Commissioner of Taxation of the Commonwealth of Australia v Mount Isa Mines Limited

[1991] HCATrans 142

_Hitt <J, ~~,ITlU.J.1.4, 1,r -~»--'if,:~ ... ,

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne Nos M8 and M9 of 1991

B e t w e e n -

MOUNT ISA MINES LIMITED

Applicant

and

THE COMMISSIONER OF TAXATION OF

THE COMMONWEALTH OF AUSTRALIA

Respondent

Applications for special leave

to appeal

MASON CJ DAWSON J MCHUGH J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 7 JUNE 1991, AT 12.15 PM

Copyright in the High Court of Australia

Isa 1 7/6/91

MR N.H.M. FORSYTH, OC: If the Court please, I appear with

my learned friend MR J.W. de WIJN, for Mt Isa Mines

Limited, the applicant in the two matters.

(instructed by Mallesons Stephen Jaques)

MASON CJ: Yes, Mr Forsyth.

MR B.J. SHAW, QC: If the Court pleases, I appear with my

learned friend MR S.P. WHELAN, for the

Commissioner. (instructed by the Australian

Government Solicitor)

MASON CJ:  Yes, Mr Shaw. Mr Forsyth.

MR FORSYTH: If the Court pleases, the four matters to some

extent are interwoven but I shall deal with them

separately. The first is No 8. The point here is

a very short one. It concerns the accommodation

units, the transportable housing that was installed

at the two mining townships, and the only issue

here is as to the meaning of the decision of this

Court in the Tourapark case.

Might we hand up to the Court a slim folder containing the authorities to which we refer, and

that includes copies of the relevant legislation.

The relevant section is section 82AA, which is also

set out in the judgments, and perhaps the simplest
place to look for that section is at page 132 of

the application book where the section is set out

in the top half of the page. It says that you get

an investment allowance in the case of:

a unit of eligible property ..... that is - in

the case of any taxpayer, for use by the

taxpayer wholly and exclusively ..... (ii) for

the purpose of producing assessable income

otherwise than by ..... the granting to other
persons of rights to use the eligible

property -

In this particular case, rights to use the

transportable units were in one sense granted to

the employees who occupied them, but the learned

trial judge found and the Full Federal Court

accepted that, as appears on page 72 of the
application book, although a small amount was

charged by way of rent or accommodation fees - at

page 72, about six lines down:

The whole purpose for the construction of the

units was to create and assemble a structure

which was to be used by the taxpayer to enable

it to engage in its mining activities. In

this respect, the units constitute plant in

the same way as the structures -

Isa 2 7/6/91

et cetera. And further down:

I am satisfied that the units were constructed

by the taxpayer for its use wholly and

exclusively for the purpose of producing

assessable income.

That is to say, its mining income, because these

were installed 400 kilometres north of Kalgoorlie,

there was no other housing, there was no township,
there had to be some housing if the mine was to be

worked at all. The deriving of rent from employees

who occupied the units was substantially

irrelevant, as was accepted.

Section 82AA is concerned with the purpose of

deriving assessable income. In this particular
case the sole purpose was to carry on the mining,
not to get the rent, and in our submission the

court has fundamentally misunderstood the

Tourapark case. The Tourapark case concerned a

caravan park proprietor who installed caravans on

site. He had only one purpose, namely to carry on

his business, but his business was that of deriving
assessable income in the very form of payments for
occupation of the caravans.

In our case, our business is carrying on the business of mining, by deriving assessable income

by selling the products of the mine. That was the

reason why we installed these units. We had to do

it under our agreement with the State, we had to do
it because the location was remote and desolate,

and the circumstance that some rents were charged

was of no significance in looking at our purpose.

Section 82AA is concerned solely with

purpose - at page 132 again - it is the question of

whether the use is:

wholly and exclusively ..... for the purpose of

producing assessable income otherwise than

by •.... the granting to other persons of rights

to use -

and in our submission the use here is wholly and
exclusively for the purpose of producing the mining

income and not at all for the purpose of producing

rents. And the Tourapark case really does not bear

upon the issue which this case raises and it was,

with respect, a misunderstanding of the Tourapark
case to think that it did because in the Tourapark
case there was an exact correspondence between the

income of the business and the whole purpose of

having the caravans there, on the one hand; and

income derived from the precise letting of the

caravans to occupiers.

