Benson (Inspector of Taxes) v. Yard Arm Club Ltd

[1979] 2 All ER 336

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(Judgment by: Buckley, Shaw and Templeman LJJ)

Customs and excise - Duty paid under protest - Classification of imported goods - Milk chocolate wafers - "Biscuits... Put up as confectionery" - Recovery of duty - (CTH) Customs Tariff Act 1966, First Schedule, Pt II, Ch 19.8; - (CTH) Customs Act 1901 s 167

Court:

Judge:
Buckley, Shaw and Templeman LJJ

Hearing date: 11, 12 January 1979
Judgment date: 15 January 1979

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Judgment by:
Buckley, Shaw and Templeman LJJ

Income tax - Capital allowances - Plant - Apparatus used by taxpayer for purpose of business - Ship used as floating restaurant - Whether ship was setting in which restaurant business carried on or plant for carrying on business of floating restaurant - Capital Allowances Act 1968, s 18 - Finance Act 1971, s 41.

In 1962 the taxpayer company, which carried on a restaurant business, acquired a ship for £2,449 for the purpose of converting it into a floating restaurant. In carrying out the conversion, the taxpayer company spent £75,862. Of that expenditure £41,254 represented the cost of acquiring the vessel and a barge, which provided services to it, and of carrying out alterations to their hulls and structures. After conversion the vessel was attached to the barge which was itself fixed to mooring posts. The vessel and the barge were subject to movement by the tide and the waves. The vessel was used as a floating restaurant from 1963 to 1975. For the computation of its income and corporation tax for the years 1963 to 1978, the taxpayer company claimed that the vessel and barge were plant and that the sum of £41,254 represented capital expenditure on the provision of plant for the purposes of capital allowances under s 18 of the Capital Allowances Act 1968 and s 41 of the Finance Act 1971. The General Commissioners allowed the taxpayer company's claim. On appeal by the Crown the taxpayer company contended that chattels, not associated with land, were plant if they were kept for permanent employment in the business by the person carrying on the business and that the vessel and barge were chattels kept by the taxpayer company for permanent employment in its restaurant business. Alternatively, it contended that the vessel and barge were apparatus essential to the carrying on of a floating restaurant business and as such were plant. The judge ([1978] 2 All ER 958, [1978] STC 408) allowed the appeal. On appeal by the taxpayer company.

Held - The term 'plant' was not a term of art but was to be interpreted according to its ordinary meaning in the context in which it was to be construed. To determine whether a structure which had been provided for the purposes of a taxpayer's trade was plant, regard was to be had to the use which was made of the structure: if the structure was something by means of which the business activities were in part carried on it was plant, but, if it played no part in the carrying on of those activities but was merely the place within which they were carried on, it was not plant. That test, the functional test, applied whether or not the structure was attached to the soil. The vessel and barge, although chattels and although used in connection with the business of the taxpayer company as restaurateurs, were not part of the apparatus employed in the commercial activities of the business, but were merely the structure within which the business was carried on, and accordingly were not 'plant' within s 18 of the 1968 Act or s 41 of the 1971 Act. Accordingly the appeal would be dismissed (see p 338 j to p 339 b, p 342 g to P 343 c and g h, p 344 b to e, p 345 d e, p 346 a to e and j to p 347 a and d e, p 348 d to h and p 349 b, post).

Dicta of Lindley LJ in Yarmouth v France (1887) 19 QBD at 658 and of Uthwatt J in J Lyons & Co Ltd v Attorney General [1944] 1 All ER at 479, Inland Revenue Comrs v Barclay Curle & Co Ltd [1969] 1 All ER 732, St John's School (Mountford and Knibbs) v Ward (Inspector of Taxes) [1974] STC 69, Cooke (Inspector of Taxes) v Beach Station Caravans Ltd

[1974] 3 All ER 159 and dictum of Brightman J in Dixon (Inspector of Taxes) v Fitch's Garage Ltd [1975] 3 All ER at 461 applied.

John Hall Junior & Co v Rickman [1904-7] All ER Rep 946 distinguished.

Decision of Goulding J [1978] 2 All ER 958 affirmed.

Notes

For the allowances available in respect of machinery and plant, see 23 Halsbury's Laws (4th Edn) paras 416-425, 442-448, and for cases on the meaning of 'plant', see 28(1) Digest (Reissue) 214-216, 637-643.

For the Capital Allowances Act 1968, s 18, see 34 Halsbury's Statutes (3rd Edn) 1061.

For the Finance Act 1971, s 41, see 41 ibid 1459.

Cases referred to in judgments

Cooke (Inspector of Taxes) v Beach Station Caravans Ltd [1974] 3 All ER 159, [1974] 1 WLR 1398, [1974] STC 402, 49 Tax Cas 514, 53 ATC 216 [1974] TR 213, Digest (Cont Vol D) 456, 640a.

Dixon (Inspector of Taxes) v Fitch's Garage Ltd [1975] 3 All ER 455, [1976] 1 WLR 215, [1975] STC 480, 54 ATC 151, [1975] TR 123, Digest (Cont Vol D) 493, 1676c.

Hall (John) Junior & Co v Rickman [1906] 1 KB 311, [1904-7] All ER Rep 946, 75 LJKB 178, 94 LT 224, 28(1) Digest (Reissue) 214, 637.

