[2010] UKFTT 71 (TC)

TC00384

Appeal Number: SC/3024/2007 

FIRST TIER TRIBUNAL TAX

CORPORATION TAX – ASSESSMENT – DEDUCTION FOR EXPENDITURE – Was the expenditure incurred wholly and exclusively for its Schedule A business – No – Was the Appellant a Charity – No – Appeal dismissed 

DECISION NOTICE 
Rule 35(2) The Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009 

	HELENA HOUSING LIMITED	Appellant

	- and -

         THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal: MICHAEL TILDESLEY OBE	

Sitting in public at London on 5, 6, 7, and 8 October 2009

Christopher McCall QC, David Milne QC, Matthew Smith and Thomas Chacko  counsel instructed by McGrigors solicitors for the Appellant

Philip Jones QC and William Henderson counsel instructed by the Solicitor’s office of HM Revenue & Customs, for HMRC

© CROWN COPYRIGHT 2010

DECISION
The Appeal
1.	The Appellant was appealing against assessments for corporation tax issued on 13 December 2006 for the accounting periods 1 July 2002 to 31 March 2003, and 1 April 2003 to 31 March 2004.  The amounts under Appeal were £2,674,819.39, and £3,457,667.10 plus interest. At issue was the availability of a corporation tax deduction for expenditure incurred by the Appellant on the refurbishment of its housing stock which was acquired from St Helens Metropolitan Borough Council. The decision sought by the parties is one of principle on the liability of the Appellant to pay the assessments for corporation tax. The Appellant advances two separate arguments in support of its Appeal. The first argument which has been termed the Technical Issue is that the Appellant was entitled to a corporate tax deduction for the refurbishment expenditure. The second argument is that the Appellant was a charity from its inception, in which case it had no liability at all for corporation tax. If the Appellant succeeds on either argument, it wins the Appeal. HMRC considers the Appellant’s arguments flawed and misconceived.
Setting the Scene
2.	The Appellant is a Registered Social Landlord which as at 30 June 2008, held a portfolio of 12,780 properties in the Metropolitan Borough of St Helens in Merseyside. The Appellant is run on a not for profit basis with its principal activity being the letting, management and maintenance of rented housing with income of almost £43 million for the year ending 31 March 2008. Since 2002 the Appellant has spent over £200 million on refurbishing its housing stock, which has been funded through external loans.
3.	The Appellant came into being following a review in May 2000 by St Helens Metropolitan Borough Council (hereinafter known as the Council) of the options open to the Council in respect of the management of its housing services.  Chapman Hendy Associates, which conducted the review, identified that the housing stock belonging to the Council would require a capital investment of £238 million over the next seven years to bring the properties up to an acceptable standard. The only way that the Council could fund this investment itself was through a substantial increase in rents which was not politically acceptable. Chapman Hendy Associates concluded that the sole option which would enable the Council to carry out a complete repairs and improvements programme and keep annual rent increases within reasonable limits was to transfer the whole housing stock to another body, most probably a new organisation set up as a company limited by guarantee, potentially with charitable status. Chapman Hendy Associates set out the pros and cons of charitable status in its report. Essentially the big plus for charitable status was that the new body avoided liability for corporation tax. The downsides were that charitable status could not be reversed and potentially limit the scope of activities.
4.	The Council opted for the setting up of a new Local Housing Company to receive the transfer of all the housing stock. In this respect the Appellant was incorporated on 16 January 2001 originally under the name Housing St Helens Limited which was changed by special resolution in April 2001 to Helena Housing Limited. The first nine months of the Appellant’s existence was taken up with putting in place the various governance structures so that it could operate as a Registered Social Landlord. In October 2001 a new Board was appointed with a new Memorandum and Articles of Association. The Objects clause of the Memorandum is a critical piece of evidence for the Charity dispute  and will be subject to detailed analysis when that point is reached in the decision. The new Board comprised twelve members of which four were elected councillors of the Council, four were tenants of the Appellant and four were independent directors chosen for their expertise in housing and finance. 
5.	The Appellant is a separate legal entity from the Council. The elected councillors in their capacity as Board members discharge their duties in accordance with the best interests of the Appellant, not those of the Council. The Board is responsible for setting the policy and the direction for the Appellant, and is supported by an executive management team, headed by a Chief Executive. 
6.	By 1 July 2002 the Appellant was registered as a Registered Social Landlord with the Housing Corporation. The Housing Act 1996 sets out the eligibility criteria for a Registered Social Landlord. Section 2 of the Act provides three options: a registered charity, a society registered under the Industrial and Provident Societies Act 1965, and a company registered under the Companies Act 1985 which is non-profit making with defined objects. 
7.	The Appellant chose the corporate option. Mr Geoffrey Brown, the Appellant’s Deputy Chief Executive Officer and Director of Resources, believed that the Appellant made this choice to retain flexibility in respect of its operations and management structures.  The Appellant’s corporate status enabled it to treat the majority of the expenditure incurred on the refurbishment programme as a taxable expense.  It was anticipated that the refurbishment expenditure would be high in the first years of the Appellant’s existence because of the need to meet the Government’s Decent Homes Standard.
8.	On 19 November 2004 the Appellant’s Board passed a Special Resolution to amend its Memorandum of Association by replacing Clause 4 with a new Objects clause. The purpose of the Special Resolution was to enable the Appellant to be registered as a charity which took effect from 1 December 2004. 
9.	The facts that the Appellant was not a registered charity during the years of the disputed assessments and its decision to become a registered charity which involved the alteration of its Objects, although interesting for setting the scene, were not relevant for determining whether the Appellant was a charity in respect of its liability to corporation tax.
10.	 As a Registered Social Landlord the Appellant is subject to the regulatory control of the Housing Corporation. Essentially the Appellant has to meet the requirements of the Housing Corporation in three areas, financial viability, governance and management. The Housing Corporation also has a hand in fixing the level of rents charged by a Registered Social Landlord through its Rent Influencing Regime which sets target rents. The Housing Corporation is given powers to intervene with a failing Registered Social Landlord.
The Acquisition of the Housing Stock
11.	The purpose of setting up the Appellant as a Registered Social Landlord was to enable the Council to transfer its housing stock to the Appellant under the Large Scale Voluntary Programme set up by the Government. The structure of the transactions effecting the transfer was the source of the current dispute between the Appellant and HMRC.
12.	In February 2002 KPMG advised the Council and the Appellant on the tax implications with specific reference to VAT of the proposed housing stock transfer. The background to the advice was that the housing stock would require a significant injection of investment estimated to be in excess of £589 million over 30 years by the Appellant to bring the housing stock up to a modern standard. The input VAT incurred on the investment would be considerable, about £49 million, which would not be recoverable by the Appellant because the expenditure was connected with its exempt supplies of rental income.
13.	KPMG proposed a planning scheme taking advantage of the Council’s entitlement to recover VAT under section 33 of the VAT Act 1994, which in turn enabled the Appellant to recover the majority of the VAT incurred on the investment programme.
14.	 The elements of the scheme were as follows:
(1)	The Council transfers the freehold of the housing stock to the Appellant.
(2)	The sale contract would refer to the transfer of refurbished stock in a modern state of repair. As part of the contract the Council would enter into an obligation to modernise the housing stock at the Council’s own expense.
(3)	Simultaneous to the sale of stock the Council would enter into a development agreement with the Appellant under which the Appellant would supply the refurbishment works to the Council to allow it to fulfil its obligations in respect of the modernisation of the housing stock.
(4)	The Appellant would pay for the housing stock at the enhanced value (which reflected the value of the refurbishment works).
(5)	The Appellant would raise an invoice to the Council for the refurbishment works that it would carry out on behalf of the Council. This would constitute a taxable supply for VAT purposes by the Appellant entitling it to recover the VAT incurred on the works over a period of one to fifteen years.
15.	HMRC approved the planning scheme. The scheme was publicised in a News Release of the Office of the Deputy Prime Minister dated 21 June 2002 which stated that the consequent VAT saving was typically used by the Registered Social Landlord to improve its business plan and hence the service provided to tenants.  KPMG did not identify any implications of the VAT planning scheme for the Appellant’s corporation tax liability.  KPMG, however, thought it unlikely that the Appellant would have a corporation tax liability in its early years because of the significant level of anticipated costs expended in those years.
16.	The Council and the Appellant structured the transfer of the housing stock along the lines advised by KPMG. The transfer was completed on 1 July 2002 and comprised the following arrangements:
(1)	A Development Works Agreement (DWA) dated 30 June 2002 between the Appellant and the Council.  Under the agreement the Appellant undertook to refurbish the housing stock (termed qualifying works) for the Council in consideration of payment of £104 million plus VAT.
(2)	A Transfer Agreement dated 1 July 2002 between the Appellant and the Council under which the Appellant agreed to purchase certain property (including the housing stock) owned by the Council. The Transfer Agreement specified that the housing stock was sold subject to and where appropriate with the benefit of DWA. The Council covenanted with the Appellant that it would procure the   carrying out of the qualifying works to the housing stock which would be completed within 15 years of 30 June 2002. In the event the Appellant was unable to fulfil its obligations to the Council under the DWA the Appellant would not take any action against the Council in respect of any consequential breach by the Council.
(3)	 The Transfer Agreement stated that the price to be paid was £133,058,361 consisting of:
a)	£28,888,361 representing the agreed value of the property in its then condition.
b)	£170,000 representing the price paid for certain office premises.
c)	£104,000,000 representing the value of the Council’s covenant contained in the Transfer Agreement to carry out the qualifying works in respect of the housing stock.
(4)	The Transfer Agreement provided for the set off of the payment of the £104 million which represented the value of the Council’s covenant against the payment due from the Council to the Appellant under the DWA.
(5)	Under its terms the DWA was deemed to be ancillary to and part of the Transfer Agreement. Either party was entitled to terminate the DWA if the Transfer Agreement was not entered into within three days after the date of the DWA. 
(6)	On the 1 July 2002 the Appellant issued the Council with an invoice for the £104 million under the DWA plus VAT of £18.2 million. 
(7)	The Council set off the £104 million payable under the invoice against the £104 million due from the Appellant as part of the purchase price under the Transfer agreement. This meant that the Council paid the Appellant the £18.2 million for the VAT on the invoice. The Appellant in turn paid £30.1 million under the Transfer Agreement. The Council  reclaimed the £18.2 million as input tax. 
17.	As a result of the transfer the Appellant acquired a housing stock in an unenhanced condition. The housing, however, was habitable and occupied in the main by tenants. The Appellant received rents which were treated as income under Schedule A for corporation tax purposes. The expenditure incurred on the refurbishment of the properties was regarded by the Appellant as a deductible expense against the Schedule A income. The Appellant reclaimed the VAT element of the expenditure incurred as input tax.
The Technical Issue
The Dispute
18.	The dispute concerned whether the expenditure incurred on the refurbishment of the properties was a deductible expense for the purpose of the Appellant’s Schedule A business. At the centre of the dispute was the effect of the Transfer Agreement and the DWA on the characterisation of the refurbishment expenditure. 
19.	Essentially the Appellant argued that the agreements were irrelevant in determining the deductibility of the expenditure. The case that the DWA required the Appellant to perform certain repairs in the course of its Appellant’s rental business did not change the fact that those repairs were made in the course of that business. The Appellant did not receive additional income from the DWA, the consideration under the DWA was cancelled by the value of the Council’s covenant to repair the properties under the Transfer Agreement. Thus in effect the Appellant was arguing that the tax treatment of the expenditure should reflect the reality of the situation. Since 2002, the Appellant has spent £200 million on repairs, funded through external loans. The Appellant was in the business of letting properties, the expenditure on refurbishment had been incurred in the course of its business, and was a deductible expense against its Schedule A income.
20.	HMRC contended that the effect of the agreements could not be ignored. According to HMRC, the Appellant’s proposition that the agreements could be used to determine the VAT status of supplies but not applied to determine its corporation tax liability was contradictory and perverse. On a proper construction of the agreements the Appellant ran two businesses: a Schedule A business and a Schedule D business. The latter business related to the provision of services to the Council under the DWA. The sums paid by the Appellant for the refurbishment works constitued expenditure incurred in its business of providing building services to the Council. Thus the expenditure was incurred in the course of its Schedule D business not in its Schedule A business.
The Parties’ Submissions in More Detail
The Appellant
21.	The Appellant submitted that HMRC was wrong to refuse relief for the refurbishment expenditure. Even if HMRC was correct to claim that the Appellant performed the repairs because it was under an obligation to the Council that would not prevent its costs from being deductible expenses. The Appellant contended that although it was under an  obligation to the Council to carry out certain repairs pursuant to the DWA it did not mean that the repair expenditure  was not costs wholly and exclusively for the purpose of its rental business. By way of analogy the Appellant referred to the fact that as part of the Transfer Agreement it was required to retain former Council staff. According to the Appellant, the salaries paid to those staff were proper expenses of its housing business, not expenses associated with the Transfer Agreement.  In short the obligations under the Transfer Agreement and the DWA constrained the Appellant in the running of its business but made no difference to the purpose of the expenditure when considering deductibility for corporation tax purposes.
22.	On a proper construction of the Transfer Agreement and the DWA the Appellant received no consideration for the purpose of performing its obligations under the DWA. 
23.	Clause 2 of the DWA provided that
“In consideration of the payment to the [Appellant] of one hundred and four million pounds ……..[Appellant] undertakes to carry out, or procure the carrying out of the Qualifying Works ….”
24.	The definition of price in the Transfer Agreement described the £104 million  component as:
“£104,000,000, representing the value of the Council’s covenant to carry out the Qualifying Works pursuant to clause 8 of schedule 5 part 111 of this Agreement (which sum is E as defined in the Disposals  Levy (Deduction)   (England) Determination 2002) PROVIDED THAT  the payment of this amount by the Company to the Council may be set off against the payment due from the Council under the DWA”.
25.	Under the agreements, the Appellant was due to receive £104 million to carry out the repairs, and liable to pay £104 million to have the Council to carry out the repairs. Thus the potential receipt under the DWA was cancelled out by the set off clause in the Transfer Agreement. 
26.	The Appellant submitted that it was not correct to say that it paid an aggregate of £130 million as consideration for the purchase of the properties. The clause in the Transfer Agreement broke the consideration into three categories:
(1)	£28,888,361, representing the agreed value of the property in its unenhanced condition;
(2)	£170,000, representing the price paid for certain office premises;
(3)	£104 million representing the value of the Council’s covenant to carry out the Qualifying Works.
27.	The Appellant contended that the second and third categories of consideration were freestanding and not connected to the sale of the property. The Transfer Agreement required the housing stock to be transferred immediately at the agreed value of £28,888,361. The agreements did not permit the sale to be unwound should the Council fail in its repairing obligations.
28.	Thus according to the Appellant it paid £28 million for the housing stock and  then spent £200 million on the refurbishment of the stock. The £200 million costs were revenue expenditure which constituted a deductible expense against the rental income.
29.	The Appellant referred to the judgment of Sir Donald Nicholls V-C in the Prudential Assurance Co. Ltd v Inland Revenue Commissioners [2002] STC 863, which concerned the payment of stamp duty. The facts of the case were that the taxpayer company entered into two contracts on the same day. The contracts involved a taxpayer buying a freehold property from developers coupled with a separate development agreement under which the developers would complete construction work already started on the freehold property. HMRC assessed the taxpayer company to stamp duty by reference to the total amount of consideration payable for the sale of land and all the building works. Sir Donald Nicholls held that the transaction entered into by the taxpayer could not be characterised as a sale of land with finished buildings thereon. That was not the legal shape of the transaction. The sale agreement was completed independently of the development agreement. Stamp duty was payable on the consideration for the sale agreement alone.
30.	The Appellant relied on this judgment in two respects. First, to support the Appellant’s construction of the Transfer Agreement in that the purchase of the housing stock for £28 million was  separate from the Council’s repairing covenant, and that the purchase could not be unwound if the Council did not repair the houses. The second respect was the approach adopted by Sir Donald Nicholls in interpreting the effect of documents for their tax consequences.  At page 869 he said:
“I must therefore identify what was the subject matter of the sale. In so doing I must have regard to the commercial substance of the transaction. I must also have regard to the shape, or form, which the parties have chosen for their transaction. A given commercial result can often be reached by more than one route. If the parties have genuinely chosen one route, with the legal incidents and consequences attendant on that route, rather than a different route having different legal incidents and consequences, for better or worse stamp duty will be assessable accordingly.
In the present case the sale agreement and the development agreement and indeed, the transfer were all part of one transaction in the sense that together they comprised a single package or bargain. They were all executed on the same day and no doubt all three were executed simultaneously. Clearly the end result intended by the parties was that the land, previously belonging to the developers would become the property of the taxpayer company together with the new buildings being constructed by the developers. The commercial object of the transaction was that the taxpayer would acquire a development being carried out for it by the developers with funds provided by the taxpayer company.
However, I am unable to characterise the transaction by which that end result was sought to be achieved as a sale of the land with finished buildings thereon. That, manifestly, was not the legal shape of this transaction. The sale agreement was, as the parties intended, completed independently of the carrying out of the building works under the development agreement”.   
31.	The Appellant pointed out that its interpretation of the consideration under the contracts and the expenditure incurred on the housing stock was reflected in its accounts.
32.	The Appellant’s financial statements for the years ending 31 March 2003 and 31 March 2004 recorded the payment of £104 million under the DWA and the Transfer Agreement as an asset and liability in the balance sheet. In 31 March 2003 the payment was recorded as a debtor and as a provision of £90,346,000. The figure of  £90,346,000 was arrived at  as the value of services outstanding at the time under the DWA and the Transfer Agreement.
33.	The note to Debtors stated that
“The debtors represent an obligation from St Helens Metropolitan Council towards the refurbishment works to the properties purchased. This is offset by a provision representing the Appellant’s requirement to carry out the work on behalf of the Council. Both obligations will be written off when the work is actually undertaken.
34.	The note  to Provisions for liabilities and charges stated that
“The provision represents the Appellant’s liability to carry out refurbishment works included in the DWA with the Council. It will be written off when the work to the housing properties is actually undertaken”.
35.	The Appellant adopted a different accounting treatment for the year ending 31 March 2005, in that the treatment did not recognise any asset or liability arising under the DWA or the Transfer Agreement. This change was made on the basis of an updated statement of accounting practice for Registered Social Landlords, which was issued by the Accounting Standards Board through the National Housing Association on 12 May 2005.
36.	The balance sheet recognised the capital price of the transferred housing stock as being £28,888,361. The balance sheet for the year ended 31 March 2003 stated that the value of tangible assets – housing properties as £62,750,000. The note to the entry stated that the value of the stock when purchased from the Council was £28,888,000. The value of enhancements was £1,599,000, and the revaluation was £32,708,000.
37.	The expenditure incurred in carrying out the repairs was treated as revenue expenditure (so far as it was revenue) in the Income and Expenditure Account for the Appellant’s rental activity.
38.	The Appellant’s accounts contained the accounting opinion that the financial statements gave a true and fair view of the Appellant’s affairs.
39.	The Appellant considered HMRC’s argument of two separate businesses preposterous. The £104 million in the DWA and the Transfer Agreement cancelled each other out, which was why the £104 million was not reflected in the income and expenditure accounts.  The VAT analysis of the agreements was irrelevant in determining corporation tax liability. The substance and reality of the arrangements were that the Appellant had incurred actual expenditure on the housing stock, which was wholly and exclusively expended for the purposes of its business of letting properties. The Appellant’s treatment of the £104 million and its refurbishment expenditure followed general accountancy principles.
HMRC 
40.	HMRC’s principal proposition was that the Appellant’s corporation tax liability should be determined by the structure of the arrangements made with the Council. It was not open to the Appellant to abandon the arrangements made to obtain a VAT advantage and recast them for the purposes of corporation tax.
41.	According to HMRC, the essence of the arrangement with the Council was that the Appellant would supply the refurbishment works to the Council necessary for the Council to satisfy its obligations under the Transfer Agreement. It was critical to the success of the VAT scheme that the Appellant did not carry out the repairs and improvements to its own properties in its capacity as landlord but in its capacity as sub-contractor to the Council. The Council being the party that was responsible for carrying out the repairs and improvements to the properties held by the Appellant. 
42.	HMRC submitted that it was common ground that the sum of £104 million received by the Appellant pursuant to the DWA was not a sum received by the Appellant from its exploitation of any estate, interest, or rights in or over land. It was a sum received in consideration of the Appellant supplying services to the Council pursuant to the DWA. That receipt was within Case 1 or VI of Schedule D. The Appellant’s expenditure paid out to sub-contractors for the refurbishment of the housing stock was incurred in its role as sub-contractor to the Council under the DWA. It, therefore, must follow that the refurbishment expenditure was not incurred for the purpose if its Schedule A business but for its Schedule D business. The Appellant was in effect operating two businesses, a Schedule A business and a Schedule D business.
43.	HMRC contended that the attribution of income and expenditure to Schedule A or D was a matter of law, not a matter of accountancy practice. Thus the treatment of the transactions with the Council by the Appellant in its accounts was irrelevant to the disputed issue. Equally the fact that the DWA and the Transfer Agreement provided for the parties to set off their mutual obligations to pay £104 million was irrelevant. The set off provisions did not mean that the Appellant did not receive value of £104 million under the DWA or that the Council did not receive value of £104 million under the Transfer Agreement. Finally it was also irrelevant whether the true characterisation of the Transfer Agreement was that the Appellant was paying for properties in a refurbished state or paying for properties in their existing state with a covenant on the part of the Council to refurbish them. The Appellant was not seeking to deduct for the purpose of calculating its Schedule A profits any part of the £133,058,361 paid out by it under the Transfer Agreement. 
44.	HMRC concluded that there had been receipts of £104 million going each way. The Appellant received £104 million from the Council which was for the purposes of its Schedule D business. The £104 million paid by the Appellant to the Council was for the purposes of its Schedule A business. The expenditure incurred on the refurbishment of property was an expense wholly and expended for the purpose of its business as a sub-contractor of the Council.
Consideration
45.	In respect of the disputed assessments the Appellant’s profits were subject to corporation tax. At the material time corporation tax was computed according to the principles used for income tax, which classified income under various Schedules according to the source of the income. Each Schedule has its own rules for computing the profits of the company.   The Schedules are mutually exclusive.  If the income primarily falls within one Schedule, it cannot be taxed under another.
46.	Section 15 of the Taxes Act 1988 provides that tax is charged under Schedule A on the annual profits arising from a business carried on for the exploitation, as a source of rents or other receipts, of any estate, interest or rights in or over land in the United Kingdom. Section 18 of the Taxes Act  1988 provides that tax  shall be charged under specific Cases of Schedule D. Case I charges tax in respect of any trade carried on in the United Kingdom or elsewhere but not contained in Schedule A. Case VI charges tax on any annual profits  not falling under any other Cases in Schedule D
47.	Section 21A of the 1988 Act provides that profits of  Schedule A business are computed in the same way as the profits of trade are computed for the purposes of Case 1 of Schedule D. Section 74 of the 1988 Act sets out the general rule that deductible expenses for computing tax liability must be wholly and exclusively for the purposes of the trade, profession or vocation. Section 42 of the Finance Act 1998 provides that the profits of a trade must be computed in accordance with generally accepted accounting practices. 
48.	The issue under the technical argument is whether the expenses incurred by the Appellant in respect of housing repairs were computed against Schedule A income or against Schedule D Case I or Case VI income. The determination of this issue depended upon the proper construction of the effect of the DWA and the Transfer Agreement. The parties agreed that the VAT analysis of the various transactions had no bearing on the analysis for corporation tax purposes.
49.	The Tribunal considers that the provisions of section 42 of the Finance Act 1998 were not of particular assistance with the resolution of the technical dispute. The categorisation of expenses under the Income Tax Schedules is a matter of law not accountancy practice. There was no dispute between the parties about whether the refurbishment expenditure recorded in the Appellant’s income and expenditure account was revenue or capital. HMRC conceded that the expenditure recorded was revenue. Accountancy practice did not require the Appellant to categorise its turnover and operating costs under the Income Tax Schedules in its accounts. Thus the fact that the Appellant recorded the disputed expenditure as operating expenses had no bearing on whether it was Schedule A or Schedule D expenditure.  
50.	In the Appellant’s balance sheet for the disputed years the value of the Council’s obligation to refurbish the housing stock was offset against the value of Appellant’s requirement to undertake those works. This record of an offset has to be weighed against the fact that the Appellant considered it material to record the receipt of £104 million under the DWA in its accounts which was written down by the value of the refurbishment works in any one year.
51.	The Appellant contended that the commercial substance of the arrangement with the Council was that it paid £28 million for the Council’s housing stock in its existing unimproved condition. The nature of the arrangement, however, depended upon the construction of the relevant documents which according to the general rule must be concerned with the wording of the documents themselves.  Under clause 2 of the DWA the Appellant received consideration of £104 million plus VAT for carrying out qualifying works. The Transfer Agreement required the Appellant to pay £133 million to the Council for the transfer of the housing stock. The Tribunal considers that the meaning of these clauses was unambiguous. The Appellant received a receipt to the value of £104 million and made a payment of £133 million. 
52.	The Appellant asserted that the plain meaning of the consideration clauses could be ignored because of the effect of clause 4.1.2 of the DWA. This clause enabled the Council to set off the VAT exclusive payment to the Appellant under the DWA against the payment of £104 million from the Appellant under the Transfer Agreement for the Council’s covenant to repair. The Tribunal does not consider the set off provision altered the meaning attributed to the consideration clauses in the documents. The set off provision supplied the means for satisfying the payments made by the respective parties. The provision did not deny the existence of a receipt in money or monies worth to the Appellant for performing its obligations under the DWA or the existence of the value of the Appellant’s  payment to the Council under the Transfer Agreement.
53.	Similarly the provision under the Deed of Covenant in which the Appellant agreed not to enforce the covenant against the Council for any consequential breach  did not detract from the meaning of the consideration clause under the DWA. Lord Hoffman’s reasonable person would construe the enforcement clause as a sensible arrangement. The Appellant should not be able to pursue the Council for something the Appellant has been paid to do by the Council. The whole rationale for the  enforcement clause was derived from the payment made by the Council to the Appellant under the DWA.
54.	The Appellant cannot assert a different intention from that which can be established from the construction of the documents. In this respect the Tribunal considers the case cited by the Appellant, Prudential Assurance Co. Ltd, supported its construction of the subject matter of the Appellant’s dealings with the Council rather than the construction preferred by the Appellant. The ratio of the judgment emphasised the importance of the legal form chosen by the parties for characterising disputed transactions. The chosen legal form can produce a different result from that intended by the parties. The legal structure of the Appellant’s transactions with the Council meant that the Appellant paid consideration to the value of £132 million on the transfer of the housing stock, and received consideration to the value of £104 million from the Council for carrying out qualifying works. The construction of the legal documents did not support the Appellant’s assertion that it paid consideration to the value of £28 million for the Council’s housing stock. 
55.	Equally the Appellant’s approach of relying upon a particular set of circumstances for its VAT analysis and then turning those circumstances on its head for its corporation tax analysis was not only contradictory but unsustainable. This could not be justified by the argument that the VAT analysis was not determinative of the position for corporation tax. The Appellant’s stance had nothing to do with the principles for arriving at the correct tax analysis. The Appellant was simply changing the factual circumstances to suit its corporation tax analysis.
56.	In view of the finding that the Appellant received a receipt of £104 million under the DWA, and made a payment under the Transfer agreement, the Tribunal agrees with the tax analysis of HMRC that the receipt under DWA was under Case I or Case VI of Schedule D. The receipt was for the carrying out of qualifying works by the Appellant for the Council. In short the Appellant was supplying building services to the Council which could not be classified within a business carried on for the exploitation, as a source of rents or other receipts, of any estate, interest or rights in or over land in the United Kingdom. Thus the Appellant was running two businesses for tax purposes, a Schedule A and a Schedule D business. 
57.	The Appellant’s alternative contention was that the refurbishment expenditure was still incurred wholly and exclusively for the purpose of its rental business, despite its obligation to the Council under the DWA. The Appellant argued that it had actually incurred the expenditure on its own properties. The expenditure clearly met the description of costs associated with a rental business. In short, the purpose to which the expenditure was put should decide the appropriate Tax Schedule for the deduction. 
58.	The Tribunal considers that the Schedule framework for income tax does not permit flexibility with the interpretation of purpose in respect of deductions. The expenditure must be allocated to the same category of the income source which gave rise to the expenditure. In this Appeal the Tribunal decided that the receipt under the DWA and the payment under the Transfer agreement could not be ignored for corporation tax purposes. The result of this analysis was that the Appellant had two sources of income, its rental business and its sub-contracting business. The expenditure incurred on refurbishment arose from the Appellant’s obligations under the DWA. Thus the refurbishment expenditure was incurred for the purposes of its Schedule D business not its Schedule A business.  HMRC has decided not to assess the Appellant’s profits of its Schedule D business. HMRC accepted that the receipt of £104 million would have to be amortised over the duration of the contract. Thus it was unlikely that the Appellant’s Schedule D business would result in any profits, having regard to the size of the Appellant’s refurbishment expenditure. 
59.	Under the Transfer Agreement the Appellant spent £132 million (including the £104 million for the Council’s covenant for carrying out qualifying works) to acquire the housing stock.  This expenditure was incurred for the purposes of its Schedule A business but was a capital expense which could not be set against the Appellant’s rental income for the purpose of its Schedule A corporation tax computation.
60.	  In the Tribunal’s view, the fact that the parties offset their respective payments of £104 million did not disturb the Tribunal’s analysis of the Appellant’s tax position. The set off did not mean that the Appellant did not receive value of £104 million under the DWA.
Decision on the Technical Issue
61.	The Tribunal decides for the reasons given above that the refurbishment expenditure was incurred by the Appellant wholly and exclusively for the purposes of its Schedule D business not its Schedule A business.
62.	The Tribunal makes no decision about whether the Appellant’s Schedule D business should be categorised under Case I and Case VI. The Tribunal heard no substantive argument on this point. 
Charity Issue
Summary of the Dispute and Parties’ Respective Positions
63.	The consequence of the Tribunal’s decision on the technical issue is that the Appellant has potentially substantial Schedule A profits which would be liable to tax unless the Appellant can claim exemption as a charity under sections 505 and 506 of the 1988 Act.
64.	The charity issue is whether the Appellant’s profits for the periods from incorporation until 30 November 2004 and derived from its renting out of properties were exempt from taxation pursuant to sections 505 and 506 of the Taxes Act 1988. 
65.	In order to obtain exemption from tax in respect of its Schedule A profits the Appellant is required to establish during the relevant periods:
(1)	The properties were vested in it for charitable purposes; and
(2)	The profits in question were applied to charitable purposes only.
66.	It is common ground between the parties that for the properties to have been vested in the Appellant for charitable purposes, the Appellant has to establish that it was a charity during the period 1 July 2002 to 30 November 2004. The dispute between the parties concentrated upon whether the Appellant’s purposes were exclusively charitable. 
67.	For the purposes of this Appeal the relevant definition of a charity is the common law definition, which is an institution established for purposes which are exclusively charitable. The Appellant contended that its purpose fell within the fourth category of a charity, namely, trusts for other purposes beneficial to the community, not falling under any of the preceding heads.
68.	The parties were in broad agreement about the underlying law relating to charities and the approach to be adopted in deciding whether the Appellant was a charity. The critical points of difference between them concerned the scope of the Appellant’s purpose at the material time, and whether its purpose was charitable. 
69.	The Appellant adopted a two stage approach in support of its assertion that it was a charity. The Appellant argued that on a proper construction of its Memorandum and Articles the Appellant’s Objects were united to serve the overriding interests of the community of St Helens Metropolitan Borough, and that its foremost Object was to achieve community benefit by providing housing to tenants. The Appellant considered that as its foremost Object was for the benefit of the community, it had the colour of a charity within the spirit and intendment of the Statute of Elizabeth. 
70.	The second stage involved the Appellant validating the proposition that its foremost Object had the colour of a charity by examining its activities in general to assess whether the implementation of the Appellant’s purpose was charitable. In this respect the Appellant relied on the evidence of Mr Brown and Professor Ambrose to demonstrate the benefits to the community from the Appellant’s provision of social housing. The Appellant concluded that the analysis of its activities supported the proposition that its purpose was charitable. 
71.	HMRC disagreed with the Appellant’s construction of its Memorandum and Articles of Association. HMRC submitted that the Appellant pursued several main Objects and could apply its funds to non-charitable purposes. In HMRC’s view, benefit to the community was not sufficient to bring the Appellant within the spirit and intendment of the Statute of Elizabeth. The Appellant fell in the gap between community benefit and charitable purpose.  The Appellant adopted the Objects of a Registered Social Landlord without putting constraints on those Objects necessary for charitable purposes. Finally HMRC considered that the Appellant stretched the rules regarding construction of its Objects beyond acceptable limits. The evidence of Mr Brown and Professor Ambrose on community benefit was inadmissible and irrelevant for construing the scope of the Appellant’s Objects. 
