SCOTT, L. J. - On the main issue between the parties these two appeals raise the same question, the only difference between the two being that the case in which Mr. Simpson is the respondent relates to the tax years 1923-24 to 1926-27, whereas the appeal in which Mr. Ellerker is respondent relates to the tax years 1927-28 to 1934-35. The question is whether the appellant company is entitled to allowances in those years for depreciation by wear and tear and obsolescence of certain leased machinery and plant under rule 6 of the Rules applicable to Cases I and II of Schedule D. The Commissioners in both cases held that they were precluded by the decision of Finlay, J., in Heyhoe v. Slough Theatre Co., from admitting the companys claim. In that case the respondent company did not appear to support the decision of the Commissioners in its favour and the only argument heard was on the Crown side. Finlay, J., did his best to consider possible answers for the respondent company, but in the end gave a reasoned judgment in favour of the Revenue. In the present two cases the Union Cold Storage Co. appealed, but Macnaghten, J., followed the decision of Finlay, J., in Heyhoes Case and dismissed both appeals. From his decision the company now appeal to this Court. The correctness of the Heyhoe decision is thus also in issue.
The allowance for depreciation was first introduced by Section 12 of the Customs and Inland Revenue Act, 1878. It is reproduced in almost the same language in sub-rules (1), (2) and (5) of rule 6 of the Rules applicable to Cases I and II of Schedule D in the code of 1918. It was in its nature a departure from the principle of income-tax in that it was a concession concerned with capital. But commercially it was not a departure since over any long period of years the profits of a business must be affected by the cost of renewing capital items, and fixed plant and machinery may in a commercial view be regarded as standing half-way between land and buildings at one end of the scale and pure revenue items like removable implements at the other. A practice was early adopted as between the Inland revenue and the trader of agreeing on an appropriate annual percentage to apply year by year to prime cost. In Hall, Junior & Co. v. Rickman the Inland Revenue raised the contention that where the percentage allowances made over a prolonged period of years nearly approached the capital cost of the unit, any further claim was by law limited to such figure as would not make the total concessions plus saleable value of the worn item exceed 100 per cent. of its capital cost. But Walton, J., held on the construction of the section that the taxpayers right in the tax year in question was not affected by the allowances of past years. To repeal this decision the Legislature passed Section 26 of the Finance Act, 1907 now represented by sub-rule (6) of rule 6. Sub-rules (1), (2) and (5) deal severally with a business carried on by the owner of the plant and machinery (sub-rule (1)); by a lessee of it, bound by covenant to repair, renew and yield up at the end of the term in good condition (sub-rule (2)); and by a lessee whose lessor undertakes the burden of restoring and renewing (sub-rule (5)). The general purpose of the detailed provisions of those sub-rules is to give effect to the above scheme. The dispute between the parties to the appeal is, first, whether the appellants were, as they claimed, entitled to the benefit of sub-rule (2) and, secondly, whether the language used by the Legislature in 1907, when by Section 26 of the Finance Act of that year it imposed the limitation rejected by Walton, J., in Hall, Junior & Co. v. Rickman, did not go much farther than the mere enactment of that limitations, and impose wholly new limitations, cutting down the benefits to the taxpayer intended by sub-rules (1), (2), and (5).
[His Lordship then referred to the facts found by the Commissioners and continued.]
Questions were raised before the Commissioners whether the parties had not agreed in practice to disregard the repairing covenant, but the Commissioners find that 'there has been no general agreement varying the terms of the lease' with regard to the obligation of repair. Any payments made by the lessors beyond their obligations under the lease must therefore be regarded as gifts irrelevant for tax purposes : Birmingham Corporation v. Barnes. The total amount at stake for the twelve years is Pounds 1,788,398, the annual figure varying from 126,570 in 1923-24 up to 174,695 in 1929-30.
