Cooke and Deputy Commissioner of Taxation

[2000] AATA 365

DECISION AND REASONS FOR DECISION [2000] AATA 365

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No WT1999/55

TAXATION APPEALS DIVISION )          
           Re      RICHARD COOKE 
  Applicant
           And    DEPUTY COMMISSIONER OF TAXATION     
  Respondent

DECISION

Tribunal       Deputy President T E Barnett  Mr R D Fayle, Senior Member         

Date10 May 2000

PlacePerth

Decision      The decision under review is set aside and remitted to the respondent with the direction that the applicant's taxable income for the year ended 30 June 1995 be assessed on the basis that the distribution from the Macreidy Mining partnership is exempt income pursuant to s92(3) of the Income Tax Assessment Act 1936.
  ..........(sgd T E Barnett).........
  Deputy President
CATCHWORDS
INCOME TAX – Assessable income – Exempt income – Partnership – bona fide prospector – income or capital proceeds –– Whether consideration received under an Option Agreement to sell mining tenements is income from the sale, transfer or assignment of rights to mine for gold in Australia
Income Tax Assessment Act 1936 – sec.23(p) and 23(pa)
Biggs v FCT 75 ATC 4172
Carter v Hyde (1923) 33 CLR 115
Coles Myer Limited v Commissioner of State Revenue (Vic) 98 ATC 4537
Fasken v Minister of National Revenue [1949] 1 DLR 810
Henderson v FCT (1943) 68 CLR 29
Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57

REASONS FOR DECISION

10 May 2000           Deputy President T E Barnett & Mr R D Fayle, Senior Member                    

1. The applicant was a member of a partnership which, in July 1994, entered into an option agreement to sell its interest in certain mining leases and prospecting licences, for a consideration of $500,000 and an allotment of 1 million fully paid 20 cent shares in the purchaser, Centenary International Mining Limited, a listed public company. The grantee of the option was CIM Gold NL ("CIM"). The shares were valued at $200,000. After deduction of expenses associated with the option agreement, the applicant received a distribution valued at $235,846. The partnership income tax return disclosed the net amount as income but subsequent to lodgement requested the respondent to treat the amount as an assessable capital gain. In his income tax return the applicant returned a net capital gain of $86,666. The respondent issued a notice of assessment on 30 April 1996, assessing the applicant accordingly. On 11 March 1998 the applicant objected to the assessment on the ground that the distribution from the partnership was sourced from exempt income derived by the partnership, pursuant to s23(pa) of the Income Tax Assessment Act 1936 ("ITAA 36").
   That provision of the ITAA 36 states:

   23       Subject to section 22A, the following income shall be exempt from income tax:
   (pa)     subject to Division 16H, income derived by a person before the 1997-98 year of income from the sale, transfer or assignment by the person of his rights to mine, in a particular area in Australia, for gold or for any prescribed metal or prescribed mineral, where:

   (i)        those rights to mine were acquired by the person before 7.30 pm, by legal time in the Australian Capital Territory, on 20 August 1996; and
             (ia)      the income was derived before 20 August 2001; and
             (ib)      the person, on or before 20 August 1996 was a bona fide prospector, that is to say:
             (A)      a person (other than a company) who has personally carried out the whole or the major part of the field work of prospecting for gold or for the prescribed metal or prescribed mineral, as the case may be, in that area, or has contributed to the expenditure incurred in the work of prospecting and development in that area; or
             (B)      a company which has itself carried out the whole or the major part of such field work;
   except that:

   (ii)       where the income was derived under a contract for the sale, transfer or assignment of the rights to mine entered into after 7.30 pm, by legal time in the Australian Capital Territory, on 20 August 1996, this paragraph only applies to so much of the income derived as would have been derived if those rights had been sold for their market value at that time; and

   (iii)      where, under Division 10, or under the Division for which that Division was substituted, a deduction has been allowed or is allowable from the assessable income of the taxpayer of any year of income in respect of expenditure on exploration or prospecting in a particular area, this paragraph applies to so much only of the income of the taxpayer derived from the sale, transfer or assignment by him of rights to mine in that area as exceeds the sum of any deductions so allowed or allowable; and

