Cromer Golf Club Limited v Downs

Licences are issued in respect of particular aircraft types. Hence, a person seeking endorsement to fly a particular aircraft type must undertake the necessary training with an airline operating that type of aircraft. For example, the respondent is the only operator of A300 aircraft and has the only A300 simulator in Australia; hence a person wishing to qualify on that aircraft must undertake a course at the respondent's centre or go overseas. At relevant times the respondent's centre was also the sole institution able to provide the training and qualification necessary for the DC9 aircraft. The respondent has conducted an aviation training school since it came into existence as Trans-Australia Airlines in 1946. It has been known as the flight training centre since 1964, but its functions have been essentially the same since 1946. Regulation 217, previously mentioned, is of some significance. It relevantly provides as follows: "217(1) An operator of a regular public transport service, an operator of any aircraft the maximum take-off weight of which exceeds 5,700 kilograms and any other operator that the Authority specifies shall provide a training and checking organisation so as to ensure that members of the operator's operating crews maintain their competency. Penalty: $5,000.

(2) The training and checking organization shall include provision for the making in each calendar year, but not at intervals of less than four months, of two checks of the nature sufficient to test the competency of each member of the operator's operating crews. Penalty: $5,000. (3) The training and checking organization and the tests and checks provided for therein shall be subject to the approval of the Authority ...' The flight training centre with which this case is concerned is an organization for training and checking provided by the respondent in compliance with regulation 217. I agree with the submission of counsel for the respondent that regulation 217 does not require the respondent to establish the flight training centre. It only requires it to have a training and checking organization to ensure operating crews maintain competency. The respondent's flight training centre also performs other training functions, as mentioned earlier. The primary Judge summarized the functions of the respondent's training centre. I shall state what those functions are and in doing so shall rely upon the findings of the primary Judge (they were not challenged on appeal); I shall also elaborate them a little by reference to other evidence which is not disputed by either party. The respondent's flight training centre is housed in the building complex specifically designed for its use as such a centre in Essendon, Melbourne. It was established for the primary purpose of instructing trainees and has its own administration for this purpose. The buildings house aircraft flight simulators which are structures each of which houses an imitation of the cockpit of an aircraft of a type in the respondent's regular public transport service. Each simulator is mounted on hydraulic hoists capable of tilting and lowering and raising the cockpit to simulate the changing orientation of the cockpit of an aircraft in flight. By the operation of computer programs, a pilot's operation of the aircraft controls and instruments in the flight simulator have the apparent effects which would result from operation of the same controls and instruments in a real aircraft of that type. The visual and auditory impressions of flight are simulated, so that a landing or take-off at a particular Australian or foreign airport can be experienced. Abnormal conditions of the environment, or one or more the aircraft's control or flight systems, can be simulated. In other parts of the building there are facilities for instruction similar to classrooms, some with computer terminals, and a substantial library of videotapes, instruction and testing materials. There are structures which simulate the passenger compartments of large commercial aircraft and structures which simulate the exterior of such aircraft from which emergency evacuation of passengers is conducted into life rafts or to the ground. Flight attendants are also trained at the centre. They are instructed in emergency procedures and in their co-operation with flight crew by instructors responsible to the flight operations manager of the respondent, who controls flight crew training, as well as attending to other duties with the respondent. Other training of flight attendants is by instructors responsible to the manager of flight attendant training. The centre provides defined syllabuses for each course of instruction. It is accessible to any person seeking to obtain relevant qualifications. The qualifications achieved at the conclusion of the training courses at the centre are transferable. Most trainees are employees of the respondent who are, or who aspire to be, flight crew members, whether pilots or engineers. Others are employees of foreign airlines, most of which are based in countries surrounding the Pacific and Indian Oceans, and officers of the Authority. There is evidence that any suitably qualified pilot who seeks to be trained at the centre is likely to be accepted, but that suitable qualification is a licence which it is unlikely that a person not engaged in commercial aviation would hold. Almost all trainees who enter upon a course of training at the centre hold a senior commercial pilot licence or an airline transport pilot licence. The respondent's flight training centre is certified by the New Zealand Civil Aviation Authority as an approved training institution. Organizations such as Garuda Airlines, after initially assessing and approving the centre, send a representative each year to inspect the centre and renew its approval as a training institution. Flying qualifications obtained in Australia are accepted by most overseas countries, subject to a pilot satisfying additional local requirements, usually including examinations on the local flight rules and procedures and the provisions of the applicable air navigation legislation. The substantive flight training does not have to be repeated. The respondent charges fees for providing its services at the centre which are intended to return a profit. The fees which the respondent charges another airline in respect of the training of its employees are, if the respondent's instructors are involved, greater than if, as is frequently the case, the instructors are employees of that other airline. Use of the facilities at the centre is extensive. In addition to flight crew training, testing and checking, licensed aircraft maintenance engineers undergo training in the aircraft flight simulators. Educational courses for the public are organised by the Women's Pilots' Association and are conducted at the centre, mainly by the instructors employed at the centre. Some conferences or classes of airline employees and educational demonstrations by manufacturers of aircraft and aircraft equipment are held at the centre. Many of the functions of the Authority concerning testing and checking of flight crew proficiency are delegated to employees of the respondent, including some of those who are engaged in instructing trainees at the centre. There is an absence of evidence concerning the funding of the centre, including whether the centre is treated for accounting purposes as separate from the other activities of the respondent, whether its books and accounts are separately maintained, and matters of this kind; but this leaves the position neutral. In my opinion the primary Judge correctly concluded that the respondent's flight training centre answered the description of a 'school' within the meaning of Item 63A. It existed for the purpose of instruction in flying skills and related matters of pilots, engineers and flight attendants engaged by the respondent and other airlines, and of officers of the Authority. The fact that the respondent exists to make a profit does not militate against the conclusion that the flight training centre was a 'school' at relevant times. The flight training centre was a 'school' conducted in order to comply with the respondent's statutory obligation to have a training organization to ensure that operating crews maintained competency. It is not correct that the activities of the centre were directed specifically to the commercial ends of the respondent. Certainly the respondent would not have conducted the centre if it had not carried on its ordinary airline operations; but this fact does not determine the true nature and character of the activities of the centre. That leaves the second limb of the question, namely: whether the respondent which conducted the 'school' is an organization 'not carried on for the profit of an individual'. This is in my opinion the nub of the case. The reference in Item 63A to 'not carried on for the profit of an individual' is, in my view, to the organization which conducts the 'school', not to the school itself. The primary Judge held that the word 'individual' where used in Item 63A is limited in its denotation to human beings and that the use of the word 'individual' was intended as a means of comprehending the diversity of persons and associations of persons who conduct schools in this country and to ensure that the derivation or the seeking of profit by the conduct of a 'school' should not bar enjoyment of the exemption granted by Item 63A if the profits gained or sought were not for any one or more individuals, but for an unidentified plurality of persons, such as present and future scholars of the school, or those who should have to pay their fees, or those who should in the future be asked to donate money to enable the school to expand or to continue, or those who should from time to time benefit by distribution of such profits for charitable purposes. In my opinion 'an individual' within the meaning of the exemption of Item 63A comprehends only natural persons: see Acts Interpretation Act 1901, s. 22(1)(aa) (there is no contrary intention discernible in Item 63A). It is not a bar to eligibility to the exemption that an organization is carried on to make a profit. If profits are ploughed back into the school for the benefit of future generations or to enhance the future growth of the organization, it is not carried on for the benefit of an individual. But if the profit goes directly or indirectly to identifiable persons then the exemption is not available. The Commonwealth as the beneficial owner of all the shares in the respondent and the holder of all but five of the shares, does not answer the description of 'an individual'. It is the Commonwealth of Australia as a body politic; and indirectly the people of Australia are the ultimate beneficiaries of any profit made by the respondent. They do not answer the description of an individual for the purposes of Item 63A.

I would dismiss the appeal with costs. I certify that this and the preceding twenty-nine (29) pages are a true copy of the reasons for judgment herein of the Honourable Justice Lockhart. Associate Dated: 26 November 1996

IN THE FEDERAL COURT OF AUSTRALIA ) VICTORIA DISTRICT REGISTRY ) No VG 220 of 1996 GENERAL DIVISION ) BETWEEN: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Appellant