To appreciate the issues of interpretation raised by the Crowns contentions close attention to the wording of the sub-rules (1), (2), (5) and (6) is necessary. Rule 6 (1) is : 'In charging the profits or gains of a trade under this Schedule, such deduction may be allowed as the Commissioners having jurisdiction in the matter may consider just and reasonable as representing the dismounted value by reason of wear and tear during the year and any machinery or plant used for the purposes of the trade and belonging to the person by whom it is carried on.' Sub-rule (2) is : 'Whether machinery or plant is let to the person by whom the trade is carried on, on the terms of his being bound to maintain the same and deliver it over in good condition at the end go the lease, the machinery or plant shall be deemed to belong to that person for the purpose of this rule.' Sub-rule (5) provides : 'Whether machinery or plant is let upon such terms that the burden of maintaining and restoring it falls upon the lessor he shall be entitled, on presenting a claim to the General or Special Commissioners, to have repaid to him such a portion of the sum assessed and charged in respect of the machinery or plant, and deducted by the lessee on payment of the rent, as shall represent the tax upon an amount which the Commissioners consider just and reasonable as representing the dismounted value by reason of wear and tear of the machinery or plant during the year. 'No such claim shall be allowed unless made within twelve months after the expiration of the year of assessment.' Sub-rule (6) states : 'No deduction for wear and tear, or repayment on account of any such deduction, shall be allowed for any year if the deduction, when added to the deductions allowed on that account for any previous years to the person by whom the trade is carried on, will make the aggregate amount of the deductions exceed the actual cost to that person of the machinery or plant, including in that actual cost any expenditure in the nature of capital expenditure on the machinery or plant by way of renewal, improvement, or re-instatement.'
By the words in sub-rule (1) 'used for the purposes of the trade and belonging to the person by whom it is carried on,' that sub-rule is restricted to the case where the owner is himself carrying on the trade. It is sub-rule (2) which the appellants say covers there case. There is no doubt that they come within the first three lines, and they contend that their claim is covered by the last two lines 'the machinery or plant shall be deemed to belong to that person' - that is, the repairing lessee - 'for the purpose of this rule.' Apart from the argument addressed to us by the Attorney-General with regard to the reaction of sub-rule (6) on the construction of sub-rule (2), with which I will deal presently, I think this interpretation is correct. I construe the two lines as meaning 'the repairing lessee shall have the benefit of the owner sub-rule.' This construction of the nature of the enactment in sub-rule (1). It must be read as introducing a wholly new principle, although within narrowly defined limits, into income-tax law. That was made apparent in Section 12 of the 1878 Act by the opening words : 'Notwithstanding any provision to the contrary contained in any Act relating to income-tax.' So read, sub-rule (1) is the main enactment, applied to what is the normal case of the person carrying on the trade (the word in the sub-rule which replaces the word 'concern' in the old Section 12) owning both the concern and its plant and machinery.
The case of the owner of the concern being a lessee was probably exceptional; but was included by the simple provision of sub-rule (2), and the much less simple provisions of sub-rule (5), according as the lessee or lessor had the burden of supplying and maintaining the plant and machinery. The words 'shall be deemed' in sub-rule (2) import a statutory supposition of fact of which the lessee is to get the benefit. He is to be treated nationally as being the owner for the purpose of the new principle enacted in sub-rule (1). As that principle gives relief to the owner because in carrying on the business he has to purchase and use plant and machinery which wear out, so sub-rule (2), in my view, gives the lessee who carries on the business with plant and machinery provided by the lessor under the obligations of a full repairing covenant the same benefit as he would get under sub-rule (1) if he were owner. To this interpretation the only recorded answer of the inspector was submission of fact, that the repairing covenant was expressly or impliedly by conduct rescinded. But this answer is negatived by the finding of fact to which I have already referred. No other reason was advanced by the inspector before the Commissioners; and I think I am right in saying that before us no real attempt was made on behalf of the respondents, apart from sub-rule (6), to challenge the interpretation of sub-rule (2) to which I have given expression.
