Brambles Holdings Ltd v Federal Commissioner of Taxation

[1977] HCA 54

HIGH COURT OF AUSTRALIA

Barwick C.J., Gibbs, Mason, Jacobs and Murphy JJ.

BRAMBLES HOLDINGS LTD. v. FEDERAL COMMISSIONER OF TAXATION

(1977) 138 CLR 467

2 November 1977

Pay-roll Tax (Cth)

Pay-roll Tax (Cth)—Export rebate entitlement—Arrangement of affairs for more favourable entitlement—Choice presented by provisions in Act—Commissioner's discretion to allow only what would have been amount of rebate entitlement if arrangement had not been made—Commercial reality of arrangement—Pay-roll Tax Assessment Act 1941-1969 (Cth), s. 16T.

Decisions

November 2.
The following written judgments were delivered:-
BARWICK C.J. My brother Jacobs, in the reasons for judgment which he has prepared in this appeal and which he has afforded me the opportunity to read and consider, has set out the relevant facts and circumstances and the statutory provisions with which the Court is presently concerned. I agree with my brother's conclusion that the appeal be allowed: and generally with the reasons he gives for arriving at it. For myself, I would wish only to add a brief observation. (at p470)

2. In the administration of taxation laws it is, in my opinion, fundamental that the citizen is entitled to take advantage of the provisions of the statute, even if the result is not something contemplated by the draftsman. If that result is not acceptable to the Parliament, no doubt Parliament will amend the statute, an exercise which occurs with frequency and seemingly without difficulty. Provisions such as s. 16T of the Pay-roll Tax Assessment Act 1941-1969 (Cth) and s. 260 of the Income Tax Assessment Act 1936 (Cth) as amended ought not to be construed as denying such a right to the citizen, even where he deliberately chooses the form of a transaction into which he contemplates entering so as to attract the benefit of the statute, the transaction of course not being a sham or pretence. Whilst these two sections may not be in identical terms or operate in an identical fashion, they should be treated alike in this respect. (at p470)

3. Bearing in mind this fundamental principle, illustrated as it is in cases such as Inland Revenue Commissioners v. Duke of Westminster (1936) AC 1 ; W. P. Keighery Pty. Ltd. v. Federal Commissioner of Taxation (1957) 100 CLR 66 ; Federal Commissioner of Taxation v. Casuarina Pty. Ltd. (1971) 127 CLR 62 ; Cecil Bros. Pty. Ltd. v. Federal Commissioner of Taxation (1964) 111 CLR 430 ; and Mullens v. Federal Commissioner of Taxation (1976) 135 CLR 290 , s. 16T upon its proper construction, in my opinion, refers to what I might call substitute arrangements, that is to say, arrangements which alter or supplant some existing arrangement upon which the taxing statute can or already has operated. It is not correct, in my opinion, to construe the section as applying to what I might call an initial transaction. The use of the expression "would otherwise have been the case" in s. 16T can only be satisfied, in my opinion, by some transaction of the parties on which the relevant division of the Act operates. It cannot be satisfied by reference to some supposed transaction into which the parties have not entered which, had they done so, would have produced an economic result akin, if not identical, to the result of the transaction into which they did in fact enter. (at p471)

4. Applying this construction to the instant circumstances it is, in my opinion, clear that there is no arrangement between the parties on which s. 16T could operate. All that can properly be said is that, with a motive to obtain a financial advantage through the operation of the Act, the appellant entered into a genuine, as distinct from a sham, transaction which, by its terms and structure, attracted that financial advantage. (at p471)

5. I agree that the appeal be allowed. (at p471)

GIBBS J. This is an appeal from a decision of a Board of Review which, by a majority, upheld a decision of the respondent Commissioner disallowing an objection against the determination, adversely to the appellant, of a claim by the appellant for a rebate of pay-roll tax for the rebate year ended 30th June 1971. (at p471)

2. By the Pay-roll Tax Assessment Act 1941-1969 (Cth) ("the Act"), pay-roll tax was levied and paid on all wages paid or payable by any employer, and was paid by the employer who paid or was liable to pay the wages (ss. 12, 13). Provision for the allowance of rebates was made by Div. 2 of Pt III of the Act. The general nature of that Division was indicated by its title: "Rebate of Tax by Reference to Exports". The provisions of the division were detailed and complex, but it is unnecessary to discuss them in detail. Speaking broadly, they allowed a rebate of tax to an employer whose export sales had increased. They were obviously designed to induce persons to engage in export rather than domestic trade. But the inducement which was offered was not held out only to persons who themselves made export sales; it was extended also to persons who supplied goods either to the exporter himself, or to another supplier who supplied the exporter. This scheme was given effect in the following way. The rebate allowable to an employer was of an amount equal to his "rebate entitlement" (s. 16F). The rebate entitlement depended, amongst other things, on the rebate value of export certificates issued to the employer in relation to the rebate year in question (s. 16E (1) ). If an employer who had not made export sales held an export certificate, and had not himself issued an export certificate in relation to the rebate year in question, his rebate entitlement for that year would be the rebate value of the certificate (s. 16E (1) ). However the provisions of ss. 16E and 16F were both stated to be "Subject to this Division". By s. 16G (1) a rebate could not exceed the amount of the employer's tax for the relevant years. Provision for the issue of export certificates was made by s. 16s. The provisions of sub-s. 2 of that section were as follows:

"Subject to and in accordance with this section a person being - (a) a person who has, in a rebate year, acquired from a supplier of components goods of the same kind as - (i) prescribed goods that have, in that rebate year, been exported from Australia and in relation to which that person was the producer for export; or

(ii) goods that have been physically included in goods referred to in the last preceding sub-paragraph; or

(b) a supplier of components who has received an export certificate in relation to a rebate year in respect of goods and has, in that rebate year, acquired from another supplier of components goods of the same kind as the goods to which the certificate relates or goods of the same kind as goods that have been physically included in the goods to which the certificate relates,

may, during or after the end of the rebate year in which he so acquired those goods from the supplier of components, issue to the supplier of components an export certificate in relation to that rebate year."