Overview of the Law (Not in dispute)
72.	The following propositions of  law relating to charities were not in dispute:
(1)	At common law charitable purposes are purposes which are within the spirit and intendment of the Preamble to the Statute of Elizabeth, such spirit and intendment being assessed by reference to the Preamble itself and of decided cases.
(2)	A charity in the legal sense comprises four  heads: i) trusts for relief of poverty, ii) trusts for the advancement of education, iii) trusts for the advancement of religion, and iv) trusts for other purposes beneficial to the community, not falling under any of the preceding heads (Income Tax Special Purposes Commissioners v Pemsel [1891] AC 531 at 583).
(3)	The four heads are a classification of convenience and there may be purposes which do not fit neatly into one or other of the headings. Further the words used must not be given the force of a statute to be construed, and the law of charity is a moving subject which evolves over time (Scottish Burial Reform and Cremation Society Limited v Glasgow City Corporation [1968] AC 138 at 154).
(4)	In order for an institution or a set of purposes to be charitable they must be exclusively charitable (A-G for the Cayman Islands v Wahr-Hansen  [2001] AC 75 at 81).
(5)	Purposes of an otherwise charitable nature do not lose that nature merely because by way of furtherance of those purposes there are incidental powers to carry on activities which are not themselves charitable. The distinction is between (i) power to carry on non-charitable activities which are merely incidental or subsidiary to a charitable purpose; and ii) power to carry on non-charitable activities which in themselves form part of the trust purpose. In the first case the institution retains its charitable purpose, whereas in the second the incorporation of non-charitable activities is fatal to its claim to be a charity (Keren Kayemeth Le Jisroel Ltd v IRC [1932] AC 650 at 658).
(6)	The onus is on the Appellant to demonstrate that its purpose is charitable. There was a difference in view between the parties about whether the onus could shift. The Appellant argued that it bore the onus to show that its purpose was for the benefit of the community, once the Appellant has shown that, it can be expected that the purpose was charitable unless one of the lines of retreat based on the equity of Statute of Elizabeth could be adopted (Incorporated Society for Law Reporting for England and Wales v A-G [1972] Ch 73). HMRC contended that the approach in Law Reporting was wrong (see Williams’ Trustees v IRC [1947] AC 447).
Principles of Construction and their Application to this Appeal 
73.	The general rule is that the Objects of the body claiming to be charitable are ascertainable from the documents setting it up. The  motives of the founders of the body or their intentions about how the body should operate or how in fact the body operated are irrelevant in determining the purposes of the body (see Tennant Plays Limited v IRC [1948] 1 All ER 506 at 507). The Objects of the body are determined on the ordinary and natural meaning of the words used in the originating documents.
74.	In this Appeal the originating documents were the Appellant’s Memorandum and Articles of Association dated 30 October 2001. In construing the terms of the  Memorandum and Articles, Lord Hoffman emphasised the perspective of a reasonable person having all the background knowledge. He stated at paragraph 16 of A-G of Belize v Belize Telecom [2009] UKPC 10:
“….. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute, or articles of association. It cannot introduce terms to make it fair or more reasonable. It is concerned only to discover what the instrument means. However, the meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed. It is the objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.
75.	In Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 W.L.R 896 at 912 & 913 Lord Hoffman amplified on the meaning of background knowledge:
“The background was famously referred to by Lord Wilberforce as the “matrix of fact”, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man”
“The law excludes from the admissible background the previous negotiations of the parties and their declarations of subject intent ….”
“The meaning which a document would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have understood them to mean”.
76.	In this Appeal the parties accepted the following as providing admissible background to the construction of the Appellant’s Memorandum and Articles of Association:
(1)	The Appellant was formed at a time when the Government’s large scale voluntary transfer programme was in existence.
(2)	The Appellant was created against the background that the Council was considering the transfer of some or all of its residential housing to the Appellant as a Registered Social Landlord under Part 1 Housing Act 1996.
(3)	Registered Social Landlords could either be charitable or non-charitable (section 2(1) of the Housing ACT 1996).
(4)	Some of the Council’s residential housing was let to those in need, Some of the Council’s housing was let to those who were not in need,
(5)	Parts but nothing like the whole of St Helens or adjacent areas of North West England suffered from poor socio-economic conditions.
(6)	In 2000 the DETR Index of Multiple Deprivation scores showed St Helens as 42nd most deprived of the 354 authorities in England.
77.	The Tribunal would add to the above list the entrenched rights of  the Council and tenants given by the Appellant’s Memorandum and Articles of Association. HMRC’s dispute regarding entrenched rights centred upon the validity of the Appellant’s inferences from the entrenched rights rather than their existence in the Memorandum and Articles of Association. 
78.	The area of disagreement between the parties in respect of the principles of construction concerned the admissibility of evidence on post-formation activities and on social deprivation in St Helens.  The disagreement covered two situations. With respect to the first situation, HMRC accepted the legal principle of examining evidence of activities in order to assess charitable purpose in cases of doubt and ambiguity following the construction of  the Objects in the Memorandum and Articles of Association.  The difference between the parties was whether the trigger of doubt and ambiguity applied to the Appellant’s situation.  HMRC considered that there was no real doubt about the charitable status of the Objects of the Appellant. In contrast, the Appellant asserted that as its Objects were for the benefit to the community they were prima facie charitable in which case  it was necessary to examine the facts to check that its purposes did not fall within one of the lines of retreat based on the equity of the Statute of Elizabeth.
79.	The second situation concerned whether extrinsic evidence could be relied upon to determine the identification, if there was one, of a foremost Object or purpose for the Appellant.  The Appellant in its skeleton argued that this was permissible citing the authority of A-G v Ross [1986] 1 WLR 252. HMRC contended that Ross was wrongly decided. It appeared to the Tribunal that the Appellant was no longer relying on extrinsic evidence to establish whether it had a foremost purpose. Counsel in his final address contended that a foremost purpose for the Appellant was clearly ascertainable from the construction of its Memorandum and Articles of Association and background information. 
Extrinsic Evidence
80.	It is appropriate at this stage of the decision to consider the extrinsic evidence relied upon by the Appellant even though the Tribunal may decide after construing the Memorandum and Articles of Association that it was not admissible. The extrinsic evidence came from two sources.  The first was a report entitled The Community Benefit Deriving from the Activities of Helena Housing (September 2007) by Peter Ambrose, Visiting Professor in Housing Studies, Health and Social Policy Research Centre, University of Brighton. HMRC accepted the findings of the report but considered them irrelevant and inadmissible for the purposes of this Appeal. HMRC did not require the attendance of Professor Ambrose at the hearing. 
81.	The Appellant invited the Tribunal to make the following findings arising from Professor Ambrose’s report:
(1)	Low income households encountered an affordability problem in accessing local housing (paragraph 1.4).
(2)	The vast majority of households in St Helens were low income households: 64.7 per cent were wholly dependent on benefits, and 13.8 per cent were partly so dependent (paragraph 1.2).
(3)	 Poor housing was a significant contributory factor to poor health, accidents in the home, and poor educational outcomes (paragraphs 2.1, 2.2.4, and 2.2.5).
(4)	Poor housing increased the risk of crime and anti-social tendencies resulting in increased policing costs (paragraph 2.3)
(5)	The housing activities of the Appellant have gone a long way towards relieving deprivation in St Helens (paragraph 5).
82.	 Professor Ambrose’s findings on the adverse effects of poor housing recorded in sub-paragraphs 2), 3) and 4) above were derived from a world literature search, and did not necessarily reflect the position in St Helens Metropolitan Borough. Professor Ambrose’s conclusion on the outcomes of the Appellant’s housing activities was based on an overview of the Appellant’s activities during the relevant period including its expenditure on housing improvements and on various community projects, a customer satisfaction survey, and a qualitative assessment by a range of key stakeholders connected with the Borough.  
83.	Since HMRC did not challenge the validity of Professor Ambrose’s findings, the Tribunal accepts the findings. The questions of admissibility, relevance and weight are different issues which will be examined later.
84.	The second area of extrinsic evidence relied upon by the Appellant was that provided by Geoffrey Brown, the Appellant’s Deputy Chief Executive Officer and Director of Resources.  Mr Brown gave evidence before the Tribunal, and cross examined by HMRC.
85.	The Appellant invited the Tribunal to make the following findings on Mr Brown’s evidence.
(1)	The Appellant owned no property and never owned property outside St Helens Metropolitan Borough. This was a matter of fact and not disputed. The Tribunal, however, would also record Mr Brown’s acknowledgement that the original Memorandum for the Appellant did not restrict the Appellant’s activities to a specific geographical area.
(2)	Although St Helens was not uniformly deprived, it was deprived across the Borough. The Tribunal was not convinced by Mr Brown’s evidence on the state of deprivation in the Borough which appeared to be an exaggerated statement. The Tribunal preferred the evidence of the DETR Index of Multiple Deprivation which showed the Borough to be in the upper quartile of most deprived authorities.
(3)	The Appellant has never let any of its property to anyone other than a person with social housing needs, which was defined as a person unable to obtain adequate housing left to his or her own devices. HMRC did not accept this. The Appellant’s housing allocation policy at the time was based on a points system and the provisions of the Housing Act 1985. The Act required the Appellant to give reasonable preference in its allocation policy to certain categories of vulnerable persons but not a duty to house them.  The allocation of housing was determined by a points system, with priority given to those persons with the highest number of points. There were in effect two points systems, one for non-householders and one for existing secure tenants. The one for non-householders awarded points for discrete categories of personal circumstances and housing conditions. HMRC placed weight on the fact that few of the discrete categories of personal circumstances were related to the lack of wealth. The one for secure tenants allocated points principally for categories of housing conditions. HMRC concluded from the analysis of the allocation policy  that persons not in need could get on the Appellant’s housing list, and that housing was not exclusively allocated to those in need. The Tribunal preferred the analysis of HMRC. The Tribunal concluded that Mr Brown’s statement that the Appellant never let property to anyone other than a person unable to obtain adequate housing left to their own devices was a sweeping statement which carried limited evidential weight. 
(4)	Helena’s main purpose was the provision of housing for the benefit of the community. The Tribunal considers that this is the question at the heart of the dispute, and is one for the Tribunal to decide rather than Mr Brown.
(5)	Helena applied its rental income in an agreed programme designed to repair and enhance its housing stock, its only substantial asset with which to pursue its objects. The Tribunal accepts that the housing stock was the Appellant’s only substantial asset. The Appellant’s balance sheet for the year ended 31 March 2003 revealed fixed assets of housing properties valued at £63 million, and tangible assets of £1 million.  The Tribunal further accepts that the Appellant spent significant sums of money on repairs and maintenance.  In the year ended 31 March 2003, £20 million was expended on maintenance and major repairs. The Appellant’s income from gross rents for the same period was £29 million. The Tribunal, however, has found in relation to the Technical Issue that the expenditure on repairs and maintenance arose from its obligations under the DWA.  
