Brosnan (Inspector of Taxes) v Leeside Nurseries Ltd

• Jurisdiction: Ireland
• Judge: Keane J.,Mr. Justice Donal Barrington
• Judgment Date: 01 January 1998
• Neutral Citation: 1998 WJSC-SC 3938
• Date: 01 January 1998
• Court: Supreme Court
• Docket Number: [1993 No. 294R; S.C. No. 229 of 1994]

1998 WJSC-SC 3938

THE SUPREME COURT

O'Flaherty, J.

Barrington, J.

Keane, J.

Lynch, J.

Barron, J.

Record No. 1993/294R

BROSNAN v. LEESIDE NURSERIES LTD

Between:

T. G. BROSNAN (INSPECTOR OF TAXES)

Appellant/Respondent

and

LEESIDE NURSERIES LTD.

Respondents/Appellants

Citations:

FINANCE ACT 1980 PART I CH 6

MCCANN LTD V O CULACHAIN 1985 IR 298, 1986 IR 196

MARA V HUMMINGBIRD 1982 ILRM 421

INCOME TAX ACT 1967 S54

KELLY V COBB STRAFFAN IRELAND LTD 4 ITR 526

O LAOCHDHA V JOHNSON & JOHNSON (IRL) LTD 4 ITR 361

HUSSEY (INSPECTOR OF TAXES) V M J GLEESON & CO LTD 4 ITR 533

MCCAUSLAND V MINISTRY OF COMMERCE 1956 NILR 36

CRONIN V STRAND DAIRIES LTD 3 ITR 441

CORPORATION TAX ACT 1976 PART IV

SALE OF GOODS ACT 1893

FINANCE ACT 1980 S39(1)

UNWIN V NANSON 1891 2 QB 115

INSPECTOR OF TAXES V KIERNAN 1981 IR 117

Synopsis

REVENUE

Corporation tax; manufacturing; relief for goods manufactured within the state; processing of dwarfed potted chrysanthemums; whether dwarfed potted chrysanthemums are manufactured goods; meaning of manufacture; whether dwarfing process constitutes manufacture or cultivation; whether natural products can be turned into manufactured goods; nature of process applied to chrysanthemums; s.39(1) Finance Act, 1980; s.54 Corporation Tax Act, 1976 Held: Appeal dismissed; not manufactured goods; plants cultivated and not manufactured (Supreme Court: O'Flaherty J., Barrington J., Keane J., Lynch J., Barron J. 30/10/1997)- [1998] 2 IR 311 - [1998] 1 ILRM 312

Brosnan v. Leeside Nurseries Ltd.

1 JUDGMENT of Mr. Justice Donal Barringtondelivered the 30th day of October, 1997. [O'Flaherty, Lynch, Barron Conc]

2 This case stated which comes to us by way of appeal from the Judgment and order of Murphy, J. dated the 13th day of May, 1994 raises an interesting question as to whether dwarfed potted chrysanthemum plants which havebeen subjected to a fairly elaborate process to make them suitable for all year round sale on Supermarket shelves are "manufacturedgoods" for the purposes of tax relief under Chapter 6 of Part I of the Finance Act, 1980(as amended).

3 In the Circuit Court Judge A.G. Murphy held that they were such goods. In the High Court Mr. Justice Murphy held that they were not manufactured goods. The Appellants appeal against this decision.

4 When this Court first sat to consider the appeal it sat as a chamber of three Judges. The Court took the preliminary view that the case might be governed by the decision of the Supreme Court concerning the ripening of bananas in the McCann Ltd. v. ???O???C???u???lach???a???in [1985] IR 298, [1986] IR 196. The Court therefore invited the Respondent to consider whether he wished to raise the question of whether McCann v.???O???C???u???lach???a???in had been properly decided. The Respondent decided, after consideration, that he did wish to raise this question and the Court therefore reconstituted itself as a Court of five.

FACTS.

5 The learned Circuit Judge in his case stated found the relevant facts asfollows:-

"The chrysanthemums are imported by the Respondent as unrooted cuttings. They are graded and inserted (four to a pot) into plastic flower pots containing a peat mixture. The potted plants are transferred to a growing area - a partially screened off area within the glass house where they are placed in rows on capillary matting and under the " mist line". Capillary matting is a matting through which water is fed to the plants. The " mist line" is a sprinkler system of water mist which also contains a chemical to prevent rotting. Both the temperature (65 f.) and the humidity in the growing area are controlled. Terminal screening - a black screening fitted beneath the ceiling of the glass house - is used to control day and night. The area is electrically lit for three to four hours at night. The effect is to speed up the rooting process. In seven to eight days the plants will haverooted.

