Kosciusko Thredbo Pty. Ltd. v. Federal Commissioner of Taxation.

Rogers J

Supreme Court of New South Wales

Judgment date: Judgment handed down 21 December 1983.

Rogers J.

I have before me, appeals by Kosciusko Thredbo Pty. Limited against the respondent's disallowance of some of its objections to the assessment and amended assessment for the year ended 30 June 1978, the assessment and amended assessment in respect of the year ended 30 June 1979 and against the assessments in respect of the years ended 30 June 1980 and 1981. By consent, all the appeals were heard together.

In 1944, by the Kosciusko State Park Act (``the Act'') the New South Wales Parliament reserved substantial areas of Crown Land for a State Park to be known as the Kosciusko State Park. Section 4 of the Act provided for a Kosciusko State Park Trust (``the Trust'') with the powers, authorities, duties and functions conferred upon it by the Act. The Minister for Lands for the time being, was to be the Chairman of the Trust. Other members were nominees of the Minister for Lands, the Premier and of other Ministers of the State. Section 5, provided in part, as follows:

``(i) Subject to this Act the Trust shall have the care, control and management of the Kosciusko State Park.

(ii) The Trust may carry out any work in connection with the improvement, development and maintenance of the Kosciusko State Park, including the opening of roads, tracks and paths, the development of ski trails, the erection of hostels and other buildings and structures, the prevention and control of fires, and such other works and functions as may from time to time be prescribed.''

Section 6 empowered the Trust to arrange with the Minister of any Government Department or with any statutory corporation for the carrying out of work required or authorised by the Act to be carried out by the Trust. Section 10 prohibited any sale or lease or other dealing with land, within the park, except as provided by the Act. Section 11 provided as follows:

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``(1) The Minister may, with the concurrence of the Trust -

  • (a) grant snow leases or extend the term of snow leases (whether granted before or after the commencement of this Act) under and in accordance with the Crown Lands Consolidation Act, 1913, as amended by subsequent Acts;
  • (b) grant permissive occupancies or extend the term of any permissive occupancy, whether granted before or after the commencement of this Act.

(2) Where the Minister grants a snow lease or permissive occupancy or extends the term thereof under this section, such lease or permissive occupancy shall be subject to such special conditions as the Trust may determine.''

Section 17 gave the Governor power to make regulations. Neither party has suggested that any relevant regulations have been made pursuant to that provision. In 1952, the Act was amended by the insertion in sec. 11 of the following further subsection:

``(3) The Minister may -

  • (a) grant leases of land within the Kosciusko State Park for the purpose of -
    • (i) the erection thereon of accommodation hotels or accommodation houses;
    • (ii) the provision thereon of facilities and amenities for tourists and visitors;
  • (b) grant leases of land within the Kosciusko State Park on which accommodation hotels or accommodation houses have been erected or facilities and amenities for tourists and visitors have been provided.''

Presumably, in exercise of the power thus conferred upon the Minister by the 1952 amendment, a Deed was entered into, bearing date 29 June 1962 between Mr. Compton, the then Minister for Lands (therein called ``the lessor''), Kosciusko State Park Trust (therein called ``the Trust'') and the appellant (therein called ``the lessee''). By the definition clause, ``lessor'', meant the Minister for the time being administering the Act and ``Minister'' had the same meaning. ``The Trust'' meant the Kosciusko State Park Trust and any trust or body which, by virtue of subsequent legislation, had the care, control and management of the park for the time being. Clause 2, which was accompanied by the side note ``Present and Future Use of Lands'' was in the following terms:

``The parties hereto declare and acknowledge that the demised premises include lands on which some facilities and amenities for tourists and visitors to the Park have been provided and they include lands which are intended to be used by the lessee for the purpose of the erection thereon of accommodation hotels or accommodation houses and the provision thereon of further facilities and amenities for tourists and visitors and in particular (but without limiting generality) for the purposes hereinafter more particularly defined.''

Clause 3 demised the subject land for 45 years from 29 June 1962.

