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Inland Revenue Commissioners v Barclay Curle & Co Ltd

[1969] 1 All ER 732

(Judgment by: Lord Reid)

Between: Inland Revenue Commissioners
And: Barclay Curle & Co Ltd

Court:
House of Lords

Judges:
Lord ReidLord Hodson
Lord Guest
Lord Upjohn
Lord Donovan

Subject References:
INCOME TAX
Allowance
Machinery or plant
Dry dock
Excavation
Concreting

Legislative References:
Income Tax Act 1952 (15 & 16 Geo 6 & 1 Eliz 2 c 10) - s 279(1)

Case References:
Hinton (Inspector of Taxes) v Maden & Ireland - [1959] 3 All ER 356; [1959] 1 WLR 875; 38 Tax Cas 391; Digest (Cont Vol A) 874, 480a
Jarrold (Inspector of Taxes) v John Good & Sons Ltd - [1962] 2 All ER 971; [1962] 1 WLR 1101, affd, CA; [1963] 1 All ER 141; [1963] 1 WLR 214; 40 Tax Cas 681; Digest (Cont Vol A) 878, 513a
Lyons (J) & Co Ltd v A-G - [1944] 1 All ER 477; [1944] Ch 281; 113 LJCh 196; 170LT348; 17Digest(Repl)482
Margrett v Lowestoft Water & Gas Co - (1935) 19 Tax Cas 481; 28 Digest (Repl) 135, 512
Yarmouth v France - (1887) 19 QBD 647; 57 LJQB 7; 2 Digest (Repl) 333, 234

Hearing date: 21, 22 JANUARY 1969
Judgment date: 19 FEBRUARY 1969
Case Information
During 1965 and earlier years the taxpayer company installed a new dry dock at their shipyard at Elderslie. The dock had to be made at the right level adjacent to the river Clyde and some 200,000 tons of earth had to be removed to make room for it. Some 100,000 tons of concrete were used in its construction. The dry dock when completed acted like an hydraulic chamber in which a volume of water, variable at will, could be used to lower and raise a ship. The valves and pumps could not be used to lower or raise ships without the remainder of the dock, and the dock could not be used to repair ships without the valves and pumps. It could not have fulfilled its purpose unless there had been an excavation of sufficient depth to enable the ships of the contemplated draught to enter and leave it. The valves, the machinery for the provision of electricity and the pumps were an integral part of the dock as a functioning entity. The remainder of the dock would have been useless to the taxpayer company without them and, similarly, they would have been useless without the remainder of the dock. The cost had been divided into three parts, preliminary excavation, concreting, and ancillary plant.
Part 10 of the Income Tax Act 1952 gives initial allowances for certain capital expenditure. Chapter I of Part 10 deals with industrial buildings and structures and Chapter II deals with machinery and plant. The allowance on expenditure within Chapter II is 3/10ths, and 3/20ths on expenditure within Chapter I. The taxpayer company claimed that they were entitled to the larger allowance in respect of the whole expenditure but the Crown conceded the larger allowance for the ancillary plant only, with the smaller allowance in respect of the excavation and concreting. On the question whether the allowance of 3/10ths within Chapter II was payable in respect of the expenditure on the concreting and excavation,
Held -
An allowance of 3/10ths under Chapter II should be made in respect of both the concreting and the excavation-