   (iv)      this paragraph does not apply in respect of a sale, transfer or assignment of any right to mine for a metal or mineral, other than gold, if:
             (A)      any party or parties of the one part to the sale, transfer or assignment has or have the power (whether under the terms of the transaction or otherwise) to control, directly or indirectly, the entry into the transaction by, or the activities in connexion with the mining rights of, a party of the other part; or
             (B)      any person or persons has or have the power (whether under the terms of the transaction or otherwise) to control, directly or indirectly, the entry into the transaction by, or the activities in connexion with the mining rights of, a party of the one part and a party of the other part to the sale, transfer or assignment;

1. At the hearing Mr J Pickering of Freehill Hollingdale & Page, represented the applicant and Mr R McGrade, an officer of the Australian Taxation Office, represented the respondent.  The applicant called Mr Craig Morley to give expert evidence.  The case proceeded largely on agreed facts.
   Agreed facts

2. Under an agreement dated 20 March 1988, the applicant and Neil Sinclair of Boulder, Western Australia, entered into a partnership known as the Macreidy Mining Partnership ("the partnership") with a view to exploring for gold on two existing Prospecting Leases 26-1136 and 26-1133 and to acquire and explore additional prospecting leases.

3. In July 1988, Sinclair sold a 5% share in the partnership to Helen Ackerman, a resident of the United States and the sister of the Applicant, for $6,000.

4. Prior to January 1991, pursuant to an agreement between the partners, a drilling programme of certain leases then held by the partnership (the "North Monger leases") was undertaken by the partnership, which was funded equally by the applicant and Ackerman.  In consideration for this, Sinclair agreed to transfer a further 10% of the partnership to the applicant and Ackerman in equal shares, such that subsequently and at all relevant times the interests in the partnership were as follows:
   The applicant           55%   
   Sinclair         35%   
   Ackerman     10%   

5. At various times the partnership acquired tenements in a prospective area known as Kunanalling.  Details of these tenements are as follows:
   Tenement ID    Size     Type of Tenement      Date Acquired  How Acquired 
   M16/139 (Key Lease)    477ha   M/L     20/8/93 Purchased $100,000    
   P16/1652 (Key Lease)   121.0ha          P/L     10/7/93 Pegged
   P16/1337       28ha     P/L     26/8/93 Purchased $1,000       
   P16/1576 (Key Lease)   121.0ha          P/L     3/2/93   Pegged
   P16/1575 (Key Lease)   121.0ha          P/L     3/2/93   Pegged
   M16/178 (Key Lease)    260ha   M/L     20/6/93 Option 
   M16/36  
   P16/1511  
   M16/15  
   L16/15  
   L16/16  
   L16/20  
   L16/21  
   GPL16/10  
   M16/99  
   Pt. M16/140  

1. The applicant is "a bona fide prospector" and the tenements listed above are "rights to mine" for the purposes of s23(pa) of ITAA 36.

2. Kunanalling is an old mining centre approximately 33 kilometres north west of Coolgardie in Western Australia.  In 1993 the partnership undertook soil mapping and collecting of chip samples on the tenements, which were ground, panned and a portion of the sample was submitted for fire assay.

3. On 5 October 1993, the partnership entered an option agreement with Newcrest Mining to acquire an adjacent lease M16/139 and Prospecting Licence P16/1337 for $100,000.  The partnership subsequently conducted a costeaning programme on M16/139, which located 3 prospects.

4. On 18 December 1992, the partnership entered into a licence agreement and an option to acquire mining lease M16/178 from New Holland Mining.  The partnership conducted costeaning on this lease and identified a small alluvial deposit of 10,000 tonnes, which it subsequently worked under contract.

5. In January 1994, the partnership conducted a rotary air blast drilling programme on the Kunanalling key leases, which confirmed that at least one of the prospects was gold bearing.

6. On 2 July 1994, the partnership, as grantor, entered an option agreement (the "Option Agreement") with CIM, (Ex.A1-6 and a copy of which is at T4).

