Dampier Mining Company Ltd v The Commissioner of Taxation of the Commonwealth of Australia

DAMPIER MINING COMPANY LTD. v. FEDERAL COMMISSIONER OF TAXATION (1979) 40 FLR
127
Income Tax

COURT

FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
Brennan(1), Deane(2), Fisher(3) JJ.

CATCHWORDS

Income Tax - Leases - Expenditure on dredging leased seabed - Dredged soil used to build up adjacent land - Deduction for expenditure by lessee - All expenditure reimbursed by port authority on surrender of leases - "Recoupment" - Whether seabed used to produce assessable income - Whether dredging constitutes "improvement" - Whether land subject to tenant rights - Income Tax Assessment Act 1936 (Cth.), ss. 85, 87, 88, 122, 122A, 122E, 122T, 123, 123A, 123B.

HEADNOTE

The taxpayer was one of a group of five companies carrying on mining operations in Western Australia. They used Port Hedland as a point of despatch for ore mined by it. The five companies held three leases of land in the vicinity of the port. Two of them, the inner harbour and the outer channel leases, were leases of areas of seabed. The third ("the industrial lease") was of low lying land adjacent to the harbour.

The leases required the taxpayer to deepen the harbour. This was done by dredging. The dredged soil was taken ashore and used to build up the land comprising the railway lease. Dredging was the cheapest way of providing soil to build up the railway lease. Building up the railway lease was the cheapest method of disposing of the dredged soil.

The harbour leases contained provisions requiring surrender of the leases to a port authority if requested by the relevant Minister. In the event of surrender, the taxpayer was entitled to be reimbursed all dredging costs, including amounts paid to Goldsworthy Mining Ltd. which had performed some of the dredging for the taxpayer. The leases were duly surrendered upon the requirement of the Minister, and the taxpayer became entitled to receive compensation accordingly. Compensation was by forty quarterly payments, with provision for deferment. Any deferment, however, did not operate to reduce the total amount of compensation ultimately paid.

The Commissioner treated the cost of the dredging and filling operation as being attributable as to twenty-seven per cent to dredging and transporting the soil, and as to seventy-three per cent to the remainder of the work. In addition to dredging, the taxpayer had installed navigation aids in the harbour - some fixed to the leased seabed, some attached by cables to weights resting on the leased seabed.

The taxpayer claimed deductions under Pt III Divn 10 AAA for the capital costs associated with dredging the seabed and spreading the soil on land to be used for a railway. The Commissioner allowed the deduction as to seventy-three per cent. For the Commissioner it was submitted that none of the expenditure was expenditure in relation to earthworks (s. 123 (2)), that it was wholly expenditure in respect of port facilities (s. 123 (2)) and that by virtue of the right to compensation which accrued on surrender of the leases, the expenditure was deemed not to be deductible, by reason of s. 123A (2).

The taxpayer also sought the deductions under Pt III Divn 10. The Commissioner allowed the deductions as to seventy-three per cent, but argued that none of the expenditure was deductible by reason of the right of compensation and the provisions of s. 122T.

In relation to the claims under Divn 10A and 10AAA the Commissioner submitted in the alternative that the twenty-seven/seventy-three apportionment of the total cost of the dredging and filling operation was not unreasonable.

The taxpayer argued that the expenditure was deductible under s. 88 (2) as improvements not subject to tenant rights.

The taxpayer also argued that the expenditure was deductible under s. 85 as amounts paid by a lessee in effecting improvements where the lease is surrendered during the year of income.

Held: dismissing the taxpayer's appeals and allowing the Commissioner's appeals: (1) The right to compensation for capital expenditure which accrued on the surrender of the leases was a recoupment for the purposes of s. 123A (2) and the expenditure was therefore deemed never to have been deductible.

(2) By parity of reasoning there had been a recoupment for the purposes of s. 122T.

(3) For the purposes of the claim under s. 88, the proportion of total expenditure attributed by the Commissioner to improvements of the industrial lease was adequate.

(4) The seabed was not land used in the production of assessable income. The cost of dredging and the cost of navigational aids were accordingly not deductible under s. 88.

HEARING

Melbourne, 1978, November 9-10, 13; December 4-6; 1979, September 11.

#DATE 11:09:1979

APPEAL.

Appeal from Jenkinson J. in the Supreme Court of Victoria. The facts appear from the judgment of Fisher J.

B. J. Shaw Q.C. and N. H. M. Forsyth Q.C., for the appellant.

P. A. Liddell Q.C. and A. J. Myers, for the respondent.

Solicitors for the appellant: Blake & Riggall.

Solicitor for the respondent: Alan R. Neaves (Commonwealth Crown Solicitor).

J. W. K. BURNSIDE

JUDGE1

September 11.

The following written judgments were delivered.

BRENNAN J. The taxpayer appeals against part of the order made by Jenkinson J. in the Supreme Court of Victoria whereby his Honour upheld the disallowance of certain deductions claimed by the taxpayer in respect of its tax years ended 31st May in 1970, 1971 and 1972. The deductions in issue related to payments made by the taxpayer (as one of a consortium of five companies known as the Mount Newman joint venturers) to Goldsworthy Mining Ltd. The Commissioner, respondent in the appeal, cross appeals against his Honour's upholding of the taxpayer's objection to the disallowance of certain other deductions claimed by the taxpayer in respect of its tax years ended 31st May in the years 1968 to 1974 inclusive. (at p128)

