Broken Hill Theatres Pty Ltd v Federal Commissioner of Taxation
(1952) 85 CLR 423(Judgment by: Dixon CJ, McTiernan J, Fullagar J, Kitto J)
Between: Broken Hill Theatres Pty Ltd
And: Federal Commissioner of Taxation
Judges:
Williams J
Dixon CJ
McTiernan JWebb J
Fullagar J
Kitto J
Legislative References:
Income Tax (Cth.) - The Act
Judgment date: 6 July 1951
Judgment by:
Dixon CJ
McTiernan J
Fullagar J
Kitto J
In our opinion the decision of Williams J. in this case was right. We do not see how his Honour could have reached any other conclusion consistently with the principles laid down in the cases and particularly in British Insulated and Helsby Cables Ltd. v. Atherton [1926] AC 205 and Sun Newspapers Ltd. v. Federal Commissioner of Taxation (1938) 61 CLR 337 : see especially the judgment of Dixon J. in the latter case. (at p433)
In the present case, by reason of the provisions of the Theatres and Public Halls Act 1908-1946 (N.S.W.), the successful opposition to Boulus's application procured an immunity from competition for no more than twelve months. And the statement of agreed facts shows that, in the period from 1st July 1938 to 30th June 1948, no less than five other similar applications were made, each being opposed by the taxpayer company. In one case the application was granted, in three cases it was refused, and in the fifth the applicant died before his application was dealt with. On the strength of these facts it was argued that the business of the taxpayer company at Broken Hill was of a special character and that the opposing of such applications ought to be regarded as an ordinary incident of the carrying on of such a business from year to year. The recurrent character of expenditure has been said more than once to be an element which may throw light on the question whether that expenditure is or is not an outgoing of a capital nature. But, in our opinion, the expenditure in the present case cannot be regarded as "recurrent" in the relevant sense. At the time when it was made, nobody could say whether Boulus or anybody else would or would not make another application in two or five or ten years' time. The expenditure in connection with each application between 1938 and 1948 was made on a particular and isolated occasion. Similar occasions might or might not arise in the future. Experience might suggest a probability that similar occasions would arise, but no such consideration could affect the essential nature of the expenditure, which was incurred in each case for the purpose of preserving and protecting the company's business. In the Sun Newspapers' Case (1938) 61 CLR, at p 362 Dixon J. said:-
"Recurrence is not a test, it is no more than a consideration the weight of which depends on the nature of the expenditure".
His Honour proceeded:
"Again, the lasting character of the advantage is not necessarily a determining factor."
The recurrence of a threat of competition was less likely in the Sun Newspapers' Case than in this case, but it was none the less a present possibility. (at p434)
It was much emphasized in argument that no new asset was brought into existence by the company's expenditure, that "the defeat of the application did not clothe the appellant with any fresh right" (per Williams J. in Hallstroms Pty. Ltd. v. Federal Commissioner of Taxation (1946) 72 CLR 634 , at p 655). But this was true in what is regarded as the leading case on the subject, the British Insulated Cables Case [1926] AC 205 . And Dixon J. in Hallstroms' Case (1946) 72 CLR, at p 650 gives several other instances in which the expenditure brought no tangible asset into existence and gave the taxpayer no new right, and yet was held to be an outgoing of a capital nature. The advantage of being free from Boulus's competition and of all other competition for twelve months is just the very kind of thing which has been held in many cases to give to moneys expended in obtaining it the character of capital outlay. The taxpayer may indeed, and did before Williams J., strongly rely on the decision of the majority in Hallstroms' Case as supporting its appeal, but Williams J., who was a party to that decision, did not regard it as an obstacle to his conclusion in the present case. If the decision were to be regarded as governing such a case as the present it would be difficult to reconcile it with the British Insulated Cables Case and a number of other generally accepted decisions. We would add that we all think as Dixon J. thought in Hallstroms' Case (1946) 72 CLR, at p 650 that, on the facts as stated, the decision of Lawrence J. in Southern v. Borax Consolidated Ltd. [1941] 1 KB 111 cannot be supported. (at p434)
It was said that, if Boulus's application had succeeded, the taxpayer company would have been faced with increased expenditure in the matter of hire of films and in the matter of advertising. Such matters, however, appear to be mere incidents of that competition which it was the object of the opposition to Boulus's application to exclude, and to have no real bearing on the nature of the expenditure incurred in the course of that opposition. (at p434)
The way in which the company actually dealt in its accounts with the expenditure in question does not appear from the statement of agreed facts or from the evidence. And we do not think that anything could turn on it. We have to interpret a particular section (s. 51) of the Income Tax Assessment Act 1936-1948, and it would be nothing to the point to say that the company could properly, or did in fact, debit the expenditure in question to its profit and loss account for the income year in question. It has been said that the deductibility of such expenditure cannot depend on whether it succeeded in attaining its object or failed of its object: see Southwell v. Savill Bros. Ltd. [1901] 2 KB 349 . From an accounting point of view, however, it would seem that much would depend on whether the expenditure were successful or unsuccessful in the attainment of its object. If it were unsuccessful, the only proper course, one supposes, would be to debit it to profit and loss for the year in which it was incurred. If it were successful, one would suppose that either of two courses could be quite properly adopted. It could be debited to profit and loss for the year in which it was incurred - a course which would probably be preferred by a prosperous and prudently managed company. Or it could appear in the balance sheet as an asset - an asset of the same kind as "Preliminary Expenses", which often appears on the assets side of the first and many subsequent balance sheets of a company. If the latter course were adopted, the "asset" could be written off out of profits over a period which would vary according to circumstances. The present case is a case of successful expenditure, and the amount of the expenditure could, one supposes, quite properly appear on the assets side of the company's balance sheet for the year in which it was incurred. In a future case of unsuccessful expenditure it may be worth while to bear in mind what was said by the late Dr. Hannan in his work Principles of Income Taxation, at p. 333. The learned author wrote:-
"The fact that a particular outgoing could not properly appear in anything but a Profit and Loss Account may help to decide that it should be allowed as a deduction from the incomings of a trade". (at p435)
The appeal should be dismissed. (at p435)