7. Clauses 2, 3, 4 and 9 of the Option Agreement state:

   2.1      In consideration for the payment of the non-refundable fee pursuant to Clause 3.1, receipt of which is acknowledged by the Vendors' execution of this Agreement the Vendors hereby grant to the Purchaser:
   (a)       the sole and exclusive right and option during the Option Period to acquire free from encumbrances (other than the Newcrest Royalty) all of their rights, title and interest in and to the Tenements and all prospecting, geological and technical information that is in the custody or under the control of the Vendors with regard to the Tenements for the consideration provided in Clause 9; and
   (b)       the sole and exclusive right of possession of the Tenements as provided in Clause 4.
   2.2      The Option Period will expire on the 30th day of June 1997 unless or prior to that date the Purchaser pays the Vendors five hundred thousand dollars ($500,000.00).
   2.3      If the Option Period is extended on the 30th day of June 1997 pursuant to Clause 2.2 then the Option Period will expire on the 30th day of June 1998 unless on or prior to that date the Purchaser pays the Vendors a further five hundred thousand ($500,000.00) in which case the Option Period will expire on the 30th day of June 1999.

   3        Consideration for Option
   3.1      On the execution of this Agreement the Purchaser will pay to the Vendors a non-refundable fee of five hundred thousand dollars ($500,000.00) and will procure the allotment and issue to the Vendors a total of one million (1,000,000) Shares.
   3.2      The Purchaser may only exercise the Option during the Option Period and by delivering to the Vendors an irrevocable notice in writing to that effect.
   3.3      The Option will lapse if not exercised in accordance with Clause 3.2.

   4        Exploration during the Option Period
   4.1      During the Option Period, the Purchaser and its managers, agents and workmen shall have sole possession and use of the Tenements with the right to explore, survey and to conduct such Mining, exploratory development, works, and drilling operations as are permitted under the Act in such manner as the Purchaser thinks fit provided that the Purchaser complies with the Act and all other Acts and Regulations relating to the Mining, drilling, exploration, prospecting and other associated activities on the Tenements and will, if required by any competent authority at the Purchaser's own cost and expense reinstate (to the extent required by law) any land which forms the subject matter of the Tenements so disturbed by the Purchaser's activities.
   4.2      The Vendors shall have the right to inspect the Tenements at all reasonable times for the purpose of ensuring that the Purchaser is complying with this Agreement.
   4.3      The Purchaser may at any time during the Option Period take on to the Tenements and remove from the Tenements (or authorise the taking on to and removal from the Tenements) such vehicles, plant, equipment and structures as the Purchaser may think fit and as permitted by law and the Vendors shall not have any lien over any such vehicles, plant, equipment and structures for any purpose whatsoever.
   4.4      The Purchaser agrees to indemnify the Vendors against all claims, demands and causes of action by third parties arising out of its possession of the Tenements pursuant to this Agreement and the conduct of operations carried out under the Purchaser's authority of the Tenements or any land adjacent to the Tenements.
   4.5      The Purchaser shall observe the terms of the Newcrest Royalty to the extent applicable to any activity carried on by the Purchaser pursuant to this Clause 4.

   9        Exercise
   9.1      Upon exercise of the Option under this Agreement the Vendors will be deemed to have sold to the Purchaser all of the Vendors' rights, title and interest in the Tenements and Settlement of such sale will occur within 30 days of the exercise at the office of the Purchaser.
   9.2      On Settlement of the sale of the Tenements the Vendors will deliver to the Purchaser all certificates and indicia of title relating to the Tenements, a registrable transfer of the Tenements and all prospecting, geological, technical and other information then in the Vendors' custody or control in respect of the Tenements against receipt of the purchase consideration of five million dollars ($5,000,000.00)

8. On or about 11 July 1994, the partnership received $500,000 cash and was issued with the shares.

9. In its profit and loss statement for the year ended 30 June 1995, the year of income under review,  the partnership showed as income the net amount of $429,990 from the granting of options over the Kunanalling tenements being calculated as follows (the "Net Amount"):

   Cash received  $500,000
   Value of shares  200,000
   Total  $700,000
   Expenses of sale  17,010
   Consideration paid to acquire
   Tenements under option  253,000
     270,010
   Net amount   $429,990

10. In it's income tax return for the year ended 30 June 1995, the partnership treated the net amount of $429,990 as income and returned a partnership net income of $428,811, the applicant's share of which was $235,846.

11. By letter dated 22 February 1996, the tax agent for the partnership requested that the income tax return for year ended 30 June 1995 be amended to show a net loss of $19,816 and a taxable capital gain of $448,627, the applicants share of which was $10,899 and $246,745 respectively.

12. By notices dated 14 and 17 June 1996, the respondent advised the tax agent that the amendments requested had been made.