The potted plants are then transferred to a weaning area where the temperature is slightly lower. They are again placed on capillary matting through which they receive water and plant food additives. As growth continues; they are dwarfed several times by chemical dwarfing agents to control their size. The dwarfing agents are diluted into the water fed to the plants through the capillary matting. The plants are pinched, if necessary, that is the heads are taken off any sideshoots.Similarly, when buds are formed the plants may be debudded, that is the main bud is left but the small buds are cut off. The plants are also sprayed manually with chemicals to protect against greenfly, petal blight, etc.

The plants receive daylight and air in the glass house. The terminal screening comes across the ceiling of the glass house each evening generally at 7.30pm. After ten to twelve weeks in all the plants are ready for sale.

Commercial consideration dictate the size and appearance of the plants grown. Chrysanthemums are sold all year around with peaks in sales at Christmas, Easter, and Mother's Day. If the Chrysanthemums were to be grown in the wild they would only be available for a short period, in Autumn, each year. The glass house plants are biologically the same as those grown in the wild and are not the same chemically. Any chemical differences are caused by the chemicals in the additives being absorbed into the plants in different proportions to which those chemicals are found in the wild.

Poinsettias, geraniums and begonias are grown as well as chrysanthemums. They are grown in much the same way as thechrysanthemums".

FINDINGS OF CIRCUIT JUDGE.

6 The relevant findings of the learned Circuit Court Judge for the purposes of the present discussion are as follows-

7 (1) The Respondent cultivates plants,

8 (2) "Cultivation" and "manufacture" are not mutually exclusive.

9 (3) The Respondent is not creating manufactured products but by it's processes it renders them available in a commercially marketable form and at times of the year when they do not root or grow naturally. The Respondent operates on slips in much the same way as Strand Dairy Ltd., and Charles McCann Ltd. apply processes to milk and bananas".

SUBMISSIONS OF THE PARTIES.

10 Leeside Nurseries Ltd. submitted that the findings of the learned Circuit Court Judge were findings of fact and inferences of fact which he was entitled to make and that on the principle in Mara v.Hummingbird [1982] ILRM 421the learned High Court Judge was not entitled to interfere with these findings or inferences.

11 Alternatively they submitted that the elaborate process to which the plants were subjected was clearly every bit as much a manufacturing process as the process of ripening bananas in the McCann case. They submitted moreover that the Appellants do not engage in the business of market gardening within the meaning of Section 54 of the Income Tax Act, 1967; they produce a product which is commercially different from the product which would have been produced had it been grown in the wild because it is saleable at all times of the year and is dwarfed.

12 They also relied upon Kelly v. Cobb Straffan Ireland Ltd. [ IV] ITR 526; O'Laochdha v. Johnson and Johnson (Ireland) Ltd. [ IV] ITR 361 and Hussey (Inspector of Taxes) v. M.J. Gleeson and Co.Ltd. [ IV] ITR 533.

13 They further submitted that to decide the present case it was by no means essential that this Court should follow the decision in the McCann case. This case deals with growing plants while that case dealt with the ripening of bananas. At the same time Leeside Nurseries Ltd. submitted that there could bea manufacture of natural products. In support of this submission they cited not only the McCann case but also the cases of McCausland v. Ministry of Commerce [1956] NILR 36, Kelly v. Cobb StraffanLtd. IV TLR 526 and Hussey v. M.J. Gleeson and Co. Ltd. IV ITR 533. They also cited the case of Cronin v. Strand DairiesLtd. III ITR 441 in which Murphy, J. held that pasteurised milk could be regarded as manufactured goods. In particular they relied upon the following passage from the Judgment of Murphy, J. in thatcase:-

"It seems to me therefore that one must look at the goods as alleged to have been manufactured and consider what they are, how they appear, what qualities they possess, what value attaches to them. One then looks at the process and seeks to identify to what extent did that process confer on the goods the characteristics which they are found to possess. It is obvious - as indeed Lord McDermott pointed out (at page 43 of his Judgment in McCausland v. Ministry of Commerce [1956] NILR 36) - that the question is to a large extent one of degree. Nobody would doubt that well made and fully finished furniture would constitute manufactured goods, but is unlikely that the ordinary man would accept that the trunk of a tree which had been felled and provided a convenient seat constituted a manufactured article".

14 Mr. McCann on behalf of Leeside Nurseries Ltd., submitted that this was the correct approach. It was also the approach, he suggested, adopted by McCarthy, J. in delivering the Judgment of the Supreme Court in the McCann case, subject to the modification that a Judge, in the case of ambiguity as to whether finished products constitute "manufactured goods" for the purposes of Part IV of the Corporation Tax Act, 1976adopts the view, not just of the ordinary man, but of the ordinary man who understands the scheme and purposes of Part IV of the 1976 Act.

15 On this basis Mr. McCann submitted that natural products can be turned into manufactured articles. Whether they have or have not been turned into manufactured goods is simply a question of degree. In the present case the learned Circuit Court Judge, having considered the elaborate processes to which the...