Some of the expressions used in this sub-section are defined in s. 16A, but the definitions need not concern us. Section 16s went on to impose restrictions on the rebate value that could be specified in a certificate. The total of the rebate values of all certificates issued by any person to all suppliers in respect of goods of a particular kind could not exceed a specified proportion of the total of the amount paid by that person to all suppliers for goods of that kind (s. 16S (3) (a)). The total of the rebate values of all certificates issued by any person to a particular supplier who had supplied less than one-tenth in value of the goods of a particular kind could not exceed a specified proportion of the total of the amount paid by that person to that supplier in respect of goods of that kind (s. 16s (3) (b)). The total of the rebate value of all certificates issued by any person could not exceed the total of the rebate values of the increase in export sales of that person for the rebate year and of any export certificates issued to him in respect of that rebate year (s. 16s (6) ). Within these limits (which it is unnecessary to define more precisely) a person entitled to issue certificates had a discretion as to whether he would issue them, and if so whether he would issue a certificate to one eligible supplier of components rather than to another also eligible. By s. 16T (1) it was provided as follows:

"(1) Where the Commissioner is satisfied that arrangements have been made between any persons with a view to the affairs of those persons being so arranged or conducted that this Division, or the Division for which this Division was substituted, would have effect more favourably in relation to one of those persons than would otherwise have been the case, the amount of any increase in export sales, or of any rebate entitlement, of that person shall not exceed the amount that would, in the opinion of the Commissioner, have been the amount of that increase in export sales or of that rebate entitlement if those arrangements had not been made." (at p473)

3. In the present case the appellant was a public company which engaged in supplying services to industry, particularly in providing transport and in hiring earthmoving plant and other machinery. Harris Daishowa (Australia) Pty. Ltd. ("HDA"), a company in which the appellant held an interest of about 12 per cent, milled timber to provide wood chips for export to Japan. HDA held a special licence under the Forestry Act, 1916, as amended, (N.S.W.) which gave it authority to obtain and remove timber from specified land in southern New South Wales. HDA entered into two agreements with the appellant which were in force at all material times although they were not formally executed by HDA until a later date. By one agreement - the sub-licence agreement - HDA granted the appellant authority to enter upon the land the subject of the special licence and to obtain and remove therefrom timber and other products suitable for pulpwood, on payment of royalties fixed by the agreement. By the other agreement - the sales agreement - the appellant agreed to sell to HDA and to deliver to its mill, all the timber and other products suitable for pulpwood (therein called simply "pulpwood") got and removed from the said land. HDA agreed to buy all timber delivered by the appellant in conformity with the agreement. The price stipulated by the agreement was a sum calculated as the cost per ton of pulpwood delivered at the mill, and it was provided that the following costs were to be taken into account to determine the price per ton - (i) the royalty payable by the appellant to HDA; (ii) the amount paid or payable by the appellant to any contractor; (iii) all reasonable costs paid or payable by the appellant for site administration; and (iv) 15 cents per ton of pulpwood supplied. The sales agreement further provided that so long as HDA issued to the appellant export certificates under the Act (as another provision of the agreement obliged it to do) the appellant would allow HDA a discount of 26 cents per ton of pulpwood supplied. The effect of the sales agreement therefore was that in return for supplying the timber to the mill the appellant was reimbursed for the amount of royalties paid to HDA and any amount which it paid to any contractor, and it recovered its reasonable costs of site administration, but it paid to HDA a net amount of 11 cents per ton in return for the benefit of getting the export certificates. The sales agreement made provision for the employment by the appellant, with the approval of HDA of sub-contractors to carry out the actual forestry work including delivery to the mill. (at p474)

4. Some time before the sales agreement was made, HDA had sent a letter of intent to another company, Cocks Heffernan Pty. Ltd., advising it that a contract would be "issued" to it for the extraction of pulpwood for delivery to the mill, but adding that it might be necessary to introduce the appellant as the principal in the contract. In fact Cocks Heffernan Pty. Ltd. did supply pulpwood to the mill, and was paid by the appellant, but it was not until after the end of the year in question that any formal agreement was made between the appellant and Cocks Heffernan Pty. Ltd. The appellant also joined in forming a company, Pulp Wood Forest Services Pty. Ltd., in which it had a 75 per cent interest, which also supplied pulpwood. The appellant fulfilled its duties of site administration, and for that purpose appointed a manager (a qualified forester) and an accountant. It is incontestable that one purpose the parties wished to achieve by entering into the sub-licence agreement and the sales agreement was to obtain for the appellant the benefit of a rebate under Div. 2 - a benefit which the appellant agreed to share with HDA. Indeed, before the agreements were made, the appellant's accountant had written to the Commissioner stating that the appellant was prepared to participate in the venture with HDA only on the basis that pay-roll tax rebates for export would accrue to it. On the other hand, the parties had other reasons as well for entering into the agreements. The appellant wished to gain experience and reputation in the field of forestry management. From the point of view of HDA, it was useful to have available the managerial skills of the appellant, which was experienced in organizing contractors for field service work and haulage. (at p475)