Deane J., in a judgment which I have had the benefit of reading, states his reasons for dismissing the appeal and allowing the cross appeal. I agree that the appeal should be dismissed and the cross appeal allowed. I would state my reasons for holding that the land which was the subject of the dredging leases was not "used for the purpose of producing assessable income" within the meaning of that phrase in s. 88 (2) of the Income Tax Assessment Act 1936, and I would wish to reserve my view on the possible application to the facts of this case of the phrase in s. 88 (2) "not subject to tenant rights", but I would otherwise agree in the reasons which Deane J. gives for the orders proposed. (at p129)
At all material times, the members of the consortium were Crown lessees under two dredging leases of two contiguous pieces of land which lay below the surface of the sea at Port Hedland. The lands demised by the inner harbour lease were described as "the surface of the seabed as exists from time to time" and "the space above and below and the soil below the said seabed" limited to a depth of sixty feet below Admiralty Chart datum, and so much of the space above and below the surface of the seabed as is occupied by any improvements (other than the channel, swinging basin, departure basin and berth and improvements resulting from any dredging), but excluding all waters and all air space other than the space occupied by any such improvements. The outer harbour lease was in corresponding terms. (at p129)
The appellant sought to deduct its share of the expenditure incurred by the consortium in dredging a navigation channel, turning basin and berth within the boundaries of the demised land, and in constructing navigational aids. Some navigational aids were installed off the demised land, but expenditure upon those installations is not relevant to the present proceedings. With reference to the installations on the demised land, the learned trial judge found as follows: "Beacons, buoys and other structures, by the sighting of which ships might be guided into and out of the harbour, were established in the areas demised by the inner and the outer harbour leases. Some of these structures were embedded in the seabed, others which floated were attached by cables to heavy objects which rested on the seabed" (1978) 21 ALR 87, at p 113 . (at p129)
The taxpayer's share of the expenditure on dredging and on navigational aids was the foundation of its claim under s. 88 (2), which allows a proportion of expenditure made by a taxpayer to be deducted where the taxpayer is "in the year of income . . . a lessee of land used for the purpose of producing assessable income" and the expenditure is incurred by the taxpayer, in circumstances specified in the subsection, "in making improvements . . . on that land". (at p129)
The uses relied upon as uses to which the land was put in the year of income for the purpose of producing assessable income were several, but in order to appreciate the argument as to "purpose" it is necessary to advert to the income-producing arrangements made by the consortium, and the income-producing activities which they carried on. The income of the members of the consortium was derived from the sale of their iron ore. They sold it f.o.b. to buyers who sent carriers to load ore at Port Hedland or c.i.f. to buyers who took delivery of it from vessels owned or chartered by one of the members. In the latter case the vessel of the particular company loaded the ore in Port Hedland and sailed to a destination nominated by the buyer. It is clear that the business of selling iron ore could not have been carried on in the way that it was if the channel had not been dredged and the navigational aids had not been installed. (at p130)
The consortium entered into contracts for the sale of iron ore to Japanese buyers. The terms of the contracts adverted to the need for facilities to allow large vessels to enter Port Hedland and to load the ore. The learned trial judge found: "It was a term of those contracts that the five companies should construct and maintain at Nelson Point a loading berth with a sufficient depth of water for a vessel of 68,000 dead weight tonnage and an access channel with a sufficient depth of water to enable such a vessel to sail with the next high tide after completion of loading. From time to time variations of the contracts made provision for berth and channel capable of accommodating heavier and larger vessels. The contracts did not impose on the five companies an obligation to ensure the provision of aids to the navigation of such a channel, but a letter setting forth the mutual understandings of the parties to the contracts, . . . included the following statement by the sellers: 'We will use our best efforts to obtain all necessary assurances and governmental assistance requisite to the safety of the approach and channel to Cooke Point (changed to Nelson Point by amendment agreement of 26th October, 1966) in particular with respect to the provisions for lights, beacons, channel markers and other accepted aids to navigation, and that suitable pilot services shall be made available.' (The appellant was not at the time when that letter was written a party to the contracts, but it became a party in April 1967.) Other written communications between the parties, expressed in formal language suggestive of contractual obligation, record their agreements from time to time about the configuration and dimensions of the channel and about the number and the sites and the physical characteristics of aids to the navigation of the channel" (1978) 21 ALR, at p 114 . (at p130)
Moreover, the consortium was bound by an agreement with the Crown in right of Western Australia which affected the members' obligation to dredge and to install the navigational aids. Jenkinson J. found that that agreement ". . . imposed on the five companies obligations with respect to the development of the harbour which from time to time in the course of performance of that agreement became specific and subjected the five companies to the obligation to carry out the very works, of construction of the channel and provision of navigation aids, which were thereafter in fact performed by those companies" (1978) 21 ALR, at p 114 . (at p131)
The first step in determining whether land is used for the purpose of producing assessable income is to identify the land the use of which is in question. The land of which the members of the consortium first became lessees was the seabed and the soil below to a depth of sixty feet below Admiralty Chart datum. From that land soil was dredged, and the volume of the leased land was thus diminished. When navigational aids were embedded in and constructed above the seabed, the space which they occupied was added to the seabed as the subject of the lease. The relevant land might therefore be either the seabed or the seabed and the navigational aids constructed on it. Considering first the seabed, it was said to be improved by the dredging and by the installation of navigational aids, and it is therefore necessary to determine whether, if the seabed be identified as the relevant land, it was "used for the purpose of producing assessable income". (at p131)
How was the seabed used? At first, it was used by being dredged, but that is not a use "for the purpose of producing assessable income". In Goldsworthy Mining Ltd. v. Federal Commissioner of Taxation (1973) 128 CLR 199 Mason J. said: "When s. 88 (2) speaks of land 'used for the purpose of producing assessable income' . . . in my opinion it refers to a use of the land apart from the mere activities and operations which constitute the making of improvements in which the expenditure sought to be deducted has been incurred. For this reason I conclude that the dredging was not a use by the appellant of the land demised which answers the description in the sub-section" (1973) 128 CLR, at p 216 . On appeal, Stephen J. (with whom Gibbs J. agreed) said: ". . . the very acts which themselves go to create an alleged improvement on the leased land under s. 88 (2) cannot themselves be relied upon as the acts of user of that land" (1975) 132 CLR 463, at p 472 . (at p131)
The seabed was also used as the foundation of those fixed navigational aids which were embedded in it, and it was used to anchor the floating navigational aids. But the passages cited from the judgments in Goldsworthy's case show that the acts of installing the navigational aids (whether of the fixed or floating kind) cannot be relied upon to constitute the use of the seabed for the purpose of producing assessable income. (at p131)
It does not detract from that conclusion that the consortium was under a contractual obligation to dredge a channel and to install navigational aids. There is a distinction between the use of land for the purposes of fulfilling a condition precedent to the earning of assessable income and of placing a taxpayer in a position to produce assessable income, and the use of land for the purpose of the actual production of assessable income. It is only the latter use which attracts the operation of s. 88 (2). Although cases may be supposed where the use (including, if one wishes, the passive use) of land in accordance with a contractual obligation is productive of assessable income, it does not necessarily follow that the use of the land in accordance with a contractual stipulation is a use of the land for the purpose of producing assessable income. If a use of land produces assessable income, a contract stipulating that use may evidence the purpose for which the land was used, but where a use of land merely enables the commencement of a business in which assessable income will be produced and that was the only purpose of using the land, it is not a use which falls within s. 88 (2). (at p132)
When the dredging was complete, and the navigational aids were installed, the channel and turning basin and berth were used by large ore carriers, some owned or chartered by the taxpayer or another member of the consortium and others owned or chartered by the buyers of ore. These ships did not use the seabed; they used the water above it. As Stephen J. pointed out in Goldsworthy's case: "The only function of that portion of the stratum left after dredging out the channel is as sea-bed supporting the waters which flow over it. This cannot, I think, qualify as a use for the purposes of s. 88 (2). It is nor more a use in any ordinary sense of that word than is the function of seas and land masses in supporting the atmosphere above them. Those who fly do not 'use' those seas and land masses to prevent the atmosphere from responding to the force of gravity and flowing down to some lower, imagined, level; likewise those who sail the seas do not 'use' the sea-bed to prevent the escape of the waters down to some nether region. The fact that laws relating to the behaviour of matter may require the presence of an ocean floor to resist the force which gravity exerts upon the superincumbent waters does not justify the description of the ocean floor as being 'used' by anyone to support those waters" (1975) 132 CLR, at pp 471-472 . If, as Barwick C.J. said, "the use of the water of the channel by the ore carriers is not a use by them or by the appellant of the land which contains the channel" (1975) 132 CLR, at p 468 , there is no use of the seabed to be found in the movement of ships in the channel, and hence there is no use in respect of which the relevant statutory purpose can be predicated. (at p132)
The water which flows over the seabed and which is used by the ships which sail in the channel is a natural phenomenon. But the navigational aids are not. Allowing that the seabed is not used by reason of the use of the superincumbent water, it does not necessarily follow that the seabed is not used when use is made of the navigational aids which are supported by or anchored on it. It is clear that use is made of the navigational aids, sometimes by the ships of the buyers of ore, and sometimes by the ships of the sellers who transport the ore for sale or delivery elsewhere. In either case, the consortium uses the navigational aids to provide a necessary facility for the ships of the buyers, or for the ships of the respective members of the consortium. The present case is to be distinguished from Goldsworthy's case in respect of the taxpayer's purpose in using navigational aids. Goldsworthy Mining Ltd. did not produce its income by selling ore, but by mining, transporting and loading ore and by rendering services to the companies, and to the customers of the companies, which owned and sold the ore (see per Mason J. (1973) 128 CLR, at p 204 ). Goldsworthy Mining Ltd. had no customers for whom facilities had to be provided and maintained, and it did not itself carry ore by sea. And thus Barwick C.J. added a further ground for rejecting the taxpayer's claim for a deduction in respect of the dredging and maintenance of the channel, holding that the facilitation of the transport of ore was not a part of the process of producing the taxpayer's income, nor relevantly incidental to that process. He said: "The carriage of the iron ore from mine to wharf for reward provided the appellant's assessable income. The availability of a deep channel from the outer harbour to the wharf and turning basin was essential to the ability of the iron ore carriers to uplift the iron ore from the wharf. But the facilitation of the ore carriers' transport of the ore, which may have ensured the receipt of the appellant's income, was not, in my opinion, a part of the process of producing it, or relevantly incidental thereto" (1975) 132 CLR, at pp 468-469 . (at p133)
In the present case, the income from sales of the ore f.o.b. Port Hedland is produced, inter alia, by maintaining the facilities required by the buyers of that ore who send their ships to take delivery; and the income from sales of ore to be delivered elsewhere is produced, inter alia, by maintaining the facilities required to transport the ore from the Port Hedland wharf. It is therefore right to conclude, as Jenkinson J. found, that the taxpayer used the navigational aids for the purpose of producing assessable income. But that is not the ultimate question. A deduction is allowable under s. 88 (2) only if the relevant land, on which an improvement has been made, is used for the purpose of producing assessable income, and it is not sufficient to show that the improvement alone has been so used. (at p133)