The real argument of the Attorney-General was that by sub-rule (6) Parliament did a great deal more that amend the law as expounded by Walton, J., in Hall, Junior & Co., v. Rickman, by introducing the 100 per cent. limitation on 'allowances for depreciation', which that learned Judge was unable to construe out of the language of Section 12 of the 1878 Act - now repeated in sub-rules (1), (2), and (5) of rule 6. The Attorney-General did not dispute that Section 26 of the Finance Act, 1907, the forerunner of sub-rule (6) was passed for the purpose of adding the limitations which Walton, J., could not get out of Section 12 of the 1878 Act. But he contended that, whether intentionally or not, the section had made another change in the law by adding a whole different restriction upon the rights of the lessee to which the owner was not bound. This result he found in the words 'actual cost to that person' contained formerly in Section 26 of the Finance Act, 1907, and now appearing in sub-rule (6). 'That person' quite clearly is 'the person by whom the trade is carried on' referred to above; and on these words the Attorney-General submits that the sub-rule should be construed as meaning that the lessee carrying on the trade is debarred from the benefit under sub-rule (2) of deductions for wear and tear, unless 'the actual cost' of the plant and machinery in question had been borne by him. I am anxious not to misrepresent his argument, but I find it very difficult to appreciate how he gets his construction out of the language used. I do not challenge his rule interpretation that if we can discern a clear meaning in the language used the Court must not hesitate to apply it, even if we think it goes outside what seems to have been the purpose of the provision. I can follow how the words of sub-rule (6) apply to the case of the owner who both incurs the cost and carries on the trade, that is, to the case of sub-rule (1). But the language used does not seem to be capable of applying to the case of the lessee who is carrying on the trade on a full repairing covenant with plant and machinery, the property of the lessor, of which the whole 'actual cost' was necessarily defrayed by the lessor. Still less does it fit sub-rule (5). The Attorney-General frankly faces the consequences of his construction, however inconsistent it may be with apparent intention of Parliament in 1878. He recognises that it involves the exclusion of a lessee carrying on the trade on a repairing lease from all benefit of sub-rule (2), except in so far as he may have voluntarily incurred the cost of installing plant or machinery at his own expense, or may have expended money in the way of capital expenditure on the machinery or plant by way of renewal, etc. In my view, the language of sub-rule (6) will not bear the construction which he puts on it, but, even if it were sufficiently near it to be even ambiguous, I should regard his construction as inadmissible. If sub-rule (2) between 1878 and 1907 gave the lessee the right to an allowance for depreciation of the lessors plant and machinery in respect of which he, the lessee, had incurred no 'actual cost', I cannot conceive of the Legislature taking away the substance of that privilege, enjoyed for twenty-nine years, without saying so in plain terms. If that be the purpose, as the Attorney-General contends, the language is hopelessly obscure, to say the least. But I go further and say that I am unable to get that meaning out of sub-rule (6), and I accordingly reject that interpretation. Nor can I find any other ground in the language of sub-rule (6) for limiting or altering what I regard as the simple meaning of sub-rule (2).
This conclusion makes it, strictly speaking unnecessary to consider the effect of the argument for the Crown on sub-rule (5), for the appellants have nothing to do with that sub-rule. But it is not irrelevant, as a comment on the argument, to note that both counsel for the Crown felt constrained to concede that their interpretation of sub-rule (6) involved the practical repeal of sub-rule (5). How far that sub-rule is affected by any other interpretation of sub-rule (6) may come up for consideration some day, and I say nothing upon that question now.
As my conclusion involves overruling the decision of Finlay, J., in Heyhoe v. Slough Theatre Co., I will add a short explanatory comment. In that case he had no assistance from the respondent company, which did not appear, and we have no record of counsels argument except the learned Judges appreciation of its candid fairness. But I infer from the terms of the judgment that counsel for the Crown had put forward the same argument as he and the Attorney-General addressed to us in the present case, and that the learned Judge had assumed, without critically examining the language, the grammatical possibility of construing the sub-rule as imposing a money limitation on the rights to allowances measured by the actual expenditure of the person carrying on the trade. Once that assumption is made the results may perhaps follow logically, as stated by the learned Judge, but it is that assumption which, in my view, is erroneous. I do not think that it is within the meaning of the sub-rule. Such an interpretation would, as I have already indicated, involve a decision that in 1907 Parliament took away a large part of the benefits of the system of 1878 without disclosing its purpose in clear terms. Such a construction would indeed be contrary to what I have always regarded as a first principle of interpretation, namely, that a statute must not be construed as taking away benefits already conferred by previous legislation unless that intention is plainly expressed; it cannot be inferred from ambiguous language. In my view, that construction is actually inconsistent with the language of sub-rule (6), but the most favourable view of it for the Crown is that the language is ambiguous and that is not enough to justify a decision in favour of the Crown.
The order of the Court should, in my opinion, be the same in each appeal, namely, that the appeal be allowed, with costs here and below, and the case be remitted to the Commissioners with a direction that the appellant company be given the allowances for wear and tear for the years respectively mentioned in the special cases.
CLAUSON, L. J. - In this case I find myself in agreement with my Lords judgment, but in view of the large sums at stake and of the fact that we are differing from the view taken first by Finlay, J., and next by Macnaghten, J., I venture to express my conclusions and the reasons for them in my own language. These are appeals by the Union Cold Storage Co., whom it will be convenient to call 'the company', against judgments of Macnaghten, J., on cases stated by the General Commissioners for the City of London. The company claim certain deductions in respect of depreciation of leased plant. The Commissioners, feeling themselves bound by a decision of Finlay, J., in Heyhoe v. Slough Theatre Co., held that the company were not entitled to the deduction. The cited case was one in which the subject had failed to appear, and the learned Judge had therefore not had the assistance of any argument by counsel against the Crown. Macnaghten J., after full argument, came to the same conclusion on the construction of the statue as Finlay, J., and affirmed the decision of the Commissioners, and the question for us is, in substance, whether the conclusion of those two learned Judges on the construction of the statute is correct.
The facts of the present case may be shortly summarised thus : The company are lessees of a great deal of very valuable plant and machinery under a lease which binds them to maintain it and deliver it over in good condition at the end of lease. As a matter of fact, owing to the very special relations which subsist between the lessors and the company, the bulk (if not the whole) of the expenditure in the nature of capital expenditure on the machinery and plant by way of renewal, improvement, or re-instatement has been made by the lessors and not by the company. The terms of the lease have not, however, been varied, and the way in which the capital expenditure has in fact been borne has accordingly no bearing on the right to deduction claimed by the company. There can be no doubt but that the value of the machinery and plant in question diminishes year by year, and the company claim a deduction under sub-rules (1) and (2) of rule 6 of the Rules applicable to Cases I and II under Schedule D. I need not read those sub-rules at length.
It is obvious that had sub-rule (1) stood alone the claim would not have been sustainable. The company carry on the trade for the purposes of which the machinery and plant are used, but the machinery and plant do not belong to them. The circumstances do, however, bring the case precisely within sub-rule (2) and accordingly, reading sub-rules (1) and (2), it is clear that, so far, the company are entitled to the deductions claimed. No question of figures arises : the correct amount of the deductions, if legally to be allowed has been settled.
Accordingly, had this matter arisen before the Act of 1907, when it would have been governed mainly by the various statutory provisions now represented by sub-rules (1) and (2), there is no question but that the companys claim would necessarily have been successful.