5. On the 4th April 1972 HDA issued to the appellant an export certificate for a rebate value of $103,336.35, and the appellant claimed to be entitled to a rebate in that amount. The Commissioner disallowed the claim. He said that he was satisfied that arrangements had been made between HDA and the appellant with a view to the affairs of those persons being so arranged or conducted that Div. 2 of Pt III of the Act would have effect more favourably in relation to the appellant than would have otherwise been the case, and that in his opinion, if those arrangements had not been made, the appellant would not have been entitled to any rebate entitlement. He accordingly reduced the appellant's rebate entitlement to nil. (at p475)

6. On appeal, all members of the Board appear to have considered that the crucial question was whether the arrangement between the appellant and HDA could properly be regarded as a normal commercial transaction. The majority answered that question in the negative. Mr. Burke pointed out that the purposes which the parties wished to achieve, other than the obtaining of the rebate, might have been achieved in other ways, and he concluded that the agreements lacked commercial reality once the rebate aspect was put aside. Mr. Fairleigh said that there was no commercial reason for an arrangement to pass the property in the timber from HDA to the appellant and back again to HDA, and that this was only explicable as a way of giving the appellant a more favourable position under the Act than would otherwise have been the case. Both were satisfied in terms of s. 16T. Mr. O'Neill on the other hand held that the sales agreement was an ordinary business dealing. (at p475)

7. The Board had power to review the decision of the Commissioner and for that purpose had all the powers and functions of the Commissioner in making assessments, determinations and decisions under the Act (s. 38 of the Act). If the decision of the Board involves a question of law - and in the present case it plainly does - there is a right of appeal to this Court (s. 40 (5) ). On the appeal the whole of the decision of the Board, and not merely the question of law involved, is open to review: cf. Ruhamah Property Co. Ltd. v. Federal Commissioner of Taxation (1928) 41 CLR 148 . And, if it matters, this Court is concerned with the satisfaction of the Board rather than with that of the Commissioner: cf. Denver Chemical Manufacturing Co. v. Commissioner of Taxation (N.S.W.) (1949) 79 CLR 296, at p 312 . The extent of the powers of the Court in cases where the allowance of a deduction from assessable income has depended upon the Commissioner being satisfied of certain matters has been considered in such cases as Avon Downs Pty. Ltd v. Federal Commissioner of Taxation (1949) 78 CLR 353 and Kolotex Hosiery (Australia) Pty. Ltd. v. Federal Commissioner of Taxation (1975) 132 CLR 535 . Under s. 16T the position is different - the requisite satisfaction is a condition of a disallowance of a rebate, and not of the allowance of a deduction. It may be that the powers of the Court are wider in an appeal involving s. 16T than in cases such as Avon Downs and Kolotex, but for present purposes it is not necessary to decide whether that is so. It is clear that there is at least a power of review if the Board, in reaching the requisite satisfaction, was affected by a mistake of law, or took into account an extraneous consideration, or failed to take into account some factor which it should have considered, or if the satisfaction was one which could not reasonably have been entertained on the material before the Board. (at p476)

8. The words of s. 16T obviously were suggested by those of s. 260 of the Income Tax Assessment Act 1936, as amended (Cth) and the Board apparently thought that they should be given a somewhat similar interpretation. But s. 16T appears in a context and against a background quite different from that which the Income Tax Assessment Act provides for s. 260. It is of course obvious that the Parliament wished, if it could, to prevent any person from defeating, evading or avoiding any duty or liability imposed by the Income Tax Assessment Act, to mention only some of the abuses at which s. 260 was aimed. On the other hand it is equally clear that the Parliament, in enacting s. 16T, did not wish to prevent persons from so arranging their affairs that one of them would become entitled to a rebate of pay-roll tax. The whole point of allowing export certificates to be issued, and to form the basis of a rebate entitlement, was to encourage suppliers to supply goods to an exporter, preferably at a cost which would allow the exported product to be competitive in the market. Any such supply must inevitably require that an arrangement of some kind be made between the supplier and the exporter. Section 16T cannot sensibly be understood as having had the result that any supplier who responded to the inducement offered by Div. 2, and made arrangements to supply goods to an exporter rather than commit them to domestic trade, made arrangements which fell within the section. It is true that the section is not self-executing; it only operates if the Commissioner is satisfied and forms an opinion. However, if s. 16T can be applied to the circumstances of the present case, it would seem to me that the Commissioner would be bound to be satisfied, and to form the requisite opinion, in almost every case in which a supplier had arranged to supply goods to an exporter, with a view to obtaining a rebate of pay-roll tax. The rebate entitlement would then be lost in many cases in which it was obviously intended to be available. (at p477)

9. Moreover the words of the section, even if read alone, are not entirely clear. The first matter of which the Commissioner must be satisfied is that arrangements have been made between two or more persons, one of whom is the person whose rebate is in question. It is not however necessary that the arrangements should have been made between a supplier and an exporter. For example, arrangements between an exporter and an overseas buyer might come within the section. The arrangements to which the section refers must have been made for the purpose specified in the section: the words "with a view" import a notion of purpose, and, I would think, mean that the requisite purpose must have been the dominant purpose with which the arrangements were made. The purpose of the arrangements must be that "the affairs of those persons" be so arranged or conducted as to achieve the result that the division "would have effect more favourably in relation to one of those persons than would otherwise have been the case". Within the words of the section there lurk a number of ambiguities. "Affairs", of course, simply means "business" or "transactions". However it is a question whether the "affairs of those persons" are intended to mean their respective affairs - that is, separate transactions to which one of those persons is a party but the other is not - or to the affairs of them both - that is, common or joint affairs. The question also arises whether the division applies "more favourably", within the meaning of the section, when it applies to the person concerned for the first time, or whether what is meant is that the division is already applicable, but that if the purpose of the arrangement is achieved the division will have a more favourable application. These ambiguities must if possible be resolved in a way that will render s. 16T harmonious with the other provisions of Div. 2. The fact that some of those provisions are expressed to take effect "subject to this Division" does not mean that s. 16T should be given a construction which would defeat the object of those other sections and render them practically ineffective, if it is possible to avoid that result. (at p478)

