The Judicial Committee of the Privy Council Decisions

Trinidad Oilwell Service Limited v. The of Inland Revenue (Trinidad and Tobago) [1999] UKPC 45 (21st October, 1999)

Trinidad Oilwell Service Limited Appellant

v.

The Board of Inland Revenue Respondent

FROM

THE COURT OF APPEAL OF TRINIDAD

ORAL JUDGMENT OF THE LORDS OF THE

JUDICIAL COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 21st October 1999

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Lord Steyn

[Delivered by Lord Hoffmann]

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1. This appeal raises a short point on initial allowances for the purposes of corporation tax. The Income Tax (In Aid of Industry) Act, Chapter 85:04 provides various incentive allowances to persons carrying on certain trades specified in the First Schedule. These include, under paragraph 3:-

"The working of any mine, oilwell, or other source of mineral deposits and the manufacture, refining and processing of oil and other minerals and their derivatives."

2. Section 16 provides that when a person carrying on a specified trade "incurs capital expenditure on the provision of machinery or plant for the purposes of the trade" he shall be entitled to an initial allowance equal to one fifth of the expenditure.

3. The appellant describes itself as an oilfield contractor. It provides certain specialist services in connection with the drilling and operation of oil wells. Of these, the most important is the installation of the "casing string" which is a steel pipe inserted into the hole and kept in position by a jacket of cement. The "tubing strings", or pipes which carry the oil, are then inserted into the casing string by another contractor. In addition to the installation of casing strings, the appellant also offers services to improve the performance of wells which have come on stream, such as pumping in chemicals, controlling the flow of sand and so forth. There is, of course, a great deal more required for the drilling and operation of an oil well. Geologists have to find a suitable site, an oil rig must be erected by a drilling contractor, the oil-bearing sand strata must be perforated by another specialist contractor and the well must be put into production. Apart from the specialist services which have been mentioned, the appellant was not concerned with any of these activities.

 

4. For the purposes of these activities the appellant incurred capital expenditure in 1984. It made a claim to an initial allowance which was rejected by the Board of Inland Revenue on the ground that the appellant had not been carrying on a specified trade. The appellant claimed that it carried on the trade of working oil wells within the meaning of paragraph 3. It appealed to the Tax Appeal Board which dismissed the appeal, saying:-

"Having examined the evidence, and the submissions of Counsel, we observe that the appellant had performed certain integral functions pertaining to the trade as a contractor, but had played no part in several other integral functions, had had no responsibility for the final outcome of the overall operation nor had it undertaken the risk as an entrepreneur so as to qualify it for the allowance in the nature of an incentive to industry."

 

5. The Board also held that to come within paragraph 3 of the Schedule it was not sufficient for the appellant to carry on the trade of working oil wells. It had also to refine and process the oil.

 

6. The appellant appealed to the Court of Appeal. In a judgment given by de la Bastide C.J., the Court held that the Board had been wrong to interpret paragraph 3 as requiring both the working of oil wells and the refining and processing of oil. They were separate trades and a person who carried on either would come within the Act. The Court also held that the specified activity need not be carried on as a risk-bearing entrepreneur. It approved the decision of Achong J. in Skinner Drilling Co. Limited (1962) (unreported, H.C.A. 596 of 1962) in which a general contractor who provided most of the services required for drilling oil wells was held to be carrying on the trade of working oil wells. But it held that having regard to the limited range of services performed by the appellant, it could not as a matter of ordinary language be said to be carrying on such a trade. It participated in the working of oil wells but did not carry on the trade of working them.

 

7. Mr. Ghosh, who appeared for the appellant, submitted that anyone who performed activities which were necessary or "integral" for the working of an oil well was carrying on the trade of working the oil well. The installation of the casing string was a essential and important part of the operation which enabled oil to be extracted from the well. It was no objection that several contractors, each supplying its own specialist service, would on that basis be carrying on the trade of working the same well. Mr. Ghosh said that such a construction was necessary to give effect to the policy of the Act of encouraging activity in the oil industry. It also avoided the anomaly that machinery and plant used by a contractor would not attract an initial allowance but would have done so if they had been used by the oil company itself.

 

8. Their Lordships do not consider that the operation of the Act as construed by the Court of Appeal would give rise to such anomaly that any departure from the plain language of paragraph 3 is required. They were not invited to undertake any detailed examination of the structure of the various allowances provided by the Act and therefore cannot say that the result in the present case must be inconsistent with a rational scheme of legislation. Nor do they think that any policy can be discerned except to provide tax incentives to those trades, and only to those trades, which are specified in the Schedule. The trades in question can be identified only from the language of the Schedule itself. Their Lordships would pay tribute to the clarity of the Chief Justice’s reasoning, with which they entirely agree. This is an area in which analogies tend to be dangerous because even the slightest change in the language may produce a subtly different meaning. But they find the Chief Justice’s analogy of an electrical contractor working on the construction of new houses particularly convincing. The contractor is taking part on the building of houses but he is not carrying on trade as a house-builder. He is carrying on trade as an electrician.

 

9. Whether the activities carried on by the contractor are sufficiently comprehensive to be described as working oil wells, as they were in the Skinner case, is a question of fact and degree. An appeal lies from the decision of the Tax Appeal Board only on the grounds of an error of law and therefore, if the Board had directed themselves correctly as to the meaning of the statutory phrase "working any ... oilwell", the question of whether the appellant’s activities fell within that description would have been one of fact from which there was no appeal: see Edwards v. Bairstow [1956] AC 14. Only if the decision was one which "no person acting judicially and properly instructed as to the relevant law" could have reached would the Court of Appeal have been entitled to interfere: see Lord Radcliffe at p. 36. Mr. McCall Q.C., who appeared for the Board of Inland Revenue, told their Lordships that in view of the errors of law in the Board’s reasons found by the Court of Appeal (against which findings there is no appeal) he did not argue that the principle in Edwards v. Bairstow (supra) could be relied upon in this case. He submitted, however, that on the facts found by the Board, the conclusion of the Court of Appeal was plainly right. Their Lordships agree and therefore dismiss the appeal.