(i)
(Lord Hodson and Lord Upjohn dissenting) since s 276 of the Income Tax Act 1952 envisaged that an object could qualify not only as a building or structure but at the same time as machinery or plant it was necessary, in deciding whether a particular subject was an apparatus, for an enquiry to be made, inter alia, as to the operation it performed, the test being the function it fulfilled; accordingly, since every part of the dry dock played an essential part in getting a vessel into a position where work on it could commence, it was wrong to consider the concrete work in isolation from the rest of the dock (which was to be regarded as a whole with all its appurtenances) and the expenditure on the concreting had therefore been incurred on the provision of machinery or plant (see p 740, letter h, p 741, letter b, p 746, letter g, and p 751, letter e, post);
(ii)
(Lord Hodson dissenting) on the true construction of s 279(1) [F1] since the excavation was a necessary preliminary to the construction of the dry dock, expenditure thereon came within the words "expenditure on the provision of machinery or plant" (see p 741, letter i, to p 742, letter a, p 747, letter f, p 751, letter a, and p 752, letter b, post);
(iii)
(Lord Hodson and Lord Upjohn dissenting) since s 16(3) of the Finance Act 1956 only applied where no allowance could be made under either Chapter I or Chapter II of Part 10, it could have no application in the present case where it was conceded that if no allowance was made under Chapter II an allowance must be made under Chapter I (see p 742, letter e, p 747, letter h, and p 752, letter d, post).
Margrett v Lowestoft Water & Gas Co (1935), 19 Tax Cas 481) disapproved.
Definition of "plant" by Lindley LJ, in Yarmouth v France ((1887), 19 QBD at p 658) approved.
Appeal dismissed.
Notes
As to allowance available for machinery or plant, see 20 Halsbury's Laws (3rd Edn) 493, para 941.
For the Income Tax Act 1952, s 279, see 31 Halsbury's Statutes (2nd Edn) 271.
Appeal
This was an appeal by the Crown against a decision of the Court of Session dated 19 June 1968, refusing an appeal by the Crown against the decision of the Special Commissioners in respect of a capital sum expended by the taxpayer company on concrete work used in the construction of a dry dock.
The following facts were set out in para V of the Case Stated:
(1) The taxpayer company was incorporated in 1884 and had carried on the trade of shipbuilders, ship repairers and marine engineers at their shipyards at Elderslie and Clydeholme and at North British Engine Works all on the north bank of the river Clyde.
(2) Prior to 1962 the taxpayer company had two dry docks in their Elderslie ship repairing yard. The no 1 dry dock was built in 1904 and the no 2 in 1932. In 1962 the taxpayer company decided to build another dry dock (the no 3 dry dock) because both the existing docks were too small to enable it to repair some of the bigger ships and because it needed more dry dock facilities to cope with the repair jobs being offered to the taxpayer company.
(3) For many repairs to a ship's hull, propelling machinery and steering gear, and for the purposes of survey and inspection it was essential that the ship should be exposed out of the water and then securely held so that the necessary repairs or inspections could be effected. The taking of a ship out of the water could be done by means of a vertical lift, a slipway, a floating dock or a dry dock. For the repair work which the taxpayer company proposed to undertake at its Elderslie ship repairing yard only a dry dock was suitable.
(4) The no 3 dry dock was started in 1962 and was built and equipped by 31 December 1965. The dock was sited at a point in the taxpayer company's shipyard where there was rock at a convenient level. Some 265,000 cubic yards of earth and rock weighing approximately 200,000 tons, were excavated to form a rectangular basin. No part of the basin being sufficiently strong or impermeable to act as a permanent barrier by itself, as was sometimes the case, it had to be lined throughout. The floor of the basin was consequently coated with concrete of five feet depth in the centre and two feet six inches depth elsewhere. The north, east and south walls of the basin were covered with concrete panels 50 feet in length. These panels were allowed to "mature" for two months during which time they shrank. The gaps between the panels were used either to accommodate certain piped services, to form recesses or else they were filled in. The total amount of concrete used was approximately 100,000 tons. A drainage system under the concrete floor of the dock allowed seepage water in the underlying rock to run away into a chamber, whence it was pumped to the river. Without this drainage system the seepage water would have built up to high pressure and damaged the floor of the dock. Into the west end of the basin was inserted the dock gate. The northern wall of the dock was projected into the river Clyde by the erection of a lead-in quay. The function of the lead-in quay was to prevent the stern of a ship which was moving into or out of the dock from swinging out of line with the dock under the influence of winds and currents.
(5) The dock gate was made of steel and contained both water ballast and air chambers. The gate was hinged at each bottom corner and would fall outward on to a concrete apron, which was laid on the bed of the river Clyde, when the dock was to be opened. It was known as a falling leaf gate and was very finely ballasted so that it would swing freely. A power-driven winch was incorporated on the wall of the dock to enable the gate to be raised. An equilibrium filling valve chamber was incorporated in the abutments of both the north and south walls at the river end. These chambers housed the valves which could be opened to allow the dock to fill from the river. To the east of the equilibrium filling valve chamber by the south abutment there were built an underground sub-station and an underground pumphouse. The former housed machinery for the provision of electric power and the latter the pumps which were used to empty the water from the dock. Two hydraulic capstans were built into the top of the abutments of the north and south walls. The valves, the machinery for the provision of electricity and the pumps were an integral part of the dock as a functioning entity. The dock would have been useless to the taxpayer company without them.
In the north and south walls of the no 3 dry dock there were incorporated galleries through which were piped the various services which were necessary for the repairing of a ship. These services were:

