Cooke (Inspector of Taxes) v Beach Station Caravans Ltd

[1974] 3 All ER 159

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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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ORDER

Appeal dismissed.

The taxpayer company owned and operated a caravan site. It provided a variety of amusement and recreational facilities there for its customers. As an added attraction a swimming pool and a paddling pool were constructed on the site in accordance with detailed specifications commissioned by the taxpayer company. The pools were provided with an elaborate system for filtration, chlorination and heating. The Crown accepted that part of the cost incurred in the construction of the pools, ie that relating to the filtration, heating and recirculation of water, plumbing, fittings and electric installations, represented expenditure on 'machinery or plant', within ss 18(1) ^[F1a] and 19(1) ^[F2] of the Capital Allowances Act 1968, and thus qualified for initial and writing down allowances under those provisions. On the other hand the Crown contended that the expenditure on terracing, pool construction and excavation did not qualify for the allowances, on the ground that the pools as a whole did not constitute 'plant' since they performed a purely passive function as the containers of water and were therefore to be regarded as the setting or place in which the taxpayer company carried on its business rather than apparatus used by the taxpayer company for carrying on its business.

Held

The two pools were to be considered as a unit with all the attendant apparatus for purifying and heating the water etc, for they had been constructed and were run as a unit. They were to be considered in relation to the business carried on by the taxpayer company, ie running a caravan site; it was clear that the pools had been provided to attract custom to the site, of which they formed part. Furthermore the pools could not be regarded as being merely passive in any relevant sense of the word. The water was not provided to remain passive and unused, as in the case of an ornamental pool or a reservoir. The purpose of the pools was to provide and retain a suitable body of water which was circulated, cleansed and heated and so provided a medium in which visitors to the caravan site could safely disport themselves. The water which the pools were designed to contain could not be divorced from the structure of the pools and their apparatus. Accordingly the pools were part of the apparatus used by the taxpayer company for carrying on its business as a caravan park operator and were therefore 'plant' provided for the purposes of its trade, within ss 18(1) and 19(1) of the 1968 Act (see p 166 g to p 167 c and f g, post).

Notes

For the allowances available in respect of machinery and plant, see 20 Halsbury's Laws (3rd Edn) 493, 494, paras 941-946, and for cases on the meaning of 'plant', see 28(1) Digest (Reissue) 214-216, 637-643.

For the Capital Allowances Act 1968, ss 18, 19, see Halsbury's Statutes (3rd Edn) 1061, 1063.

Case stated

1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 15 and 16 January 1973, Beach Station Caravans Ltd ('the company') appealed against an assessment to corporation tax in the sum of £50 for the accounting period from 1 November 1968 to 31 October 1969.

2. Shortly stated the question for the commissioners' decision was whether certain expenditure on the construction of a swimming and a paddling pool in the company's caravan park at Felixstowe was expenditure on the provision of machinery or plant within ss 18 and 19 of the Capital Allowances Act 1968.

[Paragraph 3 set out the witnesses who gave evidence and para 4 the documents proved or admitted before the commissioners.]

5. As a result of the evidence both oral and documentary adduced before them, the commissioners found the following facts proved or admitted.

(a)

The company carried on business as the operator of a caravan park or site comprising 15 acres at Felixstowe, Suffolk, called 'Beach Station Caravan Park'. The company hired caravans on the site to its customers and also provided sites for the parking of caravans owned by tourists. The site facilities were available on daily or weekly terms and also for longer periods.

(b)

In order to attract custom the company provided facilities such as flush lavatories, showers, water, shops, laundries, children's playground, amusement hall, licensed bars and heated swimming and paddling pools.