Isa 3 7/6/91

Our submission is that the Full Federal Court

having misunderstood, with respect, the Tourapark case, a decision of this Court, this Court should

now clarify the matter, which can be done, in our

submission, shortly.

We have mentioned in our affidavit that the

investment allowance provisions are no longer
operative but, on the other hand, there are many

cases in which they have arisen and where matters

are yet undetermined, and particularly is that so

in relation to mining companies which frequently

have long periods of carry forward losses,

especially during their development phases.	And in
our submission the widespread nature of

transportable accommodation throughout Australia

makes this a matter of general significance.

McHUGH J:  Mr Forsyth, what sort of test would you have to

use, on your construction of the section, to

overcome the case where the property has a dual

income producing purpose?

MR FORSYTH:  Your Honour, the section certainly says "wholly

and exclusively", and therefore we have to go the

whole distance of saying that it was no part of the
taxpayer's purpose in taking the accommodation

units there to derive assessable income from

renting them. And in our submission, His Honour

the trial judge does go that distance at page 72

where he says:

The whole purpose for the construction of the

units was to create and assemble a structure

which was to be used by the taxpayer to enable

it to engage in its mining activities.

So we would respectfully accept what is implicit in

Your Honour's question, that we have to go a long

long way, but in our submission we get there here.

MCHUGH J: Yes.
MR FORSYTH:	The second application involves again the

accommodation units, because they arose in another

year, the 1978 year as well, and I need add nothing

about them. The other issue in No M9 concerns

demolition expenses.

McHUGH J: Those other accommodation units, they were the

ones at Leinster, were they?

MR FORSYTH:  Yes, in one year they were all the Agnew

Leinster complex; in another year they were partly that and partly Teutonic Bore, which was in the

same - it was about 60 kilometres away, but a

different sort of mine.

Isa 4 7/6/91

The demolition expenses question raises two

main issues. The first is whether the expense of

the demolition is deductible under section 51. It
was held at first instance and on appeal that it

was not allowable under section 51 upon the basis that it was capital expenditure, and reliance was

placed upon the judgment of Mr Justice Kitto at

first instance in the BHP case. And having regard

to the authority of that judgment, the section 51

point, although argued below, was not argued

vigorously, but in our submission before this

Court, it remains fully open and we do wish to

argue it vigorously.	The evidence
established - - -

McHUGH J:  By that do you mean to, what, reconsider the BHP

case?

MR FORSYTH:  Yes. It was only a decision of

Mr Justice Kitto. Although appeals were taken on

other points raised by His Honour - - -

MASON CJ: There was no appeal on this point.

MR FORSYTH:  - - - there was no appeal on that point, no.

Now, not only was it only a decision of His Honour

as a single judge but, in our submission, there has been a change both in the law and in society in the

last 25 years odd. The change in society is that

everything is a good deal less permanent than it

once was. Of course, it has always been true, as

His Honour said, that in a large complex of that

kind there are, from time to time, demolitions of

things.

But the speed of change in everything has

tended to accelerate very considerably and in our submission that has been accompanied, and perhaps not quite coincidentally accompanied, by an

increasing preparedness of the courts to find in

debatable matters that things are on revenue

account rather than on capital account.

The primary finding of the trial judge on this

question is to be found at page 45 of the appeal

book, and if I might just take the Court to one

paragraph there. At line 17 reference is made to

the particular case of the Marley Tower.

Evidence was led by the taxpayer as to why the

Marley Tower was demolished. It was in a

dangerous condition. It had a lean of about

10-20 degrees towards another building. It

was of timber construction and was a fire

hazard. In addition there was a danger that

parts of the building could be blown off by

the wind and thus create a danger. Further,

Isa 7/6/91

it was a policy of the taxpayer to maintain

the mine site in a safe condition and to

reclaim, as far as possible, parts from

obsolete buildings. This formed part of a

repetitive function which suggested recurrent

expenditure of a revenue nature. As counsel

for the taxpayer submitted: "There is no
reason why the regular maintenance of
rendering safe the large site (of a business

enterprise) should not be part of the recurrent operations of carrying on a

business".

So that is basically the factual finding.