13. In his return of income for the year ended 30 June 1995, the applicant disclosed a net loss of $10,899 from the partnership and a net capital gain of $86,666, being his share of the capital gain from the partnership, $246,745, less deductible capital losses of $160,079.

14. By notice of assessment for year of income ended 30 June 1995, dated 30 April 1996, the applicant was assessed on a taxable income of $97,644, in accordance with the income tax return lodged.

15. By notice dated 11 March 1998, the applicant objected to the assessment and amended assessments for the year ending 30 June 1995 on the principal ground that the amount of $700,000 received by the partnership was income and exempt pursuant to s23(pa) of the ITAA 36 and therefore the share of partnership income from that source was exempt income.

16. By notice dated 22 March 1999, the respondent disallowed the Applicant's objection.

17. By notice dated 11 May 1999, the applicant made an application to the Tribunal to review the respondent's decision.
    The oral evidence

18. The Tribunal had before it a letter of 24 January, 2000 from Snowden Corporate, Mining Industry Consultants to Freehill Hollingdale & Page (Ex.A2).  That letter expresses an opinion, in regard to the consideration of $700,000 referred to above, that it included a premium of $568,000 paid by CIM to the partnership for the exclusive right to explore and mine the tenements for a period of five years.  The letter sets out the authors' reasons for arriving at that opinion.  Mr C Morley, a joint author of the letter, gave additional oral evidence in relation to that opinion.

19. In essence, Snowden Corporate identify four typical or generic agreements relating to the purchase of mining tenements:

• The "purchaser" earns an interest in the tenement by funding an agreed amount of exploration on the tenement;

• The "purchaser" takes an option to purchase the tenement.  During the option period that "purchaser" carries out a due diligence survey of the available materials relating to exploration and facts already known to the "vendor".  No actual field work is carried out by the "purchaser".

• The "purchaser" pays a sum to secure the right to purchase the tenement in future and to secure the right to exclusive possession of the tenement during the option period so as to enable it to conduct exploration and or mining during the option period.

• The "purchaser" agrees to buy and the "vendor" agrees to sell all or part of the tenement.

1. In the opinion of Snowden Corporate the relevant option agreement falls into the third category.  It was on that assumption that Snowden Corporate proceeded to apportion the consideration of $700,000 received by the partnership.  Their conclusion is based on an initial data base of 480 records, of which 10 were identified as relevant and of which 3 were classed as being sufficiently similar to the option agreement in question to enable an extrapolation giving rise to the conclusion.

2. In the opinion of the Tribunal the evidence of Mr Morley takes the Snowden Corporate opinion (Ex.A2) no further.  The Tribunal is inclined to the view, as put to it by Mr McGrade for the respondent, that any finding about the nature of the consideration of $700,000 must be reached on the basis of the option agreement itself.  What an expert says is the character of that consideration by looking at the agreement with hindsight and comparing it with a very small sample of other agreements with some similarities cannot supplant the true character of what the sum was paid for as evidenced the agreement itself. 

3. Mr Pickering submitted that the consideration of $700,000 pursuant to Clause 3 of the Option Agreement relates the two separate grants referred to in Clause 2.1(a) and 2.1(b).  In the opinion of the Tribunal the Option Agreement cannot be construed that way – the consideration set out in Clause 3 is not an aliquot sum, it is one amount serving both purposes indifferently and is not capable of dissection or even apportionment by reference to the Option Agreement.

4. The Tribunal is of the opinion that there is no proper basis in fact for a dissection or apportionment of the consideration between what was paid for the right to purchase the tenements in future and the immediate right to explore and mine the tenements.
   Discussion and Reasons

5. On the basis that it is agreed between the parties that the partners of the partnership were at all material times "bona fide" prospectors and that the tenements in question were "rights to mine" then, in the opinion of the Tribunal, this matter comes down two essential issues:

6. Whether the consideration of $700,000 received by the partnership was income?

7. Whether the consideration of $700,000 paid by CIM resulted in a sale, transfer or assignment by the partnership of their rights to mine the tenements?

Each of these is dealt with in turn.
Whether the consideration of $700,000 received by the partnership was income?

