Commissioner Of Inland Revenue v Aberdeen Restaurant Enterprised Ltd.

Judgment Date15 April 1988
Subject MatterInland Revenue Appeal
Judgement NumberHCIA1/1988
CourtHigh Court (Hong Kong)
HCIA000001/1988 COMMISSIONER OF INLAND REVENUE v. ABERDEEN RESTAURANT ENTERPRISED LTD.

HCIA000001/1988

I.R. Appeal 1/88

----------------

HEADNOTE

----------------

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:-

(1) the restaurant boat and the kitchen boat are "industrial structures" within the definition of "industrial building or structure” contained, in section 40(1) of the Inland Revenue Ordinance

(2) the fish storage barge is, save (as conceded by the Commissioner) for the fish tank equipment and electrical equipment, neither "plant" within section 37 of the Ordinance nor an "industrial structure" within the definition in section 40(1) of the Ordinance;

(3) the joining pontoons and the landing pontoons are neither "plant" within section 37 of the Ordinance nor "industrial structures" within the definition in section 40(1) of the Ordinance;

(4) the car park and the pier were "plant" within section 37 of the Ordinance; and

(5) the three bridges were not "plant" within section 37 of the Ordinance but were "industrial structures" within the definition in section 40(1) of the Ordinance.

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.

Held : 1. Cooking of food does not involve a process as envisaged by the legislation.

2. Having regard to the authorities and the intent of the legislation the answers to the questions put by the Board were as follows:-

(1) No.

(2) Yes.

(3) Yes.

(4) No. Further the car park and pier do not come within the definition of industrial building or structure.

(5) No, but they qualify as plant.

Inland Revenue Appeal No. 1 of 1988

IN THE HIGH COURT OF JUSTICE

HONG KONG

------------------

BETWEEN

Commissioner of Inland Revenue Appellant
and
Aberdeen Restaurant Enterprises Ltd. Respondent

----------------

Coram: Hon. Jones J. in Court

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

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

------------------

JUDGMENT

------------------

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:

"'industrial building or structure' means any building or structure or part of any building or structure used -

(a) for the
...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT