Mobil Oil Australia Pty Ltd v Federal Commissioner of Taxation

Mobil Oil Australia Pty Ltd (Mobil) appealed to the High Court of Australia against a decision of the Federal Commissioner of Taxation (the Commissioner) concerning the deductibility of certain expenditure. The dispute centred on whether payments made by Mobil to its parent company, Mobil Oil Corporation, for the supply of crude oil were deductible business expenses under section 51(1) of the *Income Tax Assessment Act 1936* (Cth).

The High Court was required to determine whether the expenditure incurred by Mobil in acquiring crude oil from its parent company was an allowable deduction for income tax purposes. Specifically, the court had to consider whether the expenditure was incurred in gaining or producing assessable income, or in carrying on a business for the purpose of gaining or producing assessable income, and whether it was of a capital, or of a capital, nature.

The court reasoned that the payments for crude oil were an essential part of Mobil's business operations, which involved refining and selling petroleum products. The price paid for the crude oil, while determined by an internal arrangement, reflected the cost of acquiring a necessary trading stock. The court applied the principle that expenditure incurred in the acquisition of trading stock is generally deductible as a business expense, provided it is not of a capital nature. The court found that the expenditure was not capital in nature, as it related to the cost of goods sold rather than the acquisition of a business structure or enduring asset.

The appeal was dismissed, with the court upholding the Commissioner's assessment.