Inland Revenue Commissioners v Barclay Curle & Co Ltd
[1969] 1 All ER 732(Judgment by: Lord Hodson)
Between: Inland Revenue Commissioners
And: Barclay Curle & Co Ltd
Judges:
Lord Reid
Lord HodsonLord 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
Judgment date: 19 FEBRUARY 1969
- (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).
- (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.
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 |
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 |
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 |
"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."
Judgment by:
Lord Hodson
My Lords, this appeal centres round the meaning of the word "plant" as it appears in the Income Tax Act 1952.
The main question is whether a dry dock is "plant" so as to qualify for an initial allowance equal to 3/10ths of the expenditure involved in its construction. The actual sum claimed by the taxpayer company is 3/10ths of Pounds(UK)500,380 expended by them on concrete work used in the construction of the dock.
If, as the Crown contends, the dock is not "plant" but "a structure" the initial allowance is still available but at a lower rate, namely 3/20ths of the expenditure.
The word "plant" though difficult of precise definition is an ordinary English word which has received judicial consideration on a number of occasions. What was said by Lindley LJ ((1887), 19 QBD 647 at p 658), in construing the word as it appears in the Employers' Liability Act 1880, has been long accepted as good guidance. In Yarmouth v France ((1887), 19 QBD 647 at p 658) he said:
"There is no definition of plant in the Act; but, 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 ... "
It is of interest to notice that what was then held to be plant was a horse.
The words of Lindley LJ, were adopted as a general test of the meaning of the word "plant" by your Lordships' House in Hinton (Inspector of Taxes) v Maden & Ireland; see per Lord Reid ([1959] 3 All ER at pp 362, 363; 38 Tax Cas at p 417) and per Lord Jenkins ([1959] 3 All ER at p 369; 38 Tax Cas at p 423).
The words "plant" and "structure" in the Act are not mutually exclusive as appears from the language of s 276(1) (part of Chapter I) which provides that:
"No allowance shall be made under ... this Chapter in respect of ... or of expenditure on, a building or structure if ... an allowance is or can be made under any of the provisions of Chapter II ... of this part of this Act in respect of, or of expenditure on, that building or structure."
Section 279(1) of the Act under which the taxpayer company claim an initial allowance at the higher rate reads, as far as material, as follows:
"... 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 ... an allowance ... equal to three-tenths of the expenditure."
The appeal of the Crown relates, in the first place, to the concrete lining of the taxpayer company's dry dock and the question whether or not this was "plant" within the meaning of the section was found in their favour by the Special Commissioners. The dock as a complete unit contained a large amount of equipment without which the dry dock could not perform its function. This equipment admittedly qualifies for the initial allowance appropriate to expenditure on plant. It includes a dock gate and operating gear, cast iron keel blocks, electrical installation, pipe work installation, pumping installation and other subsidiary equipment, expenditure on which clearly qualifies for initial allowance as having been incurred in paying for machinery or plant. The commissioners found that the pumps and the machinery formed-
"... an integral part of the dock as a functioning entity. The remainder of the dock would have been useless to the company without them and, similarly, they would have been useless without the remainder of the dock."
They also found that the dock was not merely the setting or premises in which ships were repaired, and distinguished it 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."
On this basis it has been held that the taxpayer company's dock is "plant" within the meaning of the relevant section.
In considering this question I should have thought one's first impression would normally be that a dock is essentially a structure and a structure of the same character in essence as a dam or sea wall. A building or structure is normally to be regarded in the context of this Act as something more durable than machinery or plant, hence the diffentiation in favour of the less durable. The dock in question, it was found in the Case Stated, might last for 80 to 100 years if reasonable and timely repairs were carried out when requisite.
