Ferling v Federal Commissioner of Taxation

[1966] HCA 85

HIGH COURT OF AUSTRALIA

Windeyer J. McTiernan A.C.J., Taylor, Menzies and Owen JJ.

FERLING v. FEDERAL COMMISSIONER OF TAXATION

(1966) 115 CLR 603

21 September 1965

Income Tax (Cth)

Income Tax (Cth)—Deductions—Depreciation—Improvements on grazing property—Sale of property including improvements—Price apportioned in contract—Deduction allowable to seller—Deduction allowable to purchaser—Assessment based on actual consideration—Power to amend assessment—Income Tax and Social Services Contribution Assessment Act 1936-1960 (Cth), ss. 54, 59, 59AA, 60*, 62, 170 (8).** Income Tax (Cth)—Assessment—Power of Commissioner to amend—Assessment based on opinion of Commissioner—Amendment of assessment for previous year based on same opinion barred by lapse of time—Income Tax and Social Services Contribution Assessment Act 1936-1960 (Cth), s. 170 (8).

Decisions

1965, September 21
WINDEYER J. delivered the following written judgment: -
These are two appeals by a taxpayer against assessments of income tax for the year ended 30th June 1962. The first case, number 17 of 1964, is an appeal against a notice of assessment dated 1st February 1962. The second is against an amended assessment dated 25th February 1964. They both depend upon the same facts, and they were argued together. They turn upon the provisions of the Income Tax and Social Services Contribution Assessment Act dealing with depreciation as an allowable deduction. The matter is somewhat complicated and several questions were argued, the main one being the effect, in the circumstances, of s. 60 (2) which provides: "This section shall not apply where the Commissioner is of the opinion that the circumstances are such that depreciation based on the actual consideration given should be allowed." (at p605)

2. Put shortly - I shall have to elaborate the facts later - that question arose in this way. In September 1958 a change occurred in the ownership of property in respect of which depreciation had been allowed, thus bringing s. 59AA into operation. The Commissioner - and whenever I refer to the Commissioner I mean him, the Deputy Commissioner or a responsible delegate - then considered that the circumstances as then known to him were such that s. 60 (2) should have effect and depreciation be allowed based upon an amount stated in the agreement for sale as the price paid by the taxpayer for that property. Later the Commissioner became aware of facts which, had he known them at the time, would have caused him to have a different opinion and to have left s. 60 (1) to operate. It was then too late for him to reopen the matter in respect of the year ended 30th June 1959. But in respect of the year ended 30th June 1960 he sought to depart from the basis of calculation that he had accepted in respect of the earlier year. In doing so he relied upon s. 170 (8) which reads as follows: "Where - (a) any provision of this Act is expressly made to depend in any particular upon a determination, opinion or judgment of the Commissioner; and (b) any assessment is affected in any particular by that determination, opinion or judgment, then if, after the making of the assessment it appears to the Commissioner that the determination, opinion or judgment was erroneous, he may correct it and amend the assessment accordingly in the same circumstances as he could under this section amend an assessment by reason of a mistake of fact." (at p606)

3. I go now to the facts out of which the question arises. (at p606)

4. The appellant taxpayer is one Gustaff Ferling. He has a son, Stephen Joseph Ferling with whom and with his other sons he has been associated in pastoral enterprises in Queensland. I shall refer hereafter to the father as Gustaff Ferling or as the taxpayer, and to the son as S. J. Ferling. In 1958 they agreed to buy a grazing property having an area of about 19,350 acres, known as Springvale, from the owner, one M. L. Rigby. This property is in Queensland. Rigby's title to it was as a lessee from the Crown, his tenure being that which under the relevant Queensland Act is called a Prickly Pear Development Grazing Homestead Lease. (at p606)

5. Clause 1 of the agreement for sale, which is dated 1st September 1958, is as follows:
"1. Subject to the consent of the Minister for Lands the
Vendor agrees to sell and the Purchaser agrees to purchase as tenants in common in the shares Gustaff Ferling seven-eighths and Stephen Joseph Ferling one-eighth: (a) The property known as 'Springvale' situated in the

Taroom District of Queensland, described as - Prickly Pear Development Grazing Homestead No. 1398. Taroom District. Portion 2. County Fortescue. Parish Price. Area 19350 acres, more or less. Terms of Lease, 28 years from 1/1/1937. Present Rental, 120 pounds. 18. 9. per annum. Subject to resumption rights and other reservations in favour of the Crown.

(b) All improvements the property of the Vendor erected or made upon the said selection.

(c) All scrubber cattle except branded scrubbers which shall remain the property of the Vendor.

(d) The right title and interest of the Vendor in and to the telephone lines belonging to Springvale Station subject to the conditions on which the Vendor holds the same.

(e) The 32 volt lighting plant and the engine on the Alston 20 ft. Mill."

Clause 2 of the agreement reads: "The price is the sum of twenty-three thousand seven hundred and fifty pounds (23,750 pounds) apportioned as set out in the Schedule hereto." The schedule reads as follows:
"Value of lease 1,935
Fencing 5,902
Timber Treatment 1,413 Scrub pulling 600 7,915 Water: Bore, mill, tanks &troughing 3,000
2 Bores with mill, tanks &troughing2,000

1 Flowing Bore 2,400 Bore, windmill and troughing 2,000 9,400 Buildings: Dwelling House 1,000 Dip yards and shed 3,500 4,500 23,750 Pounds" (at p607)

6. In this "apportionment" of the purchase price both parties, or rather their advisers, had matters of income tax in mind. The purchasers were buying a property having on it structural improvements, fences, dams and so forth, which by s. 54 (2) are taken to be plant for the purposes of s. 54 (1), which makes annual sums for depreciation of plant, calculated according to ss. 55 and 56, allowable deductions. (at p607)

7. The scheme of the Act, appearing in ss. 59-62, is that a taxpayer who acquires any property in respect of which depreciation has been allowed to a former owner is not entitled to any greater deduction for depreciation than would have been allowed to that owner if he had retained it. But this is subject to the proviso in s. 60 (2). That proviso meets the case of the purchaser who buys plant for a sum that exceeds its depreciated value in the hands of his vendor. If the seller and buyer are persons at arm's length and the price fixed is the result of a genuine bargain between them, then it appears that the practice of the Commissioner is to exercise the discretion given by s. 60 (2) and allow the purchaser thereafter to deduct amounts for depreciation calculated according to the amount actually paid for the plant acquired. The rationale of this is obvious, and the principle is easily applicable when a particular thing is actually bought for a stipulated price. But its application becomes to my mind highly artificial when a price is put upon such items as fences, bores and buildings. It is unreal to speak of the vendor in this case as having sold as separate things a leasehold interest in land, bores, fences, buildings, "scrub pulling" and "timber treatment". What the purchasers actually acquired for 23,750 pounds was the property with the improvements on it. They did not buy separately various fixtures and improvements upon the land. They could not have taken the land and rejected the bores or the buildings or the sheep dip or the treatment of the timber. Doubtless in valuing a country property a valuer might estimate the value of the land unimproved and then make additions based on the cost of timber treatment, fixtures and so forth. That is common enough. And the parties to a contract of sale may for their own purposes, including considerations of the incidence of taxation, state that the purchase price is made up of several elements separately valued. And wherever it can be said that depreciated property is sold with other assets (within the meaning of s. 59 (3) (c)) then it seems that the Commissioner must accept any "separate value allocated" to it. It was, as I understood the argument, suggested that in the present case the apportioning of the purchase price in the manner specified in the schedule to the agreement between Rigby and the Ferlings brought into play the provisions of s. 59AA. That section states that upon a change of ownership the provisions of the Act relating to depreciation shall apply as if the person disposing of the property had done so "for a consideration equal to the amount specified in the agreement in consequence of which the change occurred as the value of the property for the purposes of that agreement". It was suggested that for the application of s. 60 (2) the amounts in the schedule represented "the actual consideration given" for the several items listed. (at p608)

8. But that, to my mind, is not so. The schedule to the agreement does not purport to specify the "value" of the items of depreciated property. What it specifies is the amount of the total price to be attributed to them. I do not think that value and price are to be regarded as necessarily meaning the same thing here. Moreover, and however that may be, what s. 60 (2) refers to is the "actual consideration given". I do not think this is necessarily whatever amount is specified in the agreement as "the value" if any such amount be written in to the agreement. On top of these difficulties which arise from the language of the Act are others that arise from the language of the agreement. The schedule does not altogether accord with cl. 1. No part of the total price is attributed to the unbranded scrubber cattle the telephone lines, the lighting plant and engine on the Alston mill. Yet these cannot be said to be included in the sum put against the lease, and they were not really thrown in as gifts. For these reasons it seems to me unreal to look upon the sale of Springvale as in truth a sale of a miscellany of separate things, land, and items of plant, for sums separately stated and then to apply s. 60 (2) on the assumption that one can say from the agreement what was "the actual consideration given" for each item. However, the Commissioner apparently thought that this could be done and should be done. He took the parties at their word and followed his usual practice when plant is sold at a price arrived at as a result of a bargain between parties genuinely at arm's length. He therefore considered that s. 60 (2) was applicable. Later he became aware of facts showing how far from reality his assumption had been. This was revealed by correspondence between Mr. Badgery, a member of the firm Messrs. Hawthorn, Cuppaidge &Badgery (who were acting as solicitors for both the vendor, Rigby, and the purchasers, the Ferlings) and one Ian Hamilton, a tax agent who acted for Rigby in connexion with his income tax affairs. It is not suggested that there was any impropriety on the part of Mr. Badgery, Mr. Hamilton or the parties to the transaction. They were seeking to arrange legitimately the price of the property Springvale according to a plan which they hoped would produce certain legal consequences because of the provisions of the Act. The question is whether their hopes were realized. (at p609)

9. At the outset of the negotiations with Rigby for the purchase of Springvale, it was intended that S.J. Ferling alone should be the buyer, or at all events that the purchase should be in his name. It seems that there was throughout some plan by which Gustaff Ferling's three sons were to hold in their separate names leases on which the business of "G. Ferling and Sons" was being carried on. It appears from correspondence with the Land Administration Board that this was so. At all events, in July 1958 a contract had been entered into by which Rigby agreed to sell Springvale to S.J. Ferling. In this transaction Mr. Badgery acted for both parties, Rigby and S.J. Ferling. The amounts then put upon the improvements were arrived at as a result of correspondence between Mr. Badgery and Mr. Hamilton in which the former wrote:

"re Marshall Lindsay Rigby to Stephen Joseph Ferling. P.P.D.G.H. No. 1398 Taroom. (at p610)

10. We are acting for both parties herein. (at p610)

11. Mr. Rigby has handed to us an application to the Lands Department setting out values of the improvements on the above-numbered Grazing Homestead. We suggest the following apportionment of the price of 23,750 pounds., and shall be pleased if you will kindly advise if the apportionment is acceptable from the point of view of the vendor's Income Tax affairs.
Value of lease, 19,350 acs. @ 5/- per ac. 4,837
Fences 3,000 Timber Treatment 4,413 Scrub pulling 1,600 Water: Bore, mill, tanks &troughing 2,000
2 Bores with mill, tanks & troughing 1,000

1 Flowing Bore 1,400 Bore, windmill and troughing 1,000 5,400 Buildings: Dwelling House 3,000 Dip yards and shed 1,500 4,500 18,913 23,750 Pounds (at p610)

12. The values of improvements in the above-mentioned application lodged with us were as follows:

Fences 881 Timber Treatment 11,400 Water: 1 Bore equipped 1,000 2 Bores "" 500 1 " flowing 700 1 " equipped 500

Buildings 1,527 Dip yards and shed 463 Total - 16,971 Pounds

The purchaser desires to appropriate as much of the price to the structural improvements as possible provided the vendor will not be unduly affected by way of recouped depreciation".