However, by the Act of 1907, an addition was made to the law by provisions which are now represented by sub-rule (6) of Rule 6, the terms of which I need not read at length. The circumstances under which those provisions were enacted are stated by Lord Atkin in the House of Lords in Birmingham Corporation v. Barnes (104 L. J. K. B., at p. 283;  A. C., at p. 297) as follows :
'In the year 1906, however, there arose a case before Walton, J., of Hall, Junior & Co. v. Rickman, in which a shipowner claimed depreciation allowance in respect of a ship which, being used as a hulk, was held to be plant. The allowances had continued so long in respect of this ship that if granted for the tax year in question they would have exceeded 100 per cent of the cost of the ship to the shipowner. The Inland Revenue authorities objected, but the Judge, though thinking the objection reasonable, could find in the Income-tax Act no restriction on the aggregate of the allowances to be granted. He pointed out, as is conceded, that if the plant to the new owner. After this decision and undoubtedly in consequence of it there was passed in 1907 a section in the terms of the present rule 6(6).'
It is to be observed that before the enactment of the provision which is now sub-rule (6) the allowance to be made, whether under the provision now embodied in sub-rule (1), or under that embodied in sub-rule (2), was in no way conditioned by or related to any matter of cost. What had to be considered was a comparison between value at the beginning of the year and the value at the end of the year in so far as diminished by reason of wear and tear during the year. Sub-rule (6) modifies in favour of the Crown, the provisions in sub-rules (1) and (2) by excluding the deduction which would otherwise be made under Sub-rule (1) or (2) if it can be predicted of that deduction, if made, that, when added to certain previous deductions, the aggregate would exceed the actual cost to the person by whom the trade is carried on of the machinery and plant in question.
Sub-rule (6) contains words - namely, 'or repayment on account of any such deduction' - which indicate clearly that it is intended to apply to the case in which the relevant provision in regard to wear and tear allowance is that which is now embodied in sub-rule (5). It was agreed by counsel on both sides that the difficulties in the way of construing sub-rule (6) in its application to a case governed by sub-rule (5) are exceedingly baffling. I say no more on this point since it may be that it will have to be considered in some future case.
It may well be that sub-rule (6) offers no difficulty in its application to a case to which sub-rule (1) applies; for in such a case the person by whom the trade is carried on ex hypothesis owns the plant and machinery, and in all normal cases the actual cost to him should be easily ascertainable.
The problem for solution is, however, how to apply sub-rule (6) to the present case, which is governed by sub-rule (2). The case for the subject is put in two alternative ways. One suggestion, as I understand it, is that when the Legislature says (as in sub-rule (2)) that the machinery and plant are to be deemed to belong to the lessee, this must be understood to mean that the lessee is to be placed for all relevant purposes in the shoes of the lessor, with the result that if one is told (as one is by sub-rule (6)), to ascertain the actual cost to the lessee, one must regard the lessee and lessor as synonymous for this purpose, and one must take as the actual cost to the person by whom the trade is carried on the sum which is in truth the actual cost to the person who does not carry on the trade - namely, the lessor. If this view be correct, the appellants succeed, since in this particular case the cost is very far in excess of the deductions claimed. It may be that this view is correct, but I must admit that I feel some hesitation in reading so much into the words used in sub-rule (2).
The alternative view propounded by the subject, the lessee, is to suggest that on its fair construction sub-rule (6) contemplates, and applies only to, a case (a) where the person by whom the trade is carried on has in previous years in fact received deductions, and (b) where there has been actual cost incurred by the person by whom the trade is carried on, and (c) where the addition of the proposed deduction to the previous deductions would cause the aggregate to overtop that actual cost plus subsequent capital expenditure by way of renewal etc. This construction appears to me to be a perfectly possible construction; and this reading of the sub-rule gives it exactly the meaning which one would expect the Legislature to intend, if the object was to deal with the difficulty which came to light in the case of Hall, Junior & Co. v. Rickman. It is true that on this construction it is not easy to see how effect can be given to it in a case governed by sub-rule (5); but that difficulty admittedly exists on any possible construction of sub-rule (6). The result of this construction is that the limitation in favour of the Crown placed by sub-rule (6) on the benefit conferred on the subject by sub-rules (1) and (2) fails to be an effective limitation in the case of the present claimant for the benefit of sub-rule (2), since in his case the conditions for the application of sub-rule (6) do not exist, there having been no actual cost to him of the machinery or plant.
