TaxTMI 
TaxTMI 
1969 (1) TMI 69
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.... to the ? 243,000 for ancillary plant but maintain that only the smaller allowance is due in respect of the excavation and concreting. The Special Commissioners held that the larger allowance was due in respect of the concreting but not the excavation. The First Division held that the larger allowance was due for both. I can summarise the facts found by the Commissioners. The dock had to be made at the right level adjacent to the Clyde and some 200,000 tons of earth had to be removed to make room for it. The walls and bottom of the dock had to be strong and impervious to water so that some 100,000 tons of concrete had to be used. The gate, included in the ancillary plant, is of a falling leaf type. It is opened and when the dock is full of water at high tide the ship to be inspected or repaired is caused to enter the dock. The gate is then closed, the water pumped out, and the ship properly supported so that work can proceed on the outside of the hull. When the work is finished the process is reversed and the ship can at high tide re-enter the river. From the findings of fact I need only quote the following : &nbs....
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.... for carrying on his business, not his stock-in-trade which he buys or makes for sale ; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business : ' In its application for income tax purposes this definition is subject to the qualification laid down by Uthwatt J. in J. Lyons Co. Ltd. v. Attorney-General [1944] Ch. 281, 287, that plant does not include ' the place in which the business is carried on ' ; that is the setting. In the case of Jarrold v. John Good & Sons Ltd. [1959] 1 W. L. R. 875, 889 ; [1960] 39 Pennycuick J. said that he did not regard the two conceptions of ' setting ' and ' plant ' as being mutually exclusive and Ormerod L. J. # said he ' would be inclined to agree with him, although it would appear that in a large number of cases the part of the equipment which can properly be regarded as ' setting ' is not likely to be regarded as ' plant '. In Hinton v. Maden & Ireland Ltd. [1962] 1 W. L. R. 1101 (Ch. D.).I. T. R. 357 (H. L.) Lord Reid in adopting the definition of Lindley L. J., in Yarmouth v. France*, said that it ' is not disputed that plant ....
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....ng whether it was plant, to see whether it was a thing which was like machinery and subject to wear and tear in the ordinary sense. In any event we found that the No. 3 dry dock played a more ' active ' role in the functioning of the dock than did the water-tower in the provision of water to Lowestoft. Moreover, the dry dock was subject to wear and tear. On these findings we held that the sum of 500,380 was expended on the provision of machinery or plant which attracted allowances under Chapter II of Part X of the Income Tax Act, 1952. As regards the expenditure of 186,928 for the excavation of No. 3 dry dock we found that this was not expenditure on the provision of machinery or plant. In our 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 X. " The respondents say that the whole dock was part of their plant used by them for the purposes of their trade. " Plant " is nowhere defined in the Act and they rely chiefly on what was said by Lindley L. J., in Yarmouth v. France [1887] 19 Q. B. D. 658 and on....
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....e is not plant although its configuration may be such that its use is an essential element in a trading operation. The soil on a farm is not plant although cultivation has greatly improved it. So a lock which impounds water is not plant although a trader uses it as the source of the water he needs. And a dam is generally simply an improvement of the loch giving a better supply. But I could imagine circumstances in which a dam would be such an integral part of the means required for a trading operation that it should be regarded as plant. I find no error of law in the Commissioners' determination of the first question. The appellants rely on Margrett v. Lowestoft Water & Gas Co. [1935] 19 T. C. 481 There the company required to have a tank at some height above ground level to give the necessary head of water, and the question was whether the structure which supported the tank was plant. Finlay J. appears to have decided it was not, largely on the ground that, being a structure, it could not be plant. The tank certainly was plant and if the cost of the foundations necessary to support plant at ground level is part of the cost of the plant, then I think that this tower must be ....
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....chinery or plant. " Here the word used is " incidental " to the installation of the plant. " Incidental " is a wider word than " necessary. " In my view, expenditure necessary for the installation of the plant is already covered by section 279. But it may be that the exigencies of the trade require that when new machinery or plant is installed in existing buildings more shall be done than mere installation in order that the new machinery or plant may serve its proper purpose. Where that is the case this section enables the cost of additional alterations to be included. If this section meant that no preliminary expenditure is within the scope of section 279 there would be an anomalous and unreasonable difference between the provision of plant in a new building or in the open, and the provision of plant in an existing building. So I do not regard this section as supporting the appellants' argument. The appellants also rely on section 16(3) of the Finance Act, 1956. But that section only applies where apart from it no allowance could be made either under Chapter I or under Chapter II. I do not see how it can have any application to the present case because here it is admitte....
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....ted as a general test of the meaning of the word " plant " by your Lordships' House in Hinton v. Maden & Ireland Ltd. [1959] 1 W. L. R. 875 ; [1960] 39 I.T.R. 357 (H. L.).; see per Lord Reid, at page 889, and per Lord Jenkins, at page 898. The words " plant " and " structure " in the Act are not mutally exclusive as appears from the language of section 276 (1) ( part of Chapter I ) which provides that : " No allowance shall be made under . . . . . . this Chapter in respect of, . . . or of expenditure on, a building or structure if . . . an allowance is or can be made under any of the provisions of Chapter II . . . of this part of this Act in respect of, or of expenditure on, that building or structure. " Section 279 (1) of the Act under which the respondents claim an initial allowance at the higher rate reads, as far as material, as follows : " . . . where a person carrying on a trade incurs capital expenditure on the provision of machinery or plant for the purposes of the trade, there shall be made to him . . . . . . an a....