10. As I have already suggested, on one possible construction of s. 16T that section would apply in any case in which a supplier arranged to supply goods to an exporter for the purpose of obtaining a rebate under Div.2. But the provisions of the division are designed to encourage just such an arrangement. To deny a rebate in such a case would make nonsense of the inducement intended to be offered by the provisions relating to export certificates. To avoid this result, it seems to me proper to give a strict construction to the words "would have effect more favourably ... than would otherwise have been the case". Strictly understood, those words imply that the division would have had effect, but less favourably, if the arrangements had not been made. On this construction s. 16T does not apply to a case in which an employer, before making the impugned arrangements, received no benefit at all from the operation of Div.2. The section presupposes that the employer is within the purview of the division, but makes arrangements so that the effect of the division will be more favourable. For example a person who is already an exporter, or a supplier to an exporter, may contrive to increase the price of his goods, not for commercial reasons, but simply to gain the benefit of an increased benefit, part of which he might share with the other party to the arrangement. But a person who, for the first time, arranges to commit goods to the export trade does not thereby make an arrangement that may be struck down under s. 16T. The difficulties presented by any construction of s. 16T are great. However for the reasons given I would follow the guidance which the words of the section provide and limit its operation to cases where a person who is already entitled to a rebate under div.2 makes arrangements for the purpose of increasing his entitlement. (at p478)

11. If the proper approach were to inquire whether the arrangements were capable of explanation by reference to ordinary commercial dealing, without necessarily being labelled as a means to gain a rebate under Div.2 - to echo the well-known words of Lord Denning in Newton v. Federal Commissioner of Taxation (1958) 98 CLR 1, at p 8; (1958) AC 450, at p 466 - I am far from satisfied that the arrangements in the present case would come within the section. It does not seem to me out of the ordinary for a person who holds timber rights to arrange for another person to cut and supply the timber, even if the latter person is a head contractor whose role is to manage the work of other contractors; and if in such a case the head contractor is issued with export certificates, for which in effect he pays, that does not necessarily show that the arrangement is only a means to get the benefit of the rebate. It is however unnecessary for me to express a final opinion on that question, because if s. 16T is construed in the way I have suggested, it cannot have any application in relation to the appellant in the present case. (at p479)

12. The conclusion which I have reached also makes it unnecessary to decide whether the section can only apply if the persons who make the arrangements are already in some business relationship, or in other words if the section applies only to a re-arrangement of existing affairs to which the persons who make the arrangements are parties. Since one would hope that if the section is still of practical importance its obscurities will be removed by the Parliament, I do not attempt to resolve this question. (at p479)

13. For the reasons I have given the Board was in error as to the meaning and effect of s. 16T of the Act, and could not properly be satisfied that the arrangements between the appellant and HDA were of the kind to which s. 16T of the Act refers. The Board should have allowed the objection and allowed the rebate. (at p479)

14. I would allow the appeal. (at p479)

MASON J. I would allow this appeal for the reasons given by Gibbs J. (at p479)

JACOBS J. Brambles Holdings Ltd. ("Brambles") by 1967 had developed into what was described by Mr. Holcroft, its chief executive, as a "logistics business service organisation". It carried out long distance freight forwarding, heavy haulage and materials handling and it also provided on hire, fully manned and maintained, a wide range of earthmoving plant, cranes and machinery of like kind, primarily to the steel industry and the road construction industry. (at p479)

2. In 1967 the managing director of Harris Holdings Ltd. approached Brambles to see whether it would be interested in the exploitation of timber reserves in the Eden area in New South Wales. Brambles examined the proposal but went no farther. (at p479)

3. In 1968 Brambles through its Project Development Division renewed its interest in the idea of entering the field of timber logging especially for export. It had in mind the financial advantage which might accrue to it from Commonwealth export incentive schemes, particularly rebate of pay-roll tax under the Pay-roll Tax Assessment Act 1941 (Cth). (at p480)

4. At that time Harris-Daishowa (Aust.) Pty. Ltd. ("HDA") was proposing to erect a timber chipping mill at Twofold Bay near Eden and to supply it with logs from State forests under licences from the Forestry Commission of New South Wales. A ship loading facility was intended to be built and the product - wood chips - exported to Japan for the paper making industry. (at p480)

5. HDA in January 1968 was granted a licence by the Forestry Commission of New South Wales to obtain and remove timber from specified State areas during the twenty years from 1st January 1970 onwards. (at p480)

6. HDA was a joint venture between Harris Holdings Ltd. and a Japanese company, Daishowa. Harris Holdings Ltd had a 51 per cent interest in HDA and the other 49 per cent interest was owned by the Japanese company. (at p480)

7. At first Brambles contemplated an operation in competition with HDA but Harris Holdings Ltd. approached Brambles at the end of November 1968 with the object of obtaining sufficient capital for the timber operation either by a takeover by Brambles or an injection of capital. It needed to find about half a million dollars as its share of the joint project. (at p480)

8. By April 1969 the Project Development Division of Brambles had prepared a report for the Board of Directors on the feasibility and desirability of Brambles possibly taking over Harris Holdings Ltd. and thus becoming the sole partner with Daishowa in the project. The advantages by way of pay-roll tax rebate were already being actively canvassed. The upshot was that Brambles acquired a 24 1/2 per cent interest in Harris Holdings Ltd., the remaining interest being taken by Dillingham and Australian Paper Manufacturers. (at p480)