The case for the Crown is put thus. It is pointed out that, even if there has been no actual cost to the person carrying on the business of the machinery or plant, there may well be, and in the present case in fact there has been, some expenditure by the person carrying on the business in the nature of capital expenditure on the machinery or plant by way of renewal, improvement, or re-instatement. The Attorney-General suggests that the sub-rule should read as though the words 'if any' were inserted between 'deductions' and 'allowed' and again between the words 'actual cost' and 'to that person'. And he argues that where, as in this case, there is no actual cost, and even if there have been no previous deductions, the sub-rule applies, with the result that its true effect in such a case as this is to allow a deduction only if it does not exceed the expenditure by the person carrying on the trade in the nature of capital expenditure on the machinery or plant by way of renewal, improvement or reinstatement.
It is well to pause and consider how, on this construction, the matter works out with regard, first, to the man who owns the machinery and plant with which he carries on his trade, and, secondly, to the man who carries on his trade with machinery and plant let to him on terms that he must maintain it and deliver it over in good condition at the end of the lease. The first man gets his full allowance in respect of diminished value year by year, with a proviso merely that he is never to get back more than the cost of it, plus capital expenditure on it. In other words, he is deprived of the advantage which he would otherwise have had under the decision in Hall, Junior & Co. v. Rickman, namely, the advantage that if he had received an over calculated allowance - namely, an allowance which would write down the machinery and plant to nil, while there is still value left in it - he would still be entitled to go on getting an allowance for depreciation, and still retain the benefit of his over calculated allowance. As regards him, sub-rule (6) operates merely to prevent him from getting an obviously unintended benefit from in over-calculated allowance. As regards the second man, the sub-rule deprives him of the allowance representing the diminished value of the machinery and plant which sub-rule (2) gave him - and gave him (be it observed) notwithstanding that he had never himself owned the machinery - and cuts him down to an allowance measured by his own capital expenditure by way of renewal, improvement or re-instatement, a measure of very little relevancy with regard to the matter of dimunition in value by wear and tear.
Why the Legislature, while remedying an undue benefit conferred on an owner of machinery by the operation of the decision in Hall, Junior & Co. v. Rickman in reference to an owner whose allowance has been over calculated, should take the opportunity of depriving a hirer of a benefit plainly conferred on him by enactment in operation from 1878 to 1907, I find it impossible to imagine. It must be admitted that the fact that an enactment, on a fair construction of it, produces an anomalous result is no ground for misconstruing it, but here it is a case of a choice between two rival constructions. One produces a perfectly reasonable and intelligible result without depriving any subject of and benefit of alleviation of taxation, save only an obviously unintended and unexpected alleviation, and without adding any words to the sub-rule; the other construction, while it operates (as does the former construction) to put right an anomaly to which attention had, just before its enactment, been drawn by the decision in Halls case further deprives one class of subjects, namely, hirers of machinery on the stated terms, of a benefit enjoyed for many years - and deprives them of it for no apparent reason - and actually involves reading in words ('if any' in two places) into the sub-rule, words no doubt easily to be read in to produce an intelligible result but not in my view, easily to be read in in order to produce an unexpected and anomalous result.
As between the two rival constructions of the sub-rule, that which most commends itself to me is the one which preserves to the hirer of machinery the privilege enjoyed from 1878 to 1907. And it is perhaps not insignificant that this construction would appear to be that which has in practice been acted upon by the Revenue from 1907 until at all events a very recent date.
Accordingly, in my judgment, the decision in Heyhoe v. Slough Theatre Co., proceeded on an erroneous construction of sub-rule (6). In following that decision the Commissioners erred in point of law, and the appeals to this Court should succeed. I concur in the order to be made by this Court as stated by my Lord.
DU PARCQ, L. J. - I have had the advantage of reading in advance the judgments which have just been delivered. I entirely agree with them, and I cannot usefully add anything to them.