It is a question of degree, and, in the final analysis, a matter of impression whether land which is physically connected with an improvement being used for a relevant purpose is itself used for the same purpose. The fixing of an object to land does not deny the possibility that the purpose of fixing it is to use the object rather than to use the land. In many cases, the use for a particular purpose of an improvement necessarily imports the use for the same purpose of the land which it has improved. Thus, a factory site is ordinarily used for the same purpose as the factory. In such a case, the land and the improvement are parts of the one entity, and there is no interjacent pylon or cable between the land and the improvement upon it. But when the relevant land is submerged and inaccessible on that account, and performs no function other than the support or anchoring of the improvement, it is not self-evident that the land is used for the same purpose as the improvement. (at p134)
In the present case, the seabed supports the improvements which are used for the relevant purpose, but its function of providing support for the fixed navigational aids or of supporting the anchoring devices of the floating navigational aids is not sufficient to constitute a use of the seabed by the taxpayer for the purpose of producing assessable income. The activity of embedding and anchoring the navigational aids is not a use for that purpose, nor is such a use established by the mere circumstance that the navigational aids remain embedded in or anchored to the seabed. (at p134)
It follows that, if the seabed be identified as the relevant land, it was not used for the purpose specified in s. 88 (2), and that the claim for a deduction based on that section fails. (at p134)
It is arguable that, as "land" includes corporeal hereditaments (Acts Interpretation Act 1901, s. 22), the relevant land is not the seabed alone, but the seabed and fixed navigational aids. If the land of the seabed be extended by the construction of the fixed navigational aids, the extension is not an improvement to the extended land: it neither adds to nor alters that land. However, part of that land was used for the purpose specified in s. 88 (2) in that the navigational aids were so used. On this analysis, a question would arise as to whether the dredging (rather than the navigational aids) was an improvement. The question of dredging was before the Full Court in Goldsworthy's case, Mason J. having found the dredging in that case to be an improvement to the seabed (1973) 128 CLR, at pp 215-216 . The Full Court declined to answer this question affirmatively, and Gibbs J. expressly reserved the question: ". . . as at present advised, I am by no means persuaded that the dredging of the seabed, so as to make a navigable channel, could properly be regarded as the making of an improvement on the seabed. However, it is unnecessary to decide that question . . . for the purpose of disposing of this appeal" (1975) 132 CLR, at p 469 . Subsequently, in Brisbane City Council v. Valuer-General (Q.) (1978) 140 CLR 41 , Gibbs J. denied that superincumbent water is an improvement to land, though a dam or watercourse which contains it may well be so described. He said: "Improvements, as has been said, consist of something done which has enhanced the value of land. To build a dam, or to improve a watercourse, so that water may be collected on or flow over land may improve the land, but it is the dam or the watercourse, and not the water, that constitutes the improvement. But even if that did not dispose of the matter, the water could only be an improvement if its presence enhanced the value of the lands. Whether it did so or not is a question of fact" (1978) 140 CLR, at p 51 . (at p135)
Though the facts of that case were significantly different from the facts of the present case, one cannot find an "improvement" in the present case unless the dredging enhances the value of land, or makes the use of land more efficient. In my opinion, it does not. The dredging was not an improvement to the seabed and navigational aids, for the improving quality of the dredging consists in the removal of an obstruction to navigation, and the consequent deepening of the water available for ships. The improvement to navigation is found in the increased depth of the water, though that is a reciprocal effect of decreasing the height of the seabed. The land, notionally separated from the water, is made no more efficient for man's use, and no more valuable, by dredging. On this approach, the claim to a deduction under s. 88 (2) likewise fails. (at p135)
The Commissioner's appeal should be allowed, and the taxpayer's appeal should be dismissed with costs. (at p135)

JUDGE2

DEANE J. This appeal and cross appeal from orders of the Supreme Court of Victoria (Jenkinson J.) concern the entitlement of Dampier Mining Company Ltd. ("the taxpayer") to the benefit of deductions pursuant to the provisions of the Income Tax Assessment Act 1936 ("the Act") in the assessment of income tax in respect of its substituted tax years ended 31st May, 1968, 1969, 1970, 1971, 1972, 1973 and 1974 ("the tax years"). All the disputed deductions relate to expenditure incurred by the taxpayer, as one of a consortium of five companies ("the five companies"), in the development and deepening of sections of the harbour and of the harbour approaches at Port Hedland in Western Australia and in reclaiming a substantial area of land adjacent to the harbour by using the soil dredged from the harbour bed to raise the surface level of the relevant land to the extent necessary to prevent inundation by cyclonic tides. (at p135)