To this letter Hamilton replied: "I think that the approtionment as suggested by you would be satisfactory to Mr. Rigby. This would effect (sic) him by showing depreciation recouped of 124 pounds only". (at p611)

13. Both Rigby and S.J. Ferling signed this contract in July 1958, and the Minister's consent to it was sought. But they did not go on with it. It was never formally rescinded, but was simply abandoned when, on some date before 15th August, a new plan was formed. This was that Gustaff Ferling and S.J. Ferling should both be purchasers, and that the price 23,750 pounds should be apportioned in a different way from that earlier agreed upon. Rigby appears to have assented to this change, as it made no difference to him. It came about as the result of a conversation that Mr. Badgery had with Mr. Hamilton's clerk. A letter that Badgery wrote on 15th August to Hamilton contains the following:
"We confirm our conversation at the telephone today with
Mr. Burnett. We desire to alter the proposed apportionment to the following, provided it does not materially affect the
vendor's income tax position for the current year -
Value of lease 1,935
Fencing 5,902 Timber Treatment 1,413 Scrub pulling 600 7,915 Water: Bore, mill, tanks &troughing 3,000
2 Bores with mill, tanks &troughing 2,000

1 Flowing Bore 2,400 Bore, windmill and troughing 2,000 9,400 Buildings: Dwelling House 1,000 Dip yards and shed 3,500 4,500 23,750 Pounds

We understand the apportionment would be satisfactory to Mr. Rigby. If on further examination it appears to you that it will mean a substantial recoupment of depreciation, please
let us know by return of mail and suggest some alternative
apportionment".

These, it will be noticed, are the figures that were adopted and which appear in the schedule to the contract. The parties having signed copies of the contract in the new form, these were dated 1st September 1958 and the sale was duly completed. (at p612)

14. As I have said, the Commissioner in assessing Gustaff Ferling to tax for the year ended 30th June 1959 accepted without question the amounts shewn in the schedule to the contract. The taxpayer's tax and Rigby's tax in that year were apparently assessed by different officers and their returns were not then compared one with the other. (at p612)

15. The next thing that occurred was that by an agreement dated 8th June 1960, that is shortly before the end of the year of income in question, Gustaff Ferling sold - subject to the Minister's consent, which was given - his seven-eights interest in Springvale to S.J. Ferling for the sum of 21,000 pounds "apportioned as set out in the schedule" to that agreement, which schedule reads as follows:
"Value of lease 6,055
Fencing 902
Timber Treatment 6,443 Scrub pulling 6,200 13,545 Water: Bore, mill, tanks &troughing 750
2 Bores with mill, tanks &troughing 500

1 Flowing Bore 650 Bore, windmill and troughing 500 2,400 Buildings: Dwelling House 500 Dip yards and shed 1,500 2,000 24,000

Price of Vendor's seven-eights share 21,000 Pounds" (at p612)

16. The contrast between these figures and those in the agreement by which Rigby sold to the Ferlings is striking. The total sum 24,000 pounds on which seven-eighths is calculated is much the same as the 23,750 pounds in the former agreement. But the amount attributed to fencing is now only 902 pounds as against 5,902 pounds: the amount attributable to timber treatment has been increased from 1,413 pounds to 6,443 pounds: water installations have been reduced by 7,000 pounds in all; and to buildings, which formerly were said to represent 4,500 pounds of the purchase price, only 2,000 pounds is now attributed. There was no suggestion that these changes were the result of a change of opinion by the Ferlings as to the relative values of things. Nor were they the result of any such untoward deterioration of buildings or waterworks or of any such increase in the timber treatment as the new figures would suggest. They simply reflect a new view of how a total sum of 21,000 pounds should be apportioned, bearing in mind the incidence of income tax. They emphasize the unreality of both sets of figures. (at p613)

17. During the year of income ended 30th June 1960 Gustaff Ferling carried on business in partnership with, or in conjunction with, his sons. In his personal return he claimed a deduction of 10,701 pounds which was said to have occurred as a result of his selling his seven-eighths share in Springvale to S. J. Ferling. In a document annexed to the return this claim was expressed as follows:
"Loss Arising from Sale Value Sale Loss

1.7.59 Price

Fencing 5,680 902 4,778 Water Improvements 7,520 2,400 5,120 Buildings 4,332 2,000 2,332 12,230 POUNDS

G. Ferling's Share of Loss - 7/8ths of 12,230 = 10,701 pounds"

In this statement the figures under the heading "Value 1.7.59" represent amounts shewn in the schedule to the agreement by which the Ferlings had purchased from Rigby, written down according to the scale for depreciation ordinarily allowed by the Commissioner in respect of the period from their acquisition in September 1958 to 8th June 1960. (at p613)

18. As I understood the argument for the taxpayer at this point, it is that, by virtue of s. 59AA, the provisions of s. 59 (1) were applicable. Then it is said that the depreciated value of the property sold exceeded "the consideration receivable", and therefore the difference (described in the return as a "loss") should be allowed as a deduction. But this proposition is, I consider, quite mistaken. "The consideration receivable" in the case of a sale means the sale price less the expenses of the sale of the property (s. 59 (3) (a)). The amounts written in to the schedule were not in truth the prices of separate items: and in my opinion s. 59 (3) (c) does not mean that they must be treated as if they were. That provision applies when, as I have already said, a "value" is "allocated" to the property when it is "sold with other assets". That was not so here. The depreciated property was not sold with other assets. It was an inseparable part of the thing sold. Gustaff Ferling by selling his interest in Springvale for 21,000 pounds had not lost 10,701 pounds. What he had done was to sell for 21,000 pounds a seven-eighths interest in the property that less than two years before had been bought for 23,750 pounds. (at p614)

19. In his assessment, which issued in February 1962, the Commissioner disallowed the loss claimed and transferred the items fencing, water improvements and buildings to S. J. Ferling at depreciated values based upon the amounts that had been shewn in respect of them in the schedule to the agreement with Rigby, which sums he, the Commissioner, had previously accepted for the purpose of s. 60 (2) as the actual consideration. On that basis he allowed to the taxpayer, Gustaff Ferling, seven-eighths of normal depreciation, namely 2,012 pounds. (at p614)

20. On 2nd March 1962 the taxpayer lodged a notice of objection claiming that the Commissioner was in error in disallowing the alleged loss of 10,701 pounds. After some delay, while the matter was being considered, the Commissioner disallowed the objection. The taxpayer thereupon requested that his objection be treated as an appeal to this Court. The hearing of the matter was adjourned in the Brisbane sittings of the Court in 1963, and before it came on to be heard other things had happened which further complicate the case and which led the Commissioner on 25th February 1964 to issue a notice of amended assessment in respect of the year in question, 1959-1960. By this amendment he disallowed the sum of 2,012 pounds depreciation that he had previously allowed but which the taxpayer had not claimed, and he continued his refusal to allow the deduction of 10,701 pounds. The taxpayer thereupon lodged an objection to the amended assessment. The Commissioner disallowed it and, at the request of the taxpayer, it comes now as an appeal to this Court. (at p614)

21. The taxpayer's contention is that he is entitled to the deduction of 10,701 pounds that he claims. If he be right in this, he does not also ask to have the depreciation allowance of 2,012 pounds restored: but, if he be not entitled to the deduction of 10,701 pounds, he contends that the Commissioner ought not to have amended the assessment by disallowing the 2,012 pounds that he had previously allowed. (at p614)

22. The Commissioner's contention is that the claim to deduct 10,701 pounds was rightly disallowed and that in amending the assessment he was correcting his earlier opinion that, by virtue of s.60 (2), depreciation of the depreciated property that the Ferlings had acquired from Rigby should be based on the sums stated in the schedule to the agreement of September 1958. It was too late for him to amend the assessment for the year ended 30th June 1959. But he says that when he allowed depreciation of 2,012 pounds in respect of the year ended 30th June 1960, he did so because he took as a starting point depreciated values that had been arrived at according to the erroneous opinion first formed in respect of the earlier year. He says, in effect: I am no longer entitled to alter the consequences, more than three years old, of an erroneous opinion: but that does not mean that it was not erroneous nor prevent me from now denying continuing consequences to error. It is as well to explain here why the Commissioner disallowed altogether any deduction for depreciation for the year 1960. If s. 60 (1) were applied on the basis of the depreciated value in Rigby's hands of the items in question, that value as at June 1958 was only 849 pounds. Depreciation actually allowed for the year ended June 1959, on the assumption that s. 60 (2) was applicable, was 2,270 pounds. That could not, because of lapse of time, be recalled. Therefore if the proper depreciable value of the items was to be arrived at according to s. 60 (1) there was no further value in the items at the beginning of the year which ended on 30th June 1960. Thus, if the Commissioner were right in thinking that he had erroneously applied s. 60 (2) and should correct this, the correction involved withdrawing completely the allowance of 2,012 pounds for depreciation in that year and making no allowance to the taxpayer for depreciation. (at p615)

23. The view for which the appellant contended was that the Commissioner had formed that opinion that, using the words of s. 60 (2), "the circumstances were such" that in the case of the acquisition by the Ferlings of Rigby's property he should give effect to s. 60 (2) and thus make applicable s. 60 (1) and consequently s. 62 (2) to that transaction. To this opinion, it was said, he must adhere. It was not open to him because of what appeared in the second transaction, that between Gustaff Ferling and S.J. Ferling, to modify the opinion of the former transaction that he had formed when it alone was under his consideration. I do not think this proposition is soundly based. The Commissioner modified his view of the earlier transaction because, as a result of the later transaction and other matters, he was put upon inquiry and upon inquiry found that the circumstances of the earlier transaction were not such as he had thought them to be and that his opinion was based on a mistaken view of the circumstances. It is his opinion of the earlier transaction and of its continuing consequences that he professes to correct. (at p616)

24. Two things are, I think, clear. One is that s. 60 (1) must take effect unless the "actual consideration given" for the depreciated property acquired can be determined. The other is that when the actual consideration given can be determined, the discretion given to the Commissioner by s. 60 (2) is exercisable by him upon his view of the circumstances. It is for him to determine to what opinion the circumstances lead him. And he can, I think, properly correct that opinion in a case such as this if he becomes aware that the circumstances were not such as he had thought. Section 60 is, by virtue of s. 60 (2), one of the provisions of the Act to which s. 170 (8) refers when it speaks of a provision that is expressly made to depend in any particular upon a determination, opinion or judgment of the Commissioner. (at p616)

25. The case as a whole is by no means free from difficulty; but I have come to the conclusion that the Commissioner's contention should be upheld. (at p616)

