Commissioner of Inland Revenue v. Aberdeen Restaurant Enterprised Ltd.

HCIA000001/1988

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HEADNOTE

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Appeal by the Commissioner of Inland Revenue by case stated from the Board of Review upon questions of law involving the meaning of plant and industrial building and structure referred to in the Inland Revenue Ordinance in respect of claims made for depreciation allowances for capital expenditure.

The taxpayer owns and operates the Jumbo Floating Restaurant at Aberdeen and claimed the allowances under Part VI of the Ordinance for 3 years of assessment for various items of capital expenditure. The questions of law formulated for determination were whether upon the facts found the Board could properly come to the conclusion that:-

It was submitted on behalf of the taxpayer that the cooking of food amounts to the subjection of goods to a process so that the building or structure in this case came within the definition of industrial building or structure under s.40(1)(c) of the Inland Revenue Ordinance.

IN THE HIGH COURT OF JUSTICE

HONG KONG

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BETWEEN

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Coram: Hon. Jones J. in Court

Dates of hearing: 16th and 17th March 1988.

Date of handing down judgment: 15th April, 1988.

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JUDGMENT

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1. This is an appeal by the Commissioner of Inland Revenue (the Commissioner) from a decision of the Board of Review (the Board) which allowed in part, an appeal from the Commissioner against assessments in respect of profits tax against Aberdeen Restaurant Enterprises Ltd. (the taxpayer) refusing claims for depreciation allowances under Part VI of the Inland Revenue Ordinance for the years 1977/78, 1978/79 and 1979/80. There is also a cross appeal by the taxpayer relating to the Board's decision rejecting other claims.

2. The appeal by case stated involves questions of law concerning the meaning of “plant" and "industrial buildings and structure" referred to in the Ordinance. The taxpayer owns and operates the Jumbo Floating Restaurant at Aberdeen. The cuisine is mainly Cantonese specialising in fish menus. When the restaurant was nearly completed it was gutted by fire in October 1972. It was subsequently rebuilt and opened for business in October 1976. At that time, the restaurant consisted of a floating restaurant boat, a separate kitchen barge, a fish storage barge, three bridges, a car park and pier. The restaurant boat barges and three bridges were moored alongside the reclaimed shore line whilst the car park and pier were situated on the shore with the pier forming an integral part of the car park. 'The floating restaurant boat consists of a hold and four decks. The hold houses the ballast tanks, generators, fire pumps, sprinkler room, bilge pumps, sewage tanks and air-conditioning plant room. Customers are accommodated on three of the decks whilst the top deck is used as a viewing platform. The kitchen barge and fish storage barge are secured to the floating restaurant boat. The fish storage barge has a lower deck which is used as a pump room for the fish tanks, a main deck on which fish tanks are housed and a third deck used as a staff changing/cloak room and for the storage of table linen.

3. Before the floating restaurant war relocated off-shore in December 1978, customers obtained access to the restaurant from an open air car park by means of any of the three bridges. The car park and pier were leased from the Hong Kong Government. The car park was laid out specifically for customers' vehicles and tourist coaches. It had ornamental arches in keeping with the exterior decoration of the floating restaurant. As I have said in December 1978, the restaurant with its components was relocated off shore except for the car park and pier. This resulted in the use by customers of ferries from one or other of two landing pontoons which were built exclusively to accommodate the Jumbo Restaurant shuttle ferries. Accordingly, the shore-side open air car park and pier were released back to the Government and in lieu the taxpayer erected the Jumbo Court high rise car park. The three bridges or gangways were therefore scrapped.

4. With the relocation of the restaurant some distance into the bay, fire regulations required joining pontoons to be attached, one at each end, as places of refuge in the event of a fire breaking out. Two landing pontoons were also built to accommodate the shuttle ferries.

5. The restaurant boat was purchased by the taxpayer at a cost, including fixtures, of $15,016,432 of which $12,269,398 was accepted as being the relevant amount of capital expenditure for tax purposes for the tax year 1977/78.

6. The kitchen boat which is separate but attached to the restaurant boat, was purchased at a price of $1,779,914 and the relevant capital expenditure for tax purposes has been accepted at $1,643,919 for the tax year 1977/78 with additions of $270,871 in the tax year 1978/79 and $7,812 in the tax year 1979/80.