Clause 4 contained covenants by the lessee which catered for a wide variety of topics. Subclause 5 bore as a side note ``Use of Demised Premises'' and was in the following terms:

``(5) The lessee shall not (without the written consent of the Trust) use the demised premises otherwise than for any purposes provided for in any covenant by the lessee herein contained or for the conduct of an Alpine and Summer Tourist Resort and Village or for purposes reasonably incidental thereto as hereinafter provided including the sale of liquor.''

The incidental purposes are set out in subcl. 6 as follows:

``(6) Purposes incidental to the aforesaid use of the demised premises by the lessee are:

  • (a) Hotels Motels Restaurants Boarding and Residential Establishments and holiday premises.
  • (b) Residential Clubs (provided always that the constitution of any such Club shall first be approved in writing by the Trust).
  • (c) Residences for persons bona fide permanently employed or engaged in business on the demised premises and for their families.

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  • (d) Shops, stores, garages, service stations, parking areas and other necessary or desirable business and commercial premises.
  • (e) Caravan Parks and camping areas.
  • (f) Provision for transport of and transport facilities for members of the public and goods.
  • (g) Provision of adequate water, electricity, sewerage, drainage and other utility services.
  • (h) Provision of facilities for ski-ing, skating, golf, bowls, tennis, squash, racquets, swimming, riding, fishing and for such other sports and games appropriate to the Park as the Trust may in writing approve and for instruction in all such sports and games as aforesaid and the supply or hire of all equipment therefor.
  • (i) Ski tows, Ski lifts, passenger carrying ropeways and other appropriate means of uphill transport.
  • (j) Provision of such other amenities facilities and services for the public as the Trust may from time to time in writing approve.''

Subclause 7 had the side note ``Development Powers'' and was in the following terms:

``(7) The lessee may in connection with any use improvement or development of the demised premises authorised by these presents and subject as hereinafter appearing with the consent in writing of the Trust:

  • (a) Sub-divide the demised premises.
  • (b) Provide roads rights of way paths and trails through the demised premises.
  • (c) Clear and groom trails.
  • (d) Lay erect use maintain replace and remove on and through the demised premises dams reservoirs pipes mains sewers drains wires lines and other plant buildings and equipment in relation to water electricity sewerage drainage road and other services or facilities.
  • (e) Enter into Agreements with any public authority for the supply of any of the foregoing or similar services.''

Subclause 8 provided that there should be no tenant rights in improvements and that on the expiration of the lease, all improvements should belong to the lessor. Sub-subclause (b) was a confirmation by the lessor and the Trust, that all improvements then existing upon the demised premises had been approved by the lessor and the Trust. Subclause 9 called for the lessee to commence proceed with and complete the works there set out. The works in question were of a wide variety. A new top station to the existing chairlift, a restaurant, an observation gallery, a new tower, a new bottom station, a hotel of a value not less than £80,000, a car park for at least 200 cars, a general store with a post and telephone office and agency banking facilities were to be erected. Subclause 10 was described as ``Permitted Further Improvements''. By that subclause the lessee was permitted, but subject to the approval of the Trust, ``in regard to plans, specifications and relevant details'' to carry out the works there described. Subclause 11 carries the side note ``Trust's Consent Required'' and is in the following terms:

``(11) That neither the lessee nor any sub-lessee will construct nor permit to be constructed buildings or other improvements without the consent of the Trust provided always that as regards the lessee such consent shall not be required in respect of minor buildings or improvements necessary or desirable for the normal use operation or enjoyment of the demised premises and provided further that in any case where such consent should have but has not been obtained the lessee will comply with the reasonable requirements of the Trust as regards alteration or removal of any such buildings or improvements.''

Following upon the execution of the lease, the appellant set about the further development of the demised area as a skiing and summer tourist resort and village. According to the appellant's witnesses, whose evidence in this regard was not challenged, the financial reward to the appellant was derived primarily from payments for the use of transportation facilities designed to carry skiers from the valley to the various stations on the mountain at Thredbo. The various facilities which the appellant provided, both at Thredbo Village and on the mountain, in the nature of accommodation, restaurants, shops and other ancillary facilities were all designed to ensure that skiers would come to the Village and utilise the facilities for transportation established on the mountain side.

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It will be necessary to refer in some little detail to the steps taken to provide accommodation and the necessary infrastructure by way of roads, sewerage and drainage and various other services necessary for comfortable urban living.