(a)
means of removing from and returning ballast water to the ship under repair;
(b)
a supply of fresh water;
(c)
a supply of compressed air for drilling and rivetting;
(d)
electric power for welding and lighting and to connect with the electrical equipment of the ship under repair;
(e)
means to transfer oil to and from the ship under repair and from one part of the ship to another;
(f)
an adequate fire main with connections through the dock walls to the fire prevention system of the ship under repair; and
(g)
provision for lighting the dock.
On both the north and south walls of the dry dock a concrete base was made on which a 30-ton travelling crane could operate. The walls of the dock provided adequate support for the crane track above them but the far side crane track was supported in places on reinforced concrete piles.
(6) On the reinforced centre of the floor of the dry dock there were placed in a straight row large but moveable cast iron rectangles, known as keel blocks, on which rested the keel of the ship which was being repaired. Smaller moveable blocks, known as bilge blocks, were also available as additional support for the bottom of the ship to prevent hull distortion from internal loads, and to assist in holding the ship steady. Side struts or shores made of telescopic metal tubes running from the top of the dock walls to the vessel on both sides were provided with a view to keeping the ship steady in the dry dock and staging, trestles and planks were also provided. The centres of the north and south walls of the dock were recessed so that stabilisers fitted to a ship could be pulled outside the ship and repaired.
(7) The no 3 dry dock was operated within two hours on either side of high water in the river Clyde. The dock was flooded by manual opening of the flood valves. When the level of water in the dock was level with that of the river the dock gate was dropped so that it fell flush into the river. The ship to enter the dock was brought to the entrance by tugs. Two bow ropes from the ship were connected to trolleys on rails fixed to both sides of the dock walls and running from near the dock entrance to the head of the dock. The trolleys were connected by wires to two winches at the head of the dock which pulled in the ship, the stern being held by a tug until the ship was almost in the dock. When the ship was in the dock the dock gate was lifted upright and then locked.
The ship was centred in the dock so that when the water was pumped out the ship would settle down on to the keel blocks on the floor of the dock. The centring of the ship was done by means of a block and tackle attached to the dock wall and pre-set before the ship entered the dock and by plumblines at the bow and stern of the ship. The ship was then secured to the dock walls by lines. It took approximately one hour to manoeuvre the ship into position in the dock. The water in the dock was then pumped out, a process which could take up to two hours depending on the size of the ship. As the water line in the dock fell the ship settled on to the prearranged keel blocks, the securing lines were eased off and some 12 telescopic side struts or shores were fixed between each side of the ship and the dock wall by the mobile cranes operating in the north and south walls. When the dock was dry the bilge blocks were moved into position where necessary to assist in supporting the ship and holding it securely. Once the dock was dry, staging and planks were erected where necessary around the ship and the ship was repaired. When the repairs were completed the water valves were opened and the action of the water filling the enclosed dock re-floated the ship. When the water levels inside and outside the dock were the same the dock gate was opened. The ship left the dry dock normally in the two hours on either side of high water in the river Clyde.
(8) In the year ended 31 December 1966 no 3 dry dock dealt with 47 ships.
(9) The function of a dry dock was to lower ships into a position where they could be securely held exposed out of the water and inspected and repaired and to raise them again to a level where they were free to sail away. The no 3 dry dock could only be used for this purpose. The dock acted like an hydraulic chamber in which a volume of water variable at will could be used to lower and raise a ship. The valves and pumps could not be used to lower or raise ships without the remainder of the dock. The dock could not be used to repair ships without the valves and pumps. The dock could not have fulfilled its purpose unless there had been excavated a depth sufficient to enable ships of the contemplated draught to enter and leave it. The valves, the machinery for the provision of electricity, and the pumps were an integral part of the dock as functioning entity. The remainder of the dock would have been useless to the taxpayer company without them and, similarly, they would have been useless without the remainder of the dock. It was technically impossible to use the no 3 dry dock as a wet basin as it stood. Conversion to a wet basin would have been technically difficult and commercially impracticable.
