Producers' Co-Operative Distributing Society Limited v Commissioner of Taxation (NSW) [1944] HCA 39

_ that Act) or livestock of its members" shall be exempt from income tax.

Section 5 of the Co-operation Act 1923-1941 (N.S.W.) defines " Agricultural products" as the "products of any rural industry" and "Rural industry " as "the cultivation or use of land for" inter alia "any . . . dairying, or rural purpose."

The principal business of the appellant, a rural society registered as such under the Co-operation Act 1923-1941, was the sale on commission on behalf _ of members, which were also registered co-operative societies, of butter _ 'Manufactured by such last-mentioned co-operative societies from cream sent

• to them by their members, being dairy farmers,

Held, by Latham ©.5., Dixon and Williams JJ. (Rich and Starke JJ. dissent- _ ing), that the butter thus disposed of by the appellant was not "the agricul- tural products . . . of its members" within the meaning of s. 19 (0) of the Income Tax Management Act 1941 and accordingly the appellant was not entitled to the exemption conferred by that section.

Decision of the Supreme Court of New South Wales (Full Court): Producers' Co-operative Distributing Society Ltd. v. Commissioner of Taxation, (1944) 45 S.R. (N.S.W.) 44; 61 W.N. 269, by majority, affirmed.

Appa from the Supreme Court of New South Wales. i The Producers' Co-operative Distributing Society Ltd. was incorporated on 9th May 1929 as a rural society under the Co-opera- '

tion Act 1923-1929 (N.S.W.), and a certificate of registration under that Act has been issued to ithe society. j The society, referred to herein as the appellant, claimed that its. income for the year ended 30th September 1941 was exempt under s. 19 (0) of the Income Tax Management Act 1941 (N.S.W.). Section 19 provides, inter alia, that " the following income shall be exempt from income tax . . . (0) . . . the income of a rural society registered as such under the Co-operation Act, 1923-1941 if the principal business of that rural society is the manu- facture, treatment or disposal of the agricultural products (as _ defined in that Act) or livestock of its members." Section 5 of the Co-operation Act 1923-1941 defines " Agricultural products" as meaning the products of any rural industry, and - defines "' Rural industry"? as meaning "the cultivation or use of - land for any agricultural, pastoral, dairying, or rural purpose." The - Act, by s. 7 (1), provides that a rural society may be formed for all or any of the nineteen objects therein set forth, including " (a) to dispose of the agricultural products or live stock of its members or other persons ; (b) to manufacture or treat the agricultural or live" stock products of its members or other persons, and to dispose of the products so manufactured or partly manufactured . . . (g) to purchase or otherwise acquire, and manufacture or treat and dispose of agricultural or live stock products and farming requisites (p) to purchase or otherwise acquire goods and sell products - on behalf of its members or other persons." Section 7 (2) provides that the expression " to dispose of " in relation to the agricultural products or live stock of members or other persons shall include "receiving and storing, grading and packing, establishing agencies in the State and elsewhere, arranging freight, shipping, and insurance, arranging transport by land, entering into contracts, and guarantee- ing the performance of members' obligations under contract." Section 9, by sub-s. 1, provides for the formation of trading societies for all or any of the four objects set forth therein, and, by sub-s. 3, that "it shall not be competent for a trading society to dispose of the agricultural products or live stock of any of its members in the

agricultural products or live stock of the members of a rural

y on the business of the purchase, production and sale of dairy, and other produce, and generally the business of a produce ind commission agency, the policy of the appellant being to facilitate d encourage direct export of and the elimination of speculation any of the products aforesaid. Then follow eighteen of the eteen objects set forth in s. 7 (1) of the Co-operation Act, including ose set forth in pars. (a), (b), (g) and (p) of that sub-section.

\¢ appellant's business consists of the disposal, by way of sale commission, of the products of its members and others, but ncipally of its members. Butter is the predominant product but appellant also sells considerable quantities of bacon, cheese, ney, poultry, grain, fruit, vegetables and other items. During e year of income ended 30th September 1941 its total turnover £6,787,266, of which 60.03 per cent (£4,113,606) consisted of of butter produced by the appellant's members. Other products old were also mainly the products of its members.