In 1963, the appellant sought a meeting with the Trustees to examine proposals for further improvement to the Village. Owing to the inability of the Trustees to arrange a mutually convenient time for inspection, the site visit did not take place until May 1964. On 14 July 1964 a plan incorporating the appellant's proposals for the development of the demised premises was submitted to the Trust for approval. An amending plan was completed sometime in September/October 1964. At a meeting of the Trustees held on 30 October 1964 the Chairman of Directors of the appellant explained the two detailed master plans. The Trustees resolved to defer further consideration of the plans until the next meeting of the Works and Finance Committee. At a meeting held on 11 December 1964 further consideration was given to a master plan. The evidence did not make clear what happened to the other plan. It was then resolved that the Trust approve in principle the master plan but ``Final approval to be conditional upon the submission of plans and specifications in connection with each individual project''.

A difficulty now intruded in the form of amendments made to the Income Tax Assessment Act. Relevantly for present purposes, sec. 88(2) provided as follows:

``Where a taxpayer, who in the year of income is a lessee of land used for the purpose of producing assessable income has, either before or after the commencement of the lease, incurred expenditure in making improvements not subject to tenant rights on that land, and such improvements -

  • (a) have, under an agreement entered into after the commencement of this Act, been made as consideration for the grant to him of that lease;
  • (b) are improvements which he was required to make under the provisions of that lease; or
  • (c) have been made with the written consent of the lessor given after the commencement of this Act,

a proportionate part of the amount of that expenditure arrived at by distributing that amount proportionately over the period of the lease unexpired at the date when the expenditure was incurred, shall be an allowable deduction. In calculating the deduction under this sub-section, expenditure in excess of the amount, if any, specified in the agreement for the lease, or in the lease, or in the lessor's consent, shall not be taken into account.''

However in 1964 the deduction allowed for by that provision was restricted by the introduction of sec. 83 AA(4). That provided as follows:

``(4) Where, after 22 October 1964, improvements are made on land the subject of a lease with the written consent of the lessor of that land, sections 85, 87 and 88 do not apply in relation to those improvements unless -

  • (a) the written consent was given on or before that date; or
  • (b) the Commissioner is satisfied that, on or before that date, the lessor had agreed, whether absolutely or subject to conditions, to give that consent and the written consent was given within a period after that date that the Commissioner, on the joint application in writing of the lessor and the lessee made not later than 60 days from that date or within such further time as the Commissioner allows, has approved (whether before or after the giving of the consent) as reasonable for the purposes of this sub-section.''

Whilst maintaining that it was entitled to deductions in respect of certain improvements, by reason of the provisions of sec. 83AA(4)(a), that is that written consent had been given by the Trust prior to 22 October 1964, as a precautionary measure, by letter of 1 March 1965, the appellant sought an extension of time from the respondent within which to make application in terms of sec. 83AA(4)(b). That application was made, within the extension granted, by a letter to the respondent bearing date 23 March 1965 and subscribed jointly by the Minister and the appellant. In part, the letter read as follows:

``6. On the 17th September, 1964 the Trust agreed in writing to the Chairman of Directors of the Lessee Company presenting the final amended plan to a meeting of Trustees. The plan showed improvements listed on Schedule A, annexed hereto.

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7. The Kosciusko State Park Trust gave its final approval to the leasehold improvements as shown on the final plan, mentioned above, at its meeting on the 11th December, 1964 and this approval was conveyed in writing to the Company by letter dated 15th December, 1964 (copy attached).

8. That the types of improvements as detailed in Schedule B attached, although not all shown on the abovementioned plan are also the subject of the lessor's consent being covered by the terms of Clause 4(6) and (7) of the document of lease, and were therefore also approved in principle prior to the 22nd October 1964. This consent is hereby confirmed.''

Schedule A to the letter set out 35 items of which the following are but samples:

``14. town square. 15. two motels. 16. library building and facilities. 24. bus and car parking areas. 31. caravan with kiosk. 33. village-in-snow including paths, services, restaurant and terminal.''

Schedule B merely repeats the terms of cl. 4(6) and (7) of the lease. In response, the Commissioner of Taxation, by letter bearing date 21 April 1965, informed the appellant that the joint application was accepted as satisfying the requirements of the section ``only in so far as it relates to the items shown on the master plan and particularised in Schedule A''.

