Cooke (Inspector of Taxes) v Beach Station Caravans Ltd

[1974] 3 All ER 159

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(Decision by: MEGARRY J)

Between: Cooke (Inspector of Taxes)
And: Beach Station Caravans Ltd

Court:

Judge:
Megarry J

Subject References:
Income tax
Allowances
Machinery or plant
Plant
Apparatus used by taxpayer for purpose of business
Items forming a passive function constituting setting or place in which business carried on
Swimming pool
Taxpayer operating caravan site
Taxpayer providing amusement and recreational facilities for customers
Taxpayer constructing swimming pool in order to attract customers to site
Whether pool setting in which or plant with which taxpayer's trade carried on

Legislative References:
Capital Allowances Act 1968 - s 18(1); s 19(1)

Case References:
Inland Revenue Comrs v Barclay, Curle & Co Ltd - [1969] 1 All ER 732; 45 Tax Cas 221; [1969] 1 WLR 675; 48 ATC 17; [1969] TR 21; [1969] 1 Lloyd's Rep 169; [1969] RVR 102, HL; 28(1) Digest (Reissue) 465, 1676
Jarrold (Inspector of Taxes) v John Good & Sons Ltd - [1963] 1 All ER 141; 40 Tax Cas 681; [1963] 1 WLR 214; 41 ATC 335; [1962] TR 371; [1963] RVR 25, CA; 28(1) Digest (Reissue) 215, 642
Yarmouth v France - (1887) 19 QBD 647; 57 LJQB 7, DC; 34 Digest (Repl) 299, 2159
Bowie (Inspector of Taxes) v Reg Dunn (Builders) Ltd - [1974] STC 234
Bridge House (Reigate Hill) Ltd v Hinder (Inspector of Taxes) - (1971) 47 Tax Cas 182, CA
Dumbarton Harbour Board v Cox (Surveyor of Taxes) - [1918] Tax Cas 147
Edwards (Inspector of Taxes) v Bairstow - [1955] 3 All ER 48; [1956] AC 14; 36 Tax Cas 207, HL
Lyons (J) & Co Ltd v Attorney General - [1944] 1 All ER 477; [1944] Ch 281
Ransom (Inspector of Taxes) v Higgs - [1973] 2 All ER 657; [1973] 1 WLR 1180; [1973] STC 330, CA
St John's School (Mountford and Knibbs) v Ward (Inspector of Taxes) - [1974] STC 69

Hearing date: 4 July 1974
Judgment date: 5 July 1974

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Decision by:
MEGARRY J

This is an appeal by the Crown from a decision of the Special Commissioners by way of case stated concerning corporation tax. The taxpayer, Beach Station Caravans Ltd (which I shall call 'the company'), had successfully appealed against an assessment to corporation tax in the sum of £50 for the accounting period from 1 November 1968 to 31 October 1969. The appeal relates to certain items of expenditure in the construction in March 1969 of a swimming pool and paddling pool in the company's caravan park at Felixstowe, known as 'Beach Station Caravan Park'. The caravan park is of some elaboration, and includes facilities such as flush lavatories, showers, water, shops, laundries, a children's playground, an amusement hall, licensed bars, and the swimming and paddling pools with which I am concerned. The pools, which adjoin each other, were excavated, concreted, and lined with a material called marblite; and they stand in a substantial area paved with slabs two feet square. They have an estimated life of some 25 to 30 years. The pools were constructed with a system for heating, filtering and chlorinating the water. Those who hire the company's caravans have the free use of the pools: those who bring their own caravans may be charged for using them: and except in the high season, members of the public may use the pools, on paying a charge.

The pools and their ancillaries were constructed as a whole and are operated as a unit. The total cost was £7,145. Of this, the provisions for filtration, heating and recirculation of water, the plumbing, the fittings such as steps and diving boards, etc, and the electrical installations (amounting to rather over half the total) are accepted as constituting machinery or plant within the Capital Allowances Act 1968, ss 18 and 19. On the other hand, the Crown contends that the remaining items, consisting of terracing (£853), pool construction (£2,200) and excavation costs (£300) are not within the statute; the company contends to the contrary. The central question that has been debated before me is whether the pools as a whole fall within the meaning of the statutory expression 'plant'. The Special Commissioners accepted the company's contention that they did. I do not propose to set out any more of the detailed facts, which are of course set out in the case stated, a case which has been stated with admirable clarity.