I do not find the argument based on function convincing. No doubt function is a useful test and relevant in considering whether or not a thing is properly described as "plant", but function is not decisive. Whether an item is plant or not depends on all the circumstances of the case. In the case of Margrett v Lowestoft Water & Gas Co, the question was whether a water tower was "plant" in respect of which the company was entitled to a deduction for wear and tear under r 6 of Cases I and II of Sch D. The company, which supplied water to Lowestoft and district, erected a water tower built of ferro concrete except for certain auxiliary apparatus comprising pumps, valves and pipes. It was used for increasing the pressure of the water supply and replaced a gas engine and pumps previously used for that purpose. Finlay J, held that the water tower (apart from the auxiliary apparatus) was not "plant" within the meaning of r 6. In my opinion, he was right in so deciding. He rejected the argument based on function, saying ((1935), 19 Tax Cas at p 486):
"You have to examine what the thing is. It is not enough to say it was used in a particular way. Clearly, if one takes the case of a factory with machinery inside it, the machinery in all probability would be plant, but equally clearly the factory, the bricks and mortar, would not be plant. One would anticipate, I think, that the same principle would apply here, that the pipes and so forth would be plant, but the actual structure, made in this case of ferro-concrete (although of course it does not matter what it is made of), would not be plant. The object of the water tower is to raise the water up to a particular height from which, by gravity or otherwise, it will be able to flow over the district."
He concluded by holding that the commissioners, in holding that the tower was plant because it was used to increase the pressure of the water, misdirected themselves.
In my opinion the Lowestoft case was rightly decided and has many features in common with the case with which your Lordships are concerned. The function of the water tower held not to be plant was a replacement of a gas engine and pumps previously used for the same purpose. It could not be denied that the gas engine and pumps were plant but this did not mean that, because the function of the water tower was the same as that which was plainly plant, the water tower was itself within the category of things to be described as plant.
A homely illustration of the point was made by counsel for the Crown in this case. He instanced a garage which at one time used a pit excavated in the floor for the purpose of inspection and work on the undersides of cars. Such a pit would surely be a structure. Later an hydraulic pillar is installed to perform the same purpose as the pit. If the functional argument is decisive then this pit would be as much plant as the lift for it would be used for exactly the same purpose.
The most recent case to which your Lordship were referred is Jarrold [(Inspector of Taxes) v John Good & Sons Ltd]. That case concerned initial allowances in respect of expenditure incurred in connection with the installation of moveable partitions installed by shipping agents to satisfy its fluctuating accommodation requirements. It was held that the commissioners' decision that the partitioning was plant was correct, and I find the reasoning of all the judgments in that case convincing. It was there pointed out that the setting in which the business is carried on and the apparatus used for carrying on that business are not necessarily exclusive, but it was never suggested that, because of the function which the partitions performed, the whole building, as well as the partitions, qualified for initial allowances as plant.
In the instant case, likewise, the plant, contained in the dock as an essential element, qualifies for allowance as plant but the dock itself can be split up so as to divide the main structure from the plant therein contained even though the dock and its equipment form one unit. I cannot regard the basin in question here which forms the walls and bottom of the dry dock as plant. If that were so it would seem that all purpose built premises would likewise qualify as "plant". The guidance afforded by judicial decisions following the statement of Lindley LJ, in Yarmouth v France ((1887), 19 QBD at p 658) appears to me to support the Crown. To regard the dock as apparatus seems to me to be wrong and I regard it as being something quite different from the generally accepted conception of "plant".
The impermeable quality of the dock points to its being covered by the words "building or structure" rather than the word "plant". It has the characteristics of a building which is constructed so as to be able to contain the elements, like a sea wall or a dam in an hydro electric scheme. Accordingly, it is eligible, as the Crown concedes, for an allowance under Chapter I as an industrial building or structure in use for the purposes of a trade within the definition in s 271(1) of the Act. It is said on behalf of the taxpayer company that, unlike a factory, which would probably be capable of use without the plant contained in it, the dock depends on the equipment for its utility. This may well be true, but I do not feel compelled to treat the whole complex as plant for that reason. The dock is "in use" for the purposes of a trade even though it needs equipment before it can be effective.
I would allow the appeal on the grounds I have endeavoured to express, so that it is unnecessary for me to express an opinion as to the second point which has been decided in favour of the taxpayer company concerning the expenditure on the excavation made to receive the concrete. If the dock is not "plant" the appeal as to the expenditure on excavation should succeed also.