Hinton (Inspector of Taxes) v Maden & Ireland Ltd [1959] 3 All ER 356, [1959] 1 WLR 875, 38 Tax Cas 391, [1959] TR 233, 38 ATC 231, 52 R & IT 688, HL, 28(1) Digest (Reissue) 193, 598.

Inland Revenue Comrs v Barclay Curle & Co Ltd [1969] 1 All ER 732, [1969] 1 WLR 675, 45 Tax Cas 221, 48 ATC 17, [1969] TR 21, 1969 SLT 122, [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, [1963] 1 WLR 214, 40 Tax Cas 681, 41 ATC 335, [1962] TR 371, [1963] RVR 653, CA; affg [1962] 2 All ER 971, [1962] 1 WLR 1101, 40 Tax Cas 681, 41 ATC 170, [1962] TR 181, [1962] RVR 653, 28(1) Digest (Reissue) 215, 642.

Lyons (J) & Co Ltd v Attorney General [1944] 1 All ER 477, [1944] CH 281, 113 LJ Ch 196, 170 LT 348, 17 Digest (Reissue) 542, 324.

St John's School (Mountford and Knibbs) v Ward (Inspector of Taxes) [1974] STC 69, 49 Tax Cas 524, 52 ATC 326, [1973] TR 267, [1974] RA 49; affd [1975] STC 7, 49 Tax Cas 524, 53 ATC 279, [1974] TR 273, [1974] RA 481, CA, Digest (Cont Vol D) 493, 1676b.

Schofield (Inspector of Taxes) v R & H Hall Ltd [1975] STC 353, 49 Tax Cas 538, CA(NI).

Yarmouth v France (1887) 19 QBD 647, 57 LJQB 7, 34 Digest (Repl) 299, 2159.

Appeal

This was an appeal by Yard Arm Club Ltd (the taxpayer company) from the judgment of Goulding J ([1978] 2 All ER 958, [1978] 1 WLR 1217, [1978] STC 408) given on 16 February 1978 allowing an appeal by the Crown from the determination of the Commissioners for the General Purposes of the Income Tax for the Division of Spelthorne, Middlesex, who had allowed an appeal by the taxpayer company against certain assessments to income tax under Sch D, Case I, for the year 1963-64 in respect of the company's trade as restaurateurs, and against certain assessments to corporation tax in respect of such profits during the period from 1 October 1966 to 31 December 1973.

F Heyworth Talbot QC and Francis Brennan for the taxpayer company.

Brian Davenport for the Crown.

15 January 1979. The following judgments were delivered.

BUCKLEY LJ . This is an appeal from a judgment of Goulding J ([1978] 2 All ER 958, [1978] 1 WLR 1217, [1978] STC 408) of 16 February 1978, when he allowed an appeal from the Income Tax General Commissioners for the Spelthorne Division of Middlesex, who had allowed an appeal by the taxpayer company against certain income tax assessments under Sch D, Case I, in respect of the profits of the company's trade as restaurateurs for the three fiscal years 1963-64 to 1965-66, and again certain assessments to corporation tax in respect of such profits during the period commencing on 1 October 1966 and ending on 31 December 1973.

The question involved in the appeal is whether the company was entitled to capital allowances in respect of certain capital expenditure incurred in acquiring a vessel formerly called the Hotspur but later known as the Hispaniola, and the cost of its conversion into a floating restaurant, together with a barge which provided services to it.

The vessel was acquired by the company in 1962 at a cost of £2,449. Its engine and boiler were removed, as well as the steering tackle, so that the vessel became, as counsel for the taxpayer company described it, a hulk. It was then towed to a permanent site adjoining the wall of the Victoria Embankment, near Hungerford Bridge. The barge referred to was a dumb barge; it was fixed to mooring posts at the site where the vessel was to be moored; the barge was able to slide up and down those posts as required by tidal movement, and the vessel was moored to the barge by ropes and chains and consequently was also subject to vertical movement with the tide, and also to a small horizontal movement up and down river to the extent of some 5 ft, caused by the ebb and flow of the tide. The vessel was initially used by the company for the purposes of a club, but from 13 August 1963 onwards it was used as a public restaurant and was thereafter so used throughout the relevant period.

The vessel comprised three decks, a hold where the washing up and so on was done, which was served by a lift from the other decks, a main deck containing bars, toilets and restaurant facilities, and an upper deck comprising table facilities and the kitchen. The barge was necessary for the purpose of providing a seating for the gangway from the ship, which could slide on the deck of the barge; the barge also contained sewage disposal equipment, waiters' changing rooms and other facilities. In 1972 a new kitchen was built in the barge.

The vessel was moored permanently at the site, save that it was moved under tow to dry dock for repainting and maintenance every few years, but except on such occasions the vessel was, as the commissioners found, intended to be kept in a permanently fixed position, although it could be moved if required; it was never intended to carry passengers or cargo on voyages.