About forty-five years ago, when there were very few butter ries, butter was in most cases produced by dairy farmers and nt by them to the wholesale markets in Sydney for sale. This on was altered by a rapid growth in the number of butter etories in the producing centres. These factories were owned d conducted by proprietary companies which bought the cream rom the farmers and produced and sold the butter for profit to he companies. Then a movement began for the establishment of

videspread that very few factories are now owned and conducted proprietary companies. The co-operative factories at first ded to the marketing of the butter produced thereat, but ter some time had elapsed the advantage was seen of establishing co-operative societies to attend solely to the disposal of the butter.

greater part of the butter produced by co-operative societies in ew South Wales.

he membership of the appellant is limited by its rules to farmers ind others directly interested in dairy, farm and other produce and to duly incorporated co-operative societies, companies and associa- ions of the same engaged in or connected with the manufacture or of such produce. Under the appellant's rules producers limited to a holding of a minimum of ten and a maximum of

nner provided in this Act for the disposal by a rural society of H. ©. oF A.

n the rules of the appellant its objects are stated to be: (a) to Propucers' Co-operative Disrersurixe

ed THE PRoDUucERS' CO-OPERATIVE DisrR1BUTING Soctery Lrp.Conaus- SIONER OF

five hundred shares, and dairy companies or societies to a minimum of fifty and a maximum of ten thousand shares. It is under this provision that butter factories are admitted. The procedure there - is that, whilst the appellant is permitted by its rules to pay dividends not exceeding eight per cent of the amount paid up on its shares, it usually only pays a dividend of four per cent. The - appellant has about 9,500 members and of those probably fewer than 100 are co-operative societies engaged in the production of butter. These societies are the members on whose behalf the appellant sells butter - the balance of the butter which it sells is apparently received by it from butter factories owned and conducted by proprietary companies. Much of the other produce sold is received by the appellant from the many individual members.

For the last ten years the appellant has paid an annual dividend - of four per cent. In addition it has allowed in each year a rebate of - a certain amount per cent of its commission on sales. The rebate was allowed to the producers whose goods were sold. In the case of any non-shareholder, however, it could not be paid in cash but was required to be placed to the credit of a share suspense account until the credit in that account was sufficient to enable the non- shareholder to take up a minimum of ten shares. Out of the total - rebates allowed by the appellant in respect of all agricultural products handled by it during the income year, including bacon, cheese, eggs, grain, fruit or vegetables, &c., amounting to £21,161, the sum of £2,416 only was credited to non-shareholders.

The disallowance by the Commissioner of Taxation of the appel- lant's claim was upheld by the Board of Appeal, and an appeal pursuant to s. 255 of the Income Tax Management Act 1941 was - dismissed, by a majority, by the Full Court of the Supreme Court of New South Wales: The Producers' Co-operative Distributing Society Ltd. v. Commissioner of Taxation (1).

From that decision the appellant appealed to the High Court.

Mason K.C. (with him Asprey), for the appellant. The principal - business of the appellant is the disposal of butter. Butter is an "agricultural product " within the meaning of that expression as defined in s. 5 of the Co-operation Act. The expression " any rural industry " in that definition is intentionally wide and includes the use of land for agricultural, pastoral or dairying purposes. " Dairy- ing" means the business of conducting a dairy. " Dairy " includes a place where either milk, butter or cheese is produced. Butter is the product of a dairy whether produced in butter form by the

iryman himself on his farm or whether that stage is performed H- ©: or A. by some other person elsewhere. Section 7 (1) (b) of the Co-operation Ra Act supports the appellant's contention. The word " manufacture " 'ee

