Moreton Central Sugar Mill Co Ltd v Commissioner of Taxation

High Court of Australia|1967-07-01|Before: Kitto J

High Court of Australia Kitto J. Moreton Central Sugar Mill Co Ltd v Commissioner of Taxation (Cth) [1967] HCA 20

June 20 Kitto J. delivered the following written judgment: -

This is an appeal by a taxpayer, under s. 196 (1) of the Income Tax and Social Services Contribution Assessment Act 1936-1964 Cth, from a decision of a Board of Review. The appellant, having incurred in the relevant year of income expenditure of a capital nature on three additions to the property it owned for use for the purpose of producing assessable income in its sugar-milling business, claimed to be entitled to be allowed as a deduction from its assessable income of that year an amount in accordance with s. 62AA (5) of the Act. It was entitled to the allowance in respect of any of those additions which were "manufacturing plant" within the meaning of the section. The expression is defined by sub-s. (1) to mean a unit of property in relation to which the section applies, and that means, as sub-s. (2) provides (subject to sub-s. (3) which need not here be considered), any property being plant or articles owned by the taxpayer for use by it primarily and principally, and directly, in any of a variety of activities described in the seven paragraphs, lettered from (a) to (g), of sub-s. (2). The appellant relies upon pars. (a) and (e), contending that each of the items of property in question was owned by the appellant for use primarily and principally, and directly - (a) in any part of the operations by means of which manufactured goods (raw crystalline sugar) are derived by the taxpayer from other goods (sugar cane), or (e) in the transportation, within premises in which any property in relation to which this section applies (e.g. the machinery in the sugar mill) is used, of goods (sugar cane) in relation to which that property (e.g. the machinery) is to be used.

The additions in question were (i) a new diesel locomotive which the appellant acquired and uses for the purpose of hauling trucks to and from points at or near cane fields where cane is delivered by growers to the appellant; (ii) some new trucks, to be hauled by the locomotive, for the conveyance of cane from the points mentioned to the appellant's mill; (iii) a pit for servicing the locomotive, being a hole in the ground lined with reinforced concrete and having steel girders supporting rails upon which the locomotive stands while being serviced from beneath.

Since no plant or article is property to which the section applies if it is not owned by the taxpayer for use by him "primarily and principally, and directly" in one or more of the relevant activities, it is important to mention in greater detail the use for which the locomotive and the trucks are owned by the appellant. The points of delivery of cane by growers are spread over so wide an area that the tramlines radiating to them from the mill are of a total distance of sixty-one miles or thereabouts. The lines have been constructed and are operated by the appellant under the powers conferred upon it by s. 87 of The Regulation of Sugar Cane Prices Act of 1962 Q.. Only for about five miles do they traverse lands of which the freehold belongs to the appellant. For the rest, they traverse lands some of which are vested in the Maroochy Shire Council, some are vested in the Main Roads Board, and the rest are the property of private persons. The appellant's rights with respect to the lines on property which it does not own, arise, some from permits or agreements under The Local Government Acts, 1936 to 1961 Q., some from authorities under The Main Roads Acts, 1920 to 1962 Q., and some from grants of so-called easements under Div. VI of The Regulation of Sugar Cane Prices Act of 1962 Q. or corresponding provisions of earlier Acts. Points on the tramlines are fixed by award, at which growers must deliver their sugar cane and the appellant must accept it. In the crushing season of about twenty-three weeks each year there is a continuous operation of picking up the cane at points of delivery, carrying it in trucks to the marshalling yards and thence to the weighbridge on the mill site (which is about eight acres in area), detaching the locomotive, weighing the laden trucks, conveying the trucks by hydraulic means to what is called a carrier, tipping the cane into the carrier for the purpose of its being chopped, shredded and passed through the milling procedure, re-attaching the locomotive to the trucks and hauling them again to the pick-up points to be loaded with more cane. This goes on for twenty-four hours a day, the transportation of the cane to the mill being accomplished as promptly as possible because sugar cane deteriorates unless it is milled soon after being cut. It is evident that primarily and principally, and directly, the locomotive and the trucks are for use in the transportation of sugar cane along the tramlines which lead from the various points of delivery to the mill site, that is to say over lands not belonging to the appellant. Transportation on the mill site itself extends for only about half a mile.

The appellant contends in relation to par. (e) which it is convenient to consider first, that not only the mill site but also the whole tramline system falls within the description of "premises in which any property to which this section applies is used", because (leaving the rolling stock aside) the plant on the mill site is used "in" the entire complex of which the tramlines form an integral part, and that entire complex is within the notion of "premises".