The company expended a total sum of £75,862 in the provision of the vessel and the barge and on furnishing it in various ways. Of that sum £41,254 was the amount of the cost of the vessel and of the alterations to the hull. That figure may also have included the cost of the barge, but I am not quite sure about that. The total figure also included £8,517, representing the cost of lifts, machinery and furniture, and £26,091 the cost of additional fixtures. Capital allowances were granted in respect of the cost of the lifts, machinery and furniture and fixtures.

The item in dispute is the £41,254. The General Commissioners took the view that that sum was expended on the provision of plant within the meaning of the relevant statutory provisions, holding the vessel, and by implication the barge, to be plant within the meaning of those provisions. The judge, however, took a contrary view.

The statutory provisions which were consecutively in operation during the relevant period were the Income Tax Act 1952, ss 279 and 280, the Capital Allowances Act 1968, ss 18 and 19, and the Finance Act 1971, ss 41 and 44. Those statutory provisions all employ the same verbal formula authorising capital allowances in respect of capital expenditure incurred by a person carrying on a trade 'on the provision of machinery or plant for the purpose of the trade'. We are not in this case concerned with machinery, so the question is whether the £41,254 was spent on providing plant for the purposes of the company's business as restaurateurs. The statutes have not at any time contained a definition of the meaning of 'plant'. Consequently the question is: what does that word mean and how does it apply to the particular circumstances of this case? That is a question of law, being one of interpretation, but nevertheless it is a jury question in the sense that the word 'plant' is not a word of art: it must be interpreted according to its ordinary meaning as a word in the English language in the context in which it has to be construed; that is to say, the court of construction must interpret it as a man who speaks English and understands English accurately but not pedantically would interpret it in that context, applying it to the particular subject-matter in question in the circumstances of the particular case.

In Yarmouth v France ((1887) 19 QBD 647 at 658) Lindley LJ formulated an interpretation of the word which has been constantly cited since and treated as authoritative. He said:

'There is no definition of plant in the Act: but, 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 J Lyons & Co Ltd v Attorney General Uthwatt J had to consider whether electric light fittings were plant; he held that they were not, since they were not part of the apparatus used for carrying on the taxpayer's business. In the course of his judgment he cited Lindley LJ's interpretation or explanation of the meaning of the word 'plant' and said ([1944] 1 All ER 477 at 479, [1944] CH 281 at 287), I think by way of obiter dictum, that plant does not include the place in which the business is carried on.

In Hinton (Inspector of Taxes) v Maden & Ireland Ltd ([1959] 3 All ER 356 at 362, [1969] 1 WLR 875 at 889, 38 Tax Cas 391 at 417) Lord Reid, after remarking that 'plant' is an ordinary Engligh word and that it is not altogether easy to construe and that it may have a more or less extensive meaning according to its context, cited Lindley LJ's formulation and also Uthwatt J's observations, with approval.

In Jarrold (Inspector of Taxes) v John Good & Sons Ltd movable partitions used for dividing up the space in an office building so that the plan of the office accommodation within the building could be varied from time to time as circumstances required were held to be plant. Pennycuick J ([1962] 2 All ER 971 at 976, [1962] 1 WLR 1101 at 1108, 40 Tax Cas 681 at 688), who heard the case in the Chancery Division, indicated that it seemed to him that the setting in which a business is carried on and the apparatus used for carrying on a business are not always necessarily mutually exclusive, but in the case before him it seemed to him to be impossible to deny that fixture possessing the character of the movable partitions merited the title of apparatus used by the company for carrying on its business, and accordingly he held such partitions to be 'plant' within the meaning of the Income Tax Act 1952. His decision was upheld in this court. Ormrod LJ, who thought the case was one which was very near to the dividing line, cited Yarmouth v France (19 QBD 647) and J Lyons & Co v Attorney General, and said that in his judgment, in the circumstances of that case, the partitions should be regarded as something more than a mere setting for the carrying out of the trade, in other words as coming within the definition of 'plant' ([1963] 1 All ER 141 at 146, [1963] 1 WLR 214 at 221, 40 Tax Cas 681 at 693). Donovan LJ said ([1963] 1 All ER 141 at 147, [1963] 1 WLR 214 at 222, 40 Tax Cas 681 at 694) that he agreed with Pennycuick J that 'setting' and 'plant' were not mutually exclusive conceptions; but later he said that the definition given to plant by Lindley LJ in Yarmouth v France ((1887) 19 QBD 647 at 658) clearly embraced the partitions there under consideration. He said ([1963] 1 All ER 141 at 148, [1963] 1 WLR 214 at 224, 40 Tax Cas 681 at 695):

'I would agree, however, that there may be cases, like J. Lyons & Co., Ltd. v. A.-G., where an asset or some article can be excluded from the definition because it is more a part of the setting than part of the apparatus for carrying on the trade. In the present case, however, the contrary is found. These partitions are required by the nature of the taxpayer's trade, as the lamps in the case of J. Lyons & Co., Ltd. v. A.-G. were not.'

Pearson LJ ([1963] 1 All ER 141 at 148, [1963] 1 WLR 214 at 224, 40 Tax Cas 681 at 695) said that plant was something to be distinguished from the premises in which the business is carried on. Later he said ([1963] 1 All ER 141 at 149, [1963] 1 WLR 214 at 225, 40 Tax Cas 681 at 696):

There can be no doubt, therefore, as to the main principles to be applied, and the short question in this case 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.'