as there used does not mean "manufacturing into"; it is a Propucers' transitive verb. The product so manufactured remains an agricul- [0-OPPRATYE al product within the meaning of the Act. The provisions of Society ub-s. 2 of s. 7 aptly describe the activities of the appellant in dis) '""- ing of the butter. The words " of its members" in s. 19 (0) of - Comans- e Income Tax Management Act 1941 mean "belonging to the [Qe nou mbers " of the particular society as distinct from "* produced by " W.). se members. The business of the appellant is the " disposal of - the agricultural products . . . of its members" within the

of those words in s. 19 (0). Having regard to the long time

ng which the co-operative movement has been in existence it

must be assumed that at the time s. 19 (0) was enacted the legisla-

ft of New South Wales was fully conversant with all the facts

ating to the nature and conduct of the business of co-operative

ies as referred to in Part II. of the Co-operation Act. Quallifi-

cation for membership of a rural society is dealt with in s. 38 (5)

of the Act. Butter is the product of a dairy farm irrespective of

whether the final step of converting the milk or cream into butter

taken by the dairy-farmer or some other person or body. The

ere fact that a part of the process takes place at a butter factory

es not render the butter any the less an agricultural product.

Sugerman K.C. (with him E. J. Hooke), for the respondent. The ellant stands in a special position for the reason that, actually, it does three classes of business, that is, it sells (1) on behalf of its members, things which are undoubtedly agricultural products ; (2) on behalf of co-operative butter factories, butter; and (3) butter on behalf of non-co-operative butter factories to the extent of approxi- 'mately ten per cent of its turnover. Its position depends in each e year upon the particular balance amongst those three ivities. It should not be assumed that the appellant or its activities were in the mind of Parliament when the Income Tax lanagement Act 1941 was enacted, although Parliament may then ive had in mind that for many years past farmers had not per- med on their respective farms secondary operations. It may well be that the case of a company in the position of the appellant

acasus omissus. Section 19 (0) of that Act was carefully drawn wing in mind the Co-operation Act so as not to bring in those yperative societies whose principal business consists in the mere on a commission basis of products which are not the

THE Propucers' C0-OPERATIVE DisTRIBUTING Socrery Lr. v. Commis SIONER OF Taxation (NSW

immediate or direct result of the cultivation or use of land but are products which involve some further processes. The legislature cannot be taken to have intended that a group of persons or organiza- tions who ordinarily manufacture butter should form themselves into a co-operative distributing society and thus gain exemption under s. 19 (0). It has used language which does not include co-operative societies formed of co-operative societies. A distinct line must be drawn between treatment and manufacture on the one hand and disposal on the other hand. The Co-operation Act does distinguish between an ordinary agricultural product and a manufactured product, that is, in the circumstances, as between milk and butter. The exemption is not in respect of the article but is in respect of the function performed by the particular co-operative society. The word "disposal" in s. 19 (0) of the Income Tax Management Act catches up cases in which the principal business of the society is within s. 7 (1) (a) of the Co-operation Act; the words "manufacture" and "treatment" in s, 19 (0) catch up societies whose principal business gua their members is within s. 7 (1) (b) of the Co-operation Act ; but nothing in the Income Tax Management Act catches up societies which merely fall within s. 7 (1) (p) of the Co-operation Act. Pars. (a) and (b) of s. 7 (1) together show that agricultural products as referred to in the Co-operation Act are confined to the direct or immediate products of the land and not to products such as butter, flour or jam which have been subjected to further process. It is significant that the exemption in s. 19 (0) of the Income Tax Management Act is confined to rural societies ; it does not extend to trading societies as referred to in s, 9 of the Co-operation Act. What is permitted by s. 7 (1) (a) to a rural society is forbidden by s. 9 (3) to a trading society. All the functions carried out by the appellant are objects permitted to a trading society by s. 9 (1) (a). The words " agricultural products" should be given a meaning similar to the meaning given in s. 5 of the Income Tax Management Act to the words " primary production." Even assuming that butter is an " agricultural product" it is not an agricultural product of the appellant's members. It is not something produced by such members. The words " of its mem- bers" in s. 19 (0) do not mean " belonging to its members." The question of property or ownership does not arise. The real question is whether the particular article or commodity is the product " of its members " in the ordinary meaning of thé phrase, that is, some- thing produced by a member or members. The appellant is not within the exemption either on the ground that the phrase " agrieul- tural products " does not include butter, or on the ground that the

phrase "agricultural products . . . of its members" does not 4: ©. oF A. include butter received for sale as on the facts of this case, but is ca limited to things produced by the members in the use by them of - qyy