In its income tax returns for the years in question, the appellant claimed deductions in respect of a considerable number of improvements. Those, which he considered were accurately shown on the master plan and fell within Sch. A, the Commissioner allowed. Those he rejected are the subject of the present appeals. Before I deal with the competing contentions with respect to this aspect of the dispute, it is appropriate to set out certain additional facts, which ground the other matters in dispute between the parties.

At the time of commencement of the lease, there were only 867 beds available to accommodate skiers in the Village. In the following 9 years, the appellant granted subleases or variations to existing subleases of residential sites which enabled the sublessees to construct further accommodation providing another 797 beds.

Mr. Mathews was first appointed managing director of the appellant in April 1968. He took the view that the appellant was not obtaining a satisfactory return on the funds employed. The reason for this, in Mr. Mathews' opinion, was that not a sufficient number of people were being attracted to the Village. In his view, the appellant could improve significantly its return on investment, if there was a larger number of skiers in winter using the ski lifts and other skiing facilities and a high utilisation throughout the year of the Hotel facilities at the Village. The accommodation provided by clubs was utilised to a large extent only in the peak skiing season. They were not open for rental by the public, and were, on the whole, not suitable for family and general holiday type accommodation. Although the commercial lodges were open to the public, they were insufficient in number and the quality of the accommodation was inadequate. Mr. Mathews undertook a study of overseas and interstate ski resorts and came to the conclusion that it would probably be advantageous to the future development of the Village to provide self-contained apartment style accommodation. The appellant did not have the necessary financial resources to invest in the provision of such accommodation. Although finance could be obtained from an associate company, Lend Lease Corporation Ltd., that could only be had on a temporary basis. The apparent difficulty could be overcome by sub-letting the apartments for most of the balance of the period of the head lease, at a premium which would enable the almost immediate repayment of moneys borrowed from the associate company. It was decided to test the market by construction of apartment blocks with the eventual aim that if the project was successful, the appellant should construct a large apartment and retail complex to be built in an area known as Mowamba Place. In the summer of 1968-1969 the ``Bobuck'' apartments were erected and sub-let. There were nine apartments containing 28 beds. Four of the apartments were retained by the appellant, for staff accommodation, the others were sub-let at substantial premiums for periods of between 35 and 36 years. The premium to be charged was calculated on the basis of the direct cost of construction, partial recovery of infrastructure costs, such as water, sewerage, electricity and transport facilities, a return on borrowed funds and finally, bearing in mind, estimated market demand. In this regard, Mr. Mathews deposed without challenge, that having regard to the principal objective to attract visitors to use the

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resort facilities, the premium was pitched at a level to ensure reasonably quick leasing. In his view, this project was moderately successful. He therefore decided to obtain the consent of his fellow directors to construct a second apartment building containing similar but larger accommodation than in the Bobuck apartments. In 1970-1971 the appellant constructed self-contained apartments called the ``Tombarra'' apartments. There were 8 apartments providing 42 beds. These apartments also were sub-let for terms ranging from 34 to 35 years once again at substantial premiums.

Once more, Mr. Mathews persuaded his fellow directors to agree to the construction of a further block of apartments to test alternative design and construction methods which could be applied to the proposed Mowamba Place project. This further block was constructed during the summer of 1972-1973 and became known as the ``Warrina'' apartments. This block contains only 6 apartments providing 34 beds. They also were sub-let for 34 years in return for premiums in amounts over and above those obtained in respect of the earlier apartments. On completion of this block, Mr. Mathews was satisfied that the appellant had a sufficient knowledge of both apartment design and construction to proceed to build the complex envisaged for Mowamba Place. However, the ensuing years did not provide a suitable economic framework in which to effect a construction of the proposed complex. Financial conditions improved in Australia and in 1977-1978 Mowamba stage 1 was completed. That comprised 8 apartments providing 52 beds. In addition, stage 1 included a restaurant and two shops presently used as a handicraft shop and a butcher. Stage 2 of 15 apartments providing 90 beds was erected in the following year and contained as well as supermarket, a bank, a Post Office, a laundromat and two take away food shops. With the exception of two of the apartments each of the Mowamba apartments was sub-let as were the retail shops and the restaurant. Once again very substantial premiums were obtained. The term of all the sub-leases were such that on reversion only a few years of the head lease would be left.