He also agreed with the view taken by Pennycuick J.

In Inland Revenue Comrs v Barclay Curle & Co Ltd the House of Lords had to decide whether a dry dock constituted plant. The provision of the dry dock had involved considerable excavation in the first place, and then the installation of some massive concrete works. Lord Reid said ([1969] 1 All ER 732 at 740 - 741, [1969] 1 WLR 675 at 679, 45 Tax Cas 221 at 238-239):

'As the commissions observed, buildings or structures and machinery and plant are not mutually exclusive, and that was recognised in Jarrold's case. Undoubtedly this concrete dry dock is a structure but is it also plant? The only reason why a structure should also be plant which has been suggested or which has occurred to me is that it fulfils the function of plant in the trader's operations. And, if that is so, no test has been suggested to distinguish one structure which fulfils such a function from another. I do not say that every structure which fulfils the function of plant must be regarded as plant, but I think that one would have to find some good reason for excluding such a structure. And I do not think that mere size is sufficient ... It seems to me that every part of this dry dock plays an essential part in getting large vessels into a position where work on the outside of the hull can begin, and that it is wrong to regard either the concrete or any other part of the dock as a mere setting or part of the premises in which this operation takes place. The whole dock is, I think, the means by which, or plant with which, the operation is performed.'

Lord Guest, after referring to Yarmouth v France, said ([1969] 1 All ER 732 at 746, [1969] 1 WLR 675 at 685, 45 Tax Cas 221 at 244):

'The emphasis is on "an apparatus used for carrying on business" ... In order to decide whether a particular subject is an "apparatus" it seems obvious that an enquiry has to be made as to what operation it performs. The functional test is, therefore, essential, at any rate as a preliminary.'

Later he said ([1969] 1 All ER 732 at 746, [1969] 1 WLR 675 at 686, 45 Tax Cas 221 at 245):

'As PEARSON, L.J., said [in Jarrold v John Good & Sons [[1963] 1 All ER 141 at 149, [1963] 1 WLR 214 at 224, 40 Tax Cas 681 at 696]], the subject is part of the plant with which the business is carried on as distinct from the premises in which the business is carried on.'

Lord Donovan, the third of the members of the House of Lords who in that case constituted the majority, said ([1969] 1 All ER 732 at 751-752, [1969] 1 WLR 675 at 691, 45 Tax Cas 221 at 250):

'At the end of the day I find the functional test propounded by LINDLEY, L.J., and by PEARSON, L.J., to be as good as any, though, as was said in Jarrold (Inspector of Taxes) v. John Good & Sons, Ltd, some plant may perform its function passively and not actively. But in the present case this dry dock, looked on 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 taxpayer company's trade, and therefore, in my view, "plant".'

All three members of the majority in that case relied on the way in which the dock was used.

In Cooke (Inspector of Taxes) v Beach Station Caravans Ltd Megarry J had to consider whether a swimming pool and a paddling pool provided at a caravan park, which were structures attached to the soil, were or were not plant, and he held that they were. He said ([1974] 3 All ER 159 at 166, [1974] 1 WLR 1398 at 1402, [1974] STC 402 at 409):

'First, the two pools should be considered as a unit, with all the attendant apparatus for purifying and heating the water and so on: for it is as a unit that they were constructed and as a unit that they are run. Second, the pools should be considered not on their own but in relation to the business carried on by the company, namely, running its caravan park.'

He then discussed the nature of the use of the pools; I do not think I need read that part of his judgment, but he said ([1974] 3 All ER 159 at 167, [1974] 1 WLR 1398 at 1403, [1974] STC 402 at 410):

'... the pools are ... part of the apparatus used by the company for carrying on its business as caravan park operators. The pools are part of the means whereby trade is carried on, and not merely the place at which it is carried on: see per Pearson LJ in Jarrold's case [[1963] 1 All ER 141 at 149, [1963] 1 WLR 214 at 225, 40 Tax Cas 681 at 696] ... '

On the other hand in St John's School (Mountford and Knibbs) v Ward (Inspector of Taxes) a laboratory and a gymnasium, each consisting of a structure which which was not attached to the soil at a school were held not to constitute plant. Templeman J ([1974] STC 69 at 76, 49 Tax Cas 524 at 533) referred to the remark of Pearson LJ^[F1]-

'There can be no doubt, therefore, as to the main principles to be applied, and the short question in this case 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,'

and then Templeman J went on in his judgment to say ([1974] STC 69 at 77, 49 Tax Cas 524 at 533):

'If one asks the same question here-namely, whether the chemistry laboratory and the gymnasium are the premises in which the business is carried on or are part of the plant with which the business is carried on-the answer must be the former. Education is not carried out with these particular building but in these particular buildings; by contrast the climbing ropes seem to me to be part of the educative machinery.'

Later Templeman J said ([1974] STC 69 at 77, 49 Tax Cas 524 at 534):

'In the present case, neither the laboratory nor the gymnasium has any function to perform other than to shelter the persons who are being educated inside. The gymnasium was also used to attach ropes and apparatus and was strengthened for that purpose, but the building did not function. The building was only the structure within which the function of educating the boys was carried on.'

