Blue Circle Cement Ltd v Commissioner for Inland Revenue

• Jurisdiction: South Africa
• Citation: 1984 (2) SA 764 (A)

Blue Circle Cement Ltd v Commissioner for Inland Revenue
1984 (2) SA 764 (A)

1984 (2) SA p764

Citation	1984 (2) SA 764 (A)
Court	Appellate Division
Judge	Corbett JA, Miller JA, Nicholas JA, Galgut AJA and Howard AJA
Heard	March 5, 1984
Judgment	March 16, 1984

Flynote : Sleutelwoorde B

Revenue — Income tax — Deductions — Machinery initial allowance and machinery investment allowance in terms of s 12 (1) and (2) of Act 58 of 1962 — Allowance in respect of "plant" — What constitutes — Enquiry is whether items alleged to be "plant" constitute fixtures, implements, machinery or apparatus used in carrying on any industrial process — How such item is used and whether it is employed C to carry on or promote taxpayer's business activities is a relevant and useful yardstick — Taxpayer (a cement manufacturer) constructing railway line from site of limestone deposits to cement factory — Part of manufacturing process performed at site prior to loading of limestone on trucks for D conveyance by rail to factory — Use of railway line, having regard to its function, held to be part and parcel of taxpayer's industrial process — To be regarded as apparatus used in the carrying on of the industrial process of manufacturing cement — Railway line accordingly "plant" within the meaning of s 12 (1) and (2) of the Act in respect of E which machinery initial allowance and machinery investment allowance claimable.

Headnote : Kopnota

The appellant (the taxpayer) was a manufacturer of cement and obtained its supplies of limestone (which it required for the manufacture of cement) from a site some 41 km from its factory. Having determined that the most economical way of conveying the F limestone from such site to the factory was by rail, it constructed a railway line from the site to the factory. The limestone was removed from the earth by blasting. The cement manufacturing process started at the site inasmuch as the limestone was crushed (ie reduced and screened) there before being loaded onto railway trucks and conveyed along the railway line to the factory. The taxpayer claimed a machinery initial allowance in terms of s 12 (1) of the Income Tax Act 58 of 1962 and a machinery investment allowance in terms of s 12 (2) of G the Act in respect of the cost incurred by it in the construction of the railway line. The respondent disallowed these deductions and an appeal to the Special Income Tax Court failed. In a further appeal directly to the Appellate Division in terms of s 86A (2) (b) of the Act, the only issue was whether the railway line constituted "plant" within the meaning of that term in s 12 (1) and (2) of the Act, the respondent H having conceded that the remaining requirements of the section had been met.

Held, having regard to the dictionary meaning of the word "plant", that the enquiry was whether the items alleged to be "plant" constituted fixtures, implements, machinery or apparatus used in carrying on any industrial process.

Held, further, that the functional test (as adopted in English authorities), which posed the general question as to how the subject-matter (alleged to be "plant") of the enquiry was used and whether it was employed to carry on or promote the taxpayer's business activities, was a relevant and useful yardstick to be applied in determining the issue in the appeal.

1984 (2) SA p765

Held, further, adopting such approach, that the function performed by the railway line and the rolling stock used thereon in conveying the material (ie the crushed limestone) was part and parcel of the taxpayer's industrial process and there was no reason why the railway line should not be regarded as apparatus used in carrying on the industrial process of A manufacturing cement.

Held, accordingly, that the railway line constructed by the taxpayer constituted "plant" within the meaning of that term in ss (1) and (2) of s 12 and that, the other requisites of the subsections having been satisfied, the taxpayer was entitled to the allowances claimed. Appeal allowed.

Case Information

Appeal from a decision in the Transvaal Special Income Tax B Court (MYBURGH J). The facts appear from the judgment of CORBETT JA.

R S Welsh QC (with him A P Beckley) for the appellant: There is no doubt that the representative of the respondent conceded in the Court below that the railway line was used "directly in a process of manufacture", so that the only remaining issue was whether the railway line was "machinery or plant". This being C so, the Court below clearly misdirected itself in holding against the appellant on this point.