Now, in the manilla folder we have handed up

is to be found a very short summary of 10

relatively recent cases which have all held

something to fall on the current account side of

the line rather than the capital account side of
the line, and one can, of course, debate the
details endlessly, which we do not intend to do,

but it is submitted that they illustrate a general

move towards accepting that many things that a long

time ago would have been assumed to have been

capital may now be shown to illustrate the

recurrent operation of the profit earning subject

rather than its permanent organization or

structure.

If I may just run through very briefly, the

G.K.N. Kwikform Services case concerned a company

the business of which was hiring out scaffolding.

Every now and again people did not return the

scaffolding and they were charged a hefty amount

for it because, basically, the taxpayer wanted it

back. The scaffolding was plant and equipment,

part of their capital assets, one would have said;

none the less, the compensation payments made upon

non-return were held to be assessable income.	In
the case of each of these summaries the last
sentence is usually a quote from the judgments.
Chapman's case, the owner of a quarry incurred

large expenses in having the planning permit

renewed for five years. That was held to be

deductible. The last sentence is a quotation from
the judgment:

Recurrent costs paid every few years to preserve a business and its assets are ordinarily deductible under sub-section 51(1).

McLennan's case, sugar growers paid a levy to

a company, they got shares in the company, a co-

operative company. The levy itself was used to

finance a contribution to the cost of a new weir -

Isa 6 7/6/91

so there were many aspects of capital about it all.

None the less it was held that:

The levy was merely the taking of a step as

part of the activities within the framework of

the taxpayer's business.

Consolidated Fertisilers, the company incurred

expense to defend, effectively, its right to
confidential commercial know-how. It was held to

be deductible. The Ampol Exploration case,

exploration expenses were deductible in the China

Sea, even "although successful exploration merely

entitled the company to participate in competitive

bidding".

The Cliffs case, payment for shares was to be

made by reference to production of iron ore. That
was held to be deductible. Putnin's case, an

accountant was held entitled to a deduction for

costs of a conspiracy charge brought against him.

Marshall & Brougham perhaps goes further than most

of these cases.	The taxpayer was the holding
company in a group of a construction business.	The

construction business meant that there were large

sums of money from time to time that were short

term surplus to requirements. They were placed on

deposit. Half a million dollars was lost, and that

was held to be deductible under section 51 upon the

basis that it "was an integral part of the whole

business".

Cooling's case has an analogy here.

second sentence:

Mr Justice Hill, who delivered the judgment of the of the

Where a taxpayer operates from leased premises, the move from one premises to another and the leasing of the premises occupied are acts of the taxpayer in the

course of its business activity just as much

as the trading activities that give rise more

directly to the taxpayer's assessable income.

And last, the C.M.I. Services case, profits on

the sale of investment properties there were held

to be assessable although they were not acquired

with any purpose of sale at a profit, and the court

said:

There was a pattern discernible in the policy

of the taxpayer in investing in real estate

which involved it being resold if its

prospective returns from rentals fell below

acceptable levels.

Isa 7 7/6/91

We would suggest that one could adapt those

words here to say there is a pattern discernible in

the business of Mt Isa in building structures on
the mining site which necessarily involve them

being demolished if they become obsolete and

dangerous.

McHUGH J: Well, it is a recurring expenditure. It is just

like the BP case, in a sense. It is an expense
that occurs, even though it is related to the

profit yielding subject-matter of the business, in

a sense.

MR FORSYTH: Yes, Your Honour. Well, indeed, in the BP case

the payments were held to be deductible.

MCHUGH J: Exactly, yes.

MR FORSYTH: Therefore, we would respectfully submit that

this is a case where the section 51 point should be

reconsidered. In the alternative to that, in our

submission, it should at least be held to be

allowable capital expenditure under Division 10.

The general policy of Division 10 is to say, "Well,

if something is of the essence of your mining

activities, and it is capital and therefore not

deductible under section 51, then you should get a

write-off for it". Now, of course, it does not use

quite those terms but, in our submission, that

policy should be borne in mind when approaching the

question and it is, in our submission, highly

anomalous if these expenses which are obviously

essential are not deductible under either limb;

under either section 51 or under Division 10.