The work in respect of which the expenditure was incurred was part of a large-scale development of Port Hedland and its facilities which was effected in conjunction with the establishment by the five companies of a major iron ore mining operation at Mount Newman. After extraction and primary and secondary crushing at Mount Newman, the ore is transported on a railway owned by the companies, to Port Hedland where it is unloaded, processed in a tertiary crusher, stockpiled in horizontal layers of different varieties, blended by scooping the reclaiming buckets through the different grades and loaded at the companies' port installation into the large ore-carrying vessels which transport it from Port Hedland. (at p136)
Extensive development work in and around Port Hedland harbour and its approaches was also carried out by Goldsworthy Mining Ltd. on behalf of a joint venture of three other companies on whose behalf Goldsworthy Mining Ltd. carried on iron ore mining operations at Mount Goldsworthy (see Goldsworthy Mining Ltd. v. Federal Commissioner of Taxation (1973) 128 CLR, at pp 201-204, 208 . Mount Goldsworthy is approximately 100 kilometres east of Port Hedland and the ore extracted in the course of those mining operations is likewise shipped from the harbour at Port Hedland but at a different wharf to that used by the five companies. The work carried out by Goldsworthy Mining Ltd. included some dredging of the harbour and its approaches and the erection of some navigational aids which rendered unnecessary work which the five companies would otherwise have had to undertake. Under arrangements made with the Western Australian Government and the Goldsworthy companies, the five companies reimbursed Goldsworthy Mining Ltd. for its expenditure on this over-lapping work. For their part, under arrangements between the Western Australian Government and themselves, the five companies became entitled to be reimbursed by the subsequently established Port Hedland Port Authority, from the proceeds of port improvements rates to be paid primarily by themselves and those who used their wharf, in respect of all their expenditure on dredging and the erection of navigational aids. The overall amount of such reimbursement included the amount paid by the five companies to Goldsworthy Mining Ltd. Notwithstanding its entitlement to receive, as capital, reimbursement for expenditure on dredging and navigational aids, the taxpayer claimed to be entitled to the benefit of deductions in respect of all such expenditure including its share of that above-mentioned amount paid to Goldsworthy Mining Ltd. The Commissioner allowed a significant amount of the claimed deductions. This appeal and cross appeal relates to the residue which the Commissioner disallowed. While the taxpayer failed in the Supreme Court on a number of arguments which were advanced as alternative grounds for allowing the disputed deductions, the outcome of the argument upon which it succeeded was that all of the disputed deductions were allowed except those alleged to arise (in the 1970, 1971 and 1972 tax years) from the payments to Goldsworthy Mining Ltd. The taxpayer's appeal relates to the refusal by the Commissioner to allow the deductions, arising from those payments, in those three years. The Commissioner's cross appeal relates to the allowance of the remainder of the disputed deductions in those three tax years and in the other four (1968, 1969, 1973 and 1974) tax years. Upon the hearing of the appeals, the taxpayer has argued that the deductions which were held by the Supreme Court to be properly allowable were allowable under other provisions of the Act in priority to the provisions of the Act upon which the Supreme Court relied. In particular, the taxpayer has claimed that a large part of the deductions held by the Supreme Court to be properly allowable under s. 88 (2) of the Act should have been allowed under the provisions of Divn 10AAA and Divn 10 which operate before the provisions of s. 88 (2). (at p137)
The detailed facts are set out fully and clearly in the judgment of Jenkinson J. (Dampier Mining Company Ltd. v. Federal Commissioner of Taxation (1978) 21 ALR 87 ). It is, as a consequence, possible for me to indicate my respectful adoption of his Honour's statement of those facts and to restrict my repetition of them to what is necessary to enable identification and meaningful discussion of the issues involved in the appeals. For ease of cross reference, I shall deal with the issues raised by the appeal and cross appeal in the order in which they were dealt with by his Honour in his judgment. Reference to particular sections of the Act, other than s. 123A (2) and s. 122T, are, unless the contrary is indicated, references to them in the form applicable to the relevant tax years or year. Reference to s. 123A (2) and s. 122T are, unless the contrary is indicated, references to them in their present form. References to "the appeals" are to the appeal and the cross appeal.