26. The Commissioner sought also to rely upon s. 260. It is, I think, a legitimate inference from the facts proved that it was always intended by the taxpayer that S.J. Ferling should become the legal owner of Springvale. The modification of the original proposal that S.J. Ferling should be the sole purchaser from Rigby, the short-lived joint ownership of S.J. Ferling and the taxpayer, the manner in which the figures to be written in to the agreement with Rigby were determined, the sale by the taxpayer of his interest to S.J. Ferling soon after the Commissioner had accepted these figures for purposes of depreciation, the insertion in the contract between the taxpayer and S.J. Ferling of vastly different figures thus making it possible for the taxpayer to allege a loss of ten thousand pounds - all these things in their context point to a plan made with the incidence of income tax much in the minds of those who evolved it. But it is not necessary that I consider whether such an arrangement could be vulnerable to s. 260, because in my opinion its purpose of avoiding taxation failed. (at p616)

27. The taxpayer has not shewn the assessments appealed against to be excessive. I therefore find in favour of the Commissioner, dismiss the appeals with costs and confirm the amended assessment. (at p617)

28. From this decision the taxpayer appealed to the Full Court of the High Court. (at p617)

29. G. Thompson, for the appellant. (at p617)

30. R. H. Matthews Q.C. and A.S. Given, for the respondent.

Cur. adv. vult. (at p617)

1966, September 16.
The following written judgments were delivered:-
McTIERNAN A.C.J. These appeals involve questions arising out of objections made to the assessment and the amended assessment of the taxpayer's income of the year ended 30th June 1960. The objections came before Windeyer J. for decision, having been disallowed by the Commissioner. In those proceedings the assessment and amended assessment were confirmed. (at p617)

2. In the case of the assessment the question is whether the appellant should have been allowed a deduction to which he contends he was entitled under s. 59AA of the Income Tax and Social Services Contribution Assessment Act 1936-1960. He was allowed a deduction under s. 54 which he did not claim in the return on which the assessment was made. The amended assessment was made for the purpose of correcting an opinion formed by the Commissioner pursuant to s. 60 (2) and purported to be an exercise of power conferred on him by s. 170 (8). The ground for the objection to the amended assessment was that by reason of s. 170 (3) it was out of time and, therefore, invalid. (at p617)

3. A grazing property was bought by the appellant and one of his sons, Stephen Joseph Ferling, on 1st September 1958. The appellant acquired seven-eighths of the property and his son acquired the remaining one-eighth. The vendor, whose name was M.L. Rigby agreed with the appellant and his son on a total price of 23,750 pounds and that this amount be apportioned as follows:
"Value of lease 1,935
Fencing 5,902
Timber Treatment 1,413 Scrub pulling 600 7,915 Water: Bore, mill, tanks &troughing 3,000
2 Bores with mill, tanks &troughing 2,000

1 Flowing Bore 2,400 Bore, windmill and troughing 2,000 9,400 Buildings: Dwelling House 1,000 Dip yards and shed 3,500 4,500 23,750 pounds"

Each of the items, fencing, bores etc. and buildings was a "unit of property" for the purposes of the provisions of the Assessment Act relating to depreciation. It was "plant" within the meaning of s. 54 and depreciation had been allowed on it before the sale to the appellant and his son. These units of property were described in the appellant's returns furnished under the Assessment Act as "fencing", "water improvements" and "buildings". (at p618)

4. Sub-section (1) of s. 60 provides that where a person has acquired any property in respect of which depreciation has been allowed he shall not be entitled to any greater deduction for depreciation than that which would have been allowed to the person from whom the property was acquired if the person had retained it. There is a proviso to the effect that where under s. 59 an amount is included in the assessable income of the person selling the property, the person acquiring the property shall be allowed depreciation calculated on the sum of that amount and depreciated value of the property under the Assessment Act immediately prior to the time of sale. Sub-section (2) of s. 60 says that this section shall not apply where the Commissioner is of the opinion that the circumstances are such that depreciation based on the actual consideration given should be allowed. Rigby's return and assessment for the year ended 30th June 1959 was not in evidence. These documents were material in view of the provisions of s. 60 (1). But in lieu of them a summary of the return and resulting assessment of Rigby for that year were received in evidence. The summary was as follows:
"Rigby's Return and Assessment, year ending 30th June 1959.

----------

1. Rigby claimed annual depreciation for year ending 30.6.59 as follows:- Improvements 26

Bores &Mills 11

37 pounds

2. He made no reference therein to the sale to the Ferlings. 3. The Department by assessment or amended assessment, disallowed the annual depreciation and added a balancing charge, pursuant to s. 59 as follows:-

Improvements Bores & Mills

Original depreciated value to Rigby 700 149 Sale Price by Rigby 5,902 9,400 Depreciation actually allowed over period Rigby had property 127 54 Balancing charge added under s. 59 181

4. Depreciated value in the hands of Rigby at 1.7.58 573 95 pounds"

It will be noticed that the figures 5,902 pounds and 9,400 pounds are respectively the values apportioned to "fencing" and "water improvements" by the agreement for sale of 1st September 1958. The item described as "buildings" is not mentioned. There was no evidence that depreciation had been allowed in respect of this item before acquisition by the appellant and his son. The "balancing charge" is evidently an amount which s. 59 (2) required to be included in assessable income. The summary shows that if s. 60 (1) governed the calculation of deductions for depreciation claimed by the appellant in respect of the units of property the basic figures would have been 573 pounds for "improvements" (i.e. fencing) and 95 pounds for "bores and mills" (i.e. water improvements) - plus, by reason of the proviso to sub-s. (1) of s. 60, the balancing charge of 181 pounds. (at p619)

5. For sake of clearness it seems necessary to refer to the return furnished by the appellant for income year ended 30th June 1959 setting forth his income of that year and the deductions claimed before referring to his return for the relevant income year. Both returns showed that his assessable income was derived mainly from pastoral pursuits conducted on several grazing properties including that bought by the taxpayer and his son, Stephen Joseph, from Rigby on 1st September 1958. The relevant deduction set forth in the earlier return was expressed as follows:

"Assets jointly owned with S.J. Ferling. On 1st September 1958 G. Ferling purchased as Tenants in common in the share of G. Ferling 7/8ths and S.J. Ferling 1/8th the property known as "Springvale" from Marshall Lindsay Rigby of Taroom. Purchase Price was 23,750 pounds apportioned as follows:-

(In ink) 131365 59

Lease 1,935 Fencing 5,902 Timber Treatment 1,413 Scrub Pulling 600 Water Improvements 9,400 Buildings 4,500 23,750 POUNDS

Depreciation is claimed as follows:-

Value Depreciation Value 1.9.58 Rate Amount 30.6.59

Fencing 5,902 4 1/2% 222 5,680 Water Improvements 9,400 20% 1,880 7,520 Buildings 4,500 4 1/2% 168 4,332 (In 19,802) 2,270 (pencil) ) (In ink) (7/8ths - 17,327) POUNDS 284

My 7/8ths share of Depreciation - 1,986 POUNDS."

The notice of assessment which was issued in respect of this return is in evidence. Nothing appears from the notice to show that the above-mentioned deduction was not allowed. (at p620)

6. The evidence called on behalf of the Commissioner proved that it was considered by the assessors under him that the claim for this deduction should not be governed by s. 60 (1). In fact the claim was dealt with in accordance with sub-s. (2) of this section. This means that the Commissioner at that stage accepted the figures apportioned to fencing, water improvements and buildings by the agreement for sale of 1st September 1958 under the description "value" as "actual consideration". (at p621)

7. It appears from the facts set out in the reasons for judgment of the learned primary judge that these figures were nominated merely for taxation purposes. There is nothing in the depreciation provisions of the Act requiring the Commissioner to treat them as "actual consideration" within the meaning of sub-s. (2) of s. 60. There is no evidence upon which the Court could hold that any of the figures represented "actual consideration" given by the taxpayer and Stephen Joseph Ferling to Rigby. Indeed, there is evidence to the contrary. The evidence throws doubt upon the genuineness of the figures. But I do not suggest that for the purpose of the depreciation provisions of the Act each of these units of property could not be regarded as having a value of its own. (at p621)

8. Upon finding that an erroneous opinion of the apportioned value of the items of plant had been taken by the Commissioner in assessing the taxpayer's income for the year ended 30th June 1959 he might well have exercised the power conferred by s. 170 (8) of the Act. This sub-section provides:
"(8) Where -
(a) any provision of this Act is expressly made to depend in any particular upon a determination, opinion or judgment of the Commissioner; and (b) any assessment is affected in any particular by that determination, opinion or judgment, then if, after the making of the assessment it appears to the Commissioner that the determination, opinion or judgment was erroneous, he may correct it and amend the assessment accordingly in the same circumstances as he could under this section amend an assessment by reason of a mistake of fact."
It appears from s. 170 (3) that the time in which an assessment may be amended under s. 170 (8) is three years from the date upon which the tax became due and payable under the assessment. But this time had elapsed when it was ascertained by the Commissioner that the allowance of the deduction amounting to 1,986 pounds in the assessment for the year ended 30th June was affected by the erroneous opinion that the apportioned values were "actual consideration". A complicated situation arose because the assessment for the year ended 30th June 1959 was affected by the erroneous opinion and it was too late to alter the deduction for depreciation allowed or to strike it out. (at p622)

9. On 8th June the appellant sold his interest of seven-eighths in the grazing property bought from Mr. Rigby to Stephen Joseph who thereupon became sole owner of the grazing land, the items of plant with which the case is concerned and other improvements. The price stipulated by a written agreement of sale between the appellant and Stephen Joseph was 21,000 pounds and it was a term of the agreement that the price be apportioned as follows:

"Value of lease 6,055 pounds Fencing 902 pounds Timber Treatment 6,443 Scrub pulling 6,200 13,545 pounds Water:

Bore, mill, tanks &troughing 750
2 Bores with mill, tanks &troughing 500

1 Flowing Bore 650 Bore, windmill and troughing 500 2,400 pounds Buildings: Dwelling House 500 Dip yards and shed 1,500 2,000 pounds 24,000 pounds

Price of Vendor's seven-eighths share 21,000 pounds."

The disparity between the values apportioned to the three relevant items of plant by this agreement and the values apportioned to the same items by the agreement of 1st September 1958 is very great. Considered together the two agreements seem to adumbrate a scheme to avoid taxation by manipulation of the depreciation provisions of the Act. The Commissioner did not seek any consideration by the Court on the question whether s. 260 of the Act applied. (at p622)

10. The taxpayer set forth in his return for the relevant year of income (July 1959 to June 1960) a deduction expressed as follows:
"Assets Jointly owned with S. J. Ferling
By Agreement dated 8th June 1960, Gustave Ferling agreed to sell to Stephen J. Ferling, his 7/8ths interest in the property of Springvale for 21,000 pounds. Schedule of Property involved in the Sale Lease 6,055 Fencing 902 Timber Treatment 6,443 Scrub Pulling 6,200 13,545 Water Improvements 2,400 Buildings 2,000

24,000 pounds

Sale Price - seven-eighths of 24,000 pounds = 21,000 pounds Loss Arising from Sale i.e. amount of Value Sale Loss price on sale 1.7.59 Price

Fencing by Rigby less 5,680 902 4,778 Water written down Improvements for 7,520 2,400 5,120 Buildings depreciation 4,332 2,000 2,332 12,230 pounds (at p623)

11. G. Ferling's Share of Loss - seven-eighths of 12,230 pounds = 10,701 pounds." The figures indicating the value at 1st July 1959 of the three items of plant respectively are the values apportioned to them by the agreement of 1st September 1958 reduced by the depreciation actually allowed in the assessment for the year ended 30th June 1959. (at p623)

12. It is necessary to refer to s. 59AA. This section provides, so far as material, that where a change has occurred in the ownership of property in respect of which depreciation has been allowed, the provisions of the Act relating to depreciation apply as if the persons who owned the property before the change, had on the day on which the change occurred, disposed of the whole of the property to the person by whom the property is owned after the change for consideration equal to the amount specified in the agreement in consequence of which the change occurred, as the value of the property for the purposes of that agreement, or, if there is no such agreement or no amount is specified, an amount determined by the Commissioner. The agreement of 8th June 1960 came within the operation of this section and also within the operation of s. 59 (1) so far as applicable to it by virtue of s. 59AA. Section 59 (1) provides to the effect that where any property of a taxpayer in respect of which depreciation has been allowed is disposed of at any time in the year of income, the depreciated value of the property less the amount of any consideration receivable in respect of the disposal, shall be an allowable deduction.