7. The separate fish storage barge was purchased at a cost of $1,040,308 being the figure accepted as incurred for the tax year 1977/78 with an addition of $133,012 for the tax year 1979/80. Of the cost $153,680 related to the fish tank and electrical equipment and $686,429 for the cost of the hull, metal work and installation.

8. The cost of the two sets of joining pontoons installed for fire escape purposes during the tax year 1979/80 was $415,614 while the two landing pontoons were purchased during the same tax year for a total cost of $498,339.

9. The car park was acquired for $690,196 but was scrapped in the tax year 1979/80. The coat of this item was accepted at $673,574.

10. The three bridges or gangways and a pier which had been accepted for tax purposes in 1977/78 at a purchase price of $446,358 were scrapped in the tax year 1979/80.

11. The Board held in favour of the taxpayer that the restaurant boat, kitchen boat and 3 bridges or gangways were industrial structures and that the car park and pier constituted plant. The Board also accepted the Commissioner's concession that the fish tank and electrical equipment held in the fish storage tank were plant. The Board found against the taxpayer that the fish storage barge, 2 joining pontoons, and the 2 landing pontoons were either industrial structures or plant.

12. It has been conceded by the taxpayer that the restaurant boat and the kitchen boat do not qualify as plant. However the taxpayer submits that the storage barge and pontoons should qualify either as industrial structures or plant while the 3 bridges or gangways could in the alternative qualify as plant if the Board's decision that they are industrial structures is wrong while the car park and pier in the alternative qualify as industrial structures if the Board is held to be wrong that they constitute plant.

13. I will deal first with the law concerning an industrial building or structure.

14. The relevant section for a claim to an allowance for depreciation in respect of an industrial building is set out in section 34 of the Inland Revenue Ordinance which where relevant provides:-

"    34. (1) Where a person incurs capital expenditure on the construction of a building or structure which is to be an industrial building or structure occupied for the purposes of a trade there shall be made to the person who incurred the expenditure for the year of assessment in the basis period for which the expenditure was incurred an allowance to be known as an "initial allowance" equal to one-fifth thereof:"

15. Under section 34(2)(a) of the Ordinance where it has been established that a building or structure is an industrial building or structure an annual allowance of one twenty-fifth for capital expenditure for the year of assessment is made for depreciation for wear and tear.

16. "Industrial building or structure" is defined in section 40(1) where relevant as follows:

17. The argument for the taxpayer is based upon the provision of section 40(c) that the industrial building or structure was used for the purposes of a trade which consists of the subjection of goods or materials to any process. Mr Feenstra who appeared for the Commissioner agreed that food comes within the definition of goods. He compared the equivalent tax legislation in England which applies to part of a trade or undertaking whereas in Hong Kong allowances can only be granted for an industrial building or structure that is used for the purposes of the trade, see CIR v Tai On Machinery Works Ltd.⁽¹⁾.

18. Mr Feenstra further argued that the cooking of food is only part of the trade of the restaurant for the trade consists of several different elements such as the acquisition of premises, the purchase of goods, the preparation and cooking of food, service and receipt of payment for the services rendered and food and drinks supplied. Accordingly, as it only forms part of the trade the allowance, cannot be claimed. Whilst there are, as was found by the Board to be separate elements for the business, nevertheless, the only trade carried on is that of a restaurant business, cooking forming the essential part. If a person is asked the question as to what business is carried on at the floating restaurant there can be, but one answer. I am of the opinion that it, is quite. unrealistic to divide up the various elements that make up the business in the manner as suggested by Mr Feenstra. In my judgment, it is necessary to look at the trade or undertaking which is carried on as a whole. The trade of the floating restaurant is the restaurant trade and no more.