86.	The final aspect of extrinsic evidence which may become relevant is the terms of the DWA. HMRC relied on the terms of the DWA to show that the Appellant was engaged in activities other than the provision of housing. According to HMRC, section 2(4)(e) of the Housing Act 1996 authorised the Appellant’s actions in respect of the contract with the Council. Section 2(4)(e) was an additional power granted to Registered Social Landlords, which the Appellant incorporated in its Memorandum. HMRC submitted that the exercise of powers under section 2(4)(e) was far outside the spirit and intendment of the Statute of Elizabeth. The Appellant pointed out that the DWA was terminable if the Transfer Agreement was not completed within three days. Further the Appellant argued that in any event the terms of the DWA could not be used for ascertaining the scope of the Appellant’s Objects.  The Tribunal accepts the Appellant’s submission about the exclusion of the DWA for ascertaining the scope of  the Objects  but considers that the terms of DWA may be relevant for determining whether its Objects were charitable. 
The Appellant’s Memorandum and Articles of Association and Relevant Statutory Background 
87.	The Appellant’s Memorandum of Association approved by written resolution of all the members of the company on 30 October 2001 stated that the name of the Appellant was Helena Housing Limited. The Appellant was a company limited by guarantee and not having share capital. Paragraph 4 set out its  Objects which were;
4	The Company’s Objects shall be the business of providing: 
4.1 housing;
4.2 accommodation;
4.3 assistance to help house people;
4.4 associated facilities and amenities; and
4.5 any other object that can be carried out by a Registered  Social Landlord with the housing corporation.
For the benefit of the community.
                     The Company shall not trade for profit.
88.	Object 4.5 enacted the additional powers that could be exercised by a registered social landlord under section 2(4) of the Housing Act 1996:
(4) The permissible additional purposes or objects are— 
(a) providing land, amenities or services, or providing, constructing, repairing or improving buildings, for its residents, either exclusively or together with other persons; 
(b) acquiring, or repairing and improving, or creating by the conversion of houses or other property, houses to be disposed of on sale, on lease or on shared ownership terms; 
(c) constructing houses to be disposed of on shared ownership terms; 
(d) managing houses held on leases or other lettings (not being houses within subsection (2)(a) or (b)) or blocks of flats; 
(e) providing services of any description for owners or occupiers of houses in arranging or carrying out works of maintenance, repair or improvement, or encouraging or facilitating the carrying out of such works; 
(f) encouraging and giving advice on the forming of housing associations or providing services for, and giving advice on the running of, such associations and other voluntary organisations concerned with housing, or matters connected with housing. 
89.	Paragraph 5 of the Memorandum of Association gave the Appellant a wide range of powers. Paragraph 5.9 enabled the Appellant to exercise powers of acquisition, management, disposal and investment of any property wherever situated.
90.	The Articles of Association defined the Appellant’s membership. A Local Authority member meant St Helens Borough Council which had the power under the Articles to appoint and remove four persons as Local Authority directors on the Appellant’s management board.  A Tenant member was defined as an individual who held an assured tenancy with the Appellant.  The Tenant members were empowered to elect four Tenant directors to the Appellant’s management board. The final category of membership was the Independent member defined as a person who was not a Tenant or a Local Authority member. The Members had the power to elect up to four persons as   Independent Directors on recommendation of the management board of a Member.
91.	Article 44 established a tripartite structure for the Appellant’s management board which consisted of twelve directors, comprising four Local Authority Directors, four Tenant Directors and four Independent Directors.  Article 60 empowered the Board to manage the business of the Company and exercise all the powers given by the Memorandum of Association. 
92.	The Appellant argued that the reason for the entrenched membership of the Council was to ensure that the Appellant had regard to the Council’s housing responsibilities under the Housing Act 1985 when pursuing its purposes. Under section 8 of the 1985 Act Local Authorities have a duty to consider housing conditions in their district, and the needs of the district with respect to the provision of further housing accommodation. Section 9 permits Local Authorities to exercise housing powers outside their district to meet the needs of their area.  Section 22 requires Local Authorities to give preference to certain categories of tenants when allocating housing.
93.	 Section 1 of the Housing Act 1996 required the Appellant to register with the Housing Corporation as a social landlord. Section 2 of the 1996 Act specified the eligibility criteria for social landlords. Section 2 provided three alternative means by which a body could qualify as a Registered Social Landlord: a registered charity, an industrial or provident society or a registered company. The Appellant chose the vehicle of a registered company. In order for a company to qualify as a Registered Social Landlord, it had to satisfy specific conditions, namely, non-profit making and established for the purpose of, or has among its objects or powers, the provision, construction, improvement or management of houses available for letting. The relevant provisions of the Housing Act 1996 are as follows: 
1 The register of social landlords 
(1) The Corporation shall maintain a register of social landlords which shall be open to inspection at all reasonable times at the head office of the Corporation. 
(2) On the commencement of this section every housing association which immediately before commencement was registered in the register kept by the Corporation under Part I of the [1985 c. 69.] Housing Associations Act 1985 shall be registered as a social landlord. 
2 Eligibility for registration 
(1) A body is eligible for registration as a social landlord if it is— 
(a) a registered charity which is a housing association, 
(b) a society registered under the [1965 c. 12.] Industrial and Provident Societies Act 1965 which satisfies the conditions in subsection (2), or 
(c) a company registered under the [1985 c. 6.] Companies Act 1985 which satisfies those conditions. 
(2) The conditions are that the body is non-profit-making and is established for the purpose of, or has among its objects or powers, the provision, construction, improvement or management of— 
(a) houses to be kept available for letting, 
(b) houses for occupation by members of the body, where the rules of the body restrict membership to persons entitled or prospectively entitled (as tenants or otherwise) to occupy a house provided or managed by the body, or 
(c) hostels, 
and that any additional purposes or objects are among those specified in subsection (4).
Construction of the Appellant’s Memorandum and Articles of Association
94.	The Appellant’s case depended upon a construction of its Objects which incorporated three elements, namely:
(1)	The Appellant was concerned with the community of St Helens Metropolitan Borough.
(2)	The Appellant’s Objects were united to serve the overriding interests of the community of St Helens. 
(3)	The Appellant’s foremost object was to achieve community benefit by providing housing to tenants.
95.	The Appellant’s Memorandum made no mention of St Helens Metropolitan Borough. The Appellant’s name, Helena Housing Limited, would not, in the Tribunal’s view, inevitably lead to an association with St Helens Borough Council.  The phrase for the benefit of community was not limited to St Helens Borough Council. 
96.	The Appellant relied on the wording of the Articles of Association for its interpretation that community referred to St Helens.  The Appellant cited the entrenched rights of St Helens Metropolitan Borough in the Articles. Further the terms of the Articles prevented the involvement of any other local authority in its affairs. 
97.	HMRC contended that there was no reason to restrict the meaning of community to St Helens. In its context of clause 4 of the Memorandum, it meant the public of England and Wales. HMRC acknowledged that there were references in the Appellant’s Memorandum and Articles of Association to a connection with St Helens and the North West. HMRC, however, considered that the narrowing of community to St Helens did not have a significant bearing on the outcome of the Appeal.  A non-charitable purpose trust cannot be validated by localising the gift (see Williams’ Trustees v IRC [1947] AC 447 and Re Harding [2008] Ch 235).
98.	On balance the Tribunal finds that the word community in the Appellant’s Memorandum should be construed as referring to St Helens Borough Council. The Tribunal considered the existence of the entrenched rights of St Helens Borough Council within the membership and management of the Appellant to the exclusion of any other Local Authority particularly persuasive.
99.	 The Appellant’s Memorandum specified five Objects.  Object 4.5 enabled the Appellant to have the additional objects of a Registered Social Landlord which expanded the Appellant’s list of Objects to ten. Clause 5 of the Memorandum sets out a wide range of powers which were ancillary and subordinate to the Objects in Clause 4. Under its Memorandum the Appellant was not allowed to trade for profit. Clause 7 required the Appellant to apply its income and property solely to the promotion of its Objects with a specific prohibition on distribution of income to members. On winding up or dissolution of the Appellant, clause 9 provided for the transfer of any assets to a body with similar Objects.
100.	The Appellant argued that on a proper construction all its Objects were united to secure a benefit to the Community and that its foremost purpose was the provision of housing to tenants. 
101.	HMRC took a contrary view. The Objects in Clause 4 stood on their own and were all main Objects. The fact that the Appellant may have pursued one Object to the exclusion of others was irrelevant.  The status of the Memorandum should be considered at the time of formation of the company. The Appellant was entitled and obliged under its Memorandum to exercise its powers in pursuit of any of the named Objects, and if it did not do so it would be acting ultra vires.
102.	The Tribunal accepts that on the face of the Memorandum no one Object was explicitly identified as dominant.  The Objects stood on their own, including those incorporated through section 2(4) of the Housing Act 1996 which referred to them as additional Objects. 
103.	Equally the Tribunal sees force in the Appellant’s construction of a foremost purpose, which was connected with housing provision to tenants. The Appellant’s name included the word housing. Object 4.5 specifically referred to the Appellant’s status as a social landlord registered with the Housing Corporation.  The ten Objects were all connected with the management and provision of housing. 
104.	In support of its submission that the Objects stood on their own, HMRC placed emphasis on the distinction between Object 4.1 Housing, and the additional purpose incorporated by section 2(4)(e) of the 1996 Act which dealt with the provision of services connected with repairs, maintenance or improvements to owners or occupiers. HMRC’s distinction was influenced somewhat by the DWA between the Appellant and the Council. The Tribunal did not see the distinction, the services under section 2(4)(e) were a necessary function and in all probability a legal obligation of a provider of accommodation.
105.	The Appellant’s notion of foremost purpose did not fit the classic construct of dominant or main purpose with a number of ancillary purposes. The classic construct involved examining the clauses of the Memorandum and seeking a dominant purpose in the first and early paragraphs followed by a construction of the words setting out other Objects as limited and confined to carrying out the primary purpose. 
106.	The Appellant’s riposte to HMRC’s contention of each Object being a main Object was “so what, each of the Objects including those incorporated by section 2(4) of the Housing Act was qualified and united by the words for the benefit of the community. The implication of the Appellant’s riposte was that it did not matter whether the Appellant’s purpose was ten separate purposes or one foremost purpose the critical words were for the benefit of the community which according to the Appellant gave its purposes the colour of a charity. Further the consolidation of purposes into a foremost purpose was permissible under the general rules of construction, and made sense in crystallising the dispute on whether the Appellant’s overall purpose was charitable. 
107.	The Tribunal considers that the Appellant’s approach of formulating a foremost purpose was adopted by the Court of Appeal in Council of Law Reporting. The identified purpose for the Council of to further the development and administration of law and to make it known or accessible to all members of the community did not appear to be one of the stated Objects in the Council’s Memorandum but more a construct adopted by the Court of Appeal to sum up the overall purpose of the Council of Law Reporting.  Somervell LJ in Tennant Plays at page 513 emphasised  that in construing the clauses of a memorandum the first thing is to see what they say without having any preconceived notion in one's mind of what one is going to find. Although the observation of Somervell LJ was made in the context of a dominant purpose, it seems to the Tribunal that there is no rule prohibiting the formulation of a foremost purpose in the sense applied by the Court of Appeal of an overall purpose.