1. The Tribunal had before it copies of the partnership's Financial Statements for the years of income ended 30 June 1993, 1994 and 1995 (Ex.A1-1) the former of which includes comparative figures for the preceding year ended 30 June 1992.  On the basis of those four years it is apparent that the partnership was active in both prospecting and mining.  It derived income from the sale of gold in each of the 1991/92, 1992/93 and 1993/94 years.  Up to 30 June 1992 it had accumulated exploration costs of $88,587 which increased to $122,465 by 30 June 1993 after amortising $5,179 during that year.  In the year ended 30 June 1994 it amortised exploration costs of $165,688 and $7,942 during the following year ended 30 June 1995.  The financial statements indicate that there was little exploration expenditure after the option agreement had been entered into on 2 July 1994 (Ex.A1-6).  Its principal source of income thereafter was from the grant of options over its mining tenements (including exploration permits) (Ex.A1-1).

1. The agreed facts point to a fairly active partnership from about March 1988 until the entry into of the option agreement over the Kunanalling tenements in July 1994.  During this period it entered into an option agreement, in October 1993, with Newcrest Mining to acquire a mining lease and a prospectiing licence for $100,000 (Ex.A1-5).  It subsequently conducted exploration activities on the mining lease.  Also, in December 1992, it entered into a licence agreement and an option to acquire a mining lease from New Holland Mining (Ex.A1-4) and subsequently carried out exploration activities there.  Further, in January 1994 it carried out a drilling programme on the Kunanulling key leases.

2. In the opinion of the Tribunal, the partnership's scale of operations is sufficient to conclude that it was carrying on a business with a view to profit.  The principal activities of that business were the acquisition of rights to mine (using that term in its generic sense), undertaking related exploration and exploiting those acquisitions in various ways including the grant of options to prospective purchasers.  The facts indicate that the partnership undertook these activities in an organised and business-like manner, maintained proper records and complied with relevant laws governing such activities.

3. For the above reasons the Tribunal concludes that the consideration of $700,000 relating to the Kunanalling option agreement (Ex.A1-6) is income derived by the partnership during the year ended 30 June 1995.  For that reason any distribution to the partners from that source would retain that character and be income.
   Whether the condsideration of $700,000 paid by CIM resulted in a sale, transfer or assignment by the partnership of their rights to mine the tenements?

4. This question can only be answered from an examination of the option agreement, being the agreement, dated 2 July 1994 between Sinclair, the applicant and Ackerman of the one part and CIM Gold NL of the other (Ex.A1-6).

5. Clauses 2, 3, 4 and 9, quoted above, are critical.  It is also of some significance that the term of the Option Agreement, in the first instance, was for three years, from 1 July 1994 to 30 June 1997.  According to Mr Morley (supra) this was an unusually long option period and sufficient for the grantee to carry out significant exploration and or mining.  Also of significance is Clause 12 which requires the Purchaser (CIM) to pay the Vendors (the partnership) a royalty at a set rate for each ounce of gold recovered as a result of any mining operations carried on by CIM during the term of the option.  Also, Clause 15 permits CIM to assign its interests under the option agreement providing the partners' rights under the option agreement are preserved.

6. It was submitted by Mr Pickering for the applicant that the relevant provision, s23(pa) of ITAA 36, and its predecessor s23(p), are in essence the same. Subparagraph 23(p) was introduced in 1928 as a result of political pressure emanating from the Senate, to provide gold miners in Kalgoorlie and other outlying places, taxation benefits since at that time proceeds from the sale of gold was exempt from income tax. He submitted that it was the then government's understanding that the sale, transfer or assignment of a right to mine (gold) by a prospector would ordinarily be on capital account and only those trafficking in such rights would be subject to tax. However, he submitted, as a result of representations from prospectors eventually the government acquiesced to exclude from assessable income the proceeds from the sale, transfer or assignment of rights to mine (gold). The exemption extended not just to the actual prospector but also to those who backed him or her financially. The purpose of the concession was to encourage the gold mining industry, particularly in the Kalgoorlie region, which was then experiencing a considerable economic slump. In 1973 the provision (s23(p)) was repealed but reintroduced in 1976 (as s23(pa)) in fundamentally the same terms as the predecessor provision. It was on this basis that Mr Pickering submitted that because the intention of the provision is to provide a benefit it should be interpreted generously in favour of the taxpayer and not read in a narrow and restrictive way so as to circumvent its clear intention. He referred to the judgment of Williams J (at first instance) in Henderson v FCT (1943) 68 CLR 29, where his Honour states:

   "The Act, in exempting income from the working of a mining property for the purpose of obtaining gold, and the profits on the sale of rights to mine for gold in a particular area … evinces, to my mind, a plain intention to offer a strong incentive to increase the production of gold in Australia."  (p.37)

7. Although the decision of Williams J went on appeal to the Full Court (Latham CJ, Rich and Starke JJ), nothing contrary to that observation was said by it.
   Was there a sale, transfer or assignment under the Option Agreement?