(10) The no 3 dry dock was subject to wear and tear in the sense that hawsers from the ships being towed into the dock damaged the hand rails on the north and south walls of the dock. Ships tore off fenders at the entrance to the dock. The side shores, which weighed between one and two tons, sometimes damaged the concrete walls of the dock, the concrete was susceptible to damage by frost, and anchors dropped on the floor of the dock caused damage to the concrete. The handrails and fenders could be replaced and the walls and floor of the dock could be repaired. It was possible for the dock gate to be damaged; substantial repairs of the gate might be an expensive job involving the erection of a temporary dam outside the dock. The no 3 dry dock might last for 80 to 100 years if reasonable and timely repairs were carried out when requisite.
(11) The balance sheets of the taxpayer company showed the following entries, inter alia:
Balance Sheet as 31st December
1962 1963 1964 1965
As per Valuation dated 31st March 1912, or at cost
Pounds(UK) Pounds(UK) Pounds(UK) Pounds(UK)
(a) Land, Buildings, Docks and Quay Walls
2,821,810 2,846,802 3,525,202 4,004,747
(b) Plant, Machinery, Furniture, Patterns, Drawings and Canteen Equipment
2,819,669 2,805,119 2,957,860 -
(c) Loose Tools
129,355 116,993 115,899 3,102,888
5,770,834 5,768,914 6,598,961 7,107,635
Aggregate Depreciation
(a)
1,180,502 1,207,980 1,257,481 1,310,997
(b)
1,945,625 1,981,823 2,030,125
(c)
53,573 50,270 49,768 2,121,778
3,179,700 3,240,073 3,337,374 3,432,775
As per Valuation dated 31st March 1912, or at cost less aggregate depreciation
2,591,134 2,528,841 3,261,587 3,674,860
The cost of building no 3 dry dock was included in the entry in the balance sheets "Land, Buildings, Docks and Quay Walls".
(12) The Analysis of Expenditure showed that the total net expenditure (after taking into account a grant from the Board of Trade) of the taxpayer company on the provision of no 3 dry dock over the four years ended 31 December 1965 was Pounds(UK)1,051,582. Of this total, Pounds(UK)120,986 was agreed by the parties to the appeal not to relate to no 3 dry dock and no issue relating thereto was raised before the commissioners.
It was also agreed between the parties to the appeal that of the balance of the net expenditure, namely, Pounds(UK)930,596, the following items were expenditure on the provision of machinery or plant within the meaning of Chapter It of Part 1 of the Income Tax Act 1952 in relation to which no issue was raised before the commissioner.
  Pounds(UK)
Dock gate and operating gear 41,329
Cast iron keel blocks 28,739
Electrical installation 98,853
Pipework installation 25,791
Pumping installation 49,814
Docking winches 17,548
Filling Valves 9,170
Ejectors for sub-way drainage 987
"Hauling in" truck 10,679
"Hauling in" trolleys 2,528
Steel trestles 2,944
Steel tubular side shores 4,920
Crane trucks 8,682
Extra labour costs 1,000
Professional charges relating to above items 6,000
308,984
Less proportion of Board of Trade Grant 65,696
Pounds(UK)243,288
The balance of the net expenditure, namely, Pounds(UK)687,308 (ie, Pounds(UK)930,596 less Pounds(UK)243,288) was agreed between the parties to have been expended as follows:
  Pounds(UK)
Expenditure on excavation of the dock basin 186,928
Expenditure on concrete-work etc, for the dock 500,380
Pounds(UK)687,308
(13) On 31 July 1963, the taxpayer company made an application for a building grant and a plant and machinery grant under the Local Employment Acts 1960 and 1963. Paragraph 5 of the form of application showed that the taxpayer company claimed a building grant in respect of estimated expenditure of Pounds(UK)932,500 on the building of the no 3 dry dock, and para 6 thereof, a plant and machinery grant in respect of estimated expenditure of Pounds(UK)517,500 as detailed in that paragraph.
On 6 February 1964 the Board of Trade wrote to the taxpayer company in the following terms:
"Local Employment Acts 1960 and 1963
I refer to your application dated 31 July 1963, for a building grant under the above Acts in respect of the building you are proposing to provide at Elderslie Dockyard, Glasgow.
After consultation with the Advisory Committee referred to in Section 3 of the 1960 Act and with the consent of the Treasury, the Board of Trade are prepared to offer you a building grant of 25% of the cost of providing a building of the size and nature described in the plans and specifications produced to the Board of Trade (including the cost of building work shown in your plant and machinery application ie the Dock gate, Dock pumping plant, Filling valves and electrical and piped services and the Pounds(UK)50,000 for the design and supervision of the building) except that no account will be taken of expenditure on the items listed below which are not regarded as part of the building for the purpose of the grant.
Items in respect of which expenditure will be entirely excluded:-