Now, as to Division 10 the relevant provisions are set out conveniently in the appeal book at

pages 102 to 103 and, in this case, very few of

them are important. It has to be:

expenditure of a capital nature incurred by

the taxpayer -

and we rely primarily upon the opening words of

paragraph (a), that is to say it is:

expenditure in carrying on prescribed mining

operations,

in general.	The structures were all on the mining
lease. The buildings are all very congested.	If I

may point to where these structures are, broadly

speaking it is up in this top right hand part.

That is the power station there. The Marley Tower

was adjacent to it and the old roasters are close

by, just there. And the Court can see that there

are old open cuts, stockpiles, smelters,

Isa 8 7/6/91

concentrators, et cetera, all mixed up together,

speaking very generally.

We put this in two ways. We say, first of

all, it does not matter what the original buildings

were there for or what function they performed. They were demolished because they were posing a

present danger and impediment to the activities

being carried on in the immediate vicinity. If,

for example, the company, instead of demolishing

these structures, had erected a very high fence

around them so that there was no danger of the

galvanized iron sheets being blown off and

decapitating mine employees, then in our submission

that very high fence would have been capital

expenditure incurred in carrying on the prescribed

mining operations taking place all around, because

it would have been fulfilling the function of

protecting the employees engaged in the mining

operations.

Now, the case is not quite as vivid as that

because there is the diversity of things going on,
but the Marley Tower was ancillary to the power

station, and adjacent to it. The power station

itself was primarily concerned in the generation of
the power for underground. The evidence was that

the majority of the power was used underground so

that the power station itself was an integral part

of the mining operations themselves, and
accordingly, in our submission, the protection of
the employees of the power station is just as much
a protection of the mining operations as the

protection of people in the act of descending the

mine.

So the first way in which we put this is that

it falls within those general words in

paragraph (a). Alternatively - and it is very much

the same argument - we say that it falls within

(ii).	We do not say it is justified because the
buildings demolished were necessary for the
carrying on of the operations.	We say the

expenditure is within the paragraph because the
demolition of these dangerous structures is

expenditure in the circumstances on improvements

necessary - that their removal is an actual

improvement to the area and that that improvement

is necessary for the carrying on safely of the

activities all around. For those reasons, in our

submission, special leave ought·to be granted in

those two matters. If the Court pleases.

MASON CJ: Yes, Mr Forsyth. Yes, Mr Shaw.

MR SHAW:  Could I deal first with the housing units. My

learned friend submitted that the only question was

Isa 9 7/6/91

the meaning of Tourapark, by which he presumably

meant that the only question was whether section 82

had a particular meaning, but it is submitted that

there is another question which is involved here

because section 82AE provides that the subdivision

does not apply to structural improvements and at

first instance His Honour Mr Justice Northrop held

that these housing units were structural

improvements. That appears at pages 74 to 77 of

the appeal book and at page 77, line 12.

His Honour says:

In my opinion the units do constitute

structural improvements.

That was a matter which the Full Court felt

was unnecessary to deal with and they say that at
page 134 in the paragraph at the bottom of the

page, but there is a factual question about whether

or not these units are structural improvements and,

if they are, this question that my learned friend

says exists is irrelevant. And the question of

whether they are or are not structural improvements
is, it is submitted, a question of fact.

Next, it is submitted that the significance of the investment allowance provisions has

substantially gone. As my learned friend said,

they are no longer operative. And thirdly, it is submitted that this question is really decided by

Tourapark. My learned friend said that a passage

at page 72 of the appeal book demonstrated that the

sole purpose of the housing units was to enable

mining activities. In one sense that is true, but

that statement by His Honour is a statement in the

context of deciding whether or not things are plant

and it is clear on the evidence, it is submitted,

that in fact it was always intended to rent out the

housing units.

In other words, although it was intended to

accommodate in the housing units people engaged in

mining operations, it was always intended by the

taxpayer to charge for it. But whether or not it

was intended to charge for it or not is perhaps

irrelevant. The question is whether or not there

was any intention to grant rights to use the units

and in Tourapark, this Court expressly addressed

the question of whether or not one could somehow

restrict the ordinary and natural meaning of the

words and the Court decided that you could not.

In Tourapark, 149 CLR 176, at 182, His Honour

.ie Chief Justice, Mr Justice Gibbs, in a judgment

~nat was concurred in by Your Honour

Mr Justice Mason and by Mr Justice Murphy, said, in

the paragraph at the bottom of the page:

Isa 10 7/6/91

However these submissions are put, they require a departure from the ordinary and

natural meaning of the words of the sections.