8. Mr McGrade submitted that the expression "sale, transfer or assignment" occurring in s23(pa) needs to be read as a compendious phrase. He submitted that to fall within the provision there must be a transfer of legal title. In Biggs v FCT, 75 ATC 4172 (Wickham J, Supreme Court of Western Australia), a case directly concerned with s23(p) of the ITAA 36, his Honour made this observation:

   "The term 'sale' may in its context include an agreement for sale – cf. George v Greater Adelaide Land Development Co Ltd (1929) 43 CLR 91, per Starke J at 104, and counsel referred to other examples. In the context of words such as 'sale, transfer or assignment' which imply a distinction between a conveyance and a transaction falling short of actual conveyance, I conclude that 'agreement to sell' falls within the connotation of the word 'sale' as used in the subsection." (p.4190)

9. In that case his Honour held that the mere payment of a sum to extend an already existing option to purchase rights to mine was not evidence of the sale, transfer or assignment of anything.  That case can be distinguished from the present in that what was paid by CIM to the partnership for the Option Agreement evidences a clear and unequivocal transfer (if not a conditional sale) or assignment of rights and interests under the subject tenements.  In the opinion of the Tribunal the Option Agreement was not an agreement for sale.  It did not give rise to a "conveyance" and therefore the agreement falls short of being a sale agreement.

10. Mr Pickering submitted that the Option Agreement has all the indicia of a sale agreement with the exception that the only thing that did not pass from the partnership to CIM at the time was the legal title.  He submitted that during the option period CIM had an exclusive right to deal with the tenements as they saw fit, including carrying on prospecting and mining and extracting gold to sell, subject only to the payment of a royalty to the partnership.  Also, CIM had the exclusive right to assign its interests in the tenements subject only to preserving the partnership's rights under the option agreement.

11. Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57, a decision of the Full High Court (Menzies, Gibbs and Mason JJ) considers the nature of an option. Gibbs J, in particular, canvasses the question of whether an option is a conditional contract to purchase or an irrevocable offer. He reviews extensively both Australian and other case law, forming the view that there is no clear direction from the authorities. He points out that the decision in Carter v Hyde (1923) 33 CLR 115 is authority for the proposition that an option creates an equitable interest [in land] to which it relates, citing a line of cases in support (at p.75). He contrasts this with a conditional contract to sell [land] which, in his Honour's opinion, clearly creates a contingent equitable interest in the land (p.76). His Honour concludes:

    "For these reasons I consider that an option to purchase (at least one in a form similar to that in the present case) is a contract to sell the land upon condition that the grantee gives the notice and does the other things stipulated in the option." (p.76).

12. The option in that case was quite different to the Option Agreement in the present matter.  In the former there were no exclusive rights to enter the property or do anything with it or sell anything that might be yielded from the land during the option period. The option agreement in question here granted the grantee the right to purchase land upon exercise, in writing, of the option by a specified date.  It was conditional upon the grantee paying the balance of the purchase price in cash (the option price in that event being treated as a deposit on purchase) and completion of an executable conveyance free of all encumbrances etc. In Laybutt v Amoco Australia Pty Ltd, Gibbs J states that "An equitable interest cannot be created by a mere offer; it is necessary to find a contract which gives the grantee a right to call for a conveyance of the land." (p.76).

13. In the present case the evidence is that the tenements were in fact transferred pursuant to the exercise of the Option Agreement (as amended to protect the interests of CIM which changed its name subsequently and to alter certain aspects of the consideration payable), (Ex.A1-7 and A1-8).  Those events took place after the end of the year of income in question and for all intents and purposes are not relevant to the question now under consideration.