In 1980 the appellant erected the ``Thredbo Alpine'' apartments. It changed its method of marketing the self-contained apartments. It had found, in relation to sub-leases previously granted, that they were changing hands at considerable profit to the sub-lessees. The appellant considered that it, rather than the sub-lessees, should derive the benefit of any increase in the value of occupancy. The new apartments were marketed on a time sharing basis for a 10 year period.

In its return of income for the year ended 30 June 1978 the appellant disclosed the receipt of $99,132 by way of premiums (net of cost) received on the grant of sub-leases of 4 apartments in Mowamba and a sub-lease of lot 86. The amount of premium described as net of cost was calculated by deducting from the gross amount of premium the direct cost of construction of the apartment in question. By the amended assessment in respect of this year of income the respondent brought to tax the total sum in question. For reasons which are not relevant to the present discussion, the respondent allowed the objection in respect of $20,000 attributable to premium on lot 86.

In respect of the 1979 year of income, the appellant disclosed receipt of $165,727 as premiums (net of cost) received on grant of leases of apartments in Mowamba and Lot 64 Tyrola Lodge. The latter sub-lease was given in order to permit the extension of residential facilities built by Tyrola Lodge Pty. Limited on the then Lot 64. The additional residential accommodation comprised a three bedroom owners' flat, accommodating six persons and two, two bedroom guest flats again to provide accommodation for six persons each.

The return for year ended 30 June 1980 disclosed a receipt of premium calculated on the same basis as before, in the sum of $198,278, in respect of apartments in Mowamba.

In respect of the year ended 30 June 1981 the only premium received was $8,000 in respect of the grant of a sub-lease of Lot 97A. That sub-lease was to permit Mr. and Mrs. Laub to occupy the property, for residential purposes, and only so long as Mr. Laub continued to be a business operator within the Village. He was required to assign the sub-lease as soon as he ceased to so work. Mr. Laub was engaged by the appellant as an independent contractor to collect and dispose of the garbage in the village.

In the appeals under consideration, the following questions fall for resolution:

``1. Is all, or any, of the expenditure, claimed for improvements effected, deductible as having been made with the written consent of the lessor given after the commencement of the Act and prior to 22 October 1964?

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2. Is all, or any, of the expenditure claimed for improvements effected, deductible by reason of the Commissioner having been satisfied in relation to the requirements of sec. 83AA(4)(b)?

3. Are all, or any, of the receipts of premium assessable income as being gross income within the meaning of sec. 25(1)(a) of the Act?

4. Are all, or any, of the receipts of premium assessable income being profits arising from the carrying on or carrying out of a profit making undertaking or scheme within the meaning of sec. 26(a) of the Act?

5. If the answer to either question 3, or question 4, is in the affirmative, is there deductible from the amount of premium brought to tax any amount attributable to infrastructure costs pertaining to the particular apartment or apartments in question?''

In arguing the first of the questions posed, the parties did depart from a common point. It was accepted that the only matter in doubt was the existence or otherwise of a written consent. All other requirements of sec. 88(2) were met. It was also agreed that written consent may be contained in the terms of the lease itself. Judicial support for this proposition can be found in the judgment of Jacobs J. in
G.J. Coles & Coy Ltd. v. F.C. of T. 75 ATC 4128; (1975) 132 C.L.R. 243. It was also common ground that the lease did not contain a formula which in terms gave the lessor's consent to the improvements in question. However, the appellant submitted that such consent should be spelt out from the words used.

The respondent took as its starting point the submission that the lessor had no role whatsoever to play in relation to permission for the making of improvements and that it was an exercise in futility to seek to examine the words of the lease in order to determine whether or not such a consent should be inferred from them.