And then he goes on to say that that is something

which cannot be done in the circumstances and, at

page 183, about 10 lines up from the bottom of the

page, His Honour says:

It is apparent that the investment allowance is made available for the purpose of

encouraging particular behaviour which the

Parliament regarded as desirable, namely, the
expenditure of money on certain plant which

(except in the case of leasing companies) is

intended to be used and is in fact used by the

taxpayer himself wholly and exclusively for
the production of assessable income and which

others have no right to use.

And the consequences are therefore put to one side

by the Court and indeed, His Honour

Mr Justice - - -

McHUGH J: Supposing in this case there had been no charge,

but it was just provided as accommodation for the

employees, why would it not be within the section?

MR SHAW:  Your Honour, I think it would. I think it would.

What I said before went too far.

MCHUGH J: Yes.

MR SHAW:  But the evidence shows, nevertheless, that there

was always an intention to charge.

MASON CJ: Mr Shaw, we will take an adjournment now and we

will resume at 2.15.

MR SHAW: If Your Honour pleases.

AT 12.46 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.22 PM:

MASON CJ: Yes, Mr Shaw.

MR SHAW:  Your Honour Justice McHugh asked me a question

before lunch, almost immediately before lunch,

which I answered I think correctly but I think

incompletely, and incompletely in a way which made

Isa 11 7/6/91

the answer misleading and maybe made what I earlier

said was wrong, right. The easiest way to see that

is to look at Tourapark itself, page 180.

The question Your Honour asked me related to

section 82AA, but there is also to be taken into

account section 82AG, which is set out there at the

bottom of the page and on the top of the next page.

So that the subdivision does not apply to property

if it has been, in effect, leased or a right has been granted to use it within 12 months after it was first used or installed ready for use.

It is the existence of those provisions, no

doubt, which led His Honour Chief Justice Gibbs to

say what he did say at page 183 in the sentence

which I read to the Court this morning, just up

about 10 lines from the bottom of the page:

It is apparent that the investment allowance is made available for the purpose of

encouraging particular behaviour which the

Parliament regarded as desirable, namely, the

expenditure of money on certain plant which

(except in the case of leasing companies) is
intended to be used and is in fact used by the
taxpayer himself wholly and exclusively for
the production of assessable income and which

others have no right to use.

That is why, presumably, he said that, the

provisions of section 82AG. And in fact the

Full Court refers to section 82AG in considering

this matter at page 134 where Their Honours pointed

out, at line 11, the relevance of section 82AG and

go on to say that one might perhaps, except for

Tourapark, have been able to say that the small charges, which Their Honours were obviously there accepting, were intended right from the beginning

to be charged were, as it were, immaterial.

The only other substantial judgment in

Tourapark is that of His Honour Justice Aickin and, at page 189, in the paragraph at the bottom of the

page, he points out that giving the words a literal

interpretation produces results which might prima

facie be thought to be surprising. He gives the

example of lending - it is about 20 lines from the

bottom:

lending of eligible plant without any charge

to a friend or business acquaintance for one

day, or permitting such person to use such

plant on the owner's premises for a day

without charge, would appear to destroy the

investment allowance -

Isa 12 7/6/91

His Honour says, and he goes on to say, at the

bottom of the page:

However the fact that these provisions pose risks for hobbyists and farmers, and may well

induce an attitude of apparent selfishness is

not a sound basis for departing from the plain

meaning of the words: they are clear and

unambiguous.

So that it is submitted on the accommodation

units that, first of all, a decision on the matter

will involve the question of structural

improvements; that the investment allowance

provisions are now no longer operative except in

arrears, as it were; third, that Tourapark in its

terms directly applies and directly produces the

result which the courts below have unanimously

reached; and, in any case, it is submitted that on

the facts there was always an intention to produce

some assessable income by charging for the units.

In those circumstances, despite the one

sentence that my learned friend has pointed to in the judgment of His Honour at first instance, the

Full Court themselves indicate, by the passage I

referred to, at page 134, their awareness of the

intention to charge and, in our submission, that

makes the submissions of our learned friends simply
unmaintainable. In our submission, it is not an

appropriate case for special leave.