9. By about mid-1969 it was envisaged that Brambles would play an active role in the Eden project of HDA and one of the advantages was recognized to be in rebates of pay-roll tax. (at p480)

10. About the middle of 1969 HDA called tenders for the extraction and delivery of pulpwood from the area of its licences. In September 1969 HDA wrote to Cocks Heffernan Pty. Ltd. confirming that a contract was to be issued to the latter under certain terms and conditions as a principal contractor for felling, hauling, snigging, debarking, and splitting of eucalypt wood for the mill at Eden. In the letter of September 1969 HDA stated:

"Because the Company is presently examining some aspects of the Contract which may produce a beneficial financial result, the formal signing of the Contract must be deferred until a decision is taken in this regard. To achieve this financial advantage, it may be necessary to introduce Brambles Holdings as the Principal in this Contract, a circumstance which we will confirm with you as soon as possible." (at p481)

11. Concurrently with the calling for tenders and acceptance of Cocks Heffernan Pty. Ltd. as the successful tenderer for the operation to which I have referred, discussions and negotiations went on between Brambles and HDA whereby Brambles would be interposed as Head Contractor for the said operations with Cocks Heffernan Pty. Ltd. as a sub-contractor to Brambles. An admitted purpose or motive of these negotiations was in order to enable Brambles to qualify for pay-roll tax rebates, and it is convenient at this stage to explain in what way Brambles might so qualify. (at p481)

12. Brambles being a considerable employer of labour was liable to pay large sums in pay-roll tax. Division 2 of Pt III of the Pay-roll Tax Assessment Act 1941 provided for rebate of pay-roll tax by reference to exports. The rebate was available under Div. 2 not only to an actual producer for export but in certain circumstances to suppliers to a producer for export of components for prescribed goods. It is sufficient to say that the wood chip products were prescribed goods and that the person who supplied the timber to the chip mill would be a supplier of components. (at p481)

13. Section 16s of the Act provided that export certificates might be issued in accordance with that section and that every export certificate should specify the rebate value within the limits provided by the section. HDA was a producer for export but had little or no opportunity of utilizing the rebate under Div. 2. In those circumstances, as a producer for export, it was entitled to issue export certificates specifying a rebate value to the supplier of components. There was provision to ensure that the total rebate value stated in all export certificates issued by a producer for export did not exceed the total rebates calculated in accordance with the Act in respect of the goods exported by the producer. Section 16s (3) provided a formula for calculation of the limit of the amount of rebate which could be stated in the export certificate or certificates. The selection of the supplier or suppliers of components who should receive an export certificate lay within the choice of the producer for export with the limitation that in a case where the producer for export acquired from a supplier of components certain goods and the total of the considerations therefor was less than one-tenth of the total of the considerations for which he had during the rebate year acquired goods of the same kind from suppliers of components the rebate value stated in the export certificate could not exceed an amount calculated in accordance with the formula contained in s. 16s (3) (b). Subject to this provision the choice lay with the producer for export, and there was no necessary relationship between the value of the goods supplied by the supplier of components and the rebate value stated in an export certificate. The account which I have given is in no way comprehensive of all the situations dealt with in Div. 2. I refer only to the situations relevant to the present matter. (at p482)

14. In the second half of 1969 HDA reached agreement with Brambles to grant to Brambles a sub-licence of the forest areas and for the sale by Brambles and purchase by HDA of the timber products from the said areas. These agreements were executed by Brambles on 12th February 1970 but were not executed by HDA prior to December 1971. However, the parties acted in accordance with the agreements during the whole of the year ending 30th June 1971, which is the relevant rebate year. By the terms of the sub-licence agreement, HDA in consideration of royalties to be paid by Brambles agreed to give Brambles "full and exclusive permission and authority to enter into and upon the Licensed Areas" during the term stated and "to obtain and remove therefrom during such period timber and other products suitable for pulpwood". The sale agreement recited Brambles' rights under the sub-licence agreement, and by cl. 1 (a) Brambles bound itself whilever it had the right to obtain and remove pulpwood from the areas, to sell to HDA all the pulpwood got and removed and to deliver the same to HDA at HDA's mill. (at p482)

15. By cl. 4 (a) Brambles was entitled to employ one or more contractors to fell trees, etc., provided that the tender of any such contractor was approved by HDA. (at p482)

16. By cl. 4 (b) Brambles was at liberty to tender for such work by and through a subsidiary, and by cl. 4 (c) HDA could require Brambles to establish a cost control unit. (at p482)

17. The price payable by HDA was specified as a sum calculated as the cost per ton of pulpwood delivered at HDA's mill. The costs to be taken into account (cl. 1 (f)) were to be: (i) the royalty payable by Brambles to HDA; (ii) the amount paid by Brambles to any contractor; (iii) the costs of Brambles site administration; (iv) the sum of 15c per ton as Brambles profit. It was also provided by cl. 1 (i) that whilever HDA issued to Brambles export certificates in accordance with its obligations in that regard as set forth in cl. 2 (f) (semble (e)) Brambles would allow Harris-Daishowa a discount of twenty-six cents (26c) per ton off the price per ton of pulpwood determined as aforsaid for each ton of pulpwood sold to it under the agreement. (at p483)

18. Clause 2 (e) provided that HDA would

"issue to Brambles in priority to and to the exclusion of any other company and any person or firm and at all times to the fullest extent it may thereunder lawfully do in respect of and according to the value of the Pulpwood purchased by it hereunder Export Certificates under and in accordance with the provisions of the Pay-Roll Tax Assessment Act 1941 as amended and in force from time to time." (at p483)