(c)

The swimming and paddling pools were constructed in accordance with a detailed specification commissioned by the company and made in March 1969. The specification provided for a swimming pool 50 feet long and 30 feet wide with a capacity of about 50,000 gallons. The paddling pool was 30 feet long, ten feet wide and one foot deep, with a capacity of about 1,900 gallons. The two pools were excavated, concreted, and lined with a material known as marblite. When completed the copings of the pools were 18 inches above the original level of the ground. They were surrounded by an area which was paved with two foot square slabs. The estimated life of the pools was in the order of 25 to 30 years. There was no separate rating assessment on the pools. After their installation the rating assessment on the site had been increased, but the company had not appealed against the increase on the grounds that the pools were non-rateable plant.

(d)

On the grounds of amenity and public health a modern swimming or paddling pool required the filtration and chlorination of the water therein. To enable the pools to be used in cool weather the company required the pools to be heated up to 75 degree F. Accordingly, the specifications were designed with an elaborate system for filtration, chlorination and heating. Water at the required temperature was pumped into the pools and extracted through a sump pot at the lowest point in the pool and (in the case of the swimming pool) also through skimmers and outlets at other levels. The water was then filtered, chlorinated and reheated and recirculated at the rate of about 12,000 gallons an hour. The pipes connecting the pools with the plant house were buried in the ground but they could be disconnected at the plant house. The pipe from the swimming pool sump pot (which had a hydrostatic valve to prevent water-table entry) was about nine feet underground.

(e)

The plant required for treatment of the water for the pools was contained in a brick built plant house adjacent to the site of the pools. The plant house accommodated the filtration plant, the chlorination machinery, the heating plant and the pumps. It had a small chimney for dissipating waste gases from the boiler.

(g)

listed the photographs, showing the two pools, changing rooms, plant house and children's playground, produced and admitted in evidence before the commissioners.)

(h)

Auxiliary equipment for the pools consisted of an underwater vacuum cleaner, a safety line, respirator gear (for use when handling chlorine gas) and a kit for testing the chlorine content of the water. Each pool had a water chute. The swimming pool had four access ladders and under-water lighting.

(j)

During the season a public health officer tested the water daily for its purity and chlorine content. The commissioners had no evidence that the pools were separately rated.

(k)

The total cost of the pools and plant amounted to £7,145 made up as follows:

(i)

Filtration, heating and recirculation - 3,078

(ii)

Plumbing - 508

(iii)

Fitting-steps, diving boards etc - 106

(iv)

Electrical installations - 100

(v)

Terracing - 853

(vi)

Pool construction - 2,200

Total - 7,145

It was conceded on behalf of the Crown that items (i) to (iv) constituted machinery or plant within ss 18 and 19 of the Capital Allowances Act 1968 but the Crown refused to treat items (v), (vi) and (vii) as machinery or plant.

[Paragraph 6 listed the cases ^[F3] referred to.]

7. It was contended on behalf of the company:

(i)

It was a part of the company's business to provide amusement and recreational facilities.

(ii)

The pools and the chlorination, filtration and heating equipment formed one such recreational facility.

(iii)

The pools and the chlorination, filtration and heating equipment were designed and executed as a single entity.

(iv)

On the evidence, the commissioners should disregard the 'piecemeal' approach which was rejected by Lord Donovan in the Barclay, Curle case ([1969] 1 All ER 732 at 751, [1969] 1 WLR 675 at 690, 691, 45 Tax Cas 221 at 249) and look at the construction as a whole.

(v)

The pools would be virtually useless without the chlorination, filtration and heating equipment and it would be artificial and unrealistic to sever the one from the other.

(vi)

The test in Yarmouth v France ((1887) 19 QBD 647 ) should be adopted.

(vii)

Tested by their characteristics and function the pools constituted plant.

(viii)

The expenditure in question formed part of the cost of provision of machinery or plant.

8. It was contended on behalf of the Crown:

(i)

The swimming and paddling pools were not separately rated and should be treated as part of the land occupied by the company. The pools were part of the setting in which the company carried on its business, rather than plant employed in it.

(ii)

The water treatment plant was not an integral part of a single entity and was for capital allowances purposes properly to be regarded separately.

