Federal Commissioner of Taxation v Broken Hill South Ltd

65 CLR 150
1941 - 1107C - HCA

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(Judgment by: Williams J)

Between: Federal Commissioner of Taxation
And: Broken Hill South Ltd

Court:

Judges: Rich ACJ
Starke J
McTiernan J

Williams 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

Hearing date: 28 October 1941
Judgment date: 7 November 1941

Sydney (heard in Melbourne)

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Judgment by:
Williams J

The Federal Commissioner of Taxation has appealed against a decision of the board of review, the effect of which is that the respondent is entitled to deduct from its assessable income calls paid by it as a shareholder in Willyama Mining Pty Ltd in the years of income ending 30th days of June 1934, 1935, 1936, 1937, and 1938 respectively. The assessments were made under the Federal Income Tax Assessment Act 1922-1934, which, by s. 23 (1) (i), allowed a deduction of so much of the assessable income as was paid in calls on shares in a mining company carrying on mining operations for base metals, and under the Income Tax Assessment Acts 1936 and 1936-1938, which contained, in s. 78 (1) (d), a provision to the same effect.

The point at issue is whether the company was carrying on mining operations for base metals in those years. If it was, then, admittedly, the respondent is entitled to the deductions.

The company was incorporated under the Companies Act 1928 (Vict.) on 12th April 1934. It acquired the lease of a lead-ore mine at Broken Hill known as Block No. 14. This mine had commenced to operate in 1885, and had been worked continuously until 1930, many millions of pounds worth of ore having been extracted in that period. By that time the great bulk of the more payable oxidized ore had been extracted, and the ore which remained was mainly pillars of lower grade sulphide ore. An expert has estimated the total amount of ore still remaining as 220,000 tons, but experience has shown that such estimates are often greatly exceeded. In 1930 the price of ore fell to such an extent that it became unprofitable to continue to extract it from the mine, concentrate it with the available plant, and sell it. The mine was in a closed-down condition when the company acquired it. The only witness called before the board and this court was Mr. Fairweather, the general manager of the respondent, who said that the mine could be worked profitably again if the price of ore rose to thirty pounds sterling per ton, the use of lead was increasing, no new lead mines were being discovered, and the possibilities of such a price, although rare in the past, would not be so remote in the future.

Since the company was incorporated its activities at the mine have been confined to its preservation, the only employees engaged being surface men who act as watchmen to protect the mine against vandalism and the outbreak of fire, and engine drivers who periodically run the engines to work the pumps and keep the water below the 400 feet level. Mr. Fairweather said the bailing and watching of a mine is a necessary and unavoidable concomitant of mining operations, and that in his experience of Broken Hill, extending over thirty-six years, every mine had been closed down at periods when the price of metals was such that a profit could not be shown on the working.

An appeal only lies to this court from a decision of the board which involves a question of law. The meaning of an ordinary English expression, such as "mining operations," used in an Act, is one of fact, and the question whether the facts proved in evidence come within the expression is also one of fact: See the authorities collected by Jordan C.J. in Australian Gas Light Co v The Valuer-General ^[F12] , at p. 55. The only question of law which arises on the appeal, therefore, is whether there is any evidence on which the board could reasonably conclude that the company was carrying on mining operations for base metals in the relevant years, the duty of the board being to determine what the expression meant in the vernacular of mining men at the time the relevant Acts were passed (Attorney-General for the Isle of Man v Moore ^[F13] , per Lord Wright; Australian Slate Quarries Ltd v Federal Commissioner of Taxation ^[F14] ). There is no suggestion that this common meaning was not the same then as it is today.

Mr. Sholl contended that a company would only be carrying on mining operations when it was preparing the mine with a view to undertaking the winning of the ore within a reasonable time, or actively engaged in winning the ore, or maintaining the mine with a view to resuming the winning of the ore within a reasonable time. He submitted the evidence showed that the two main motives for maintenance were to encourage good relations with the New-South-Wales Government, which desired that this should be done, and to protect the respondent's neighbouring mine from damage, and the probability of it ever becoming payable to work the mine again was so remote that the closed-down condition in which the company acquired the mine could be fairly described as a permanent and not a temporary state of affairs. But it appears to me the expression is susceptible of a wider operation. The company is a mining company. The bona fides of its directors in spending the shareholders' funds on the maintenance of the mine have not been attacked. No limit of time can be imposed on the period it would be reasonable to keep the mine in working order in the hope of again putting it to profitable use. As long as the directors consider it advisable to do so it would be difficult to say the mine is moribund. Mr. Fairweather's evidence that periods of being closed down are amongst the vicissitudes of mining is uncontradicted. No distinction can be drawn between a closing down of a mine at the time of and after its acquisition. Operation is a word of wide import. The Oxford Dictionary enumerates amongst its meanings action, activity, and work. The maintenance of a mine while in this condition can be reasonably described in the common understanding of the term as a mining activity or work directly connected with the use of the mine to obtain base metals.

The appeal should be dismissed.

Tait, for the respondent.

Sholl, for the appellant.

Solicitor for the appellant, H. F. E. Whitlam, Commonwealth Crown Solicitor.

Solicitors for the respondent, Blake & Riggall.