(1)
Purchase price of site;
(2)
Electric light fittings and portable heaters (if any);
(3)
The following items (which are plant and which will be considered for grant with your plant and machinery application): Travelling Crane, Keel and bilge blocks, Capstans, Winches, Welding equipment (listed under description of services to be provided at dry dock), Two overhead cranes, one mobile jib crane and the items of equipment totalling Pounds(UK)28,600 all as listed in the estimate for new plater's shed.
(4)
Removal and resiting of machines at Pounds(UK)5,000.

You will be required to enter into a formal agreement to be drawn up by the Board of Trade which will embody the terms on which the grant will be made. The main provisions and conditions of this Agreement are described in the attached Note.
I shall be obliged if you will let me know whether this offer is acceptable. A draft of the proposed Agreement will then be sent for your consideration."
In due course the taxpayer company received from the Board of Trade certain payments on account of building grant and a payment in respect of a plant and machinery grant.
(14) The entry in the valuation roll for the year from Whitsunday 1966 to Whitsunday 1967 showed the lands and heritages of the taxpayer company under the description "Graving Docks etc".
The commissioners gave their decision that the sum of Pounds(UK)500,380 was expended on the provision of machinery or plant which attracted allowances under Chapter II of Part 10 of the Income Tax Act 1952.
As regards the expenditure of Pounds(UK)186,928 for the excavation of no 3 dry dock the commissioners found that this was not expenditure on the provision of machinery or plant. In the commissioners' view this expenditure was too remote from the provision of the dry dock. It was expenditure on the preparation of land to receive machinery or plant and as such attracted allowances only under Chapter I of Part 10. An appeal by the Crown to the Court of Session (the Lord President (Lord Clyde), Lord Guthrie and Lord Migdale) was dismissed.
Their Lordships took time for consideration

Judgment by:
Lord Reid

My Lords, during 1965 and earlier years the taxpayer company installed a new dry dock at their shipyard at Elderslie. The cost has been divided into three parts. Preliminary excavation cost some Pounds(UK)187,000; concreting cost some Pounds(UK)500,000; and ancillary plant cost some Pounds(UK)243,000. Part 10 of the Income Tax Act 1952 gives initial allowances for certain capital expenditure. Chapter I deals with industrial buildings and structures and Chapter II deals with machinery and plant. If the expenditure comes within the scope of Chapter II there is an initial allowance equal to 3/10ths but if it comes under Chapter I the initial allowance is only 3/20ths. The taxpayer company claim that they are entitled to the larger allowance in respect of all this expenditure. The Crown admits the claim with regard to the Pounds(UK)243,000 for ancillary plant but maintains that only the smaller allowance is due in respect of the excavation and concreting. The Special Commissioners held that the larger allowance was due in respect of the concreting but not the excavation. The First Division held that the larger allowance was due for both.