"Depreciated value" is defined by s. 62. The provisions of this section are as follows:
"62. - (1) In this Division, 'depreciated value' of any unit of property at any time means the cost of the unit to the person who owns or owned the property at that time less the total amount of depreciation (if any) allowed or allowable in respect of that unit in assessments of the income of that person, for any period prior to that time, under this Act or any previous law of the Commonwealth.
(2) For the purposes of the last preceding sub-section, in any case in which section sixty of this Act, or the corresponding provision of the previous Act, applied or applies in relation to any unit of property, the person who acquired or acquires the unit shall be deemed to have acquired or to acquire it at a cost equal to the depreciated value of the unit immediately prior to the time of the acquisition, or, if the case is one in which the proviso to sub-section (1.) of that section applied or applies, the sum of that depreciated value and the amount required to be added to that depreciated value for the purposes of that proviso."
It is clear that this claim for a deduction referable partly to s. 59AA and partly to s. 59 (1) depended substantially upon adherence by the Commissioner to the opinion which he formed under s. 60 (2) as to the values apportioned to the relevant items of plant by the agreement of 1st September 1958. That opinion is the source of the figures used by the appellant to represent value (i.e. depreciated value) at 1st July 1959. The ingredient of the claim, which the appellant described as "sale price" could, I think, have been accepted by the Commissioner in view of the provisions of s. 59AA. An observation on this section in Guide to Commonwealth Income Tax (11th ed.) by J.A.L. Gunn and M. Maas reads thus: "Section 59AA further provides that, if any amount is specified by the parties as the value of the plant in an agreement relating to the transfer of interests in that plant, that amount shall be regarded as the consideration for the plant, for the purposes of applying the provisions of the Act relating to depreciation. In effect, therefore, the parties to a transfer of interests in plant are permitted to nominate a disposal value which is binding on the Commissioner. If no amount is so specified, it is necessary for the Commissioner to determine the amount to be taken into account as consideration receivable for the plant." I agree with this observation. (at p625)

13. It appears from the adjustment sheet that the claim was wholly disallowed and that the amount of the deduction sought, 10,701 pounds, was included in the taxable income of the year. This was returned at 2,601 pounds. However normal depreciation amounting to 2,012 pounds was allowed as a deduction. The adjustment sheet contained this statement:
"Assets which were held jointly with S.J. Ferling and sold to S.J. Ferling on 8.6.60 have been transferred to S.J. Ferling at Depreciated Values as at that date. (at p625)

14. Depreciated Values at 8.6.60 as follows: -

Fencing 5,443 pounds Water Improvements 5,640 pounds Buildings 4,150 pounds"

These amounts are the depreciated values at the beginning of the year of income (after taking into account depreciation allowed in the assessment for the previous year) less depreciation allowed at the same percentage down to 8th June 1960. The basis of the calculation of depreciation for that period was the opinion originally formed that the values apportioned by the agreement of 1st September 1958 to the items of plant respectively were cost. The net result of the disallowance of the taxpayer's claim and the allowance of a deduction of 2,012 pounds for normal depreciation was that his taxable income was assessed at 11,290 pounds; as returned it was 2,601 pounds. I did not gather from the argument that the Commissioner rejected the values apportioned by the agreement of 8th June 1960 on the ground that they were not made binding by s. 59AA. If binding they provided the subtrahend of the subtraction sum which is required under s. 59 (1) to produce the amount of the allowable deduction. The depreciated values which were the amount from which the subtraction had to be done resulted from the allowance of depreciation for the period between 1st September 1958 to 30th June 1959. This allowance of depreciation proceeded from the basis initially accepted by the Commissioner for calculating depreciation. He adhered to that basis in calculating the deduction of 2,012 pounds. It is not clear why the Commissioner allowed this deduction rather than the deduction actually claimed. (at p625)

15. The taxpayer lodged an objection to the disallowance of the deduction on the ground substantially that the Commissioner failed to apply s. 59AA and the provisions of s. 59 (1) made applicable by that section. Before the issue raised by the objection was judicially determined the Commissioner served notice of amended assessment. The reason for the amendment stated by the notice was: "Disallowance of Depreciation 2,012 pounds." The effect of this amendment was to increase the liability of the taxpayer under the assessment as it stood before amendment because the amount disallowed was added to the taxable income which, as stated above, was assessed at 11,290 pounds (as per Adjustment Sheet). The taxpayer's objection to the amended assessment was expressed to include his objection to the original assessment and in addition an objection that the amendment was not made within the time allowed. This objection was made on the footing that the Commissioner should have adhered to his previous opinion. The basis of that opinion was that the figure purporting to indicate value apportioned to each of the three items of plant with which these proceedings are concerned was the actual consideration given for it. The evidence appearing from the reasons for judgment of the learned primary judge justifies the Commissioner in concluding at the time when he struck out the deduction of 2,012 pounds that the opinion was erroneous, as he contended at the hearing. The assessment for the relevant year of income (1st July 1959 to 30th June 1960) was affected by this opinion because it contributed to the allowance of the deduction of 2,012 pounds for normal depreciation. The Commissioner was competent under s. 170 (8) to correct and amend the assessment by disallowing that deduction. This procedure necessarily involved consideration of the question what would have been the position as regards depreciated value at 1st July 1959 if s. 60 (1) had operated to determine the basis of depreciation. It is clear from the summary of Rigby's return and assessment that there would have been in the case of the fencing and water improvements no residue of depreciated value at that date. Nothing is made clear by the evidence ass to the item "buildings" which is not mentioned in the summary referred to above. It follows, therefore, that it was not erroneous for the Commissioner to strike out the deduction as the ground upon which he did so necessarily involved the rejection of the figures as to depreciated value which the appellant put forward in his claim referable to s. 59AA for the relevant year of income. It is not possible to hold that in all the circumstances of the case the taxpayer's objections either to the original assessment or to the amended assessment ought to be sustained. (at p626)

16. In my opinion the appeals should be dismissed. (at p626)

TAYLOR J. On 1st September 1958 the appellant and his son, Stephen Joseph Ferling, entered into an agreement with one, Marshall Lindsay Rigby, for the purchase of a Crown leasehold pastoral property, known as "Springvale", in Queensland for 23,750 pounds. The agreement evidenced that subject to the consent of the Minister for Lands the vendor agreed to sell and the purchasers agreed to purchase as tenants in common "in the shares Gustaff Ferling seven-eighths and Stephen Joseph Ferling one-eighth". The sale included (1) all improvements the property of the vendor erected or made upon the property; (2) all scrubber cattle except branded scrubbers which were to remain the property of the vendor; (3) the right title and interest of the vendor in and to the telephone lines belonging to Springvale Station subject to the conditions on which the vendor held the same, and (4) the 32 volt lighting plant and the engine on the Alston 20 ft. Mill. Additionally, the agreement provided for a reservation from sale of all livestock, furniture, movable chattels, station plant and the private and personal effects of the vendor or his wife and his employees. A deposit of 2,375 pounds was payable on the signing of the contract and the balance of purchase money was payable upon completion. In due course the purchase was completed. (at p627)

2. Subsequently, on 8th June 1960, the taxpayer entered into an agreement with his son, S.J. Ferling, for the sale to the latter of his seven-eighths interest in the subject property, together with all improvements but excluding all livestock, movable chattels and station plant, for the sum of 21,000 pounds payable on demand. It will be seen that the price payable upon this sale was slightly in excess of seven-eighths of the purchase price payable under the first-mentioned agreement, yet the taxpayer maintains that as a result of these two transactions he was involved in a loss of 10,701 pounds which he is entitled to deduct for the purpose of arriving at his taxable income for the year ended 30th June 1960. This somewhat startling result is said to be the result of the application of provisions of ss. 59 and 59AA of the Income Tax and Social Services Contribution Assessment Act 1936-1960. However, the amount was disallowed as a deduction by the Commissioner who substituted for the deduction claimed an amount for depreciation from 1st July 1959 up to the date of the sale to the taxpayer's son, 8th June 1960, calculated in the same manner as that in which depreciation had been calculated during the preceding income year. The amount so allowed for depreciation was 2,012 pounds and it was calculated, pursuant to s. 60 (2) of the Act, upon what the Commissioner thought to be "the actual consideration given" to Rigby for the so-called items of property in respect of which depreciation had been allowed or was allowable. However, by an amended assessment made on 25th February 1964 the Commissioner disallowed this item as a deduction and increased the tax payable in respect of the relevant year by an amount of 1,210 pounds.12.0. Appeals to this Court brought from both assessments were dismissed by Windeyer J. and these appeals are against his orders of dismissal. (at p628)

3. In order to understand the taxpayer's contention upon the first appeal it is necessary to state that in each of the above-mentioned agreements the parties purported to apportion the purchase price for the property partly to the value of the lease and partly to fencing and timber treatment, water improvements and station buildings. In the first agreement the lease, which then had a little more than six years to run, was valued at 1,935 pounds. On the other hand the parties purported to apportion 5,902 pounds of the purchase price to fencing, 9,400 pounds to bores and the necessary tanks and troughing or drains and 4,500 pounds to station buildings. The residue of the purchase money was apportioned among items in respect of which depreciation was not an allowable deduction. However, in the second agreement, a different apportionment was made. Of the purchase money the parties purported to apportion 6,055 pounds to the value of the lease in spite of the fact that it then had practically two years less to run. Further, the parties purported to apportion in respect of the three classes of improvements referred to above respectively 902 pounds, 2,400 pounds and 2,000 pounds, amounting, in all, to 5,302 pounds. It should be stated that there was nothing in the case to suggest that the improvements referred to were not precisely of the same character and in the same condition at the time of each sale. However if, in the case of each agreement, these figures were to be accepted as the actual consideration given for depreciable property the second sale resulted in a loss on sale of that property of 10,701 pounds whilst, of course, it also resulted in a like profit on the sale of the residue of the subject matter of the sale. (at p628)