THE CLAIM TO DEDUCTIONS UNDER DIVN 10AAA OF PT III OF THE ACT (at p137)
The Supreme Court held that the deductions allowed by the Commissioner pursuant to the provisions of Divn 10AAA of the Act were not inadequate. The taxpayer attacks the Supreme Court's decision to that effect. (at p137)
The five companies were lessees of the natural surface and a stratum of 200 feet below the natural surface of an area of land adjacent to Port Hedland harbour under a Crown lease for a term of twenty-one years ("the industrial lease"). Much of the industrial lease land was subject to tidal inundation. (at p137)
They were also lessees under two other Crown leases of the surface of the seabed as it exists from time to time, the soil below to a depth of sixty feet below Admiralty Chart datum and the space above and below occupied by improvements (other than the results of dredging) within the boundaries of the plan attached to each lease. The first of these two Crown leases of the seabed (numbered 3116/3688) related to an area sufficient to accommodate a proposed deepened channel, turning basin and berth within Port Hedland harbour ("the inner harbour lease"). The second (numbered 3116/3689) related to an area in excess of 11,500 acres within which the proposed development and deepening of the approach to the harbour, by dredging of the deepened navigation channel and erection and placement of navigational aids, were to be effected ("the outer channel lease"). (at p138)
Payments were made by the five companies to a dredging contractor for deepening the harbour for the navigation channel, turning basin and berth and for depositing, spreading and compacting the dredged soil upon the industrial lease land. A section of that land was to become the general site of a railway and associated facilities used in the transport of ore from Mount Newman to the tertiary crusher adjacent to Port Hedland harbour. I shall, on occasion, refer to this section of the industrial lease land as "the railway land". The taxpayer claims to be entitled, in respect of each of the tax years other than the year ended 31st May, 1968, to deductions pursuant to s. 123B (1) of the Act in respect of its expenditure on its share of so much of those payments as can, by apportionment, be related to removing from the harbour bed, conveying ashore, spreading and compacting, that part of the dredged soil which was deposited, spread and compacted upon the railway land. The spreading and compacting of the soil upon the railway land built up the overall surface level and helped prepare the particular parts of the land which would be directly under the facilities which were to be constructed. The taxpayer's claim to a deduction is on the basis that the relevant expenditure (including the cost of removing soil from the seabed and conveying it ashore) was, for the purposes of s. 123B (1) of the Act, capital expenditure to which Divn 10AAA of Pt III of the Act ("Divn 10AAA") applied in that it was capital expenditure incurred on "earthworks . . . that are necessary for a railway . . . or other facility" (s. 123 (2)) constructed "for use, in the carrying on of a business for the purpose of gaining or producing assessable income, primarily and principally for the transport of minerals obtained from the carrying on . . . of prescribed mining operations" (s. 123A (1)). (at p138)
The Commissioner allowed, in respect of each of the years for which the deduction was claimed, a deduction of seventy-three per cent of the amount claimed. That percentage was the outcome of an apportionment (made by the dredging contractor and accepted by the Commissioner) of costs between the cost of extraction from the seabed (twenty-seven per cent) and the cost of conveying the soil to the land and there spreading and compacting it (seventy-three per cent). The Commissioner contended that this was an over-generous apportionment for ascertaining what could properly be categorized as expenditure on earthworks in that it included as expenditure on earthworks the cost of removing the soil from the seabed to the land which was more closely related to dredging the bed of the harbour than to building up the level of the land. He did not, however, restrict his defence of his refusal to allow the remaining twenty-seven per cent of the claimed deduction to justification of that apportionment. It was submitted on behalf of the Commissioner, both before the Supreme Court and before this Court, that his disallowance of part of the deduction was also justified for the reason that the taxpayer was not entitled to any deduction at all in respect of the relevant expenditure for three independent reasons, namely, (i) that none of the expenditure was expenditure on "earthworks" within the meaning of s. 123 (2) of the Act or, alternatively, that only so much of the expenditure as could be related to elevating or compacting the land directly under the actual facilities, as distinct from elevating and compacting the surface of the railway land as the general site of those facilities, constituted such expenditure; (ii) that the whole of the expenditure was "expenditure in respect of . . . port facilities or other facilities for ships" and was therefore within the words of exclusion contained in s. 123 (2) of the Act; and (iii) that, in any event, any right which the taxpayer might otherwise have enjoyed to a deduction was taken away either by the provisions of s. 123A (2) in the form they took in the period from 25th June, 1968, to 6th December, 1974, or, alternatively, by the retrospective operation of the present provisions of that subsection which was substituted on 6th December, 1974. (at p139)
The Commissioner's argument based upon the present provisions of s. 123A (2) was by way of last line defence. It is, however, appropriate to consider it at once. The Commissioner maintained that, by reason of the provisions of that subsection, the provisions of Divn 10AAA are to be deemed, for the purposes of the appeals, never to have applied at all to any of the capital expenditure in respect of which the taxpayer claimed a deduction under the provisions of the Division. As a matter of logic, the question whether the provisions of the Division are, for the purposes of the appeals, to be deemed never to have applied at all to the relevant expenditure falls to be determined before the question whether, if the application of the provisions of the Division be not subject to a general exclusion, the deductions which the Commissioner allowed were inadequate. (at p139)
The present provisions of s. 123A (2) were introduced by Act No. 126 of 1974 with effect from 6th December, 1974. They read:

"This Division does not apply, and shall be deemed never to have applied in relation to a taxpayer, to capital expenditure in respect of which the taxpayer is recouped, or becomes entitled to be recouped, by Australia, by a State, by the Administration of a Territory, by an authority constituted by or under a law of Australia, of a State or of a Territory or by any other person where the amount of the recoupment is not, and will not be, included in the assessable income of the taxpayer of any year of income." (at p140)

Act No. 126 of 1974 (s. 39) also amended s. 170 (10) of the Act as from 6th December, 1974. For present purposes, the result of that amendment was that s. 170 (10) provides that nothing in s. 170 of the Act prevents the amendment, at any time, of an assessment for the purpose of giving effect to the provisions of s. 123A (2) of the Act. (at p140)
The Commissioner's assessments and amended assessments in respect of the tax years ended 31st May, 1969, to 31st May, 1973, inclusive, issued before 6th December, 1974. The Commissioner has not issued an amended assessment in respect of any of these years to increase the taxpayer's taxable income by disallowing the deductions under Divn 10AAA which he had allowed. The assessment and amended assessment in respect of the tax year ended 31st May, 1974, issued after 6th December, 1974, and were made on the basis that s. 123A (2) did not operate to preclude the application of Divn 10AAA to the relevant expenditure: as has been mentioned, a deduction in the amount of seventy-three per cent of the amount claimed was allowed by the Commissioner as being allowable under the Division. (at p140)
The Commissioner's present contention that s. 123A (2) has the effect that, for the purposes of the appeals, Divn 10AAA is to be deemed never to have applied to any of the relevant expenditure is based upon the effect of an agreement dated 16th December, 1971, between the Port Hedland Port Authority and the five companies. The Port Hedland Port Authority was constituted by the Port Hedland Port Authority Act, 1970 (W.A.) It is a body corporate, with perpetual succession, consisting of five members nominated by the Governor of Western Australia. It is plainly "an authority constituted by or under a law . . . of a State" for the purposes of s. 123A (2) of the Act. (at p140)
Section 19 (2) of the Port Hedland Port Authority Act, 1970 provided, inter alia, that, for the purpose of vesting in the Port Authority certain improvements referred to in the inner harbour lease and the outer channel lease, the Port Authority was empowered to reimburse, or enter into any agreements with, the lessees under each of those leases "in accordance with the terms of such leases". The relevant provisions of each of the two leases relate to surrender and provide that the lessees shall surrender the demised premises to the Crown upon notice from the Minister subject to:

"(a) the Port Authority prior to the surrender agreeing with the Lessees or (as the case may be) undertaking as determined by arbitration -

(i) to reimburse the Lessees for their capital outlay for the improvements (including dredging) carried out by the Lessees subject to and in accordance with their proposals on the demised premises on such terms and conditions as may be agreed between the Minister and the Lessees and failing agreement as determined

by arbitration under the provisions of the Arbitration Act, 1895, provided that the Port Authority (unless it so elects) shall not be called upon to reimburse the Lessees other than from charges payable by the Lessees and (to the extent that such charges to users of the harbour are not required to be outlaid by the Port Authority in connection with its functions and duties) from charges to users of the harbour other than those users in respect of whose capital outlay the Port Authority is liable to make reimbursements . . .". (at p141)

Prior to 16th December, 1971, notice was given by the Minister to the five companies as lessees under each lease requesting the surrender of the demised premises to the Crown. The agreement of 16th December, 1971, between the Port Hedland Port Authority of the one part and the five companies of the other part was executed consequent upon the giving of that notice and in pursuance of the provisions of s. 19 (2) of the Port Hedland Port Authority Act, 1970. It provided, inter alia:

"1. (1) In consideration of -

(a) the surrender to the Crown of the said Leases, the Port Authority will reimburse the Lessees for their capital outlay in connection with the improvements (including dredging) carried out on the demised premises; and

(b) the transfer and assignment effected by Clause 2 hereof, the Port Authority will pay to the Lessees the amounts specified in the Schedule hereto;

the amount of which reimbursements and payments aggregate the sum of Forty-two million forty-five thousand two hundred and seventy-five dollars." (at p141)