His view was upheld in this court ([1975] STC 7 at 8-9, 49 Tax Cas 524 at 536).

In Schofield (Inspector of Taxes) v R & H Hall Ltd the Court of Appeal in Northern Ireland had to decide whether certain silos erected by a company carrying on the business of importing grain for sale to millers and to manufacturers of animal feeding stuffs were or were not plant. The company found itself obliged to equip itself for bulk unloading of grain, and for that purpose it built silos on the dockside from which grain could be delivered with convenient ease to customers who came to collect what they had ordered. The grain was sucked up from the ship into the silos and from there it was released as required and from which it descended by gravity, or by gravity assisted by machinery, into the customer's lorry. Those silos were in that case held to constitute plant.

Finally, in Dixon (Inspector of Taxes) v Fitch's Garage Ltd Brightman J had to consider whether a canopy erected over a petrol filling station constituted plant. It was a canopy covering the whole of the service area, its object being to provide adequate lighting and protection from the weather for the pumps, the employees and the customers of the company. Brightman J said ([1975] 3 All ER 455 at 461, [1976] 1 WLR 215 at 220-221, [1975] STC 480 at 486):

'The proper test is whether the canopy had a functional purpose to enable the company to perform the activity of supplying petrol to motor vehicles. I ask myself, "Does the canopy help to supply petrol, or is it merely part of the setting where petrol is supplied?" To use the words of Lord Reid^[F2], which I have already read, is the canopy part of the means by which the operation of supplying petrol is performed? In my judgment this question admits only of a negative answer ... Further, there is a clear thread running through recent cases, including two Australian cases^[F3] referred to in the silo case^[F4], showing that a structure is not plant if its only purpose is to provide shelter and if it plays no part in what may be termed "the commercial process". That conclusion is, I think, an inevitable result of the application of the functional test.'

In all these cases the court had regard to the use which was made of the subject-matter under consideration. To an extent this was necessitated by the statutes, for to qualify for capital allowances the subject-matter must have been provided 'for the purposes of the trade'. This, however, is not the end of the matter, for stock-in-trade is provided for the purposes of the trade but is admittedly not 'plant'. The building in which a business is carried on may accurately be described as 'provided for the purposes of the business', but again admittedly is not for that reason alone to be held to be plant. A structure attached to the soil may be plant. The dry dock in Inland Revenue Comrs v Barclay Curle & Co was such, as also were the pools in Cooke (Inspector of Taxes) v Beach Station Caravans Ltd. On the other hand, a structure of the nature of a building which was not attached to the soil was held not to be plant in St John's School (Mountford and Knibbs) v Ward (Inspector of Taxes). The distinction, I think, is that in the one case the structure is something by means of which the business activities are in part carried on; in the other case the structure plays no part in the carrying on of those activities, but is merely the place within which they are carried on. So, in the case at any rate of a subject-matter which is a building or some other kind of structure, regard must be paid to the way in which it is used to discover whether it can or cannot be properly described as plant. This is what has been referred to as the functional test. Indeed I think that this test is applicable to every kind of subject-matter. In some cases the effect of the functional test may be so immediately apparent that the character of the subject-matter as plant goes without saying and the test need not be consciously applied. But in cases nearer the line, in my opinion, the functional test provides the criterion to be applied. Is the subject-matter the apparatus, or part of the apparatus, employed in carrying on the activities of the business? If it is, it is no matter that it consists of some structure attached to the soil. If it is not part of the apparatus so employed, it is not plant, whatever its characteristics may be.

Counsel for the taxpayer company, in the course of his most attractive argument, presented, if I may presume to say so, with his accustomed felicity and beguiling persuasiveness, has relied heavily on John Hall Junior & Co v Rickman. There the taxpayer company had converted a vessel into a hulk, as in the present case; it had formerly been a sailing ship but had been dismantled and had had its rudder removed and was used as a floating warehouse for coal. The question was whether that hulk constituted plant. It was contended for the taxpayer that the hulk was plant within the meaning of the Customs and Inland Revenue Act 1878, and that it came within the definition of 'plant' given by Lindley LJ in Yarmouth v France, as including not stock-in-trade but all goods and chattels fixed or moveable, live or dead, which he keeps for permanent employment in his business; and it was contended that it was nonetheless plant because it was also a floating warehouse. That aspect of the case does not seem to have been dealt with by the Solicitor General in his argument on behalf of the Crown at all, and Walton J, before whom the case came, dealt with the point very briefly at the end of his judgment in this way ([1906] 1 KB 311 at 317, [1904-7] All ER Rep 946 at 951): 'As to the hulk, I think it is clearly plant-indeed, the Solicitor General has not argued to the contrary.'

In reliance on that decision counsel for the taxpayer company says that a hulk, such as the one in that case and such as the one in the present case, is of its very nature plant if it is used in any way in connection with a business; and he says that it makes no difference that the hulk may be used merely as the setting of the business, which I think means the physical surroundings within which the business is carried on.

I feel unable to take that view. John Hall Junior & Co v Rickman may well have been rightly decided on its facts. The fact that the hulk in that case was used as a floating warehouse seems to me to give rise to similar considerations to those which arose in the case of the silos. In any event the point was not contested and the observations of Walton J cannot be said to be much more than the statement of a first impression.