19. HDA produced for export wood chips with a value of export sales in the relevant rebate year, the year ended 30th June 1971, of $1,678,116. The increase in its export sales for that year was the same sum. This appears from a determination made by the respondent Commissioner in respect of that rebate year. HDA was therefore entitled to issue export certificates to a total pay-roll tax rebate value of $103,336.35 in respect of the rebate year. It issued a certificate in that sum to Brambles in its capacity as supplier of the logged timber, and Brambles duly claimed a rebate of the pay-roll tax payable by it. (at p483)

20. The respondent Commissioner refused to allow the rebate upon at least two grounds. The first ground was that HDA did not acquire the pulpwood from Brambles because the pulpwood had never vested in Brambles. This claim was based upon a submission that the sub-licence was not effective to prevent any felled timber immediately becoming the property of the head licensee, HDA. The Board of Review came to a different conclusion from the Commissioner on this ground. It held that the property in the timber had vested in Brambles. It reached this conclusion by a somewhat complex route but as the conclusion has not been canvassed on this appeal there is no need to express any opinion on the reasoning of the Board of Review. The licence was not a mere personal licence although there were limitations on its transferability. It was in the nature of a profit a prendre and was a right of property. It was a right which was capable of sub-licensing or sub-letting and on a sub-licence or a sub-letting the title to timber felled under the sub-licence would be in the sub-licensee. Thus Brambles was a supplier of components to HDA. (at p483)

21. Secondly, the respondent Commissioner determined under s. 16T that he was satisfied that arrangements had been made between Brambles and HDA with a view to their affairs being so arranged or conducted that Div. 2 of Pt III of the Act would have effect more favourably in relation to Brambles than would otherwise have been the case. He assessed the rebate entitlement of Brambles at nil. (at p484)

22. Section 16T (1) of the Act provides:

"Where the Commissioner is satisfied that arrangements have been made between any persons with a view to the affairs of those persons being so arranged or conducted that this Division ... would have effect more favourably in relation to one of those persons than would otherwise have been the case, the amount of any increase in export sales, or of any rebate entitlement, of that person shall not exceed the amount that would, in the opinion of the Commissioner, have been the amount of that increase in export sales or of that rebate entitlement if those arrangements had not been made." (at p484)

23. On this second ground of the Commissioner's decision the Board of Review received much evidence relating to the circumstances in which Brambles and HDA entered into the agreements. The majority of the Board of Review came to the same conclusion as the Commissioner. They were satisfied that the sub-licence and the sales agreement between HDA and Brambles were arrangements that had been made with a view to the affairs of HDA and Brambles being so arranged and conducted that Div. 2 of Pt III of the Act would have an effect more favourable in relation to Brambles than would otherwise have been the case. They further found that the whole of the rebate entitlement exceeded the amount that would have been the amount of the rebate entitlement if the arrangements had not been made. The third member of the Board of Review reached a contrary conclusion and would have allowed the taxpayer's claim to rebate. (at p484)

24. There can be no doubt upon the findings of fact, and indeed it was hardly disputed, that the primary motive of Brambles in entering into the agreements was in order to obtain the export certificates and the pay-roll tax rebates. It is also clear, in so far as it may be relevant, that Brambles would not have entered into the agreements if it had not been for the expectation that it would have obtained the export certificates. (at p484)

25. However, it is also clear that no member of the Board of Review regarded the transactions as sham transactions. It was not suggested on the hearing of this appeal that the agreements were shams. They took effect according to their terms and both HDA and Brambles operated under them. As Head Supplier, Brambles engaged not only Cocks Heffernan Pty. Ltd. but other logging contractors. Brambles paid them in terms of their contracts with it. It established a logging company, Pulp Wood Forest Services Pty. Ltd., in which it owned 75 per cent of the issued capital and which received almost a quarter of the total payments made by Brambles to its contractors in this particular rebate year. It employed a forester as well as an accountant. Brambles was duly paid by HDA for the pulpwood delivered to its chip plant. (at p485)

26. Section 16T is full of difficulty. It has that in common with s. 260 of the Income Tax Assessment Act 1936. The source of the difficulty in each case is that to give the words of the respective sections the widest construction open to them would have results which it cannot be supposed that the legislature intended. Section 260 on its widest construction would make void as against the Commissioner any expenditure which led to an allowable deduction from assessable income or to rebate of tax, because any such expenditure has the effect of relieving the taxpayer of liability to pay income tax on the amount of the deductible expenditure or the rebate. So the section has been construed in a particular way which does not lead to absurdities. It would appear that something of the same needs to be done in respect of s. 16T. To that extent there is an analogous situation. But I do not think that it is of assistance to attempt to transpose or apply the concepts which have been developed in respect of s. 260 to the problems which arise under s. 16T. The contexts are entirely different. Any similarity of concept or method of construction will be no more than fortuitous. (at p485)

27. The difficulty with s. 16T is that if its language were given the widest meaning which the words might possibly bear, one could hardly conceive of any agreement for the supply of components to a producer for export which would not come within it where the parties have bargained with the value of export certificates and of pay-roll tax rebates in mind. The supplier says "I will supply components at such and such a price if I receive an export certificate from you for a minimum of so much; otherwise the price is double". If this is an "arrangement" under s. 16T then the obvious purpose of Div. 2 - export incentive - is destroyed. The object is to encourage such a supplier to supply to a producer for export and to supply at a price which will assist in making the exported produce competitive on world markets. The rebate of pay-roll tax is the fiscal contribution to making his price as low as he can make it. It would be absurd if a common attempt to obtain the advantage of that fiscal contribution resulted in its loss. (at p485)