108.	The Appellant’s Objects were stated succinctly in Clause 4. Each Object consisted of no more than several words, and in two cases just one word. The Objects including those incorporated by section 2(4) of the 1996 Act referred in some way to housing services. The Memorandum mentioned the Appellant’s status as a social landlord.  The Appellant as a condition of its Registration as a Social Landlord had to have a purpose connected with houses available for letting.  
109.	The Tribunal decides that Lord Hoffman’s reasonable man informed of the admissible background would conclude from the Appellant’s Memorandum and Articles of Association that it had an overall purpose of the management and provision of housing to tenants for the benefit of St Helens Metropolitan Borough. The Tribunal has adopted a slightly different formulation from that advocated by the Appellant. The Tribunal has added the word “management” to reflect the wide powers given to the Appellant in its Memorandum. The Tribunal applied the syntax used in the Memorandum, in that the phrase for the benefit of the community was at the end of the purpose, not at the front.   
Charitable Purpose?
110.	The question, therefore, is whether the Appellant’s purpose of managing and providing housing to tenants for the benefit of St Helens Metropolitan Borough fell within the fourth head of a charity, namely one for purposes beneficial to the community. At this juncture the Tribunal intends to provide an overview of the relevant authorities.
111.	Lord Simonds in  Williams’ Trustees v IRC [1947] HL 447 at 455: 
“My Lords, there are, I think, two propositions which must ever be borne in mind in any case in which the question is whether a trust is charitable. The first is that it is still the general law that a trust is not charitable and entitled to the privileges which charity confers, unless it is within the spirit and intendment of the preamble to the statute of Elizabeth (43 Eliz. c. 4), which is expressly preserved by s. 13, sub-s. 3 of the Mortmain and Charitable Uses Act, 1888. The second is that the classification of charity in its legal sense into four principal divisions by Lord Macnaghten in Income Tax Commissioners v. Pemsel (1) must always be read subject to the qualification appearing in the judgment of Lindley L.J. in In re Macduff (2): "Now Sir Samuel Romilly did not mean, and I am certain Lord Macnaghten did not mean, to say that every object of public general utility must necessarily be a charity. Some may be, and some may not be." This observation has been expanded by Lord Cave L.C. in this House in these words: "Lord Macnaghten did not mean that all trusts for purposes beneficial to the community are charitable, but that there were certain beneficial trusts which fell within that category; and accordingly to argue that because a trust is for a purpose beneficial to the community it is therefore a charitable trust is to turn round his sentence and to give it a different meaning. So here it is not enough to say that the trust in question is for public purposes beneficial to the community or for the public welfare; you must also show it to be a charitable trust. See Attorney-General v. National Provincial & Union Bank of England (3)." But it is just because the purpose of the trust deed in this case is said to be beneficial to the community or a section of the community and for no other reason that its charitable character is asserted. It is not alleged that the trust is (a) for the benefit of the community and (b) beneficial in a way which the law regards as charitable. Therefore, as it seems to me, in its mere statement the claim is imperfect and must fail”.
112.	Lord Wilberforce in Scottish Burial Reform etc v Glasgow City Corporation [1967] 3 All ER 215 at  227:
“On this subject, the law of England, though no doubt not very satisfactory and in need of rationalisation, is tolerably clear. The purposes in question, to be charitable, must be shown to be for the benefit of the public, or the community, in a sense or manner within the intendment of the preamble to the statute, 43 Eliz 1 c 4. The latter requirement does not mean quite what it says; for it is now accepted that what must be regarded is not the wording of the preamble itself, but the effect of decisions given by the courts as to its scope, decisions which have endeavoured to keep the law as to charities moving according as new social needs arise or old ones become obsolete or satisfied. Lord Macnaghten's grouping of the heads of recognised charity in Income Tax Special Purposes Comrs v Pemsel ([1891-95] All ER Rep at p 55; [1891] AC at p 583) is one that has proved to be of value and there are many problems which it solves. But three things may be said about it, which its author would surely not have denied: first that, since it is a classification of convenience, there may well be purposes which do not fit neatly into one or other of the headings: secondly, that the words used must not be given the force of a statute to be construed, and thirdly, that the law of charity is a moving subject which may well have evolved even since 1891”.
113.	Lord Justice Russell in Incorporated Council of Law Reporting [1971] 3 All ER 1029 at 1035:
I come now to the question whether, if the main purpose of the Association is (as I think it is) to further the sound development and administration of the law in this country, and if (as I think it is) that is a purpose beneficial to the community or of general public utility, that purpose is charitable according to the law of England and Wales. On this point the law is rooted in the Statute of Elizabethb, a statute whose object was the oversight and reform of abuses in the administration of property devoted by donors to purposes which were regarded as worthy of such protection as being charitable. The preamble to the statute listed certain examples of purposes worthy of such protection. These were from an early stage regarded merely as examples, and have through the centuries been regarded as examples or guideposts for the courts in the differing circumstances of a developing civilisation and economy. Sometimes recourse has been had by the courts to the instances given in the preamble in order to see whether in a given case sufficient analogy may be found with something specifically stated in the preamble, or sufficient analogy with some decided case in which already a previous sufficient analogy has been found. Of this approach perhaps the most obvious example is the provision of crematoria by analogy with the provision of burial grounds by analogy with the upkeep of churchyards by analogy with the repair of churches. On other occasions a decision in favour or against a purpose being charitable has been based in terms on a more general question whether the purpose is or is not within 'the spirit and intendment' of the Elizabethan statute and in particular its preamble. Again (and at an early stage in development) whether the purpose is within 'the equity' or within 'the mischief' of the statute. Again whether the purpose is charitable 'in the same sense' as purposes within the purview of the statute. I have much sympathy with those who say that these phrases do little of themselves to elucidate any particular problem. 'Tell me', they say, 'what you define when you speak of spirit, intendment, equity, mischief, the same sense, and I will tell you whether a purpose is charitable according to law. But you never define. All you do is sometimes to say that a purpose is none of these things. I can understand it when you say that the preservation of sea walls is for the safety of lives and property, and therefore by analogy the voluntary provision of lifeboats and fire brigades are charitable. I can even follow you as far as crematoria. But these other generalities teach me nothing.' 
I say I have much sympathy for such an approach; but it seems to me to be unduly and improperly restrictive. The Statute of Elizabeth was a statute to reform abuses; in such circumstances and in that age the courts of this country were not inclined to be restricted in their implementation of Parliament's desire for reform to particular examples given by the statute, and they deliberately kept open their ability to intervene when they thought necessary in cases not specifically mentioned, by applying as the test whether any particular case of abuse of funds or property was within the 'mischief' or the 'equity' of the statute.
For myself I believe that this rather vague and undefined approach is the correct one, with analogy its handmaid, and that when considering Lord Macnaghten's fourth category in Pemsel's case ([1891] AC at 583, [1891-94] All ER Rep at 55) of 'other purposes beneficial to the community' (or as phrased by Sir Samuel Romillyc 'objects of general public utility') the courts, in consistently saying that not all such are necessarily charitable in law, are in substance accepting that if a purpose is shown to be so beneficial or of such utility it is prima facie charitable in law, but have left open a line of retreat based on the equity of the statute in case they are faced with a purpose (eg a political purpose) which could not have been within the contemplation of the statute even if the then legislators had been endowed with the gift of foresight into the circumstances of later centuries”.
114.	Lightman J in  IRC v Oldham Training and Enterprise [1996] STC 1218 at 1234: 
“To fall within the fourth category, it is necessary (but not sufficient) that the object is of general public utility. The public to be benefited for this purpose may be a section of the public and this includes the inhabitants of an area such as Oldham (see eg Re Smith, Public Trustee v Smith [1932] 1 Ch 153). The object must be to promote a purpose beneficial to the community, and not to the interests of individual members of the community. But an object may none the less be charitable as beneficial to the community though its fulfilment either directly or indirectly incidentally may benefit such individuals. Beyond such general public utility it is necessary that the object comes within the spirit and intendment, even if not within the words, of the Elizabethan Statute 43 Eliz I c 4. As an example, if the object of setting up the unemployed in trade or business was not charitable as being for the relief of poverty, it would fall within the fourth head of charity. It is a matter of general public utility that the unemployed should be found gainful activity and that the state should be relieved of the burden of providing them with unemployment and social security benefits, and this object is within the spirit, if not the words, of the Elizabethan Statute, which includes amongst its list of charitable objects the 'supportation, aid and help of young tradesmen [and] handicraftsmen”.
115.	The Tribunal draws the following principles from the above cases:
(1)	The fourth category of purposes beneficial to the community is not a restrictive concept. It should be sufficiently flexible to permit the evolution of the law of charity to suit the needs of a changing society. The Statute of Elizabeth is a statute to reform abuses; in such circumstances and in that age the courts of this country were not inclined to be restricted in their implementation of Parliament's desire for reform to particular examples given by the statute.
(2)	It is necessary (but not sufficient) that the purpose is of general public utility.
(3)	The public to be benefited for this purpose may be a section of the public. The object must be to promote a purpose beneficial to the community, and not to the interests of individual members of the community. But an object may none the less be charitable as beneficial to the community though its fulfilment either directly or indirectly incidentally may benefit such individuals.
(4)	A purpose that is expressed as one beneficial to the community or for the public welfare is not sufficient to make it a charitable purpose. It must also be a purpose within the spirit and intendment of the preamble to the Statute of Elizabeth.
(5)	The question of whether a particular purpose is within the spirit and intendment of the preamble to the Statute of Elizabeth is established by means of direct reference to the wording of the statute or by analogy with the words or decided cases extending their meaning. 
(6)	Where the scope of the purpose has been ascertained by due process of construction, it may be necessary to have regard to the evidence to discover the consequences of pursuing the purpose.
(7)	Where a purpose is shown to be so beneficial or of such utility and is prima facie charitable in law, it should be re-assessed against the equity of the Statute of Elizabeth to make sure that it would have been within the contemplation of the Statute (the line of retreat).
116.	The Appellant considered that the wording of beneficial to St Helens Metropolitan Borough was sufficient to bring its purpose within the fourth category of charities. Although the Appellant acknowledged that there were no direct analogies, it nevertheless cited a range of authorities to demonstrate that the provision of housing was a public utility within the meaning of the fourth category. Finally the evidence of the Appellant’s activities, particularly that of Professor Ambrose dispelled any doubts about whether its purpose was charitable. 
117.	HMRC contended that the wording beneficial to St Helens Metropolitan Borough did not connote a charitable purpose. HMRC relied on the judgment of Lord Simonds in Williams’ Trustees who decided that benefit to the community was not enough to bring the purpose within the fourth category. The Appellant had to show that not only its purpose was beneficial to the community but one within the spirit and intendment of the Statute of Elizabeth. 
118.	HMRC also made what it termed its overarching point. Under section 2 of the 1996 Act Parliament envisaged that not all Registered Social Landlords would be charities. The Appellant had adopted all the objects and powers available to Registered Social Landlords under the legislation. The Appellant did not restrict its powers in any way except for the benefit of community. In HMRC’s view, the Appellant’s failure to impose restrictions on its powers or be more selective with those powers was a strong indication that its purpose was not charitable.