The General Commissioners decided the present case on the analogy of the pools in Cooke (Inspector of Taxes) v Beach Station Caravans Ltd. In my judgment Megarry J was clearly right in regarding the pools in that case as part of the apparatus employed in carrying on the caravan site business; the pools as a whole, and not merely their mechanical parts, provided an attractive service or amenity for patrons of the caravan site; they were part of the facilities provided for patrons and as such formed part of the commercial activity of the business. That part of the taxpayer's enterprise could not have been carried on by the use of the mechanical parts alone unassociated with the structure of the pools, which was consequently an essential part of the apparatus or equipment employed in the business.

In my judgment, the same cannot be said of the vessel in the present case. The business of the company is that of restaurateurs, that is to say, the preparation and service of meals to the public, as well, no doubt, as the sale of alcoholic liquors and other beverages. Such a business must, at least in our climate, be conducted in the shelter of a building of some kind. It is not disputed that, if such a business were carried on in the normal way in a building attached to the soil, the building would not constitute plant; it would be no more than the structure within which the business was carried on.

Why is the vessel in the present case anything other than the structure within which the company's business is carried on? Counsel for the taxpayer company has of course laid stress on the fact that, as he says, the business is not that of merely a restaurant, but that of a floating restaurant. No doubt the fact that it is situated on the river is an attraction to patrons, and that it has the appearance of being a ship may also be an attractive feature. The commissioners found that patrons came to the vessel 'to get good food, somewhere different with views of the river etc, and a ship-board feeling'. But these features do not differ in quality from the advantages of having a restaurant in a building on dry land which enjoys an attractive view over countryside or a lake or, as in the case of the restaurant at the top of the Post Office Tower, over a great city. They may serve to attract custom, but they play no part in the conducting of the business. The circumstance that the use of a particular building is commercially desirable to enable the taxpayer to conduct his business profitably does not import that the building is part of the apparatus used for carrying on the business; it merely imports that that building is a good venue at which to carry on the business: see in this connection the observations of Brightman J in Dixon (Inspector of Taxes) v Fitch's Garage Ltd.

Junior counsel for the taxpayer company presented in the court below and here an argument which is clearly set forth in the judgment of the judge, and I cannot do better than read his formulation of it ([1978] 2 All ER 958 at 967, [1978] 1 WLR 1217 at 1225, [1978] STC 408 at 417):

'The test, says counsel for the taxpayer company, must differ according to whether the asset under scrutiny falls into one or other of two mutually exclusive classes of objects. The first class contains land, buildings, structures on land and parts of structures on land and the second class contains all other assets that may be claimed to be plant. All assets, whether in the first or the second class, if they are to qualify as plant, must possess a business function, must be used for the purposes, that is, of a trade. But in the first case, that of land, buildings and structures on land, there and there only, counsel for the taxpayer company says, a stricter test must be applied. There, not merely must the object in question be used for the purposes of trade: it must play a part in the commercial process of the trade if it is to be regarded as plant; and it is in that context, the context of land, buildings and structures on land, that the development of the functional test in the authorities has to be regarded. Where you have an article not associated with land, then, submits counsel for the taxpayer company, it is enough to go back to the very words of Lindley LJ and to ask from the last part of the oft-repeated citation: is the article a chattel kept for permanent employment in the business by the businessman who carries it on? Then the conclusion would follow that the ship and barge are kept here on the Embankment for permanent employment in the restaurant business and are, therefore, plant. Thus, counsel for the taxpayer company seeks to escape the rigour of the functional test as applied in the more recent cases by saying that it is apt only where the article in question falls into the first class that I have mentioned. Pearson LJ said that the language of Yarmouth v France impliedly excludes a building, as indeed it does, since it speaks of goods and chattels.

It does not, says counsel for the taxpayer company, impliedly exclude a floating vessel; therefore, there is no reason for adding something that will narrow the breadth of what Lindley LJ said.'

But it should be remembered that Lindley LJ did not confine his test to whether the subject-matter is a chattel kept for permanent employment in the business. He used that expression in the context of 'whatever apparatus is used by a business man for carrying on his business'. He was, in my judgment, laying down the functional test and he was clearly doing so in a context which was not confined to land, buildings, structures on land or other parts of structures on land. In my judgment, junior counsel's distinction is not supported by authority.

For these reasons I have reached the conclusion that on the facts found in this case the vessel and the barge, although chattels and although used in connection with the business of the taxpayer company as restaurateurs, were not part of the apparatus employed in the commercial activities of those businesses, but were the structure within which the business was carried on. Accordingly, in my judgment the judge reached the right conclusion in holding that the vessel and the barge do not constitute 'plant' within the meaning of the several statutes.

Accordingly I would dismiss this appeal.

SHAW LJ . I respectfully agree with the judgment of Buckley LJ in its entirety and add only some general observations.

The narrow question raised in this appeal appears simple enough. It is whether a hulk which is used for the purpose of conducting the business of a floating restaurant is to be regarded as 'plant' for the purpose of determining what capital allowances are properly claimable in relation to that business.

