Inland Revenue Commissioners v Barclay Curle & Co Ltd
[1969] 1 All ER 732(Judgment by: Lord Donovan)
Between: Inland Revenue Commissioners
And: Barclay Curle & Co Ltd
Judges:
Lord Reid
Lord 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
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 Donovan
My Lords, if the various components of this dry dock are considered piecemeal, it is easy to regard the concreted basin itself as a structure and not as plant. For then the basin is simply a large hole in the earth the bottom and three sides of which have been faced with concrete.
This approach to the problem, however, carries the Crown too far. For such a basin, regarded by itself, would be no use to the taxpayer company in their trade. It would not be an industrial building or structure in use for the purposes of a trade, as it must be to qualify for an allowance under Chapter I of Part 10 of the Income Tax Act 1952. Yet this allowance (which is lower than the allowance for plant and machinery) the Crown is willing to concede.
Furthermore I regard the "piecemeal" approach as unreal. The dry dock ought, I think, for present purposes to be regarded as a whole with all its appurtenances of operating machinery, power installations, keel blocks, tubular side shores, and so on. So regarded, is it "plant" or not?
There is no statutory definition of the word. But it is at least clear from s 276 of the Income Tax Act 1952 that the terms "plant" and "building or structure" are not mutually exclusive. There may, in other words, be some buildings or structures which can also properly be called "plant".
What, however, are the tests which enable one to recognise any such case? These have been left to the courts to formulate. Lindley LJ, did it in Yarmouth v France ((1887), 19 QBD 647 at p 658) in language which despite the great technological advances since his day is still of great help. Uthwatt J, said in J Lyons & Co Ltd v A.-G ([1944] 1 All ER 477 at p 480; [1944] Ch 281 at p 287) that plant did not include the place where the business was carried on: and Pearson LJ, when sitting in the Court of Appeal in Jarrold (Inspector of Taxes) v John Good & Sons Ltd ([1963] 1 All ER 141 at p 149; 40 Tax Cas 681 at p 696), spoke of plant being that with which the trade is carried on, as opposed to the place where it was carried on.
All these definitions are helpful, but in the nature of things they cannot be exact, and so provide an answer incapable of reasonable dispute in every case. Resort, then, is had to analogies. In the present case the dock has been likened by the Crown to an inspection pit in a garage-an analogy which would have some force were it right to regard the dock basin in isolation, but which, I think has none if the dry dock is to be considered as a whole. Then it was suggested that the dry dock was, for present purposes, similar to a dam. There would be machinery for operating the sluices, which machinery would qualify as "plant"; but who, it was asked, would regard the dam itself as plant, or as anything else but a structure not being plant? This precise question may have to be answered one day, so I say no more about it than this: that I see the force of the argument but, for a reason to be given presently, it does not convince me. I myself instanced the big cooling towers which are a feature of electricity generating plants, and enquired whether the Crown treated these as plant or not. After taking a day to find out they replied through their counsel that they did not know and had been unable to discover-an answer which I found surprising.
At the end of the day I find the functional test propounded by Lindley LJ ((1887), 19 QBD 647 at p 658)) and by Pearson LJ ([1963] 1 All ER 141 at p 149; 40 Tax Cas 681 at p 696), to be as good as any, though, as was said in Jarrold (Inspector of Taxes) v John Good & Sons Ltd, some plant may perform its function passively and not actively. But in the present case this dry dock, looked on as a unit, accommodates ships, separates them from their element and thus exposes them for repair; holds them in position while repairs are effected, and when this is done returns them to the water. Thus the dry dock is, despite its size, in the nature of a tool of the taxpayer company's trade and, therefore, in my view, "plant". I think it differs from a dam which, for the moment at least, I regard more as a storehouse for water.
As regards the cost of the necessary excavation, I think this comes within the words "expenditure on the provision of machinery or plant" in s 279(1), again regarding the dry dock as a whole. Similar expenditure incurred in relation to a building or structure is now regarded as "expenditure on the construction" of such building or structure for the purposes of s 265(1) without any further or more express provision, and I think rightly so. The Crown says that if a comparable construction be given to the relevant words in s 279(1) relating to plant and machinery, then s 300 of the Income Tax Act 1952 would be unnecessary. But that section relates to "alterations to an existing building incidental to the installation of machinery or plant"; and its wording suggests that it was enacted simply as an assurance to remove doubts about a particular kind of case.
Section 16(3) of the Finance Act 1956, which is also relied on by the Crown, I do not find of help, for it refers to expenditure on (among other things) preparing and cutting land for which no allowance could be made under Chapter II of Part 10 of the Act of 1952, which Chapter II includes s 279. One is thus back at the self-same problem; and I would answer it in the same way as did the Court of Session.
The decision of Finlay J, in Margrett v Lowestoft Water & Gas Co on which the Crown relied was in my opinion wrong.
I think the appeal should be dismissed.
Appeal dismissed.
Section279(1) is set out at p741, letter g, post.
William G N Geddes, BSc, a partner in the firm of chartered engineers responsible for the building of the no 3 dry dock.
Repealed by Capital Allowances Act 1968, s 96 and Sch 11. See now ibid, s 18.
Repealed by Capital Allowances Act 1968, s 96 and Sch 11. See now ibid, s 45.