (at 708) per Nolan, L.J.). There are, however, limits to this process. Where supplies are made by different suppliers, they cannot be fused together to make a single supply; and it is probably only in relatively simple transactions that the reduction of multiple to single supplies is appropriate."

I agree with Millett, L.J. as to his conclusion in the final sentence.

    Moreover, as the appellants point out, Article 13(B)(b) of the Directive and Group 1, item 1 of Schedule 6 to the 1983 Act refers specifically to the grant of any interest in or right over land and not any provision comparable with the provision in Article 13(A)(c) "hospital and medical care and closely related activities" and Article 13(B)(a) "reinsurance ... transactions including related services performed by insurance brokers and insurance agents".

    There is nothing in Article 13(B)(b) which indicates that Group 1, item 1 of Schedule 6 of the Act ought to be construed more widely.

    Fifthly, it is said that the provisions of Schedule 6A, paragraph 7 of the Act of 1983 can be relied on by the respondents. That paragraph provides as follows:

     "7. Where the benefit of the consideration for the grant of an interest in, right over or licence to occupy land accrues to a person if that person is not the person making the grant -    (a) the person to whom the benefit accrues shall for the purposes of this Act be treated as the person making the grant . . . "

    It is said that it follows that in the present case the respondent is to be treated as if making the grant of the lease.

    This provision was adopted by the Finance Act 1989 pursuant to Article 13(C)(a) of the Sixth Council Directive, the latter providing that:

     "Member States may allow tax payers a right of option for taxation in cases of -   (a) letting and leasing of immoveable property."

    Whether paragraph 7 of the Act is within the powers of Article 13(C)(a) of the Directive is a question of Community law: what paragraph 7 of Schedule 6A of the Act means is a question of domestic law, no doubt interpreted in the light of the Directive.

    The respondents say that if maintenance contributions or part of them "are considered to have accrued to the benefit of the Respondents" and such moneys must be seen as part of the consideration for the grant of the lease, the respondents must for the purposes of the Act be treated as if they were themselves making the grant of the lease. Accordingly, paragraph 7 of Schedule 6A by a legislative fiction removes the separate supplier problem by treating the respondents as if they were making the grant of the lease (respondents' case, paragraph 52).

    With respect to the ingenious and able arguments of Mr. de Cordara, Q.C., I do not consider that this paragraph has any relevance to the present case.

    Schedule 6A is concerned with the removal or waiving of tax on taxable supplies. Thus paragraph 1 provides that the grant of certain lands which is zero-rated is to be taken to be a taxable supply in the course of a business which is not zero-rated by virtue of Group 8 of Schedule 5 to the Act. Paragraphs 2 to 4 deal with the election to waive exemption in respect of land. Paragraphs 5 and 6 deal with the developers of certain non- residential buildings, eg in paragraph 6 certain rights in land are to be treated as a supply to the developer for the purpose of a business carried on by him and the paragraph deals with consequential tax liability and the recovering of input tax, so in these cases, land which was zero-rated or exempt becomes taxable no doubt with an important impact on the recovery of input tax.

    Paragraph 7 of the Schedule is general, but it seems to me that it is really aimed at the situation where the legal title is in one person, so that he can make a grant of an interest in the land, but the beneficial interest is in another person, so he receives any rent or other payment for the grant of the lease.

    When the lessor in this case grants a lease, he receives beneficially the rent and other payments specifically for the interest in the land: the benefit of those payments does not accrue to the Management Trustees. They receive the maintenance moneys for the services to be provided of each, e.g. cleaning and providing porterage services and maintaining the building.

    Moreover, two parties receive money consequent on the grant of the lease. One is the landlord and the other is the Management Trustees. The paragraph makes no reference as to how the grant of the interest in the land is to be divided between them as it would have to be if the respondents' contention was right and I do not consider that any such division was contemplated. Moreover, the section makes no provision as to whether the effect of applying it is to make the deemed supply taxable or exempt.

    Accordingly, I think, as the Court of Appeal "were inclined to think", that paragraph 7 is directed to the case where Trustees grant an interest in land on behalf of the beneficiary and the benefit of the consideration for the grant accrues to the beneficiary.

    I have considered whether the European Court's judgment in Card Protection (in which a reference was made by the United Kingdom on 15 October 1996) is likely in the light of the Advocate General's Opinion delivered on 11 June 1998 to be directly relevant to the issues in this case. I do not consider that it is and since it seems to me that the answers to the issues raised in the appeal are clear, I would allow the appeal.

LORD NOLAN

My Lords,

    I have had the advantage of reading in draft the speech of my noble and learned friend Lord Slynn of Hadley. For the reasons which he gives I too would allow this appeal.

LORD CLYDE

My Lords,

    I have had the advantage of reading in draft the speech of my noble and learned friend Lord Slynn of Hadley. For the reasons which he gives I too would allow this appeal.

LORD HUTTON

My Lords,

    I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Slynn of Hadley. For the reasons which he gives I would allow this appeal.

 
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