_ Mason K.C., in reply. Section 19 (0) is a special provision made - Socrery in favour of co-operative societies. That provision is something a entirely different from the provisions made in respect of primary - Comans- production and primary producers. The activities of the appellant "Tv amoe do not in any way come under par. (p) of s. 7 (1) of the Co-operation (N.S.W.). Ad. a

Larnam C.J. This is an appeal from an order of the Full Court of the Supreme Court of New South Wales (Davidson and Halse "Rogers JJ., Jordan C.J. dissenting) dismissing an appeal from a decision of an Income Tax Board of Appeal by which it was decided that the appellant company, which is registered as a rural society under the Co-operation Act 1923-1941 (N.S.W.), is not entitled to exemption from income tax under the Income Tax Management Act 1941 (N.S.W.), s. 19 (0). This latter provision is in the following _terms : - " The following income shall be exempt from income tax : - (0) the income of a co-operative building society, and the ens of a rural society registered as such under the Co-operation Act, 1923-1941, as amended by subsequent Acts, if the principal

• business of that rural society is the manufacture, treatment or dis- ~ posal of the agricultural products (as defined in that Act) or livestock _ of its members ".

_ The appellant company is a rural society registered as such under _ the Co-operation Act 1923-1941. Section 45 of that Act provides that a certificate of registration under the Act shall be conclusive evidence that all the requirements of the Act in respect of regis- tration have been complied with. A certificate of registration under the Act has been issued to the society.

The business of the society is the sale on commission of butter, bacon, cheese, honey, eggs, poultry, fruit and vegetables and similar 'commodities. Its members consist of a large number of individual. farmers, but also of nearly one hundred co-operative societies which are also registered under the Act. Its principal business consists in 'selling on commission butter manufactured by those co-operative 'societies. The society does not manufacture or treat the butter in any way, but it disposes of the butter belonging to the co-operative

societies which employ it. It is argued, therefore, for the company that its principal business consists in the disposal of an agricultural - product (as defined in the Co-operation Act) of its members, namely, - butter. The questions which have been argued upon the appeal - are, first, whether this butter is an "agricultural product" as defined in the Co-operation Act and, secondly, if so, whether it is an agricultural product "of the members" of the society. The - argument upon the latter point has been directed to the question - whether " of its members" means " belonging to its members" or "produced by its members." 4 The Co-operation Act 1923-1941, s. 5, defines " agricultural - products" as meaning "products of any rural industry." The same section defines "' rural industry " as meaning " the cultivation - or use of land for any agricultural, pastoral, dairying, or rural pur- pose." It is argued for the appellant that butter is essentially a product of the use of land for dairying purposes. In an ordinary use of language milk, cream, butter and cheese are all dairy produce, _ The dictionaries define " dairy" as including a place where butter - and cheese are made. But a rural industry as defined involves the cultivation or use of land for dairying or other rural purposes. - If a farmer grazes cows, produces milk and makes butter, there is, I should think, no doubt that he is engaged in a rural industry within the meaning of the Act, because he is plainly using land for a dairying purpose. The evidence, however, shows that to-day the - making of butter has become a factory process, separated from the farm. Formerly the farmer made butter on the farm, but now the farmer milks his cows, separates the cream and disposes of the cream toa butter factory, either co-operative or proprietary. In the present case the cream which becomes the butter which the appellant com- pany sells is sold to co-operative societies which conduct factories. Those factories manufacture the cream into butter. It cannot be said that the factories cultivate or use land for a dairying purpose, - because they do not cultivate or use any land for that purpose. The butter which a factory produces is not the product of the land - which the factory occupies. The factory is not, in my opinion, engaged in a rural industry within the meaning of s. 5 of the Co-operation Act. If this be so, the butter made by the factory is - 'ot "a product of any rural industry " and therefore it is not an agricultural product as defined in s. 5. : The co-operative society which conducts the butter factory - enjoys the advantage of the exemption granted by s. 19 (0) of the - Income Tax Management Act, not because it " disposes" of an agricultural product of its members (the society does not dispose -

the cream produced by the farmers) but because it manufactures 1 ©. or A.

