Inland Revenue Commissioners v Barclay Curle & Co Ltd
[1969] 1 All ER 732(Judgment by: Lord Guest)
Between: Inland Revenue Commissioners
And: Barclay Curle & Co Ltd
Judges:
Lord Reid
Lord Hodson
Lord GuestLord 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 Guest
My Lords, the taxpayer company constructed a dry dock at Elderslie on the river Clyde at a total cost of Pounds(UK)930,596. They have claimed that this capital expenditure qualifies for an initial allowance under Chapter II of Part 10, s 279(1) of the Income Tax Act 1952. The Crown have conceded that a figure of Pounds(UK)243,288, representing "cost of ancillary plant", qualifies for an initial allowance of 3/10ths under s 279. But there is a dispute as to the remaining items. These consist of (a) a figure of Pounds(UK)500,380, representing cost of concrete works in constructing the dry dock and, (b), a figure of Pounds(UK)186,928 representing the cost of excavation of land for the dock. The Crown agrees that both sums qualify under Chapter I, s 265, for an initial allowance of 3/20ths as industrial buildings or structures. The taxpayer company contend for a 3/10ths initial allowance on both those sums under Chapter II, s 279(1) of the Act of 1952, which claim is resisted by the Crown.
Part 10, Chapter I, s 265(1) of the Act provides for an initial allowance of 3/20ths-
"... where a person incurs capital expenditure on the construction of a building or structure which is to be an industrial building or structure occupied for the purposes of a trade carried on ... "
by him.
Chapter II of Part 10, s 279(1), provides for an initial allowance of 3/10ths "... where a person carrying on a trade incurs capital expenditure on the provision of machinery or plant for the purposes of the trade ... "
The dry dock was formed by an extensive excavation out of the ground of enormous quantities of earth and rock to form a rectangular basin bordering the river Clyde. The basin was lined as to the floor and sides with concrete with varying depths of five and 2 1/2 feet. The total amount of concrete used was 100,000 tons. By a system of dock gates, pipes, pumps and valves after a ship was floated into the basin the water was withdrawn and the ship allowed to settle on keel blocks. It was thereafter kept in position by various contrivances. The consequent exposure of the bottom and sides of the ship enabled inspection and/or repairs to be done. When this was completed the water was returned to the basin, the dock gates were thereupon opened and the ship sailed away into the river. The Special Commissioners found:
"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."
In the agreed figure of Pounds(UK)243,288 which qualified for an initial allowance for machinery and plant under Chapter II was included the cost of, inter alia, dock gates, operating gear, keel blocks, pipeworks, electrical works, steel trestles, pumping installation, side shores and winches. The dispute only concerns the cost of concrete work and the cost of excavation.
To qualify for the allowance of 3/10ths under Chapter II the expenditure must be incurred on the provision of plant. There is no difinition of the word "plant" in the Act. The locus classicus for the definition of "plant" is in the words of Lindley LJ, in Yarmouth v France ((1887), 19 QBD 647 at p 658):
"... 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: ... "
This definition has been accepted as accurate for income tax purposes as recently as 1959 by Lord Reid in Hinton (Inspector of Taxes) v Maden & Ireland ([1959] 3 All ER 356 at pp 362, 363; 38 Tax Cas 391 at p 417). In Yarmouth's case it was held that a "horse" was "plant" in a question under the Employers' Liability Act 1880. It has been suggested that for that reason the definition is not apposite when considering "plant" in its present context. But without attempting to elaborate the definition it appears to me unsatisfactory. The emphasis is on "an apparatus used for carrying on business". I agree that in that case there was no contradistinction between a structure and plant as in Part I of the Income Tax Act 1952. But the question under Part 10 of the Act is not whether it is a structure or plant. It may be both. Section 276(2) makes it plain that Parts 1 and 2 are not mutually exclusive. The question, therefore, is whether, notwithstanding that it may be also a structure, the dry dock is "plant" within the terms of s 279. The conjunction of "machinery" and "plant" suggest to me that they both must perform some active function. In order to decide whether a particular subject is an "apparatus" it seems obvious that an enquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as a preliminary. The function which the dry dock performs is that of an hydraulic lift taking ships from the water on to dry land, raising them and holding them in such a position that inspection and repairs can conveniently be effected to their bottoms and sides. It is unrealistic, in my view, to consider the concrete work in isolation from the rest of the dry dock. It is the level of the bottom of the basin in conjunction with the river level which enables the function of dry docking to be performed by the use of dock gates, valves and pumps. To effect this purpose excavation and concrete work were necessary.
It is said that the dry dock is similar to premises like a factory building in which the trade is carried on. But this comparison is not, in my view, accurate. The factory is by itself a building or structure in which trade can be carried on. But the excavation and concrete work is useless for any trade purpose unless used in conjunction with the rest of the equipment. As Pearson LJ, said, the subject is part of the plant with which the business is carried on as distinct from the premises in which the business is carried on. (See Jarrold (Inspector of Taxes) v John Good & Sons Ltd ([1963] 1 All ER 141 at p 149; 40 Tax Cas 681 at p 696). Indeed, the contention of the Crown that the concrete work must be isolated from the rest of the dry dock would lead to the conclusion that this expenditure would not qualify under s 265 for a Chapter I allowance because it would not be "an industrial building or structure occupied for the purposes of a trade" within s 265(1). As I have already said, in its uncompleted state it would be useless for any trade purpose.
We were referred to a number of cases in which various subjects have been held to be or not to be "plant". These analogies I did not find helpful. I only wish to mention Margrett v Lowestoft Water & Gas Co where Finlay J, held that a water tower was not "plant" under r 6, Cases I and II of Sch D, Income Tax Act 1918. It would appear that the water tower had replaced a gas engine and pumps which had been used to increase the pressure of the water supply. Finlay J, ((1935), 19 Tax Cas at p 488) seems to have based his decision on the view that as the water tower was a structure it could not also be "plant". This reasoning is, of course, not open in construing Part 1 of the Income Tax Act 1952. He also said ((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". Having regard to the reasoning of the learned judge I consider that the decision of Finlay J, was wrong. The water tower came within the definition of Lindley LJ, in Yarmouth's case as an "apparatus" used for the purpose of the business of supplier of water. It was the harnessing of the natural element of gravity, as in the present case, to perform a trade function. In my opinion, the judges of the First Division were right in upholding the determination of the Special Commissioners on this point.
It only remains to deal with the second point raised by the Crown. This is that even if the concrete work were "plant" the cost of excavation did not qualify under Chapter II. The commissioners upheld the contention of the Crown on this point, their view being that the expenditure was "too remote" from the provision of the dry dock. In my view, they were wrong in excluding this expenditure. The excavation was a necessary preliminary to the construction of the dry dock and, in my view, was covered by the provision of plant under s 279. "Provision" must cover something more than the actual supply. In this case it includes the excavation of the hole in which the concrete is laid.
Counsel for the Crown advanced a subsidiary argument based on s 16(3) of the Finance Act 1956, which, he said, excluded the excavation expenditure from Chapter II. In my view, the answer to this submission was given by Lord Migdale ([1968] SLT 385 at p 393.). The qualifying words.
"... apart from this subsection no allowance could be made in respect of an expenditure under Chapter I or II of Part 10 of the Income Tax Act, 1952 ... "
brings one back to s 279 and, as I have already said, the excavation expenditure is included in the provision of plant under that section. Section 16(3), in my view, has no application. I therefore consider the First Division were right in reversing the commissioners' decision on this point.
I would for these reasons dismiss the appeal.