I was referred to the speech of Lord Hailsham in Whitley v. Stumbles [1] in which his Lordship, with the concurrence of the whole House, construed the expression "any premises held under a lease", in the context of a particular statute, as including easements granted as appurtenant to demised land, and any other incorporeal hereditaments which are the subject of the habendum. It is not difficult to imagine a context in which the appellant's rights of passage for its rolling stock over the sixty-one miles of tramline would likewise be considered to be included in the "premises" of which the mill site would be the principal part; but par. (e) in my opinion provides a context which restricts the word to a corporeal thing, land or a building or the like. The words "within" and "in" seem clearly to indicate that both the transportation and the use of the property in relation to which the section applies must take place inside the boundaries or walls of that to which the word "premises" is applied. It is not an apt use of language to speak of transportation as being "within" an incorporeal right, whether it be a right under the grant of a licence or of an easement or under a statutory provision; nor is it apt to speak of property as being used "in" an incorporeal right. Nearly all the transportation of sugar cane from the pick-up points to the mill site takes place within premises of which the appellant has for the most part neither ownership nor possession, and which therefore, in my opinion, cannot be regarded as part of the premises in which the appellant uses its milling plant. I am clearly of opinion that neither the locomotive nor the trucks are used primarily and principally for transportation within those premises.

I turn then to the question under par. (a). The Commissioner contends, and the Board of Review has held, that the transportation of the sugar cane from the pick-up points to the mill site is only preparatory to and therefore is to be distinguished from the operations by means of which sugar is derived from the sugar cane. That is to say that what par. (a) means by the expression "the operations by means of which manufactured goods are derived from other goods" is those operations only which form part of the actual process which effects the derivation, so that operations by means of which the "other goods" are brought to the point where the manufacturing begins are excluded notwithstanding that they are preliminary to and indispensable for the manufacturing process. This means that the operations to which par. (a) applies in respect of the production of sugar commence at the mill and not at the cane fields. The appellant, on the other hand, contends that every activity in which it engages from the loading of cane on to the trucks at the pick-up points to the emergence of raw crystalline sugar at the end of the milling process is an integral part of a continuous series of operations which together are the means by which sugar is derived.

In my opinion this contention extends the expression used in par. (a) beyond its true meaning. No operation is within the natural meaning of the words unless it occurs as a step in the actual derivation of the manufactured goods from the "other goods" - as a step, that is to say, in the procedure which begins when the "other goods" are put into the process of manufacture. The concept is a comparatively narrow one. It is true, as high authority lays down, that in order to derive a product from raw materials you must "first catch your hare". But hunting, even by the cook, is no part of the operations by means of which jugged hare is derived from hare. To go and get your raw materials is one thing; to derive the desired end product from them is another. Accordingly in my opinion it is only after the sugar cane has been brought to the mill that the appellant can be said to commence the operations by which it derives sugar from the cane.

There is, I think, another reason also for rejecting the appellant's contention under par. (a). If the locomotive and the trucks had been owned by the appellant for use by it primarily and principally, and directly, in the transportation of sugar cane within the mill site, they would have been property to which the section applies by virtue of par. (e). The clear inference from that paragraph seems to be that the transportation of raw materials outside the premises is not a relevant user. If such transportation fell within par. (a) so would the transportation of the same materials within the premises, and par. (e) would be superfluous.

The purpose of s. 62AA as a whole - that which it does by the whole of its provisions considered together - is to allow a special deduction in respect of capital expenditure upon what may loosely be called manufacturing equipment. This expression is not accurate, and neither is the expression "manufacturing plant" which the section itself employs as a convenient general description of the divers units of property in relation to which it applies; but the broad policy of the allowance appears clearly enough, I think, as having to do with heavy (see sub-s. (3) (h) and (i)) equipment for factory operations as distinguished from equipment for collateral or ancillary purposes of which perhaps the most illuminating for the present case is "plant or articles ordinarily used for office work": sub-s. (3) (e). The exclusion of such units of property falls naturally into the same pattern as the exclusion of property for use in the delivery of raw materials to or from places outside the manufacturing premises. It would be difficult, if not impossible, to invent a neat yet accurate title or description which would cover all the kinds of property in relation to which the section applies and exclude all in relation to which it does not apply. Every case in which a deduction under the section is claimed must be decided by reference to the words of the section itself, and no general notion of policy can properly be used as a substitute. But it is legitimate to check one's interpretation of individual expressions in the section against its apparent general purpose; and the result of doing so in the present case is to confirm the conclusions I have stated.

As regards the service pit the appellant's claim to a deduction under the section must fail, in my opinion, for want of support in any of the paragraphs of sub-s. (2), and for the additional reason that the pit, obviously not an article, is not "plant" within even the widest meaning allowed to that word in the decided cases. I have been referred to J. Lyons & Co. Ltd. v. Attorney-General [1] , and Jarrold v. John Good & Sons Ltd. [2] where judicial statements as to the meaning of "plant" are reviewed. All I need say is that the word has never, I think, been held, and should not now be held, to include a structure built into the ground so as to form a static and permanent feature of the place in which a business may be carried on and having no other function than to provide a convenient stand for the performing of work in the business.

[1944] Ch. 281, at pp. 286, 287. 2. [1963] 1 W.L.R. 214, at p. 219.

In the result I agree with the conclusion of the Board of Review, substantially for the reasons which the members of the Board have expressed.

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