Clause 2 of the agreement provided for assignment to the Port Authority by the five companies of their interest in certain navigational aids for sums aggregating $707,444. The balance of $41,337,831 which the Port Authority contracted to pay to the five companies included reimbursement for the whole of the expenditure in respect of which the appellant's claims to deductions under Divn 10AAA were made. (at p141)
By cl. 1 (2) of the agreement, the payments to be made by the Port Authority to the five companies were to be made by forty equal quarterly instalments commencing on 31st March, 1972, provided that the amounts received by the Port Authority for port improvement rates charged by the Port Authority in relation to goods shipped from or discharged on to the five companies' wharf at Port Hedland were sufficient to provide for such payment. It was not suggested, on behalf of the taxpayer, that the effect of this proviso to cl.1 (2) would be that some of the amounts which the Port Authority had agreed to pay would not be received at all as distinct from their receipt being possibly delayed. If that submission had been made and sustained, a question as to the applicability of s. 123A (3) would have arisen. It is common ground between the parties that the taxpayer's share of any payments made or to be made by the Port Authority have not been, and will not be, included in the assessable income of the taxpayer of any year of income. The question therefore arises whether the taxpayer's past receipts and entitlement to future receipts of its share of payments by the Port Authority result in the taxpayer having been recouped or being entitled to be recouped, for the purposes of s. 123A (2), in respect of all of the capital expenditure in question. In my view, they do. (at p142)
It was argued, on behalf of the taxpayer, that the right to receive payments from the Port Hedland Port Authority arose as a consequence of the surrender by the taxpayer and the other four companies of the two leases. In one sense, that is clearly so. On the other hand, the amount of the payments to be made by the Port Authority was quite unrelated to the present value of the dredging and other work which the five companies had carried out. Those payments represent (and were stated to represent) a reimbursement to the five companies of their expenditure regardless of the extent to which the expenditure was represented by present improvements or by an enhancement of the value of the demised land. It was, both in terms and in fact, reimbursement of the taxpayer and the other four companies in respect of the expenditure which they had incurred. (at p142)
In my view, it is not relevant, for the purposes of s. 123A (2) of the Act, that the right to reimbursement of expenditure may be associated with some countervailing detriment or disadvantage. What is relevant, for the purposes of s. 123A (2), is that a taxpayer is entitled to be recouped in respect of the relevant expenditure and that the value of such recoupment will not be assessable income in his hands. In the present case, the five companies became entitled, under the agreement of 16th December, 1971, to be reimbursed in respect of the whole of their relevant expenditure. That entitlement was, in my view, an entitlement to recoupment in respect of their expenditure for the purposes of s. 123A (2). The effect of s. 123A (2) is, in those circumstances, that the provisions of Divn 10AAA are deemed never to have applied to allow a deduction in respect of capital expenditure in respect of which the taxpayer and the other four companies have been, or are entitled to be, reimbursed without liability to income tax. (at p142)
It follows that, for the purposes of the appeals, the provisions of Divn 10AAA are to be deemed never to have applied in respect of the relevant expenditure with the result that the taxpayer must be deemed not to have been entitled to the benefit of any deduction at all pursuant to the provisions of Divn 10AAA of the Act. This involves giving retrospective effect to the words of s. 123A (2) and, no doubt, interpreting them in a way which will, on occasion, involve taking away a right to a deduction which had already accrued (cf. Acts Interpretation Act 1901, s. 8 (3)). Comparison with the provisions of the previous s. 123A (2) discloses, however, that the purpose of the alterations to the subsection effected by the 1974 Act was to give retrospective operation to the subsection. The amendments to s. 170 (10) likewise tend to confirm that the subsection should be given the retrospective operation which the words used ("shall be deemed never to have applied") plainly require. (at p143)
The conclusion which I have reached, that the effect of the present provisions of s. 123A (2) is in the circumstances that Divn 10AAA is to be deemed never to have applied in respect of the relevant expenditure, makes it unnecessary to consider whether, in any event, the deductions allowed by the Commissioner were not less than the deductions to which the taxpayer would have been entitled if s. 123A (2) were not applicable. The issues involved in the resolution of that question have, however, been fully argued before us and, in case I be mistaken in my conclusion as to the effect of s. 123A (2), it would seem desirable that I indicate the views which I have formed. (at p143)
I agree, for the reasons which he gave, with the conclusions of Jenkinson J.: (i) expenditure on the spreading and compacting of the soil over the railway land for the purposes of achieving a generally level, stable and elevated area as the general site of the railway and associated facilities (including, but not being limited to, the elevation and compacting of the land directly under the facilities) constituted capital expenditure on "earthworks . . . necessary for a railway . . . or other facility" for the purposes of s. 123 (2) of the Act; (ii) the expenditure referred to in (i) was not expenditure in respect of "a port facility or other facility for ships" for the purposes of s. 123 (2) of the Act; (iii) expenditure on the removal of the soil from the seabed and its conveyance to the railway land was properly to be related to the dredging of the harbour. Such expenditure was within the exclusion contained in s. 123 (2) of the Act of "expenditure in respect of . . . port facilities or other facilities for ships" and could not therefore, in any event, constitute expenditure to which Divn 10AAA applied; (iv) subject to the provisions of s. 123A (2), the only expenditure which constituted expenditure to which Divn 10AAA applied and in respect of which a deduction under s. 123B (1) should have been allowed, was so much of the claimed expendture as came within (i) above and, in particular, that that expenditure did not include expenditure attributable to removing the soil from the seabed and conveying it to the land. (at p143)
In the result, even if I be mistaken as to the effect of the provisions of s. 123A (2), the deduction allowed in each of the relevant tax years was greater than that to which the taxpayer was entitled, in that the basis of apportionment accepted by the Commissioner excluded nothing which should have been included in expenditure to which Divn 10AAA applied, but erred in that it included in such expenditure the cost of conveying the soil extracted from the bed of the harbour to the land, which should have been excluded for the reason that it was expenditure in respect of port facilities or other facilities for ships. (at p144)
To the extent that it relates to the disputed deductions under the provisions of Divn 10AAA of the Act the taxpayer's attakc on the decision of the Supreme Court has not been made good. (at p144)
The conclusion which I have reached as to the operation of the present provisions of s. 123A (2) makes it unnecessary for me to consider what would otherwise have been the effect of the provisions of that subsection in the form in which they existed between 25th June, 1968, (when the subsection was first introduced) and 6th December, 1974. I refrain from reaching or expressing any final conclusion on that question.