If I might go from there to the question of

the demolition costs. My learned friend said that

he desired to argue the demolition costs in two
ways: one under section 51(1) and the other under
Division 10. In our submission, in so far as

Division 10 is concerned, the case is entirely inappropriate to special leave. His Honour the

trial judge dealt with this matter at page 47 at

line 8. His Honour says:

Counsel for the taxpayer did not pursue the
that the expenditure was allowable under	claim based on s. 53 of the Act but contended in carrying on prescribed mining operations,
expenditure ~n buildings or other improvements
necessary for the carrying on of those
operations". Counsel did not elaborate upon
that contention.

So that was the submission, and His Honour, having

received thus much assistances, goes on to reject

the contention. There was a similar, although not

quite such a parsimonious approach, in the

Full Court. The matter is dealt with· at pages 118

Isa 13 7/6/91

and 119 of the appeal book, at the bottom of the

page. This is in the joint judgment of

Mr Justice Pincus and Mr Justice Ryan, in which

Justice Sheppard agreed in this respect.

Their Honours say, at line 18:

Counsel for the taxpayer pressed the argument under s.122A(l)(a), but appeared unwilling

precisely to identify which of sub-paras (i),

(ii) or (iii) applied. The better view seems

to be that the taxpayer can succeed, if at

all, only under sub-para. (ii), as both

categories of demolition seem plainly unable

to be brought within sub-para. (i) or sub-para

(iii).

And then Their Honours go on to reject that.

So it is only when we arrive here that the

inspiration has finally settled on any definite

provision of the Act as basing the deduction which

is said to be allowable, and it is said to be, as
we apprehended it, to be found in the general words

at the opening of section 122A. That is to say,

"expenditure in carrying on prescribed mining"

operations.

Now, in our submission, that suggestion is

completely without foundation and the reason is

that if one looks at the definition of "prescribed

mining operations" one sees that they mean:

mining operations on a mining property in
Australia for the extraction of minerals,

other than petroleum, from their natural site,

being operations carried on for the purpose of

gaining or producing assessable income -

this is in section 122(1). The precise definition

is relevant for some of the other claims and,

indeed, the existence of the definition formed the

basis of the decision in the Full Court in respect	of one of the other matters that comes up later.
But it means mining operations to extract minerals
from their natural site. So it is restricted to
the actual digging it out from where it is and,
when one looks at section 122A(l), one finds a
logical progression in the subparagraphs of the subsection which is not maintained wholly logically but it moves from actually digging it out in (a), with some extensions, to treatment in (b), and then
storage and other things in (c), and so on. So
that it is submitted that in any case it is plain
that this suggestion cannot succeed on the basis of
the submission which is now made.

Isa 14 7/6/91

As to the other basis on which leave to appeal

is sought - that is section 51(1) - it is clear, it
is submitted, that if what Mr Justice Kitto said in

the BHP case is correct, there is simply no basis

at all -

McHUGH J:	Why do you say that, Mr Shaw, because I would have thought that BHP was clearly distinguishable
because this tower was of timber construction, it
was a fire hazard, and there was a danger that the
building could be blown off by the wind and thus
create a danger. Surely any expenditure to remove
a danger to the operations is a revenue outgoing.

MR SHAW: Well, Your Honour, that was put to

Mr Justice Kitto and rejected. Precisely that.

MASON CJ: Because part of the expenditure there was

incurred for that very purpose.

MR SHAW:  Yes, it was. What I am putting to Your Honour is,

if what Your Honour says is right, then what

Mr Justice Kitto says is wrong, and that Your

Honour's suggestion that it is possible to

distinguish it is, in our submission, not well

founded, when one looks at what His Honour says.

BHP is at 120 CLR 240, and the relevant passages

are at 261 and 262, and His Honour says, at about half-way down the page, the third sentence in the

paragraph at the bottom of the page:

It is sufficient to say that in my opinion the

classic exposition by Dixon Jin the Sun

Newspaper Case (1) of the distinction between

outgoings in the nature of capital and

outgoings on revenue account must lead to the

conclusion that the expenditure in question in

the present appeals was all of a capital

nature. I full realize that I am considering

the business of a very large steelworks, and

that in the course of such a business it is to

be expected that from time to time demolitions	of all seven descriptions will become
expedient or necessary.

They are the seven descriptions that are to be

found in the preceding paragraph.

