F.C. of T. v. South Australian Battery Makers Pty. Ltd.

Judges: Gibbs ACJ

Stephen J
Jacobs J
Murphy J
Aickin J

Court:
Full High Court

Judgment date: Judgment handed down 10 August 1978.

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Stephen and Aickin JJ.: We have had the advantage of reading the reasons for judgment prepared by our brother Gibbs. We agree with his reasons and his conclusion.

We would add only a few comments on the passage quoted from the dissenting judgment of Dixon J. in
Hallstroms Pty. Ltd. v. F.C. of T. (1946) 72 C.L.R. 634 at p. 648 (Hallstroms' case), a passage quoted with approval by Lord Pearce in
B.P. Australia Ltd. v. F.C. of T. (1965) 112 C.L.R. 386 at p. 397 and by Lord Wilberforce in his dissenting judgment in the second Europa case. It is, we think, necessary to bear in mind that Dixon J. was not there purporting to lay down any new principle. As the context shows he was engaged in applying, in relation to the facts of that case, the principles which he had formulated in the classic passage in
Sun Newspapers Ltd. and Associated Newspapers Ltd. v. F.C. of T. (1938) 61 C.L.R. 337 at pp. 359-363 . He had said in Hallstroms' case at pp. 646-7 shortly before the passage referred to above:

``As a prefatory remark it may be useful to recall the general consideration that the contrast between the two forms of expenditure corresponds to the distinction between the acquisition of the means of production and the use of them; between establishing or extending a business organization and carrying on the business; between the implements employed in work and the regular performance of the work in which they are employed; between an enterprise itself and the sustained effort of those engaged in it.''

As he observed at p. 650 the decision of the House of Lords in
British Insulated and Helsby Cables Ltd. v. Atherton (1926) A.C. 205 provided an example of a case where no alteration of a fixed capital asset was effected

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ATC 4421

by the outlay there in question which was nevertheless held to be on capital account because, notwithstanding that, no enforceable rights were obtained. The difference of opinion in Hallstroms' case lay in the application of these principles to expenditure on litigation in which the taxpayer had opposed the extension by way of re-grant of an expired patent, the process disclosed in which the taxpayer had planned to use on its expiration. Dixon J. thought it was directed to extension of its business organization, while the majority regarded such expenditure as incurred to defend or to maintain its liberty to use in its business what was then public knowledge available to all who wished to use it and thus incurred in the ordinary conduct of its manufacturing business, and not with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade.

The approval of the passage in Dixon J's judgment by the Privy Council does not in our opinion involve any conflict with what was said in Europa (No. 2) . An examination of the legal rights obtained is essential to the characterisation of expenditure, notwithstanding that in some cases it may not alone be sufficient to complete the process, because absence of enforceable rights is not decisive of the revenue character of a business outgoing. Hallstroms' case was one where, although no enforceable rights were obtained, the character of the payment had still to be ascertained by reference to the factors referred to in the passage in Sun Newspapers Ltd. and Associated Newspapers Ltd v. F.C. of T. referred to above; i.e. what was the character of the advantage to be sought and the manner in which it was to be used. Where what is sought to be obtained is not legally enforceable rights, i.e. an asset, but a practical, though intangible, business advantage, it too must be analysed in order to see whether the expenditure was made with a view to bringing into existence an enduring advantage for the benefit of a trade. We do not read Dixon J's Judgment in Hallstroms' case as intended to convey that practical business considerations are to be used to the exclusion of an analysis of legal rights.

In this case the problem involves, as Gibbs J. has observed, an anterior step, namely the ascertainment of what was the advantage sought to be obtained, i.e. the advantage to the taxpayer.

The taxpayer had not been a party to the original arrangement with the Electricity Trust, but was in effect an assignee of the agreement for a lease, which did not include the option. The advantage which it sought and obtained by each payment of rent was the right to continue for the appropriate period in occupation as lessee of its business premises. That others obtained, to its knowledge, a collateral advantage, even if it were of a capital nature, was not the advantage that it either sought or obtained.

We agree that the appeal should be dismissed.