Commissioners of Inland Revenue v Barclay, Curle & Company Ltd

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Reid,Lord Hodson,Lord Guest,Lord Upjohn,Lord Donovan
Judgment Date19 February 1969
Judgment citation (vLex)[1969] UKHL J0219-3
Date19 February 1969
Docket NumberNo. 3.

[1969] UKHL J0219-3

House of Lords

Lord Reid

Lord Hodson

Lord Guest

Lord Upjohn

Lord Donovan

Commissioners of Inland Revenue
and
Barclay Curle & Co. Ltd.

Upon Report from the Appellate Committee, to whom was referred the Cause Commissioners of Inland Revenue against Barclay Curie & Co. Ltd., that the Committee had heard Counsel, as well on Tuesday the 21st as on Wednesday the 22d, days of January last, upon the Petition and Appeal of the Commissioners of Inland Revenue, of Somerset House, Strand, London, W.C.2, praying, that the matter of the Interlocutor set forth in the Schedule thereto, namely, an Interlocutor of the Lords of Session in Scotland of the First Division, sitting as the Court of Exchequer, of the 21st of June 1968, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Interlocutor might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of Barclay Curie & Co. Ltd., lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Interlocutor of the 21st day of June 1968, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments: And it is also further Ordered, That unless the Costs, certified as aforesaid, shall be paid to the parties entitled to the same within one calendar month from the date of the Certificate thereof, the Cause shall be, and the same is hereby, remitted back to the Court of Session in Scotland, or to the Judge acting as Vacation Judge, to issue such Summary Process or Diligence for the recovery of such Costs as shall be lawful and necessary.

Lord Reid

My Lords,

1

During 1965 and earlier years the Respondents installed a new dry dock at their shipyard at Elderslie. The cost has been divided into three parts. Preliminary excavation cost some £187,000; concreting cost some £500,000; and ancillary plant cost some £243,000. Part X of the Income Tax Act 1952 gives initial allowances for certain capital expenditure. Chapter I deals with industrial buildings and structures and Chapter II deals with machinery and plant. If the expenditure comes within the scope of Chapter II there is an initial allowance equal to three-tenths but if it comes under Chapter I the initial allowance is only three-twentieths. The Respondents claim that they are entitled to the larger allowance in respect of all this expenditure. The Appellants admit the claim with regard 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.

2

I can summarise the facts found by the Commissioners. The dock had to 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.

3

From the findings of fact I need only quote the following:—

"The function of a dry dock is to lower ships into a position where they can be securely held exposed out of the water and inspected and repaired and to raise them again to a level where they are 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 a functioning entity. The remainder of the dock would have been useless to the company without them and, similarly, they would have been useless without the remainder of the dock."

4

In giving their decision the Commissioners said:—

"The question, as we saw it, was not a straight issue of whether the disputed items were spent on machinery or plant on the one hand or on a building or structure on the other. Section 276 of the Income Tax Act, 1952, envisages by its terms that an object may qualify not only as a building or structure but at the same time as machinery or plant. Moreover, where this double qualification occurs section 276 seemed to us to provide that allowances should be given under Chapter II rather than under Chapter I. In other words, even if an object of expenditure were a building or structure that was no bar to the grant of allowances under Chapter II of Part X of the Act if it could be shown that the object also qualified as machinery or plant.

In these circumstances we turned first to consider whether the disputed items could be said to be expenditure on 'machinery or plant' as that phrase has been interpreted in the authorities. As we understood the decided cases the definition of plant given by Lindley, L.J. in Yarmouth v. France 19 Q.B.D. 647 at page 658, has been adopted for Income Tax purposes. This definition reads "in its ordinary sense, 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". 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 at pages 286-7 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. 40 T.C. 681, 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"" (page 692).

In Hinton v. Maden and Ireland Ltd. 38 T.C. 391 Lord Reid (at page 417) in adopting the definition of Lindley, L.J., in Yarmouth v. France said that it "is not disputed that "plant" is also used in the (Income Tax) Act as an ordinary English word". It was suggested to us that one test to apply was whether the ordinary man in the street would regard the company's No. 3 dry dock as plant. We thought it was not open to us to apply such a test of 'first impression' having regard to the decision in Jarrold v. John Good & Sons Ltd. in which Donovan, L.J., said at page 694 "I do not think that anybody at first blush would call these partitions "plant"". It seemed to us that what we had to do was to consider the nature and function of the dry dock on the evidence adduced before us and to determine whether it satisfied the definition in Yarmouth v. France. The dock was obviously a structure but that did not answer the question whether it was plant.

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.

The Crown relied strongly on the decision in the case of Margrett v. Lowestoft Water & Gas Company 19 T.C. 481, in which it was held that there was no evidence on which the Commissioners could arrive at their conclusion that a water tower was 'plant' within the meaning of Rule 6 of Cases I and II of Schedule D. That case has not been specifically overruled by later cases. It seemed to us, however, that following the decision in Jarrold v. John Good & Sons Ltd. it was no longer open to us to look at an object of expenditure, in determining whether it was plant, to see whether it was a thing which was like machinery and subject to wear and tear in...

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