119.	The Appellant’s response to the points made by HMRC was that benefit to the community operated as a sufficient restriction on the exercise of its powers. 
120.	The Appellant’s case that it was within the spirit and intendment of the Statute of Elizabeth depended largely upon on the evidence of Professor Ambrose and Mr Brown. The Appellant placed weight on their evidence of the Appellant’s investment in the housing stock and the resulting   improvements in the living conditions of the tenants. According to the Appellant, Professor Ambrose’s research demonstrated strong links between improved housing and identifiable community benefits in respect of health, crime and education. The Appellant’s activities produced visible community benefits for St Helens Metropolitan Borough and had gone a long way towards relieving deprivation in the Borough. The Appellant’s governance arrangements with embedded local authority and tenants’ membership ensured that the Appellant’s activities were geared primarily towards producing benefit to the community.
121.	The Appellant  argued that the community benefit resulting from its activities was no different from that identified in the following cases which were within the equity of the Statute
(1)	Jones v Williams (1767) Amb 651: a supply of water to the inhabitants of Chepstow;
(2)	Howse v Chapman (1799) 4 Ves 542: improvements to the City of Bath;
(3)	A-G v Heelis (1824) 2 Sim & St 67: paving, lighting, cleansing and improving a town,
(4)	Doe d Preece v Howells (1831) 2 B and Ad 744: a gift to relieve rates;.
(5)	Crystal Palace v Minister of Town and Country Planning [1951] Ch 132: promotion of art industry and commerce.
122.	As well as the cited cases, the Appellant referred to the provisions of the Recreational Charities Act 1958 under which Parliament declared that facilities for recreation and other leisure time occupation were charitable provided the facilities were provided in the interests of social welfare. The Appellant pointed out that its aims of social housing were analogous to the concept of social welfare
123.	The Appellant contended that as it was relieving public funds by providing social housing it satisfied the line of retreat. In this respect the Appellant relied on the argument of Russell LJ in Incorporated Council of Law Reporting1971] 3 All ER 1029 at  1036:
“If I look at the somewhat random examples in the preamble to the statute I find in the repair of bridges, havens, causeways, sea banks and highways examples of matters which if not looked after by private enterprise must be a proper function and responsibility of government, which would afford strong ground for a statutory expression by Parliament of anxiety to prevent misappropriation of funds voluntarily dedicated to such matters”.
124.	HMRC contested the relevance of the Appellant’s cited cases. The Appellant’s provision of housing was not akin to the provision of an amenity or facility, such as street lighting or recreation ground, which was available to the public or community at large. Similarly the Appellant did not have amongst its purpose urban regeneration.
125.	HMRC relied on a line of authorities (Re James [1932] Ch 35; Re Sanders [1954] Ch 265; and Joseph Rowntree Memorial Housing Association v A-G [1983] Ch 159) which showed that the provision of housing on a non-profit making basis may be for the benefit of community but not a charitable purpose unless the provision of benefit was restricted to those in need. Essentially HMRC was arguing that the provision of housing only became a charitable purpose if it was connected in some way with the first three categories of charities, particularly the first: the relief of poverty. 
126.	HMRC’s principal objection to the Appellant’s analysis of charitable purposes was that its purpose was concerned with the supply of individual houses to individuals. The benefit to the community was subsidiary and remote. Thus the Appellant’s purpose conferred substantial private benefit and not carried out exclusively for a charitable purpose. In this respect HMRC relied on the analysis of Lightman J  in Oldham Training and Enterprise Council [1996] STC 1218 at 1234 and 1235:
“I turn now to the objects of Oldham TEC. There are certain indicia of charity. Oldham TEC is an altruistic organisation, in the sense that no profit or benefit can be conferred on its members, and its raison d'être is to assist others; its objects clauses place stress on its overall objective of benefiting the public or community in or around Oldham; and it is substantially publicly funded, financed by government grants. Further certain of its objects are indisputably charitable. The question raised is whether the remaining objects viewed in this context can and should be construed as subject to the implicit limitation 'so far as charitable'. There is of course no such express limitation. In my judgment on a careful examination of the objects clauses no such limitation can be implied or is compatible with the range of benefits and of the eligible recipients of such benefits which it is the object of Oldham TEC to provide.
To ascertain the objects of an institution such as Oldham TEC, where the objects are comprehensively set out in a document, it is necessary to refer to that document (in this case the memorandum of association) and to that alone. It is irrelevant to inquire into the motives of the founders or how they contemplated or intended that Oldham TEC should operate or how it has in fact operated. To determine whether the object, the scope of which has been ascertained by due process of construction, is a charitable purpose, it may be necessary to have regard to evidence to discover the consequences of pursuing that object (see Incorporated Council of Law Reporting for England and Wales v A-G [1972] Ch 73 at 99, 47 TC 321 at 345-346 per Buckley LJ). What the body has done in pursuance of its objects may afford graphic evidence of the potential consequences of the pursuit of its objects. It is for this reason that para 4 of the statement of agreed facts is admissible and potentially relevant.
Under the unamended objects clause, the second main object, namely promoting trade, commerce and enterprise, and the ancillary object, of providing support services and advice to and for new businesses, on any fair reading must extend to enabling Oldham TEC to promote the interests of individuals engaged in trade, commerce or enterprise and provide benefits and services to them. Paragraph 4.2 of the statement of agreed facts shows that Oldham TEC in the form of the provision of enterprise services does exactly this. Such efforts on the part of Oldham TEC may be intended to make the recipients more profitable and thereby, or otherwise, to improve employment prospects in Oldham. But the existence of these objects, in so far as they confer freedom to provide such private benefits, regardless of the motive or the likely beneficial consequences for employment must disqualify Oldham TEC from having charitable status. The benefits to the community conferred by such activities are too remote. The position in respect of the third main object clause and the third and fourth subsidiary object clauses of the amended objects clause is exactly the same.
127.	HMRC considered that the circumstances of Oldham Training and Enterprise Council bore close similarities to those of this Appeal, in particular the use of the words benefit to the community in their respective Memoranda. In this respect HMRC placed weight on Lightman J’s observation that the Objects for Oldham Training and Enterprise Council were not explicitly restricted to charitable purposes even though   expressed for the benefit of the community. Further HMRC emphasised the finding of  Lightman J that the benefits to the community from the activities of  Oldham Training and Enterprise Council were too remote.  
128.	The Appellant questioned the relevance of Oldham Training and Enterprise Council arguing that the facts of the case were not identical to those in this Appeal in that it had a mixture of charitable and private purposes. Certain of the objects of Oldham TEC were charitable as being for the advancement of education. The Appellant submitted that Oldham Training and Enterprise Council should be distinguished from this Appeal. The purported requirement that the purposes of the Training and Enterprise Council be carried on for the benefit of the community was contradicted by the particular purposes which conveyed private benefit. Further it was not fatal to a charitable purpose if it conferred private benefits provided they were simply subsidiary or incidental to the pursuit of a public purpose.  The test to be applied in these circumstances was that laid down by Lord Reid in IRC v City of Glasgow Police Athletic Association [1953] AC 380 at 402:
“But it is not enough that one of the purposes of a body of persons is charitable: the Act requires that it must be established for charitable purposes only. This does not mean that the sole effect of the activities of the body must be to promote charitable purposes, but it does mean that that must be its predominant object and that any benefits to its individual members of a non-charitable character which result from its activities must be of a subsidiary or incidental character”.
Consideration of Charitable Purpose
129.	The Tribunal decides to have regard to the extrinsic evidence of Professor Ambrose and Mr Brown for the purpose of determining whether the Appellant’s purpose is charitable. The Tribunal considers that the prohibition on extrinsic evidence relates to the construction of the scope of the purposes or Objects of the organisation in question. The Tribunal accepts that the use of extrinsic evidence is probably unnecessary in determining whether identified purposes fall within the first three categories of charities. Those categories are well understood and the exercise of deciding whether a purpose is within them is relatively straightforward. This is not so with the fourth category, which has greater scope and less defined than the first three categories. Further the Tribunal is mindful that the Statue of Elizabeth should not be interpreted restrictively, and that the equity of the Statute should be kept open to enable charitable law to evolve with changing times. In this respect the Tribunal follows the view of Buckley LJ in Incorporated Council of Law Reporting [1971] 3 All ER 1029 at 1043:
“But in order to determine whether an object, the scope of which has been ascertained by due processes of construction, is a charitable purpose it may be necessary to have regard to evidence to discover the consequences of pursuing that object. It would be immediately evident that a body established to promote the Christian religion was established for a charitable purpose, whereas in the case of a body established to propagate a particular doctrine it might well be necessary to consider evidence about the nature of the doctrine to decide whether its propagation would be a charitable activity”.
130.	The Tribunal, however, did not accept that the entirety of Professor Ambrose’s report was relevant to the Appellant’s circumstances, in particular the findings in section 2 which was derived from a world literature search and did not represent the actual outcomes from the Appellant’s activities. The Tribunal decided to disregard the existence of the DWA as part of the extrinsic evidence when assessing whether the Appellant’s purpose was charitable. The Tribunal considers that the issues surrounding the making of the DWA would obfuscate the analysis of charitable purpose. 
131.	Starting with the construction of the Appellant’s Memorandum and Articles of Association, the Memorandum required the Appellant not to trade for profit which was an indicator of charitable status but also a mandatory requirement under the 1996 Act which applied to all Registered Social Landlords regardless of their particular legal set up. 
132.	The Tribunal decided that the Appellant had a foremost purpose of managing and providing housing to tenants for the benefit of St Helens Metropolitan Borough.  The Tribunal does not consider the wording for the benefit of St Helens Borough was sufficient to make the Appellant’s foremost purpose charitable. The House of Lords decision in Williams’ Trustees was explicit in that benefit to the community was not enough to render a purpose charitable. The purpose also had to be beneficial in a way which the law regarded as charitable.
133.	The Tribunal places weight on HMRC’s overarching point in that Parliament envisaged that not all Registered Social Landlords would be charities. The Appellant had adopted all the objects and powers available to Registered Social Landlords under the legislation but imposed no restrictions on those powers in its Memorandum except for the benefit of community. HMRC would have expected further qualifications explicitly stated in the Memorandum, if the Appellant’s purpose was to be construed as charitable. 
134.	The Tribunal construes from the Appellant’s foremost purpose that the pre-dominant reason for its existence was to provide housing to individual tenants, which by definition conferred substantial private benefits on the tenants. The benefit to the community was a secondary consideration. The foremost purpose also indicated that its services and facilities were available to the tenants, not to the community of St Helens Metropolitan Borough at large. This questions whether the Appellant’s foremost purpose fitted the characterisation of public utility which was the distinguishing feature of category four charities. Public utility has been interpreted in the context of the Statute of Elizabeth as an amenity or facility made available to the whole community.