19. I now turn to the main thrust of the argument made by Mrs Clough, counsel for the taxpayer that cooking of food amounts to the subjection of goods or material to any process or processes. The meaning, of this expression which is taken from the English tax legislation was considered in two cases that were cited by counsel. In the first Kilmarnock Equitable Co-operative Society Ltd. v Commissioners of Inland Revenue⁽²⁾ the appellant carried on business as general merchants for the sale of coal in bulk. The society erected a separate building to house machinery for screening coal and packing it into paper bags with the object of developing a trade in packaged coal and to provide the coal for sale in the society's own shops. The society argued that the building was an industrial building as it was in use for the purposes of trade consisting in the subjection of coal to a process which involved its being cleaned and then packed into small paper bags. The court held that the building was used for the purposes of a trade which consisted in the subjection of the goods or materials to a process although the processing of the goods only formed a small part of the society's trade as a coal merchant. In his judgment at page 685, Lord Cameron said:-

20. In the second case Vibroolant Ltd. v Holland⁽³⁾ the taxpayer company carried on business as plant hire operators for which it had a number of depots. The depots consisted of an open storage area where items of plant were kept awaiting hire or repair, and building structures in which plant was cleaned serviced and, as may be necessary, repaired after each hiring. The Court of Appeal, stated that the purpose for which industrial building allowances are given is to be derived from all the provisions of section 7 of the Capital Allowances Act 1968 (the equivalent of section 40(c)) and held that neither the trade of plant hire nor the purposes for which the company's buildings were employed fell within the definition because neither the trade nor the activities carried on in the buildings had anything to do with manufacturing or processes. In construing section 7(1)(a) of the Capital Allowances Act, Templeman, L.J. in delivering, the judgment of the Court said at p.667:-

"In our judgment the distinction is to be deduced from all the provisions of s.7. It appears from that section that the allowances now in question are intended to encourage, manufacturing, processing, producing, importing and allied trades. In our judgment a building used for the purpose of cleaning, servicing and repairing vehicles and other articles belonging to a taxpayer whose trade consists of hiring out those articles for reward is not similar to a mill or factory because nothing similar to a manufacture or processing is involved at any stage. The distinction is confirmed by the authorities. In Ellerker v. Union'Cold Storage Co Ltd. [1939] 1 All E R 23, Macnaghten J. held that cold stores were similar to mills, factories or other similar premises because they were buildings in which goods were treated or processed. The learned Judge said at page 28 that a factory 'is a building where goods are made ... A mill is a building where goods are subjected to treatment or processing of some sort, and where machinery is used for that purpose'. In Commissioners of Inland Revenue v. Leith Harbour and Docks Commissioners 24 TC 118 at pp. 123 and 124 the Lord President, Lord Normand, presiding over the First Division of the Court of Session said at page 123 that 'the characteristic property of a factory is that it makes something'. At page 124 he said 'The essential of a mill is a process carried on by machinery by which the material subjected to it is made suitable for further treatment in a factory or another mill or for use'. It seems to me that a factory makes an article and a mill processes an article."

At p. 668 he went no to adopt the dicta of Dillon J. the judge at first instance upon his interpretation of the characteristics of a process in the following words:-

21. Mrs Clough drew my attention to Rael-Brook Ltd. v Minister of Housing and Local Government & Anr. ⁽⁴⁾ where the preparation of food was recognised as being alight industry. She also relied on Commissioners of Inland Revenue v. Scottish & Newcastle Breweries Ltd. ⁽⁵⁾ where it was held that the restaurant trade is a service industry.

22. Mrs Clough referred to the definition of "industry" set out in the shorter Oxford Dictionary which includes "intelligent or clever working, skill, ingenuity, dexterity" and therefore submitted that this definition can be applied to culinary art.

23. Mrs Clough asserted that a process trade includes features which are not strictly manufacturing or processing, such as offering finished goods for sale either wholesale or retail, the receipt of payment for goods and work done by way of advertising and public relations in order to attract customers.

24. She contended that the essential feature of a restaurant involves the subjection of food and drink to a process or several processes. This consists of the purchase of raw or live produce that will be subjected to a process of cleaning, preparing, chopping, cooking and placing the finished product into or onto appropriate serving dishes or containers for service to the customers. That these series of actions amounts to a continuous and regular action or succession of actions for every individual dish served in a restaurant has undergone the same process as the same dish served to other customers in the restaurant on a regular daily basis.

25. The Board held that the preparation and cooking of food are processes to which goods are subjected and that those processes involve a substantial measure of uniformity of treatment which would be even more marked in the case of banquets or groups of tourists when menus are likely to be fixed beforehand. Accordingly the floating restaurant boat and kitchen boat were held to be industrial structures.