COURT: Lockhart, Sundberg and Merkel JJ DATE: 26 November 1996 PLACE: Melbourne

REASONS FOR JUDGMENT SUNDBERG and MERKEL JJ: The issue The issue raised in this appeal is whether sales tax is payable on goods acquired by the respondent for use in its flight training centre. Tax is payable only if the centre is a "school conducted by an organization not carried on for the profit of an individual". The flight training centre At all times relevant to this appeal the respondent was a company limited by shares, all of which were beneficially owned by the Commonwealth. The respondent operated an airline service. Regulation 217 of the Civil Aviation Regulations required airline operators to "provide a training and checking organisation so as to ensure that members of the operator's

operating crews maintain their competency". In compliance with the regulation the respondent established a "flight training centre". The centre was also used to train those who wished to acquire the level of competency necessary to obtain licences to act as pilots in regular public transport services. The centre was in a complex specifically designed as a flight training centre. It contained, amongst other things, aircraft flight simulators. Each simulator housed an imitation of the cockpit of an aircraft of a type used in the respondent's service, and was mounted on hydraulic hoists capable of tilting the cockpit and lowering and raising it to simulate the changing orientation of the cockpit of an aircraft in flight. A pilot's manipulation of the controls and instruments in the flight simulator mimicked the effects which would result from the operation of the equivalent controls and instruments in a real aircraft. Visual and auditory impressions of flight were simulated, so that landing or take-off at a particular airport could be "experienced". Abnormal conditions of the environment and irregularities in function of one or more of the aircraft's control or flight systems could be replicated. In other parts of the complex there were areas for instruction similar to classrooms, some containing computer terminals. Other facilities included a substantial library of instructional videotapes and testing material. There were structures replicating both the passenger compartments of large commercial aircraft and the exterior of such aircraft. These were used in the training of flight attendants with respect to in-flight service and in the emergency evacuation of passengers. Most trainees were employees of the respondent who were, or who aspired to be, pilots or engineers. Others were employees of foreign airlines and officers of the Civil Aviation Authority. Nearly all trainees held a senior commercial pilot licence or an airline transport pilot licence. The centre was also used to train flight attendants in emergency procedures, co-operation with flight crew, and in other duties. The respondent charged fees for the provision of services at the centre. The fees it charged other airlines in respect of the training of their employees were greater if the respondent's instructors were involved than if, as was frequently the case, the instructors were employees of the other airline. Many of the functions of the Civil Aviation Authority in respect of testing and checking flight crew proficiency were formally delegated to employees of the respondent, including some of those who were engaged in instructing trainees at the centre. Use of the facilities at the centre was extensive. In addition to flight crew training, testing and checking, licensed aircraft maintenance engineers underwent training in the aircraft flight simulators. Educational courses for the public were conducted. Conferences of classes of airline employees, and educational demonstrations by manufacturers of aircraft and aircraft equipment, were held at the centre. The proceedings below Section 5 of the Sales Tax (Exemptions and Classifications) Act 1935 ("the Act") exempted from sales tax the items listed in the First Schedule. Item 63A read: Goods for use (whether as goods or in some other form), and not for sale, by a university or school conducted by an organization not carried on for the profit of an individual. In February 1989 the respondent imported into Australia goods for use by the centre. It applied for a refund of the sales tax relating to the goods. It claimed the centre was a "school" within the meaning of item 63A, and that the organisation which conducted the centre, namely the respondent, was not carried on for the profit of an individual, but for the profit of the Commonwealth, the beneficial owner of all the shares in the respondent. The appellant refused the refund and disallowed the respondent's objection against that decision. The respondent's appeal to this Court was allowed by Jenkinson J, who set aside the appellant's decision on the objection and remitted the matter to the appellant to be dealt with according to law. The appeal is from that decision. Primary judge's reasoning on "school" Jenkinson J was of the view that in its ordinary meaning the word "school" comprehends an institution in which instruction in some area or areas of knowledge or activity is imparted, whether to children or adults, by persons professing the capacity to give that instruction, the institution having as its reason for existence the imparting of that instruction. His Honour accepted the present respondent's submission that integration of an institution existing to impart instruction within, and as part of, an organisation existing to attain quite different objectives, does not take the institution outside the ordinary meaning of the word. He continued: A school for the general education of the choir boys conducted by the chapter of a cathedral is a school in ordinary parlance. So, too, I think, would be a trade school for employees of a manufacturing or trading company conducted by the company. A school does not lose that appellation by reason of its being conducted for the profit of those who conduct it, as the legislature recognised by concluding item 63A with the words "conducted by an organization not carried on for the profit of an individual". An institution may in my opinion be said to have as its reason for existence the imparting of instruction, notwithstanding that laws requiring employees engaged in a particular activity to gain and maintain competence in the subject of instruction, and requiring their employer to provide an organisation for that instruction, have also been the reason for the existence of the institution as an integral part of the business in which that activity is carried on. The fact that the activities in the centre involved air crews demonstrating their continued competence (as well as instructing others wishing to acquire competence) did not, in his Honour's view, prevent the centre being a school. The periodic testing and checking sessions provided occasions for instruction and training in respect of new developments in aircraft equipment and operation, and the evaluation of a trainee's performance was a technique of instruction by which any need of further training was disclosed. His Honour thought that school premises can occasionally be put to uses unconnected with schooling the pupils without the institution ceasing to be a school. He was also of the view that rare or expensive facilities or equipment in a school may be made available for use by those who do not receive instruction from the school's teachers without casting doubt on the institution's character as a school. What is a school in item 63A? The meanings of "school" given in the second edition of the Oxford English Dictionary include these:

