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Inland Revenue Commissioners v Barclay Curle & Co Ltd

[1969] 1 All ER 732

(Judgment by: Lord Upjohn)

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

Court:
House of Lords

Judges: Lord Reid
Lord Hodson
Lord Guest

Lord UpjohnLord 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 Upjohn

My Lords, the taxpayer company are ship repairers carrying on business at their ship repairing yard at Elderslie on the river Clyde. They had two dry docks there and in 1962 were minded to build a third (no 3 dry dock) which they did at a total cost of about Pounds(UK)1,000,000. The question is whether two sums of costs involved in this project qualify for capital allowances under Chapter II of Part 10 of the Income Tax Act 1952, that Part of the Act dealing with "Reliefs for Certain Capital Expenditure". These two sums are-(a) cost of excavation of land for no 3 dry dock-Pounds(UK)186,928; (b) cost of concrete work, etc used in constructing that dock-Pounds(UK)500,380. Chapter II is headed "Machinery and Plant" and the first section in that chapter (s. 279), provides that:

"(1) ... where a person carrying on a trade incurs capital expenditure on the provision of machinery or plant for the purposes of the trade ... "

he is entitled to an initial allowance equal to 3/10ths of the expenditure. So the whole question is whether these costs were incurred "on the provision of machinery or plant" for, of course, they were expended for the purposes of the trade.

Chapter I of Part 10 of the Act is headed "Industrial Buildings and Structures, Etc.", and the Crown does not dispute that under the first section of that chapter (s 265) the costs mentioned above qualify as expenditure on the construction of a building or structure which is to be an industrial building or structure occupied for the purpose of a trade and, as such, entitled to an initial allowance but in such case only equal to 3/20ths of the expenditure.

Let me consider first the question of the cost of the concrete work. The question is a narrow one but it cannot be solved by posing and answering the simple question-is the relevant expenditure properly described as "plant or machinery", on the one hand, or as "a building or structure" on the other-for s 276(1) makes it clear that an expenditure on a building or structure may qualify for an initial allowance as plant or machinery under Chapter II and, if it does so, a claim under Chapter I is prohibited. So some deeper investigation of the question is required, and the Special Commissioners dealt with the matter in an extremely helpful and detailed Case Stated. There was nothing special about this dry dock, which is a very familiar feature of our ports and harbours where inspection and repairs of ships' hulls are carried out by ship repairers.

From time to time all ships require to have their hulls, rudders and screws inspected and, if necessary, repaired, their bottoms scraped and their hulls inspected for suspected damage after some stranding or accident and, if necessary, repair. This cannot, without great inconvenience and enormous expense, be carried out while the ship is afloat for it involves the use of divers and, of course, some operations cannot be carried out at all unless the ship's hull is freed from water. It is quite impracticable to winch any except the smallest of ships on to dry land for these purposes, so for many years the dry dock has been provided. Its construction and operation are basically of the simplest. A basin is dug out of some land contiguous to the sea estuary or tidal river, the greater the range of the tide the better, and the basin is (nowadays) constructed of strong concrete side walls to contain the water within the dock and the bottom is of strong concrete construction with special reinforcement down the centre to take the keel of the ship entering the dock.

At high tide the ship is nosed into the dock by tugs, by winches on the sides of the docks or even under its own power. Then a sea gate is provided at the outer end of the dock to prevent the ingress of the sea, but valves in the gate are provided so that as the tide recedes the water in the dock flows out and the ship settles on the reinforcement down the centre of the dock and remains there; but as very few ships are flat enough in their hull construction to sit on dry land on their keels provision is made by bilge blocks and side struts and shores to keep the ship upright when not surrounded by water. Then when the tide has receded pumps pump out the rest of the water and the ship is left on dry land ready for the work of the taxpayer company, who are essentially ship repairers, to begin though, of course, it may be only a matter of inspection or of scraping the bottom. When the work of the repairer is completed valves in the sea gate and in the sides of the walls permit the sea to re-enter and when it is high tide the gate is opened, nowadays no doubt by machinery, and the ship is eased out by appropriate means.

My Lords, that is the essence of the operation and of the provision of the services to ships entering the dock but expanded quite properly in great detail in para V (4) to (7) of the Case Stated. The Crown have very rightly allowed as plant all these services, the pumps, winches, the highly complex sea gate and many other ancillary services, so that your Lordships are, in the first place, only concerned with the proper description of the concrete work used to form the dock walls and floor.

Your Lordships were referred to a number of authorities on the meaning of "plant and machinery". The locus classicus (approved in your Lordships' House) is the statement of Lindley LJ, in Yarmouth v France ((1887), 19 QBD 647 at p 658):

"... 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 ... "

But Lindley LJ was dealing with "plant" of such a different nature, in fact a horse, that I do not think his words can really safely be bent to the circumstances of this case. I find more helpful to its solution the approach of Uthwatt J, in J Lyons & Co Ltd v A.-G ([1944] 1 All ER 477 at p 479; [1944] Ch 281 at p 286) where he drew a distinction between plant and the place in which the business is carried on, the "setting". And much to the same effect are the words of Pearson LJ, 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) (a case where moveable partitions were held to be plant) where he said the question is "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".