26. A restaurant is not a factory nor is it akin to a factory. It is more akin to a retail shop, showroom, hotel or office which are excluded from the definition of an industrial building or structure by virtue of section 41F(ii) of the Ordinance. I accept that the business of a restaurant is a service industry. However, does the preparation and cooking of food come within the definition of The subjection of goods to any process. "Process" is defined in the shorter Oxford Dictionary inter alia as 'a continuous and regular action or succession of actions, taking place or carried on in a definite manner; a continuous (natural or artificial) operation or series of operations. A particular method of operation in any manufacture'.

27. From the authorities, it is clear that in order to determine whether a building is an industrial building or structure, it is necessary to look at the legislation to ascertain its meaning. The words of the section show that the legislature intended allowances to be claimed by those engaged in the manufacture of goods or in the subjection of goods to a process. A restaurant has been described in the Rael-Brook case⁽⁴⁾ as a service industry, but it is plain that it is not a manufacturing industry. Nor, as was submitted by Mr Feenstra, is it akin to a factory or mill but rather to a retail shop. Again, I am unable to agree that the cooking of food results in a uniformity of treatment as urged upon me by Mrs Clough. Each individual dish is prepared separately depending upon the order placed by the customer. I can see no distinction between the cooking of food and the carrying out of the repairs in the Vibroplant case ⁽³⁾. Repairs have no uniformity and are different in the same way as the cooking of food. It is again far removed from the Kilmarnock case⁽²⁾ which encompassed a definite process and a trade of manufacturing. Further, cooking does not involve a process that is envisaged by the present legislation although it was considered to be so under quite different legislation, viz. the Town and Country Planning Acts in Rael-Brook.

28. I do not consider that the legislation was ever intended to extend to the business of a restaurant. The trade of the restaurant has nothing to do with manufacturing or processing. Accordingly, I am satisfied that the restaurant boat and kitchen boat, three bridges or gangways do not qualify for the allowances for they are not industrial buildings or structures. It follows that none of the other components which the Board, found against the taxpayer are industrial buildings or structures.

29. I now come to the issue of plant in respect of which the taxpayer claims initial allowances of 25% under section 37(1) and (1)(a) of the Inland Revenue Ordinance for "capital expenditure on the provision of .... plant for the purposes of producing profits chargeable to tax under Part IV" and "annual allowances" under Section 37(2) at the rates provided in the Rules in respect of wear and tear of those assets. The taxpayer claims that the fish storage barge, two joining, pontoons, two landing pontoons, the car park, the adjoining pier and 3 bridges or gangways constitute plant. As I have said the Board rejected all the items as plant except the car park and adjoining pier.

30. There is no definition of "plant" in the Income Tax Ordinance nor is there any statutory definition in the English legislation. However, my attention was drawn to a number of, authorities where the word has been judicially considered. In the earliest Yarmouth v France⁽⁶⁾ Lindley L.J. put forward his definition of plant in the following words at page 658:-

"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."

31. Mrs Clough in her argument referred to John Hall Junior & Co. v Rickman⁽⁷⁾ where it was held that a hulk which had formerly been a sailing ship but which had been dismantled and had had its rudder removed and was used as a floating warehouse for coal was plant within the meaning of section 12 of the Customs and Inland Revenue Act 1878.

32. Uthwatt J. considered the definition in J. Lyons & Company L Limited v Attorney Ceneral⁽⁸⁾ where the Court had to consider whether lamp s and fitments in a particular building were plant. In his judgment at pp. 286-287, he had this to say:-

"If these articles are plant, it can only be by reason that they are found on premises exclusively devoted to trade purposes. Trade plant alone need be considered. Confining my attention to trade plant, I am content to accept the general description in Yarmouth v France that 'plant' includes whatever apparatus or instruments are used by a business man in carrying on his business. The term does not include stock-in-trade, nor does it include the place in which the business is carried on. Whether any particular article more properly falls within 'plant' as thus understood or in some other category depends on all the circumstances of the case.

In the present case, the question at issue may, I think, be put thus: Are the lamps and fitments properly to be regarded as part of the setting in which the business is carried on or as part of the apparatus used for carrying on the business? 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. Lamps are required to enable the building to he used where natural light is insufficient. The actual lamps themselves, so far as the evidence goes, present no special feature either in construction purpose or position, and, being supplied with electricity from public suppliers, they form no part of an electric lighting plant in or on the hereditament. In my opinion, these lamps are not, in these circumstances, properly described as 'plant,' but are part of the general setting in which the business is carried on. They would not, I think, in any catalogue of this trader's assets, fall under the heading 'machinery and plant', and I hold that the lamps and the fitments in question are not machinery or plant for the purposes of the War Damage Act, 1943."