(iii)

The cost of excavation, pool construction and terracing was the cost of preparing the company's land and did not qualify for capital allowances as expenditure on the provision of machinery or plant.

(iv)

The case was distinguishable from Inland Revenue Comrs v Barclay, Curle & Co ([1969] 1 All ER 732, [1969] 1 WLR 675 , 45 Tax Cas 221).

9. The commissioners gave their decision as follows:

'The question in issue in this appeal is whether certain expenditure on the construction of swimming and paddling pools in the [company's] caravan park at Felixstowe qualifies for capital allowances under Sections 18 and 19 of the Capital Allowances Act 1968.

'It is common ground that the [company's] expenditure was capital expenditure for the purposes of the trade which the [company] was deemed to be carrying on, but the Inspector of Taxes contends that the cost of excavation, terracing and pool construction was not money laid out for the provision of plant. It was contended that the cost of the heating and filtration apparatus was plant for the purposes of Section 18.

'In the cases of Jarrold (Inspector of Taxes) v Good & Sons Ltd [[1963] 1 All ER 141, [1963] 1 WLR 214 , 40 Tax Cas 681] and Inland Revenue Comrs v Barclay, Curle & Co Ltd [[1969] 1 All ER 732, [1969] 1 WLR 675 , 45 Tax Cas 221] and the authorities therein referred to, the "setting", i.e. place where business was carried on, was distinguished from the apparatus used in the business, but it was pointed out in those cases that the two were not necessarily mutually exclusive.

'An important factor to be considered is the function which the alleged plant performs in the [company's] trade. That was the approach of the majority of their Lordships in the Barclay Curle case [[1969] 1 All ER at 740, 746, 747, 751, 752, [1969] 1 WLR at 679, 685, 686, 691, 45 Tax Cas at 239, 245, 250] (Lord Reid, Lord Guest and Lord Donovan).

'In considering the functional test it is possible to liken a swimming pool to land covered by water where people may swim. That stark description is not, we think, apt in the case of a modern heated, filtered and chlorinated pool such as we have in this case. We had evidence that the pools were inspected every day in the season by the Public Health Inspector and water samples were regularly taken and tested. The pools were available for use by the public (except in the high season), and consequently the standard of hygiene was high. The specification and elaboration of the specification to which the pools were constructed points away from the concept of a simple piece of contoured land covered by water.

'The Crown conceded that heating apparatus, etc., was plant but it is necessary to decide whether one should look at the construction as a whole. In the Barclay Curle case [[1969] 1 All ER 732, [1969] 1 WLR 675 , 45 Tax Cas 221] the majority of their Lordships rejected the view that the expenditure could be divided into that which was plant and that which related to the preparation of the land.

'The evidence in the present case is that the pools were designed and constructed as a single entity according to a specification which included both the pools and the heating and filtration equipment. The component parts of the entity would be virtually useless separately; the pools themselves would be cold and unhygienic and the heating, filtration and chlorination equipment was designed specially for its purpose. It would, we think, be unrealistic to treat them in isolation.

'If the foregoing analysis was correct this case is, we think, governed by the principle of the decision in the Barclay Curle case [[1969] 1 All ER 732, [1969] 1 WLR 675 , 45 Tax Cas 221]. 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 case an excavation filled with treated, warm and filtered water was a tool of the [company's] trade.

'We allowed the appeal and adjourned it for agreement of figures.'

10. It was subsequently agreed between the parties that on the basis of that decision the assessment should be reduced to nil and on 18 June 1973 the commissioners discharged it accordingly.

11. The Crown immediately after the determination of the appeal declared its dissatisfaction therewith as being erroneous in point of law and on 2 July 1973 required the commissioners to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970, s 56. The question of law for the opinion of the court was whether on the facts found by the commissioners the disputed expenditure was expenditure on the provision of machinery or plant within ss 18 and 19 of the Capital Allowances Act 1968.

Harry Woolf for the Crown.

Peter Rees QC and J R Gardiner for the company.

5 July 1974. The following judgment was delivered.