After a careful review of the cases the commissioners reached their conclusion in these terms-

"The function of the No 3 dry dock was neatly summed up by Mr. Geddes 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."

This was accepted by the judges of the First Division and both the Lord President (Lord Clyde) ([1968] SLT at p 390.) and Lord Guthrie ([1968] SLT at p 391) considered that the dry dock was not merely the setting but was properly described as apparatus (a word clearly borrowed from Lindley LJ ((1887), 19 QBD at p 658)), performing a function in the work.

My Lords, I regret that I cannot agree that the dry dock itself is properly described as plant which, as Lord Reid has pointed out in Hinton (Inspector of Taxes) v Maden & Ireland Ltd, is an ordinary English word. Advantage is taken of the ebb and flow of the tides to get the ship in and out, but I regard it as frankly exaggerated and a misdescription to compare the dock to an hydraulic tank. I regard it as equally a misdescription to regard the dock as a vice holding the ship or as part of the "apparatus".

In my opinion, the essential object of the whole outlay said to qualify for Chapter II allowance is to provide for inspection and repair of ships; and the walls and floor of the dry dock provide the setting within which the repair is carried out. It is comparable to the factory, adapted to the circumstance that the object to be inspected or repaired is a ship which cannot conveniently be drawn up on to dry land. Because advantage is taken of tides to get the ship in and out and that much complex machinery and plant may be involved, cannot with any sense of realism exalt these walls and the floor, in my opinion, to the status of "plant".

My Lords, I think the real difference between the commissioners and myself is that, in the pasage I have quoted from the conclusions of the commissioners, in my opinion they have placed too much emphasis on what I may call the functional element, and with all respect I think that the judges of the First Division were wrong to accept and adopt these conclusions. That the functional element really provided the essential test of what was "plant" was really the foundation of the taxpayer company's argument. Of course (as the commissioners said) the dock played a part in the control of water and enabled the valves, pumps and electricity which were an integral part of its construction to perform their functions. No one doubts that, for without the dock walls and floors there would be no place to repair the ship and no way of getting it there, and the whole of the machinery may, no doubt, properly be regarded as an integral part of its construction, for both are essential and complementary to each other in the performance of the desired result, the repair of the ship.

But it does not thereby make the dock walls "plant" as I understand that word, any more than the essential provision of special machine tools, such as cranes, gantries and heavy conveyor apparatus in a modern sophisticated factory "purpose built" for a particular manufacture without which the factory would be useless, makes the walls of a factory part of the plant.

No doubt the question of function is an element and it may be an important element in determining whether the object of some expenditure is or is not plant; machinery may usually be more easily recognised. But let me consider two illustrations which show that function is no more than an element. The first is Margrett v Lowestoft Water & Gas Co where, in my opinion, Finlay J, rightly held that a water tower whose sole function was to produce water under pressure and which replaced plant or machinery (a gas engine and pumps) whose sole function was to do the same thing did not thereby become plant. The learned judge looked at the matter as a whole and, as I think, rightly came to the conclusion that a water tower could not be described as plant.

Then in argument counsel for the Crown gave what I thought was a simple and useful illustration. In the old days the garage proprietor would have an inspection pit where his men could examine and repair the under side of a motor car. Nowadays he has a platform on to which the car is run and is then lifted up by mechanical means so that the men can perform the same operation: it fulfils precisely the same function as the old inspection pit. The rising platform is plainly machinery or plant, but then I would think it clear that the inspection pit, equally functional and even more integrated into the garage as a whole, does not qualify as plant for a capital allowance under Chapter II.

Finally, if this approach of the interdependence of various parts of the integrated "apparatus" to ensure utility of the whole is sound, I find it difficult to understand why the fixed walls in Jarrold's case, which were essential to the utility of the moveable partitions, were not equally plant. I am not surprised that was not suggested in that case.

My Lords, I appreciate that when considering the meaning of simple English words it is impossible to give a prolonged exposition on the matter; opinions may differ. I have tried to explain why I have differed from the First Division and the commissioners. My Lords, on that footing the second question, that is as to the cost of excavation Pounds(UK)186,928, does not arise.

The majority of your Lordships, however, have reached a different conclusion on the first question and are of opinion that the cost of the concrete work used in constructing the dock is properly described as an expenditure on the provision of plant and machinery, and on that footing the second question plainly does arise. It it is proper to regard the concrete work as the provision of plant it seems to me clear that the Special Commissioners misdirected themselves in concluding that the cost of excavation was "too remote" and, for the reasons given by Lord Reid, whose opinion I have had an opportunity of reading, I would agree that this expenditure, too, was on the provision of plant and machinery and entitled, therefore, to an initial allowance under Chapter II.

But on the whole matter and for the reasons I have given I would allow this appeal.


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