Plant will become obsolete or redundant and

need to be replaced by other plant, or got rid

of for the sake of safety or in order to
provide more free space, or for tidiness and

the resulting likelihood of improved general

efficiency in the yards.

Isa 15 7/6/91

And then he goes on to develop that. Then at the

top of the next page, in the first sentence which

commences on that page, His Honour says:

Each of the structures which have been

described to me as having been demolished, and

each of the structures that were erected in

place of one that had been demolished, was in its nature a part of what Dixon J described -

that is, in the Sun Newspapers -

as "a great aggregate of buildings ... all

assembled -

and so on, and the well-known phrase.	And
His Honour goes on:

They were all part of the appellant's "profit- yielding subject". Each of the demolitions in

question was, in my opinion, effected to

obtain a lasting improvement to the
appellant's complex "instrument for earning

profits" -

and His Honour so goes on - - -

McHUGH J: Well, I appreciate that His Honour made that

reference to safety there, but that was in a
general context, but none of the seven categories

of plant in that case were demolished because of

safety issues, were they?

MR SHAW: Well, they were, Your Honour, with respect. They

were, because in the sentence which I have not got

to His Honour says:

The improvements which the demolitions by

themselves effected was either (1) the

clearing of land which an existing structure

had rendered unavailable for a use that the appellant wished to make of it, or (2) the	removal of a continuing source of danger or
disadvantage (even if only from the congestion of the premises) in the conduct of the business.

So it is submitted, Your Honour, that he does

directly deal with it and, not only does he

directly deal with it, His Honour deals with it

directly by testing the case against the tests

which were laid down by His Honour Mr Justice Dixon

in the Sun Newspapers. And what my learned friend

has said to the Court amounts to this, so far as

this present case is concerned - and the Court will

have observed that although my learned friend took

the Court to cases which he said established a

Isa 16 7/6/91

trend, he never took the Court to this passage in
the judgment of His Honour Mr Justice Kitto, which

is the critical passage; he never explained why it

was wrong; and he never explained where this trend began and ended and how it is that this particular

case, the trend having developed, had passed by

this particular case so that it was now a revenue

item and not a capital item.

DAWSON J:  It would seem to be the more often you do it, is

what determines it.

MR SHAW: Well, with respect, Your Honour, in the Sun

Newspapers, His Honour Mr Justice Dixon says,

specifically - I am just passing up copies of

that - at page 362 he deals with recurrence and in

the long paragraph at the top of the page, after

having examined the question of recurrence,

His Honour says:

Recurrence is not a test, it is no more than a

consideration the weight of which depends upon

the nature of the expenditure.

So that what is being put to the Court is that a

reasoned decision of His Honour Mr Justice Kitto,

which depends on an exact application to facts

which are on all fours with the present facts of a

classic judgment by His Honour Mr Justice Dixon in

relation to the nature and the differences between

capital and income, he is saying that that is

erroneous and, in our submission, that amounts to a

submission that what His Honour said in that case

is erroneous, and if that be so then we have not

got a trend, we have got a revolution. In our

submission, it would be - - -

McHUGH J: Well, maybe it is time for a revolution because

the times have changed. Once you constructed

plant, it stood for a century or two centuries.

Now, because of the technological revolution, plant
can be obsolete in five or seven years.	Why should

it not be regarded as part of the cost of doing

business? Why should not the Court have a look at

the whole subject afresh?

MR SHAW: Well, all I can say to Your Honour is this: there

is a long-established line of authorities, of which

Sun Newspapers is one. It has never been suggested

that what His Honour said in that case was wrong.

It has often been suggested that what His Honour

said in that case was right, and what His Honour

says has been often applied.

McHUGH J: Are you talking about Sun or BHP?

MR SHAW:  Sun.

Isa 17 7/6/91

McHUGH J: Yes, but it is a question of its application.

MR SHAW: Well, that is certainly so, Your Honour, but my

learned friend has not suggested that - except by

his general assertion that what His Honour's

conclusions - that is if Mr Justice Kitto's

conclusion is wrong - he has not said where. What

I have been putting to the Court is that in fact

when one looks at what His Honour says, it proceeds
by adoption of the words of His Honour

Mr Justice Dixon in Sun Newspapers, and it is for

that reason, it is submitted, that the question is

an inappropriate one for leave to appeal. It was

not one which caused any difficulty to any of the

courts below and it is submitted that it would be
inappropriate to allow special leave, in effect, to

challenge Sun Newspapers, without hearing why that

is a good idea.