4. The starting point for our inquiry begins with s. 54 of the Act which provides, inter alia, that depreciation during the year of income of any property, being plant, or articles owned by a taxpayer and used by him during that year for the purpose of producing assessable income shall, subject to the Act, be an allowable deduction. In this section "plant" includes fences, dams and other structural improvements on land which is used for the purposes of agricultural or pastoral pursuits but the expression is subject to exceptions which it is not material to consider for the purposes of these appeals. Thereafter in following sections provision is made concerning the basis upon which allowances for depreciation may be claimed and allowed in each year of income. But when we come to s. 59 we find that it deals, not with depreciation allowable in the ordinary course of running a business, but with the situation which arises where a taxpayer disposes of property on which depreciation has been allowed and it provides for the making of an adjustment in the taxpayer's income according to whether the property has been sold for an amount, or is of a value, in excess of or less than its depreciated value. In particular, sub-ss. (1), (2) and (3) of that section provide:
"(1) Where any property of a taxpayer, in respect of which depreciation has been allowed or is allowable under this or the previous Act, is disposed of, lost or destroyed at any time in the year of income, the depreciated value of the property at that time, less the amount of any consideration receivable in respect of the disposal, loss or destruction, shall be an allowable deduction.
(2) If that consideration exceeds that depreciated value, the excess, to the extent of the sum of the amounts allowed and allowable in assessments for income tax under this Act and any previous law of the Commonwealth in respect of depreciation, shall, subject to the succeeding provisions of this section, be included in his assessable income of that year.
(3) The consideration receivable in respect of the disposal, loss or destruction means -
(a) in the case of a sale of the property - the sale price less the expenses of the sale of the property;
(b) in the case of loss or destruction of the property - the amount or value received or receivable under a policy of insurance or otherwise in respect of the loss or destruction;
(c) in the case where the property is sold with other assets and no separate value is allocated to the property - the amount determined by the Commissioner;
(d) in the case where property is disposed of otherwise than by sale - the value if any, of the property at the date of disposal." (at p629)

5. It is also necessary to refer to s. 59AA which is as follows:
"Where, for any reason, including -
(a) the formation or dissolution of a partnership; or
(b) a variation in the constitution of a partnership, or in the interests of the partners,
a change has occurred in the ownership of, or in the interests of persons in, property in respect of which depreciation has been allowed or is allowable under this Act or the previous Act, and the person, or one or more of the persons, who owned the property before the change has or have an interest in the property after the change, the provisions of this Act relating to depreciation apply as if the person or persons who owned the property before the change had, on the day on which the change occurred, disposed of the whole of the property to the person, or all the persons, by whom the property is owned after the change for a consideration equal to the amount specified in the agreement in consequence of which the change occurred as the value of the property for the purposes of that agreement, or, if there is no such agreement or no amount is so specified, an amount determined by the Commissioner." (at p630)

6. This section seems to have been introduced as a result of the decision in Rose v. Federal Commissioner of Taxation (1951) 84 CLR 118 and its only material effect appears to be to render s. 59 applicable to cases where joint owners of depreciable property dispose of the property, or of their interest in it, to one or more of their number. (at p630)

7. It will be observed that the definition of "plant" as it appears in s. 54 is a definition for the purposes of that section and that it does not, in terms, extend to s. 59. No doubt it must be applied for the purpose of calculating the allowable depreciation in accordance with a number of sections which succeed s. 54 and there would seem to be little difficulty in calculating the depreciation allowance on plant as so defined as long as it remains the property of the person who has borne the original cost. This is so whether the plant consists of individual items of property or whether, though plant by definition for the purposes of s. 54, it consists of improvements on land and has no value and cannot be disposed of independently of the land. Here, of course, the fencing, bores, troughs, tanks or dams and the station buildings are plant only by virtue of the definition contained in that section. But they are not separate items of property; they consist of improvements on the land, their existence may be reflected in the value of the land and they were bought and sold by the taxpayer, as indeed they could only be, as part of the land itself. With these observations in mind it is necessary to point out that what s. 59 deals with is "property" of the taxpayer, upon which depreciation has been allowed or allowable, which is disposed of, lost or destroyed, at any time during the year of income. This, of course, raises the initial difficulty in the way of the appellant for it is difficult to regard improvements upon land which, although they add to the value of the land, do not in themselves constitute property and have no value independently of the land itself. The next difficulty is that, in spite of the apportionment of the purchase money which each agreement purported to make, the purchase price specified in each agreement was the consideration receivable in respect of the land in the condition in which it stood at the time of each sale. No part of it was the consideration receivable for the improvements which could not be, and therefore were not, made, independently, the subject of a sale. In these circumstances there is, in my view, much to be said for the proposition that the provisions of s. 59 have no application to a case such as the present. I appreciate the difficulties which would flow from such a view but it is one to which, as at present advised, I would be prepared to subscribe since it seems to me to follow inevitably from the language of the section. (at p631)

8. However, there is a further difficulty in the appellant's way and it is one which arises in relation to sub-s. (3) (c) of s. 59 which the appellant contended applied to this case: the case was one where, it was asserted, the taxpayer had sold the "property" with other assets. But, in my view, this is by no means a true analysis of the sale. As already appears the sale was a sale of the leasehold property in the condition which it stood at the time; it was not a sale of several items of property for a composite consideration. However, even if sub-s. (3) (c) could be regarded as applicable to the case - which I think is not possible - there is a further difficulty for the apportionment which each agreement purported to make did not purport to state, and was not intended to reflect, the value of the improvements. On this aspect of the matter the documents in the case are most eloquent; the apportionments were made without regard to values and solely with a view to achieving a beneficial result to the taxpayer in respect of his income tax liabilities. That being so it was for the Commissioner, if s. 59 applied in the circumstances of the case, to determine the amount of consideration receivable for the sale of the property to S. J. Ferling and, accordingly, whether the taxpayer was entitled to any deduction under the terms of the section. The adjustment sheet accompanying the assessment shows that the Commissioner was of the opinion that no loss had occurred on that sale and the assessment has not been shown to be erroneous and, accordingly, the first appeal should be dismissed. (at p631)

9. The second appeal is concerned with the amended assessment which disallowed the deduction for depreciation between 1st July 1959 and 8th June 1960 which had been substituted by the Commissioner in his initial assessment in place of the loss of 10,701 pounds which the taxpayer had claimed. As appears from the facts as related by Windeyer J. depreciation based upon the figures appearing in the agreement with Rigby had been allowed as a deduction during the preceding income year. This meant that the taxpayer was allowed a deduction in respect of the income year which ended on 30th June 1959 based upon a value of 5,902 pounds for fencing, 9,400 pounds for water improvements and 4,500 pounds for station buildings, those being the amounts which the agreement with Rigby purported to apportion to those items. This information appeared in the taxpayer's return for that year but Rigby's return for the same year was not before the officer who dealt with the taxpayer's return. That return, however, was in evidence and it showed the depreciated values of the improvements on his property as at 1st July 1958 as "improvements" 573 pounds and "bores and mills" 95 pounds. The problem which now arises makes it necessary to set out the substantive part of sub-s. (1) of s. 60 and sub-s. (2) of that section. These provisions are in the following terms:
"(1) Where, either before or after the commencement of this Act, a person has acquired any property in respect of which depreciation has been allowed or is allowable under this or the previous Act, he shall not be entitled to any greater deduction for depreciation than that which would have been allowed to the person from whom the property was acquired if that person had retained it: . . .
(2) This section shall not apply where the Commissioner is of the opinion that the circumstances are such that depreciation based on the actual consideration given should be allowed." It, therefore, seems that the officer who made the 1959 assessment must have formed a positive opinion, though on inadequate material, that the circumstances were such that depreciation should be based on the actual consideration given for, otherwise, depreciation should have been calculated pursuant to sub-s. (1). It is clear from the evidence that no opinion was formed prior to the assessment by the Commissioner or a Deputy Commissioner and the evidence does not enable it to be said whether there was any relevant delegation by the Commissioner to the officer concerned pursuant to s. 8 of the Taxation Administration Act 1953-1959. But no point was taken on this score; indeed, it was the appellant's case that the Commissioner or his delegate had formed such an opinion at the conclusion of the income year which ended on 30th June 1959 and that, having then formed such an opinion, he was precluded from forming a contrary opinion for the purpose of the next year's assessment. I therefore assume that in assessing the taxpayer in respect of that income year the Commissioner or his delegate formed the opinion that depreciation for that year should be allowed on what was conceived to be the actual consideration given by the taxpayer for the depreciable items. (at p633)

10. I come now to the assessment for the following year where, so far as is material in these appeals, the Commissioner was primarily concerned with the position of the taxpayer as the vendor of property on which depreciation had been allowed or was allowable and, under s. 59, if it was capable of application, the measure of the taxpayer's deduction was the difference between the depreciated value of the property and the consideration receivable upon its sale. That, the taxpayer alleged, amounted to 12,230 pounds, seven-eights of which was 10,701 pounds. This the Commissioner refused to accept and disallowed the deduction wholly. The reason for this does not appear with too much clarity but if there were nothing else in the case it may have been because he did not accept either the taxpayer's statement of the depreciated value of the items in question, in all 17,532 pounds, or the statement of the amount of the consideration receivable in respect of their sale, in all 5,302 pounds. But this is not all that appears in the case. Having disallowed the deduction claimed he substituted for that claim an amount for depreciation up to the date of the sale calculated by reference to the values given in the return for the preceding year and which, pursuant to s. 60 (2), he had accepted. It was, therefore, an assessment for the later year based upon the opinion which he had earlier formed and though it was too late to amend the earlier assessment, he claimed to amend the 1960 assessment pursuant to s. 170 (8). In my view the amended assessment fell within and was authorized by the terms of this sub-section. Section 60 (2), it seems to me, is a provision of the character referred to in s.170 (8) (a) and the assessment was shown to be affected by the opinion which the Commissioner must be deemed to have entertained that depreciation during the relevant period should be allowed on what he conceived to be the actual consideration given by the taxpayer. The fact that it was too late to amend the 1959 assessment issued on the strength of that opinion is, in my view, of no consequence. That was an opinion formed for the purpose of that year's assessment; it was adhered to in the following year when the original assessment for that year was made, that assessment was based upon the opinion which subsequently appeared to the Commissioner to be erroneous and he was entitled to amend it pursuant to s. 170 (8). (at p633)

11. In my opinion both appeals should be dismissed. (at p633)

MENZIES J. An allowance for the depreciation of capital assets is a provision necessarily made in the annual accounts of every properly conducted business, but such depreciation is not a deduction within the scope of s. 51 of the Income Tax and Social Services Contribution Assessment Act (Cth) because it is a provision against capital loss. Depreciation is therefore allowable as an income tax deduction only to the extent to which it is particularly authorized in the Act and every case where the question is whether or not in the calculation of taxable income a deduction should be made for depreciation involves the application of special statutory provisions to the facts of the case. (at p634)

2. It is not necessary for me to set out the facts here because they are fully stated in the judgment of Windeyer J. and those of the other members of the Full Court. I propose in the first place to state my understanding of a most complicated and difficult group of sections appearing in Pt III, Div. 3, sub-div. A of the Income Tax and Social Services Contribution Assessment Act. (at p634)

3. The leading provision is s. 54 which authorizes, subject to the Act, deductions on account of the depreciation of certain capital assets falling within the description of "plant" or "articles" owned by a taxpayer and used, or in some circumstances installed for use, for the purpose of producing assessable income. In the section "plant" is defined to include "fences, dams and other structural improvements on land which is used for the purposes of agricultural or pastoral pursuits". These items then fall within the description of "units of property". Section 54 is followed by provisions which enable taxpayers, by annual depreciation, to write off the value of units of property in respect of which depreciation is allowable. With these provisions we are not directly concerned. What is directly material is that provision is made for allowing a further deduction when property in respect of which depreciation has been allowed, or is allowable, "is disposed of, lost or destroyed" in the year of income. The principal section dealing with this matter is s. 59 but its provisions have been made applicable in certain cases where, in strictness, there is no disposal of property - for example, s. 59AA. It is by virtue of this section that the taxpayer here has been able to invoke s. 59, claiming correctly, I think, that by reason of the agreement of 8th June between himself and his son, S. J. Ferling, a change occurred in the ownership of plant subject to depreciation in such circumstances that S.J.Ferling, one of the persons who owned the plant before the change, had an interest in the plant after the change. Section 59 requires the ascertainment of "the depreciated value of the property" at the time of its disposal, loss or destruction and "the amount of any consideration receivable in respect of the disposal, loss or destruction". The amount whereby the former exceeds the latter is made an allowable deduction (s. 59 (1)). As a corollary to this it is provided that, when the latter exceeds the former, there is to be included in the taxpayer's assessable income an amount calculated in accordance with s. 59 (2) to (2E). (at p635)