It is common cause that the rolling stock, ie the engines and trucks that run on the railway line, are "machinery or plant"; and in the year of assessment in issue, the respondent has been granted the s 12 allowances in respect of the rolling stock. D The rolling stock and the railway line perform one and the same function: their use in the respondent's manufacturing process is entirely integrated. It follows that the allowance for the railway line can be refused only if the line can be said to fall outside the meaning of the word "plant" in the context of s 12. Further, the only basis upon which it could be suggested that the line is not "plant", while the rolling stock E is "plant", is that the line is a fixture or is immovable, whereas the rolling stock is not, hence the distinction. This approach is in conflict with authority, both in this country and in other countries in which the Courts have been called upon to interpret the word "plant" in similar legislative enactments. The approach of the English Courts is to include in F the term "plant" whatever apparatus is used for carrying on a business, whether the apparatus is movable or immovable, passive or active. Yarmouth v France (1887) 19 QBD at 658. See, also Inland Revenue Commissioners v Barclay, Curle & Co Ltd [1969] 1 All ER 732 (45 TC 221); Cooke (Inspector of Taxes) v G Beach Station Caravans Ltd[1974] 3 All ER 159 (49 TC 514); Schofield (Inspector of Taxes) v R & H Hall Ltd (1975) 49 TC 538. A test commonly applied is the function performed by the fixture in question. If a structure performs the function only of providing accommodation or a "setting" for a business, then it is not "plant". A fixture is to be regarded as "plant" if it performs the function of plant. Benson v Yard Arm Club Ltd H [1979] 2 All ER 336. For other relevant comments on the interpretation of the word "plant" in fiscal legislation in the United Kingdom, see J Lyons & Co Ltd v Attorney-General 1944 Ch 281; Hinton (Inspector of Taxes) v Maden & Ireland Ltd [1959] 3 All ER 356 (38 TC 391); Jarrold (Inspector of Taxes) v John Good & Sons Ltd [1963] 1 All ER 141 (40 TC 681); Munby v Furlong (Inspector of Taxes) [1977] 2 All ER 953 (50 TC 491); Inland Revenue Commissioners v Scottish & Newcastle Breweries Ltd

1984 (2) SA p766

[1982] 2 All ER 232; cf London County Council v Edwards (1909) 5 TC 383. The Courts in Australia have followed the principles applied by the English Courts. See, eg, Broken Hill Proprietary Co Ltd v Federal Commissioner of Taxation (1968) 10 ATR at 487 A - 488, 499; Wangaratta Woollen Mills Ltd v Federal Commissioner of Taxation (1969) 11 ATR at 335. See, also, 18 CTBR (NS) case 66 at 511.

The South African authorities: The fact that "buildings or other structures or works of a permanent nature" are specifically excluded from the operation of s 11 (e) of the B Income Tax Act, which deals with "machinery, implements, utensils and articles", indicates that permanent structures etc are encompassed in those terms. See ITC 769 (1953) 19 SATC at 215. A fortiori, they are included in the word "plant". The allowances provided for in ss 12 and 13 are intended as an inducement to manufacturers to incur capital expenditure with a view to increasing industrial capacity and output. See African C Detinning Works (Pty) Ltd v Secretary for Inland Revenue 1982 (1) SA at 804E. Section 13 covers capital expenditure on industrial buildings, while s 12 covers capital expenditure on industrial plant. Sections 12 and 13 were intended to cover all capital expenditure directed towards the increase of industrial D capacity. The railway line in issue in this case is, clearly, not a "building". If it is also not "plant", then no allowance would be provided for, despite the fact that the expenditure is of the very nature which the Legislature intended to encourage. The facts of this case indicate the absurdity of excluding the line from the ambit of "plant". Thus, if the appellant had decided not to invest in the railway line, and had decided E instead to transport its crushed limestone from the quarry in dumper trucks, the appellant would have been granted the s 12 allowances on the capital cost of the trucks, Secretary for Inland Revenue v Cape Lime Ltd 1967 (4) SA 226. The appellant actually considered that method but chose to use the railway line instead as it was more economical. In ITC 905 (1959) 24 F SATC 87 a movable track of a miniature railway line was held to be "machinery". The characterisation of a railway line as a structure or work of a permanent nature for the purposes of wear and tear allowances provided for in what is now s 11 (e) of the Act does not, therefore, prevent a finding that a G railway line is "plant" for the purposes of s 13. Cf Rhodesia Railways and Others v Commissioner of Taxes 1925 AD at 451, 470; Secretary for Inland Revenue v Charkay Properties (Pty) Ltd 1976 (4) SA at 879. A railway line falls comfortably within the dictionary definitions of "plant". See, eg, the definition in The Shorter Oxford Dictionary cited in the judgment a quo. See also the Afrikaans text of the Income Tax Act, where reference is made to "installasie".

B Galgut SC (with him P J J Marais) for the respondent: The railway line cannot be machinery...