Section 18(1) provides for an 'initial allowance' to be made to a person carrying on trade who 'incurs capital expenditure on the provision of machinery or plant for the purposes of the trade'. Section 19(1) provides for 'a writing-down allowance' to be made to such a person 'on account of the wear and tear of any of the machinery or plant which belongs to him and is in use for the purposes of the trade' at the end of a stated period. The phrase 'machinery or plant' appears to be left wholly undefined and unexplained, save for s 14, which clearly indicates that the same entity may fall within the term 'building or structure' and also within the term 'machinery or plant'. This lack of definition may come as something of a surprise to those familiar with the thoughtfulness of Parliament in rating matters in providing for the making of the elaborate and detailed Plant and Machinery (Rating) Orders 1927 ^[F4] and 1960 ^[Fe] , though even these have not succeeded in avoiding all litigation. One is accordingly thrown back on the meaning of the word 'plant' (for no question of 'machinery' arises) as an ordinary word in the English language, construed in its context. The Shorter Oxford English Dictionary, I may say, gives as the relevant meaning of 'plant' 'The fixtures, implements, machinery, and apparatus used in carrying on any industrial process'. I quote that de bene esse .

A number of authorities were put before the Special Commissioners and before me. The case principally debated was Inland Revenue Comrs v Barclay, Curle & Co Ltd ([1969] 1 All ER 732, [1969] 1 WLR 675 , 45 Tax Cas 221). This concerned the construction and equipment of a dry dock for a company. The issue there arose on the cost of excavating the earth to form the basin and of lining the basin with concrete. The Special Commissioners had held that although the cost of the concrete lining was capital expenditure on the provision of plant within the statute, the cost of the excavation was too remote to be included, since it was merely expenditure on the preparation of land to receive the plant. The First Division of the Court of Session reversed the decision of the Special Commissioners on the latter point and held that all the expenditure was within the statute; and by three voices to two the House of Lords affirmed this decision. Counsel for the Crown has been concerned to distinguish that case, whereas counsel for the company has endeavoured to apply it. It became common ground in the case before me that if the pools as a whole constituted 'plant', then the cost of terracing, pool construction and excavation should be included. The short question, then, is whether the pools are 'plant'.

The Special Commissioners held that the pools ought to be looked at as a whole, and that they fell within the principle of the decision in the Barclay, Curle case ([1969] 1 All ER 732, [1969] 1 WLR 675 , 45 Tax Cas 221). I quote from their decision:

'Just as in that case an excavation of land with ancillary equipment was made a tool of the Appellant's trade so too in the present cases an excavation filled with treated, warm and filtered water was a tool of the Respondent's trade [that is, the company's trade].'

Counsel for the Crown's attack on their decision had at its core two connected points. First, he said, the pools here were purely passive, whereas the dry dock was active. The pools were simply places in which water was stored (though of course heated and purified) and people disported themselves. The dry dock, on the other hand, would receive a ship, lower it, support it, and expel the water, and then in due time, when the ship had been repaired, admit water which would raise the ship up again to a level from which it could depart. The busy life of a working dry dock thus contrasted with the drone-like existence of a swimming pool or paddling pool.

Second, counsel said, it was well established that a building or other structure which did no more than provide a setting where office or other activities could take place was not 'plant'. Thus the ordinary dividing walls in an office building are not plant but merely the setting for the work of the office. On the other hand, in the other case which was largely debated before me, Jarrold (Inspector of Taxes) v John Good & Son Ltd ([1963] 1 All ER 141, [1963] 1 WLR 214 , 40 Tax Cas 681), both Pennycuick J and the Court of Appeal held that moveable partitions screwed to the floors and ceilings which could be rearranged to produce different divisions of the floor space to suit the changing needs of the occupiers were plant. The familiar words of Lindley LJ in Yarmouth v France ((1887) 19 QBD 647 at 658) were applied: the word 'plant' in its ordinary sense-

'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.'

The partitions, said Ormerod LJ in the Jarrold case ([1963] 1 All ER at 146, [1963] 1 WLR at 221, 40 Tax Cas at 693), 'should be regarded as something more than a mere setting for the carrying out of the trade'. Furthermore, he said of the word 'plant' that it-

'may well be going much too far to say that it cannot refer to such part of the building, or such part of the equipment of the building, as performs anything other than a merely passive role ... I am not at all satisfied that these partitions did perform a merely passive role.'

Donovan LJ said ([1963] 1 All ER at 147, [1963] 1 WLR at 223, 40 Tax Cas at 694) that he did not understand the division of assets into 'passive' and 'active'; and he gave the heating installation of a building as an instance of 'plant', even though it was passive in the sense that it involved no moving machinery. He added that the statutory phrase 'for the purposes of the trade' was wide enough to cover assets which play a passive as well as an active role in the accomplishment of the purpose.

