1969 (1) TMI 69 - HC - Income Tax

Appeal dismissed, concreting and excavation costs qualify for larger tax allowance under Income Tax Act.

INLAND REVENUE COMMISSIONERS Versus BARCLAY, CURLE & CO. LTD.

The appeal was dismissed, affirming the First Division's decision that both the concreting and excavation costs qualified for the larger initial allowance ... - Issues Involved:1. Whether the dry dock constitutes 'plant' under the Income Tax Act, 1952.2. Whether the cost of excavation for the dry dock qualifies as expenditure on the provision of plant.Detailed Analysis:1. Whether the dry dock constitutes 'plant' under the Income Tax Act, 1952:The respondents installed a new dry dock at their shipyard, and the cost was divided into three parts: preliminary excavation, concreting, and ancillary plant. The respondents claimed that all the expenditures should qualify for the larger initial allowance under Chapter II of Part X of the Income-tax Act, 1952, which deals with machinery and plant. The appellants agreed for the ancillary plant but contended that only the smaller allowance under Chapter I, which deals with industrial buildings and structures, was due for excavation and concreting.The Special Commissioners held that the larger allowance was due for concreting but not for excavation. The First Division held that the larger allowance was due for both.The Commissioners found that the function of the dry dock was to lower ships into a position where they could be securely held out of water and inspected and repaired. The dock acted like a hydraulic chamber, and the valves and pumps were integral parts of the dock. The dock was not merely the setting in which ships were repaired but played an essential part in the operations.The Commissioners referred to the definition of 'plant' given by Lindley L.J. in Yarmouth v. France, which includes apparatus used by a businessman for carrying on his business. They concluded that the dry dock was not merely a structure but also qualified as plant because it played an active role in the functioning of the dock.The Crown relied on the decision in Margrett v. Lowestoft Water & Gas Co., where it was held that a water tower was not 'plant.' However, the Commissioners distinguished the dry dock from the water tower, noting that the dry dock played a more active role and was subject to wear and tear.The respondents argued that the whole dock was part of their plant used for their trade. The Commissioners and the First Division agreed, finding that the dry dock fulfilled the function of plant in the trader's operations and was not merely the setting or premises.2. Whether the cost of excavation for the dry dock qualifies as expenditure on the provision of plant:The second issue was whether the cost of excavation necessary to make room for the plant (dry dock) should be considered part of the expenditure on the provision of the plant under section 279(1) of the Income Tax Act, 1952.The Commissioners held that the excavation expenditure was too remote from the provision of the dry dock and only attracted allowances under Chapter I. However, the First Division reversed this decision, finding that the excavation was a necessary preliminary to the construction of the dry dock and was covered by the provision of plant under section 279.The appellants argued that 'provision' could not include preliminary expenditure like excavation, relying on section 300 of the Act. However, it was noted that section 300 dealt with alterations to existing buildings incidental to the installation of machinery or plant, and 'incidental' is a wider term than 'necessary.' The First Division found that section 279 covered necessary preliminary expenditure.The appellants also referenced section 16(3) of the Finance Act, 1956, but it was found not applicable as it only applies where no allowance could be made under Chapter I or II.The First Division concluded that the cost of excavation was indeed part of the provision of the plant and qualified for the larger initial allowance under Chapter II.Conclusion:The appeal was dismissed, affirming the First Division's decision that both the concreting and excavation costs qualified for the larger initial allowance under Chapter II of Part X of the Income Tax Act, 1952, as the dry dock was considered 'plant' and the excavation was necessary for its provision.