135.	The Appellant’s response to the Williams’ Trustees decision and HMRC’s overarching point was unconvincing. The Appellant appeared to be saying that benefit to the community was sufficient to take its purpose into charitable territory. It was then a question of the evidence as to whether the purpose was within the equity of the Statute of Elizabeth.  In the Appellant’s view, its interpretation was consistent with Williams’ Trustees.  The Appellant’s response, however, did not explain why there was no express limitation such as so far as charitable or alleviate deprivation in the Borough in its Memorandum. The fact that the Appellant did not qualify its purposes beyond benefit to the community in its Memorandum was a persuasive indicator that it was not a charity.
136.	The Tribunal considers the evidence of Professor Ambrose and Mr Brown reinforced the Tribunal’s view that the primary object and outcomes of the Appellant’s activities were to produce benefits to the tenants. The focus of the Appellant’s activities was to provide good, safe and affordable housing to its tenants. It was the tenants who primarily benefited from the housing improvements, and the lower rents, not the community of St Helens Metropolitan Borough at large. Professor Ambrose in section 3 of his report detailed the various activities undertaken by the Appellant since its incorporation. The activities in respect of housing improvements, rent levels, financial exclusion and tenant’s support services were all focussed on the tenants. The results of the customer survey recorded the satisfaction levels of the tenants, not the community of St Helens at large.  The majority of the specific examples given in section 4 of Professor Ambrose despite the section title of “How the Appellant has worked to improve the social and economic conditions in St Helens” were directed at improving the lives of its tenants.
137.	The Tribunal accepts that the Appellant has undertaken activities which directly benefit the community of St Helens. Professor Ambrose gave examples of partnership working with other agencies in St Helens to improve employment prospects for local people, and provide educational projects. These activities, however, formed a subsidiary part of the Appellant’s business, and consumed a relatively small part of the Appellant’s income. 
138.	The Appellant’s activities and housing allocation policy demonstrated that the housing was not available to the community of St Helens at large. The principal beneficiaries of the housing improvements and services were existing tenants inherited from the Council and prospective tenants who qualified under the points system. The points system was directed at the housing needs of the individual rather than the needs of the community at large.
139.	The Appellant’s response throughout was the boomerang of the Appellant’s  purpose must be exercised for the benefit of the community. The Tribunal refers back to its concerns that the benefit of the community did not by itself connote a charitable purpose. The Appellant relied on the evidence of Professor Ambrose and Mr Brown to demonstrate that the Appellant’s activities produced real benefits to the community. Whilst the Tribunal has reservations about the relevance of Professor Ambrose’s findings in section 2 of his report, the Tribunal accepts Professor Ambrose’s conclusion that the Appellant’s activities have gone a long way to relieving deprivation in St Helens. The Tribunal, however, finds that the benefits to the Community were secondary and subsidiary to the principal benefits derived by the tenants.
140.	The Appellant also relied on the governance arrangements for suggesting that the benefit of the community was pre-eminent in directing the Appellant’s activities. Mr Brown in his evidence suggested that the Appellant’s purpose was inevitably and primarily connected with the regeneration of St Helens. Mr Brown described in paragraphs 10 – 14 of his witness statement that the Appellant was established for the purpose of continuing the Council’s work to address the wider social and economic issues. According to the Appellant the presence of the entrenched rights of the Council on the Appellant’s management board ensured that the regeneration objective was the uppermost criterion in focussing the Appellant’s activities. 
141.	The Tribunal considers the Appellant’s construction of its governance arrangements flawed. The Council directors were required to act in the best interests of the Appellant not the Council. The supposed power exercised by the Council Directors was counter balanced by the presence of four Independent Directors and four Tenant Directors. The existence of Tenants on the Appellant’s management board represented a fundamental shift from how the housing provision was managed by the Council. It emphasised the importance of Tenant’s needs in directing the Appellant’s activities. Further Mr Brown’s evidence of regeneration being the decisive factor for the Appellant overlooked the Directors’ statement of  activities in its financial reports, which reported its main activity, the letting, management and maintenance of rented housing.  The correct position of the place of regeneration in the Appellant’s priorities was revealed in paragraph 15.1 of Mr Brown’s statement :
“In 2004 the Appellant introduced its own community regeneration strategy to set out how the Appellant would achieve regeneration beyond the traditional core of housing services”.
The Tribunal considers the words beyond and core emphasised its finding that the provision of housing to tenants was its principal purpose
142.	The Tribunal considers that the analysis of Lightman J in Oldham Training and Enterprise Council was applicable to the circumstances of this Appeal. The Appellant’s foremost purpose of providing housing conferred freedom to provide private benefits to individual tenants regardless of the likely beneficial consequences for the community of St Helens. The evidence demonstrated that the principal outcomes of the Appellant’s activities were improved housing conditions for its tenants. The perceived benefits to the community of St Helens identified by Professor Ambrose were dependent upon improved housing conditions for the tenants and too remote. 
143.	The Tribunal disagrees with the Appellant’s submission that the decision in Oldham Training and Enterprise Council should be distinguished from the circumstances of this Appeal. The decision of Lightman J  that an Object which conferred private benefits could not become charitable by linking it with a general  objective of benefiting the public or community in or around Oldham bore striking similarities with the Appellant’s case. The Tribunal, likewise, finds that the phrase for the benefit of St Helens Metropolitan Borough did not alter the fundamental character of the Appellant’s purpose which conferred substantial private benefits on the tenants.  
144.	Similarly the Tribunal is not convinced that the test advocated in City of Glasgow Police Athletic Association assisted the Appellant. The Tribunal’s finding that the conferring of private benefits on the tenants was the Appellant’s predominant purpose conformed with the test espoused in City of Glasgow. The provision of private benefits to tenants could not be described as incidental. Interestingly the House of Lords decided that City of Glasgow Police Athletic Association was not an organisation established for charitable purposes. Lord Normand ruled  at [1953] A.C. 380 Page  396:
“The question is what are the purposes for which the association is established, as shown by the rules, its activities and its relation to the police force and the public. And what the respondents must show, in the circumstances of this case, is that so viewed objectively the association is established for a public purpose, and that the private benefits to members are the unsought consequences of the pursuit of the public purpose, and can therefore be disregarded as incidental. That is a view which I cannot take. The private benefits to members are essential. The recreation of the members is an end in itself, and without its attainment the public purpose would never come into view. If the result of establishing the association had been that the members had, instead of being interested, found themselves involved in wearisome and lifeless activities, their efficiency would have suffered, the membership would have fallen off, and there would have been public detriment instead of public benefit. The private advantage of members is a purpose for which the association is established and it therefore cannot be said that this is an association established for a public charitable purpose only.
145.	In this Appeal as with the City of Glasgow Police Athletic Association the private benefits to tenants were essential for the foremost purpose of the Appellant. The private benefits in terms of better housing could not be described as the unsought consequences of the pursuit of the Appellant’s foremost purpose.
146.	The Tribunal’s finding that the Appellant was not established for a charitable purpose was confirmed by applying the line of retreat as advocated in the Incorporated Council of Law Reporting.  The Tribunal placed weight on the fact that the Appellant found no direct analogy showing the provision of housing per se to be a charitable purpose.  In this respect the Tribunal considers HMRC’s analysis of the case law telling. The analysis demonstrated that the provision of housing only became a charitable purpose if directly connected with relief of a specific need. In Re James the court declared that a Home of Rest in the nature of a hospital was charitable.  In Joseph Rowntree Memorial Housing v A-G the provision of housing with the purpose of a relief of a need attributable to the condition of beneficiaries was charitable. In contrast, the court in Re Sanders decided that erecting houses for the working classes was not charitable. 
147.	 Housing provision is not a new social phenomenon. In the Tribunal’s view it is not a coincidence that there was no case which showed housing to be a charitable purpose unless connected with the relief of a specific individual need. At no time did the Appellant assert that its housing provision was for the relief of specific needs of individuals. The Appellant accepted that its housing provision was available for rich and poor alike. The Appellant’s housing allocation was based on a points system which took in a wide range of circumstances.  HMRC’s analysis of case law suggested that a purpose of housing provision per se was not within the contemplation of the Statute of Elizabeth. 
148.	The Appellant relied on the argument of Russell LJ in Incorporated Council of Law Reporting of relieving public funds to say that its purpose met the line of retreat.  The Appellant’s assertion that it relieved public funds was problematical. On the one hand, the transfer of housing stock to the Appellant enabled it to obtain funding from private sources to carry out housing improvements, and alleviate the Council from such expenditure. On the other hand, the legal framework circumscribed the Council’s powers to commit public funds to housing provision. Section 2 of the Housing Act 1985 placed a duty on council housing authorities to consider housing conditions and needs in their districts. The 1985 Act removed the duty of housing authorities to provide new housing. The ability of Housing Authorities to commit public expenditure on housing improvements was expressed in the 1985 Act as a discretionary power. Further, the registration of the Appellant as a social landlord gave it the opportunity to access public funds in the form of grants from the Housing Corporation. In these circumstances the Tribunal is not convinced that the Appellant’s assertion of relieving public funds was a precise statement. The statement overlooked the complexities with the respective funding arrangements and legal powers of the Council and the Appellant as a Registered Social Landlord. The statement also disregarded the availability of rental receipts from individuals as a source of funding for both the Council and the Appellant. 
Decision on Charitable Purpose
149.	The Tribunal finds that the Appellant’s had a foremost purpose of managing and providing housing to tenants for the benefit of St Helens Metropolitan Borough. The Tribunal considers that the words for the benefit of St Helens Metropolitan Borough were not sufficient to connote a charitable purpose. The Tribunal held that the Appellant’s foremost purpose conferred substantial private benefits, and that the benefits to St Helens Metropolitan Borough were subsidiary and remote. The Tribunal decides that the Appellant was not established   for purposes which were exclusively charitable.
150.	The alternative dispute under the Charity issue is whether the Appellant applied its profits to charitable purposes only. In view of the Tribunal’s finding that the Appellant was not established for purposes which were exclusively charitable, this dispute is now hypothetical. In those circumstances the Tribunal does not intend to deal with but leaves it open in the event of an Appeal.
Decision
151.	The Tribunal decides that
(1)	The refurbishment expenditure was incurred by the Appellant wholly and exclusively for the purposes of its Schedule D business not its Schedule A business. The claimed expenditure was not, therefore, allowable in calculating Schedule A profit  under the Taxes Act 1988.
(2)	The Appellant was not established for purposes which were exclusively charitable. The Appellant is therefore denied from claiming an exemption from tax under section 505 and 506 of Taxes Act 1988.
152.	The Tribunal dismisses the Appeal.
153.	The Tribunal expresses its gratitude to the Advocates for the helpful way in which they presented their respective cases.

                         

                                     MICHAEL TILDESLEY OBE
TRIBUNAL JUDGE
RELEASE DATE: 1 February 2010

LON/

Notes
1.	A party wishing to Appeal this decision to the Upper Tribunal must seek permission by making   an application in writing to the Tribunal within 56 days of being provided with full written reasons for the decision. An application for permission must identify the alleged error(s) in the decision and state the result the party making the application is seeking.