After some hesitation, counsel for the Crown accepted that a radiator which did no more than suffer hot water to pass through it could hardly be said to be active, and yet it was difficult to deny that it was plant. He stressed that the radiator should be considered as part of the heating system as a whole, and that in that system there was activity enough. Though said to 'give out' heat, I do not think it can be said that a radiator does anything active in itself: nature does it all. In the Barclay, Curle case ([1969] 1 All ER 732, [1969] 1 WLR 675 , 45 Tax Cas 221), Lord Guest and Lord Donovan, who were both of the majority, took somewhat different views on activity: Lord Guest said ([1969] 1 All ER at 746, [1969] 1 WLR at 685, 45 Tax Cas at 244) that the conjunction of 'plant' and 'machinery' suggested to him that 'they must both perform some active function', and that in order to decide whether something is an 'apparatus' it seemed obvious that 'an enquiry has to be made as to what operation it performs'. Lord Donovan on the other hand, said ([1969] 1 All ER at 752, [1969] 1 WLR at 691, 45 Tax Cas at 250) that 'some plant may perform its function passively and not, actively'. The dry dock in that case was a tool of the company's trade and so was plant. It differed from a dam which was a mere storehouse for water.

Nobody, I think, would find the subject free from difficulty, or assert that he could draw a clear line with a steady hand. To some extent the matter must be one of impression, though it is important that the impression should not be untutored. Many interesting difficulties emerged during the argument which I forbear to pursue: for my duty is merely to decide this case, and not to attempt to define and rationalise the whole of this difficult branch of the law. Doing the best I can, with the aid of the authorities that I have mentioned and the other authorities that have been put before me, my conclusions are as follows.

First, the two pools should be considered as a unit, with all the attendant apparatus for purifying and heating the water and so on: for it is as a unit that they were constructed and as a unit that they are run. Second, the pools should be considered not on their own but in relation to the business carried on by the company, namely, running its caravan park. It is plain that the pools were provided in order to attract custom to the caravan park of which they form part.

Third, I do not think that the pools can be regarded as being merely passive in any relevant sense of the word. For example, a springboard, or for that matter a trampoline, is in a sense passive, in that it does nothing until someone does something to it: but I would have thought it plainly plant, and counsel for the Crown did not seek to assert the contrary when I mentioned the springboard. So with the water in the swimming pool: leave it alone and it does nothing, and so to this extent it is passive. But the water in the pool is not provided in order to remain passive and unused: it is no mere ornamental pool, nor is it only the water behind a dam or in a reservoir, being simply stored until it is required and drawn off. The purpose of the pool is to provide and retain a suitable body of water which is circulated, cleansed and heated, and so will provide a medium in which the visitors to the caravan park can safely disport themselves, affording them a pleasurable and safe buoyancy. I do not think that the water that the pool is designed to contain can be divorced from the structure of the pool and its apparatus. What the company intended to provide, and did provide, was a filled pool, not an empty pool: indeed, counsel for the Crown did not suggest the contrary.

The reaction of the water to the impact of a body is not so direct, of course, as that of a springboard, but the point is that there is a reaction: when used as it is intended to be used, the water in the swimming pool is not passive in any real sense of the word. True, it is those who use the pool that provide the initial impulse; but the water plays an active part, very different from the stolid passivity of the four walls of an ordinary room, and certainly, I would have thought, not so passive as the moveable partitions which in the Jarrold case ([1963] 1 All ER 141, [1963] 1 WLR 214 , 40 Tax Cas 681) were held to be plant. Nobody could suggest that the principal function of the pool was merely to protect the occupants from the elements. If I may use a relatively modern slang expression, the pools are not merely 'where it's at': they are part of the apparatus used by the company for carrying on its business as caravan park operators. The pools are part of the means whereby the trade is carried on, and not merely the place at which it is carried on: see per Pearson LJ in Jarrold's case ([1963] 1 All ER at 149, [1963] 1 WLR at 225, 40 Tax Cas at 696).

In his reply counsel for the Crown stressed that the question was whether the swimming pool, as a whole, performed some function, and he contended that the pool was a mere container with heated and treated water in which people swim: the pool did nothing. But in my judgment the filled swimming pool does perform the functions that I have indicated, not least in the provision of the pleasurable and safe buoyancy to which I have referred. Accordingly, I think that the pools are 'plant' provided for the purposes of the company's trade, and that the whole of the capital expenditure in providing them falls within s 18(1). They are also 'plant' within s 19(1). It follows that in my judgment the Special Commissioners were entirely right in their decision, and that the appeal must therefore be dismissed.

Appeal dismissed.