Commissioner of Taxation of the Commonwealth of Australia v Kearney, R.F

[1985] FCA 172

Re: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
And: REX FREDERICK KEARNEY
No. G141 of 1984
Income Tax

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Woodward J.
Northrop J.
Jenkinson J.

CATCHWORDS

Income Tax - whether deductions allowable by way of investment allowance.

Practice and procedure - previous decisions of Full Courts followed without considering their correctness.

Income Tax Assessment Act 1936

Pyneboard Pty. Ltd. v. Trade Practices Commission (1982) 57 FLR 368 followed.

HEARING

MELBOURNE
#DATE 29:4:1985

ORDER

The appeal be dismissed with costs.

(Settlement and entry of order is dealt with by 0.36 of the Federal Court Rules).

JUDGE1

The Commissioner of Taxation ("the Commissioner") appeals from a judgment of the Supreme Court of Victoria constituted by Tadgell J. setting aside assessments of the respondent ("the taxpayer") for each of the years of income dated 30 June 1979 and 30 June 1980 and remitting the assessments to the Commissioner to give effect to the judgment of the Supreme Court. That judgment has been reported; see Kearney v. Federal Commissioner of Taxation (1984) 68 F.L.R. 316 ("Kearney's case"). The sole issue raised on the appeal to this Court is whether Tadgell J. was in error in deciding that the taxpayer was entitled to a deduction by way of investment allowance under Subdivision B of Division 3 of Part III of the Income Tax Assessment Act 1936 ("the Act") with respect to a steel-hulled catamaran-type vessel named the James Kelly. Under that Subdivision a taxpayer is entitled to a deduction from his assessable income of part of the amount of a capital nature expended in the acquisition of a unit of eligible property for use by the taxpayer wholly and exclusively in Australia and for the purpose of producing assessable income otherwise than by specified methods not relevant for present purposes. The taxpayer had acquired the James Kelly in circumstances which entitled him to the deduction unless the James Kelly came within sub-paragraph 82AF(2)(f) of the Act. That sub-paragraph provided, at the relevant time, that Subdivision B of Division 3 of Part III did not apply in relation to:

"(f) plant or articles . . . for use in, or primarily and principally in connexion with -

(i) amusement or recreation; . . ."

Before this Court, counsel for the Commissioner did not challenge the facts found by Tadgell J. The evidence before Tadgell J. and his findings are set out in Kearney's case above. They need not be repeated in detail. As appears at p.321, his Honour found:

". . . that the 'James Kelly' is properly and appropriately described as a passenger-carrying vessel and that it is equally well adapted to the carriage of the general public on rivers and harbours for any purpose for which passengers might want to travel aboard it, whether for amusement or recreation or otherwise."

At p.321 his Honour, stated the issue raised as follows:

"The question, then, is whether the 'James Kelly', having the characteristics I have described, and having been built and bought by the taxpayer for, and used in, his business of a charter boat operator, was a vessel 'for use in, or primarily and principally in connection with . . . amusement or recreation'."

In stating the principles of law to be applied his Honour said at p.322:

"In W. Smith v. Federal Commissioner of Taxation (1982) 41 A.L.R. 315 the Full Court of the Federal Court decided that par.(f) of subs.(2) of s.82AF of the Act does not by its terms introduce any notion of use by a particular person. It is concerned with the nature of the articles it seeks to describe and not with the identity of their users. It follows that, if the 'James Kelly' is not of its nature a vessel for use in or primarily and principally in connection with amusement or recreation, the use to which it was put or intended to be put, whether by the taxpayer or its passengers, will not alter its classification for the purpose of the subsection. The Federal Court applied and explained Smith's case in Hamilton Island Enterprises Pty. Ltd. v. Federal Commissioner of Taxation (1982) 43 A.L.R. 519 at p.524, saying that the former decision:

'. . . should not be read as indicating that the use to which the relevant item of personal property is put will necessarily be irrelevant for the purpose of determining whether, for the purposes of s.82AF(2)(f)(i), the item answers the description "plant or articles for use in, or primarily and principally in connection with, amusement or recreation". It may, in a particular case, be common ground that the use to which the relevant item is put corresponds with the use which it is of its character to serve. In such a case, the examination of the actual use of the item could well be decisive of the question whether it was or was not of a designated character. Quite apart from such cases, the use to which an item is actually put will ordinarily be illustrative of at least some aspects of its character.'"

Before this Court, counsel for the Commissioner submitted that the decisions relied upon by Tadgell J. were wrong and ought not to be followed. We reject that submission. Each of those cases was a decision given by a Full Court of the Federal Court in which judgment had been reserved and the reasons for judgment had been reduced to writing. In Pyneboard Pty. Ltd. v. Trade Practices Commission (1982) 57 F.L.R. 368 a Full Court of the Federal Court said at p.371:

"Notwithstanding the above submissions on behalf of the appellants, we are of the clear view that this Court should not decline to follow the decision in the first Melbourne Home of Ford case. That decision was given in a considered judgment in March 1979. It is not suggested that there has been any subsequent decision which has either questioned its correctness or which is, in any way, inconsistent with the reasoning underlying it. Where a general question going to the validity of statutory notices is involved, it is plainly of importance that there be uniformity in the decisions of the Full Court of this Court. In our view, the appellants have failed to demonstrate either that the decision in the first Melbourne Home of Ford case was given per incuriam or that it is plainly and demonstrably mistaken. Nor does it appear that there is any other valid ground for this Court to refuse to follow that decision. In these circumstances, we should follow the previous decision without reconsidering or considering its correctness."

The same general observations apply to the present appeal.

In these circumstances we should follow Smith's case and the Hamilton Island Enterprise case without considering their correctness.

Before us, counsel for the Commissioner submitted Tadgell J. misapplied the principles of law to the facts found; see Kearney's case at p.322-3. In our opinion, his Honour correctly applied the law to the facts found by him. We adopt the same reasoning and reject the submissions by counsel.

Accordingly, the appeal is dismissed with costs.

JUDGE2

I agree that the appeal should be dismissed, and for the reasons stated by Woodward and Northrop JJ.

The evidence indicated that the respondent took part in the determination of certain questions concerning aspects of the design of the vessel. If decisions about design had been influenced, by considerations flowing from recreational functions to be subserved by the vessel, so as to produce differences between the vessel and a similar vessel, such as the "Jeremiah Ryan", the design of which had not been so influenced, it might have been possible to characterise the vessel as one "for use in, or primarily and principally in connection with . . . . . . recreation". But considerations of that kind did not result in difference, as the learned trial judge found. And the evidence justified his Honour's findings, in my opinion.