or treats an agricultural product, namely, cream, of its members, Be ether the phrase "'of its members" is construed as meaning - pyy

mging to" or " produced by " its members. But the exemption Propucers' " s not, in my opinion, carry on to another company, such as the [O-OrRAnVE

ant, which manufactures and treats nothing, and which (in Socrery

relevant operations) only disposes of a product manufactured by ee nother co-operative society out of the original agricultural product. _ Comms.

Section 19 (0) limits the exemption to cases where the principal peed

siness of a rural society is the manufacture, treatment or disposal _(N.S.W.). the agricultural products as defined in the Co-operation Act or jatham os. ock of its members. In my opinion under this provision it is er to look at the Co-operation Act only so far as that Act defines term. The words " agricultural products" in the Income Tax agement Act are to be replaced by the definition derived from Co-operation Act. The definition of " agricultural products " in the Co-operation Act is "products of any rural industry." It is er therefore to consider also the definition of rural industry - as have done above. But in my opinion there should be no further 'gation of the Co-operation Act for the purpose of determining meaning of " agricultural products." It is only the definition if that term (ascertained in the manner stated) and not other pro- ms of the Co-operation Act, which is transferred to the later Act, references in such other provisions to the term defined should in my opinion, be considered for the purpose of interpreting term in the later Act: See In re Wood's Estate; Ex parte Her Majesty's Commissioners of Works and Buildings (1).

Tt has been held that where a section of one Act is incorporated another Act, reference may be made to other sections of the lier Act for the purpose of interpreting the section so incorporated smouth Corporation v. Smith (2)). Whether or not this prin-

to me that the incorporation of a definition of a particular term tands upon a different footing from the incorporation of a section of an Act. The meaning of a section may be ascertainable only by consideration of other sections with which it is associated. But would be an inversion of ordinary methods of approach to seek interpret a definition by reference to provisions in which the le term was used. In the present case the definitions in the

-operation Act, s. 5, are prefaced by the words, " unless the context or subject-matter otherwise indicates or requires." Context or

) (1886) 31 Ch, D. 607, at p. 615. (3) (1886) 31 Ch. D. 607. (2) (1835) 10 App. Cas. 364, at p. 371.

THe PRropucers' C0-OPERATIVE DisTRIBUTING Socrery Lrp. v. ComMIs- SIONER OF TAXATION (NS.W.).

subject matter may modify in a particular provision the prima facie meaning of a defined term, but cannot modify or affect in any the definition itself which is introduced into the later Act. If, however, it were proper to consider, not merely the relevant definitions as set forth in the Co-operation Act, but other provis in the Act as possibly explaining, extending or limiting definitions, then the same conclusion would, in my opinion, b reached, namely, that the relevant butter in this case is not agricultural product. The Co-operation Act distinguishes betwee agricultural products and the products of a process of manufacture applied to agricultural products. The distinction is perhaps mo clear in various provisions of s. 7 of the Act, but particularly s. 7 (1), pars. (a) and (b). Section 7 (1) provides that "a rural society may be formed for all or any of the following objects : - (a) to dispose of the agricultural products or live stock of its members - or other persons ; (b) to manufacture or treat the agricultural or live stock products of its members or other persons, and to dispose of the products so manufactured or partly manufactured . . ." The concluding words of par. (b) would be unnecessary if the words - "dispose of . . . agricultural products" contained in par. (a) - applied to a disposition of a product manufactured out of agricultural - products. If a society takes advantage of the provisions quoted by adopting objects corresponding to pars. (a) and (b), then under the - power referred to in par. (a) it may dispose of agricultural products, and under par. (b) may manufacture agricultural products into some-_ thing else and dispose of the resulting manufactured product. Section 19 (0) applies in favour of a society so far as it either disposes of the agricultural products of its members or manufactures or treats those agricultural products. But the provision does not apply in favour of a society so far as it disposes of products (such as butter) manu- - factured out of agricultural products (such as cream). Accordingly whether attention is limited to the relevant definitions in the Co-operation Act, regarded as transferred to s. 19 (0) of the Income Tax Management Act, or whether, on the other hand, other provisions of the Co-operation Act are also taken into account, in my opinion the same conclusion follows, namely, that the butter : the sale of which constitutes the principal business of the appellant company is not an agricultural product within the definition of that term contained in the Co-operation Act. ; This conclusion renders it unnecessary for me to examine the further question whether the butter is an agricultural product "of the members " of the appellant society, that is, the question whether - the phrase " of its members" means " belonging to its members ft

