Satellite launch costs were not eligible for capital allowances

The taxpayer succeeded to the activities previously carried on by the International Maritime Satellite Organisation (IMSO). Six satellites had been paid for by lessors and leased to IMSO which launched them. The lessors claimed capital allowances on the capital expenditure incurred in the acquisition of the satellites but not on the expenditure incurred by IMSO on their launch.

IMSO later transferred its business to the taxpayer and the lease agreements relating to the satellites were novated so that from the time of the transfer the satellites were leased to the taxpayer which became responsible for the rental payments.

The taxpayer claimed capital allowances on part of the open market value of the satellites at the date of the business transfer. It said CAA 1990 s 61(4) deemed the satellites to have belonged to IMSO before the transfer; therefore the taxpayer had succeeded to IMSO’s trade...