Federal Commissioner of Taxation v Broken Hill South Ltd
65 CLR 1501941 - 1107C - HCA
(Decision by: McTiernan J)
Between: Federal Commissioner of Taxation
And: Broken Hill South Ltd
Judges:
Rich ACJ
Starke J
McTiernan JWilliams J.
Subject References:
TAXATION AND REVENUE
Income Tax
Assessment
Calls on shares of mining companies
Legislative References:
Income Tax Assessment Act 1922 No 37 - s 23(1)(i); s 51(6)
Income Tax Assessment Act 1936 No 27 - s78(1)(d); s 196
Judgment date: 7 November 1941
Sydney (heard in Melbourne)
Decision by:
McTiernan J
This is an appeal under s. 196 of the Income Tax Assessment Act 1936-1940 from a decision of the board of review. The majority of the board, whose decision prevailed under the Act (s. 194 (b), decided that the company, Willyama Mining Pty Ltd , to which the taxpayer company, the present respondent, paid calls in the years under review, carried on mining operations for base metals, and that the calls were therefore allowable deductions. The deductions were allowed under s. 78 (1) (d) of the Federal Income Tax Assessment Acts 1936-1938 or under similar provisions of the earlier Acts.
Section 196 provides that the commissioner or taxpayer may appeal to this court from any decision of the board of review which involves a question of law. This so-called appeal is a proceeding in the original jurisdiction of the court. Both parties concurred in asking that the appeal be referred to the Full Court under s. 18 of the Judiciary Act, as the question whether the calls paid are an allowable deduction would, if s. 78 (1) (d) remained unamended, recur annually. The taxpayer company raises the preliminary objection that the decision of the board does not involve any question of law, and that the appeal is therefore incompetent. There is no conflict of evidence about what the operations were which the Willyama Mining Pty Ltd carried on or about any other issue of fact in the case. The question what those operations were is one of fact. The question whether the operations, which the board found indisputably that the company carried on, are mining operations within the meaning of s. 78 (1) (d) or the other similar provisions, is one of law. If there were before the board materials proving the purposes of the company's operations, upon which the board could properly find that such operations came within the scope of s. 78 (1) (d) or the other provisions applicable, their decision does not involve any question of law and is not subject to be corrected by this court.
The company to which the calls were paid was formed in 1924 by a group of three mining companies working at Broken Hill to take over a mine there situate from which lead had been won for many years. The company which formerly owned the mine closed it down because it was uneconomic to work it any longer. The circumstances in which Willyama Mining Pty Ltd acquired the mine and did the work now in question are concisely stated by the chairman of the board of review:"In 1921 the Block 14 company's difficulties were aggravated by the enactment of legislation which compelled Broken-Hill mining companies to pay high rates of compensation to miners proved to be suffering from certain diseases. Thereafter, the company had extreme difficulty in meeting its commitments and, although it continued to work the mine for some years, it was eventually forced to cease operations and was wound up in 1933 or 1934. In the course of the winding up the Minister of Mines, in consequence of representations made by the general manager of the Block 14 company, sought to prevent the loss which might result from the abandonment of the mine, and he accordingly approached the group which eventually formed the Willyama company, and asked them to take over the mine. His arguments were that he wanted the ore in the mine to be left within the handling of companies which would realize its value under proper market conditions, and that the abandonment of the mine might lead to fires, water seepage, vandalism, etc, which would not only destroy the development work on the mine, but would also damage adjoining and connected properties in which the group was interested. The group decided to accede to these representations, and formed the Willyama company for that purpose. It was the policy of the group to meet the wishes of the Government as far as possible, but what they had mainly in mind was that, although at the time of taking over the mine would be distinctly a burden, the day would come when economic conditions would allow them to realize a profit on the working of the remaining ore, which was estimated to amount to at least 220,000 tons. No concern without the facilities available to the group for the installation and employment, in Broken Hill, of suitable treatment plant could have taken over the mine with any expectation of profit. No ore has been extracted from the mine since the Willyama company took over. The extraction of the ore is admittedly a matter for the indefinite future; it must await an improvement-which is not yet in sight-in the prices of the metals which can be produced from the mine. If there should be a sufficient improvement in the prices the Willyama company, with its present equipment, would not be in a position which would warrant the commencement of actual mining. It would first have to provide itself with, or obtain the use of, a mill capable of treating Block 14 ore. At present there is no such mill in existence. The sole activities of the Willyama company during the years under review and up to the present time have been in the nature of maintenance by way of watching the mine for the purpose of preventing losses by vandalism and fires and by way of occasional pumping for the purpose of keeping the water below the 400 feet level-above which most of the timber work exists and below which the gangways and drives are mostly in solid rock which will withstand immersion. These operations are called `closed-down' operations, for which the terms of every mining lease require a minimum number of workmen to be employed. In this respect the terms of the lease of Block 14 have been complied with. The workmen employed are not miners, but surface men and engine drivers."
No-one would doubt that activities, such as those done at the mine, come within the scope of mining operations when done in or about a mine from which ore is being won or which is temporarily closed down but with the expectation of a resumption of the work of extracting ore. But it is said in the present case that so much time had elapsed since any ore was won from the mine, and the prospect of such work being done again was so remote and indefinite, that it was not reasonable to find that the work done by the company formed part of or was ancillary to any set of operations usually carried on to extract ore from the mine, and was not, therefore, mining operations. The correctness of that conclusion depends on the question whether there was any probable ground for anticipating that economic and other conditions would within a reasonable time enable the extraction of ore from the mine to be resumed. It is purely a question of fact whether there was any probable ground for regarding the work as preparatory to the eventual opening up of the mine. That was a question-really a matter for the opinion of business men-which the members of the board are peculiarly fitted to decide. They did not agree. In my opinion the evidence given about the economic factors which are likely to affect mining for lead afford a reasonable basis for the conclusion that the opening up of the mine may not be so long deferred that no practical or real connection can be discerned between the work done at the mine and the eventual extraction of ore.
In my opinion the appeal should be dismissed with costs.