Ó Culacháin v Mcmullan Brothers

• Jurisdiction: Ireland
• Judge: Mr. Justice Lardner
• Judgment Date: 31 July 1990
• Neutral Citation: 1991 WJSC-HC 1067
• Court: High Court
• Docket Number: No. 1714R./1989,[1989 No. 1714R]
• Date: 31 July 1990

O CULACHAIN v. MCMULLAN BROTHERS

BETWEEN

S. O'CULACHAIN

APPELLANT

AND

MCMULLAN BROTHERS

RESPONDENTS

1991 WJSC-HC 1067

No. 1714R./1989

THE HIGH COURT

Synopsis:

WORDS AND PHRASES

"Plant"

Trade - Capital expenditure - Tax - Allowance - Entitlement - Petrol stations - Forecourt canopies - Functions of structures - Structures not buildings - (1989/1714 R - Lardner J. - 31/7/90)

|O Culachain v. McMullan Brothers|

REVENUE

Corporation tax

Assessment - Trade - Capital expenditure - Plant - Allowance - Entitlement - Petrol stations - Forecourt canopies - Functions of structures - Structures not buildings - Income Tax Act, 1967, s. 241 - Corporation Tax Act, 1976, s. 21 & 1st schedule, para. 6 - (1989/1714 R - Lardner J. - 31/7/90) - [1991] 1 I.R. 363

|O Culachain v. McMullan Brothers|

Citations:

INCOME TAX ACT 1967 S241(1)

FINANCE ACT 1971 S26

CORPORATION TAX ACT 1976 S21

BENSON INSPECTOR OF TAXES V YARD ARM CLUB LTD 1979 STC 266

IRC V SCOTTISH & NEWCASTLE BREWERIES LTD 1982 STC 296

BROKENHILL PROPERTY CO LTD V COMMISSIONER OF TAXATION 41 ALJB 377

COLE BROS LTD V PHILLIPS (INSPECTOR OF TAXES) 1982 STC 307

INCOME TAX ACT 1967 S241

FINANCE ACT 1971 S26

CORPORATION TAX ACT 1976 FIRST SCH

MARA V HUMMINGBIRD LTD 1982 ILRM 421

O SRIANAN V LAKEVIEW LTD 125 ITC

1 Judgment of Mr. Justice Lardner delivered the 31st day of July 1990.

2 This is a Case Stated by His Honour Judge Frank Martin of the Circuit Court. The Appellant represents the Revenue and the Respondents carry on the business of selling their petrol and oil products to various filling stations in respect of which they have granted franchises to individuals. The question of law is whether the Circuit Court Judge was correct in holding upon the evidence before him that certain forecourt canopies at petrol filling stations were plant within the meaning of Section 241 (1) of the Income Tax Act 1967, as amended by Section 26 of the Finance Act 1971extended to corporation tax by Section 21 and the First Schedule of the Corporation Tax Act 1976so as to entitle the Respondents to make a deduction of £70,932 expenditure incurred in the erection of these canopies, in computing their liability to corporation tax for the accounting period which ended on the 31st December 1983. In paragraph 3 of the case the learned Circuit Court Judge sets out a summary of the material facts given in evidence of which it is relevant to refer to the following:

3 a "3. (b) Since the start of the 1980s there had been a decline in the sales of petrol in the country. Extremely vigorous competition operated between the various petrol companies but because of the existence of strict price control and the fact that there was little difference between the various products and as all companies must take 35% of their supplies from the Whitegate Oil Refinery, this competition was in factors other than price. Competition is concentrated on the brand image and on the service forecourt with focus of attention on producing a well laid out and impressive forecourt which creates the impression that the station provides everything the motorist will want.

4 (c) In this regard a major change had taken place in petrol station forecourts over recent years. Up to the 1970s only pumps were needed but much greater sophistication has since been introduced. Nowadays most of the stations are self-service and petrol pumps are controlled from a computerised console within a shop and having an automatic shutoff. Most stations also have retail shops or convenience stores and for marketing reasons the self-service at the forecourt induces the motorist to enter the shop to pay for his petrol.

5 (d) In order to remain competitive all petrol companies, including the Respondent, have to match developments in sophistication and attractiveness of their forecourts. Motorists generally resent having to interrupt their journeys to purchase petrol. They expect to have to leave their cars to serve themselves and to go to a shop to make payment. A forecourt canopy is therefore essential. Experience has shown that any station whether in an urban or rural area without a canopy had markedly lower sales and the Respondent Company (or any other company) would not nowadays open a station without a canopy.

6 (e) The canopy also plays an essential role in advertising the presence of the station and creating the brand image of the product and of the company. Since the early 1980s the more substantial and sophisticated type of canopy had been developed for this purpose. It extended over the whole retail area and had illuminated advertising on facias. The canopies are made in England by a company under the name "Condor Canopies". They consist basically of a box construction which includes ducting for wiring mounted on bases which are installed on the site. Stanchions are put on these bases and bolted into position. The canopies can, accordingly, be removed. The sides of the canopies are made up of plastic strips which form illuminated facias and the entire area of the roof is in steel sheeting.

7 (f) In the 1980s the Respondent Company had set out to create a new image for its product and to redesign its stations to create an impression of overall comfort, attractiveness, coupled with an image of reliability and friendliness of service. The introduction of the new sophisticated and substantial canopy was an ingredient in this plan. The company has installed approximately 100 of these canopies in total.

8 (g) The "Maxol" lettering takes up about one fifth of the facias area but the distinctive blue and white striping of the canopy logo goes all the way around the canopy. If the company were to be sold to another company, that company could take down the panels and instal its own panels.

9 (i) The decision to use the introduction of the new sophisticated type of canopy as part of the campaign to create a new image for the "Maxol" brand followed the initiation of this development by Texaco based upon research which it had carried out. Canopies had....become synonymous with filling stations because they had become the fundamental way of signalling the presence of a filling station and of communicating the particular image of a given brand. Under cross-examination Mr. Noonan agreed that the canopy does not play a direct part in the actual process of dispensing petrol from a pump into a motor car but has the effect of protecting the motorist from the elements and plays a direct part in advertising the station and the product. An impressive and substantial canopy means that there is money behind the company and creates an impression of solidness, efficiency and a high standard of service."

10 At paragraph 4 of the case the learned Circuit Court Judge sets out his findings of which the following are important:

11 a "4. (c) The Appellants are a major oil company with approximately 10% of the market.

12 (d) The Appellants" business rivals are large multinationals including Texaco, Shell and Esso.

13 (e) Since the commencement of the 1980s the sale of petrol to the public has become highly competitive indeed, and that although stamps have been introduced in the 1980s and credit cards became acceptable in 1985, market share as well as volume share had declined since the 1970s.

14 (f) As a result of research carried out by Texaco certain standards developed in relation to roadside filling stations.

15 (g) These involved something of a revolution in the design of roadside filling stations.

16 (h) The Texaco model became the general norm and the Appellants in order to remain competitive had no option but to follow suit.

17 (i) As a result the layout of many of the Appellants" service stations was deliberately designed and money thereon deliberately spent, such as to present to the eye of the satisfied customer an attractive...