14. On the basis of the facts it cannot be concluded that the Option Agreement itself evidenced a sale of the tenements.  In the opinion of the Tribunal a sale, as distinct from a "transfer or assignment" requires a conveyance of both the legal and equitable title.  The Option Agreement provided CIM with several rights, one of which was a right to call for a conveyance of the tenements subject to the payment of the consideration in Clause 9.

15. As to whether the partners "transferred" their "rights to mine" the tenements, the Tribunal was directed to the decision in Coles Myer Limited v Commissioner of State Revenue (Vic) 98 ATC 4537 (Ormiston JA, Court of Appeal, Victoria). His Honour refers to a judgment in the Exchequer Court of Canada by Thorson P in Fasken v Minister of National Revenue [1949] 1 DLR 810 at 821:

    "The word 'transfer' is another term of wide meaning.  The New English dictionary gives the meaning of it: '2. Law. To convey or make over (title, right, or property) by deed or legal process'.
    And Webster's New International Dictionary, 2nd ed., says 'To make over the possession or control of; to make transfer of; to pass; to convey, as a right, from one person to another: as, title to land is transferred by deed'.
    In Gathercole v Smith (1881) 17 Ch.D 1 at p.76 James LJ spoke of the word 'transfer' as one of the widest terms that can be used' and Lush LJ said a p.9: 'The word "transferable", I agree with Lord Justice James, is a word of the widest import, and includes every means by which property may be passed from one person to another." (p.4546 98 ATC)

His Honour concludes:

"Thus, however broadly the word 'transfer' be defined, it requires at the least that the transferee should, at the end of the transaction, have substantially the same right or interest in the subject matter as did the transferor before the transfer took place." (p.4547)

1. The Tribunal respectfully adopts His Honour Ormiston J's views, in this regard. On that basis and by reference in particular to Clauses 2.1(a) and (b) and 4.1, the Tribunal concludes that the Option Agreement transferred the partnership's rights and interest in the tenements to CIM for the option period. We reach this conclusion by a process of applying the ratio from the decision of the Court of Appeal to the facts of the present case. That is, that the nature and effect of the Option Agreement is to vest in CIM all of the partnership's rights and interests in the tenements for the option period. It has the effect of immediately extinguishing the partnership's rights and interests for the period of the Option Agreement. It does not seem to matter, for the purposes of s23(pa) of the ITAA 36, that the Option Agreement affects an equitable transfer and not a transfer of the legal title – the word "transfer", in the context of paragraph 23(pa) is not limited to a sale and, acknowledging the purpose of the provision as re-enacted in 1976, it should not be given a narrow and restrictive interpretation.

2. Should the above reasons be flawed then it is incumbent on the Tribunal to consider whether the Option Agreement affects an "assignment" of the partnership's rights to mine the tenements to CIM.
   "Assign" is defined in Alderson's Legal Dictionary for Australia, McGraw-Hill, Sydney, as:

   "Assign To transfer some legal right from one person to another."

And in Mozley & Whiteley's Law Dictionary, Ed. E R Hardy Ivamy, Butterworths, 1993, it is defined as:

"Assign (Lat Assignare) means: (1) to make over a right or interest to another; (2) to point out or set forth."

1. For reasons already advanced, the evidence supports the conclusion that there was an assignment of the partnership's rights or interests under the tenements by the Option Agreement, albeit for the option period only.

2. Before reaching its decision it is necessary for the Tribunal to explain that it understands that there is no dispute that income derived by the Macreidy Mining Partnership during the year ended 30 June 1995, other than the consideration relating to the Option Agreement, is exempt income pursuant to s23(pa) of the ITAA 36.
   Decision

3. For the above reasons and pursuant to s43 of the Administrative Appeals Tribunal Act 1975, the decision under review is set aside and remitted to the respondent with the direction that the applicant's taxable income for the year ended 30 June 1995 be assessed on the basis that the distribution from the Macreidy Mining partnership is exempt income pursuant to s92(3) of the Income Tax Assessment Act 1936.

   I certify that the 51 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President T E Barnett & Mr R D Fayle, Senior Member

   Signed:

   .......................(sgd S Railton)..........................
   Associate

   Date of Hearing  3 April 2000
   Date of Decision  10 May 2000
   Counsel for the Applicant        Mr J Pickering
   Solicitor for the Applicant         Freehill Hollingdale & Page
   Counsel for the Respondent    Mr R McGrade
   Solicitor for the Respondent    Australian Taxation Office