in some sense " produced by its members." If I were of opinion #:. ©. oF A. hat the butter was an agricultural product within the meaning of 1944. definition in the Co-operation Act I should have difficulty in Tea g how it could be held that it did not fulfil the description of Propucers' th belonging to the co-operative factory societies and of being CO-OPERATIVE : 7 '© DIstRIBUTING luced by them in the sense of manufactured by them. But if Socrery the butter is not (as in my opinion it is not) an agricultural product ua ithin the meaning of the Act, the question does not arise. In my Comms. opinion the appeal should be dismissed. ae (N.S.W.).

Ricu J. The present appeal turns upon a narrow question. It - - is whether butter is a product of a use of land for a dairying purpose, within the meaning of an Act of Parliament which provides that a al co-operative society may be formed to dispose of the agricul- al products or livestock of its members or other persons, such tural products being the products of any use of land for, mter alia, any dairying purpose. It has been contended for the respondent that, although butter is a product of a use of land for 1 dairying purpose when made by a dairy-farmer on his own land from cream derived from his own cows, it is not so when made by e co-operative butter factory to which he sells his cream. I do not think this distinction to be warranted by the provisions of the

It is only Schlaraffenland, the land of Cocaigne, that flows milk and honey in a literal sense. In the land of reality, these modities are not products of land or of the use of land, like tural grass or sown crops. They are the products of cows and . Itisin relation to reality that phraseology such as " products any use of land for any dairying purpose " must be interpreted. such a context, " products" evidently means products derived some remove from land. When this is apparent, it is apparent so that to give effect to the intention of the phraseology in its sent context it is necessary to regard " any dairying purpose " intended to be the dominating phrase. So long as the products are the result of a dairying purpose, the land used for the purpose 8 a secondary consideration. Any use of land directed to the purpose is sufficient. This being so, I am unable to see why a rural co-operative society, which uses its land to produce butter from cream which it has bought, does not obtain, in its butter, a product a use of land for a dairying purpose ; or why a rural co-operative marketing society, which has as its principal business the disposal of the agricultural products, including the butter, of its members, vhether dairy-farmers or co-operative butter factories, should not

H.C. or A. be regarded as within the provisions of s. 19 (0) of the New South iter Wales Income Tax Management Act 1941. % Tae For these reasons I am of the opinion that the appeal should be

Propucers' allowed. Co-OPERATIVE 'Distrreurixo ; A . Socrery Srarxe J. The income of a rural society registered under th Lea Co-operation Act 1923-1941 (N.S.W.) is exempt from income tax unde

Comms: - the Income Tax Management Act 1941 (N.S.W.), 8. 19 (0), if the prineip SIONER OF 'TaXaTION

(N.S.W.). disposal of the agricultural products (as defined by the Co-operation a Act) or the livestock of its members. Unless the context or th subject matter otherwise indicates or requires, the Co-operation 1923-1941, s. 5, prescribes that "agricultural products" products of a rural industry and that "rural industry" n the cultivation or use of land for any agricultural, pastoral, dairyi or rural purpose.

