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

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

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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

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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

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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 -

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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

At a glance

Court

Decision date

Before

Source

Judgment (119 paragraphs)

Cited By (2)