Primarily, the respondent founded on the Kosciusko State Park Act. It was submitted, that the only intrusion into the exclusive power of the Trust conferred by sec. 5, to control the park and to carry out work in the park either by itself, or through other Government departments, was the power to grant a lease conferred upon the Minister by sec. 11(3). Whilst that power lay with the Minister that was the beginning and end of his rights and duties in relation to the park. It was submitted that the lease indeed recognised this state of affairs. I do not accept this either as the correct interpretation of the Act, or an accurate reflection of the provisions of the lease. For the purpose of the grant of a lease, the owner, the Crown in the right of the State of New South Wales, was represented by the Minister. It is the right of a lessor to determine whether or not any building or improvement is to be erected on the demised premises. It is for the lessor and the lessee to agree whether, in the event that buildings and improvements are erected, tenant rights are to obtain in respect of them. That is part of the package of rights adhering to a lessor. In my view it is only with respect to the detail of the specific structures and improvements to be erected that a legitimate field of operations is confided to the Trust by the Act and by the lease. The fact that the parties recognised that the Minister had functions in relation to the giving of consents and approvals can be found in a number of places in the lease. The lease deals in terms with the obligations respectively of the Minister, as the lessor, and the Trust not to withhold any consent called for by the lease unreasonably. The proviso that it shall not be deemed to be unreasonable for ``the Minister, the lessor, or the Trust to withhold consent or approval to any action or requirement of the lessee which is inappropriate to the development of the Park'' (p. 4 of the lease), is a recognition of the wide discretion residing in both. The paragraph following in the lease makes provision for the means of signifying consent. The most significant pointer, to the situation which, in the view of the parties obtained, is to be found in cl. 8(b) of the lease. It speaks of the previous consent for approval of both the lessor and the Trust to improvements existing upon the demised premises as at the date of the lease. In my view, the only question in relation to the applicability of sec. 88(2)(c) of the Act to the deductions claimed is whether or not the lease was pregnant with the written consent of the lessor to the making of the improvements in question.

There is no doubt that it was within the contemplation of the parties that extensive work should be carried out by the lessee in effecting improvements to the demised premises. This appears of necessity from cl. 2 where it refers to the intention to erect accommodation hotels or accommodation houses and the provision of further facilities and amenities for tourists and visitors. The lease then requires the lessee to obtain the approval of the Trust to the plans and

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specifications, to some of the improvements (cl. 4(10)) and the consent of the Trust to buildings or other improvements generally (cl. 4(11)). Such approvals and consents are not in lieu of the consent of the lessor, they are additional to the general consent of the lessor to the effecting of improvements at large within the demised premises. That consent is in my view to be spelt out from the general structure of the Deed and from the specific clauses to which I have adverted.

For the respondent, it was submitted that, accepting for the purposes of the argument, that the consent of the lessor was required, it was in truth only given, in relation to each particular facet of development, when the consent or approval of the Trust was obtained to the development in question. It was submitted in any event, that it was only a consent given to a particular building or erection or improvement that could meet the requirements of sec. 88(2)(c) of the Act. The respondent appeals for support to what fell from Mason J. in Coles' case (supra at ATC p. 4135; C.L.R. p. 254) where in relation to a claim made pursuant to sec. 88(2)(b), his Honour said:

``This brings me to the critical question, whether the building erected by the appellant constituted `improvements' which it `was required to make under the provisions of the lease'. I state the question in this way because of what sec. 88(2) prescribes is an identity between the improvements required to be made and the improvements actually made.''

In my view, his Honour's words were directed to a question remote from the present. His Honour was concerned to point to the need for correspondence between the consent and the improvement. That is not denied by a consent, completely general in its terms, and therefore sufficient to embrace within it the particular structure.

Counsel for the respondent also drew my attention to the judgment of the primary Judge, in that case Mr. JusticeMenhennitt. Again, I think that what fell from his Honour was provoked by the particular form of the covenant before him. His Honour said (74 ATC 4251 at p. 4268):