4. It is apparent that there are difficulties in the full application of s. 59 to all units of property that fall within the extended definition of "plant" in s. 54. For instance, it is an odd conception that a dam upon a property may itself be disposed of and a consideration received in respect of its disposal. Nevertheless, it is inescapable that s. 59 does apply to some extent to "plant" which is in reality part of the taxpayer's land. For instance, if a house has been built for the accommodation of employees and, after some years of depreciation, that house is destroyed by fire and insurance moneys are paid, it could not be questioned that s. 59 would apply. The difficulty with which we are concerned arises because disposals are within the scope of s. 59 and, when land is disposed of, that disposal carries with it all that is part of the land. There is something unreal in treating what is simply part of the property as a whole as disposed of "with other assets". The difficulty caused by the words "is disposed of" in s. 59 is perhaps mitigated to some extent by the provisions of s. 59, sub-s. (3), which provides for the ascertainment of "the consideration receivable in respect of the disposal, loss or destruction" of depreciated property. Thus, if an agricultural property on which there is a house which has been depreciated in accordance with s. 54 has been disposed of by sale, it seems to have been within the contemplation of those who framed s. 59 that the Commissioner could determine the value of the house for the purposes of s. 59 in circumstances where "no separate value is allocated" (see s. 59 (3) (c)). It would, I think, be yielding too much to difficulties of a formal nature and having too little regard to the substance of the matter to treat s. 59 as inapplicable in the case where a property is disposed of which consists in part of "plant" upon which depreciation has been allowed in accordance with s. 54. I have, therefore, and against what I may say was my initial reaction, come to the conclusion that s. 59 does apply to cases such as the disposal of "Springvale" by Rigby to the Ferlings, father and son, and by the taxpayer to his son, S.J. Ferling. This conclusion was supported in argument by both the taxpayer and the Commissioner and to depart from established practice would, I am sure, disappoint many expectations. (at p636)

5. As I have already observed, s. 59 requires the ascertainment of both "the depreciated value" of plant disposed of and the "consideration receivable" in respect of that disposal. The "consideration receivable" is to be ascertained in accordance with s. 59 (3). That provision does not say in terms what is the "consideration receivable" in a case where units of property subject to depreciation are sold with other assets and a separate value is allocated by the agreement to such units of property but it must, I think, be inferred from par. (c) that in such a case the "consideration receivable" is the separate value so allocated. This construction of s. 59 (3) does, of course, afford an undesirable degree of latitude to taxpayers and their advisers, for the self-interest of both parties to a sale is not always sufficient to ensure that a true, or even a reasonable, value will be allocated to the items of property subject to depreciation. The sale by Rigby to the taxpayer and S.J. Ferling illustrates this point. Returning to the statutory provisions themselves, it appears to me that the concept of "consideration receivable" (s. 59) is but the other aspect of the "cost of the unit" (s. 62 (1)). The former is what the seller receives; the latter is what the buyer pays; each is the same sum of money. There are, however, difficulties about s. 60 and s. 62 to which it is now convenient to refer, prefacing what I have to say with the observation that both s. 60 and s. 62 are important here in relation both to the disposal by Rigby to the Ferlings, and the disposal by the taxpayer to S. J. Ferling. (at p636)

6. Section 60 deals with the depreciation allowable to a taxpayer upon the acquisition of depreciated property and establishes as the general rule that a taxpayer "shall not be entitled to any greater deduction for depreciation than that which would have been allowed to the person from whom the property was acquired if that person had retained it" (s. 60 (1)). The allowance for depreciation here referred to is clearly enough a reference to annual depreciation, because the sub-section takes as the measure for the purchaser the prospective rights of the seller had he retained his depreciating property. There are two permitted departures from this general rule. The first is that allowed by the proviso to s. 60 (1) which has regard to the possibility that a person may acquire depreciated property at a price which exposes the vendor to tax under s. 59, sub-s. (2). In such s case the purchaser becomes entitled to depreciation calculated upon a value obtained by adding to the value to which the property acquired had been depreciated in the hands of the vendor the amount by which the "consideration receivable" increases the vendor's taxable income by virtue of s. 59 (2). This proviso is also concerned with the calculation of annual depreciation. The second permitted departure from the standard rule is provided for by s. 60, sub-s. (2), which is in these terms: "This section shall not apply where the Commissioner is of the opinion that the circumstances are such that depreciation based on the actual consideration given should be allowed." Notwithstanding the form of words here used, it seems clear that what is intended is that in any case where the Commissioner considers that it would be unfair that the annual depreciation allowable to a purchaser should be fixed by reference to what depreciation would have been allowable to the vendor had he retained what he sold, the Commissioner can allow the purchaser depreciation calculated upon the actual consideration paid. This is how I think s. 60, sub-s. (2), should be understood. Section 60, therefore, is concerned with the annual depreciation to be allowed to the purchaser of depreciated property. Section 62 deals with an entirely different matter. It fixes, for the purposes of Div. 3, the meaning of the words "depreciated value". Sub-section (1) of s. 62 is straightforward and, taking as a starting point the cost of the unit of property to the person claiming depreciation upon it, the section requires that starting figure to be decreased by depreciation already allowed as a deduction in the income tax assessment of that person in order to quantify the "depreciated value" at any particular time. Sub-section (2), however, reflects the difficulties I have already pointed to in s. 60. It applies to fix the "cost of the unit" for the purpose of s. 62 sub-s. (1) at a calculated figure in any case where s. 60 applies. I am disposed to think that it proceeds upon a literal meaning of s. 60 (2) and treats s. 60 as not applying in a case where the Commissioner has decided to allow annual depreciation upon the basis of the actual cost of an item of property which has been depreciated. In a case where s. 60 (1) applies, however, the "cost of the unit" for the purpose of s. 62 (1) is, subject to the proviso, "the depreciated value of the unit immediately prior to the time of the acquisition" - that is, its depreciated value in the hands of the vendor. The applicability or inapplicability of s. 60 determines, therefore, how the "depreciated value" of a unit of property is to be calculated after acquisition. (at p637)

7. Having now set out my understanding of the relevant statutory provisions, I proceed to apply them to the facts as found. (at p638)

8. There was, by virtue of the sale of "Springvale" by Rigby to the Ferlings, father and son, in September 1958, a disposal of "plant" upon which depreciation had been allowed. The "consideration receivable" in respect of that "plant" had to be arrived at in accordance with the provisions of s. 59 (3), and I cannot escape the conclusion that the only possible application of the sub-section is to follow the course taken by the Commissioner and regard the values set out in the schedule to the agreement apportioning the price as separate values allocated to the property. No different amount was determined by the Commissioner in assessing the taxpayer to tax for the year ended 30th June 1959. The schedule itself was as follows: -
"The Schedule hereinbefore referred to
Value of lease 1,935 pounds Fencing 5,902 pounds Timber Treatment 1,413 Scrub pulling 600 7,915 Water: Bore, mill, tanks &troughing 3,000
2 Bores with mill, tanks &troughing 2,000

1 Flowing Bore 2,400 Bore, windmill and troughing 2,000 9,400 Buildings: Dwelling House 1,000 Dip yards and shed 3,500 4,500 23,750 pounds"

The fencing, the water and the buildings as described in the schedule were "plant" for the purposes of s. 54 and depreciation had been allowed to Rigby upon these units of property. Accordingly, the consideration receivable by Rigby for these items was 19,802 pounds and this was the cost of the same items to the Ferlings by virtue of s. 62 (1), provided that s. 60 did not apply. It was upon this amount that the Commissioner allowed depreciation to the Ferlings for the year ended 30th June 1959, reducing the "depreciated value" from 19,802 pounds to 17,532 pounds by allowing 2,270 pounds as depreciation. This figure of 17,532 pounds became, therefore, the depreciated value of the plant in the hands of the Ferlings on 1st July 1959. (at p639)

9. On 8th June 1960 the taxpayer in effect sold his share of the assets bought from Rigby to his son S. J. Ferling for 21,000 pounds "apportioned as set out in the schedule" to the agreement. This schedule was as follows: -
"The Schedule hereinbefore referred to:
Value of lease 6,055 pounds Fencing 902 pounds Timber Treatment 6,443 Scrub pulling 6,200 13,545 pounds Water: Bore, mill, tanks &troughing 750
2 Bores with mill, tanks &troughing 500

1 Flowing Bore 650 Bore, windmill and troughing 500 2,400 pounds Buildings: Dwelling House 500 Dip yards and shed 1,500 2,000 pounds 24,000 pounds

Price of Vendor's seven-eights share 21,000 pounds"

Section 59AA brought s. 59 into operation in respect of this transaction so that, upon the meaning which I have attributed to s. 59, plant in respect of which depreciation had been allowed was disposed of. The taxpayer claims that there was a specification of the value of the plant for the purposes of the agreement so that s. 59 applies as if the taxpayer had disposed of the whole of the plant to S. J. Ferling "for a consideration equal to the amount specified in the agreement . . . as the value of the property for the purposes of that agreement", viz. fencing 902 pounds, water 2,400 pounds, buildings 2,000 pounds, totalling 5,302 pounds. It was on this basis that in his return of income for the year ended 30th June 1960 the taxpayer claimed, pursuant to s. 59, a deduction of 10,701 pounds for depreciation. This sum was calculated as follows: -

"By Agreement dated 8th June 1960, Gustave Ferling agreed to sell to Stephen J. Ferling, his seven-eights interest in the property of Springvale for 21,000 pounds. Schedule of Property involved in the Sale Lease 6,055 Fencing 902 Timber Treatment 6,443 Scrub Pulling 6,200 13,545 Water Improvements 2,400 Buildings 2,000 24,000 pounds

Sale Price - seven-eighths of 24,000 pounds = 21,000 pounds Loss Arising from Sale i.e. amount of Value Sale Loss price on sale 1.7.59 Price

Fencing by Rigby less 5,680 902 4,778 Water written down Improvements for 7,520 2,400 5,120 Buildings depreciation 4,332 2,000 2,332 12,230 pounds (at p640)

10. G. Ferling's Share of Loss - seven-eighths of 12,230 pounds = 10,701 pounds." While I am satisfied that s. 59AA did apply to the transaction of 8th June 1960 between the taxpayer and his son, I do regard as difficult the question whether the agreement did specify 5,302 pounds as the value of the plant for the purposes of the agreement. Upon the whole, I have come to the conclusion that it did, because the price of 21,000 pounds was "apportioned as set out in the schedule" which attributed a price to the various items of plant. Where in an agreement of sale prices are attributed to particular items of property, then it seems to me that when the question is whether the agreement specifies a value "for the purposes of the agreement" of those items of property, the answer should be in the affirmative, notwithstanding that it appears that part of the overall price has been attributed to descriptions of what cannot be regarded as items of property - for example, as in the schedule, timber treatment 6,443 pounds and scrub pulling 6,200 pounds. These latter amounts I would regard merely as going to enhance the value of the lease. I agree with those who think that there is a substantial difference between "price" and "value" but, to my mind, there is identity between "price" and "value for the purposes of the agreement". (at p640)

