Mount Isa Mines Ltd v Commissioner of Taxation - [1954] HCA 53 - HCA 1954 case summary — Zoe

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Mount Isa Mines Ltd v Commissioner of Taxation

[1954] HCA 53

High Court of Australia|1954-07-01|Before: Taylor J

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Court

High Court of Australia

Decision date

1954-07-01

Before

Taylor J

Source

Original judgment source is linked above.

Judgment (25 paragraphs)

[1]

High Court of Australia Taylor J. Mount Isa Mines Ltd v Commissioner of Taxation (Cth) [1954] HCA 53

[2]

ORDER Appeals stood over generally. Each party to have liberty to restore them to the list on seven days' notice.

[3]

These two appeals from assessments to income tax upon returns of income for the years ended on 30th June 1950 and 30th June 1951 respectively raise questions of considerable difficulty in relation to the application of s. 122 of the Income Tax Assessment Act 1936-1949. In each appeal the appellant contended that substantial amounts of expenditure of a capital nature which it had incurred were incurred by it on the development of its mining property in western Queensland and, accordingly, it claimed to be entitled to deductions in the years under review in accordance with the provisions of that section. The expenditure in question was incurred over a number of years and the tabulated material put before the Court indicates the diverse nature of the expenditure with some particularity. Nevertheless, it was apparent at an early stage of the proceedings that further evidence might well be necessary after consideration of the questions of principle involved before attempting to deal specifically with many of the items of expenditure. In these circumstances I was invited by the parties to deal with the broad questions which the appeal raises leaving the parties, thereafter, to agree as far as possible upon an appropriate allocation of the various items and, to the extent to which the parties should fail to agree, to reserve the matter for further consideration. The course proposed commended itself to me and the joint hearing proceeded on this basis.

[7]

In 1925 four exploration shafts were sunk and in the course of these operations about 120 men were employed. Most of the labour was unskilled and was said to have been drawn from the country districts of Queensland. Little, if any, accommodation was available for them in the township of Mount Isa and, in the main, accommodation was provided by the appellant for its employees at that time. This accommodation was of the most primitive type In the vicinity of the property there were three unlined galvanized iron sheds, two of which were occupied by the general superintendent of the company and the resident director respectively The third was used partly as a store and for the accommodation of the company's paymaster. The other employees, generally, were housed in canvas tents or in primitive shacks built of bush timber or galvanized iron. Sanitary arrangements were, again, of the most primitive kind and water supplies were carried from a soak in the Leichhardt River. The nearest medical practitioner was at Cloncurry 150 miles away by a poor road. A few years later the services of tradesmen, technicians and other skilled employees were required. Investigation had proved the worth of the site and skilled employees were needed in the construction of works necessary for the launching of the undertaking. By 1930 some 800 employees were working on the property and between 1931 and 1936 this number grew to over 1, 100. In 1926 or 1927 the appellant commenced the construction of twenty houses for the accommodation of some of its employees and, shortly thereafter, the major development of a new township began. Over the years since then a new township with modern services has been established and the appellant's claim is mainly concerned with the expenditure involved in or associated with this project. The statement of facts agreed upon by the parties and the accompanying schedules (Exhibit C) afford a comprehensive picture of the works which were undertaken and it is sufficient for the purposes of these reasons, briefly, to say that the project involved the construction of houses, provision of an adequate water supply, electrical power, abattoirs, bakery, sanitary services, medical, hospital and educational facilities and attendant amenities such as a sports ground, other recreational areas, a swimming pool and a community club house. All of these things were provided out of the appellant's resources and the carrying out of the project was one which reflects the greatest credit on all concerned. Unfortunately, however, this is not the test to be applied in determining these appeals. The question is whether the expenditure involved was incurred on the development of the mining property.

[11]

The purely developmental phase of many projects may, perhaps, readily be recognized, but in the case of a mining venture this is not so. A mine is not constructed once and for all, it is not static but constantly progresses and grows to enable the winning of minerals to proceed. Sometimes this process goes hand in hand with working operations whilst on other occasions it may be the outcome of deliberate and independent operations designed to render the underlying minerals more easily accessible or to further plans for the expansion or extension of the mining operations. The expression in s. 122 is, however, one of wide import and was, I think, intended to signify, apart from expenditure on plant, all expenditure of a capital nature directly attributable to the establishment and conduct of the mining operations in which the taxpayer is engaged. There are, I think, sufficiently clear indications that this is so. The section permits a person who is carrying on mining operations for the purpose of gaining or producing assessable income to treat a wide class of expenditure of a capital nature as deductible for the purposes of the Act over a period calculated by reference to the estimated life of the mine, and it is inconceivable that the legislature intended to permit such a deduction in the case of capital expenditure incurred on development, in the sense of work preparatory to the commencement of or ancillary to actual mining operations, and yet deny such a deduction in respect of expenditure of a capital nature necessarily incurred contemporaneously with and directly in association with mining operations. This consideration alone would, I think, dispose of any suggestion that the word "development" should be understood in any restricted sense but there is a further contrary intention to be found in the section. The deduction which is permitted in respect of plant is a deduction in relation to expenditure of a capital nature incurred on necessary plant. That is, on the language of the section, plant which is necessary for the carrying on of the mining operations for the purpose of gaining or producing assessable income. In the case of plant the allowable deduction is not subject to any restriction other than that to be found in the wide words of the section. Accordingly, expenditure on plant is within the scope of the section whether it is necessary for the day-to-day working of the mine or for developmental work in the narrowest sense and I should think this circumstance throws some little light on the meaning of the word "development" as used in the section. The deduction in each case is clearly intended to serve the same purpose and it would be out of keeping with the general sense of the section to give a restricted meaning to the latter word and thereby limit the range of expenditure on development in respect of which a deduction might be claimed. Perhaps, the import of the section is best understood by regarding the use of the word "development" as intended to amplify the section and to cover capital works not covered by the word "plant". At all events I am satisfied that all other expenditure of a capital nature directly attributable to the establishment of the mine and to the working of it or to its expansion or extension from time to time should, for the purposes of the section, be regarded as expenditure on the development of the mining property.