1. Place or establishment for instruction. ... 3.a. An institution in which instruction of any kind is given (whether to children or adults). Often with defining word indicating the special subject taught, as dancing, music, riding school. ...

4.a. A place, environment, etc, where one gains instruction or training in virtue, accomplishments, or the like .... In Cromer Golf Club Ltd v Downs (1973) 47 ALJR 219 the High Court considered whether the resumption of land for a "national fitness camp" was a resumption for a "school site". Barwick CJ, with whom the other members of the Court agreed, said: the word "school" [in the resumption legislation] is not limited in its meaning to that of a school as in and under the Public Instruction Act; in particular, ... it is not a public school under the Public Instruction Act which is in contemplation in that paragraph. ... It seems to me that a "school" is a place where people, whether young, adolescent or adult, assemble for the purpose of being instructed in some form of knowledge or of activity. Thus there are drama schools, trade schools, agricultural schools and so on. In Federal Commissioner of Taxation v Leeuwin Sail Training Foundation Ltd (1996) 96 ATC 4721 a Full Court of this Court considered whether the Foundation was a school for the purpose of item 109 of the First Schedule to the Act which exempted "Goods for use by a university, or school, that is conducted by a non-profit body". Northrop and Finn JJ, at 4726, said: The point of departure of these respective submissions is, essentially, as to the effect (if any) to be given to the collocation of the words "university" and "school". Unless this in some way contrives and narrows the meaning to be attributed to "school", there is not in our view any answer to the respondent's submissions. We put the matter this way because (a) the dictionary definitions we have noted would clearly encompass the instruction provided by the respondent; and (b) it is not open to serious argument that the definition given by Barwick CJ in the Cromer Golf Club case was intended to be other than its ordinary meaning ... ... We turn now to the effect of the collocation of the words "university" and "school". Even if the word "university" is suggestive of one particular type of educational institution performing a relatively accepted core function in the educational arena (ie the provision of a range of tertiary qualifications to students and the conduct of research), we are unable to accept that the consequence should follow that in construing Item 109 we should strive to isolate an activity or function more narrow than is suggested by the dictionary/Cromer Golf Club definitions ... for no more obvious purpose, it would seem to us, than to give a meaning to the two words which overall would describe little if anything more than the traditional primary, secondary and tertiary institutions of educational instruction in this country. Carr J expressed similar views at 4732. The activities carried out at the centre qualify it as a school within the dictionary and the Cromer definitions. But the appellant contended that in item 63A a school comprehends an instructional institution or establishment where the process of instruction and learning is the sole or predominant purpose of the institution or establishment. It was submitted that where a trading corporation, such as the respondent, gives instruction to its employees as a necessary incident of carrying on its business activities, the place where that instruction is given is not a school. In support of this proposition the appellant relied on a decision of the Administrative Appeals Tribunal, constituted by Mr Justice Neaves, Deputy President Hall and Sir Ernest Coates, in Qantas Airways Ltd v Collector of Customs (NSW) (1984) 6 ALN N261. That case concerned a flight training centre conducted by Qantas Airways Ltd, and the question was whether goods imported for use in the centre were "goods ... that are for use for instructional purposes in a university, college, school or other educational institution" within item 22 of Part I of the second Schedule to the Customs Tariff Act 1966. The Tribunal held that the centre was not a school or other educational institution. It said: The collocation of expressions ... convey, in our opinion, a definite impression that the special, and lower, rate of duty is to apply where the goods are to be used for instructional purposes in a body or institution that exists for the dominant or primary purpose of imparting knowledge as an object or end in itself. ... [Each of the expressions university, college, school and other educational institution refers] to institutions or bodies that can be seen as part of the general educational system. ... We are in no doubt that the flight operations training centre has, as part of its objects, the imparting of knowledge in a variety of subjects including aircraft performance, operational requirements and safety and emergency procedures .... But the imparting of knowledge is not, for the centre, an end in itself. The centre is but an integral and necessary part of a large commercial undertaking carrying on an international airline service. We cannot think that the function of the centre can be characterised as if it were separate from the wider organisation of which it forms part. Looked at in this context, its dominant or primary purpose is to