28. So s. 16T has to be construed in a way which will avoid this absurdity. Section 16T (1) does not mean that if the purpose (in the sense of motive) of persons in making an arrangement for the conduct of their affairs (in the sense in the present case of making an agreement for the supply of components) is to obtain for one of them the favourable effect of Div. 2 which would not have existed if the agreement had not been made in the first place, then s. 16T (1) may necessarily be invoked by the Commissioner. (at p486)

29. On behalf of the appellant it has been submitted that s. 16T does not apply to any initial arrangements between persons, in this case the supplier of components and the producer for export, but only to re-arrangements, to alterations of existing arrangements. I do not think that such a broad limitation can be implied but the argument suggests the limitation which is to be found in the language of the section. The language of s. 16T presupposes that there are "affairs", not necessarily pre-existing the impugned arrangements, but nevertheless affairs which would have been conducted or arranged in another manner if it were not for the favourable operation of Div. 2 on the manner of conducting or arranging their affairs which was adopted. The words "would otherwise have been the case" presuppose that there is or would be another way for the persons to arrange or conduct their affairs. The "other way" must mean not "any other way" but "the other way in which such affairs would usually be conducted or arranged". Since the whole context is a business or commercial one, this must mean "the usual way in which such business or commercial affairs would be arranged or conducted". Therefore it may correctly be said that the affairs of the persons must follow a usual or ordinary business or commercial course. Thus what come within s. 16T (1) are arrangements of a kind which the persons in the ordinary course of their commercial affairs would not have made if it had not been for the more favourable effect which the division would have in relation to one of them by the arrangement and conduct of their affairs under the arrangements in fact made. Then if the persons making the arrangements had the requisite intention at the time, the conditions of s. 16T (1) will be satisfied. The test of commercial reality and of the persons' intention are so closely inter-related that the answer to the one will almost certainly provide the answer to the other. If persons did not have the requisite intention at the time of making the arrangements, the arrangements must be otherwise commercially explicable and the application of s. 16T will not arise. But it does not follow that, because the persons have the intention at the time of making the arrangements, even in the forefront of their minds, the arrangements necessarily fall within the sub-section. The arrangements must only be commercially explicable as being made with a view to the more favourable effect. Then it can be said that the obtaining of the more favourable effect was the common purpose or intention of the persons making the arrangements. The purpose or intention or motive of one of those persons is not the test. Nor is the common motive of all the persons making the arrangements. The motive is only important for the light which it may possibly throw upon the question whether the arrangements are otherwise commercially explicable. (at p487)

30. Although the majority and the minority in the Board of Review applied the test whether the arrangements between the parties were commercially realistic and were explicable other than as arrangements falling within s. 16T (1), they differed upon the aspects of the arrangements which might properly be taken into account in applying this test. The majority regarded as very relevant (1) the terms of the consideration payable to Brambles which only made commercial sense in the light of the provisions of Div. 2, and (2) the view which they formed that Brambles could have provided essentially the same services as it did under the arrangements by an arrangement which would provide no opportunity of attracting to it the advantages of pay-roll tax rebates. (at p487)

31. On the other hand Mr. O'Neill who was in the minority not only discounted the significance of the common motive of ensuring that one of the parties obtained the advantages of pay-roll tax rebates but also discounted the weight of the circumstance that the consideration was arranged in a way which was only commercially explicable by a recognition of that motive. He was not concerned with the question whether Brambles might have provided essentially the same services in a way which did not attract the favourable operation of Div. 2. He looked at the services provided by Brambles and in effect posed the question whether the agreement for such services by way of a head supply agreement was of a kind which persons were likely to make in an ordinary commercial course. He found that it was. (at p487)

32. What has particularly concerned me is whether the real difference between the majority and the minority of the Board of Review is no more than a different inference from the facts, both inferences being open. Where the subject matter is the satisfaction or the opinion of the Board of Review (on appeal from the Commissioner) and where two conclusions are open in law, this Court will not interfere except in order to ensure that the conclusion was reached upon correct principles of law. But it is a question of law not only whether the Board of Review correctly construed the statute in posing the issue to be determined but also whether the Board took the correct factors into account in determining that issue. (at p488)

33. I have concluded that the majority of the Board erred in law in that they reached their conclusions by giving weight to the fact that the consideration between Brambles and HDA was not commercially explicable except by reference to the advantages which would accrue to Brambles under Div. 2 and by giving weight to possible alternative agreements which might have been made between the parties for the supply of services by Brambles; and in that they did not apply their minds distinctly to the question whether the agreements whereby Brambles became "Head Supplier" were, apart from the terms of the consideration, of a kind which might be made in the usual course of commerce. I have already explained why it is not correct to place emphasis on the terms of the consideration; the scheme of Div. 2 contemplates that the export incentive of a pay-roll tax concession could be shared between supplier of components and producer for export and within certain limits could be bargained about and agreed between the parties as they thought fit. In the bargaining the guiding factor will be the value or lack of value to each of the parties respectively of the possible Div. 2 concessions. It would be wrong to find an agreement commercially unrealistic or inexplicable upon the ground that such bargaining took place and resulted in a price for components which was only explicable in the light of the operation of Div. 2. (at p488)

34. Next, it is not to the point that the services provided by Brambles might have been provided in another manner whereby it would not obtain in its favour an advantageous operation of Div. 2. The question is whether in all the circumstances of the case the suggested alternative arrangement would (not might) have been made between Brambles and HDA if it had not been for Div. 2. It needs to be stressed that the agreements were not shams. They really and effectively operated. (at p488)

35. In my opinion there was no adequate foundation for a conclusion that the "Head Supplier" agreement was in its terms apart from the consideration commercially unrealistic and inexplicable. Forestry services were required and supplied. Likewise accounting services. There was no evidence that in the circumstances a contract simply for the supply of such services was so obviously the usual commercial arrangement that the alternative form of arrangement, a head supply agreement, was commercially unreal. (at p488)