THE CLAIM TO DEDUCTIONS UNDER DIVN 10 OF PT III OF THE ACT (at p144)
The taxpayer attacks the decision of the Supreme Court that the deductions allowed by the Commissioner pursuant to Divn 10 of the Act were not inadequate. (at p144)
Part of the soil removed from the bed of the harbour was spread and compacted over a part of the industrial lease land which was to constitute the general site of the tertiary crusher and an adjoining area for storage and blending of the ore after treatment in the crusher. This raised the surface level to the level of the adjoining railway land and also contributed to the preparation of the land for the indicated uses. The taxpayer claims, in respect of each of the tax years, to be entitled to a deduction pursuant to the provisions of Divn 10 of Pt III of the Act ("Divn 10") in respect of its share of so much of the payments made by the five companies to the dredging contractor as can, by apportionment, be related to removing from the harbour bed, conveying ashore, spreading and compacting that part of the dredged soil which was spread and compacted upon this part of the industrial lease land. The Commissioner allowed, in respect of each of the tax years, a deduction of seventy-three per cent of the amount claimed, that being the result of the above-mentioned apportionment of costs between the cost of extraction from the seabed (twenty-seven per cent) and the cost of conveying the soil to the land and there spreading and compacting it (seventy-three per cent). (at p144)
Section 122E of the Act provided, for present purposes, that a person who had incurred "allowable capital expenditure" might elect that the whole or part of that expenditure should be an allowable deduction from the assessable income of the year of income in which the expenditure was incurred. The taxpayer made elections under s. 122E in respect of the whole of the relevant expenditure. Section 122A provided, for present purposes, that allowable capital expenditure included expenditure of a capital nature incurred by a taxpayer on plant for use primarily and principally in the treatment of minerals obtained from the carrying on by the taxpayer of prescribed mining operations and expenditure on improvements for use directly in connexion with the storage (whether before or after treatment) of minerals in the operation of such plant. Section 122A (2) of the Act excluded from "allowable capital expenditure" "expenditure . . . on or in relation to . . . works carried out in connexion with, or buildings or other improvements or plant constructed . . . in connexion with, the establishment, operation or use of a port or other facilities for ships". (at p145)
As was the case with the deductions claimed under Divn 10AAA, the Commissioner does not restrict his defence of his refusal to allow twenty-seven per cent of the claimed deductions to justification of the apportionment which he made. The Commissioner claims that the taxpayer was not entitled to any deduction at all for the reason that none of the relevant expenditure was "allowable capital expenditure" for the purposes of Divn 10 and for the further reason that, in any event, any right which the taxpayer might otherwise have enjoyed to deductions under Divn 10 was, for the purpose of these appeals, taken away by the provisions of s. 122T of the Act. (at p145)
Section 122T of the Act was introduced into Divn 10 of the Act by Act No. 126 of 1974 (s.29) with effect from 6th December, 1974. Subject to its use of the words "expenditure of a capital nature" instead of the words "capital expenditure" and to the fact that it applies to Divn 10 and not Divn 10AAA, its provisions correspond precisely to the provisions of s. 123A (2). Act No. 126 of 1974 also amended s. 170 (10) of the Act to provide that nothing in s. 170 prevents the amendment, at any time, of an assessment for the purposes of giving effect to the provisions of s. 122T. (at p145)
The amount which, under the agreement of 16th December, 1971, the Port Hedland Port Authority agreed to pay, by way of reimbursement, to the five companies included the whole of the expenditure in respect of which the claim for a deduction under the provisions of Divn 10 is made. The reasons which lead me to conclude that, in the circumstances, the effect of the provisions of s. 123A (2) of the Act was that, for the purposes of the appeal, the provisions of Divn 10AAA were to be deemed never to have applied in relation to the expenditure in respect of which deductions were claimed under that Division lead also to the conclusion that the effect of the provisions of s. 122T of the Act, is, for the purposes of the appeal, that the provisions of Divn 10 are to be deemed never to have applied to the capital expenditure in respect of which the deductions under that Division are claimed. It follows that the taxpayer must be deemed not to have been entitled to the benefit of any deduction at all pursuant to the provisions of Divn 10 of the Act and that it must fail in its claim that the deductions which the Commissioner allowed under that Division were inadequate. (at p146)
Strictly speaking, it is unnecessary to consider whether the deductions allowed by the Commissioner were, in any event, not less than the deductions to which the taxpayer would have been entitled if s. 122T had not been applicable. In case I be mistaken as to the effect of s. 122T of the Act, it seems desirable that I indicate, in summary form, the following conclusions which I have reached on the issues involved in that question: (i) The tertiary crusher, at least in its operative parts, clearly constituted "plant for use primarily and principally in the treatment of minerals obtained from the carrying on by the taxpayer of prescribed mining operation" ("such plant"). The expenditure involved in raising and compacting the land directly under the tertiary crusher building constituted either "expenditure on" such plant for the purposes of s. 122A (1) (b) of the Act or expenditure on a building for use directly in connexion with the operation of such plant for the purposes of s. 122A (1) (c) of the Act. This conclusion follows, in my view, from the evidence which was led, with his Honour's leave, after the publication of his general reasons for judgment, to the effect that the filling of the land under the tertiary crusher building was necessary for the stabilization of the building. (ii) The expenditure on raising and compacting the surface of the general area of the land to be used as the storage and blending area (as distinct from the comparatively small area which was the site of the tertiary crusher) constituted capital expenditure on "improvements for use directly in connexion with the storage (whether before or after treatment) of minerals in relation to the operation of such plant" for the purpose of s. 122A (1) (c). The cost of extracting the soil from the harbour seabed and of removing it to the land should, however, properly be seen as the cost of deepening the relevant part of the harbour and not as the cost of raising and preparing the surface of the storage and blending area. (iii) The whole of the expenditure referred to in (ii) above (but not the expenditure referred to in (i) above) was expenditure incurred in relation to "improvements . . . constructed . . . for use in connexion with, the establishment, operation or use of a port or other facilities for ships". In my view, the tertiary crusher itself cannot properly be regarded as such an improvement. It is plant for the treatment of ore which, as a matter of convenience and common sense, is located on land adjacent to the area from which the treated ore is to be taken (being blended in the process of being taken) and loaded into the ore-carrying vessels. It can be strongly argued that the blending process which is carried out after storage and immediately before loading so closely integrates the relevant area with the tertiary crusher that it would be wrong to see it as an area used for storage of ore pending shipment. On balance, however, I incline to the view that, to use the words of one of the witnesses (Mr. Wallwork), the stacking and the blending (by the process of reclaiming) "can be considered as sort of part of the storage, if you like to look at it that way, it's sort of putting it in and taking it out of the storage" and that the relevant area can properly be regarded not only as a storage area in relation to the operation of the tertiary crusher and for the operation of the blending process but as an overall storage area for ore pending shipment, which was constructed in connexion with the establishment, operation or use of the shipping facilities at Port Hedland. (at p147)
It follows that, even if I had not been of the view that the provisions of s. 122T of the Act were applicable, I would have been of the view that the deductions allowed by the Commissioner pursuant to the provisions of Divn 10 were excessive and not inadequate, for the reason that, subject to a comparatively insignificant exception, the only expenditure which would otherwise have been allowable capital expenditure for the purposes of that Division came within the exclusion of expenditure in relation to improvements constructed for use in connexion with the establishment, operation or use of a port or other facilities for ships. The comparatively insignificant exception is so much of the expenditure as can properly be related to raising and compacting the actual site of the tertiary crusher. Even if I be mistaken in the conclusion that, apart from that comparatively insignificant exception, the relevant expenditure was, in any event, excluded from allowable capital expenditure for the purposes of the Division, it would seem that the deduction allowed by the Commissioner pursuant to Divn 10 was not only not inadequate but excessive, in that the proportion of expenditure (seventy-three per cent) allowed by the Commissioner wrongly included expenditure related to the removal of the dredged soil from the harbour bed to the land.