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.... and timely repairs were carried out when requisite. I do not find the argument based on function convincing. No doubt function is a useful test and relevant in considering whether or not a thing is properly described as " plant, " but functions is not decisive. Whether an item is plant or not depends on all the circumstances of the case. In the case of Margrett v. Lowestoft Water & Gas Co., * the question was whether a water tower was " plant " in respect of which the company was entitled to a deduction for wear and tear under rule 6 of Cases I and II of Schedule D. The company, which supplied water to Lowestoft and district, erected a water tower built of ferro-concrete except for certain auxiliary apparatus comprising pumps, valves and pipes. It was used for increasing the pressure of the water supply and replaced a gas engine and pumps previously used for that purpose. Finlay J. held that the water tower ( apart from the auxiliary apparatus ) was not " plant " within the meaning of rule 6. In my opinion, he was right in so deciding. He rejected the argument based on function, saying, at pages 486-487 : " You have to examine what the thing is. It is not enough to say it wa....
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....n and the apparatus used for carrying on that business are not necessarily exclusive, but it was never suggested that, because of the function which the partitions performed, the whole building, as well as the partitions, qualified for initial allowances as plant. In the instant case, likewise, the plant, contained in the dock as an essential element, qualifies for allowance as plant, but the dock itself can be split up so as to divide the main structure from the plant therein contained even though the dock and its equipment form one unit. I cannot regard the basin in question here which forms the walls and bottom of the dry dock as plant. If that were so it would seem that all purpose-built premises would likewise qualify as " plant. " The guidance afforded by judicial decisions following the statement of Lindley L. J. in Yarmouth v. France appears to me to support the appellants. To regard the dock as apparatus seems to me to be wrong and I regard it as being something quite different from the generally accepted conception of " plant. " The impermeable quality of the dock points to its being covered by the words " building or structure " rather than the word " plant. " It h....
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....he construction of a building or structure which is to be an industrial building or structure occupied for the purposes of a trade carried on . . . by him . . . " Chapter II of Part X, section 279(1), provides for an initial allowance of three-tenths " where a person carrying on a trade incurs capital expenditure on the provision of machinery or plant for the purposes of the trade. " The dry dock was formed by an extensive excavation out of the ground of enormous quantities of earth and rock to form a rectangular basin bordering the River Clyde. The basin was lined as to the floor and sides with concrete with varying depths of 5 and 2+ ft. The total amount of concrete used was 100,000 tons. By a system of dock gates, pipes, pumps and valves after a ship was floated into the basin the water was withdrawn and the ship allowed to settle on keel blocks. It was thereafter kept in position by various contrivances. The consequent exposure of the bottom and sides of the ship enabled inspection and/or repairs to be done. When this was completed the water was returned to the basin, the dock gates were thereupon opened and the ship sailed away into the river. The Special Commissioners f....
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.... dry dock is " plant " within the terms of section 279. The conjunction of " machinery " and " plant " suggest to me that they both must perform some active function. In order to decide whether a particular subject is an " apparatus " it seems obvious that an inquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as a preliminary. The function which the dry dock performs is that of a hydraulic lift taking ships from the water on to dry land, raising them and holding them in such a position that inspection and repairs can conveniently be effected to their bottoms and sides. It is unrealistic, in my view, to consider the concrete work in isolation from the rest of the dry dock. It is the level of the bottom of the basin in conjunction with the river level which enables the function of dry docking to be performed by the use of dock gates, valves and pumps. To effect this purpose excavation and concrete work were necessary. It is said that the dry dock is similar to premises like a factory building in which the trade is carried on. But this comparison is not, in my view, accurate. The factory is by itself a building or struc....
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....t, their view being that the expenditure was " too remote " from the provision of the dry dock. In my view, they were wrong in excluding this expenditure. The excavation was a necessary preliminary to the construction of the dry dock and, in my view, was covered by the provision of plant under section 279. " Provision " must cover something more than the actual supply. In this case it includes the excavation of the hole in which the concrete is laid. Mr. Mackenzie Stuart advanced a subsidiary argument based on section 16(3) of the Finance Act, 1956, which, he said, excluded the excavation expenditure from Chapter II. In my view, the answer to this submission was given by Lord Migdale. The qualifying words " apart from this subsection no allowance could be made in respect of an expenditure under Chapter I or II of Part X of the Income Tax Act, 1952 " brings one back to section 279 and, as I have already said, the excavation expenditure is included in the provision of plant under that section. Section 16(3), in my view, has no application. I therefore consider the First Division were right in reversing the co....
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....quired, 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 wall....
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.... " But the learned Lord Justice 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. Attorney- General **, 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 L. J. ( as he then was ) in Jarrold v. John Good & Sons Ltd *** (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....
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....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 respondents' 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,....
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....cost of the concrete work used in constructing the dock is properly described as an expenditure upon the provision of plant and machinery, and upon that footing the second question plainly does arise. If 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 upon the provision of plant and machinery and entitled, therefore, to an initial allowance under Chapter II. But upon the whole matter and for the reasons I have given I would allow this appeal. 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 revenue too far. For such a basin, regarded by itself, would be of no use to the respondents in their t....
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....t 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 inquired whether the revenue 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 L. J. and by Lord Pearson to be as good as any, though, as was said in Jarrold v. John Good & Sons ***, some plant may perform its function passively and not actively. But in the present case this dry dock, looked upon 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 respondents' 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 necessar....