give training and instruction for the purpose of maintaining the level of skills for specific duties that employees of the applicant already perform in the conduct of the applicant's business or for the purpose of enhancing those skills to fit those employees for the carrying out of other duties that may be assigned to them within that business. No reference was made to Cromer. Item 22 does not distinguish, as does item 63A, between the educational institution itself and the organisation that conducts the institution. The Tribunal was thus able to say that the function of the centre could not be characterized as if it were separate from the wider organisation of which it formed part. Because item 63A does distinguish between the school and the organisation which conducts it, that which is claimed to be a school must be characterised in its own right. In any event, whatever may be position with item 22, item 63A looks, in our view, to what the educational institution in fact does, and not to the purpose for which it was brought into existence. On the evidence before the primary judge, the centre was plainly a school in the sense described in the dictionary, in Cromer and in Leeuwin. It had defined syllabuses for each course of instruction provided. It had defined programs of instruction and qualified instructors. There was external certification by the Civil Aviation Authority of the syllabuses, the training exercises, the instructors and the equipment. The centre had a physically identifiable location, its own administration, and was established for the sole purpose of instruction. Qualifications obtained at the conclusion of training were portable - within Australia, a pilot could, without further qualification, work with any domestic airline operating aircraft of the type in respect of which the qualification was obtained. The flight training centre conducted by the respondent was therefore a school within item 63A. Primary judge's reasoning on "profit of an individual" His Honour was of the view that "individual" comprehended only a human being. The appellant was carried on for the profit of the Commonwealth, the beneficial owner of all its shares. The profit gained by the Commonwealth did not pass to any identified human being, but was held for the benefit of the unidentified people of the Commonwealth for the time being. Accordingly the appellant was "an organization not carried on for the profit of an individual" within item 63A. Profit of an individual? The appellant submitted that the words "an organization not carried on for the profit of an individual" comprehend an organisation which does not derive profit for the benefit of its individual members. The respondent carries on business for the profit of its individual shareholders. Accordingly, it was said that it is not "an organisation not carried on for the profit of an individual". It was also submitted that that expression described a profit making organisation as opposed to a non-profit making organisation, and that the addition of "an individual" does no more than express or re-iterate this. The respondent submitted that it was carried on for the profit of the Commonwealth as beneficial owner of all the shares, and that the Commonwealth is not "an individual". The ordinary meaning of the word "individual" is "natural person". We see no reason to treat the word as having a different meaning in item 63A. In any event the meaning is put beyond doubt by s 22(1)(aa) of the Acts Interpretation Act 1901, which provides that "individual" in any Act, unless the contrary intention appears, means a natural person. We can discern no contrary intention. In our view the "profit of an individual" is not limited to direct profit, but includes indirect or ultimate profit. We would regard an organisation as being carried on for the profit of an individual notwithstanding that one or more corporations are interposed between the organisation and an individual. Thus, if the profit of an organization is distributed directly or indirectly to one or more natural persons, the organization is carried on for the profit of an individual within the meaning of item 63A. In the present case the profit of the respondent is not distributed in the manner described above. The only entity which profited from the activities of the respondent was the Commonwealth. The Commonwealth is a body politic and not a natural person. The individual shareholders, who held their shares on trust for the Commonwealth, did not derive any profit from the shares. Accordingly the respondent is an "organization not carried on for the profit of an individual". It follows that sales tax is not payable on the goods acquired by the respondent for use in its flight training centre. We would dismiss the appeal. The respondent is therefore entitled to the exemption in item 63A, and the appeal must be dismissed. I certify that this and the preceding ten pages are a true copy of the reasons for judgment of the Honourable Justices Sundberg and Merkel ................................................. Associate 26 November 1996

Counsel for the Appellant: A H Goldberg QC, G J Davies and H M Symon Solicitor for the Appellant: Australian Government Solicitor Counsel for the Respondent: A J Myers QC and C M Maxwell Solicitors for the Respondent: Phillips Fox Date of Hearing: 7 October 1996 Place of Hearing: Melbourne Date of Judgment: 26 November 1996