I can summarise the facts found by the commissioners. The dock had to be made at the right level adjacent to the Clyde and some 200,000 tons of earth had to be removed to make room for it. The walls and bottom of the dock had to be strong and impervious to water so that some 100,000 tons of concrete had to be used. The gate, included in the ancillary plant, is of a falling leaf type. It is opened and when the dock is full of water at high tide the ship to be inspected or repaired is caused to enter the dock. The gate is then closed, the water pumped out, and the ship properly supported so that work can proceed on the outside of the hull. When the work is finished the process is reversed and the ship can at high tide re-enter the river. From the findings of fact I need only quote the following:

"The function of a dry dock is to lower ships into a position where they can be securely held exposed out of the water and inspected and repaired and to raise them again to a level where they are free to sail away.
The No 3 dry dock could only be used for this purpose. The dock acted like an hydraulic chamber in which a volume of water variable at will could be used to lower and raise a ship. The valves and pumps could not be used to lower or raise ships without the remainder of the dock. The dock could not be used to repair ships without the valves and pumps. The dock could not have fulfilled its purpose unless there had been excavated a depth sufficient to enable ships of the contemplated draught to enter and leave it.
The valves, the machinery for the provision of electricity and the pumps were an integral part of the dock as a functioning entity. The remainder of the dock would have been useless to the [taxpayer] company without them and, similarly, they would have been useless without the remainder of the dock."

In giving their decision the commissioners stated:

"The question, as we saw it, was not a straight issue of whether the disputed items were spent on machinery or plant on the one hand or on a building or structure on the other. Section 276 of the Income Tax Act 1952, envisages by its terms that an object may qualify not only as a building or structure but at the same time as machinery or plant. Moreover, where this double qualification occurs s. 276 seemed to us to provide that allowance should be given under Chapter II rather than under Chapter I. In other words, even if an object of expenditure were a building or structure, that was no bar to the grant of allowances under Chapter II of Part 10 of the Act if it could be shown that the object also qualified as machinery or plant.
In these circumstances we turned first to consider whether the disputed items could be said to be expenditure on 'machinery or plant' as that phrase has been interpreted in the authorities. As we understood the decided cases the definition of plant given by LINDLEY, L.J., in Yarmouth v. France ((1887), 19 QBD 647 at p 658), has been adopted for Income Tax purposes. This definition reads 'in its ordinary sense, it includes whatever apparatus is used by a business man for carrying on his business-not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in his business'. In its application for Income Tax purposes this definition is subject to the qualification laid down by UTHWATT, J., in J. Lyons & Co., Ltd. v. A.-G. ([1944] 1 All ER 477 at p 479; [1944] Ch 281 at pp 286, 287) that plant does not include 'the place in which the business is carried on'; that is the setting. In the case of Jarrold (Inspector of Taxes) v. John Good & Sons Ltd., PENNYCUICK, J., said ([1962] 2 All ER at p 976; 40 Tax Cas at p 688) that he did not regard the two conceptions of 'setting' and 'plant' as being mutually exclusive and ORMEROD, L.J., said ([1963] 1 All ER 141 at p 145; 40 Tax Cas at p 692) he 'would be inclined to agree with him, although it would appear that in a large number of cases the part of the equipment which can properly be regarded as "setting" is not likely to be regarded as plant.
In Hinton (Inspector of Taxes) v. Maden & Ireland, Ltd. Lord Reid in adopting the definition of LINDLEY, L.J., in Yarmouth v. France ((1887), 19 QBD at p 658) said ([1959] 3 All ER at p 362; 38 Tax Cas at p 417) that it 'is not disputed that "plant" is also used in the [Income Tax] Act as an ordinary English word'. It was suggested to us that one test to apply was whether the ordinary man in the street would regard the company's No 3 dry dock as plant. We thought it was not open to us to apply such a test of 'first impression' having regard to the decision in Jarrold (Inspector of Taxes) v. John Good & Sons Ltd. in which DONOVAN, L.J., said ([1963] 1 All ER at p 147; 40 Tax Cas at p 694) 'I do not think that anybody at first blush would call these partitions "plant"'. It seemed to us that what we had to do was to consider the nature and function of the dry dock on the evidence adduced before us and to determine whether it satisfied the definition in Yarmouth v. France. The dock was obviously a structure but that did not answer the question whether it was plant.
The function of the No 3 dry dock was neatly summed up by Mr. Geddes [F2] who, giving evidence before us, said that the dock was similar to an hydraulic tank which was used for taking ships out of their element, exposing them and then returning them. We accepted this and found further that the dock acted like a large vice for holding ships in position while they were repaired or cleaned. The dry dock was in our view not the mere setting or premises in which ships were repaired. It was different from a factory which housed machinery, for in the operation of the dock, the dock itself played a part in the control of water and enabled the valves, pumps and electricity generator, which were an integral part of its construction, to perform their functions. The dock was not a mere shelter or home but itself played an essential part in the operations which took place in getting a ship into the dock, holding it securely and then returning it to the river.
The Crown relied strongly on the decision in the case of Margrett v. Lowestoft Water & Gas Co., in which it was held that there was no evidence on which the commissioners could arrive at their conclusion that a water tower was 'plant' within the meaning of Rule 6 of Cases I and II of Schedule D. That case has not been specifically overruled by later cases. It seemed to us, however, that following the decision in Jarrold [(Inspector of Taxes) v. John Good & Sons. Ltd], it was no longer open to us to look at an object of expenditure, in determining whether it was plant, to see whether it was a thing which was like machinery and subject to wear and tear in the ordinary sense. In any event we found that the No 3 dry dock played a more 'active' role in the functioning of the dock than did the water-tower in the provision of water to Lowestoft. Moreover, the dry dock was subject to wear and tear.
On these findings we held that the sum of Pounds(UK)500,380 was expended on the provision of machinery or plant which attracted allowances under Chapter II of Part 10 of the Income Tax Act, 1952. As regards the expenditure of Pounds(UK)186,928 for the excavation of No 3 dry dock we found that this was not expenditure on the provision of machinery or plant. In our view this expenditure was too remote from the provision of the dry dock. It was expenditure on the preparation of land to receive machinery or plant and as such attracted allowances only under Chapter I of Part 10."

