Words and Phrases - "main object"
Barclays Mercantile Industrial Finance Ltd. v. Melluish, [1990] BTC 209 (Ch. D.)
The taxpayer ("BMI") acquired a film from a non-resident corporation ("WBI"), leased it to another corporation at a return that yielded 2.16% per annum on its expenditure, and claimed a 100% first-year capital allowance for the amount of the expenditure (on the basis that the film qualified as "plant"). S.3(1)(c) of Schedule 8 to the Finance Act 1971 denied the deduction of the allowance if it appeared with respect to the purchase of the plant "that the sole or main benefit which ... might have been expected to accrue to the parties ... was the obtaining of an allowance". In finding that this anti-avoidance provision did not apply, Vinelott J. accepted (at pp. 239-240) a submission that:
"The main object of WBI in selling the film to BMI was to recover the cost of making the film while ensuring that the film be distributed by the WBI organisation. The main object of BMI was to make profit by acquiring and leasing the plant. It is probable that BMI would not have been able to offer a leaseback to a company in the WBI organization at an acceptable rent unless it could obtain a capital allowance and unless it had spare capacity in the group sufficient to absorb it. But it does not follow that BMI's object was to obtain an allowance; BMI's object and purpose was to make a profit on a purchase and lease of the plant.
and stated (at p. 240) that the provisions was "aimed at artificial transactions designed wholly or primarily at creating a tax allowance".
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | 136 | |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) | 240 | |
| Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(17) | no "lease" where failure to provide exclusive possession | 75 |