MASON CJ: But is not the point this, Mr Shaw: let us

assume for the moment that Mr Justice Kitto's

judgment covers the point, namely that demolition

is undertaken because the structure is dangerous.

It cannot be said, can it, that the demolition is

undertaken in order to improve the taxpayer's

plant, ie, it is not undertaken for the purpose of

putting up new plant. Nor can it be said that it

is undertaken for the purpose of improving the land

in terms of the land's capacity to carry new plant.

So why is it not undertaken as a matter of

recurring expense?

MR SHAW: Well, to use Mr Justice Kitto's words in dealing

with that suggestion, His Honour said this:

Each of the demolitions in question was, in my opinion, effected to obtain a lasting

improvement to the appellant's complex

"instrument for earning profits", and was not

carried out as part of "the continuous process

of (the) use or employment (of the instrument)

for that purpose".

MASON CJ: That is what His Honour said, but I would have

thought that there was room for doubt about the

correctness of that statement in so far as

demolition is undertaken in order to remove or

obviate a danger.

MR SHAW: Well, I have said all I can say on that subject,

if Your Honour pleases.

MASON CJ: Yes.

MR SHAW:  It is submitted accordingly that it is

inappropriate to allow special leave in relation to

the demolition costs, firstly because.of the

Isa 18 7/6/91

difficulties which arise in relation to the appeal

in relation to Division 10. Presumably one will

have to look at the facts anew to discover how that

applies. And secondly because there is long-

established authority in the form of what was said

by His Honour Mr Justice Kitto, which has never

been suggested to be wrong until now.	If the Court
pleases.

MASON CJ:  Thank you, Mr Shaw. Yes, Mr Forsyth.

MR FORSYTH:  Your Honour, the accommodation units: the only

point we wish to make there is a reference to

structural improvements. There are authorities
that say that something is only a structure if it

is intended to be permanent and to rest permanently

on permanent foundations. That was said in a case

which I won for the Commissioner many years ago,

about an investment allowance.

There are also cases which say that something

is an improvement only if it is there for the

purpose of improving the land. In our submission,

these accommodation units were not put there to
improve the land, they were put there solely for
the use of the accommodation units themselves,

without - it would not have mattered where they

were; it would not have mattered what was the

nature of the land underneath them. For those

reasons, we say they are not structural

improvements.

On the demolition expenses, I cannot add

anything to the discussion on section 51 but we do

wish to defend ourselves from the charge of recent

invention on the Division 10 point, and we have

that "the primary submission of the taxpayer on the

here the outline that we handed up to the

appeal is not section 51, but one which was put but

not elaborated on in the first instance, namely

that the expenditure is allowable capital

expenditure within Division 10", and then later on,
in paragraph 23, we said that "the provision of

safe conditions around the power station, itself

beyond dispute as an essential and integral part of

the mining operations, was therefore capital
expenditure incurred in carrying on prescribed

mining operations within the general words of paragraph 122A(l)(a)". If the Court pleases.

MASON CJ: The Court will take a short adjournment in order

to consider this case.

AT 2.46 PM SHORT ADJOURNMENT

Isa	19	7/6/91
UPON RESUMING AT 2.48 PM:

MASON CJ: In so far as these applications relate to claims

for an investment allowance in respect of

accommodation units, the applications do not raise

a question of sufficient public importance to

warrant the grant of special leave to appeal. The

relevant statutory provisions have been replaced so

that the question is of limited significance.

There will, however, be a grant of special

leave in application No M9, so far as it relates to

the claim to deduct demolition expenses under

section 51. Otherwise, the applications are

refused.

MR SHAW:  I apply for some costs.

MASON CJ: Yes, you have a reputation for being mean-

spirited, Mr Shaw. At least you are consistent.	I
think he is serious.

MR FORSYTH:  Might I suggest $100.

MASON CJ: Are you pressing on with this application?

MR SHAW:  I think in the circumstances, Your Honour, I will

save the excitement for my own applications.

MASON CJ:  Yes.

AT 2.50 PM THE MATTER WAS ADJOURNED SINE DIE

Isa 20 7/6/91