33. In Jarrold (Inspector of Taxes) v John Good & Sons Ltd.⁽⁹⁾ it was decided that moveable partitions screwed to the floor and ceiling of a shipping agent's office were plant within the meaning of sections 279(1) and 280 of the Income Tax Act 1952. The Court held that in the circumstances of that case, the partition should be regarded as something more than a mere setting for the carrying out of the trade and that the setting and plant were not mutually exclusive conceptions for the partitions were used in the carrying out of the company's trade or business. In his judgment at page 223, Donovan L.J. said:-

"Nor in my opinion can these partitions properly be excluded from the category of plant on the ground that they are not used in the carrying out of the company's trade or business. The truth is that they are. They are used to enable the trader to cope with the vicissitudes of the business as it now increases and now diminishes; and the commissioners find that the flexibility of accommodation which the partitions provide is a commercial necessity for the company. 'Be it so', replies the Crown, 'but these partitions play a purely passive role and that 'is not enough'.

I do not understand this division of assets vis-ia-vis the accomplishment of the trading purpose, into 'passive' and 'active', followed by the argument that there can be no 'plant' among the passive assets. The heating installation of a building may be passive in the sense that it involves no moving machinery, but few would deny it the name of 'plant'. The same thing could no doubt be said of many air conditioning and water, softening installations. All that the Income Tax Acts require in this context is that the plant shall have been provided ‘for the purpose of the 'trade', an expression wide enough to cover assets which play a passive as well as an active role in the accomplishment of that purpose."

34. In a House of Lord's decision Inland Revenue Commissioners v. Barclay Curle & Co. Ltd.⁽¹⁰⁾ the taxpayer had built a dry dock for use in its trade of ship-builders, ship-repairers and marine engineers incurring capital expenditure which comprised the cost of excavating a specially shaped new basin having direct access to the Clyde and a floor below the level of high tide to enable ships to float in and out. The expenditure also comprised the cost of lining the excavation with concrete and installing valves, pumps, electricity generators and other machinery needed for the operation of the dock. It was held by a majority of three to two that the dock was plant for the purposes of the trade of the company within section 279(1) of the Income Tax Act 1952 and that the cost of the excavation to make room for it was expenditure on the provision of plant. Lord Reid, in his Judgment at p. 679 had this to say:-

"As the commissioners observed, buildings or structure 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 as 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.

Here it is apparent that there are two stages in the respondents' operations. First the ship must be isolated from the water and then the inspection and necessary repairs must be carried out. If one looks only at the second stage it would not be difficult to say that the dry dock is merely the setting in which it takes place. But I think that the first stage is equally important, and it is obvious that it requires massive and complicated equipment. No doubt a small vessel could be got out of the water by the use of comparatively simple plant and machinery but clearly that is impossible with a very large vessel. 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.

It was said in argument - if this dry dock is plant why is not a dam which impounds water also plant. I agree that it is impossible to draw a hard and fast line but I would answer in this way. Clearly land in its natural state 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 loch 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 given 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 Tax Cas. 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 treated in the same way, as foundations below ground level."

35. With regard to the definition of plant, Lord Donovan at page 691 considered the functional test in the following words:-

"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."

36. Mrs Clough also referred to Cooke (Inspector of Taxes) v Beach station Caravans Ltd.⁽¹¹⁾ where a swimming pool in a caravan park was held to be plant and the expenditure on excavation, pool construction and terracing was allowed.

37. In a Northern Irish case Schofield v R. & H. Hall Ltd.⁽¹²⁾ the Court of Appeal held that grain silos were plant. Lowry C.J. at p. 554 said:-

"I conclude, accepting Mr Nolan's argument for the Company, (1) that the Commissioners were entitled to find that the silos, which were admittedly structures, were also plant, (2) that plant does not require to be mechanically active in its operation (although, to the extent that it is so, the distinction from a mere structure is easier to appreciate) and (3) that the question for decision must be considered in relation to the trading activities as a whole, in the same way as the Courts in the Barclay, Curle case looked at the concrete sides and bed of the dry dock in the light of the mechanical plant with which they were combined. I also accept his submission that the commissioners' decision gains support from the analogy of the water tower and the dry dock and that the silos were not mere shelters for men or grain."