The taxpayer company say that the whole dock was part of their plant used by them for the purposes of their trade. "Plant" is nowhere defined in the Act and they rely chiefly on what was said by Lindley LJ, in Yarmouth v France ((1887), 19 QBD at p 658.) and on the statement of the question by Pearson LJ, in Jarrold (Inspector of Taxes) v John Good & Sons Ltd ([1963] 1 All ER at p 149; 40 Tax Cas at p 696).

"... whether the partitioning is part of the premises in which the business is carried on or part of the plant with which the business is carried on?"

As the commissioners observed, buildings or structure and machinery and plant are not mutually exclusive, and that was recognised in Jarrold's case. Undoubtedly this concrete dry dock is a structure but is it also plant? The only reason why a structure should also be plant which has been suggested or which has occurred to me is that it fulfils the function of plant in the trader's operations. And, if that is so, no test has been suggested to distinguish one structure which fulfils such a function from another. I do not say that every structure which fulfils the function of plant must be regarded as plant, but I think that one would have to find some good reason for excluding such a structure. And I do not think that mere size is sufficient.

Here it is apparent that there are two stages in the taxpayer company's operations. First the ship must be isolated from the water and then the inspection and necessary repairs must be carried out. If one looks only at the second stage it would not be difficult to say that the dry dock is merely the setting in which it takes place. But I think that the first stage is equally important, and it is obvious that it requires massive and complicated equipment. No doubt a small vessel could be got out of the water by the use of comparatively simple plant and machinery but clearly that is impossible with a very large vessel. It seems to me that every part of this dry dock plays an essential part in getting large vessels into a position where work on the outside of the hull can begin, and that it is wrong to regard either the concrete or any other part of the dock as a mere setting or part of the premises in which this operation takes place. The whole dock is, I think, the means by which, or plant with which, the operation is performed.