11. Prima facie, therefore, the taxpayer was entitled to a deduction of 10,701 pounds, as claimed, for his share cost him 17,237 pounds (that is, seven-eighths of 19,802 pounds), the depreciation subsequently allowed to him in respect of the plant was 1,987 pounds, giving a figure of 15,340 pounds as the depreciated value of the property for the purposes of s. 59 whereas, in accordance with s. 59 (3), the consideration receivable by him in respect of the disposal of the plant was but 4,639 pounds. The Commissioner, however, while it seems accepting 4,639 pounds (that is, seven-eighths of 5,302 pounds) as the "consideration receivable" for the purposes of s. 59, now seeks to reject 15,340 pounds as the "depreciated value" of the plant at the time of the disposal by the taxpayer to S.J. Ferling, asserting, so it seems to me, that when assessing the Ferlings to tax for the year ended 30th June 1959, he wrongly took as a starting point for calculating depreciation the cost of the plant as derived from the agreement between Rigby and the Ferlings, viz. 19,802 pounds, of which the taxpayer's share was 17,327 pounds. The Commissioner's case, therefore, turns upon the question of the applicability of s. 60 to determine the depreciated value of the plant purchased by the Ferlings from Rigby, and the submission made on behalf of the Commissioner is that he, having for the year ended 30th June 1959 applied s. 60, sub-s. (2), and taken "the actual consideration" as the starting point in determining the depreciation to be allowed, can now, for the purposes of the year ended 30th June 1960, start again and treat s. 60, sub-s (1), as applicable to the acquisition by the Ferlings from Rigby. It does seem that for the year ended 30th June 1959 the Commissioner allowed the Ferlings depreciation "based upon the actual consideration" paid to Rigby - and seemingly did so again with respect to the year ended 30th June 1960 by allowing 2,012 pounds as depreciation - but, when the Commissioner came to make the original assessment here in question, the main problem was to ascertain "the depreciated value" of the plant in the hands of the Ferlings immediately prior to the sale and that, as things stood was the depreciated value of the plant as at 1st July 1959, viz. 17,532 pounds. That value had been determined by the application of s. 62 (1), leaving s. 62 (2) out of consideration because the condition for its application - viz. that s. 60 applied - had not been fulfilled. The point the Commissioner now takes is that the only reason why s. 60 - and therefore s. 60 (2) - did not apply was that the Commissioner had reached the opinion that depreciation based upon the cost of the various units of plant should be allowed. That opinion, it is now said, was reached in error. If, in assessing the taxpayer for the year ended 30th June 1960, the Commissioner could recall his earlier opinion - as it is said he did notwithstanding the inconsistency of allowing 2,012 pounds as depreciation for the year - then it is said s. 60 (1) would apply and so would s. 62 (2), fixing the depreciated value of the plant at the time of the purchase from Rigby at "the depreciated value of the unit immediately prior to the time of the acquisition" - that is, its depreciated value in Rigby's hands. In that case, the loss claimed by the taxpayer would disappear. The point now to be decided is whether the Commissioner had the power to revoke his earlier opinion and so, as it were, to bring s. 60, sub-s. (1), and s. 62, sub-s. (2), into play to fix the depreciated value of the plant at the time of its acquistion by the Ferlings from Rigby. (at p642)

12. The Commissioner's power to do what it is now claimed would justify the original assessment for the year ended 30th June 1960 - except as to the allowance of 2,012 pounds as depreciation - cannot, so it appears to me, depend upon the provisions of the Act relating to the amendment of assessments, particularly s. 170. The first assessment under appeal whereby the loss of 10,701 pounds was disallowed was an original, not an amended, assessment, and, so far as I can see, no power derived from s. 170 can be relied upon for the making of that assessment. The Commissioner's difficulty, as I see it, is that, by an opinion which he formed in assessing the Ferlings to tax for the year ended 30th June 1959, he rendered s. 60 inapplicable, with the consequence that at a later stage s. 62 (2) was also inapplicable. It would, I think, require express authority to warrant the Commissioner, at some time after 30th June 1960, revoking his earlier opinion, with the consequence that both s. 60 (1) and s. 62 (2) would apply to the disposal by Rigby to the Ferlings in 1958. I have found no such authority. Had resort been made to s. 170 in time, then, no doubt, any erroneous opinion could have been corrected under sub-s. (8) of s. 170 and an assessment issued amending the assessment of the taxpayer made for the year ended 30th June 1959 - but this the Commissioner did not attempt to do. What is now asserted on his behalf is that, although the Commissioner's opinion rendered s. 60 inapplicable for the year ended 30th June 1959, the Commissioner can, by reversing his opinion, make s. 60 applicable to the disposal by Rigby to the Ferlings in September 1958 for the purpose of assessing tax for the year ended 30th June 1960. The consequence of this would be that s. 60 would be applicable to the transaction for one year and inapplicable to the same transaction in relation to later years. To put the same thing in another way, in a case where s. 62 (1) has applied to determine the depreciated value in the taxpayer's hands of what was acquired from Rigby, the Commissioner now claims power not merely to arrest the application of s. 62 (1), but to calculate depreciation as if s. 62 (1) had never applied. Such a result would, I think, require express and clear authority and such authority is lacking. (at p643)

13. I have therefore come to the conclusion that the original assessment disallowing the loss of 10,701 pounds depended upon the exercise of a power which the Commissioner did not possess and, accordingly, the objection to the original assessment should have succeeded and the loss of 10,701 pounds been allowed as a deduction. The Commissioner was, however, wrong in allowing a deduction of 2,012 pounds for depreciation and I see no objection to the amended assessment in so far merely as it disallowed as a deduction what had, in error, been allowed. (at p643)

14. Consequently, I would allow the first appeal as to the allowance of the deduction of 10,701 pounds claimed by the taxpayer, and dismiss the second appeal as to disallowing 2,012 pounds, the sum previously allowed by the Commissioner as a deduction. In the result, the taxpayer was entitled, as he had originally claimed, to a deduction of 10,701 pounds and no more. (at p643)

OWEN J. The first of these appeals relates to an assessment to tax for the year ended 30th June 1960. The notice of assessment was dated 1st February 1962 and the adjustment sheet which accompanied it showed that the Commissioner had disallowed a claim to a deduction of 10,701 pounds alleged in the taxpayer's return to be the amount of a loss incurred by him as the result of the sale by him to his son, S. J. Ferling, on 8th June 1960 of his interest in a pastoral property known as Springvale. The adjustment sheet showed also that an amount of 2,012 pounds had been allowed as a deduction for the year in question. This had not been claimed by the taxpayer in his return, and represented an allowance for depreciation on fencing, water improvements and buildings on the property from 1st July 1959 to the date of the sale on 8th June 1960. The second appeal is against an amended assessment relating to the same year (1959-1960), notice of which was given on 25th February 1964, and which disallowed the deduction of 2,012 pounds which had earlier been allowed. (at p643)

2. The facts are that in July 1958 a Mr. Rigby, a grazier who held Springvale under lease from the Crown, had agreed with S.J. Ferling, the taxpayer's son, to sell him the property for 23,750 pounds. Before the contract of sale was signed, discussions took place between the solicitor who was acting for both Rigby and S.J. Ferling on the sale, and a tax agent who looked after Rigby's income tax affairs, as to the manner in which the purchase price should be apportioned. It seems that in an application made by Rigby for the consent of the Minister for Lands to the proposed sale the value of the improvements on the property had been stated to be

"Fences 881 pounds
"Fences 881 pounds
Timber Treatment 11,400 pounds
Water: 1 Bore equipped 1,000 pounds

2 Bores " 500 pounds 1 Bore flowing 700 pounds 1 Bore equipped 500 pounds

Buildings 1,527 pounds Dip yards and shed 463 pounds Total - 16,971 pounds."

These details were set out in a letter from the solicitor to the tax agent which went on to say that the purchaser, S.J. Ferling, wished to "appropriate as much of the price to the structural improvements as possible provided the vendor will not be unduly affected by way of recouped depreciation" and suggested that the price of 23,750 pounds should be apportioned as follows:

"Value of lease, 19,350 acres @ 5/- per acre 4,837 pounds
Fences 3,000 pounds
Timber Treatment 4,413 pounds Scrub pulling 1,600 pounds Water : Bore, mill, tanks &troughing 2,000 pounds
2 Bores with mill, tanks & troughing 1,000

1 Flowing Bore 1,400

Bore, windmill &troughing 1,000 5,400

Buildings : Dwelling House 3,000 Dip yards and shed 1,500 4,500 18,913 23,750 pounds"

The reply was made that this would be satisfactory to Rigby. The contract was not, however, carried into effect. In substitution for it another contract, dated 1st September 1958, was entered into between Rigby on the one hand and the taxpayer and S.J. Ferling on the other, under which the two Ferlings agreed to purchase the property as tenants in common in the shares Gustaff Ferling (the taxpayer) seven-eighths and S.J. Ferling one-eighth. The price was 23,750 pounds "apportioned as set out in the schedule". The schedule was as follows:

"Value of lease 1,935 pounds
Fencing 5,902 pounds
Timber Treatment 1,413 Scrub pulling 600 7,915 Water: Bore, mill, tanks &troughing 3,000
2 Bores with mill, tanks &troughing2,000

1 Flowing Bore 2,400

Bore,windmill &troughing 2,000 9,400

Buildings: Dwelling House 1,000 Dip yards and shed 3,500 4,500 23,750 pounds"

This contract was carried to completion. (at p645)

3. Section 54 (1) of the Income Tax and Social Services Contribution Assessment Act provides that depreciation during the year of income of any property, being plant owned by a taxpayer and used by him during that year for the purpose of producing assessable income shall be an allowable deduction and, by sub-s. (2) (b), the word "plant" in the section includes fences, dams and other structural improvements on land which is used for the purposes of agricultural or pastoral pursuits. Sections 55 to 57AB which follow provide the methods of calculating the amount allowable by way of depreciation in respect of what the sections describe as "units of property". It does not seem to be very appropriate to describe a fence, a dam or a structural improvement on land, which becomes part of the land itself, as a "unit of property", but in the context in which these words are used they plainly include depreciable improvements which, for the purposes of s. 54, are to be regarded as being "plant". (at p646)

4. The statements accompanying the taxpayer's return for the year 1958-1959 referred to this purchase of Springvale from Rigby and showed how the purchase price of 23,750 pounds had been apportioned in the schedule. The statement set out the amounts allocated to the fences, water improvements and buildings and claimed depreciation on them totalling 2,270 pounds, made up of 222 pounds for fencing, 1,880 pounds for water improvements and 168 pounds for buildings. Seven-eighths of this amounted to 1,986 pounds and this the taxpayer claimed as a deduction. Section 60 (1) of the Act provides that where a person has acquired any property in respect of which depreciation has been allowed he shall not be entitled to any greater deduction for depreciation than that which would have been allowed to the person from whom the property was acquired if that person had retained it. But, by s. 60 (2), the section is not to apply where the Commissioner is of opinion that the circumstances are such that depreciation based upon the actual consideration given should be allowed. The figures put forward by the taxpayer were accepted by the Commissioner and, as I understand it, in assessing the tax for the year 1958-1959 the Commissioner formed the opinion to which s. 60 (2) refers, namely that the circumstances were such that depreciation on the actual consideration given for the items in question should be allowed and, treating the apportioned figures shown in the contract as representing the actual consideration given for them, he allowed the deduction claimed. (at p646)

5. On 8th June 1960, that is to say during the year of income 1959-1960 with which these appeals are concerned, the taxpayer contracted to sell his seven-eighths interest in the property to his son, S.J.Ferling, for 21,000 pounds "apportioned as set out in the schedule". (at p646)

6. That schedule was in the following form but, so that a comparison may be made between the figures set out in it and those set out in the schedule to the contract of 1st September 1958, I have inserted in brackets against each item the figure set against that item in the earlier schedule.