38. In Benson (Inspector of Taxes) v Yard Arm Club Ltd ⁽¹³⁾ the Court of Appeal held that a floating restaurant and a kitchen barge were not plant. In his judgment at p. 88 Shaw L.J. said :-

"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."

39. Whilst Templeman L.J. on the same page said:-

"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 nave 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."

40. A further illustration appears in Benson v Yard Arm Club Ltd. ⁽¹³⁾ where Buckley L.J. considered the definition in the following words:-

"The Statutes nave 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."

41. In the case of CIR v Scottish & Newcastle Breweries Ltd.⁽⁵⁾, it was held that electric light fittings, Plaques, tapestries, pictures and metal sculptures in hotels and public houses were plant. Lord Wilberforce at p. 325 said:-

"Another much used test word is 'functional'-this is useful as expanding the notion of 'apparatus', it was used by Lord Reid in Barclay, Curle. But this too, must be considered, in itself, as inconclusive. Functional for what? Does the item serve a functional purpose in providing a setting? Or one for use in the trade? It is easy, without excessive imagination, to devise perplexing cases. A false ceiling designed to hide unsightly pipes is not plant, though the pipes themselves may be (Hampton v. Fortes Autogrill Ltd. [1980] STC 80): is a tapestry hung on an unsightly wall any different from a painted mural? And does it make a difference whether there was a damp patch underneath? What limit can be placed on attractions, interior or exterior, designed to make premises more pleasing, to the eye or other senses? There is no universal formula which can solve these puzzles. In the end each case must be resolved, in my opinion, by considering carefully the nature of the particular trade being carried on, and the relation of the expenditure to the promotion of the trade. I do not think that the courts should shrink, as a backstop, from asking, whether it can really be supposed that Parliament desired to encourage a particular expenditure out of in effect, taxpayers money, and perhaps, ultimately, in extreme cases, to say that this, is too much to stomach. It seems to me, on the Commissioners’ findings, which are clear and emphatic, that the Respondents' trade includes, and is intended to be furthered by, the provision of what may be called 'atmosphere' or 'ambience', which (rightly or wrongly) they think may attract customers. Such intangibles may in a very. real and concrete sense be part of what the trader sets out, and spends money, to achieve. A good example might be a private clinic or hospital where quiet and seclusion are provided, and charged for accordingly. One can well apply the 'setting' test to these situations. The amenities and decoration in such a case as the present are not, by contrast with the Lyons case, the setting in which the trader carries on his business, but the setting which he offers to his customers for them to resort to and enjoy."

At page 331 Lord Lowry said :-

"...one of the trade functions of an hotelier is to make the interior attractive to customers why then should one deny that the items used for this purpose are plant?"

42. In applying the principles set out in the authorities, Mrs Clough made the following submissions on the various items which I will now summarise:-

43. As to whether the item has a passive or active function to perform is on the authorities of no Consequence provided that it is used for the trade.

44. Mr Feenstra submitted that the Board were in error in concluding that the cost of making a car park and the cost of the pier and three bridges constituted capital expenditure on the provision of plant in the terms of section 37 because it is wrong to apply a functional ambience or amenity test without first determining that the items can properly be described as apparatus or tools by means of which a restaurant business as opposed to any other business is carried on. Although swimming pools and concrete silos are legally part of the land, and may nevertheless be items of plant in specific businesses, there is no case and no justification for extending the definition of plant to include land in the case of a restaurant. The car park is not the apparatus or tool by means of which the restaurant business is conducted. It is merely part of the premises which customers may use in order to attend the premises on which the restaurant business is conducted. The car park is not plant by means of which the business is carried on its business operation can be carried on without it. The car park in fact has no business function peculiar to the restaurant trade.

45. In the alternative, Mr Feenstra submitted that the Board were in error in deciding that the car park could be called the setting of the restaurant business when in the passage of the Scottish & Newcastle Breweries case⁽⁵⁾ to which reference was made, the setting specifically excludes the structure or place within which the businessman conducts his business. At most, the car park can be described as the place which customers could use to attend the place of business. It may be an amenity convenient for customers but it is part of the site, not a tool like the silo or swimming pool. The question that I have to ask myself is whether in the circumstances of this case, the items can be described as the apparatus or tools of the taxpayer in carrying on his business and. which are dictated by the nature of the particular trade, i.e. the restaurant or form part of the general setting.