It was said in argument-if this dry dock is plant why is not a dam which impounds water also plant. I agree that it is impossible to draw a hard and fast line but I would answer in this way. Clearly land in its natural state is not plant although its configuration may be such that its use is an essential element in a trading operation. The soil on a farm is not plant although cultivation has greatly improved it. So a loch which impounds water is not plant although a trader uses it as the source of the water he needs. And a dam is generally simply an improvement of the loch giving a better supply. But I could imagine circumstances in which a dam would be such an integral part of the means required for a trading operation that it should be regarded as plant. I find no error of law in the commissioners' determination of the first question.

The Crown relies on Margrett v Lowestoft Water & Gas Co. There the taxpayer company required to have a tank at some height above ground level to give the necessary head of water, and the question was whether the structure which supported the tank was plant. Finlay J ((1935), 19 Tax Cas at p 488), appears to have decided it was not, largely on the ground that being a structure it could not be plant. The tank certainly was plant and if the cost of the foundations necessary to support plant at ground level is part of the cost of the plant, then I think that this tower must be treated in the same way as foundations below ground level. That leads me to the second question in this case.

The question whether the cost of excavation necessary to make room for plant is part of the cost of the plant depends on the proper construction of s 279(1) of the Act which is in these terms: [F3]

"Subject to the provisions of this Act and, in particular, subject to the provisions of subsection (5) of this section, where a person carrying on a trade incurs capital expenditure on the provision of machinery or plant for the purposes of the trade, there shall be made to him, for the year of assessment in the basis period for which the expenditure is incurred, an allowance (in this Chapter referred to as 'an initial allowance') equal to three-tenths of the expenditure."

So the question is whether, if the dock is plant, the cost of making room for it is expenditure on the provision of the plant for the purposes of the trade of the dock owner. In my view this can include more than the cost of the plant itself because plant cannot be said to have been provided for the purposes of the trade until it is installed: until then it is of no use for the purposes of the trade. This plant, the dock, could not even be made until the necessary excavating had been done. All the commissioners say in refusing this part of the claim is that this expenditure was too remote from the provision of the dry dock. There, I think, they misdirected themselves. If the cost of the provision of plant can include more than the cost of the plant itself, I do not see how expenditure which must be incurred before the plant can be provided, can be too remote.

The Crown relies on s 300 as showing that "provision" cannot have the meaning which I have ascribed to it. That section is as follows: [F4]

"Where a person carrying on a trade incurs capital expenditure on alterations to an existing building incidential to the installation of machinery or plant for the purposes of the trade, the provisions of this Chapter shall have effect as if the said expenditure were expenditure on the provision of that machinery or plant and as if the works representing that expenditure formed part of that machinery or plant."

Here the word used is "incidental" to the installation of the plant. "Incidential" is a wider word than "necessary". In my view, expenditure necessary for the installation of the plant is already covered by s 279. But it may be that the exigencies of the trade require that when new machinery or plant is installed in existing buildings more shall be done than mere installation in order that the new machinery or plant may serve its proper purpose. Where that is the case this section enables the cost of the additional alterations to be included. If this section meant that no preliminary expenditure is within the scope of s 279 there would be an anomalous and unreasonable difference between the provision of plant in a new building or in the open, and the provision of plant in an existing building. So I do not regard this section as supporting the Crown's argument.

The Crown also relies on s 16(3) of the Finance Act 1956. But that section only applies where apart from it no allowance could be made either under Chapter I or under Chapter II. I do not see how it can have any application to the present case because here it is admitted that allowance must be made under Chapter I if it is not made under Chapter II. And I find nothing in it to cause me to alter my view with regard to the proper interpretation of s 279.

Finally it is said: if the cost of excavation is included why not also the cost of acquiring the land? But the draftsman thought of that. Section 278(1)(a) provides that expenditure incurred on the construction of a building is not to include any expenditure incurred on the acquisition of land. The fact that it was thought necessary or at least desirable to put in this provision indicates that expenditure incurred on the construction is intended to have a wide meaning. If the cost of acquiring land for the site of a building is excluded, then a fortiori the cost of acquiring land for the site of plant must also be excluded.

I would dismiss this appeal.


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