Co-operation Act already mentioned and it is a co-operative society. Its principal business is the disposal of the products of its memb and other persons, such as butter, cheese, bacon, honey and oth commodities. Its turnover for 1941 approached seven mil

pounds, of which about sixty per cent comprised sales of butter of its members and the greater proportion of its sales of other co

modities also comprised the products of its members. The member

sale and disposal came from the co-operative companies, The practice was for the shareholders of the co-operative companies to - send their cream to the companies, which paid them for it, and the companies converted the cream into butter, and sent it to the appellant for sale and disposal. ;

because its principal business is the disposal of an agricultural product of its members, namely, butter. It should be observe that the exemption is based upon the carrying on of a business involving the manufacture, treatment or disposal of agricul products, which makes plain that the business is not necessarily in products in their natural state but may be in agricultural product that have been manufactured or treated.

Butter, as it appears to me, is an agricultural product within the meaning of the Income Tax Management Act and the Co-operation Act. Dairying, in the ordinary signification and use of the word, is an industry or occupation concerned with the production of milk, |

ncludes the production of butter. Accordingly butter is an agricul- product of a rural industry within the meaning of the Acts dy mentioned. But is the butter sent to the appellant for | the agricultural product of its members? The butter, of belongs to its members, that is, the co-operative companies persons who forwarded it to the appellant for sale. But the joner - the respondent - suggests that the emphasis should : upon the composite phrase " the agricultural products (as defined y the Co-operation Act) or live stock of its members" in the sense the products are the result of the labour or exertion of its embers. To read it in that sense would not, I think, exclude from e benefits of the Act a rural society which disposed of the livestock of its members who were graziers fattening stock for the purpose of sale, whatever might be the result if the members were dealers vestock, merely buyers and sellers of livestock. However, bject of the Act is to relieve rural societies. And, in my opinion, words " of its members " do not relate to the labour or exertions the members of the society, but must be read in conjunction ith the preceding words which are descriptive of the business that society is doing. Accordingly the exemption applies if the principal business of the rural society is the disposal of agricultural products belonging to its members. The principal business of the ant was therefore the disposal of butter, an agricultural ct belonging to its members.

he appellant is entitled to the exemption claimed and this appeal ld be allowed.

tate income tax the income of a body registered under the Co-opera- om Act if its principal business is the manufacture, treatment or sposal of the agricultural products (as defined in that Act) or live- ck of its members. The appellant is a body registered as a rural y under the Co-operation Act. It has established that its 'ipal business is the disposal of butter consigned to it for that pose by other co-operative societies who are members of the ant society and who manufacture the butter from cream ipplied by dairy farmers who are members of the manufacturing ieties. The separation of the cream is done by the dairy farmers their dairy farms where the milk is produced.

H.C. or A. The exemption throws the reader back to the definition of " a 194. tural products " in the Co-operation Act. Recourse to that definiti a shows that it in turn refers to and depends upon the definition

Provucrrs' "rural industry." However, combining these successive reference

(o-orenaTiv the material part of the exemption amounts to this : - It ex

Socrery from income tax the income of a rural society registered as s Lap.

under the Co-operation Act, if the principal business of that society is the manufacture, treatment or disposal of the products its members, being products of the cultivation or use of land for a1 agricultural, pastoral, dairying, or rural purpose or of the livestock of its members.

The question appears to me to be whether the sale by the appell of the butter manufactured by its members can properly be said be the disposal of the products of its members, being products 0 the use of land for a dairying purpose. fy

In favour of an affirmative answer it is maintained that butter, whether factory-made or churned in a dairy, is by common standing the product of the use of land for a dairying purpose.

Butter is, of course, ordinarily included in the expressions " da produce " and " dairy products" and these are often employed it common speech. :

But the words occurring in the definition, namely, " the produ of the use of land for a dairying purpose," are descriptive and th description is specially constructed. It is not the mere a of a standing or constantly recurring expression. The defi expresses a condition in which " products of the cultivation or u of land" seem to be the dominant words. The description o purpose, agricultural, pastoral, dairying or rural, imposes, of cou a further limiting condition, qualifying the use.