THE CLAIM TO DEDUCTIONS UNDER S. 88 (2) IN RESPECT OF IMPROVEMENTS TO THE INDUSTRIAL LEASE LAND (at p147)

In his reasons for decision in the Full High Court, Barwick C.J. expressly refers to the space occupied by the navigational aids as forming portion of the demised premises (1975) 132 CLR, at p 466 . When stating the taxpayer's contention that it used the land for the relevant purpose he said that it relied upon its continued dredging and "the provision of tugs etc. to assist with the movement of iron ore carriers" (1975) 132 CLR, at p 467 . Here he was no doubt referring back to those of the services enumerated by Mason J. at first instance which assisted with the movement of vessels, namely the fact that the taxpayer "conducted tug operations and line launches and maintained the dredged channel and navigational aids". His reference here to "provision of tugs etc. to assist with the movement" of vessels in my view encompasses a reference to navigational aids, and this is confirmed when considered in the light of the contention of counsel for the taxpayer that the improvements "enabled other persons to reach the premises of the taxpayer" which the Chief Justice appears to pick up when he refers to the "continuing ability of iron ore carriers to reach the wharf of the appellant" (1975) 132 CLR, at p 468 . An essential feature of the use of the dredged channel in moving from the open sea to the wharf was the presence of the navigational aids, which made such use feasible, as did the services provided by the tugs and line launches. In these circumstances it seems to me that the decision in Goldsworthy's case cannot with any assurance be distinguished on this ground. (at p162)
The second ground relied upon for the contention that the trial judge was not bound by this authority was that, by way of contradistinction to the taxpayer there, the appellant in this Court owned ore which it carried for reward in a chartered vessel, or arranged to be shipped on an f.o.b. or c.i.f. basis. In so doing it used the navigational aids which comprised portion of the land subject to the dredging lease. It was said that this use of the demised land was "use by the appellant for the purpose of producing assessable income". There are a number of grounds upon which I doubt the correctness of this submission. (at p162)
In point of fact I see very little difference in the situation of the appellant here from that of the taxpayer in Goldsworthy's case. In the latter case the taxpayer provided for remuneration the services of tugs and line boats, the pilots of which were doubtless employees of the taxpayer who used the navigational aids for the purpose of passing along the navigation channel. In the present case the appellant received remuneration as the charterer of a vessel which carried ore out of the harbour, and in so doing the master and pilot, who were probably not the employees of the appellant, used the navigational aids for the purpose of travelling the navigation channel. The aids were also used by the masters and pilots who collected on behalf of buyers the ore from the wharf. It could be said that the use of the navigational aids by the pilots of the tugs and line boats had more direct relevance to the earning of that taxpayer's remuneration than their use by the pilot for example of the chartered vessel had to earning for the appellant its reward for carriage of the ore. In any event there are strong arguments to the effect that the facts are sufficiently similar to justify the application of the authority in this instance. (at p163)
Secondly, Mason J. in Goldsworthy's case at first instance, said that when s. 88 (2) speaks of land used for the purpose of producing assessable income, "it refers to a use by the taxpayer in his capacity as a lessee of that land for the purpose of producing that income" (1973) 128 CLR, at p 216 . Later he referred to the necessity to establish that the use which is made is by virtue of the rights of a lessee when he said: "Another consideration not to be overlooked is that the use which the appellant's vessels make of the superjacent waters is not a use which they make in virtue of the appellant's dredging lease. It is a use which is made in the exercise of the public right of navigation, a use not in any respect dissimilar to the use by large ore carriers and other vessels whose owners or operators have no lease of the sea-bed. Yet it can scarcely be suggested that there is a use of the sea-bed by the owners and operators of these vessels" (1973) 128 CLR, at p 217 (at p163)
It seems to me, with respect, that this approach is correct and that similar considerations apply to the use of the navigational aids in the present case. The use which is directly made of them by the masters or pilots of the vessels, and thus, it would be submitted, is indirectly made by the appellant, is not a use which it makes in its capacity as lessee. The vessels, be they chartered or otherwise, have a "public right of navigation" which is preserved to them by the recital to the dredging leases, and they have no other or higher rights by virtue of the fact that they are, for example, chartered by the lessee. In these circumstances I am of opinion that the navigational aids are not used in the relevant sense by the appellant for the purpose of producing assessable income in that the use is made, not in its capacity as lessee, but in the exercise of a right generally available to all who wish to use the harbour and are prepared to pay the appropriate charges. (at p164)
Finally, assuming that the navigational aids were used by the appellant, and used, if this be relevant, in its capacity as lessee, I do not regard such use as being "for the purpose of producing assessable income". It seems to me that there is no real or alternatively sufficient connexion between the use of land which supports, or is occupied by, the navigational aids and the production of assessable income. I am not in this regard raising a contention of de minimis either in respect of the size of the area allegedly so used or the proportion of the appellant's income earned by way of fees directly derived from the carriage of ore. Rather the assessable income of the appellant on this score was produced by the chartering of the vessel which enabled it to charge for the carriage of the ore. The use of the navigational aids was more relevant to the performance by the crew of the chartered vessel of their duties under the contract of charter. The use by the crews of other vessels was equally if not more remote from the production of the appellant's assessable income. In the words of Barwick C.J. in Goldsworthy's case: "Although it may properly be said that the ships used the deepened channel, that use does not 'produce' the taxpayer's assessable income notwithstanding that without it the taxpayer may have no assessable income" (1975) 132 CLR, at p 468 . These remarks are, in my opinion, equally applicable to the navigational aids. (at p164)
In the present matter the presence of the navigational aids enabled the vessels to use the navigation channel and thus reach the wharf to collect the ore as a step in the earning of remuneration for the appellant. However, the using of the navigational aids in this way did not earn or produce the income, although it may have to a considerable extent facilitated the use of the navigation channel and, in consequence, the receipt of the cargo. However, again in the words of Barwick C.J., although it may have ensured the receipt of the assessable income it was "not a part of the process of producing it, or relevantly incidental thereto". In my opinion these words can also be appropriately applied to the circumstances of this present matter. (at p164)
I would dismiss the appellant's appeals and allow the cross appeals of the respondent. (at p164)

ORDER

Taxpayer's appeal dismissed. Commissioner's appeal allowed. Original assessment confirmed.

[1979] FCA 93

11 SEPTEMBER 1979