The taxpayer company, who operated a retail furniture business, acquired business premises on a short lease of 14 years. The premises had not been occupied for a number of years and were in a bad state of repair. The taxpayers covenanted to reinstate the dilapidated premises, including the repair of the main roof, plastering, electric lights, heating and installation of a new shop front. In return for this undertaking they were granted a reduction in the rent of £1,000 to a peppercorn rent in the first year, and to £700 in each of the next six years. They incurred expenditure of £2,295 on this work in the tax year, and claimed to deduct it in arriving at their profits for income tax purposes.
It was held by the High Court, Chancery Division that the expenditure was not deductible in computing the taxpayers' profits for income tax purposes, since it was expenditure of a capital nature on accumulated repairs or alterations of the premises.