``In my opinion, no such written consent was given. Such written consent would have to be found in the documents which came into existence in 1961. The Minister of Lands approved the plans and specifications in 1967 and the Department wrote an associated letter and I am dealing with the matter on the assumption that that approval could amount to written consent by the lessor. However, nothing in the documents which came into existence in 1961 in my view amounted to consent to make the improvements to the value of $1,532,276.71 which were made in 1967 and 1968. It cannot even be said, I think, that before 22 October 1964 the lessor had given written consent to make improvements to the value of $150,000. The requirement of the covenant was to build buildings to the value of not less than $150,000 but the plans and specifications therefore had to be approved in writing by the Board of Land and Works and until that approval was obtained it could not be said, I think, that the lessor had consented in writing to the erection of any particular building or the making of any particular improvements. Even if the taxpayer were minded to satisfy only the requirement to construct buildings to the value of $150,000, it is the improvements, not the value, which had to be consented to in writing by the lessor and until the actual buildings had been approved in writing no written consent thereto had, I think, been given by the lessor. Even if consent to the expenditure on the improvements as distinct from consent to the improvements were sufficient, and even if the taxpayer's building covenant contained an implied consent by the lessor to the improvements, the lessor (sic) was required to make, the matters I have referred to in relation to para. (a) and (b) of sec. 88(2) would, I think, confine such consent to expenditure of $150,000 and no more, as does the concluding sentence of sec. 88(2).''

It was submitted, in reliance upon what fell from his Honour, that at the worst, from the respondent's point of view, consent was granted by the lessor through its agent, the Trust, at the time the Trust gave approval to the master plan and individual structures. The first part of the judgment quoted may perhaps be read as supporting such an approach. However, the concluding part of the extract demonstrates that his Honour expressed his views, as he did, because the consent was to the expenditure of a sum of money and not to improvements. In my view, the Deed should not be construed in the

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manner contended for by the respondent. On its true construction, the Deed provided a consent by the lessor to the erection and construction of such accommodation hotels, or accommodation houses and facilities and amenities for tourists and visitors on the demised premises as may, from time to time, be approved by, or consented to by the Trust. It would be fiction to imply into each consent by the Trust a consent as well from the lessor. The broad general consent, in my view, is a sufficient consent for the purposes of sec. 88(2)(c). In the same way as the entitlement to tenant rights may be excluded en bloc, without reference to any particular buildings from time to time erected in the future, so consent may be given in blank. In my view, the appellant succeeds on this arm of the objections and it is unnecessary to proceed to consider to what extent, if at all, the provisions of sec. 83AA(4)(b) came into play.

The appellant's primary argument with respect to the second branch of the dispute, the assessability of the premiums to tax, commenced by pointing to the concession, apparently made by the respondent in correspondence, that the payments were not caught by sec. 26AB. It was then submitted that the section constituted a code with respect to the assessability of premiums and, if a receipt of premium fell outside its provisions, neither subsec. 25 nor 26(a) could apply to it. However, if I may say so, the argument was no more than put. As demonstrated by the conflicting judicial views on Div. 6, the submission, if seriously pressed, required considerable examination, I can only assume that it was not being seriously pressed.

I have no doubt, that the premiums received constituted gross income within the meaning of sec. 25 of the Income Tax Assessment Act. The appellant obtained a lease of the demised premises to conduct thereon the business of a resort operator. Sub-letting individual apartments, within the apartment blocks erected by the appellant, was but a different method of exploitation of the resort facilities, or a new found way of conducting the business. It is perfectly true, as was submitted by counsel for the appellant, that, all other things being equal, the receipt of premiums for parting with a sub-lease for almost the entirety of the balance of the period of the head lease, usually represents a receipt of capital. In those circumstances it is truly the purchase price for a capital asset. Another way of putting the same proposition was that all the appellant was doing here was realising part of its assets, the head lease, to the best advantage. However, the better view is that for many years the appellant was carrying on its business of selling sub-leases initially of sites and in later years of apartments within the demised area. More recently the sales were by way of time sharing arrangements. The transactions of sale were repetitive and recurrent and were an essential ingredient of the operation of the business to commercial advantage. Perhaps the profit may be realised not from the sale of the sub-lease directly but from the financial advantages that flow from the presence of persons utilising the accommodation thus made available to the public.

In its reply the appellant accepted that if the foregoing were the correct approach the infrastructure costs represent a capital expenditure and therefore were not to be claimed as deductions.

I have been asked by the parties not to make any orders for costs at the present time. I will stand the appeals over to a date to be fixed and I direct the appellant to bring in Short Minutes, at that time, to give effect to the views I have expressed. On that occasion the question of costs may also be argued.

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