[12]

While no difficulty may be experienced in recognizing some types of expenditure as expenditure of this nature, cases where difficulties will occur must inevitably present themselves. In the present case two main difficulties arise. The first arises in relation to the expenditure incurred on the establishment and maintenance of the new community at Mount Isa and the second in relation to prospecting work undertaken antecedently to any decision to establish a mine. With respect to expenditure of the latter class my attention was drawn to s. 123AA. This section makes special provision with respect to expenditure incurred on certain classes of exploration and prospecting and this circumstance was relied upon to establish that "expenditure on development", in s. 122, was not intended to include expenditure of this nature. Section 123AA was a new section introduced in 1947 and it was contended, in effect, that if the word "development" in s. 122 in the form in which it stood from 1936-1947 or after that year, included a reference to expenditure on prospecting, there was no need for the enactment of s. 123AA. It is clear, however, that the latter section made some provision for expenditure on prospecting and exploration even though it might not result in the establishment of a mining undertaking and that in such a case s. 122 gave no relief to the taxpayer concerned however wide the meaning of the word "development" might be. But quite apart from the provisions of s. 123AA it is reasonably clear that, in general, prospecting and exploration work precedes the work of "development" however broadly that term may have been used in s. 122. As a rule the former work is undertaken to ascertain, as far as possible, whether the commencement of mining operations would be justified or prudent. Prospecting work which is preparatory in this sense is, in my opinion, not embraced by the word "development". It is probable, however, that work which may broadly answer the description of prospecting, in one sense, may be carried on upon an established mining property for the purpose of determining the best means to be adopted to facilitate the winning of minerals, the existence of which is already known. Such work goes hand in hand with the development of the mining property and should, I think, be regarded as expenditure on development.

[15]

The learned judge was clearly right in holding that in the circumstances the provision in the manner proposed of homes for employees and persons ministering to the ordinary needs of employees was fairly incidental to the effectuation of the purposes for which the Acts provided. Indeed, it is not too much to say that in the situation proved to have existed in the Morwell district in 1950, it was painfully clear that an adequate performance of the commission's statutory functions over the next few years would be impossible unless housing on the scale contemplated by the commission were provided. But that entailed, as a matter of practical necessity, the establishment of a new settlement. The object in view, to attract and retain, by means of suitable housing provision, a large body of employees close to a scene of expanding industrial activity in a country district, simply could not be achieved unless the living conditions to be provided conformed to a reasonable extent with the accepted standards of life in a modern community. The orderly arrangement and convenience of access which planned streets provide, the lighting, heating and drainage services which are now regarded as necessities, reasonable facilities for education, recreation and religious observance - all these things were inevitably involved in the provision of the kind of housing which employees would be likely to regard as acceptable. It was submitted on behalf of the respondent that, while the provision of houses for employees may be reasonably incidental to the conduct of such an undertaking as the commission had at Yallourn, to add the amenities of a town is (as it was put) only incidental to the incidental, and is too remote from the conduct of the undertaking to be regarded as incidental to it. But it is quite an untenable proposition that in a case such as this the frontiers of the incidental are reached when a house is built. The short answer to it in this case is that, in the circumstances which are proved to have confronted the commission, the establishment of the Newborough settlement, as a whole and with all its features, was an appropriate means, and the means which practical considerations were reasonably considered to dictate, for providing the living conditions without which the commission could not hope to obtain the labour force necessary for its purposes [1] . 1. (1954) 90 C.L.R. 552. 2. (1954) 90 C.L.R., at pp. 566, 567.

[17]

In the present case the facts appear to work at least as strongly in favour of the appellant. Sufficient has already been said to indicate that the provision of some reasonable accommodation was necessary in order to enable the company to secure and retain the necessary labour force in the vicinity of its project. The area in which it sought to establish its undertaking was so remote and desolate and the existing facilities in the vicinity were so completely inadequate that there is no doubt that the establishment of it could not even have been considered without contemplating, as an integral part of the cost, the provision of housing and amenities for its employees. Indeed, if the accommodation provided had consisted merely of tents or sheds erected by the appellant on its property I doubt if the question would ever have arisen, for I can see nothing to commend to me the suggestion that the cost of such accommodation could not, in the circumstances, be regarded as part of the cost of establishing and maintaining the undertaking. It would, in my opinion, be just as much part of that cost as the cost of plant and buildings in which to house it. Nor does the case fall to be decided upon any different principle because accommodation of a higher standard and modern services and amenities were provided for, if it was necessary to provide some form of accommodation and if the cost of making that provision is properly characterized as capital expended on development of the mining property, it matters little whether the accommodation was meagre or substantial or whether the expenditure was small or great. The vital consideration is that an expenditure for this purpose was necessary and that this necessity alone brought about the expenditure. I do not wish, however, to be understood to say that the nature of the provision made cannot in any circumstances be a relevant consideration for, in some circumstances, it may appear the provision made and the consequent expenditure has entirely outstripped the necessities of the occasion, but, as I understood the argument it was not suggested that this had happened in the present case. In any event I am satisfied on the facts that, in the circumstances of this case, the provision of accommodation and amenities was a necessary part of the establishment and conduct of the appellant's undertaking, that the establishment of the appellant's undertaking could not have been considered without immediately contemplating the cost of making some such provision as an integral part of the project and that the provision which was made might reasonably have been, and in fact was, regarded by the appellant as no more than sufficient to meet the force of circumstances.