36. On behalf of the Commissioner it has been submitted that the majority of the Board of Review found as a fact that the sole purpose of the agreements was in order that Brambles might have the favourable effect of Div. 2. Alternatively, it was submitted that this was a predominant purpose. But so to put the matter uses "purpose" in the sense of motive and is erroneous. (at p489)

37. Mr. O'Neill was in my opinion correct to have regard to the wide context of the "affairs" between Brambles and HDA and not to concentrate attention only on the sub-licence and sales agreements. It was necessary to identify the "affairs" of Brambles and HDA and then to determine whether there was another manner in which in a commercial context those affairs would have been arranged or conducted if it were not for the more favourable operation of Div. 2 in relation to one of the persons which resulted from the manner in which under the impugned arrangements the affairs were arranged and conducted. The affairs of Brambles and HDA extended beyond the mere interposition of Brambles as "head supplier". The examination of their affairs in a commercial context should not be unduly constrained by concepts of separate corporate personalities. In a commercial sense Brambles was a joint venturer with Daishowa and Dillingham and Australian Paper Manufacturers through HDA in the wood chip export undertaking. It was also a substantial supplier of logs to the venture through Pulp Wood Forest Services Pty. Ltd. And it directly provided the services to which I have already referred. In this context it cannot be said that the arrangements which were made and which required an active and direct participation by Brambles in the conduct of the enterprise lacked commercial reality. I would therefore allow the appeal. (at p489)

MURPHY J. The export incentive scheme provided by the Pay-roll Tax Assessment Act 1941-1969 gives a financial benefit to the employer by a rebate of pay-roll tax based on increases in exports above the annual average of the exports effected by it in a specified base period. The rebate was proportioned to the increase in the value of the exports. (For convenience, I refer to exports without distinguishing production for export and other refinements the Act dealt with.) The base period was originally the two years ended 30th June 1960 (see Pay-roll Tax Assessment Act 1961). It later became movable (see Pay-roll Tax Assessment Act 1968) which ensured that taxpayers entering into export were treated equitably with established exporters. (at p489)

2. The intention of the Act (to increase Australian exports) could easily have been defeated by arrangements which switched the export business from an established exporter to one not previously engaged in export (for example, to a subsidiary or associated company). The entitlement could have arisen even without any increase in Australian exports. The legislation, however, contained provisions to meet this. Section 16B of the Pay-roll Tax Assessment Act 1961 authorized appropriate adjustments in the base period exports of a producer for export who acquired an existing business enterprise, and also required an adjustment in the base period exports if any employer disposed of an export business. This resulted in equitable treatment of both the seller and the purchaser of an export business. Under s. 16C (4), where the Commissioner was satisfied that arrangements had been made between an employer and another with a view to their affairs being so arranged or conducted that the employer would obtain a greater rebate than that to which he otherwise would have been entitled, the rebate allowable was not to exceed the amount to which the employer would have been entitled if the arrangements had not been made. (at p490)

3. Section 16T (1) (inserted in 1968) was a provision of general application. It states:

"Where the Commissioner is satisfied that arrangements have been made between any persons with a view to the affairs of those persons being so arranged or conducted that this Division, or the Division for which this Division was substituted, would have effect more favourably in relation to one of those persons than would otherwise have been the case, the amount of any increase in export sales, or of any rebate entitlement, of that person shall not exceed the amount that would, in the opinion of the Commissioner, have been the amount of that increase in export sales or of that rebate entitlement if those arrangements had not been made." (at p490)

4. These provisions were obviously included to ensure an equitable application of the incentive and to avoid unintended effects. The legislative intent was, broadly, to reward a real increase in Australian exports but to deny the reward where there was only an apparent increase because of the transfer of the exports from one person to another (by acquisition of the export business or other arrangement). (at p490)

5. In my opinion, the word "arrangement" in s. 16T is not to be read as "re-arrangement". The arrangement in this case is within the contemplation of s. 16T (1). Closely associated parties have made an arrangement to transfer the export business so that, even without any increase in exports, credit will (except for s. 16T) be given to the appellant for the whole of the relevant exports. (at p490)

6. The evidence compels the conclusion (which was not really disputed) that the appellant's main (but not only) motive in entering into the arrangement was to obtain the export certificates and the entitlement to pay-roll tax rebate. This conclusion is not necessary to attract the operation of s. 16T. Section 16T (1) deals with genuine arrangements, those which are normal commercial dealings. If the arrangements were not genuine, the incentive would not be payable for the reason that the exports were not really being made by the taxpayer. (at p491)

7. Section 16T (1) seems to me to be designed to meet, amongst other things, the case where export sales are in a commercial sense transferred by some arrangement other than a transfer of business enterprise (which is covered by s. 16B). The purpose is to ensure that the export incentive is received only by those who increase their exports in a way which is not the result of an arranged switch (by a sale of the export business or other arrangement) of exports which would otherwise have been made. If A takes over export sales which would have been made by B by simple competition or through other circumstances which do not amount to a sale of the business (within s. 16B) or other arrangement (within s. 16T (1)), the whole of the increase becomes available for the incentive. (at p491)

8. Section 16T (1) is not equivalent to s. 260 of the Income Tax Assessment Act 1936. The operation of the export incentive scheme (and of s. 16T (1) within it) is significantly different from the operation of the income taxation system (and of s. 260 within it). (at p491)

9. The appeal should be dismissed. (at p491)

Orders

Appeal allowed with costs.

Decision of the Taxation Board of Review No. 1 set aside and in lieu thereof order that the objection be allowed.

Matter remitted to the Commissioner to reassess in accordance with the reasons for judgment of this Court.