46. The authorities provide guidelines, but each individual case must depend on its own particular circumstances.

47. The Board considered that the fish storage barge did not qualify as plant for it was merely the setting for plant. It was reinforced by the fact that the cost of the fish tanks formed only a minor part of the total cost and was therefore a relevant factor in deriding this issue. However, the fish tanks themselves had been conceded by the Commissioner to fall within the definition of "plant”.

48. The fish storage barge is used to keep the fish fresh until required. The cost of the barge hull together with the installation was $686,429 as against the sum of $153,680 for the fish tank and electrical equipment which has been conceded by the Commissioner as "plant". The fish storage barge, apart from housing the fish tanks, is also used for changing rooms and storage areas for articles of linen. Nevertheless, it was argue that despite the use of the barge for other purposes, this should not detract from the fact that the main purpose is that of housing the fish tanks. It is therefore necessary to determine whether the barge can be described as "plant" or whether it. amounts to part of the setting. The real function that it has to perform is to house the fish tanks, the fish tanks themselves having been conceded to be "plant". The barge does not form part of the apparatus of the taxpayer's business. I agree with the decision of the Board that the barge itself does not qualify as "plant" for it amounts to the setting for plant.

49. The two sets of joining pontoons were provided for the purposes of a means of escape in case of fire pursuant to Fire Regulations. I agree with the views expressed by the Board that these pontoons do not qualify as "plant" for they were not intended to be used as part of the apparatus or tools of the business but are there purely for safety purposes and for no other reason.

50. The two landing pontoons are not used in the' restaurant business and do not provide anything more than a setting. They are used for the purpose of getting on and off the ferries. They do not therefore qualify as "plant".

51. The Board held that the car park qualified as "plant" on the basis that it was useful in promoting the business of the restaurant and was one of the means by which it was carried on because the business was aimed largely at the. tourist trade for which the car park was specifically designed. It also satisfied the ambience test by virtue of some elaborate decoration. The Board did not find that decision to be an easy one, but found that the attraction of the car park as an amenity to be the decisive reason. However, the Board clearly fell into, error in coming to. this decision for they did apply the correct test. The ambience test does not apply unless it is, first established that the rear park forms part of the taxpayer's trade. In my judgment, the car park cannot be described as a tool or apparatus that is used in the business of the restaurant nor can it be said that it is dictated by the nature of the trade. The restaurant would he conducted whether or not there was a car park available. The car park forms no part of the business function, but is provided as an amenity for the customers and forms part of the site. It can in no way be compared with the silo in the Schofield case ⁽¹²⁾ and the swimming pool in the Cooke case⁽¹¹⁾ both of which had a business function to perform. The car park, does not therefore qualify as "plant".

52. In respect of the three bridges or gangways, I accept that they were essential apparatus to enable customers to get on and off the restaurant boat for they provided the only link between the boat and shore so that they were dictated by the nature of the trade. Accordingly, I agree with the view expressed by the Board that the three bridges formed a physical part of the floating restaurant and therefore qualified as plant.

53. The questions of law formulated for determination are whether upon the facts as found could the Board properly come to the conclusion that:-

54. Having, regard to my decision, the answers to these questions are as follows:-

(1)    [1969] H.K.T.C. 411

(2)    [1966] 42 T.C. 675

(3)    [1982] 54 T.C. 658

(4)    (1967) 2 Q.B. 65

(5)    [1982] 1 W.L.R. 322.

(6)    (1887) 19 Q.B. 647.

(7)    [1906] 1 K.B. 311.

(8)    [1944] 1 Ch. 281.

(9)    [1963] 1 W.L.R. 214.

(10)    [1969] 1 W.L.R. 675.

(11)    [1974] 1 W.L.R. 1398

(12)    [1974] 49 T.C. 538

(13)    [1979] 53 T.C. 67.

Representation:

Mr P.F. Feenstra and Mr M.Y. Cheung (Attorney General's Chambers) for Commissioner of Inland Revenue (Appellant).

Mrs M. Clough (C.P.Lin S Co.) for the Respondent.