Counsel put forward a beguiling argument on behalf of the taxpayer company. It lost nothing in attractiveness by being uncomplicated and direct. He contended that in order to answer the question posed it was unnecessary to look further than two well-known judgments; the first was that of Lindley LJ in Yarmouth v France, the locus classicus for the definition of 'plant'. I need only quote the opening words of that definition. After referring to the expression 'plant', it continues thus: '... in its ordinary sense, it includes whatever apparatus is used by a business man for carrying on his business'.

The second judgment on which counsel relied is that of Walton J in John Hall Junior & Co v Rickman. It was there held that a sailing ship converted to a hulk and used as a floating warehouse for coal by a firm of shipowners was plant within the Customs and Inland Revenue Act 1878. There were other more controversial matters which fell to be decided, but in the concluding sentence of his judgment the judge stated succinctly ([1906] 1 KB 311 at 317, [1904-7] All ER Rep 946 at 951): 'As to the hulk ... it is clearly plant.' There had indeed been no argument before him to the contrary effect.

Counsel for the taxpayer company adopted and asserted this statement in stark isolation as a proposition which expressed a universal truth whatever the environment in which the problem of whether an asset is plant or not fell to be considered. I must confess for myself that any proposition which appears to make fiscal legislation more comprehensible has its own special temptation for acceptance, but simplicity and plausibility do not constitute of themselves a recipe for acceptability. The context of the subject-matter which is said to be plant cannot be ignored, and this is made plain by the citation from Lindley LJ's definition.

Although because of its buoyancy the Hispaniola hulk was used to make a floating restaurant possible, it cannot merely for that reason be regarded as apparatus which achieved that result. It was, in actuality, restaurant premises which by a conjunction of construction and situation, rode on the water instead of standing on land. If the hulk were obliterated, there would be no business of a restaurant left at all; there would not survive any restaurant floating or not.

A characteristic of plant appears to me to be that it is an adjunct to the carrying on of a business and not the essential site or core of the business itself.

Walton J's bald assertion at the end of his judgment in John Hall Junior & Co v Rickman must be read in relation to the facts which he had to consider. The use of the hulk in that case was manifestly ancillary to the business of shipowners carried on by the taxpayer. The absence of the hulk would no doubt have incommoded the carrying on of that business, but in contrast to the present case it would not have been wholly destructive of it.

Despite counsel's attractive submissions for the taxpayer company and his learned junior's able, if somewhat metaphysical, analysis of the functional element in the concept of plant, I am left in no doubt that Goulding J's judgment was right.

I too would dismiss the appeal.

TEMPLEMAN LJ . I entirely agree and only express the matter in my own words out of courtesy to the very careful and forceful arguments which have been presented to us on behalf of the taxpayer company.

For the purposes of income tax and corporation tax, capital allowances may be claimed by a taxpayer who, in carrying on a trade, incurs capital expenditure on the provision of machinery and plant for the purposes of the trade. In the present case the taxpayer company, in carrying on the trade of restaurateurs, incurred capital expenditure on the acquisition of two vessels, namely a pleasure craft and a barge, and in converting them into hulks. The hulks were equipped as a restaurant, moored in the Thames at the Victoria Embankment and then used for the purposes of a restaurant. The question is whether the capital expenditure on the acquisition of the vessels and their conversion into hulks was spent on the provision of plant. So far as capital was expended in equipping the hulks with plant and machinery for the functioning of the restaurant, capital allowances have been claimed and admitted.

On behalf of the taxpayer company, counsel submitted that ships and hulks are plant by their very nature and that their acquisition out of capital for the purposes of trade qualifies for capital allowances. Goulding J held that the hulks in the present case were really premises on which the business of a restaurateur was carried on and that the acquisition of premises does not qualify for an allowance granted only for the acquisition of plant.

The authorities disclose a distinction between premises in which a business is carried on and the plant with which a business is carried on. There are borderline cases in which a structure forming part of business premises has been held to be plant because it does not merely consist of premises providing accommodation for the business but also performs a function in the actual carrying on of the business. Premises, or structures forming part of premises, which have the characteristics and perform the functions of plant, merit the claim for capital allowances. In my judgment, it follows that if a chattel, such as a ship or a hulk, only provides accommodation for a business and has the characteristic, and only performs the function, of premises, that chattel does not qualify as plant for the purpose of capital allowances. The fact that a ship or hulk could be used as plant in many businesses does not enable a taxpayer to claim capital allowances for a ship or hulk which performs no function in the business actually carried on by the taxpayer company, other than the function of premises providing accommodation for that business.

In Yarmouth v France a horse was held to be plant because it was used by a wharfinger to carry on his business.

In John Hall Junior & Co v Rickman a coal barge was held or conceded to be plant because it too was used by the owner of a coal bunkering business in the carrying out of that business. It corresponded with the dry dock or silo which figure in later authorities.

In J Lyons & Co Ltd v Attorney General lamps and fitments were held not to be plant because they were part of the premises on which a trade was carried on, and Uthwatt J said ([1944] 1 All ER 477 at 479, [1944] CH 281 at 287):

'... the lamps and their fitments are owned by a caterer and used in premises exclusively devoted to catering purposes. But the presence of lamps in this building is not dictated by the nature of the particular trade there carried on, or by the fact that it is for trade purposes that the building is used.'