It is correct, I think, that we are to give the definitions of "a tural products" and of "rural industry" the same meaning they bear and the same combined operation as they have sta in s. 5 of the Co-operation Act. It is also correct that if in the mi provisions of that Act we find a context giving any guidance as the meaning or application of such a phrase in the definition as "products of the use . . . of land" we should refer to it an in interpreting the definition give the context as much effect for tl purpose of the income tax exemption as for the purpose of Co-operation Act. 2

But, even so, I think that the definition must be read as me to exclude from its application commodities in a manufact form, like cheese and butter, when the manufacturing process not part of the use of the land for the dairying, or, as the case mi

é, agricultural, pastoral or rural purpose. The language of the H- ©. or A.

"Whatever may be the exact significance of the word "of" in qyy

le expression "of its members" in the exemption it certainly Propvcers'

nothing to weaken the impression produced by the definition GO-oP#SA™™ye Co-operation Act. In that Act the object stated in s.7 (1) (b), Socrery

ugh clumsily expressed, seems clearly to describe the manufacture 1

the rural society of the product of the member, the dairy farmer Comms.

agriculturist, into a manufactured product of which the society 'Tevmoe

Thus if the appellant society manufactured its members' (NS.W.).

n into butter of which it disposed, it would come within the - pixons. mn.

ns. 7 (1) (a) and (b), within which alone the operations exempted

eem to fall, the distinction appears to be intended between, on the

ne hand, the disposal of the products of the soil by the rural society

their manufacture and the disposal of the resultant commodity,

id, on the other hand, operations which are more remote and

fore are not considered within the purposes of a rural society.

| society co-operating with the person who produces, by the use of land, the raw material of the particular manufacture and then operation would qualify for the exemption. But it does not, in y opinion, extend to the case of the co-operative disposal of the luct of a manufacturing process not itself involving the use of id for a dairying purpose or an agricultural, pastoral or rural

muaMs J. This is an appeal against an order made by the Supreme Court of New South Wales which by a majority dismissed with costs an appeal by the appellant against a decision of the id of Appeal constituted under the New South Wales Income Management Act 1941 that the income of the appellant for the ear ended 30th September 1941 is not exempt from income tax the provisions of s. 19 (0) of that Act.

e facts are fully set out in the reasons of their Honours in the eme Court and in the reasons of the members of the Board of and I need not repeat them.

ion 19 (0) provides that " the income of a co-operative building y, and the income of a rural society registered as such under Co-operation Act, 1923-1941, as amended by subsequent Acts, if le principal business of that rural society is the manufacture,

H.C. ov A. treatment or disposal of the agricultural products (as defined in na that Act) or livestock of its members " shall be exempt from income - ng

Propucers' "The evidence establishes that the principal business of the appel- 7

Rates lant, which is a rural society within the meaning of the Co-operatio

Socery Act, in the year of income was the disposal of butter belonging

ve some of its members. These members were about one hund Cosmus- co-operative butter factories. There were three operations with 'Taxatiox Tespect to the butter disposed of by the appellant ; (1) the milking (N.S.W.). of the cows and separation of the cream and its delivery to th Williams s, CO-operative butter factories by the dairy farmers ; (2) the manufac- ture of that cream into butter and its delivery to the appellant by the co-operative butter factories ; and (3) the sale of the butter on

behalf of the co- operative butter factories by the appellant.

product, but the question is what is included in the description of agricultural products (as defined by the Co-operation Act) of the members of the appellant. The Co-operation Act, s. 5, defines " agricultural products " to mean the products of any rural industry, and " rural industry" to mean the cultivation or use of land 1 for any agricultural, pastoral, dairying, or rural purpose. An agricu

are members of the appellant are not members on whose behalf - the appellant during the year of income was disposing of agaicultural products as defined by the Co-operation Act.

Appeal dismissed with costs. Solicitors for the appellant, Duncan Barron & Co.

Solicitor for the respondent, 4. H. O'Connor, Crown Solicitor fo - New South Wales.