"Value of lease 6,055 pounds (1,935 pounds)
Fencing 902 pounds (5,902 pounds)
Timber Treatment 6,443 pounds (1,413 pounds) Scrub pulling 6,200 pounds (600 pounds) 13,545 pounds (7,915 pounds) Water: Bore,mill,tanks &troughing 750 pounds (3,000 pounds)

2 Bores with mill,

tanks & troughing 500 pounds (2,000 pounds)

1 Flowing Bore 650 pounds (2,400 pounds) Bore,windmill

&troughing 500 pounds (2,000 pounds) 2,400 pounds (9,400 pounds)

Buildings: Dwelling House 500 pounds (1,000 pounds) Dip yards and shed 1,500 pounds (3,500 pounds) 2,000 pounds (4,500 pounds) 24,000 pounds (23,750 pounds)

Price of Vendor's seven-eighths share 21,000 pounds."

It is not suggested that the striking differences between these two sets of figures resulted from any unusual deterioration in the buildings, fences or water improvements or that there had been further expenditure on timber treatment and scrub pulling. As Windeyer J., from whom these appeals are brought, said, the figures in the schedule to the agreement of June 1960 "simply reflect a new view of how the total sum should be apportioned, bearing in mind the incidence of income tax" and "emphasize the unreality of both sets of figures". (at p647)

7. In his return for the year 1959-1960 the taxpayer claimed as a deduction the sum of 10,701 pounds as being a "loss" made by him as the result of this sale and, as appears from a statement which accompanied his return, this "loss" was arrived at in the following way:

"Loss Arising from Sale Value Sale Loss

1.7.59 Price

Fencing 5,680 pounds 902 pounds 4,778 pounds Water Improvements 7,520 pounds 2,400 pounds 5,120 pounds Buildings 4,332 pounds 2,000 pounds 2,332 pounds 12,230 pounds

G. Ferling's Share of Loss-7/8ths of 12,230 pounds = 10,701 pounds"

The "values" shown in the first column represent the amounts set out in the schedule to the contract to purchase from Rigby in September 1958 less depreciation between that date and 8th June 1960 at the rates ordinarily allowed by the Commissioner in respect of fencing, water improvements and buildings and the "Sale Price" figures are those shown in the schedule to the contract between the two Ferlings. (at p648)

8. As I have said, the Commissioner in February 1962 disallowed the deduction claimed and, instead, allowed a deduction for depreciation of 2,012 pounds, that figure being apparently based upon the amounts shown in the schedule to the contract to purchase Springvale from Rigby which the Commissioner had earlier accepted as being the "actual consideration given" for the improvements shown in that schedule. As I have also said, the Commissioner, in February 1964, by which time he had gained information indicating what may not unfairly be described as the "juggling" with figures that had taken place, issued an amended assessment disallowing the deduction of 2,012 pounds. (at p648)

9. The taxpayer's claim to be entitled to a deduction of 10,701 pounds is based upon ss. 59 (1) and 59Aa. Section 59 (1) provides that
"Where any property of a taxpayer, in respect of which depreciation has been allowed or is allowable..., is disposed of, lost or destroyed at any time in the year of income, the depreciated value of the property at that time, less the amount of any consideration receivable in respect of the disposal, loss or destruction, shall be an allowable deduction."
By sub-s. (3) (c), "The consideration receivable in respect of the disposal . . . means--
(a) in the case of a sale of the property--the sale price less the expenses of the sale of the property; (b) . . . .
(c) in the case where the property is sold with other assets and no separate value is allocated to the property--the amount determined by the Commissioner;
(d) . . . ."
And, by s. 59AA,
"Where, for any reason, . . . a change has occurred in the ownership of, or in the interests of persons in, property in respect of which depreciation has been allowed or is allowable . . . and the person, or one or more of the persons, who owned the property before the change has or have an interest in the property after the change, the provisions of this Act relating to depreciation apply as if the person or persons who owned the property before the change had, on the day on which the change occurred, disposed of the whole of the property to the person, or all the persons, by whom the property is owned after the change for a consideration equal to the amount specified in the agreement in consequence of which the change occurred as the value of the property for the purposes of that agreement, or, if . . . no amount is so specified, an amount determined by the Commissioner." (at p649)

10. The submissions made on behalf of the taxpayer are that "property" of his, consisting of his interest in the fencing, water improvements and buildings on Springvale, in respect of which depreciation had been allowed or was allowable, was disposed of by the contract of 8th June 1960. These items of "property" were, it was said, sold with other assets but separate values were allocated to them in the agreement for sale so that it was not for the Commissioner, under s. 59 (3) (c), to determine their value. The case was one for the application of s. 59AA because one of the persons, namely S. J. Ferling, who had an interest in the "property" before the change of ownership, had an interest in it after the change. The provisions of the Act relating to depreciation should therefore be applied as if the two Ferlings - the owners of the "property" before the change - had disposed of the whole of it to S. J. Ferling for a consideration equal to the amount specified in the contract as the value of the "property". Its depreciated value at the time of the sale amounted to 5,302 pounds and its disposal therefore resulted in a loss of 12,230 pounds of which seven-eighths, namely 10,701 pounds, represented the taxpayer's share. This he was entitled to claim as a deduction. (at p649)

11. These contentions, if they be correct, certainly produce a surprising result but the answer to them is, in my opinion, to be found in the fact that the "property" of which the taxpayer disposed was his interest in Springvale and that interest was not, within the meaning of s. 59 (1) or of s. 59AA, property in respect of which depreciation had been allowed or was allowable. It is unreal to say that the fencing, water improvements and buildings in respect of which depreciation had been allowed or was allowable were "property" sold with other assets or to attempt to distinguish between the land and the improvements which became an inseparable part of it. It would be just as unreal to say that the taxpayer had disposed of improvements such as "timber treatment" and "scrub pulling" at figures greatly in excess of the amounts shown against those items in the Rigby contract and had therefore made a substantial profit on the disposal of those improvements. In my opinion the claim to deduct the "loss" of 10,701 pounds was rightly disallowed by the Commissioner. (at p650)

12. It remains then to consider the second appeal which is against the amended assessment made in 1964 disallowing the amount of depreciation which had earlier been allowed as a deduction for the year 1959-1960. (at p650)

13. That deduction had been allowed because the Commissioner when assessing tax for the year 1958-1959 had formed the opinion that the circumstances were such that the amount of depreciation to be allowed should be based upon the figures set out in the schedule to the contract of sale by Rigby to the Ferlings against fencing, water improvements and buildings. Section 170 (8) of the Act provides, however, that
"Where -
(a) any provision of this Act is expressly made to depend in any particular upon a determination, opinion or judgment of the Commissioner; and
(b) any assessment is affected in any particular by that determination, opinion or judgment, then if, after the making of the assessment it appears to the Commissioner that the determination, opinion or judgment was erroneous, he may correct it and amend the assessment accordingly in the same circumstances as he could under this section amend an assessment by reason of a mistake of fact."
But by s. 170 (3),
"Where a taxpayer has made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment, and an assessment is made after that disclosure, no amendment of the assessment increasing the liability of the taxpayer. . . shall be made except to correct an error in calculation or a mistake of fact; and no such amendment shall be made after the expiration of three years from the date upon which the tax became due and payable under that assessment." (at p650)

14. Before issuing the notice of amended assessment in February 1964 it appeared to the Commissioner that his earlier opinion that the circumstances were such that depreciation should be based upon the figures contained in the contract of sale between Rigby and the Ferlings was erroneous and it was in these circumstances that he amended the assessment. The reason why in that amended assessment the whole of the depreciation allowance previously made was disallowed is explained by the fact that the depreciated value of the fencing, water improvements and buildings in Rigby's hands as at 30th June 1958 stood at 668 pounds. In assessing the taxpayer's tax for the following year, 1958-1959, the deduction allowed for depreciation was based on the figures in the schedule to the contract between Rigby and the Ferlings and it amounted to 2,270 pounds. This was because s. 60 (2) had been applied by the Commissioner. When he later reached the conclusion that he had erroneously applied that sub-section, he took the view that because of s. 170 (3), it was too late to amend the taxpayer's assessment for the year 1958-1959 and that it must therefore stand. This meant that the amount of depreciation allowed for that year exceeded the value of the improvements as at 1st July 1958 and there was no room for any further depreciation. (at p651)

15. The argument put forward in support of this appeal was based upon the fact that in assessing the taxpayer to tax for the year 1958-1959 the Commissioner had formed and acted upon the opinion that, under s. 60 (2), "the circumstances were such that depreciation" should be based upon the figures as they were apportioned in the contract between Rigby and the Ferlings. It was said that on 1st July 1959, that is to say at the beginning of the next year of income, the depreciated value of the fencing, water improvements and buildings stood at the figures set out in the contract with Rigby less the depreciation allowed for the year 1958-1959 and, by s. 56 (1) (a), the depreciation allowable in respect of those improvements for the year 1959-1960 was "one and one half times the percentage fixed by s. 55 of the depreciated value" of those improvements at the beginning of that year. The assessment for 1958-1959 still stood and could not be amended because of the lapse of time. The depreciated value of the improvements as at 1st July 1959 therefore provided the basis for calculating the depreciation for the year 1959-1960 and the Commissioner was wrong in amending the assessment for that year and disallowing the deduction for depreciation which had earlier been allowed. But these submissions cannot, in my opinion, be accepted. The erroneous opinion held by the Commissioner when assessing tax for the year 1958-1959 admittedly affected the assessment for that year but because of the lapse of time that assessment could not be amended. It seems to me, however, that that erroneous opinion also affected the assessment for the year 1959-1960 since the calculation of the amount of depreciation to be allowed in that year was based on the depreciated values brought forward from the 1958-1959 year. The requirements of s. 170 (8) were therefore fulfilled and the assessment for the year 1959-1960 could be amended. (at p652)

16. In my opinion this appeal should also be dismissed. (at p652)

Orders

Appeals dismissed. Question of costs reserved.

The following judgment was delivered in relation to the reserved question of costs: -
Judgment in these appeals was delivered in Perth on 16th September 1966, when both appeals were dismissed. However, the Court reserved the question of costs of the appeals on the application of the appellant on the understanding that written submissions would be filed setting out the grounds upon which the appellant contended that the ordinary rule as to costs should not apply. Submissions have now been filed by both the appellant and the respondent and it is sufficient to say that the Court has considered them and is of opinion that an order should be made that the appellant pay the respondent's costs of the appeals.

Appellant to pay respondent's costs of the appeals.