In the present case the hulks are used as premises exclusively devoted to restaurant purposes, but the use of hulks is not dictated by the nature of the trade of restaurateurs.

In Jarrold (Inspector of Taxes) v John Good & Sons Ltd movable partitions in a building were held to be plant, because the nature of the business required the operator of the business to be able rapidly and cheaply and without much interruption of business to alter the subdivisions of their office building. 'The short question', said Pearson LJ ([1963] 1 All ER 141 at 149 [1963] 1 WLR 214 at 225, 40 Tax Cas 681 at 696), 'is whether the partitioning is part of the premises on which the business is carried on or part of the plant with which the business is carried on.' In the present case the hulks are the premises occupied by the restaurant business, and perform no other function.

In Inland Revenue Comrs v Barclay Curle & Co Ltd a dry dock was held to be plant because the dry dock was not merely part of the premises where ships were inspected and repaired. 'The dry dock', said Lord Guest ([1969] 1 All ER 732 at 746, [1969] 1 WLR 675 at 685, 45 Tax Cas 221 at 244), performs the function of 'an 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'. Lord Reid said ([1969] 1 All ER 732 at 741, [1969] 1 WLR 675 at 679, 45 Tax Cas 221 at 239): 'The whole dock is, I think, the means by which, or plant with which, the operation is performed.' The operation to which he there referred was the operation of inspecting and repairing ships. The Barclay Curle case was a classic case of a structure forming part of premises but also performing the functions of plant and therefore qualifying for capital allowances as plant.

In Cooke (Inspector of Taxes) v Beach Station Caravans Ltd, as part of the business of providing caravan sites and amusement and recreation facilities, the taxpayer constructed a swimming pool. The swimming pool was not merely part of the premises; it was the means whereby the operation of providing swimming facilities was carried out.

In St John's School (Mountford and Knibbs) v Ward (Inspector of Taxes) on the other hand structures which were constructed and used as gymnasiums and chemical laboratories were not plant, because they were merely part of the premises on which the business of providing education was carried on. The structures performed no function other than the provision of accommodation for the business of a school. They could equally well have provided accommodation for a different business.

In Schofield (Inspector of Taxes) v R & H Hall Ltd a silo, which was necessary to hold grain in a position in which it could be discharged, was equally held to be plant. Lowry LCJ said ([1975] STC 353 at 363, 49 Tax Cas 538 at 549):

'... I have no difficulty in comparing the silo with a series of mechanically operated hoppers so placed and constructed as to facilitate with the aid of gravity the rapid reception, distribution and discharge of grain. The silos, with their operating crews, in fact take the place of very large numbers of men equipped with sacks, shovels and bogeys and occupied in transferring grain from the holds of ships to the holds of other ships and to lorries.'

That again was a case in which the structure performed a function other than that of merely providing accommodation for the carrying on of a business.

Finally, in Dixon (Inspector of Taxes) v Fitch's Garage Ltd a canopy erected over a filling station was not plant, because it performed no function in helping with the business of delivering petrol.

It plainly appears, therefore, that if, and only if, land, premises or structures in addition to their primary purpose perform the function of plant, in that they are the means by which a trading operation is carried out, then for the purposes of income tax and corporation tax the land, premises or structures are treated as plant.

It is quite true, as junior counsel for the taxpayer company in the present case forcefully submitted, that the authorities do not illustrate the converse proposition, namely that if a chattel capable of being plant in many circumstances, only performs the function of premises by providing accommodation for a business and does not perform any function in carrying on that business, then such a chattel is not plant. But in my judgment this proposition must hold good. If land, premises or structures operate as the means by which a trading operation is carried out, then they rank as plant. If chattels are used as premises and are not part of the means by which the relevant trade is carried out, then those chattels do not rank as plant.

In the present case the trading operation consists of the supply of food and drink for profit. The hulks have no part to play in this operation. They are merely the premises which provide accommodation for the restaurant business, and could equally well provide accommodation for a different business. Counsel for the taxpayer company submitted in the alternative, with his usual ingenuity and persuasiveness, that if the hulks were not plant from their very nature they were plant in that they provided the means of carrying on a floating restaurant. But in my judgment the expression 'floating restaurant' is not the description of a peculiar business; it is a description of the business of restaurateurs and an indication of the type of premises on which that business is carried on. If the taxpayer company acquired a building which they then equipped as a restaurant, the taxpayer company could not claim capital allowances on the acquisition costs by describing the business as that of a non-floating restaurant. If the taxpayer acquired the top floor of the Post Office Tower and equipped it as a restaurant, the taxpayer could not claim capital allowances on the acquisition costs by describing the business as that of a flying restaurant.

Of course, the novelty of dining on the Thames attracts customers to the taxpayer's restaurant. But premises do not become plant merely because they float in the Thames or are suspended in the sky or are to be found on the top of the Matterhorn. For the present purposes I can see no distinction between a restaurant in the Thames and a fish and chip shop in Bethnal Green. Premises only become plant if they perform the function of plant.

For these reasons I agree that the appeal fails.

Appeal dismissed. Leave to appeal to the House of Lords refused.

Solicitors: Peake & Co (for the taxpayer company); Solicitor of Inland Revenue.

J H Fazan Esq Barrister.