Case A56

Judges: AM Donovan Ch

JD Davies M
GR Thompson M

Court:
No. 2 Board of Review

Judgment date: 9 September 1969.

---

J. D. Davies (Member): The terms used by sec. 124JA of the Income Tax Assessment Act - ``a business of milling timber'' and ``situated in a forest and in or adjacent to the area where timber milled... is or is to be felled'', and the deduction allowed by the section, a deduction calculated on the estimated period during which the building will be used for the purpose or 25 years, whichever is the less - immediately bring to mind capital expenditure on a bush timber mill situated in or in the proximity of the stand of timber from which the mill draws its logs. Experience tells us that such mills have a useful life conterminous with the working life of the stand of timber from which the logs are being cut and, on the working out of the stand, are usually demolished and removed pursuant to forestry regulations. Not only are the terms of sec. 124JA entirely appropriate to such mills, but their limited life and value provide an intelligent rationale for the special provisions of the section. The taxpayer's counsel sought, by careful logic, to demonstrate the applicability of the several terms of the section to the capital expenditure incurred by the taxpayer on its timber mill. And there is no doubt that, if one takes each of the terms separately, a case of some persuasiveness can be built up to bring the taxpayer's claim within the section. Yet, taken as a whole, the provisions of the section are quite inappropriately expressed to comprehend the taxpayer's expenditure. That expenditure was not expenditure on a mill having a life or value limited or restricted by the working life of a stand of timber upon which it depended, but was, rather, expenditure on a mill which was both permanently situated in the bounds of and an essential part of a large industrial complex. It is not surprising to find, then, that sec. 124JA, hedged as it is with restrictions, does not apply to the taxpayer's case. I base my decision on the ground that the taxpayer's timber mill and buildings were not ``situated in a forest'', and I have found it unnecessary to come to a concluded view on the other matters raised by the Commissioner's representative.

2. The taxpayer's industrial complex, directed to the manufacture of newsprint, is situated on one bank of a river along both

---

ATC 326

banks of which run almost continuous strips of cleared farmland. It is situated close to the township where most of its employees live and is conveniently and centrally located both to a capital city and shipping, on the one hand, and to the timber areas from which it draws its log supplies on the other. The area occupied by this complex, though it adjoins timber, has been permanently appropriated from the forest and devoted to non-forestry operations. Buildings within the complex cannot be said to be situated ``in a forest'' except in the wide sense that a township, for example, may be said to be situated in a forest if it be substantially surrounded thereby. The term, in sec. 124JA, is not, I think, used in that wide sense but requires that the building be situated on land having, as a matter of practical common sense, affinity with the forest adjoining or surrounding it. The taxpayer's timber mill and buildings were on an area of land which had no affinity with any forest area.

3. I join with my colleagues in upholding the Commissioner's decisions on the objections.